-----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, FuhIVgLZYvJY0ELhHqVq1+0Q3wVWFtDYC+X/oWWvz6dP6tqo+hydU4QnzRoTCc2P UGG2yTiFQN8mMQyyMrlutw== 0000350621-98-000013.txt : 19980925 0000350621-98-000013.hdr.sgml : 19980925 ACCESSION NUMBER: 0000350621-98-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19980626 FILED AS OF DATE: 19980924 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: 98714316 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 26, 1998 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended June 26, 1998 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-10726 C-COR ELECTRONICS, INC. (Exact name of Registrant as specified in its charter) Pennsylvania 24-0811591 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 60 Decibel Road State College, Pennsylvania 16801 (Address of principal executive offices and Zip Code Registrant's telephone number, including area code: (814) 238-2461 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None Not Applicable Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) As of September 4, 1998, the aggregate market value of the voting stock held by non-affiliates of the Registrant was $123,715,006. As of September 4, 1998, the Registrant had 9,157,124 shares of Common Stock outstanding. Documents Incorporated by Reference: 1) 1998 Annual Report to Shareholders (Parts I, II and IV) 2) Proxy Statement dated September 21, 1998 (Part III) PART I Item 1. Business Some of the information presented in this report constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, continuation of increased domestic spending for network upgrades, the continuation of competitive pricing pressures, anticipated increased spending on product development, the continued availability of capital resources and the Corporation's ability to assess the risks of the year 2000 issue, with respect to its operations, and resolve them in a timely manner. Although the Corporation believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors which could cause actual results to differ from expectations include the timing of orders received from customers, the gain or loss of significant customers, changes in the mix of products sold, changes in the cost and availability of parts and supplies, fluctuations in warranty costs, new product development activities, economic conditions affecting domestic and international markets, regulatory changes affecting the telecommunications industry, in general, and the Corporation's operations, in particular, competition and changes in domestic and international demand for the Corporation's products and other factors which may impact operations and manufacturing. For additional information concerning these and other important factors, which may cause the Corporation's actual results to differ materially from expectations and underlying assumptions, please refer to reports filed by the Corporation with the Securities and Exchange Commission. Introduction C-COR Electronics, Inc. (the "Corporation") was incorporated in the Commonwealth of Pennsylvania on June 30, 1953. In fiscal year 1998 and prior to fiscal year 1996, the Corporation operated in one industry segment broadly defined as the Electronic Distribution Products segment which represents the Corporation's continuing operations and provides hybrid fiber/coax (HFC) equipment for signal distribution applications, primarily to the CATV market. In fiscal years 1997 and 1996, the Corporation operated in two industry segments: the Electronic Distribution Products segment and the Digital Fiber Optics Transmission Products segment which has been reported as a discontinued business segment. The Digital Fiber Optics Transmission Products segment provided products for long-distance, point-to-point video, voice and data signal transmission applications, primarily for telephony, distance-learning and other non-CATV markets. On July 10, 1997, the Corporation announced the discontinuance of its Digital Fiber Optics Transmission Products segment in a nine-month wind-down process. See "Discontinued Operations." In the remainder of this document, the discussions are based on the Corporation's continuing operations, the Electronic Distribution Products segment, except where the context indicates otherwise. The Corporation's headquarters are in State College, Pennsylvania, and its manufacturing facilities are in State College and Tipton, Pennsylvania, and in Tijuana, Mexico. The Corporation also maintains administrative offices in Toronto, Canada; Almere, The Netherlands; and Hong Kong. In fiscal year 1998, the Corporation began manufacturing the power supply component of its RF amplifier products in Tijuana, Mexico. The Corporation substantially completed the transfer of the power supply component production to this facility as of June 26, 1998, and continues to ramp up production at this manufacturing facility. As part of a restructuring, on June 25, 1998, the Corporation announced the closing of its manufacturing plant located in Reedsville, Pennsylvania. Additional information regarding this restructuring is incorporated by reference to Note A (Summary of Significant Accounting Policies) on page 22 of the Registrant's 1998 Annual Report to Shareholders. The Corporation has been approved for ISO 9001 registration at its Pennsylvania and Tijuana manufacturing facilities. ISO 9001 is the most comprehensive of all ISO 9000 series requirements and includes quality assurance in design, development, production, installation, and servicing. Criteria for registration are set by the International Organization for Standardization, whose function is to develop global standards in an effort to improve the exchange of goods and services internationally. This designation builds on the Corporation's reputation as a high-quality, global provider of transmission electronics. ELECTRONICS DISTRIBUTION PRODUCTS SEGMENT Products and Services The Corporation provides three principal product families for use in broadband voice, video, and data networks: RF amplifiers, amplitude modulation (AM) fiber optic equipment, and network management systems. Amplifiers include a series of FlexNet(R) 862 MHz and 750 MHz trunks, terminating bridgers, and line extenders designed specifically for use in today's widely accepted HFC network architectures. The newest addition to this line is FlexNet(R) 900 Series amplifiers, which offer high performance, two-way capability, and advanced powering for today's complex communications networks. The Corporation's other RF distribution products include push-pull, power-doubling, and feedforward technologies; trunk, minitrunk, and split-band amplifiers; and main line passives to 1 GHz. For the international markets, particularly Europe, the Corporation offers the I-Flex(TM) global product family, specially designed for fiber-intensive architectures that require cabinet and pedestal mount housings. Featuring 862 MHz bandwidth capability, the I-Flex(TM) product line consists of amplifiers and fiber optic nodes. During fiscal year 1998, the Corporation introduced two new I-Flex products, the line extender and the network management agent, which the Corporation expects to be available for shipment beginning in fiscal year 1999. The Corporation's AM fiber optic products include a wide range of both headend and strand-mounted equipment designed for use in HFC applications. Headend equipment, which operates up to 862 MHz, includes a universal mainframe, high-performance Distribution Feedback (DFB) transmitters at a variety of output powers, receivers for both forward and return path applications, and power supplies. FlexNode (TM), the Corporation's 6-port AM fiber optic node, features 750 MHz and 862 MHz bandwidth capability, maximum performance with RF and optics in one module, simplified internal fiber management and 90 volt powering. The AM fiber optic products are fully integrated into the Corporation's Cable Network Management (CNM(TM)) system. During fiscal year 1998, the Corporation introduced a completely new line of AM fiber optic headend and node products for use in HFC applications. The Corporation expects these products to be available for shipment beginning in fiscal year 1999. Bearing the trade name NAVICOR(TM), these products offer a total solution approach to the distribution portion of the network. Three of the new headend products are used to transmit and receive voice, video and data signals: the AM headend rack system, the 1550 nm transmitter and the erbium-doped fiber amplifier (EDFA). NAVICOR optical nodes include the Quadrant: four active output node, and two versions of the FlexNet(R) node: the Compass and the GPS. The Corporation believes this group of nodes offers the flexibility, scalability and cost effectiveness network operators are looking for as they build today while planning for the future. The Corporation believes network management is playing a critical role in communication systems. CNM is the Corporation's network management system. This user-friendly, computer-based control and monitoring system aids in outage prediction, notifying the operator of problems, often before they even occur, so maintenance crews can go directly to a problem without having to search the system unit by unit. During fiscal year 1998, the Corporation introduced the latest version of this product, CNM System 2, which is expected to be available for shipment in fiscal year 1999. In support of its products, the Corporation offers a complete line of technical customer services, including pre-sale analysis and consultation, network design, field engineering, technical documentation, training seminars, and equipment repair and testing. Sales and Distribution The Corporation's principal customers include operators of communication networks worldwide, as well as network integrators. Consolidation has occurred among cable operators in the domestic CATV industry; however, the Corporation does not consider that occurrence to have had a material impact on its business. Most of the Corporation's sales are comprised of equipment manufactured or provided by the Corporation, with the remainder being from services. Sales efforts are conducted from the Corporation's headquarters; from offices in Colorado, Canada, Europe and Hong Kong; and from 8 regional sales offices located throughout the United States. For the fiscal year ended June 26, 1998, the Corporation's international sales represented 21% of net sales, primarily in the Canadian, Asian, European, and Latin American markets. In fiscal years ended June 27, 1997, and June 28, 1996, international sales were 19% and 39%, respectively, of net sales. See the discussion of segment information in the Corporation's 1998 Annual Report to Shareholders, Note R, incorporated herein by reference. During the past fiscal year, the Corporation's CATV customers have included almost all of the largest system operators in the United States. The Corporation's largest customer during the fiscal year ended June 26, 1998, was Time Warner Cable, which accounted for 31% of net sales. The Corporation's largest customer during the fiscal year ended June 27, 1997, was Time Warner Cable, which accounted for 36% of net sales. The Corporation's largest customers during the fiscal year ended June 28, 1996, were Rogers Cablesystems, Inc. and Time Warner Cable, each accounting for 18% of net sales. No other customer accounted for 10% or more of net sales during fiscal years 1996, 1997, and 1998, respectively. At June 26, 1998, the Corporation's backlog of orders was $24.0 million. At June 27, 1997, the Corporation's backlog of orders was $34.9 million, and at June 28, 1996, it was $24.3 million. For additional information regarding backlog, refer to Management's Discussion and Analysis of Financial Condition and Results of Operation incorporated herein by reference to pages 13 through 16 of the Registrant's 1998 Annual Report to Shareholders. Research and Product Development The Corporation operates in an industry that is subject to rapid changes in technology. The Corporation's ability to compete successfully depends in large part upon its ability to react to such changes. Accordingly, the Corporation is engaged in ongoing research and development activities that are intended to advance existing product lines, provide custom-designed variations of existing product lines, and develop or evaluate new products. Research and development activities for the three major product groups are conducted at the Corporation's headquarters. The Corporation has an interdepartmental team which assigns product development priorities. The result is a market-driven set of guidelines for the timely development of new products. During the past fiscal year, research and product development expenditures were primarily directed at expanding the Corporation's AM fiber optic technology and network management systems and RF amplifier line. During fiscal year 1998, the Corporation also continued with product development process improvements to reduce cycle time to design, develop and deliver new products; reduce manufacturing costs; and improve design quality. During the fiscal years ended June 26, 1998, June 27, 1997, and June 28, 1996, the Corporation spent approximately $7,459,000, $5,681,000, and $4,857,000, respectively, on research and development related to AM fiber optic systems, RF distribution equipment, and network management. Anticipated product development initiatives focused on AM fiber optics, network management, and other technology areas, are expected to result in increased research and development expense in future years. No research and product development expenditures above have been capitalized. Competition The Corporation's products are marketed with emphasis on their premium quality and are generally priced competitively with other manufacturers' product lines. Equipment reliability, superior customer service, and an enhanced warranty program are several of the key criteria for competition. In these respects, the Corporation considers its competitive position to be favorable. Other bases for competition include pricing and technological leadership. Although less expensive products are available, the Corporation believes it is in a competitive position with respect to pricing. The Corporation believes that its strong commitment to efficient network design, a broad offering of technical customer services, and its focus on research and development, enhance its competitive position in the market. There are several competing equipment vendors selling network products in the United States, a few of which have greater sales of similar equipment than the Corporation. The Corporation believes it offers a broader product line in the RF distribution amplifier segment of the market, along with a growing number of AM fiber optic and network management products. Currently, CATV networks serve more than 65.0 million subscribers in the United States. CATV construction has evolved to the point where this network passes over 95% of TV households in the United States. The CATV industry claims that market penetration is approximately 65%. Over the next several years, most industry observers expect this trend to continue; however, there are alternative methods of distributing entertainment video or information services to subscribers. All of the methods compete, to a limited extent, with conventional CATV services. The alternative distribution technologies include Off-Air Broadcast Service, Multipoint Multichannel Distribution Service (MMDS), Local Multichannel Distribution Service (LMDS), Satellite Master Antenna Television (SMATV), and Direct Broadcast Satellite Service (DBS). Generally, these alternative technologies are limited in terms of their ability to deliver two-way service and local programming. Based upon these limitations, it is the Corporation's belief that such technologies will mature to the point where they serve a relatively narrow segment of the market. On the other hand, a CATV network has two-way capability and has the ability to deliver substantial amounts of information to subscribers. As a result, the Corporation believes the CATV industry is uniquely positioned to benefit from the evolution that is occurring in the telecommunications industry, particularly in the area of high-speed data delivery. Similarly, due to its reputation and long-standing tradition of servicing the CATV industry with excellence, the Corporation believes it is strategically positioned to grow and expand with the CATV industry. External Influences/Industry The primary market factors affecting the global communications industry include access to technology advancements, funding, and government regulations. The increased demand for products offered by the Corporation to domestic and international customers has resulted from a combination of the market factors listed above. In recent years, the global communications industry has grown rapidly by constructing networks to meet the increased demand for video, voice, and data services. A significant amount of consolidation has occurred over recent years in the domestic communications industry. In the CATV industry, cable companies have acquired other cable companies in order to achieve efficiency through clustering of properties. Telephone companies have also made investments in and acquisitions of cable companies and other telephone companies. In the spring of 1998, AT&T announced the proposed acquisition of Tele-Communications, Inc. a major cable operator. In the area of technology, advancements in the global communications industry are occurring at a rapid rate. Traditional, one-way broadband amplifier cascades are being replaced by two-way HFC architectures which employ fiber optic electronics to individual service cells (nodes). The Corporation believes that HFC networks could have significant strategic advantages in the future as the demand grows for the highest-capacity, lowest-cost networks for delivery of two-way, high-speed, data service. The Corporation has combined its strength in conventional RF amplifiers with an increasing presence in the areas of AM fiber optics and network management systems, and believes it is well positioned to be a supplier in the interactive multimedia network industry. Cable operators have traditionally used HFC network architectures for providing video services to the home. The HFC network architecture used in the CATV industry has been utilized by several telephone operating companies, while others continue to explore their options between HFC and other approaches and technologies, such as DBS, FTTC (fiber to the curb) and ADSL (asymmetrical digital subscriber line). The regulatory environment in the United States has changed with passage of the Telecommunications Act of 1996. Key provisions of the Telecommunications Act are designed to enhance competition in the industry in that they permit telephone companies to sell video services, and in some cases, to buy out local cable companies; allow cable operators to control charges for many channels; allow Regional Bell Operating Companies (RBOC's) to sell long-distance services, under certain conditions; require local phone companies to open their networks to competitors; and allow RBOCs to manufacture customer equipment. International requirements for advanced services are increasing as well, as mature markets are deregulating, and emerging economies are seeking to expand their communications capabilities. The Corporation sees the international markets as a key growth area now, and in the future, and will continue to pursue opportunities in the international markets. The international markets continue to represent distinct markets for HFC distribution equipment, and, in general, demand can be highly variable. Employees The Corporation had approximately 1,200 employees as of September 4, 1998, of whom approximately 70% were engaged in manufacturing, inspection, and quality control activities. The remainder were engaged in executive, administrative, sales, product development, research, and technical customer services activities. The technical staff includes 93 engineers with baccalaureate or more advanced degrees, and an additional 279 persons with at least two years of technical college or military education equivalent to a two-year degree. Suppliers The Corporation closely monitors supplier delivery performance and quality and employs a strategy of limiting the total number of global suppliers to those who are quality leaders in their respective specialties and who will work with the Corporation as partners in the supply function. Typical items purchased are die cast aluminum housings, RF hybrids, printed circuit boards, fiber optic laser transmitter assemblies, and standard electronic components. Although a few of the components used by the Corporation are single-sourced, the Corporation has experienced no significant difficulties to date in obtaining adequate quantities of raw materials and component parts. The Corporation uses in-house vendor supply relationships to gain access to key parts needed in the manufacturing process on a "just-in-time" basis. The Corporation has implemented a number of in-house vendor supply relationships to date, and will continue to establish such relationships in the future in order to decrease vendor lead times and reduce on-hand inventory. DISCONTINUED OPERATIONS Digital Fiber Optics Transmission Products Segment On July 10, 1997, the Corporation announced the discontinuance of its Digital Fiber Optics Transmission Products segment in a nine-month wind-down process. The Corporation substantially completed the wind-down of this operation as of March 1998. The Digital Fiber Optics Transmission Products segment provided products for long-distance, point-to-point video, voice and data signal transmission applications, primarily for telephony, distance-learning and other non-CATV markets. Customers were primarily telcos, major broadcast companies and educational institutions. The decision to discontinue this segment was based on an assessment of the potential return on continued funding of product development for the Corporation's proprietary digital technology versus other opportunities for investments in the Corporation's core business, especially AM fiber optics technology. Research and development expenditures for this segment were $4,005,000 and $4,544,000 in fiscal years 1997 and 1996, respectively. This business segment has been accounted for as a discontinued business segment and its results have been excluded from continuing operations for all periods presented in the Corporation's consolidated financial statements incorporated herein by reference to pages 17 through 20 of the Registrant's 1998 Annual Report to Shareholders. Additional information regarding discontinued operations and segment performance is incorporated by reference to Notes B (Discontinued Operations) and R (Segment Information) on pages 23 and 29 of the Registrant's 1998 Annual Report to Shareholders. Item 2. Properties The Corporation operates the following principal facilities: 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(1) Manufacturing 60,000 O Tijuana, Mexico(2) Manufacturing 25,200 L Almere, The Netherlands Administrative Offices 14,100 L Ajax, Ontario, Canada Administrative Offices 5,000 L (1) On June 25, 1998, the Corporation announced its decision to close its manufacturing plant located in Reedsville, Pennsylvania, in order to reduce costs and improve productivity and asset utilization. The Corporation had a Lease/Option to Purchase Agreement with the Mifflin County Industrial Development Corporation for the building and improvements located in Reedsville, Pennsylvania. On August 10, 1998, the Corporation purchased the facility, which is being held for sale. (2) As of June 26, 1998, the Corporation leased approximately 25,200 square feet of real property located in Tijuana, Mexico, for the purpose of manufacturing. The Corporation has entered into a new lease agreement for manufacturing space of approximately 61,900 square feet of real property, also located in Tijuana, Mexico. The new lease commenced on September 15, 1998. The prior lease will be terminated at such time as the Corporation has transferred all manufacturing to the new facility, currently projected to take place by November 30, 1998.
The Corporation believes its current facilities are well maintained and in good operating condition, and that such facilities are sufficient for its present operations. Item 3. Legal Proceedings On or about March 31, 1995, certain shareholders of the Corporation filed a complaint in the United States District Court for the Eastern District of Pennsylvania against the Corporation and its Chief Executive Officer alleging violations of Sections 10 (b) and 20 (a) of the Securities Exchange Act of 1934 and common law. On September 27, 1997, a tentative settlement was reached with respect to this litigation, and the settlement amount was recorded in the financial statements during the first quarter of fiscal year 1998. On July 14, 1998, the United States District Court for the Eastern District of Pennsylvania approved the settlement reached by the parties and dismissed the case with prejudice. On August 28, 1998, the Corporation filed a complaint against Rockwell International Corp. ("Rockwell") in the United States District Court for the Middle District of Pennsylvania. The complaint was served on Rockwell on September 11, 1998. The complaint alleges breach of contract, breach of implied warranty and breach of the implied covenant of good faith and fair dealing by Rockwell in connection with the development by Rockwell and sale to the Corporation of an application specific integrated circuit ("ASIC") to be used by the Corporation in the manufacture of high-speed digital fiber optic receivers and transmitters. The ASIC was a component used in products sold by the Corporation as part of its Digital Fiber Optics Transmission Products Segment, which has been discontinued. The lawsuit seeks damages of not less than $10,000,000. Item 4. Submission of Matters to a Vote of Securities Holders There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended June 26, 1998. Executive Officers of the Registrant All executive officers of the Corporation are elected annually at the Annual Meeting of the Board of Directors (which is normally held on the date of the Annual Meeting of Shareholders of the Corporation) to serve in their office for the next succeeding year and until their successors are duly elected and qualified. The listing immediately following this paragraph gives certain information about the Corporation's executive officers, including the age, present position, and business experience during the past five years. Name Age Position/Experience Richard E. Perry 68 Chairman since June 1986; Chief Executive Officer from July 1985 to August 1996 and from March 1998 to July 1998; President from July 1985 through December 1992. David A. Woodle 42 President and Chief Executive Officer since July 20,1998; General Manager- Strategic Systems of Raytheon Systems Company, a company providing computer systems integration services to government and commercial customers, from January 1998 to July 1998; Vice President and General Manager, Raytheon E-Systems, HRB Systems from June 1996 to January 1998; VP, Strategic Programs and TMS, Raytheon E-Systems, HRB Systems from October 1990 to June 1996. Edwin S. Childs 59 Vice President-Human Resources since August 1996; Director, Human Resources from September 1986 to July 1996. David J. Eng 45 Sr. Vice President-Sales since September 1998; Sr. Vice President-Worldwide Sales from March 1997 to September 1998; Vice President- Sales, North, Central and South America from August 1996 to March 1997; Vice President- Sales & Marketing from August 1994 to August 1996. Director, Regional Telephony Sales, Scientific Atlanta, Inc. from March 1993 to July 1994; Regional Sales Manager, Scientific Atlanta, Inc. from April 1985 to February 1993. Lawrence R. Fisher, Jr. 48 Vice President-Engineering since August 1996; Director, RF Engineering Product Development from June 1995 to July 1996; Manager, RF Engineering from June 1994 to May 1995. Director of Engineering, Calan, Inc. from January 1993 to May 1994. Lynn D. Hutcheson 50 Senior Vice President-Engineering and Technology since March 1998, Independent Consultant, Fiber Optic Technology from August 1997 to March 1998; Vice President-Engineering, ADC Broadband Communications from September 1996 to August 1997; Director, Engineering, Raynet Corporation/Ericsson Corp. from September 1987 to September 1996. Chris A. Miller 45 Vice President-Finance, Secretary and Treasurer since July 1995; Controller, Planning Manager and Assistant Secretary from February 1993 to July 1995; Controller and Assistant Secretary from February 1987 to February 1993. Donald F. Miller 56 Vice President-Operations & Manufacturing since August 1995; Plant Manager from September 1987 to August 1995. Gerhard B. Nederlof 50 Sr. Vice President, Marketing and Services since 1998, Sr. Vice President, Marketing, Business Development and Services from March 1997 to September 1998; Vice President-Sales, Europe and Pacific Rim from August 1996 to March 1997; Vice President-International from January 1992 to August 1996. Managing Director of DataCable B.V. from November 1981 to January 1992. Note: Scott C. Chandler served as President and Chief Executive Officer of the Corporation from August 13, 1996 until his resignation was effective on April 7, 1998.
PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters The information required by this item is incorporated herein by reference to page 32 of the Registrant's 1998 Annual Report to Shareholders under the caption "Stock Listing." There were no sales of unregistered securities during fiscal year 1998. Item 6. Selected Financial Data The information required by this item is incorporated herein by reference to page 2 of the Registrant's 1998 Annual Report to Shareholders. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by this item is incorporated herein by reference to pages 13 through 16 of the Registrant's 1998 Annual Report to Shareholders. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not Applicable Item 8. Financial Statements and Supplementary Data The information required by this item is incorporated herein by reference to pages 17 through 30 of the Registrant's 1998 Annual Report to Shareholders. Item 9. Changes and Disagreements on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant The information with respect to Directors required by this item is incorporated herein by reference to pages 2 and 3 of the Registrant's Proxy Statement dated September 21, 1998. The information with respect to Executive Officers required by this item is set forth in Part I of this report. To the Corporation's knowledge, based solely on a review of the copies of such reports furnished to the Corporation and written representations that no other reports were required during the fiscal year ended June 26, 1998, its officers, directors, and ten-percent shareholders complied with all applicable Section 16(a) filing requirements. Item 11. Executive Compensation The information required by this item is incorporated herein by reference to pages 7 through 14 of the Registrant's Proxy Statement dated September 21, 1998. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is incorporated herein by reference to pages 4 and 7 of the Registrant's Proxy Statement dated September 21, 1998. Item 13. Certain Relationships and Related Transactions The Registrant had no related transactions or relationships requiring disclosure under Regulation S-K, Item 404, during the fiscal year 1998. PART IV ITEM 14. Exhibits, Financial Statements and Reports on Form 8-K (a) The following documents are filed as part of this report: (1) As indicated in Item 8 of Part II, the following financial statements of the Registrant included in the Registrant's 1998 Annual Report to Shareholders for the year ended June 26, 1998, are incorporated by reference to pages 17 through 30 of the Registrant's Annual Report to Shareholders. Consolidated Balance Sheets -- Years ended June 26, 1998, and June 27, 1997. Consolidated Statements of Operations -- Years ended June 26, 1998, June 27, 1997, and June 28, 1996. Consolidated Statements of Cash Flows -- Years ended June 26, 1998, June 27, 1997, and June 28, 1996. Consolidated Statements of Shareholders' Equity -- Years ended June 26, 1998, June 27, 1997, and June 28, 1996. Notes to Consolidated Financial Statements. Report of KPMG Peat Marwick LLP. (2) The following financial statement schedule of the Registrant is filed as a part of this report: Schedule II -- Valuation and Qualifying Accounts Report of KPMG Peat Marwick LLP Schedules, other than the one listed above, have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. (3) Exhibits 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) Indemnification Agreement dated February 3, 1992, between the Registrant and Gerhard B. Nederlof (incorporated by reference to Exhibit (10) (gg) to the Registrant's Form 10-K for the year ended June 26, 1992, Securities and Exchange Commission File No. 0-10726). (10) (d) Supplemental Retirement Plan Participation Agreement dated April 20, 1993, between the Registrant and Gerhard B. Nederlof (incorporated by reference to Exhibit (10) (bb) to the Registrant's Form 10-K for the year ended June 25, 1993, Securities and Exchange Commission File No. 0-10726). (10) (e) Change of Control Agreement dated May 21, 1993, between the Registrant and Gerhard B. Nederlof (incorporated by reference to Exhibit (10) (gg) to the Registrant's Form 10-K for the year ended June 25, 1993, Securities and Exchange Commission File No. 0-10726). (10) (f) Change of Control Agreement dated August 22, 1994, between the Registrant and David J. Eng (incorporated by reference to Exhibit (10) (oo) to the Registrant's Form 10-K for the year ended June 24, 1994, Securities and Exchange Commission File No. 0-10726). (10) (g) Form of Indemnification Agreement dated August 22, 1994, between the Registrant and David J. Eng (incorporated by reference to Exhibit (10) (pp) to the Registrant's Form 10-K for the year ended June 24, 1994, Securities and Exchange Commission File No. 0-10726). (10) (h) Supplemental Retirement Plan Participation Agreement dated August 22, 1994, between the Registrant and David J. Eng (incorporated by reference to Exhibit (10) (qq) to the Registrant's Form 10-K for the year ended June 24, 1994, Securities and Exchange Commission File No. 0-10726). (10) (i) Change of Control Agreement dated May 23, 1995, between the Registrant and Joseph E. Zavacky (incorporated by reference to Exhibit (10) (gg) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10) (j) Form of Indemnification Agreement dated May 23, 1995, between the Registrant and Joseph E. Zavacky (incorporated by reference to Exhibit (10) (hh) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10) (k) Supplemental Retirement Plan Participation Agreement dated May 22, 1995, between the Registrant and Chris A. Miller (incorporated by reference to Exhibit (10) (ii) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10) (l) Change of Control Agreement dated May 22, 1995, between the Registrant and Chris A. Miller (incorporated by reference to Exhibit (10) (jj) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10) (m) Form of Indemnification Agreement dated May 22, 1995, between the Registrant and Chris A. Miller (incorporated by reference to Exhibit (10) (kk) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). 10) (n) Supplemental Retirement Plan Participation Agreement dated August 24, 1995, between the Registrant and Donald F. Miller (incorporated by reference to Exhibit (10) (ll) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10) (o) Change of Control Agreement dated August 24, 1995, between the Registrant and Donald F. Miller (incorporated by reference to Exhibit (10) (mm) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10) (p) Form of Indemnification Agreement dated August 24, 1995, between the Registrant and Donald F. Miller (incorporated by reference to Exhibit (10) (nn) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10) (q) Lease Agreement dated November 10, 1994, between the Registrant and Mifflin County Industrial Development Corporation for a manufacturing building (incorporated by reference to Exhibit (10) (oo) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10) (r) Registrant's Retirement Savings and Profit Sharing Plan as Amended July 1, 1989, and including amendments through April 19, 1994. (incorporated by reference to Exhibit 99.B14 to Form S-8 Registration Statement, File No. 333-02505). (10) (s) Supplemental Retirement Plan Participation Agreement dated August 13, 1996, between the Registrant and Edwin S. Childs. (incorporated by reference to Exhibit (10) (x) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (t) Change of Control Agreement dated August 13, 1996, between the Registrant and Edwin S. Childs. (incorporated by reference to Exhibit (10) (y) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (u) Form of Indemnification Agreement dated August 13, 1996, between the Registrant and Edwin S. Childs. (incorporated by reference to Exhibit (10) (z) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (v) Supplemental Retirement Plan Participation Agreement dated August 13, 1996, between the Registrant and Lawrence R. Fisher, Jr. (incorporated by reference to Exhibit (10) (aa) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (w) Change of Control Agreement dated August 13, 1996, between the Registrant and Lawrence R. Fisher, Jr. (incorporated by reference to Exhibit (10) (bb) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (x) Form of Indemnification Agreement dated August 13, 1996, between the Registrant and Lawrence R. Fisher, Jr. (incorporated by reference to Exhibit (10) (cc) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (y) Amended and Restated Employment Agreement dated October 16, 1995, between the Registrant and Richard E. Perry. (incorporated by reference to Exhibit (10) (dd) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (z) Employment Agreement dated July 2, 1996, between the Registrant and Scott C. Chandler. (incorporated by reference to Exhibit (10) (ee) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (aa) Registrant's Supplemental Executive Retirement Plan effective May 1, 1996. (incorporated by reference to Exhibit (10) (ff) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (bb) (i) 1988 Stock Option Plan. (incorporated by reference to Exhibit (10) (kk)(i) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (bb) (ii) Amendment to 1988 Stock Option Plan. (incorporated by reference to Exhibit (10) (kk)(ii) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (cc) (i) 1992 Stock Purchase Plan. (incorporated by reference to Exhibit (10) (ll)(i) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (cc) (ii) Amendment to 1992 Stock Purchase Plan. (incorporated by reference to Exhibit (10) (ll)(ii) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (dd) Fiscal Year 1997 Profit Incentive Plan. (incorporated by reference to Exhibit (10) (mm) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (ee) Note and Security Agreement effective November 14, 1996, between the Registrant and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (jj) to the Registrant's Form 10-K for the year ended June 27, 1997, Securities and Exchange Commission File No. 0-10726). (10) (ff) Supplement to Note and Security Agreement effective November 14, 1996, between the Registrant and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (kk) to the Registrant's Form 10-K for the year ended June 27, 1997, Securities and Exchange Commission File No. 0-10726). (10) (gg) Revolving Line of Credit Agreement effective November 14, 1996, between the Registrant and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (ll) to the Registrant's Form 10-K for the year ended June 27, 1997, Securities and Exchange Commission File No. 0-10726). (10) (hh) Supplement to Revolving Line of Credit Agreement effective November 14, 1996, between the Registrant and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (mm) to the Registrant's Form 10-K for the year ended June 27, 1997, Securities and Exchange Commission File No. 0-10726). (10) (ii) Amended and Restated Employment Agreement dated July 21, 1997, between the Registrant and Richard E. Perry (incorporated by reference to Exhibit (10) (nn) to the Registrant's Form 10-K for the year ended June 27, 1997, Securities and Exchange Commission File No. 0-10726). (10) (jj) Amended and Restated Employment Agreement dated July 30, 1997, between the Registrant and Gerhard B. Nederlof. (incorporated by reference to Exhibit (10) (oo) to the Registrant's Form 10-K for the year ended June 27, 1997, Securities and Exchange Commission File No. 0-10726). (10) (kk) Notes and Security Agreement effective December 30, 1997, between the Registrant and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (a) to the Registrant's Form 10-Q for the thirteen-week period ended December 26, 1997, Securities and Exchange Commission File No. 0-10726). (10) (ll) Supplement to Note and Security Agreement effective December 30, 1997, between the Registrant and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (b) to the Registrant's Form 10-Q for the thirteen-week period ended December 26, 1997, Securities and Exchange Commission File No. 0-10726). (10) (mm) Revolving Line of Credit Agreement effective December 30, 1997, between the Registrant and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (c) to the Registrant's Form 10-Q for the thirteen-week period ended December 26, 1997, Securities and Exchange Commission File No. 0-10726). (10) (nn) Supplement to Revolving Line of Credit Agreement effective December 30, 1997, between the Registrant and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (d) to the Registrant's Form 10-Q for the thirteen-week period ended December 26, 1997, Securities and Exchange Commission File No. 0-10726). (10) (oo) Supplemental Retirement Plan Participation Agreement dated February 23, 1998, between the Registrant and Lynn D. Hutcheson. (10) (pp) Change of Control Agreement dated February 23, 1998, between the Registrant and Lynn D. Hutcheson. (10) (qq) Form of Indemnification Agreement dated February 23, 1998, between the Registrant and Lynn D. Hutcheson. (10) (rr) Employment Agreement dated June 22, 1998, between the Registrant and David A. Woodle. (10) (ss) Fiscal Year 1999 Profit Incentive Plan (10) (tt) Fiscal Year 1999 Incentive Plan (11) Statement re Computation of Earnings Per Share. (13) Annual Report to Shareholders for the year ended June 26, 1998. (21) Subsidiaries of the Registrant. (23) Consent of Independent Auditors. (27) Financial Data Schedule.
(b) Reports on Form 8-K filed in the fourth quarter of the fiscal year 1998 On March 30, 1998, the Registrant filed a Form 8-K with the Securities and Exchange Commission reporting that Scott C. Chandler had resigned as the Registrant's President and Chief Executive Officer and as a Director of C-COR Electronics, Inc. On June 16, 1998, the Registrant filed a Form 8-K with the Securities and Exchange Commission reporting that its Board of Directors had elected David A. Woodle as the Registrant's President and Chief Executive Officer, effective July 20, 1998. (c) Exhibits: See (a) (3) above. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. C-COR ELECTRONICS, INC. (Registrant) September 24, 1998 /s/ David A. Woodle, President and Chief Executive Officer (principal executive officer) /s/ Chris A. Miller, Vice President-Finance, Secretary and Treasurer (principal financial officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 24th day of September 1998. /s/ Richard E. Perry, Director, Chairman /s/ Donald M. Cook, Jr., Director /s/ Anne P. Jones, Director /s/ John J. Omlor, Director /s/ Frank Rusinko, Jr., Director /s/ J. J. Tietjen, Director 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 26, 1998 Reserves deducted from assets to which they apply: Allowance for Doubtful Accounts $ 510,000 $ (79,000) $0 $ 1,000(1) $ 430,000 Inventory Reserve-Continuing Operations 1,233,000 1,674,000 0 920,000(2) 1,987,000 Inventory Reserve-Discontinued Operations 3,630,000 (1,573,000) 0 1,212,000(2) 845,000 - ------------------------------------------------------------------------------------------------------------------------------- $ 5,373,000 $ 22,000 $0 $ 2,133,000 $ 3,262,000 - ------------------------------------------------------------------------------------------------------------------------------- Reserves not deducted from assets: Product Warranty Reserve-Continuing Operations $ 2,185,000 $ 966,000 $0 $ 1,435,000(3) $ 1,716,000 Product Warranty Reserve-Discontinued Operations 3,429,000 1,283,000 0 2,421,000(3) 2,291,000 Workers' compensation self-insurance 1,162,000 921,000 0 764,000(4) 1,319,000 Allowance for Discontinued Operations 3,375,000 0 0 2,775,000(5) 600,000 - ------------------------------------------------------------------------------------------------------------------------------- $10,151,000 $ 3,170,000 $0 $ 7,395,000 $ 5,926,000 - ------------------------------------------------------------------------------------------------------------------------------- Year ended June 27, 1997 Reserves deducted from assets to which they apply: Allowance for Doubtful Accounts $ 355,000 $ 157,000 $0 $ 2,000(1) $ 510,000 Inventory Reserve-Continuing Operations 1,112,000 1,323,000 0 1,202,000(2) 1,233,000 Inventory Reserve-Discontinued Operations 305,000 3,418,000 0 93,000(2) 3,630,000 - ------------------------------------------------------------------------------------------------------------------------------- $ 1,772,000 $ 4,898,000 $0 $ 1,297,000 $ 5,373,000 - ------------------------------------------------------------------------------------------------------------------------------- Reserves not deducted from assets: Product Warranty Reserve-Continuing Operations $ 1,724,000 $ 2,310,000 $0 $ 1,849,000(3) $ 2,185,000 Product Warranty Reserve-Discontinued Operations 0 4,028,000 0 599,000(3) 3,429,000 Workers' compensation self-insurance 704,000 1,068,000 0 610,000(4) 1,162,000 Allowance for Discontinued Operations 0 3,375,000 0 0 3,375,000 - ------------------------------------------------------------------------------------------------------------------------------- $ 2,428,000 $10,781,000 $0 $ 3,058,000 $10,151,000 - ------------------------------------------------------------------------------------------------------------------------------- Year ended June 28, 1996 Reserves deducted from assets to which they apply: Allowance for Doubtful Accounts $ 657,000 $ 0 $0 $ 302,000(1) $ 355,000 Inventory Reserve-Continuing Operations 949,000 819,000 0 656,000(2) 1,112,000 Inventory Reserve-Discontinued Operations 500,000 273,000 0 468,000(2) 305,000 - ------------------------------------------------------------------------------------------------------------------------------- $ 2,106,000 $ 1,092,000 $0 $ 1,426,000 $ 1,772,000 - ------------------------------------------------------------------------------------------------------------------------------- Reserves not deducted from assets: Product Warranty Reserve-Continuing Operations $ 1,751,000 $ 1,981,000 $0 $ 2,008,000(3) $ 1,724,000 Workers' compensation self-insurance 553,000 653,000 0 502,000(4) 704,000 - ------------------------------------------------------------------------------------------------------------------------------- $ 2,304,000 $ 2,634,000 $0 $ 2,510,000 $ 2,428,000 - ------------------------------------------------------------------------------------------------------------------------------- (1) Uncollectible accounts written off, net of recoveries. (2) Inventory disposals. (3) Warranty claims honored during year. (4) Worker's compensation claims paid. (5) Expenses for Discontinued Operations incurred from measurement date to disposal date Note: Unless otherwise indicated, reserves relate to continuing operations
EX-10.(OO) 2 RETIREMENT PLAN PARTICIPATION AGREEMENT "Attachment D" C-COR ELECTRONICS, INC. SUPPLEMENTAL RETIREMENT PLAN PARTICIPATION AGREEMENT 1. I, the undersigned Participant ("Participant"), hereby acknowledge receipt of a copy of the Supplemental Retirement Plan of C-COR Electronics, Inc. ("Corporation"), effective April 20, 1993 (the "Plan"). By completion of this Agreement, I agree to comply with the terms of the Plan in all respects. I understand that all provisions of the Plan are hereby made a part of this Agreement. 2. In consideration of the foregoing and subject to the terms of the Plan, Corporation promises to pay the Supplemental Retirement Benefit therein described of $ 1,500.00 per month. 3. Tax-Advice. I agree I have been advised by Corporation to consult my own tax advisors with respect to this Agreement and that neither Corporation nor its representatives have made or make any representation or warranties as to such consequences. 4. Insurance Policies. I understand that Corporation may make application to purchase a life insurance policy or policies on my life, which will be owned by Corporation and under which it will be the sole beneficiary. I agree to provide Corporation with such information as it may require in order to make such application and to cooperate fully with Corporation in respect of such application, including the taking of a physical examination if requested to do so. In this connection, I represent that my date of birth is 3/18/48. In the event the insurance company to which application is made declines to issue the policy at standard premium rates, this Agreement will be void unless Corporation decides otherwise. Similarly, if I should die prior to the date on which payment of the Supplemental Retirement Benefit commences and the proceeds of a policy on my life are not paid to Corporation because the information I have furnished in connection with the application is materially false or my death was caused by suicide within two (2) years of the date on the policy on my life issues, Corporation will be under no obligation to pay the Survivor Benefit herein provided. 5. No Employment Commitment. Nothing in this Agreement shall be construed to imply any commitment on the part of Corporation to continue me in its employ. 6. Beneficiary. I hereby designate the following person or persons as my beneficiary or beneficiaries under this Agreement. Anne L. Hutcheson, spouse___________________ -------------------------------------------- I reserve the right to change my beneficiary at any time and for any reason and without notice to or the consent of the beneficiary or beneficiaries, by delivering a writing to that effect to the office of the Secretary of Corporation or its successor. 7. Additional Conditions ____None______________________________________________ ====================================================== 8. This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania. Dated: 2/23/98 L. D. Hutcheson Participant C-COR ELECTRONICS, INC. By: Scott C. Chandler Attachment H LYNN D. HUTCHESON C-COR ELECTRONICS, INC. Supplemental Retirement Plan 1. Selection of Participants. This Plan is an unfunded non-qualified arrangement for a select group of management and/or highly compensated employees of C-COR Electronics Inc., (hereinafter "Corporation"). Each employee selected by Corporation for participation hereunder (hereinafter "Participant") shall indicate his agreement to the terms of this Plan by executing a Participation Agreement to be provided by Corporation. 2. Definitions. Certain terms shall be defined hereunder as follows: a. "Beneficiary" means a person, persons, trust or trusts which a Participant shall, from time to time, designate in writing to receive any benefits payable to him under this Plan in the event of his death. b. "Committee" means the Compensation Committee of the Board of Directors of Corporation. c. "Disability" shall have the same meaning as the term is defined in Corporation's Long Term Disability Plan. d. "Effective Date of Plan" means April 20, 1993. e. "Supplement Retirement Benefit" means a benefit provided to a Participant if he elects to participate under the Plan and remains in Corporation's employ until attaining the age specified in Section 3 of the Plan. f. (1) "Participant" means full-time employees working more than 2,000 hours per year. f. (2) "Participant Status Requirement" means a participant who has been a participant in the Plan for five years, hired directly in the plan; or an employee who has been a participant in the Plan for three years by being promoted into the Plan and who has at least two additional years as an employee of C-Cor Electronics, Inc. g. "Participant Agreement" means the Agreement signed by Participant that evidences his participation in the Plan. A blank Participation Agreement is attached to this Plan and incorporated herein by this reference. h. "Plan" means the Supplemental Retirement Plan of Corporation effective April 20, 1993, and as it may be amended from time to time by the Corporation. i. "Plan Administrator" means Corporation. Provided, however, that Corporation shall only be designated as Plan Administrator and named Fiduciary of the Plan for purposes of implementing the claims procedure contained in Paragraph 14, and for no other purpose. j. "Survivor Benefit" means a benefit provided to Participant's Beneficiary if Participant elects to participate in the Plan and dies prior to commencement of the Supplemental Retirement Benefit while in the employ of Corporation. k. "Death Benefit" means a benefit provided to Participant's Beneficiary if Participant elects to participate in the Plan and dies after commencement of the Supplemental Retirement Benefit. 1. "Year of Service" means a consecutive 12-month period during which an employee completes at least 2,000 hours of service with the Corporation. 3. Payments at Retirement. a. Normal Retirement Date. If a Participant continues in employment with Corporation until he attains age 65 and 10 years of participant status, then, upon retirement, the Participant shall be entitled to receive from the Corporation a Supplemental Retirement Benefit in the amount specified in his Participation Agreement, payable in equal monthly installments, for a period of 15 years. Such payments shall begin on the first day of the month following the Participant's attainment of his Normal Retirement Date. b. Early Retirement. (1) If a Participant's employment with the corporation terminates due to Early Retirement or Disability prior to his attainment of Normal Retirement Date but following his attainment of age 55 and ten (10) years of participant status, such Participant may retire before his Normal Retirement Date and receive early retirement benefits from the Plan. The early retirement benefit shall be equal to the actuarial equivalent of the Supplemental Retirement Benefit (as specified in the Participant's Agreement) commencing at the Normal Retirement Date. Such actuarial equivalent early retirement benefit shall be equal to the Supplemental Retirement Benefit multiplied by the early retirement factor set forth in Appendix A. (2) If a Participant's employment with the corporation terminates due to Early Retirement or Disability prior to his attainment of Normal Retirement Date but following his attainment of age 60 and attainment of participant status requirements, but less than ten (10) years of participant status, such Participant may retire before his Normal Retirement Date and receive early retirement benefits from the Plan. This early retirement benefit shall be equal to the early retirement benefit as calculated in Section 3.b. (1) and then multiplied by a benefit percentage factor for years of participant status less than ten (10) years as set forth in Appendix B. (3) The Early Retirement or Disability Benefit to which the Participant is entitled shall be paid in equal monthly installments for a period of 15 years. Such payments shall begin on the first day of the month following the Participant's termination of employment. Provided, however, that no early retirement or disability benefit shall be payable under this Section 3.b. if the Participant has not satisfied the participant status requirement. For calculating participant status, the Extended Salary Plan of the Corporation, effective October 1, 1987, shall be a predecessor plan to this Plan. c. Late Retirement. If a Participant remains employed after the attainment of his Normal Retirement Date, such benefit shall not commence until he actually retires. The amount of the Participant's late retirement benefit shall be equal to the actuarial equivalent of his Supplemental Retirement Benefit that would have commenced at his Normal Retirement Date. Such actuarial equivalent late retirement benefit shall be equal to the Supplemental Retirement Benefit multiplied by the late retirement factors set forth in Appendix C and payable in equal monthly installments for a period of 15 years. d. Death Following Retirement. If a Participant should die after payment of a Supplemental Retirement Benefit begins, but before receipt of the last of such payments, the remaining balance of such payments shall be paid on their due dates to the Participant's beneficiary designated in the Participant's Agreement or, failing such designation, to the Participant's estate. As stated in Section 3.a., the total monthly payments of the Supplemental Retirement Benefit (for pre and post death) shall not exceed fifteen (15) years. 4. Other Termination of Employment or Participant Status Short of Required Participant Status. If a Participant's employment with the Corporation terminates for any other reason (other than Death, Disability or Retirement), or a Participant has not met the participant status requirements, then he shall not be entitled to payment of a Supplemental Retirement Benefit under the Plan. 5. Survivor Benefits (Pre-Retirement Death of Participant). (1) If an eligible Participant should die while in the Corporation's employment, and the Participant has become eligible for either Early, Normal, or Late Retirement, but before commencement of the Supplemental Retirement Benefit, such eligible benefit shall become payable to the Participant's beneficiary or, failing such designation, to the Participant's estate. Such benefit shall be paid in equal monthly installments, for a period of 15 years. Such payments shall begin on the first day of the month following the Participant's death. (2) If a Participant should die while in the Corporation's employment, and the Participant has not become eligible for either Early, Normal, or Late Retirement, but has met the participant status requirements, the Participant's beneficiary or, failing such designation, the Participant's estate, shall be entitled to a survivor benefit. This survivor benefit shall be equal to the actuarial equivalent of the Supplemental Retirement Benefit commencing at Normal Retirement Date. Such actuarial equivalent survivor benefit shall be equal to the Supplemental Retirement Benefit multiplied by the early retirement factors set forth in Appendix A and payable in equal monthly installments for a period of 15 years. 6. Status of Investments. All investments made by Corporation under this Plan will be deemed made solely for the purpose of aiding Corporation in measuring and meeting its obligations under this Plan. Corporation shall be the sole owner of all such investments and of all rights and privileges conferred by the terms of the instruments evidencing such investments. Nothing stated herein will cause such investments to be treated as anything but the general assets of Corporation, nor will anything stated herein cause such investments to represent the vested, secured or preferred interest of any Participants or his Beneficiaries. 7. General Creditor Status. A Participant shall have no claim with respect to any particular asset of Corporation, but shall be and shall remain at all times a general creditor of Corporation and, therefore, a Participant's rights under the Plan shall have not priority over the rights of any general creditor of Corporation. 8. No Assignment. Neither a Participant nor his personal representative shall have any right to commute, sell, assign, transfer, encumber or otherwise dispose of the right to receive payments hereunder which payments and the right thereto are expressly declared to by non-assignable and non-transferable. Any attempted assignment or transfer by a Participant or his personal representative shall be of no effect. Corporation shall have the right to assign this Plan and to transfer its obligations hereunder. 9. Revocation and Amendment. This Plan may be amended or terminated at any time at the sole discretion of the Board of Directors of Corporation; provided, however, that any such amendment or termination shall not affect the rights of any Participant which may have accrued under the Plan at the time of amendment or termination. 10. No Employment Guarantee. Nothing contained in this Plan shall be construed as conferring upon any Participant the right to continue in the employment of Corporation. 11. Authority or Committee. The Committee shall have the full power and authority to interpret, construe and administer this Plan. The Committee's interpretations and construction hereof and actions hereunder shall be binding and conclusive on all persons for all purposes. No member of the Committee shall be liable to any person for any action taken or omitted in connection with the interpretation or administration of this Plan unless attributable to his own willful misconduct or lack of good faith. 12. Liability of the Corporation. Nothing contained in the Plan or the Participation Agreement shall constitute the creation of a trust or other fiduciary relationship between Corporation and Participant or between Corporation and Beneficiary or any other person. Corporation shall not be considered a trustee by reason of the existence of this Plan or the Participation Agreement. 13. Funding Assets. Corporation reserves the absolute right in its sole and exclusive discretion either to fund the obligations of Corporation undertaken by this Plan or to refrain from funding the same, and to determine the extent, nature and method of such funding. Should Corporation elect to fund this Plan, in whole or in part, through life insurance contracts, Corporation shall be the owner and beneficiary of each such policy. Corporation reserves the absolute right, in its sole discretion, to terminate any such contract, as well as any other funding program, at any time, either in whole or in part. Title to, and beneficial ownership of, any assets which Corporation may earmark to pay the benefits hereunder shall at all times remain in Corporation. Participant and Participant's Beneficiary shall not have any property interest whatsoever in any specific assets of Corporation. Nothing set forth in this Plan shall cause such assets to be treated as anything but the general assets of Corporation. If Corporation purchases life insurance contracts on the life of the Participant, Participant agrees to sign any applications that may be reasonably required for that purpose and to undergo any medical examination or tests which may be reasonably necessary in such regard. 14. Claims Procedure. In the event that benefits under paragraph 3 or 5 of this Plan are not paid to the Participant or his Beneficiary, and such person feels entitled to receive them, a claim shall be made in writing to the Plan Administrator within 60 days from the date payments are not made. Such claim shall be reviewed by the Plan Administrator. If the claim is denied, in full or in part, the Plan Administrator shall provide a written notice within 90 days setting forth the specific reasons for denial, specific reference to the provisions of this Plan upon which the denial is based, and any additional material or information necessary to perfect the claim, if any. Also, such written notice shall indicate the steps to be taken if a review of the denial is desired. If a claim is denied and a review is desired, the Participant shall notify the Plan Administrator in writing within 60 days (and a claim shall be deemed denied if the Plan Administrator does not take any action with the aforesaid 90 day period). In requesting review, the Participant may review this Plan or any documents relating to it and submit any written issues and comments the Participant may feel appropriate. In its sole discretion, the Plan Administrator shall then review the claim and provide a written decision within 60 days. This decision likewise shall state the specific reasons for the decision and shall include specific reference to specific provisions of this Plan on which the decision is based. 15. Governing Law. This Plan shall be governed by the laws of the Commonwealth of Pennsylvania. 16. Language. Whenever used in this Plan, the singular number shall include the plural, the plural the singular and the use of any gender shall include all genders. 17. Effective Rate. This Plan shall be effective beginning April 20, 1993. C-COR ELECTRONICS, INC. By: Scott C. Chandler President & CEO Approved by C-COR Board of Directors on April 20, 1993. April 20,1993 APPENDIX A NUMBER OF EARLY RETIREMENT YEARS PRIOR TO FACTOR NORMAL RETIREMENT DATE 1 0.9145 2 0.8372 3 0.7670 4 0.7034 5 0.6456 6 0.5932 7 0.5454 8 0.5020 9 0.4625 10 0.4264 11 0.3935 12 0.3635 13 0.3360 14 0.3108 15 0.2877 16 0.2665 17 0.2471 18 0.2292 19 0.2127 20 0.1976 21 0.1836 22 0.1707 23 0.1588 24 0.1479 25 0.1377 26 0.1283 27 0.1196 28 0.1116 29 0.1041 30 0.0972 31 0.0908 32 0.0848 33 0.0793 34 0.0741 35 0.0694 SOURCE: MODIFIED UP-84 MORTALITY TABLE AT 6.25%
April 20, 1993 APPENDIX B NUMBER OF YEARS BENEFIT LESS THAN TEN YEARS PERCENTAGE OF PARTICIPANT STATUS 1 90% 2 80% 3 70% 4 60% 5 50% SOURCE: BASED ON A STRAIGHT-LINE PERCENTAGE REDUCTION
April 20, 1993 APPENDIX C NUMBER OF YEARS AFTER LATE RETIREMENT NORMAL RETIREMENT FACTOR DATE 1 1.0817 2 1.1714 3 1.2700 4 1.3787 5 OR MORE 1.4986 SOURCE: MODIFIED UP-84 MORTALITY TABLE AT 6.25%
EX-10.(PP) 3 CHANGE OF CONTROL AGREEMENT CHANGE OF CONTROL AGREEMENT THIS AGREEMENT, dated February 23, 1998, by and between: C-COR ELECTRONICS, INC., a Pennsylvania corporation (the "Company"), -AND- Lynn D. Hutcheson (the "Employee"). Recital A. Employee is an executive of the Company with significant policy-making and operational responsibilities in the conduct of its business. B. The Company recognizes that Employee is a valuable resource for the Company and the Company desires to be assured of the continued service of Employee. C. The Company is concerned that upon a possible or threatened change in control Employee may have concerns about the continuation of his employment and/or his status and responsibilities and may be approached by others with employment opportunities, and desires to provide Employee some assurance as to the continuation of his employment status and responsibilities on basis consistent with that which he has earned in the event of such possible or threatened change in control. D. The Company desires to assure that if a possible change of control situation should arise and Employee should be involved in deliberations or negotiations in connection therewith that Employee would be in a secure position to consider and/or negotiate such transaction as objectively as possible and without implied threat to his financial well-being. E. The Company is concerned about the possible effect on Employee of the uncertainties created by any proposed change in control of the Company. F. Employee is willing to continue to serve but desires that in the event of such a change in control he will continue to have the responsibility, status, income, benefits and perquisites that he received immediately prior to that event. Agreements The parties do hereby agree as follows: 1. Change of Control. The provisions of Section 2 and 3 of this Agreement shall become operative upon a change in control of the Company, as hereinafter defined. For purposes of this Agreement, a "change in control" shall be deemed to have occurred if and when: (a) Subsequent to the date of this Agreement, any person or group of persons acting in concert shall have acquired ownership of or the right to vote or to direct the voting of shares of capital stock of the Company representing 30% or more of the total voting power of the Company, or (b) The Company shall have merged into or consolidated with another corporation, or merged another corporation into the Company, on a basis whereby less than 50% of the total voting power of the surviving corporation is represented by shares held by former shareholders of the Company prior to such merger or consolidation, or (c) The Company shall have sold more than 50% of its assets to another corporation or other entity or person, or (d) As the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, the persons who were Directors of the Company before such transaction cease to constitute a majority of Directors of the Company. 2. Termination Within Eighteen (18) Months. In the event that the employment of Employee with the Company is terminated involuntarily within eighteen (18) months after a change in control occurs: (a) Employee shall be entitled to receive an amount of cash equal to the sum of the following amounts: (i) two (2) times his annual salary at his rate on the date of termination of employment (but not less than two times Employee's annual salary prior to the change of Control); and (ii) two (2) times the Company's annual 401(k) retirement plan contribution at the Employee's contribution rate on the termination of his employment (but not less than the amount the company was matching prior to Change of Control) (subject to applicable limitations of the Internal Revenue Code, which may dictate that such amount shall not be added to the retirement plan but shall be paid in cash). The sum of these amounts shall be paid in equal monthly installments over a period of twenty-four (24) months, the first such installment to be paid within ten (10) days after Employee's termination of employment. (b) Employee shall be entitled to receive an amount of cash equal to two times the average of the Profit Incentive Plan ("PIP") payments of the last two years awarded to him under the PIP of the company, pursuant to the terms of such Plan as in effect immediately prior to such change of control. Such amount will be paid to the Employee within ten (10) days after termination of employment. (c) Employee shall continue for a period of 24 months from the date of his termination to be covered at the expense of the Company by the same or equivalent health, dental, accident, life and disability insurance coverages as he was enrolled in immediately prior to termination of his employment; provided, however, that the Employee may elect to be paid in cash within thirty (30) days after termination of his employment an amount equal to the Company's cost of providing such coverages during such period. (d) If on the date of termination of employment, Employee were a participant in the Company's Supplemental Retirement Plan, Employee shall become eligible for the benefits payable under such Plan and such benefits shall be paid to Employee, or, if applicable, Employee's beneficiary, in the same manner, amounts and intervals as if Employee had, on the date of his termination of employment following a change of control, retired from employment with the Company. If Employee has not attained age fifty-five (55) on the date of his termination of employment due to a change of control, Employee shall be deemed to have attained age fifty-five (55) for the purpose of determining his eligibility for benefits under the Supplemental Retirement Plan, and only for this purpose. (e) All outstanding options held by Employee, both exercisable and nonexercisable, shall be immediately exercisable regardless of the time the option has been held by Employee and shall remain exercisable until their original expiration date, subject to applicable requirements of the Internal Revenue Code. 3. Other Events. If Employee resigns from the Company within eighteen (18) months of a change of control, Employee shall be entitled to receive all payments and enjoy all of the benefits specified in Section 2 hereof should one or more of the following events occur within eighteen (18) months following a change in control: (a) If Employee determines that there has been a significant change in his responsibilities or duties with the Company and, for that reason, Employee resigns from the Company; or (b) If the base salary paid by the Company to Employee is reduced by more than ten (10%) percent from his salary immediately prior to the change in control; or (c) If the Company requires Employee to relocate his principal place of work to a location more than forty (40) miles from the Employee's former place of work. 4. Agreements Not Exclusive. The specific agreements referred to herein are not intended to exclude Employee's participation in other benefits available to executive personnel generally or to preclude other compensation benefits as may be authorized by the Board of Directors of the Company at any time, and shall be in addition to the provisions of any other employment or similar agreements. 5. Enforcement Costs. The Company is aware that upon the occurrence of a change in control the Board of Directors or a shareholder of the Company may then cause or attempt to cause the Company to refuse to comply with its obligations under this Agreement, or may cause or attempt to cause the Company to institute, or may institute, litigation seeking to have this Agreement declared unenforceable, or may take, or attempt to take, other action to deny Employee the benefits intended under this Agreement. In these circumstances, the purpose of this Agreement could be frustrated. It is the intent of the company that Employee not be required to incur the expenses associated with the enforcement of his rights under this agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits extended to Employee hereunder, nor be bound to negotiate any settlement of his rights hereunder under threat of incurring such expenses. Accordingly, if following a change of control, it should appear to Employee that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation or other legal action designed to deny, diminish or to recover from Employee the benefits intended to be provided to Employee hereunder and that Employee has complied with all reasonable obligations related to Employee's employment with the Company, the Company irrevocably authorizes Employee from time to time to retain counsel of his choice at the direct expense and liability of the company as provided in this Section 5, to represent Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, shareholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to Employee entering into an attorney-client relationship with such counsel, and in that connection the Company and Employee agree that a confidential relationship shall exist between Employee and such counsel. The reasonable fees and expenses of counsel selected from time to time by Employee as hereinabove provided shall be paid or reimbursed to Employee by the Company on a regular, periodic basis upon presentation by Employee of a statement or statements prepared by such counsel in accordance with its customary practices up to a maximum aggregate amount of $500,000, said amount to be "grossed up", to cover federal and state income taxes. The amount of the gross up shall be calculated in accordance with the following formula: A/ (1-R), where A is the amount of legal fees and R is the combined highest marginal tax rate applicable to employee in the tax year that the payment is made. 6. No Set-off. The Company shall not be entitled to set-off against the amount payable to Employee any amounts earned by Employee in other employment after termination of his employment with the Company, or any amounts which might have been earned by Employee in other employment had he sought other employment. The amounts payable to Employee under this Agreement shall not be treated as damages but as severance compensation to which Employee is entitled by reason of termination of his employment in the circumstances contemplated by this Agreement. However, a set-off may be taken by the Company against the amounts payable to Employee for expenses covering the same or equivalent hospital, medical, accident, and disability insurance coverages as set forth in Section 2(c) of this Agreement if such benefit is paid for the Employee by the Employer to which the Employee may join after termination by the Company or after resignation as defined in Section 3 of this Agreement. 7. Termination. This Agreement has no specific term, but shall terminate if, prior to a change in control of the Company, the employment of Employee with the Company shall terminate, so long as such termination was not in anticipation of or related to Change of Control. 8. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns, and shall be binding upon and inure to the benefit of Employee and his legal representatives, heirs, and assigns. 9. Severability. In the event that any section, paragraph, clause or other provision of this Agreement shall be determined to be invalid or unenforceable in any jurisdiction for any reason, such Section, paragraph, clause or other provision shall be enforceable in any other jurisdiction in which valid and enforceable and, in any event, the remaining Sections, paragraphs, clauses and other provisions of this Agreement shall be unaffected and shall remain in full force and effect to the fullest extent permitted by law. 10. Governing Law. This Agreement shall be interpreted, construed and governed by the laws of the Commonwealth of Pennsylvania. 11. Headings. The headings used in this Agreement are for ease of reference only and are not intended to affect the meaning or interpretation of any of the terms hereof. 12. Gender and Number. Whenever the context shall require, all words in this Agreement in the male gender shall be deemed to include the female or neuter gender, all singular words shall include the plural, and all plural words shall include the singular. IN WITNESS WHEREOF, this Agreement has been executed the date and year first above written. ATTEST: C-COR ELECTRONICS, INC. Edwin S. Childs By: Scott C. Chandler President and CEO L. D. HUTCHESON 2/23/98 Employee EX-10.(QQ) 4 INDEMNIFICATION AGREEMENT Attachment E INDEMNIFICATION AGREEMENT THIS AGREEMENT is made as of the 23rd day of February, 1998 between C-COR ELECTRONICS, INC., a Pennsylvania corporation ("Corporation") and Lynn D. Hutcheson with an address at Middlebury, Connecticut ("Officer"). WITNESSETH: WHEREAS, Officer is an officer of Corporation and in such capacity is performing a valuable service for Corporation; and WHEREAS, the stockholders of Corporation have adopted Bylaws (the "Bylaws") providing for the indemnification of the officers and directors of Corporation to the fullest extent now or hereafter permitted by law ("the "Law"); and WHEREAS, the Bylaws and the Law provide specifically that they are not exclusive, and thereby contemplate that contracts may be entered into between Corporation and its officers with respect to indemnification of such officers; and WHEREAS, in accordance with the authorization provided by the Bylaws and the Law, Corporation has purchased and presently maintains a policy or policies of Directors' and Officers' Liability Insurance ("D&O Insurance"), covering certain liabilities which may be incurred by its directors and officers in the performance of their services for corporation; and WHEREAS, recent developments with respect to the terms and availability of D&O Insurance and with respect to the application, amendment and enforcement of statutory and bylaw indemnification provisions generally have raised questions concerning the adequacy and reliability of the protection afforded to officers thereby; and WHEREAS, in order to resolve such questions and thereby induce officer to continue to serve as an officer of Corporation, Corporation has determined and agreed to enter into this contract with officer. NOW, THEREFORE, in consideration of Officer's continued service as an officer after the date hereof, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Indemnity of Officer. Corporation hereby agrees to hold harmless and indemnify Officer to the full extent authorized or permitted by the provisions of the Law, or by any amendment thereof or other statutory provisions authorizing or permitting such indemnification which is adopted after the date hereof. 2. Maintenance of Insurance and Self-Insurance. (a) Corporation represents that it presently has in force and effect policies of, D&O Insurance in insurance companies and amounts as follows (the "Insurance Policies"): Insurer Amount Deductible Gulf Insurance Company $10,000,000 $250,000 Insured Organization Tamarack American $10,000,000 $250,000 Insured Organization excess of $10,000,000 Subject only to the provisions of Section 2(b) hereof, Corporation hereby agrees that, so long as Officer shall continue to serve as an officer of Corporation (or shall continue at the request of Corporation to serve as an officer, director, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and thereafter so long as Officer shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative by reason of the fact that Officer was an officer of Corporation (or served in any of said other capacities), Corporation will purchase and maintain in effect for the benefit of Officer one or more valid, binding and enforceable policy or policies of D&O Insurance providing, in all respects, coverage at least comparable to that presently provided pursuant to the Insurance Policies. (b) Corporation shall not be required to maintain said policy or policies of D&O Insurance in effect if said insurance is not reasonably available or if, in the reasonable business judgment of the then directors of Corporation, either (i) the premium cost for such insurance is substantially disproportionate to the amount of coverage, or (ii) the coverage provided by such insurance is so limited by exclusions that there is insufficient benefit from such insurance. (c) In the event Corporation does not purchase and maintain in effect said policy or policies of D&O Insurance pursuant to the provisions of Section 2(b) hereof, Corporation agrees to hold harmless and indemnify Officer to the full extent of the coverage which would otherwise have been provided for the benefit of officer pursuant to the Insurance Policies. 3. Additional Indemnity. Subject only to the exclusions set forth in Section 4 hereof, Corporation hereby further agrees to hold harmless and indemnify Officer: (a) Against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by Officer in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Corporation) to which Officer is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Officer is, was or at any time becomes an officer, director, employee or agent of Corporation, or is or was serving or at any time serves at the request of Corporation as an officer, director, employee or agent of another corporation, partnership, joint venture, trust or other enterprise; and (b) Otherwise to the fullest extent as may be provided to Officer by Corporation under the non-exclusivity provisions of Section 7-1 of the Bylaws of Corporation and the Law. 4. Limitations on Additional Indemnity,. No indemnity pursuant to section 3 hereof shall be paid by Corporation: a) Except to the extent the aggregate of losses to be indemnified thereunder exceeds the sum of $1,000 plus the amount of such losses for which Officer is indemnified either pursuant to Sections 1 or 2 hereof or pursuant to any D&O Insurance purchased and maintained by the Corporation; (b) In respect to remuneration paid to Officer if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of Law; (c) On account of any suit in which judgment is rendered against Officer for an accounting of profits made from the purchase or sale by Officer of securities of Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (d) On account of Officer's conduct which is finally adjudged by a court of competent jurisdiction to have been knowingly fraudulent or deliberately dishonest or to have constituted willful misconduct or recklessness; and (e) If a final decision by a court of competent jurisdiction shall determine that such indemnification is not lawful. 5. Continuation of Indemnity. All agreements and obligations of Corporation contained herein shall continue during the period Officer is an officer, director, employee or agent of Corporation (or is or was serving at the request of Corporation as an officer, director, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Officer shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether, civil, criminal or investigative, by reason of the fact that Officer was an officer of Corporation or serving in any other capacity referred to herein. 6. Notification and Defense of Claim. Promptly after receipt by Officer of notice of the commencement of any action, suit or proceeding, Officer will, if a claim in respect thereof is to be made against Corporation under this Agreement, notify Corporation of the commencement thereof; but the omission so to notify Corporation will not relieve it from any liability which it may have to Officer otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Officer notifies Corporation of the commencement thereof: (a) Corporation will be entitled to participate therein at its own expense; and (b) Except as otherwise provided below, to the extent that it may wish, Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel satisfactory to Officer. After notice from Corporation to Officer of its election so to assume the defense thereof, Corporation will not be liable to Officer under this Agreement for any legal or other expenses subsequently incurred by Officer in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Officer shall have the right to employ its counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from corporation of its assumption of the defense thereof shall be at the expense of Officer unless (i) the employment of counsel by officer has been authorized by Corporation, (ii) Officer shall have reasonably concluded that there may be a conflict of interest between Corporation and officer in the conduct of the defense of such action or, (iii) Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be at the expense of Corporation. Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of Corporation or as to which Officer shall have made the conclusion provided for in (ii) above. (c) Corporation shall not be liable to indemnify Officer under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. Corporation shall not settle any action or claim in any manner which would impose any penalty or limitation on Officer without Officer's written consent. Neither Corporation or Officer will unreasonably withhold its or his consent to any proposed settlement. 7. Repayment of Expenses. Officer will reimburse Corporation for all reasonable expenses paid by Corporation in defending any civil or criminal action, suit or proceeding against Officer in the event and only to the extent that it shall be ultimately determined that Officer is not entitled to be indemnified by Corporation for such expenses under the provisions of the Law, the Bylaws, this Agreement or otherwise. 8. Enforcement. (a) Corporation expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on Corporation hereby in order to induce Officer to continue as an officer of Corporation, and acknowledges that Officer is relying upon this Agreement in continuing in such capacity. (b) In the event Officer is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, Corporation shall reimburse Officer for all of Officer's reasonable fees and expenses in bringing and pursuing such action. 9. Separability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. 10. Governing Law; Binding Effect; Amendment and Termination. (a) This Agreement shall be interpreted and enforced in accordance with the laws of the Commonwealth of Pennsylvania. (b) This Agreement shall be binding upon Officer and upon Corporation, its successors and assigns, and shall inure to the benefit of Officer, his heirs, personal representatives and assigns and to the benefit of Corporation, its successors and assigns. (c) No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. C-COR ELECTRONICS, INC. By: Scott C. Chandler President and CEO L. D. HUTCHESON Employee EX-10.(RR) 5 DAVID A. WOODLE EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS AGREEMENT, made this 22nd day of June, 1998, by and between C-COR ELECTRONICS, INC., a Pennsylvania Business Corporation with its principal place of business at 60 Decibel Road, State College, Pennsylvania ("Corporation"), -AND- DAVID A. WOODLE, an individual, of 110 Berwick Drive, Boalsburg, Pennsylvania 16827 ("Employee"). BACKGROUND A. Corporation desires to employ Employee as its President and Chief Executive Officer and Employee desires to be so employed by Corporation. B. The parties mutually desire to set forth in this Employment Agreement (the "Agreement") the terms and conditions under which Employee will be employed by Corporation. NOW, THEREFORE, in consideration of the mutual promises contained herein, and intending to be legally bound thereby, the parties hereto agree as follows: SECTION I. Description of Employment 1.01. Employment and Term. Corporation agrees to employ Employee and Employee agrees to be so employed for a term commencing on July 20, 1998 and ending on July 19, 2000 (the "Term"). 1.02. Capacity. During the Term, Employee shall serve as Corporation's Chief Executive Officer and President, or in such other offices or capacities as shall be determined by Corporation's Board of Directors. Further, if elected by Corporation's shareholders, Employee shall, without additional compensation therefor, serve as a member of Corporation's Board of Directors. 1.03. Time and Efforts. During the Term, Employee shall diligently and conscientiously devote his best efforts and his full time and attention to the discharge of his duties as Chief Executive Officer and President and of such other duties as may be determined by the Board of Directors of Corporation. Employee acknowledges that during the period of his employment pursuant to this Agreement as the Chief Executive Officer and President of Corporation, he will not have any other employment or business affiliations without the prior approval of the Board of Directors of Corporation. SECTION II. Compensation 2.01. Salary. During the period of Employee's employment hereunder as Chief Executive Officer and President (irrespective of such other offices or titles as may be held by Employee) the Corporation shall pay to Employee a salary at an annual rate of Two Hundred Thousand and No/100 ($200,000.00) Dollars, payable bi-weekly, for services rendered. The amount of Employee's salary shall be reviewed annually by the Compensation Committee of the Board of Directors. 2.02. Business Expenses. Employee shall be reimbursed by Corporation for all reasonable expenses incurred in carrying out his employment duties or in otherwise promoting the business of Corporation by presenting to the designated officer of Corporation an itemized expense account report with receipts attached. 2.03. Incentive Compensation. During the Term, Corporation shall include Employee as a participant under Corporation's "Profit Incentive Plan." Employee will be entitled to such awards as are declared from time to time by the Board of Directors under the terms of the "Profit Incentive Plan." 2.04. Stock Options. Employee shall be granted an option to purchase Fifty Thousand (50,000) shares of C-COR common stock (the "Stock Option"). The Stock Option shall be a non-qualified stock option. The exercisability of the Fifty Thousand (50,000) shares shall vest over a period of four (4) years (commencing on the date of grant of the Stock Option) at the rate of Twelve Thousand Five Hundred (12,500) shares per year. The Stock Option shall be granted under and be subject to all of the terms and conditions of the C-COR Electronics, Inc. 1988 Incentive Plan and a Nonqualified Stock Option Granting Agreement. 2.05. Life Insurance Coverage. Corporation will provide to Employee group term life insurance in a face amount equal to three times the Employee's salary. Changes in life insurance coverage will occur at the same time Employee's salary is changed pursuant to Section 2.01 hereof. 2.06. Automobile Allowance. During the Term, Corporation shall pay Employee, on or about the first of each month, a monthly allowance of Eight Hundred and No/100 ($800.00) Dollars to be used to defray Employee's automobile expenses. 2.07. Financial and Tax Planning Reimbursement. Corporation agrees to reimburse Employee for expenses incurred in his personal financial and tax planning up to an amount not exceeding One Thousand Five Hundred and No/100 ($1,500.00) Dollars per year during the Term of this Agreement. 2.08. Other Benefit Plans. Employee shall also be eligible to participate in Corporation's other fringe benefit plans, including both those plans presently existing and those which may in the future be adopted, in accordance with the terms and provisions of such plans. 2.09. Vacation. Employee shall be entitled to a reasonable amount of vacation but not less than three (3) weeks per year. 2.10. Club Memberships. Corporation agrees to reimburse Employee for annual dues he is required to pay as a condition of membership at the Centre Hills Country Club during the Term of this Agreement. 2.11. Physical Examination. Corporation agrees to reimburse Employee for the expense of an annual physical examination by a physician selected by Employee. SECTION III. Intellectual Property 3.01. Disclosure. Employee agrees to promptly and fully disclose to Corporation all inventions, improvements, original works of authorship, formulas, processes, computer programs, techniques, know-how and data (hereinafter collectively referred to as "Inventions"), whether or not patentable or copyrightable, made or conceived or first reduced to practice or learned by Employee either alone or jointly with others, whether during Employee's regular hours of employment and directly or indirectly relating to or capable of being used for the benefit of Corporation's business. Employee agrees, without compensation additional to that provided for in Section II of this Agreement, to assign all rights in and to such Inventions to Corporation and to execute, at Corporation's request, appropriate documents effectuating such assignments. 3.02. Maintenance of Records. Employee agrees to maintain accurate and current written records of all such Inventions, in the form of notes, sketches, drawings, or reports which shall be and will remain the property of and be available to Corporation at all times. 3.03. Provision of Assistance. Employee agrees, upon Corporation's request, during and after the Term of employment set forth herein, to assist Corporation, its attorneys, and nominees at its or their expense in preparing and prosecuting applications for letters patent on Inventions created by him and applications to register copyrights on inventions created by him providing, however, that time actually spent by Employee at such work after termination of employment, at Corporation's request, shall be paid for by Corporation at a reasonable rate, and that necessary expenses incurred by Employee in connection with Employee's duties under this paragraph shall be paid by Corporation. 3.04. Previous Inventions. Employee expressly retains an interest in and title to Inventions patented or unpatented which Employee conceived prior to his Term of employment with Corporation. 3.05. Term of Obligations. Employee's termination of employment by Corporation under this Agreement shall not affect the obligations imposed on Employee by Paragraphs 3.01, 3.02 and 3.03 and such obligations shall be binding on Employee's heirs, executors and administrators. SECTION IV. Confidentiality and Noncompetition 4.01. Confidentiality. Employee agrees, during and after his Term of employment hereunder, without the prior written consent of Corporation, not to disclose to any person other than Corporation, by publication or otherwise, or use for his own benefit, any confidential information of Corporation or any Inventions, whether conceived in whole or in part by Employee or by others. Employee's duty under this paragraph includes but is not limited to the nondisclosure of trade secrets or confidential information, knowledge or data of Corporation which he may obtain during the course of his employment relating to Corporation's business, technical or otherwise, including but not limited to manufacturing methods, processes, techniques, products, engineering development products, computer programs, customer lists, machines, research, compositions, inventions or discoveries. Employee agrees that upon leaving the employ of Corporation, he will not take with him any original or copy of documents, or records relating to the foregoing matters, without the written consent of Corporation. This Section does not apply to any Inventions described in Section 3.04 above. 4.02. Noncompetition. In consideration of Employee's employment, for the duration of his employment by Corporation, and for a period of two (2) years after the termination thereof, Employee agrees: (a) Not to, on behalf of himself or any other entity or corporation, directly or indirectly, as an employee, agent, independent contractor, owner, stockholder, partner, officer, director or otherwise, engage in the business of the manufacture or sale of electronic equipment for use in cable television or broadband data transmission systems in North America, Central America and South America, Europe, the Middle East and the Far East, including the Pacific Rim. (b) Not to call on or solicit, on behalf of himself or on behalf of any other entity or corporation, any of the customers of Corporation for the purpose of selling or distributing to any of said customers any product or service comparable to or competitive with products or services developed, sold and/or distributed by Corporation or products or services which Corporation may have under development during the period of time Employee was employed by Corporation ("Corporation's Products"); nor will Employee in any way, directly or indirectly, for himself or on behalf of any other entity or corporation, solicit, divert or take away any customer of Corporation. For purposes of this Agreement, "customer" shall mean any person, entity or corporation which has purchased Corporation's Products, or has received a price quotation from Corporation for Corporation's Products, at any time within the three (3) year period prior to the date of termination of Employee's employment. (c) Not to enter or attempt to enter into an employment or agency relationship with any person who, at the time of such entry (or attempted entry), or at the time of termination of Employee's service with Corporation, was an officer, director, employee, principal or agent of Corporation if, but only if, such employment or agency relationship is with respect to a business in competition with Corporation. (d) Not to induce or attempt to induce any person described in subparagraph (c) to leave his or her employment, agency, directorship or office with Corporation to enter into a business in competition with Corporation. It is understood by and between the parties to this Agreement that the aforesaid covenants set forth in this Section 4.02 are essential elements of this Agreement, and that, but for the agreement of Employee to comply with such covenants, Corporation would not have agreed to the terms of employment set forth in this Agreement. Such covenants by Employee shall be construed as agreements independent of any other provisions in this Agreement. The existence of any claim or cause of action by Employee against Corporation, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Corporation of such covenants. In addition to all other legal remedies available to Corporation for enforcement of the covenants of this Section 4.02, the parties agree that Corporation shall be entitled to an injunction by any court of competent jurisdiction to prevent or restrain any breach or threatened breach hereof. The parties to this Agreement agree that, if any court of competent jurisdiction determines the specified time period or the specified geographical area of application, or the definition of Corporation's Products in such covenants to be unreasonable, arbitrary or against public policy, then a lesser time period and/or a smaller geographical area and/or a less encompassing definition of Corporation's Products which are determined to be reasonable, nonarbitrary and not against public policy may be enforced against Employee. The parties to this Agreement agree and acknowledge that they are familiar with the present and proposed operations of Corporation and believe that the restrictions set forth in this Section 4.02 are reasonable with respect to its subject matter, duration and geographical application. The provisions of this Section 4.02 may be waived, in part or fully, in writing by Corporation at its option. These restrictive covenants shall survive the termination of this Agreement. SECTION V. Change of Control 5.01. Change of Control. The provisions of Sections 5.02 and 5.03 of this Agreement shall become operative upon a change of control of Corporation, as hereinafter defined. For purposes of this Agreement, a "change of control" shall be deemed to have occurred if and when: (a) Subsequent to the date of this Agreement, any person or group of persons acting in concert shall have acquired ownership of or the right to vote or to direct the voting of shares of capital stock of Corporation representing thirty (30%) percent or more of the total voting power of Corporation, or (b) Corporation shall have merged into or consolidated with another corporation, or merged another corporation into Corporation, on a basis whereby less than fifty (50%) percent of the total voting power of the surviving corporation is represented by shares held by former shareholders of Corporation prior to such merger or consolidation, or (c) Corporation shall have sold more than fifty (50%) percent of its assets to another corporation or other entity or person, or (d) As the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, the persons who were directors of Corporation before such transaction cease to constitute a majority of directors of Corporation. 5.02. Termination Within Eighteen (18) Months. In the event that the employment of Employee with Corporation is terminated involuntarily within eighteen (18) months after a change of control occurs: (a) Employee shall be entitled to receive an amount of cash equal to the sum of the following amounts: (i) two (2) times his annual salary as provided for in Section 2.01 hereof at his rate on the date of termination of employment (but not less than two times Employee's annual salary prior to the Change of Control); and (ii) two (2) times Corporation's annual 401(k) retirement plan contribution at the Employee's contribution rate on the termination of his employment (but not less than the amount the Corporation was matching prior to Change of Control) (and subject to applicable limitations of the Internal Revenue Code, which may dictate that such amount shall not be added to the retirement plan but shall be paid in cash). The sum of these amounts shall be paid in equal monthly installments over a period of twenty-four (24) months, the first such installment to be paid within ten (10) days after Employee's termination of employment. (b) Employee shall be entitled to receive an amount of cash equal to two times the amount that would have been awarded to him under the Profit and Performance Achievement Plan of the Corporation, pursuant to the terms of such plan as in effect immediately prior to such change in control and regardless of whether such plan may have been changed thereafter, for the then-current calendar year if such award were based on one hundred (100%) percent of his share under said plan for such calendar year. Such amount shall be paid at the same time as awards are paid to other participants in said plan if such plan shall have been continued but in no event later than July 31 of the year following that year in respect of which the award was to have been paid. (c) Employee shall continue for a period of twenty-four (24) months from the date of his termination to be covered at the expense of Corporation by the same or equivalent health, dental, accident, life and disability insurance coverages as he was enrolled in immediately prior to termination of his employment; provided however, that the Employee may elect to be paid in cash within thirty (30) days after termination of his employment an amount equal to Corporation's cost of providing such coverages during such period. (d) All outstanding options held by Employee, both exercisable and nonexercisable, shall be immediately exercisable regardless of the time the option has been held by Employee and shall remain exercisable until their original expiration date, subject to applicable requirements of the Internal Revenue Code. (e) Corporation shall continue for a period of twenty-four (24) months to pay Employee's monthly dues and special assessments, if any, of any club of which Employee was a member at the time of termination and of which Corporation was paying such dues and shall permit the Employee to continue to use such membership thereafter, without reimbursement to Corporation of any membership or initiation fees or assessments, so long as Employee wishes to do so on the basis that monthly fees and special assessments will thereafter be paid by him. (f) Corporation shall for a period of twenty-four (24) months continue to pay Employee Eight Hundred and No/100 ($800.00) Dollars per month for expenses of operating an automobile owned by Employee. 5.03. Resignation Within Two Years. In the event the Employee should determine in good faith that his status or responsibilities with Corporation has or have diminished subsequent to a change of control, and shall for that reason resign from his employment with Corporation within two (2) years after such change in control, Employee shall be entitled to receive all of the payments and enjoy all of the benefits specified in Section 5.02 hereof as if Employee's employment by Corporation had terminated on the date of Employee's resignation. 5.04. Agreements Not Exclusive. The specific agreements referred to in this Section V are not intended to exclude Employee's participation in other benefits available to executive personnel generally or to preclude other compensation or benefits as may be authorized by the Board of Directors of Corporation at any time. 5.05. Enforcement Costs. Corporation is aware that upon the occurrence of a change of control the Board of Directors or a shareholder of Corporation may then cause or attempt to cause Corporation to refuse to comply with its obligations under this Section V, or may cause or attempt to cause corporation to institute, or may institute, litigation seeking to have this Section V declared unenforceable, or may take, or attempt to take, other action to deny Employee the benefits intended under this Section V. In these circumstances, the purpose of this Section V could be frustrated. It is the intent of Corporation that Employee not be required to incur the expenses associated with the enforcement of his rights under this Section V by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits extended to Employee hereunder, nor be bound to negotiate any settlement of his rights hereunder under threat of incurring such expenses. Accordingly, if following a change of control, it should appear to Employee that Corporation has failed to comply with any of its obligations under this Section V or in the event that Corporation or any other person takes any action to declare this Section V void or unenforceable, or institute any litigation or other legal action designed to deny, diminish or to recover from Employee the benefits intended to be provided to Employee hereunder and that Employee has complied with all reasonable obligations related to Employee's employment with Corporation, Corporation irrevocably authorizes Employee from time to time to retain counsel of his choice at the direct expense and liability of Corporation as provided in this Section 5.05 to represent Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against Corporation or any director, officer, shareholder or other person affiliated with Corporation, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between Corporation and such counsel, Corporation irrevocably consents to Employee entering into an attorney-client relationship with such counsel, and in that connection Corporation and Employee agree that a confidential relationship shall exist between Employee and such counsel. The reasonable fees and expenses of counsel selected from time to time by Employee as hereinabove provided shall be paid or reimbursed to Employee by Corporation on a regular, periodic basis upon presentation by Employee of a statement or statements prepared by such counsel in accordance with its customary practices up to a maximum aggregate amount of Five Hundred Thousand and No/100 ($500,000.00) Dollars, said amount to be "grossed up" to cover federal and state income taxes. The amount of the gross up shall be calculated in accordance with the following formula: A/(1-R), where A is the amount of legal fees and R is the combined highest marginal tax rate applicable to Employee in the tax year that the payment is made. 5.06. No Set-Off. Corporation shall not be entitled to set-off against the amount payable to Employee any amounts earned by Employee in other employment after termination of his employment with Corporation, or any amounts which might have been earned by Employee in other employment had he sought other employment. The amounts payable to Employee under this Section V shall not be treated as damages but as severance compensation to which Employee is entitled by reason of termination of his employment in the circumstances contemplated by this Section V. However, a set-off may be taken by Corporation against the amounts payable to Employee for expenses covering the same or equivalent hospital, medical, accident, and disability insurance coverages as set forth in Section 5.02(c); or for expenses covering monthly dues and special assessments of any club of which Employee was a member at the time of termination and of which Corporation was paying dues as set forth in Section 5.02(e); or for expenses related to monthly automobile allowance as set forth in Section 5.02(f) if such benefits are paid for the Employee by a new employer after Employee's termination of employment by Corporation under Section 5.02 hereof or after Employee's resignation under Section 5.03 hereof. 5.07. Termination. The provisions of this Section V shall continue during the Term hereof but shall terminate when the employment of Employee with Corporation shall terminate, so long as such termination was not in anticipation of or related to a change of control. SECTION VI Indemnification for Service as Director and Officer 6.01. Indemnity of Employee. Should Employee serve Corporation as a director or officer during the Term, Corporation shall hold harmless and indemnify Employee as a director or officer to the full extent authorized or permitted by the provisions of the Pennsylvania Business Corporation Law (the "State Statute"), or by any amendment thereof or other statutory provisions authorizing or permitting such indemnification which is adopted after the date hereof. 6.02. Maintenance of Insurance and Self-Insurance. (a) Corporation represents that it presently has in force and effect policies of Directors and Officers Liability Insurance ("D&O Insurance") in insurance companies and amounts as follows (the "Insurance Policies"): Insurer Amount Gulf Insurance Co. $10,000,000 Tamarack American, a division $10,000,000 in excess of the of Great American Insurance Company above $10,000,000 Subject only to the provisions of Section 6.02(b) hereof, Corporation hereby agrees that, so long as Employee shall serve as a director or officer of Corporation (or shall continue at the request of Corporation to serve as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and thereafter so long as Employee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative by reason of the fact that Employee was a director or officer of Corporation (or served in any of said other capacities), Corporation will purchase and maintain in effect for the benefit of Employee one more valid, binding and enforceable policy or policies of D&O Insurance providing, in all respects, coverage at least comparable to that presently provided pursuant to the Insurance Policies. (b) Corporation shall not be required to maintain said policy or policies of D&O Insurance in effect if said insurance is not reasonably available or if, in the reasonable business judgment of the then directors of Corporation, either (i) the premium cost for such insurance is substantially disproportionate to the amount of coverage or (ii) the coverage provided by such insurance is so limited by exclusions that there is insufficient benefit from such insurance. (c) In the event Corporation does not purchase and maintain in effect said policy or policies of D&O Insurance pursuant to the provisions of Section 6.02(b) hereof, Corporation agrees to hold harmless and indemnify Employee to the full extent of the coverage which would otherwise have been provided for the benefit of Employee pursuant to the Insurance Policies. 6.03. Additional Indemnity. Subject only to the exclusions set forth in Section 6.04 hereof, Corporation hereby further agrees to hold harmless and indemnify Employee: (a) Against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by Employee in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Corporation) to which Employee is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Employee is, was or at any time becomes a director, officer, employee or agent of Corporation, or is or was serving or at any time serves at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise; and (b) Otherwise to the fullest extent as may be provided to Employee by Corporation under the non-exclusivity provisions of Section 7-1 of the Bylaws of Corporation and the State Statute. 6.04. Limitations on Additional Indemnity. No indemnity pursuant to Section 6.03 hereof shall be paid by Corporation: (a) except to the extent the aggregate of losses to be indemnified thereunder exceeds the sum of One Thousand and No/100 ($1,000.00) Dollars plus the amount of such losses for which Employee is indemnified either pursuant to Sections 6.01 or 6.02 hereof or pursuant to any D&O Insurance purchased and maintained by the Corporation; (b) in respect to remuneration paid to Employee if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; (c) on account of any suit in which judgment is rendered against Employee for an accounting of profits made from the purchase or sale by Employee of securities of Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (d) on account of Employee's conduct which is finally adjudged by a court of competent jurisdiction to have been knowingly fraudulent or deliberately dishonest or to have constituted willful misconduct or recklessness; (e) if a final decision by a court of competent jurisdiction shall determine that such indemnification is not lawful. 6.05. Continuation of Indemnity. All agreements and obligations of Corporation contained herein shall continue during the period Employee is a director, officer, employee or agent of Corporation (or is or was serving at the request of Corporation as a director, officer, employee or agent of another corporations, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Employee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Employee was a director of Corporation or serving in any other capacity referred to herein. 6.06. Notification and Defense of Claim. Promptly after receipt by Employee of notice of the commencement of any action, suit or proceeding, Employee will, if a claim in respect thereof is to be made against Corporation under this Section VI, notify corporation of the commencement thereof; but the omission so to notify Corporation will not relieve it from any liability which it may have to Employee otherwise than under this Section VI. With respect to any such action, suit or proceeding as to which Employee notifies Corporation of the commencement thereof: (a) Corporation will be entitled to participate therein at its own expense; and (b) Except as otherwise provided below, to the extent that it may wish, Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel satisfactory to Employee. After notice from Corporation to Employee of its election so to assume the defense thereof, Corporation will not be liable to Employee under this Section VI for any legal or other expenses subsequently incurred by Employee in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Employee shall have the right to employ Corporation's counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from Corporation of its assumption of the defense thereof shall be at the expense of Employee unless (i) the employment of counsel by Employee has been authorized by Corporation, (ii) Employee shall have reasonably concluded that there may be a conflict of interest between Corporation and Employee in the conduct of the defense of such action or (iii) Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be at the expense of Corporation. Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of Corporation or as to which Employee shall have made the conclusion provided for in (ii) above. (c) Corporation shall not be liable to indemnify Employee under this Section VI for any amounts paid in settlement of any action or claim effected without its written consent. Corporation shall not settle any action or claim in any manner which would impose any penalty or limitation on Employee with Employee's written consent. Neither Corporation nor Employee will unreasonably withhold its or his consent to any proposed settlement. 6.07. Repayment of Expenses. Employee will reimburse Corporation for all reasonable expenses paid by Corporation in defending any civil or criminal action, suit or proceeding against Employee in the event and only to the extent that it shall be ultimately determined that Employee is not entitled to be indemnified by Corporation for such expenses under the provisions of the State Statute, the Bylaws of Corporation, this Section VI or otherwise. 6.08. Enforcement. (a) Corporation expressly confirms and agrees that it has entered into this Section VI and assumed the obligations imposed on Corporation hereby in order to induce Employee to, if elected, serve as a director of Corporation, and acknowledges that Employee is relying upon this Section VI in agreeing to serve Corporation in such capacity. (b) In the event Employee is required to bring any action to enforce rights or to collect monies due under this Agreement and is successful in such action, Corporation shall reimburse Employee for all of Employee's reasonable fees and expenses in bringing and pursuing such action. SECTION VII. Miscellaneous 7.01. Use of Name. Employee agrees to allow Corporation to have his name or picture used by Corporation for advertising or trade purposes during the Term of this Agreement. 7.02. Binding Effect. This Agreement shall inure to the benefit of and be binding upon Employee and upon Corporation, their successors and assigns, including, without limitation, any person, partnership, company or corporation which may acquire substantially all of Corporation's assets or business or into which Corporation may be consolidated, merged or otherwise combined. 7.03. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania. 7.04. Legal Construction. In the event any one or more of the provisions contained in this Agreement shall for any reason beheld invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision thereof and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 7.05. Amendment. No amendment, modification or alteration of the terms hereof shall be binding unless the same be in writing, dated subsequent to the date hereof and duly executed by the parties hereto. 7.06. Integration. This Agreement constitutes the entire understanding and agreement between Corporation and Employee with regard to the subject matter hereof and supersedes all other agreements and understandings between Corporation and Employee. IN WITNESS WHEREOF, the parties hereto have executed this Agreement with the intent to be legally bound thereby on the day and year first above written. C-COR ELECTRONICS, INC. By: Richard E. Perry Title: Chairman David A. Woodle EX-10.(SS) 6 FISCAL YEAR 1999 PROFIT INCENTIVE PLAN C-COR ELECTRONICS, INC. PROFIT INCENTIVE PLAN (PIP) FISCAL YEAR 1999 1. Conceptual Basis of the Plan The PIP plan is based on achieving and improving on the Company's pre-incentive, pre-tax earnings relative to the Annual Financial Plan endorsed by the Board of Directors at the beginning of each fiscal year. The plan initiates payments based on the achievement of 90% of the pre-incentive, pre-tax earnings reflected in the Annual Financial Plan. The basic payment formula is as follows: Pre-PIP, Pre-tax earnings X PIP % (see Item 3. below) = Total PIP Payment Pool PIP Payment Pool X Sub-pool Apportionment % (see Item 5. Below) = Sub-pool Payment Pool Sub-pool Payment Pool X (base wages / total base wages paid to sub-pool members) = Payment 2. Participant Eligibility - - Full-time, active employees of C-COR Electronics, Inc. and C-COR Electronics Canada are eligible. - - Employees of C-COR Europe, B.V. are not eligible. - - Employees of C-COR de Mexico, S.A. de C.V. are not eligible. - - Employees on Sales or Marketing Commission or Incentive Plans are not eligible. - - Employees who are provided a specifically identified, alternative incentive bonus program are not eligible. - - Temporary Agency Employees, Independent Contractors, Co-op and Intern (part-time) Employees are not eligible. New Hires within the Fiscal Year and / or Terminated Employees - An employee is eligible for a quarterly PIP payment only if they have worked the full fiscal quarter. An employee is eligible to receive a year-end PIP payment if they worked at least one full fiscal quarter during the 12-month period and were on the payroll at the end of the fiscal year. Note: The formula for calculating a PIP payment takes into account the pro-rationing of the payment amount to reflect the amount of time the individual was actively employed during the payment period. Employees on Leave (Disability; Workers' Compensation; FMLA; Military Leave) - An employee must be active and full-time in order to be eligible for a payment. The individual would be eligible for a payment on a pro-rata basis for the portion of FY 1999 in which they were an active, full-time employee. 3. Calculation of Total PIP Payment Pool Pre-incentive, pre-tax profits must be at least 90% of those reflected in the Company's Annual Financial Plan in order to generate a PIP payment pool. Achievement of the following percentages of pre-incentive, pre-tax profits relative to the Annual Financial Plan generates the following PIP payment pool percentages: Less than 90% of Plan 0% PIP payment pool 90% to < 100% of Plan 7.5% PIP payment pool 100% of Plan 10.0% PIP payment pool More than 100% of Plan (a) (a) All earnings up to 100% of Plan would generate a PIP payment pool percentage of 10%. All incremental earnings, in excess of the 100% level, would generate a PIP payment pool percentage of 20%. The PIP payment pool is calculated by taking the appropriate percentage from above and multiplying it times the actual pre-incentive, pre-tax income of the Company. 4. Frequency and Timing of Payments After the completion of each fiscal quarter, a PIP payment will be calculated based on the actual pre-incentive, pre-tax profitability of the fiscal quarter (assumes that the figure exceeds 90% of the pre-incentive, pre-tax profitability reflected in the quarterly Financial Plan). Each quarter is independent from the standpoint of the quarterly PIP payment calculation. The PIP payment pool percentage will be derived from the above table and will be based on the actual pre-incentive, pre-tax earnings for the quarter as a percentage of the Financial Plan pre-incentive, pre-tax earnings projected for the quarter. C-COR's rolling financial forecast will be consulted with respect to the projected pre-incentive, pre-tax earnings for the entire fiscal year. If the rolling forecast reflects a lower PIP payment pool percentage for the year relative to the actual results for the quarter, the lower percentage corresponding to the rolling forecast results will be used to calculate the PIP payment pool. If the rolling forecast reflects a higher PIP payment pool percentage for the year relative to the actual results for the quarter, the lower percentage dictated by the actual quarterly results will be used to calculate the PIP payment pool. If sufficient pre-incentive, pre-tax earnings have been generated to warrant a quarterly PIP payment, each eligible employee will be paid one-half of the PIP payment calculated for them for the fiscal quarter. The payment will be made as soon as practically possible, immediately after the Company's Board of Directors reviews the quarterly financial results and agrees to the payment. The Board generally reviews the financial results at mid-month following the end of each fiscal quarter, except at fiscal year-end. Note that the Board of Directors has complete discretion in administering and interpreting the PIP Plan. The remaining one-half payment from each of the first three fiscal quarters will be accrued (held back) through the end of the fiscal year. After the financial audit has been completed for the fiscal year and the Board of Directors has reviewed the annual financial results (mid-August), a payment (assuming the financial results support one) will be disbursed to all eligible employees as soon as practically possible. The payment will consist of the following: a. The remaining 1/2 payment "held back" from the first quarter of the fiscal year b. The remaining 1/2 payment "held back" from the second quarter of the fiscal year c. The remaining 1/2 payment "held back" from the third quarter of the fiscal year d. The fourth quarter payment as well as the amounts "held back" over the first three quarters. Note that improvement or deterioration of financial results in subsequent quarters can either positively or negatively impact the year-end payment with respect to the amount(s) "held back" from earlier quarters. 5. Apportionment of total PIP Payment Pool Between Sub-pools The total PIP payment pool is allocated between two sub-pools for distribution as follows: PIP Pool Apportionment % ------------------------------------------- Officers 2.0% per Officer Non-officers Total Pool less Officer apportionment above 6. Apportionment of Sub-pool Amounts to Individuals In general, the apportionment of the PIP sub-pool to the individuals within the sub-pool is based on the following: (base wages of employee paid during period / (total base wages paid to all employees in the sub-pool during period)). This percentage is multiplied by the sub-pool apportionment total. Note that non-exempt base wages exclude overtime. They do however include shift differential. The apportionment of the Officer sub-pool is based on equal shares. An exception is made for the President and CEO, who receives the equivalent of a triple-share. As an example, assume that the Company has 10 officers, including the President and CEO. In essence, the PIP sub-pool would be divided into 12 equal shares with each officer receiving one share, except for the President and CEO, who would receive three shares. If an Officer is hired during the fiscal year, their total share payment amount is pro-rated based on the time actually employed as a percentage of the total time during the fiscal period. The equal share portion, not paid to the partial-year Officer, would be distributed to the Officers who were employed a full-year consistent with the share apportionment described above. The President and CEO will review each Officer's performance before awarding the shares. Officer PIP payments are capped at 60% of their base salary. All other employees' PIP payments are capped at 40% of their base salary or if non-exempt, 40% of their hourly base pay rate X 2080 hours. EX-10.(TT) 7 INCENTIVE PLAN PHL_A 1008029 v 1 C-COR ELECTRONICS, INC. INCENTIVE PLAN ARTICLE I Purpose The purpose of this Incentive Plan (the "Plan") is to enable C-COR Electronics, Inc. (the "Company") to offer certain officers, key employees and directors of the Company equity interests in the Company and other incentive awards, including performance-based stock incentives, thereby attracting, retaining and rewarding such persons, and strengthening the mutuality of interests between such persons and the Company's shareholders. ARTICLE II Definitions For purposes of this Plan, the following terms shall have the following meanings: 2.1 "Award" shall mean an award under this Plan of Stock Options, Restricted Stock, Performance Shares or Performance Units. 2.2 "Board" shall mean the Board of Directors of the Company. 2.3 "Change of Control" shall mean the occurrence of any one of the following: (a) Any person or group of persons acting in concert shall have acquired ownership of or the right to vote or to direct the voting of shares of capital stock of the Company representing 30% or more of the total voting power of the Company, or (b) The Company shall have merged into or consolidated with another corporation, or merged another corporation into the Company, on a basis whereby less than 50% of the total voting power of the surviving corporation is represented by shares held by former shareholders of the Company prior to such merger or consolidation, or (c) The Company shall have sold more than 50% of its assets to another corporation or other entity or person, or (d) As the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, the persons who were Directors of the Company before such transaction cease to constitute a majority of Directors of the Company. 2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended. 2.5 "Common Stock" shall mean the Common Stock, par value $.10 per share, of the Company. 2.6 "Director" shall mean a member of the Board. 2.7 "Disability" shall mean Total Disability as defined in the Company's long-term disability plan. 2.8 "Fair Market Value" for purposes of this Plan, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, shall mean, as of any date, the closing sale price of a share of Common Stock for the preceding business day as reported on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if not listed or traded on any such exchange, the Nasdaq Stock Market ("Nasdaq"), or, if such sale price is not available, the average of the bid and asked prices per share reported on Nasdaq for such day, or, if such quotations are not available, the fair market value as determined by the Board, which determination shall be conclusive. 2.9 "Participant" shall mean an individual to whom an Award has been made pursuant to this Plan. 2.10 "Performance Cycle" shall have the meaning set forth in Section 9.1. 2.11 "Performance Period" shall have the meaning set forth in Section 8.1. 2.12 "Performance Share" shall mean an Award made pursuant to Article VIII of this Plan of the right to receive Common Stock at the end of a specified Performance Period if specified performance goals are met. 2.13 "Performance Unit" shall mean an Award made pursuant to Article IX of this Plan of the right to receive a fixed dollar amount, payable in cash or Common Stock or a combination of both, at the end of a specified Performance Cycle if specified performance goals are met. 2.14 "Restricted Stock" shall mean an Award of shares of Common Stock under this Plan that is subject to forfeiture under Article VII. 2.15 "Restriction Period" shall have the meaning set forth in Section 7.2(c). 2.16 "Retirement" shall mean retirement from employment with the Company or one of its subsidiaries, provided that the employee at such time has been employed by the Company or a subsidiary of the Company for at least five years and is at least 55 years old. 2.17 "Stock Option" or "Option" shall mean any option to purchase shares of Common Stock granted pursuant to Article VI. 2.18 "Termination of Employment" shall mean (a) termination of an employee's employment with the Company and all of its subsidiaries for reasons other than a military or personal leave of absence granted by the Company or (b) the date on which a Director ceases to be a member of the Board for any reason. ARTICLE III Administration 3.1 Administration. The Plan shall be administered and interpreted by the Board; provided, however, that the Board may delegate this responsibility to a committee comprised of two or more members of the Board. 3.2 Awards. The Board shall have full authority to grant, pursuant to the terms of this Plan, to persons eligible under Article V: (i) Stock Options, (ii) Restricted Stock, (iii) Performance Shares and (iv) Performance Units. In particular, the Board shall have the authority: (a) to select the persons eligible under Article V to whom Stock Options, Restricted Stock, Performance Shares and Performance Units may from time to time be granted hereunder; (b) to determine whether and to what extent Stock Options, Restricted Stock, Performance Shares and Performance Units, or any combination thereof, are to be granted hereunder to one or more persons eligible under Article V; (c) to determine the number of shares of Common Stock to be covered by each Award granted hereunder; and (d) to determine the terms and conditions, not inconsistent with the terms of this Plan, of any Award granted hereunder (including, but not limited to, the term, the option or purchase price, any restriction or limitation, any vesting schedule or acceleration thereof, or any forfeiture restrictions or waiver thereof, regarding any Award and the shares of Common Stock relating thereto, based on such factors as the Board shall determine, in its sole discretion). 3.3 Guidelines. Subject to Article X hereof, the Board shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing this Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of this Plan and any Award granted under this Plan (and any agreements relating thereto); and to otherwise supervise the administration of this Plan. The Board may correct any defect, supply any omission or reconcile any inconsistency in this Plan or in any Award granted in the manner and to the extent it shall deem necessary to carry this Plan into effect. Notwithstanding the foregoing, no action of the Board under this Section 3.3 shall impair the rights of any Participant without the Participant's consent. 3.4 Decisions Final. Any decision, interpretation or other action made or taken in good faith by the Board arising out of or in connection with the Plan shall be final, binding and conclusive on the Company, all Participants and their respective heirs, executors, administrators, successors and assigns. ARTICLE IV Share Limitation 4.1 Shares. The maximum aggregate number of shares of Common Stock that may be issued under this Plan shall be 1,000,000 shares (subject to any increase or decrease pursuant to Section 4.2), plus an additional number of shares equal to the number of shares remaining available for grant under the 1988 Stock Option Plan and the 1989 Non-Employee Directors' Non-Qualified Stock Option Plan as of the effective date of this Plan pursuant to Section 13.1 hereof. The shares of Common Stock issued under this Plan may be either authorized and unissued Common Stock or issued Common Stock reacquired by the Company. If any Option granted under this Plan shall expire, terminate or be cancelled for any reason without having been exercised in full, the number of unpurchased shares shall again be available for the purposes of the Plan. Further, if any shares of Restricted Stock granted hereunder are forfeited or any Award of Performance Shares terminates without the delivery of such shares, the shares subject to such Award, to the extent of such forfeiture or termination, shall again be available under this Plan. 4.2 Changes. In the event of any merger, reorganization, consolidation, recapitalization, dividend (other than a regular cash dividend), stock split, or other change in corporate structure affecting the Common Stock, such substitution or adjustment shall be made in the maximum aggregate number of shares that may be issued under this Plan, in the maximum aggregate number of shares with respect to which Options or Performance Shares may be granted under this Plan to any individual during any calendar year, in the number and option price of shares subject to outstanding Options granted under this Plan, and in the number of shares subject to other outstanding Awards granted under this Plan, as may be determined to be appropriate by the Board, in its sole discretion, provided that the number of shares subject to any Award shall always be a whole number. ARTICLE V Eligibility 5.1 Employees. Officers and other employees of the Company and its subsidiaries are eligible to be granted Awards under this Plan. 5.2 Directors. Directors of the Company who are not employees of the Company or any of its subsidiaries are eligible to be granted Awards under this Plan. ARTICLE VI Stock Options 6.1 Options. Each Stock Option granted under this Plan shall be a non-qualified stock option (i.e., a stock option that is not intended to be an "incentive stock option" within the meaning of Section 422 of the Code). 6.2 Grants. The Board shall have the authority to grant to any person eligible under Article V one or more Stock Options; provided, however, that no individual may be granted Stock Options for more than 100,000 shares of Common Stock (subject to any increase or decrease pursuant to Section 4.2) during any calendar year. 6.3 Terms of Options. Options granted under this Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Board shall deem desirable: (a) Stock Option Certificate. Each Stock Option shall be evidenced by, and subject to the terms of, a Stock Option Certificate executed by the Company. The Stock Option Certificate shall specify the number of shares of Common Stock subject to the Stock Option, the option price, the option term, and the other terms and conditions applicable to the Stock Option. (b) Option Price. The option price per share of Common Stock purchasable upon exercise of a Stock Option shall be determined by the Board at the time of grant but shall be not less than 100% of the Fair Market Value of a share of Common Stock on the date of grant. (c) Option Term. The term of each Stock Option shall be fixed by the Board, but no Stock Option shall be exercisable more than eight (8) years after the date it is granted. (d) Exercisability. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Board at the time of grant. The Board may waive any installment exercise or waiting period provisions, in whole or in part, at any time after the date of grant, based on such factors as the Board shall, in its sole discretion, deem appropriate. (e) Method of Exercise. Subject to such installment exercise and waiting period provisions as may be imposed by the Board, Stock Options may be exercised in whole or in part at any time during the option term, by giving written notice of exercise to the Company specifying the number of shares of Common Stock to be purchased and the option price therefor. Such notice shall be accompanied by payment in full of the option price in such form as the Board may accept and, if requested, by the representation described in Section 12.4. Unless otherwise determined by the Board in its sole discretion at or after grant, payment in full or in part may be made in the form of Common Stock duly owned by the Participant (and for which the Participant has good title free and clear of any liens and encumbrances), based on the Fair Market Value of the Common Stock on the date of exercise, or through a broker-assisted cashless exercise. Upon payment in full of the option price, as provided herein, stock certificates representing the number of shares of Common Stock to which the Participant is entitled shall be issued and registered in the name of, and delivered to, the Participant. (f) Death. Upon a Participant's death, unless otherwise determined by the Board at the time of grant, all Stock Options held by such Participant shall become fully exercisable and may thereafter be exercised by the legal representative of the Participant's estate for a period of one year from the date of the Participant's death or until the expiration of the stated term of such Stock Option, whichever period is shorter. (g) Disability. Upon a Participant's Termination of Employment as a result of a Disability (as determined by the Board, in its sole discretion), any Stock Option held by such Participant that was exercisable on the date of such Termination of Employment may thereafter be exercised by the Participant for a period of one year from the date of such Termination of Employment or until the expiration of the stated term of such Stock Option, whichever period is shorter; provided, however, that, if the Participant dies within such one-year period, any unexercised Stock Option held by such Participant shall thereafter be exercisable by the legal representative of the Participant's estate to the extent to which it was exercisable at the time of death, for a period of one year from the date of the Participant's death or until the expiration of the stated term of such Stock Option, whichever period is shorter. (h) Retirement. Upon a Participant's Retirement, unless otherwise determined by the Board at the time of grant, all Stock Options held by such Participant shall become fully exercisable and may thereafter be exercised for a period of one year from the date of the Participant's Retirement or until the expiration of the stated term of such Stock Option, whichever period is shorter. (i) Termination of Employment. Unless otherwise determined by the Board at the time of grant, upon a Participant's Termination of Employment for any reason other than death, Disability or Retirement, any Stock Option held by such Participant that was exercisable on the date of such Termination of Employment may thereafter be exercised by the Participant for a period of 30 days or until the expiration of the stated term of such Stock Option, whichever period is shorter. Any Stock Option that was not exercisable on the date of such Termination of Employment shall terminate as of such date. (j) Board Discretion. Notwithstanding any other provision of this Plan, upon a Participant's Termination of Employment for any reason (including death, Disability or Retirement), the Board may, in its sole discretion, accelerate the exercisability of any outstanding Stock Option held by such Participant and/or extend the post-termination exercise periods set forth in subsections (f), (g), (h) and (i) of this Section 6.3, provided that such post-termination exercise period may not extend beyond the expiration of the stated term of such Stock Option. ARTICLE VII Restricted Stock 7.1 Awards of Restricted Stock. The Board shall have the authority to grant Restricted Stock to any person eligible under Article V. The Board shall determine to whom, and the time or times at which, grants of Restricted Stock will be made, the number of shares to be included in each Award, the time or times within which such Awards may be subject to forfeiture, the vesting schedule and rights to acceleration thereof, and the other terms and conditions of the Awards, in addition to those set forth in Section 7.2. The provisions of Restricted Stock Awards need not be the same with respect to each Participant, and such Awards to individual Participants need not be the same in subsequent years. 7.2 Terms and Conditions. Restricted Stock awarded pursuant to this Article VII shall be subject to the following terms and conditions and such other terms and conditions, not inconsistent with the terms of this Plan, as the Board shall deem desirable: (a) Award Certificate. Each Restricted Stock Award shall be evidenced by, and subject to the terms of, a Restricted Stock Award Certificate executed by the Company. The Restricted Stock Award Certificate shall specify the number of shares of Common Stock subject to the Award, the time or times within which such Restricted Stock is subject to forfeiture and the other terms, conditions and restrictions applicable to such Award. (b) Stock Certificates. When a Participant receives a Restricted Stock Award, a stock certificate or stock certificates representing the number of shares of Common Stock covered by such Restricted Stock Award shall be issued and registered in the name of the Participant. Such stock certificates shall be held in custody by the Company as long as the Restricted Stock is subject to forfeiture. When a Restricted Stock Award, or any portion thereof, ceases to be subject to forfeiture, the stock certificate or stock certificates representing such shares shall be released from custody and delivered to the Participant. The Participant shall have all of the rights of a holder of Common Stock with respect to shares subject to a Restricted Stock Award, including the right to vote such shares and to receive dividends thereon, except that the Participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted Stock as long as such shares are held in custody by the Company. (c) Restriction Period. Subject to the provisions of this Plan and the Restricted Stock Award Certificate, shares of Restricted Stock will be forfeited to the Company upon a Participant's Termination of Employment during a period set by the Board commencing with the date of such Award (the "Restriction Period"). Subject to the provisions of this Plan, the Board, in its sole discretion, may provide for the lapse of such restrictions in installments. The Board may waive such restrictions, in whole or in part, at any time after the date of grant, based on such factors as the Board shall, in its sole discretion, deem appropriate. (d) Termination of Employment. Subject to the provisions of this Plan and the Restricted Stock Award Certificate, upon a Participant's Termination of Employment during the Restriction Period due to death or Disability or Retirement, restrictions will lapse with respect to a percentage of the Restricted Stock Award granted to the Participant that is equal to the percentage of the Restriction Period that has elapsed as of the date of the Participant's Termination of Employment, and stock certificates representing such shares of Common Stock shall be released from custody and delivered to the Participant or the Participant's estate, as the case may be. Upon a Participant's Termination of Employment for any reason other than death, Disability or Retirement, all outstanding Restricted Stock Awards shall be forfeited to the Company. (e) Distributions. In the event of a dividend or distribution payable in stock or a reclassification, stock split or split-up, the shares issued or declared in respect of Restricted Stock shall be subject to the same terms and conditions relating to forfeiture as the Restricted Stock to which they relate. ARTICLE VIII Performance Shares 8.1 Award of Performance Shares. The Board shall have the authority to grant Performance Shares to any person eligible under Article V. The Board shall determine the persons to whom, and the time or times at which, Performance Shares shall be awarded, the number of Performance Shares to be included in each Award, the duration of the period (the "Performance Period") during which, and the conditions under which, receipt of the shares of Common Stock will be deferred, and the other terms and conditions of the Award in addition to those set forth in Section 8.2. The provisions of Performance Share Awards need not be the same with respect to each Participant, and such Awards to individual Participants need not be the same in subsequent years. 8.2 Terms and Conditions. Performance Shares awarded pursuant to this Article VIII shall be subject to the following terms and conditions and such other terms and conditions, not inconsistent with the terms of this Plan, as the Board shall deem desirable: (a) Conditions. The Board, in its sole discretion, shall specify the Performance Period during which, and the conditions under which, the receipt of shares of Common Stock covered by the Performance Share Award will be deferred. The receipt of shares of Common Stock pursuant to a Performance Share Award shall be conditioned upon the attainment of one or more pre-established objective performance goals. Such goals must be established by the Board in writing not later than 90 days after the commencement of the Performance Period, provided that the outcome is substantially uncertain at the time the goal is established. The performance goals may be based on the Company's stock price, return on assets, return on capital employed, return on shareholders' equity, earnings, earnings per share, total shareholder return, sales, costs, or such other objective performance goals as may be established by the Board from time to time. (b) Award Certificate. Each Performance Share Award shall be evidenced by, and subject to the terms of, a Performance Share Certificate executed by the Company. The Performance Share Certificate shall specify the number of shares of Common Stock subject to the Award, the applicable Performance Period, the applicable performance goals, and the other terms and conditions applicable to such Award. (c) Stock Certificates. If the Board determines, after the expiration of the Performance Period, that the performance goals specified in the Performance Share Certificate and all other material terms of the Award have been satisfied, stock certificates representing the number of shares of Common Stock covered by the Performance Share Award shall be issued and registered in the name of, and delivered to, the Participant. (d) Termination of Employment. Unless otherwise determined by the Board at the time of grant, the Performance Shares will be forfeited upon a Participant's Termination of Employment during the Performance Period for any reason (including death, Disability or Retirement). 8.3 Individual Limit. The maximum number of shares of Common Stock that may be subject to Performance Share Awards granted to any individual during any calendar year shall be 100,000 shares (subject to any increase or decrease pursuant to Section 4.2). ARTICLE IX Performance Units 9.1 Award of Performance Units. The Board shall have the authority to grant Performance Units to any person eligible under Article V. The Board shall determine the persons to whom, and the time or times at which, Performance Units shall be awarded, the number of Performance Units to be included in each Award, the duration of the period (the "Performance Cycle") during which, and the conditions under which, a Participant's right to Performance Units will be vested, the ability of Participants to defer the receipt of payment of such Units, and the other terms and conditions of the Award in addition to those set forth in Section 9.2. A Performance Unit shall have a fixed dollar value. The provisions of Performance Unit Awards need not be the same with respect to each Participant, and such Awards to individual Participants need not be the same in subsequent years. 9.2 Terms and Conditions. The Performance Units awarded pursuant to this Article IX shall be subject to the following terms and conditions and such other terms and conditions, not inconsistent with the terms of this Plan, as the Board shall deem desirable: (a) Conditions. The Board, in its sole discretion, shall specify the Performance Cycle during which, and the conditions under which, the Participant's right to Performance Units will be vested. The vesting of Performance Units shall be conditioned upon the attainment of one or more pre-established objective performance goals. Such goals must be established by the Board in writing not later than 90 days after the commencement of the Performance Cycle, provided that the outcome is substantially uncertain at the time the goal is established. The performance goals may be based on the Company's stock price, return on assets, return on capital employed, return on shareholders' equity, earnings, earnings per share, total shareholder return, sales, costs, or such other objective performance goals as may be established by the Board from time to time. (b) Award Certificate. Each Performance Unit Award shall be evidenced by, and subject to the terms of, a Performance Unit Certificate executed by the Company. The Performance Unit Certificate shall specify the dollar value of the Award, the applicable Performance Cycle, the applicable performance goals, and the other terms and conditions applicable to such Award. (c) Vesting; Payment. If the Board determines, after the expiration of the Performance Cycle, that the performance goals specified in the Performance Unit Certificate and all other material terms of the Award have been satisfied, the Performance Units will be vested and the Participant will receive payment of the amount specified in the Performance Unit Certificate as soon as practicable thereafter. Payment may be made in cash, shares of Common Stock or a combination of both, as determined by the Board, in its sole discretion. (d) Termination of Employment. Unless otherwise determined by the Board at the time of grant, the Performance Units will be forfeited upon a Participant's Termination of Employment during the Performance Cycle for any reason (including death, Disability or Retirement). 9.3 Individual Limit. The maximum dollar amount of Performance Unit Awards that may be granted to any individual during any calendar year shall be $ 100,000. ARTICLE X Termination or Amendment 10.1 Termination or Amendment of Plan. The Board may at any time amend, discontinue or terminate this Plan or any part hereof (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirement referred to in Article XII); provided, however, that, unless otherwise required by law, the rights of a Participant with respect to Awards granted prior to such amendment, discontinuance or termination may not be impaired without the consent of such Participant and, provided further, that the Company will seek the approval of the Company's shareholders for any amendment if such approval is necessary to comply with the Code, Federal or state securities law or any other applicable rules or regulations. 10.2 Amendment of Awards. The Board may amend the terms of any Award previously granted, prospectively or retroactively, but, subject to Article IV, no such amendment or other action by the Board shall impair the rights of any holder without the holder's consent. The Board may also substitute new Stock Options for previously granted Stock Options having higher option prices. ARTICLE XI Unfunded Plan 11.1 Unfunded Status of Plan. This Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payment not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company. ARTICLE XII General Provisions 12.1 Nonassignment. Except as otherwise provided in this Plan, Awards made hereunder and the rights and privileges conferred thereby shall not be sold, transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process. Upon any attempt to sell, transfer, assign, pledge, hypothecate or otherwise dispose of such Award, right or privilege contrary to the provisions hereof, or upon the levy of any attachment or similar process thereon, such Award and the rights and privileges conferred hereby shall immediately terminate and the Award shall immediately be forfeited to the Company. 12.2 Change of Control. In the event of a Change of Control, all outstanding Stock Options shall immediately become fully exercisable and restrictions will lapse with respect to a percentage of each outstanding Restricted Stock Award equal to the percentage of the Restriction Period that has elapsed as of the date of the Change of Control. Stock certificates representing the Common Stock covered by any outstanding Restricted Stock Award as to which restrictions have lapsed shall be released from custody and delivered to the Participants as soon as practicable following the Change of Control. Stock certificates representing the Common Stock covered by any outstanding Stock Option shall be issued and registered in the name of, and delivered to, the Participants as soon as practicable following exercise of such Option and payment by the Participant of the option price and, if requested, delivery of the representation described in Section 12.4. Unless otherwise provided in a Participant's Performance Share Certificate or Performance Unit Certificate, a Change of Control shall not accelerate or otherwise change the terms of outstanding Performance Shares or Performance Units, which shall continue to be governed by the applicable provisions of Articles VIII and IX, respectively. 12.3 Rights as Shareholder. A Participant shall not be deemed to be the holder of Common Stock, or to have the rights of a holder of Common Stock, with respect to shares subject to an Award unless and until stock certificates representing such shares of Common Stock have been issued and registered in the name of such Participant. 12.4 Legend. The Board may require each person acquiring shares pursuant to an Award under the Plan to represent to the Company in writing that the Participant is acquiring the shares without a view to distribution thereof. The stock certificates representing such shares may include any legend that the Board deems appropriate to reflect any restrictions on transfer. All certificates representing shares of Common Stock delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Board may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange or stock market on which the Common Stock is then listed or traded, any applicable Federal or state securities law, and any applicable corporate law, and the Board may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. 12.5 Other Plans. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. 12.6 No Right to Employment. Neither this Plan nor the grant of any Award hereunder shall give any Participant or other person any right with respect to continuance of employment by the Company or any subsidiary, nor shall there be a limitation in any way on the right of the Company or a subsidiary to terminate a Participant's employment at any time. Neither this Plan nor the grant of any Award hereunder shall give any Director any right to continue as a member of the Board or obligate the Company to nominate any Director for re-election by the Company's shareholders. 12.7 Withholding of Taxes. The Company shall have the right to reduce the number of shares of Common Stock otherwise deliverable pursuant to this Plan by an amount that would have a Fair Market Value equal to the amount of all Federal, state and local taxes required to be withheld, or to deduct the amount of such taxes from any cash payment to be made to a Participant, pursuant to this Plan or otherwise. In connection with such withholding, the Board may make such arrangements as are consistent with the Plan as it may deem appropriate. 12.8 Listing and Other Conditions. (a) If the Common Stock is listed on a national securities exchange or the Nasdaq Stock Market, the issuance of any shares of Common Stock pursuant to an Award shall be conditioned upon such shares being listed on such exchange or stock market. The Company shall have no obligation to issue such shares unless and until such shares are so listed, and the right to exercise any Option or to receive shares pursuant to any other Award shall be suspended until such listing has been effected. (b) If at any time counsel to the Company shall be of the opinion that any sale or delivery of shares of Common Stock pursuant to an Award is or may in the circumstances be unlawful or result in the imposition of excise taxes under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act of 1933, as amended, or otherwise with respect to shares of Common Stock or Awards, and the right to exercise any Option or to receive shares pursuant to any other Award shall be suspended until, in the opinion of such counsel, such sale or delivery shall be lawful or shall not result in the imposition of excise taxes. (c) Upon termination of any period of suspension under this Section 12.8, any Award affected by such suspension which shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares which would otherwise have become available during the period of such suspension, but no such suspension shall extend the term of any Option. 12.9 Governing Law. This Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania. 12.10 Construction. Wherever any words are used in this Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply. 12.11 Liability. No member of the Board nor any employee of the Company or any of its subsidiaries shall be liable for any act or action hereunder, whether of omission or commission, by any other member or employee or by any agent to whom duties in connection with the administration of this Plan have been delegated or, except in circumstances involving bad faith, gross negligence or fraud, for anything done or omitted to be done by himself. 12.12 Other Benefits. No payment pursuant to an Award under this Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Company nor affect any benefits under any other benefit plan now or hereafter in effect under which the availability or amount of benefits is related to the level of compensation. 12.13 Costs. The Company shall bear all expenses incurred in administering this Plan, including expenses of issuing Common Stock pursuant to Awards hereunder. 12.14 Severability. If any part of this Plan shall be determined to be invalid or void in any respect, such determination shall not affect, impair, invalidate or nullify the remaining provisions of this Plan which shall continue in full force and effect. 12.15 Successors. This Plan shall be binding upon and inure to the benefit of any successor or successors of the Company. 12.16 Headings. Article and section headings contained in this Plan are included for convenience only and are not to be used in construing or interpreting this Plan. ARTICLE XIII Term of Plan 13.1 Effective Date. This Plan shall be effective as of the date of its approval by the Board. 13.1 Termination. No Award shall be granted pursuant to this Plan on or after the tenth anniversary of its approval by the Board, but Awards granted prior to such tenth anniversary may extend beyond that date. EX-11 8 COMPUTATION OF EARNINGS PER SHARE
Year Ended June 26, June 27, June 28, 1998 1997 1996 ------------ ------------ ------------ (000's omitted, except per share data) Basic: Weighted average shares outstanding 9,148 9,504 9,554 ------------ ------------ ------------ Total 9,148 9,504 9,554 Income from continuing operations $ 7,317 $ 4,257 $ 9,014 Gain (loss) from discontinued operations 928 (10,435) (3,095) ------------ ------------ ------------ Net income (loss) $ 8,245 $ ( 6,178) $ 5,919 ------------ ------------ ------------ Net income (loss) per share Continuing operations $ 0.80 $ 0.45 $ 0.94 Discontinued operations 0.10 (1.10) (0.32) ------------ ------------ ------------ Net income (loss) per share $ 0.90 $ (0.65) $ (0.62) ------------ ------------ ------------ Diluted: Weighted average shares outstanding 9,148 9,504 9,554 Weighted average common stock equivalents 253 134 314 ------------ ------------ ------------ Total 9,401 9,638 9,868 Income from continuing operations $ 7,317 $ 4,257 $ 9,014 Gain (loss) from discontinued operations 928 (10,435) (3,095) ------------ ------------ ------------ Net income (loss) $ 8,245 $ ( 6,178) $ 5,919 ------------ ------------ ------------ Net income (loss) per share Continuing operations $ 0.78 $ 0.44 $ 0.91 Discontinued operations 0.10 (1.08) (0.31) ------------ ------------ ------------ Net income (loss) per share $ 0.88 $ (0.64) $ (0.60) ------------ ------------ ------------
EX-13 9 1998 ANNUAL REPORT TO SHAREHOLDERS 1998 C-COR ANNUAL REPORT F|U|T|U|R|E F|O|C|U|S|E|D NAVIGATING THE GLOBAL COMMUNITY C|O|N|T|E|N|T|S CORPORATE PROFILE 1 SELECTED FINANCIAL DATA 2 SHAREHOLDERS' LETTER 3 FUTURE FOCUSED CUSTOMER FOCUSED 7 TECHNOLOGY FOCUSED 9 INTERNATIONAL FOCUSED 11 FOUNDATIONS 12 MANAGEMENT'S DISCUSSION AND ANALYSIS 13 CONSOLIDATED BALANCE SHEETS 17 CONSOLIDATED STATEMENTS OF OPERATIONS 18 CONSOLIDATED STATEMENTS OF CASH FLOWS 19 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21 REPORTS 30 DIRECTORS & OFFICERS 31 CORPORATE DATA 32 MISSION STATEMENT 33
P|R|O|F|I|L|E For over four decades, C-COR has provided the products and support our customers need to plan, design, build and maintain complex communications networks. In doing so, we have created a niche as an innovator, developer and supplier of robust, high-quality distribution electronics for two-way hybrid fiber/coax (HFC) networks around the world. More than simply keeping pace with customer requirements, we have anticipated industry changes and responded accordingly. We had the foresight to create fiber optic and coax products that are two-way capable, even before the need for an expanded return path became evident. Today, the Internet, telephony and advanced digital services have created demand for active, two-way architectures. C-COR has answered with a full line of flexible, reliable and cost-effective network solutions. Our principal customers include cable television operators, telephone companies and installers of broadband communications networks. Sales efforts are conducted from headquarters in State College, Pennsylvania; from regional offices throughout the United States, in Canada and in the Netherlands; and through numerous distributors worldwide. S|E|L|E|C|T|E|D F|I|N|A|N|C|I|A|L D|A|T|A(in thousands of dollars except per share data) Fiscal Year Ended: 1998 1997 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- Statements of operations(1): Net Sales $ 152,144 $ 131,941 $ 139,539 $ 121,269 $ 60,207 Income from continuing operations 7,317 4,257 9,014 8,528 3,177 Gain (loss) from discontinued operations - (6,605) (3,095) (213) 855 Gain (loss) from disposal of discontinued operations 928 (3,830) - - - Net income (loss) 8,245 (6,178) 5,919 8,315 4,032 Net income (loss) per share - (basic)(2,3): Continuing operations $ 0.80 $ 0.45 $ 0.94 $ 0.91 $ 0.35 Discontinued operations - (0.70) (0.32) (0.02) 0.09 Disposal of discontinued operations 0.10 (0.40) - - - Net income (loss) per share - basic 0.90 (0.65) 0.62 0.89 0.44 Net income (loss) per share - (diluted)(2,3): Continuing operations $ 0.78 $ 0.44 $ 0.91 $ 0.86 $ 0.34 Discontinued operations - (0.68) (.31) (0.02) 0.09 Disposal of discontinued operations 0.10 (0.40) - - - Net income (loss) per share - diluted 0.88 (0.64) 0.60 0.84 0.43 Balance sheet data (at period end)(1): Working capital $ 27,313 $ 22,745 $ 35,452 $ 24,442 $ 25,061 Total assets 75,518 71,119 77,278 85,868 47,499 Total long-term obligations 6,367 7,201 8,030 2,172 501 Shareholders' equity 50,190 41,678 53,317 44,725 34,139 (1) Certain amounts have been reclassified for comparability with fiscal year 1998 presentation. (2) The Company adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share" effective December 15, 1997. Accordingly, all prior per share amounts have been restated. (3) Adjusted to reflect a two-for-one stock split effective December 5, 1994.
NET SALES IN THOUSANDS OF DOLLARS 1994 60,207 1995 121,269 1996 139,539 1997 131,941 1998 152,144
INCOME FROM CONTINUING OPERATIONS IN THOUSANDS OF DOLLARS 1994 3,177 1995 8,528 1996 9,014 1997 4,257 1998 7,317
NET INCOME PER SHARE FROM CONTINUING OPERATIONS IN DOLLARS 1994 0.34 1995 0.86 1996 0.91 1997 0.45 1998 0.80
Some of the information presented in this report constitutes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors which could cause actual results to differ from expectations include the timing of orders received from customers, the gain or loss of significant customers, changes in the mix of products sold, changes in the cost and availability of parts and supplies, fluctuations in warranty costs, new product development activities, economic conditions affecting domestic and international markets, regulatory changes affecting the telecommunications industry, in general, and the Company's operations, in particular, competition and changes in domestic and international demand for the Company's products and other factors which may impact operations and manufacturing. For additional information concerning these and other important factors which may cause the Company's actual results to differ materially from expectations and underlying assumptions, please refer to the reports filed on Form 10-K and other reports filed with the Securities and Exchange Commission. T|O O|U|R S|H|A|R|E|H|O|L|D|E|R|S C-COR has much to celebrate as we reflect on the accomplishments of this past year and on the prospects for the future. Amid a rapidly changing global communications market, we take a moment to remember how it all started, 45 years ago for C-COR and 50 years ago for the cable industry. Back then, the simple desire to view a few snow-free channels of news and entertainment drove industry pioneers to devise the first cable networks. Now, five decades later, the cost-effective delivery of hundreds of video channels, high-speed Internet services and cable telephony prompt network operators worldwide to seek technologically advanced products and specialized support services. With this dynamic global backdrop, C-COR looks forward to participating in the exciting conclusion of one century and the rapid approach of another. In fiscal year 1998, C-COR's financial results were encouraging, as both revenue and earnings grew. Net sales rose 15% to $152 million, from $132 million in fiscal year 1997. Net income per share from continuing operations increased dramatically to $.78 in fiscal year 1998 from $.44 in fiscal year 1997. The gross margin percentage in fiscal year 1998 improved to 22.7% from 20.6% the previous year. Operating expenses as a percentage of net sales, declined, excluding restructuring charges. At the same time, we maintained our commitment to product development, enabling the introduction of a host of new products, particularly optoelectronics, and funding for the study and implementation of new technologies and resources to enhance C-COR's growth opportunities. GLOBAL CLOSE-UP During the past 12 months, the means for global information exchange have evolved dramatically. Most importantly for C-COR, we have seen the further validation of the hybrid fiber/coax (HFC) architecture as the most powerful, cost-effective pipeline to homes and businesses. In North America, the year could be summed up with the simple statement, "the industry is standing tall, buoyed by its superior technology, wealth of programming and bold new business opportunities.(1)" Consolidation and clustering of cable properties continued, resulting in economies of scale for cable operators as they offered advanced services to their customers. This environment provided significant opportunity for equipment suppliers like C-COR to offer pace-setting, technologically advanced products and services. Another industry trend has been standardization, viewed as a necessity for technology experts working together to achieve a set of common goals. Key moves by industry leaders signaled further validation of HFC architectures and support for the concept of a single pipe to carry information to the end-user. First, came an announcement in the spring of 1997 that was summarized best with the statement, "a modern era of the cable industry dawned when Bill Gates made a billion-dollar investment in Comcast...this was viewed as a signal that the promised convergence of cable with the Internet and digital technology was near.(2)" Midway through 1998, a former computer industry executive announced his intent to purchase two major cable operations, Marcus Communications and Charter Communications. At about the same time, the bellwether event occurred when AT&T announced that it would purchase major cable operator TeleCommunications, Inc. Combined, these events helped create a healthy environment for companies like C-COR looking to identify and implement growth opportunities for the future. Elsewhere around the world, communication infrastructure development and enhancement continued to progress. Both the European and Latin American markets steadily grew and developed. In Europe, we saw solid activity, particularly in the eastern regions, and we are poised for participation in the pending extensive network deployment in Spain. In Latin America, demand for HFC network products continued to be solid, particularly in Argentina and Chile, and new opportunities are expected in the emerging markets of Brazil, Columbia and Bolivia. The Asia Pacific region was slow, but we are maintaining our strategic commitment to this key market. OVER THE HORIZON We began fiscal year 1998 with a clear set of strategic goals and initiatives: - expansion within our traditional area of expertise...HFC - exploration of diversification opportunities outside our historical markets - expansion of international growth as a percent of total sales - improved profitability through continued process improvements leading to higher productivity and improved gross margins - - renewed commitment to our highly capable employees We have made significant progress on these objectives this past year. We focused on a number of initiatives directed at productivity enhancements, new process improvements, capacity realignment and global procurement. Additionally, continuous improvements in the areas of quality and reliability have been designed to achieve our increasingly aggressive standards for the benefit of our customers. There is still a challenging and exciting journey ahead. Many of the same strategic initiatives will continue into the new year. We will aggressively seek out ways to expand geographically; the opportunities are there. New products and services will continue to be a priority. Global manufacturing and procurement initiatives are being explored as we strive to remain highly competitive in today's global economy. Of great importance are the people who are at the heart of all we do...customers, shareholders and employees. Each plays a unique and significant role in establishing and fulfilling our plan for the future. Thank you for your continued interest. We look forward to communicating our progress throughout the coming year. Richard E. Perry Chairman David A. Woodle President and CEO August 12, 1998 (1) Cablevision, July 13, 1998, Page 4 (2) Buyside, June 1998, Page 76 NAVIGATING THE GLOBAL COMMUNITY Members of C-COR's global sales team meet to discuss strategic plans. F|U|T|U|R|E F|O|C|U|S|E|D C|U|S|T|O|M|E|R F|O|C|U|S|E|D As the global communications industry evolves, C-COR's long-standing commitment to customers remains a constant. This is most evident in our continued development and delivery of high quality, end-to-end solutions that respond to specific customer needs. When coupled with our full array of specialized services, our comprehensive product line enables cable operators to build for today's requirements and still remain flexible for the future. In fiscal year 1998, C-COR introduced over 20 new products - more than at any other time in our 45-year history - and we expect these products to be available for shipment beginning in fiscal year 1999. Fiber optic solutions dominated, based on our new NAVICOR(TM) platform of nodes and headend products. With NAVICOR, amplifiers can be transformed into nodes by simply changing the fiber optic lid. The result is a cost-effective way for customers to rebuild or upgrade their hybrid fiber/coax (HFC) networks to offer high-speed data, digital services, video-on-demand and cable telephony as the market demands. In addition to fiber optics, C-COR has remained steadfast in meeting the needs of our RF customers. During fiscal year 1998, we advanced the standards for performance by providing superior return path capability and optimal powering options for customers delivering advanced services. Overlying the entire network is C-COR's CNM(TM) System 2, a standards-compliant, network management system that provides for the ultimate in operational confidence. Customer service continues to stand for personal service at C-COR, with customized design, training and network activation services leading the way. Add to that full product certification before the sale, and our customer focus becomes total customer satisfaction. Guided by market requirements and a strategic goal to diversify our product line within the HFC offering, C-COR has introduced the Navicor product platform. Navicor is a new family of modular AM fiber optic nodes and lid upgrades for C-COR's RF amplifier product line. Its unique common module concept enables cable operators to quickly and easily improve system capacity and add high-value services to meet the demands of their customers. With Navicor, only the lid - rather than the entire piece of equipment - is removed and replaced with a fiber optic lid during an upgrade. For new builds and rebuilds, complete fiber nodes are available. Navicor's common module approach minimizes inventory, decreases system downtime and increases cost efficiency. Most importantly, Navicor affords cable operators the power, scalability and network management capabilities to meet HFC network demands both today and in the future. T|E|C|H|N|O|L|O|G|Y F|O|C|U|S|E|D Today, consolidation and geographic clustering are driving the demand for more advanced HFC architectures. New services such as the Internet, digital video and telephony are also increasing the need for greater bandwidth, higher performance and total reliability. These factors, combined with cost-conscious budgets, have led to a new way of building and managing networks. No longer are simple bandwidth upgrades the case; network operators must build for today while also planning for the future. C-COR has responded to this dynamic marketplace with advanced technologies that offer upgradability, scalability, flexibility and cost-effectiveness. A variety of unique features and products - such as the common module concept, a new quadrant node and an advanced network management system designed to standards-based environments - add enhanced value by improving quality, performance and dependability. NAVICOR rack-mounted products deliver high performance and allow for headend consolidation as needed. The 1550nm transmitter transports large amounts of information over long distances, while erbium-doped fiber amplifiers (EDFA) extend transmitter capability to reach broad segments of the network. The AM headend rack system is a compact, easy-to-install package that plays a key role in getting information to nodes serving 250-2000 homes. NAVICOR optical nodes offer high performance for greater network flexibility and capability. Building on C-COR's 45-year legacy, this product family can operate as complete nodes or be used to upgrade existing FlexNet(R) amplifiers. The I-Flex(TM) family of products, which includes an amplifier, node and network management solution uniquely designed for the global market, offers many benefits found in our strand-mounted products. I-Flex is used where cabinet-mounted equipment is needed in an HFC architecture. Network management systems were a cornerstone at C-COR long before it became popular to offer network monitoring capabilities. CNM System 2 is a standards-based system used to monitor and control network elements from a central location, reducing operational costs, enhancing reliability and improving the productivity of technical staff. We have seen many of our customers grow into multi-million, and even billion dollar companies. C-COR has provided the products and services to help them get there. F|U|T|U|R|E F|O|C|U|S|E|D I|N|T|E|R|N|A|T|I|O|N|A|L|L|Y F|O|C|U|S|E|D With a strong domestic foothold, C-COR continues to pursue growth opportunities around the globe. In all areas of operations - including sales and marketing, service, manufacturing and procurement - we are diversifying geographically to improve profitability and more directly serve international markets. We recognize that our continued success depends on international expansion, and we have made it a strategic initiative to focus our efforts on achieving that goal. Europe: Political changes, deregulation and private enterprise are paving the way for expansion of the communications infrastructure throughout Europe. New builds, particularly for telephony and digital video services, are driving growth in Spain and Eastern Europe, while network upgrades are underway in much of Western Europe. Overall, HFC is still the dominant technology, with 862 MHz in cabinet-mounted equipment providing the most cost-effective way to meet capacity demands. We have also expanded the I-Flex family of nodes, amplifiers and network management to include an I-Flex line extender for cost-effective delivery of services to homes and businesses. Latin America: Like North America, HFC technology dominates in Latin America. We anticipate high demand for AM fiber optics over the next three years, driven primarily by telephony. In addition to an already-established base in Argentina and Chile, the most promising markets include Brazil, Columbia and Bolivia where privatization is opening new doors. Asia Pacific: While economic issues continue to impact the volatile Asian Pacific market, we still see enormous, long-term potential for broadband HFC networks there. C-COR will maintain its presence throughout this market so that we can immediately respond with advanced HFC and network management solutions for providing services such as telephony, Internet access and cable television. C-COR is proud of its part in Singapore ONE, which will provide the world's first nationwide Internet access capability via cable modems. Offering high speed and large capacity, the Singapore CableVision (SCV) broadband network carries data, audio and video information nationwide. Our FlexNet 862 MHz amplifiers are installed in this innovative, two-way HFC network, which serves about 1000 homes per node. C-COR... F|O|C|U|S|E|D on solid F|O|U|N|D|A|T|I|O|N|S for continued S|U|C|C|E|S|S Customer focus. Technological leadership. Global growth. At C-COR, these strengths and more have established the foundation for our continued success into the next millennium. Looking forward, we will leverage our RF expertise with the goal of further expanding our fiber optic product line, network management capabilities and technical services. We will also continue to explore new opportunities inside and outside the HFC network market, both domestically and internationally. Ongoing cost containment and continuous improvement throughout the organization position us to operate at peak efficiency. Just one example is NAVICOR's common module concept, which is designed to help us reduce costs by improving efficiency in development and manufacturing operations. Finally, we are addressing staffing challenges through training, empowerment and other initiatives aimed at retaining skilled employees. With so much working in our favor, we anticipate a future full of opportunities to further satisfy our customers, provide for employee development, increase our profitability and build shareholder value. Management's Discussion & Analysis (in thousands of dollars except share and per share data) Disclosure Regarding Forward-Looking Statements Some of the information presented in this Annual Report constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, continuation of increased domestic spending for network upgrades, the continuation of competitive pricing pressures, anticipated increased spending on product development, the continued availability of capital resources and the Company's ability to assess the risks of the year 2000 issue, with respect to its operations, and resolve them in a timely manner. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors which could cause actual results to differ from expectations include the timing of orders received from customers, the gain or loss of significant customers, changes in the mix of products sold, changes in the cost and availability of parts and supplies, fluctuations in warranty costs, new product development activities, economic conditions affecting domestic and international markets, regulatory changes affecting the telecommunications industry, in general, and the Company's operations, in particular, competition and changes in domestic and international demand for the Company's products and other factors which may impact operations and manufacturing. For additional information concerning these and other important factors, which may cause the Company's actual results to differ materially from expectations and underlying assumptions, please refer to the Company's reports filed on Form 10-K and other reports filed with the Securities and Exchange Commission. Results of Operations Net sales in fiscal year 1998 were $152,144, an increase of 15% from net sales of $131,941 in fiscal year 1997. The increase in sales was a result of increased demand for hybrid fiber/coax (HFC) equipment, as well as technical services to both domestic and international customers, primarily in the cable television (CATV) industry. Net sales decreased 5% in fiscal year 1997 from net sales of $139,539 in fiscal year 1996. The decrease in sales was primarily a result of reduced sales to international customers compared to the previous year. Domestic sales remained strong in fiscal year 1998, increasing 13% to $120,237 from $106,785 in fiscal year 1997. The Company believes that many domestic CATV operators have continued to increase their capital spending, and, as a result, the Company has experienced increased demand for HFC distribution equipment. The Company believes the increased capital spending has been driven by customer demands for improved services, affecting not only voice and video requirements, but also demand for high-speed data transmission. This increased demand by CATV operators for improved services has translated into an increased need for higher bandwidth products in order to support these services. Domestic sales increased 26% in fiscal year 1997 from $84,792 in fiscal year 1996, also due to network upgrade activities by CATV operators. Total domestic sales were 79% of consolidated net sales for fiscal year 1998, as compared to 81% and 61% for fiscal years 1997 and 1996, respectively. International sales increased 27% to $31,907 in fiscal year 1998 from $25,156 in fiscal year 1997. The increased demand resulted primarily from sales to Canada, Europe and Latin America. International sales decreased 54% in fiscal year 1997 from $54,747 in fiscal year 1996, resulting from reduced demand by a significant customer in Canada and customers in Asia and Latin America. The Company continues to monitor its business activities in the Asian market and the effects that current economic conditions may have on present and future order trends. The Company believes the Asian market represents long-term potential for HFC distribution equipment and will continue to maintain its presence throughout this market. The international markets continue to represent distinct markets for HFC distribution equipment, and, in general, demand can be highly variable. The Company's total international sales were 21% of consolidated net sales in fiscal year 1998, as compared to 19% and 39% for fiscal years 1997 and 1996, respectively. The Company is subject to certain risks as a result of market and customer concentration. For additional information regarding risks, reference Note N of the consolidated financial statements. The Company's backlog of sales orders at June 26, 1998, was $24,025, compared to $34,851 at June 27, 1997, and $24,333 at June 28, 1996. The backlog of sales orders at June 26, 1998, was comprised of approximately 91% domestic and 9% international orders, compared to approximately 72% domestic and 28% international orders at June 27, 1997, and 86% domestic and 14% international orders at June 28, 1996. In the domestic CATV market, certain cable operators are beginning upgrade activities, while others are in various stages of completion. As a result, demand patterns can vary, depending on the distinct requirements for each customer. In addition, the Company believes recent trends indicate that order patterns have also changed from customers providing longer blanket orders to shorter lead-time orders, contributing to the backlog reduction at fiscal year end. The Company's book-to-bill ratio was 0.93 for fiscal year 1998, compared to 1.08 and 0.79 for fiscal years 1997 and 1996, respectively. Gross profit margin for fiscal year 1998 was 22.7%. This compares to 20.6% in fiscal year 1997 and 24.9% in fiscal year 1996. The increase in the gross profit margin in fiscal year 1998, relative to fiscal year 1997, was primarily attributable to purchased material cost reductions, changes in customer and product mix, and efficiencies resulting from higher production volumes. The Company continued to experience pricing pressures in fiscal year 1998. The Company has undertaken initiatives to lower manufacturing costs by improving manufacturing processes in order to enhance efficiency and productivity, and by redesigning products to enhance manufacturability and reduce material costs. In fiscal year 1998, the Company began manufacturing the power supply component of its RF amplifier products in Tijuana, Mexico. The Company substantially completed the transfer of the power supply component production to this facility as of June 26, 1998, and continues to ramp up production at this manufacturing facility. The gross profit margin decrease in fiscal year 1997, relative to fiscal year 1996, was attributed primarily to changes in product and customer sales mix, as well as pricing pressures, particularly on RF coaxial cable amplifiers. Selling and administrative expenses for fiscal year 1998 were $15,020 or 10% of net sales, compared to $15,787 or 12% of net sales for fiscal year 1997 and $15,917 or 11% of net sales for fiscal year 1996. The decrease in selling and administrative expense for fiscal year 1998 compared to fiscal year 1997 was due primarily to reduced expenditures resulting from reconfiguration of the Company's worldwide sales territories and the consolidation of the Company's sales force implemented in the fourth quarter of fiscal year 1997. The decrease in selling and administrative expenses for fiscal year 1997, compared to fiscal year 1996, was due to various cost reduction initiatives, including personnel reductions and decreases in various administrative expenses. Research and product development expenses for fiscal year 1998 were $7,459 or 5% of net sales, compared to $5,681 or 4% of net sales for fiscal year 1997 and $4,857 or 3% of net sales for fiscal year 1996. The increase in research and product development expense in fiscal year 1998 over fiscal years 1997 and 1996 was primarily due to the Company's strategic commitment to investments in new products and technologies. The increased expenditures resulted from higher personnel costs and additional expenses for development of NAVICOR(TM), an entire family of modular AM fiber optic nodes and optical lid upgrades, as well as CNM(TM) System 2, a new generation of its Cable Network Management (CNM) platform. These products were introduced mid-year fiscal 1998, and the Company anticipates production release of these products in several phases over the first half of fiscal year 1999. The Company anticipates increased product development expenditures in fiscal year 1999 related to ongoing product development initiatives. Included in the results from continuing operations for fiscal year 1998 is a restructuring charge of $625 related to the Company's decision on June 25, 1998, to close its manufacturing plant located in Reedsville, Pennsylvania. The decision was made in order to reduce costs and improve productivity and asset utilization. The restructuring charge represents salaries and benefits for approximately 143 employees to be terminated. At June 26, 1998, no expenses had been charged against this restructuring accrual. For fiscal year 1998 other expense was $384. This compares to other income of $250 and $341 for fiscal years 1997 and 1996, respectively. The increased expense in fiscal year 1998 resulted from costs accrued in relation to the settlement of certain litigation and foreign exchange losses resulting primarily from the weakened Canadian dollar. The reduction in other income in fiscal year 1997, compared to fiscal year 1996, was primarily due to lower foreign currency transaction gains. The Company's effective income tax rate for fiscal year 1998 was 32%. This compared to effective income tax rates of 25% and 32% for fiscal years 1997 and 1996, respectively. The higher effective tax rates for fiscal year 1998, compared to fiscal year 1997, resulted from a tax benefit of approximately $593 that was recorded during the third quarter of fiscal year 1997. The tax benefit resulted from reassessment of the Company's foreign sales transactions for the prior three fiscal years and optimization of the tax benefits derived from the Company's Foreign Sales Corporation (FSC). In addition, fluctuations in the effective income tax rate from period to period reflect changes in non-deductible amounts, the relative profitability related to both U.S. and non-U.S. operations and differences in statutory rates. Results of Discontinued Operations On July 10, 1997, the Company announced the discontinuation of its Digital Fiber Optics Transmission Products segment located in Fremont, California, in a nine-month wind-down process. Anticipated wind-down costs were recorded as a loss on disposal of the discontinued segment in the results of discontinued operations for the fiscal year ended June 27, 1997. The Company substantially completed the wind-down of this operation as of March 1998. A gain on disposal of the discontinued business segment of $928, which includes a net tax benefit of $94, was recorded in fiscal year 1998. The gain represents an adjustment of the estimated loss on the disposal of the business segment of $3,830, net of applicable income tax benefit of $1,974, reported in fiscal year 1997. The gain derived primarily from higher than anticipated proceeds associated with the disposal of assets, primarily inventory, and lower than anticipated operating costs from the measurement date to the disposal date. The after-tax losses from operations of the discontinued business segment were $6,605 and $3,095 for fiscal years 1997 and 1996, respectively. The primary factors contributing to the loss from operations of the discontinued business segment in fiscal year 1997 were increased warranty costs of $3,300 and an impairment loss on goodwill of $571, recorded during the fourth quarter of fiscal year 1997. Financial Condition The Company's financial condition remains strong. The Company's working capital increased $4,568 since June 27, 1997. Inventory decreased to $17,375 at June 26, 1998, from $19,140 at June 27, 1997, primarily related to reductions in raw materials and work-in-process inventory levels. Accounts payable also decreased to $5,784 at June 26, 1998, from $8,636 at June 27, 1997, due primarily to the reductions in inventory purchases at year end. Accrued liabilities increased to $10,245 at June 26, 1998, from $6,825 at June 27, 1997, due primarily to expense accrued under the Company's profit incentive plan for the year and restructuring costs accrued in relation to the closing of the Company's Reedsville, Pennsylvania, manufacturing facility. Recent Accounting Changes In 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (Statement 130), which is effective for fiscal years beginning after December 15, 1997. This Statement establishes standards for reporting and classifying components of comprehensive income in the financial statements and requires that the accumulated balance of other comprehensive income be displayed separately from retained earnings and additional paid-in-capital in the equity section of the financial statements. The FASB also issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (Statement 131), which is effective for fiscal years beginning after December 15, 1997. This Statement establishes standards for providing disclosures related to products and services, geographic area, and major customers. The Company anticipates adopting these Statements in its fiscal year 1999 financial statements as required. Implementation of these Statements is not expected to have a material effect on the Company's consolidated financial statements. In 1998, the FASB issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" (Statement 132), which is effective for fiscal years beginning after December 15, 1997. This Statement standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on benefit obligations and plan assets, and suggests combined formats for presentation of pension and other postretirement benefit disclosures. The FASB also issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (Statement 133), which is effective for fiscal years beginning after June 15, 1999. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Company anticipates adopting these Statements in its fiscal year 1999 and 2000 consolidated financial statements as required. Implementation of these Statements is not expected to have a material effect on the Company's consolidated financial statements. Liquidity and Capital Resources The Company's current ratio at June 26, 1998, was 2.6, as compared to 2.1 at June 27, 1997. As of June 26, 1998, cash and cash equivalents totaled $2,313, up from $452 at June 27, 1997. Net cash and cash equivalents provided by operating activities generated $14,007 during fiscal year 1998, including working capital changes of $1,051 related to discontinued operations. This compares to net cash and cash equivalents provided by operating activities, including working capital changes related to discontinued operations, of $9,440 and $18,673 in fiscal years 1997 and 1996, respectively. Net cash used in investing activities was $8,097 in fiscal year 1998, compared to $6,551 fiscal year 1997 and $8,000 in fiscal year 1996. The increase of cash used in investing activities in fiscal year 1998 was due primarily to higher purchases and replacements of property, plant and equipment to support manufacturing automation and operation efforts, including the start-up of the Company's manufacturing operation in Tijuana, Mexico, as well as a higher level of product development activities. Net cash used in financing activities totaled $4,049 in fiscal year 1998, compared to $3,911 and $10,744 in fiscal years 1997 and 1996, respectively. Financing activities consist primarily of borrowings and payments on the Company's line-of-credit and long-term debt. In fiscal year 1998, the Company repurchased 10,342 shares of its common stock for $131 under a stock repurchase program adopted in September 1997. In fiscal year 1997, the Company repurchased 500,000 shares of its common stock for $5,765 under a stock repurchase program adopted in December 1996. The Company used its available capital resources to fund the purchases under both repurchase programs. The repurchased stock is being held by the Company as treasury stock and is available to be used in meeting the Company's obligations under its present and future stock option plans and for other corporate purposes. The Company maintains a line-of-credit with a bank pursuant to which it may borrow the lesser of $23,000 or a percentage of eligible accounts receivable and inventory. Accounts receivable and inventory secure borrowings under the line-of-credit agreement. The line-of-credit is committed through October 30, 1998, and the Company anticipates renewing this line-of-credit annually. The Company had no borrowings on the line-of-credit as of June 26, 1998, compared to a balance of $3,466 at June 27, 1997. Based upon the Company's analysis of eligible accounts receivable and inventory, approximately $17,740 was available to borrow as of June 26, 1998. Management believes that operating cash flow, as well as the line-of-credit, will be adequate to provide for all cash requirements for the foreseeable future, subject to requirements that additional growth or strategic development might dictate. Year 2000 The Company is aware of the issues associated with the limitations of the programming code in many existing computer systems, whereby the computer systems may not properly recognize date-sensitive information as the millennium (year 2000) approaches. The Company's computer systems include, but are not limited to, computer systems embedded in production equipment, products containing computer systems, business data processing systems, production management and planning systems, and personal computers. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The Company is currently engaged in the ongoing process of evaluating its information technology infrastructure for year 2000. In addition, the Company expects to correspond in the near future with its principal customers, suppliers, vendors and subcontractors to ascertain their readiness for the year 2000. While the total estimated cost of these efforts is difficult to predict with accuracy, based on a preliminary evaluation, the Company believes that there should not be a material adverse impact on its operating results or financial condition. However, year 2000 issues could have a significant impact on the Company's operations and its financial results if modifications cannot be completed on a timely basis, unforeseen needs or problems arise, or if there are unforeseen compliance problems with the systems operated by its customers, suppliers, vendors or subcontractors. Moreover, the change to the year 2000 may negatively impact the Company's customers or the CATV industry as a whole, causing reduced demand and market disruption in anticipation of, or following, the year 2000. Upon final completion of the evaluation of its information technology infrastructure for year 2000, the Company will establish a contingency plan detailing how the Company will handle the most reasonably likely worst case scenarios. Consolidated Balance Sheets (in thousands of dollars except share data) June 26, 1998 June 27, 1997 - -------------------------------------------------------------------------------------------------- Assets CURRENT ASSETS Cash and cash equivalents $ 2,313 $ 452 Marketable securities 356 359 Accounts receivable, less allowance of $430 in 1998; $510 in 1997 19,404 19,299 Inventories 17,375 19,140 Deferred taxes 2,797 2,616 Other current assets 2,468 1,893 - -------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 44,713 43,759 PROPERTY, PLANT AND EQUIPMENT, NET 27,751 25,060 INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $0 IN 1998; $224 IN 1997 1,295 - OTHER LONG-TERM ASSETS 1,759 785 Net noncurrent assets of discontinued operations - 1,515 - -------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 75,518 $ 71,119 - -------------------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity CURRENT LIABILITIES Accounts payable $ 5,784 $ 8,636 Accrued liabilities 10,245 6,825 Line-of-credit - 3,466 Current portion of long-term debt 854 834 Net current liabilities of discontinued operations 517 1,253 - -------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 17,400 21,014 LONG-TERM DEBT, less current portion 5,513 6,367 DEFERRED TAXES 1,374 1,311 OTHER LONG-TERM LIABILITIES 1,041 749 Commitments and Contingent Liabilities (See Notes H and O.) - -------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 25,328 29,441 - -------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Preferred Stock, no par; authorized 2,000,000 shares; issued, none - - Common Stock, $.10 par; authorized shares 24,000,000; issued shares of 9,672,128 in 1998 and 9,633,435 in 1997 967 963 Additional paid-in capital 20,341 19,963 Treasury stock at cost, shares of 510,342 in 1998 and 500,000 in 1997 (5,896) (5,765) Retained earnings 34,877 26,632 Translation adjustment (92) (101) Net unrealized loss on marketable securities (7) (14) - -------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 50,190 41,678 - -------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 75,518 $ 71,119 - -------------------------------------------------------------------------------------------------- - -See notes to consolidated financial statements.
Consolidated Statements of Operations (in thousands except per share data) Year Ended June 26, 1998 June 27, 1997 June 28, 1996 - ----------------------------------------------------------------------------------------------------------------- NET SALES $ 152,144 $ 131,941 $ 139,539 COST AND EXPENSES Cost of sales 117,557 104,702 104,852 Selling and administrative 15,020 15,787 15,917 Research and product development 7,459 5,681 4,857 Provision for restructuring costs 625 - - Interest 335 318 960 Other expense (income), net 384 (250) (341) - ----------------------------------------------------------------------------------------------------------------- 141,380 126,238 126,245 - ----------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 10,764 5,703 13,294 INCOME TAX EXPENSE (BENEFIT) Current 3,564 1,298 3,875 Deferred (117) 148 405 - ----------------------------------------------------------------------------------------------------------------- 3,447 1,446 4,280 - ----------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 7,317 4,257 9,014 - ----------------------------------------------------------------------------------------------------------------- DISCONTINUED OPERATIONS: Loss from operations of discontinued business segment, net of tax - (6,605) (3,095) Gain (loss) on disposal of discontinued business segment, net of tax 928 (3,830) - - ----------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 8,245 $ (6,178) $ 5,919 - ----------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) PER SHARE - (basic): Continuing operations $ 0.80 $ 0.45 $ 0.94 Discontinued operations Loss from operations - (0.70) (0.32) Gain (loss) on disposal 0.10 (0.40) - - ----------------------------------------------------------------------------------------------------------------- TOTAL $ 0.90 $ (0.65) $ 0.62 - ----------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) PER SHARE - (diluted): Continuing operations $ 0.78 $ 0.44 $ 0.91 Discontinued operations Loss from operations - (0.68) (0.31) Gain (loss) on disposal 0.10 (0.40) - - ----------------------------------------------------------------------------------------------------------------- TOTAL $ 0.88 $ (0.64) $ 0.60 - ----------------------------------------------------------------------------------------------------------------- Weighted Average Common Shares and Common Share Equivalents Basic 9,148 9,504 9,554 Diluted 9,401 9,638 9,868 - -See notes to consolidated financial statements.
Consolidated Statements of Cash Flows (in thousands of dollars) Year Ended June 26, 1998 June 27, 1997 June 28, 1996 OPERATING ACTIVITIES NET INCOME (LOSS) $ 8,245 $ (6,178) $ 5,919 Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by (used in) operating activities: Depreciation and amortization 6,100 4,910 3,972 (Gain) loss on disposal of discontinued operations, net of tax (928) 3,830 -- Provision for deferred retirement salary plan 292 252 129 Loss (gain) on sale of property, plant and equipment (14) 22 (3) Changes in operating assets and liabilities: Accounts receivable (105) 1,718 12,065 Inventories 1,765 (561) 3,491 Other assets (2,844) (197) (895) Accounts payable (2,852) 2,784 (2,055) Accrued liabilities 3,420 (243) (2,349) Deferred income taxes (123) (133) 371 Discontinued operations - working capital changes and noncash charges 1,051 3,236 (1,972) - ------------------------------------------------------------------------------------------------------------------------ NET CASH AND CASH EQUIVALENTS PROVIDED BY OPERATING ACTIVITIES 14,007 9,440 18,673 - ------------------------------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES Purchase of property, plant and equipment (8,782) (5,884) (7,442) Proceeds from sale of property, plant and equipment 14 15 3 Purchase of marketable securities -- (200) -- Proceeds from sale of marketable securities 15 216 25 Proceeds from (investing activities of) discontinued operations 656 (698) (586) - ------------------------------------------------------------------------------------------------------------------------ NET CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES (8,097) (6,551) (8,000) FINANCING ACTIVITIES Payment of debt and capital lease obligations (834) (829) (594) Proceeds from long-term debt borrowing -- -- 6,452 Proceeds from line-of-credit 52,818 21,936 39,029 Payment of line-of-credit (56,284) (19,617) (58,333) Tax benefit deriving from exercise and sale of stock option shares 57 71 1,454 Issue common stock to employee stock purchase plan 51 88 107 Proceeds from exercise of stock options 274 205 1,141 Purchase of treasury stock (131) (5,765) -- - ------------------------------------------------------------------------------------------------------------------------ NET CASH AND CASH EQUIVALENTS USED IN FINANCING ACTIVITIES (4,049) (3,911) (10,744) - ------------------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,861 (1,022) (71) Cash and cash equivalents at beginning of year 452 1,474 1,545 - ------------------------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,313 $ 452 $ 1,474 - ------------------------------------------------------------------------------------------------------------------------ - -See notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity (in thousands of dollars) Net Unrealized Common Additional Treasury Retained Translation Gain (Loss) on Stock Paid-In Capital Stock Earnings Adjustment Marketable Securities - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, JUNE 30, 1995 $ 945 $16,915 $ - $26,891 $ (7) $ (19) Net income 5,919 Exercise of stock options 15 1,126 Tax benefit deriving from exercise and sale of stock option shares 1,454 Issue shares to employee stock purchase plan 107 Foreign currency translation adjustment (27) Net unrealized loss on marketable securities (2) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, JUNE 28, 1996 960 19,602 - 32,810 (34) (21) Net loss (6,178) Exercise of stock options 2 203 Tax benefit deriving from exercise and sale of stock option shares 71 Issue shares to employee stock purchase plan 1 87 Purchase of treasury stock (5,765) Foreign currency translation adjustment (67) Net unrealized gain on marketable securities 7 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, JUNE 27, 1997 963 19,963 (5,765) 26,632 (101) (14) Net income 8,245 Exercise of stock options 4 270 Tax benefit deriving from exercise and sale of stock option shares 57 Issue shares to employee stock purchase plan 51 Purchase of treasury stock (131) Foreign currency translation adjustment 9 Net unrealized gain on marketable securities 7 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, JUNE 26, 1998 $ 967 $20,341 $(5,896) $34,877 $ (92) $ (7) - ------------------------------------------------------------------------------------------------------------------------------------ - -See notes to consolidated financial statements.
Notes to Consolidated Financial Statements (in thousands of dollars except share and per share data) June 26, 1998, and June 27, 1997 - -------------------------------------------------------------------------------- Description of Business: The Company designs and manufactures high-quality electronic equipment used in a variety of communication networks worldwide. In fiscal year 1998, the Company operated in one industry segment, the Electronic Distribution Products segment, which provides hybrid fiber/coax (HFC) equipment for signal distribution applications primarily to the cable television (CATV) market. In fiscal year 1997, the Company operated in two industry segments: the Electronic Distribution Products segment and the Digital Fiber Optics Transmission Products segment, which provided products for long-distance, point-to-point, video, voice and data signal transmission applications, primarily for telephony, distance-learning and other non-CATV markets. On July 10, 1997, the Company announced that it would discontinue its Digital Fiber Optics Transmission Products segment. For additional information regarding the discontinued business segment, refer to Note B. A. Summary of Significant Accounting Policies Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its foreign and domestic subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Reporting Periods: Management has adopted a fiscal year which ends on the last Friday in June. For the 52-week reporting periods presented herein, the years ended on June 26, 1998, June 27, 1997, and June 28, 1996. Use of Estimates: The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments: The carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the short-term nature of those instruments. The carrying value of the Company's borrowings under its line-of-credit agreement and other long-term borrowings approximates fair value. Inventories: Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. Property, Plant and Equipment: Property, plant and equipment, which includes leased property under capital leases, is stated at cost. Cost includes interest associated with capital additions. Capitalized interest was $0, $0 and $23 in fiscal years 1998, 1997 and 1996, respectively. Depreciation or amortization is calculated on the straight-line method for financial statement purposes based upon the following estimated useful lives: Building and improvements under capital lease 15 years Buildings 15 to 25 years Machinery and equipment under capital lease 5 years Machinery and equipment 3 to 10 years Leasehold improvements 10 to 15 years Computer Software: Under Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" (Statement 86), the Company is required to capitalize certain internal and purchased software development and production costs once technological feasibility has been achieved. For the fiscal year ended 1998, the Company capitalized $670 of purchased software development costs, which is included in other long-term assets in the consolidated financial statements. For the fiscal years ended 1997 and 1996, the Company did not capitalize any software development costs. Amortization will commence upon initial product release, which has not occurred, and as such no amortization has been recorded in fiscal year 1998. Intangible Assets: Patents, trademarks and licenses are carried at cost less accumulated amortization, which is calculated on a straight-line basis over the estimated useful life of the assets. The patents, trademarks and license costs relate to purchased product lines. Amortization will commence upon initial product release, which has not occurred, and as such no amortization has been recorded in fiscal year 1998. In fiscal year 1997, intangible assets included goodwill arising from excess of the purchase price paid over the fair value of the net assets acquired with the purchases of COMLUX in July 1990 and DataCable B.V. in January 1992. In the beginning of fiscal year 1997, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (Statement 121). There was no impact upon initial adoption of Statement 121, however, in the fourth quarter, the Company recorded an impairment loss of the goodwill relating to the purchase of COMLUX. The amount of the impairment loss for fiscal year 1997 was $571 and was recorded in the loss from operations of the discontinued business segment. The impairment loss was recognized in the fourth quarter at the time the decision was made to cease research and development expenditures on a new platform of digital fiber optics products and was determined by evaluating the realizability of the goodwill with respect to COMLUX, based upon expected future cash flows and operating results of the Company's Digital Fiber Optics Transmission Products segment which was discontinued in fiscal year 1997. (See Note B.) The goodwill related to the purchase of DataCable in January 1992 was fully amortized during fiscal year 1997. Income Taxes: Under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109), deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Shareholders' Equity: In fiscal year 1998, the Company repurchased 10,342 shares of its common stock for $131 under a stock repurchase program adopted in September 1997. In fiscal year 1997, the Company repurchased 500,000 shares of its common stock for $5,765, under a stock repurchase program adopted in December 1996. The Company used its available capital resources to fund the purchases under both repurchase programs. The repurchased stock is being held by the Company as treasury stock and is available to be used in meeting the Company's obligations under its present and future stock option plans and for other corporate purposes. Cash Equivalents: The Company considers all highly liquid investments, with a maturity of three months or less when purchased, to be cash equivalents. Cash equivalents are reflected at the lower of cost or market. Marketable Securities: Marketable securities at June 26, 1998, consisted of municipal bonds and equity securities. The Company follows the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (Statement 115), in accounting for marketable securities. Under Statement 115, the Company classifies all of its marketable securities as available-for-sale and records them at fair value. Unrealized holding gains and losses, net of the related tax effect, are excluded from earnings and are reported as a separate component of shareholders' equity until realized. Net income (loss) per share: Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (Statement 128), became effective for financial statements issued for periods ending after December 15, 1997. The Company adopted this Statement in the second quarter of fiscal year 1998 and has restated prior periods presented as required. Implementation of Statement 128 did not have a material effect on the Company's consolidated financial statements. Basic earnings (loss) per share are computed based on the weighted average number of common shares outstanding, excluding any dilutive options and awards. Dilutive earnings (loss) per share are computed based on the weighted average number of common shares outstanding plus the dilutive effect of options. The dilutive effect of options is calculated under the treasury stock method using the average market price for the period. Net income (loss) per share is calculated as follows: - -------------------------------------------------------------------------------------------------------------------------------- Year ended June 26, 1998 June 27, 1997 June 28, 1996 - ------------------------------------------------------------------------------- Income from continuing operations $ 7,317 $ 4,257 $ 9,014 Gain (loss) from discontinued operations 928 (10,435) (3,095) - ------------------------------------------------------------------------------- Net income (loss) $ 8,245 $ (6,178) $ 5,919 - ------------------------------------------------------------------------------- Basic shares outstanding 9,148 9,504 9,554 Common stock equivalents 253 134 314 - ------------------------------------------------------------------------------- Dilutive potential common shares 9,401 9,638 9,868 - ------------------------------------------------------------------------------- Net income (loss) per share - (basic) Continuing operations $ 0.80 $ 0.45 $ 0.94 Discontinued operations 0.10 (1.10) (0.32) - ------------------------------------------------------------------------------- Total $ 0.90 $ (0.65) $ 0.62 - ------------------------------------------------------------------------------- Net income (loss) per share - (diluted) Continuing operations $ 0.78 $ 0.44 $ 0.91 Discontinued operations 0.10 (1.08) (0.31) - ------------------------------------------------------------------------------- Total $ 0.88 $ (0.64) $ 0.60 - -------------------------------------------------------------------------------
Product Warranty: The Company warrants its products against defects in materials and workmanship, generally for three to five years depending upon product lines. A provision for estimated future costs relating to warranty expense is recorded when product is shipped, based upon historical claims' history and specifically identified warranty exposures. Restructuring Costs: In order to reduce costs and improve productivity and asset utilization, on June 25, 1998, the Company announced the closing of its manufacturing plant located in Reedsville, Pennsylvania. As a result of this action, the Company incurred restructuring charges in the fourth quarter of its fiscal year 1998 of $625. The restructuring charge represents salaries and benefits for approximately 143 employees to be terminated. At June 26, 1998, no expenses had been charged against this restructuring accrual. At June 26, 1998, the Company had a Lease/Option to Purchase Agreement with the Mifflin County Industrial Development Corporation (MCIDC) for the building and improvements located in Reedsville, Pennsylvania. On August 10, 1998, subsequent to fiscal year ended June 26, 1998, the Company purchased the facility using its available capital resources and expects to sell the facility at a price in excess of its net carrying value. Recent Accounting Changes: In 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (Statement 130), which is effective for fiscal years beginning after December 15, 1997. This Statement establishes standards for reporting and classifying components of comprehensive income in the financial statements and requires that the accumulated balance of other comprehensive income be displayed separately from retained earnings and additional paid-in-capital in the equity section of the financial statements. The FASB also issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (Statement 131), which is effective for fiscal years beginning after December 15, 1997. This Statement establishes standards for providing disclosures related to products and services, geographic area, and major customers. The Company anticipates adopting these Statements in its fiscal year 1999 financial statements as required. Implementation of these Statements is not expected to have a material effect on the Company's consolidated financial statements. In 1998, the FASB issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" (Statement 132), which is effective for fiscal years beginning after December 15, 1997. This Statement standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on benefit obligations and plan assets, and suggests combined formats for presentation of pension and other postretirement benefit disclosures. The FASB also issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (Statement 133), which is effective for fiscal years beginning after June 15, 1999. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Company anticipates adopting these Statements in its fiscal year 1999 and 2000 consolidated financial statements as required. Implementation of these Statements is not expected to have a material effect on the Company's consolidated financial statements. Reclassification: Certain amounts have been reclassified for comparability with fiscal year 1998 presentation. B. Discontinued Operations On July 10, 1997, the Company announced the discontinuation of its Digital Fiber Optics Transmission Products segment, in a nine-month wind-down process. An estimated loss on disposal, including write-offs of inventory and fixed assets, and other costs from the measurement to the disposal date, was recorded in fiscal year 1997. The estimated loss, net of tax benefit of $1,974 on the disposal of the discontinued business segment, was $3,830 in fiscal year 1997. The Company substantially completed the phase-down of this operation as of March 1998. The Company recorded a gain of $928, which includes a net tax benefit of $94 on the disposal of the discontinued segment in fiscal year 1998. The gain represents an adjustment of the estimated loss on the disposal of the business segment of $3,830, net of applicable income tax benefit of $1,974 previously reported in fiscal year 1997. The gain derived primarily from lower than anticipated operating costs from the measurement date to the disposal date and higher than anticipated proceeds associated with the disposal of assets, primarily inventory. The after-tax losses from operations of the discontinued business segment were $6,605 and $3,095, for fiscal years 1997 and 1996, respectively. The primary factors contributing to the loss from operations of the discontinued business segment in fiscal year 1997 were increased warranty costs of $3,300 and an impairment loss on goodwill of $571, recorded in the fourth quarter of fiscal year 1997. Operating results for the discontinued business segment are segregated and reported as discontinued operations in the accompanying consolidated statements of operations. Summarized information relating to the discontinued operations for fiscal years 1997 and 1996 is as follows: Year ended June 27, 1997 June 28, 1996 - ---------------------------------------------------------------------------------- Net sales $ 7,994 $ 9,359 Costs and expenses (17,351) (13,959) - ---------------------------------------------------------------------------------- Loss before income taxes (9,357) (4,600) Income tax benefit 2,752 1,505 - ---------------------------------------------------------------------------------- Net loss $ (6,605) $ (3,095) - ----------------------------------------------------------------------------------
The assets and liabilities of the discontinued operations have been reclassified in the accompanying consolidated financial statements to separately identify them as net current assets (liabilities) and net non-current assets related to the discontinued operations. These net assets consist of net working capital, net property, plant and equipment, other assets and intangible assets, less related liabilities as follows as of June 26, 1998, and June 27, 1997: June 26, 1998 June 27, 1997 - -------------------------------------------------------------------------------- Current assets: Accounts receivable $ 150 $ 817 Notes receivable 981 -- Inventory -- 1,181 Deferred tax assets 1,602 4,013 Other assets 156 4 - -------------------------------------------------------------------------------- 2,889 6,015 - -------------------------------------------------------------------------------- Current liabilities: Accounts payable -- (342) Accrued warranty and other (2,806) (3,551) Allowance for disposal of discontinued operations (600) (3,375) - -------------------------------------------------------------------------------- (3,406) (7,268) - -------------------------------------------------------------------------------- Net current liabilities of discontinued operations $ (517) $(1,253) - -------------------------------------------------------------------------------- Noncurrent assets: Property, plant and equipment $ -- $ 1,498 Other assets -- 17 - -------------------------------------------------------------------------------- -- 1,515 - -------------------------------------------------------------------------------- Noncurrent liabilities: -- -- - -------------------------------------------------------------------------------- Net noncurrent assets of discontinued operations $ -- $ 1,515 - --------------------------------------------------------------------------------
C. Marketable Securities Marketable securities as of June 26, 1998, and June 27, 1997, consisted of the following: Gross Amortized Unrealized Fair Cost Holding Losses Value - ------------------------------------------------------------------------------- June 26, 1998: Available-for-sale: Municipal bonds $ 366 $ (12) $ 354 Equity securities 2 -- 2 - ------------------------------------------------------------------------------- $ 368 $ (12) $ 356 - ------------------------------------------------------------------------------- June 27, 1997: Available-for-sale: Municipal bonds $ 382 $ (24) $ 358 Equity securities 1 -- 1 - ------------------------------------------------------------------------------- $ 383 $ (24) $ 359 - -------------------------------------------------------------------------------
Maturities of investment securities classified as available-for-sale at June 26, 1998, were as follows: Cost Value - ------------------------------------------------------------------------------- Available-for-sale: Due after one year through five years $ 366 $ 354 Equity securities 2 2 - ------------------------------------------------------------------------------- $ 368 $ 356 - -------------------------------------------------------------------------------
D. Inventories June 26, 1998 June 27, 1997 - -------------------------------------------------------------------------- Finished goods $ 2,850 $ 1,436 Work-in-process 1,755 3,346 Raw materials 12,770 14,358 - -------------------------------------------------------------------------- $17,375 $19,140 - -------------------------------------------------------------------------- Included in the amounts above are reserves of $1,987 at June 26, 1998, and $1,233 at June 27, 1997.
E. Property, Plant and Equipment June 26, 1998 June 27, 1997 - ------------------------------------------------------------------------------ Land $ 468 $ 468 Building and improvements under capital lease 1,727 1,727 Buildings 10,683 10,090 Machinery and equipment under capital lease 39 110 Machinery and equipment 41,515 33,586 Leasehold improvements 875 751 - ------------------------------------------------------------------------------ 55,307 46,732 Less accumulated depreciation and amortization 27,556 21,672 - ------------------------------------------------------------------------------ $27,751 $25,060 - ------------------------------------------------------------------------------
F. Intangible Assets June 26, 1998 June 27, 1997 - ------------------------------------------------------------------------------ Cost of intangibles: Goodwill - DataCable B.V $ -- $ 224 Patents and trademarks 1,045 -- Licensing costs 250 -- - ------------------------------------------------------------------------------ 1,295 224 - ------------------------------------------------------------------------------ Less accumulated amortization: Goodwill - DataCable B.V $ -- $ 224 Patents and trademarks -- -- Licensing costs -- -- - ------------------------------------------------------------------------------ -- 224 - ------------------------------------------------------------------------------ Net book value $1,295 $ -- - ------------------------------------------------------------------------------
G. Line-of-Credit At June 26, 1998, the Company had no short-term borrowings outstanding on its revolving line-of-credit. On this line-of-credit, the Company may borrow the lesser of $23,000 or a percentage of eligible accounts receivable and inventory. The borrowings bear interest at various rates generally equal to the London Interbank Offered Rate (LIBOR) plus 1.10% and require compliance with certain covenants. The weighted-average interest rates paid on the line-of-credit borrowings were approximately 7.2% and 7.1% for fiscal years 1998 and 1997, respectively. Interest is payable in 30 days as billed. The line-of-credit agreement is committed through October 30, 1998. Accounts receivable and inventory collateralize the borrowings. Based upon the Company's analysis of eligible accounts receivable and inventory, approximately $17,740 was available to borrow as of June 26, 1998. The line-of-credit balance at June 27, 1997, was $3,466. H. Long-term Debt June 26, 1998 June 27, 1997 - ------------------------------------------------------------------------------ Notes payable $4,909 $5,646 Capital lease obligations 1,458 1,555 - ------------------------------------------------------------------------------ 6,367 7,201 Less current portion 854 834 - ------------------------------------------------------------------------------ $5,513 $6,367 - ------------------------------------------------------------------------------
Notes Payable: The Company obtained funding through the Pennsylvania Industrial Development Authority (PIDA) of $539 for construction of the Tipton, Pennsylvania, manufacturing facility. The PIDA borrowing has an interest rate of 3%, which is contingent upon meeting certain job creation commitments. Monthly payments of principal and interest of $4 are required through the year 2006. Certain property, plant and equipment collateralize the borrowing. The principal balance at June 26, 1998, was $300. The Company obtained funding through the Pennsylvania Industrial Development Authority (PIDA) of $1,952 for 40% of the cost of building expansion at its manufacturing facility in State College, Pennsylvania. The PIDA borrowing has an interest rate of 2%, which is contingent upon meeting certain job creation commitments. Monthly payments of principal and interest of $13 are required through the year 2010. Certain property, plant and equipment collateralize the borrowing. The principal balance at June 26, 1998, was $1,647. Additional funding of $4,500 for the expansion and renovation of the State College facility was obtained from the Pennsylvania "Sunny Day" Fund. This funding has an interest rate of 2%, which is also contingent upon meeting certain job commitments. Two notes evidence the funding. The first note is for $488 with an original maturity of 15 years, and the second is for $4,012 with an original maturity of 7 years. Monthly payments of principal and interest of $3 and $51, respectively, are required on these notes through the years 2010 and 2002, respectively. Certain equipment collateralizes the borrowing. The principal balances at June 26, 1998, were $412 and $2,550, respectively. Capital Lease Obligations: The Company has a Lease/Option to Purchase Agreement with the Mifflin County Industrial Development Corporation (MCIDC) for a building and improvements located in Reedsville, Pennsylvania. The Company is the guarantor of several borrowing commitments by the MCIDC for financing the $1,727 cost of the project. The lease calls for a monthly payment of $14, which is equal to the monthly principal and interest of the various borrowing commitments by the MCIDC through the year 2010. The original term of the lease is for 15 years with an option to purchase the leased premises at any time during the lease term for the outstanding balance of the borrowing commitments plus closing costs. The borrowing commitments carry a weighted-average interest rate of 4.7%. For financial accounting purposes, the lease is accounted for as a capital lease and, accordingly, an asset and liability have been recorded. Long-term debt at June 26, 1998, had scheduled maturities as follows: Fiscal year ending: 1999 $ 854 2000 875 2001 895 2002 916 2003 529 Thereafter 2,298 - ------------------------------------------------------------------------------ $6,367 - ------------------------------------------------------------------------------
Total interest paid on the line-of-credit (described in Note G) and long-term debt was $335, $304 and $958 for fiscal years ended 1998, 1997 and 1996, respectively. Operating Leases: The Company leases real property and other equipment under operating leases. Certain leases are renewable and provide for the payment of real estate taxes and other occupancy expenses. The future minimum lease payments for noncancelable leases with remaining lease terms in excess of one year are as follows: Fiscal year ending: 1999 $ 440 2000 435 2001 427 2002 386 2003 313 Thereafter 773 - ------------------------------------------------------------------------------ $2,774 - ------------------------------------------------------------------------------
Rent expense relating to continuing operations was $859, $748 and $682 for fiscal years ended 1998, 1997 and 1996, respectively. I. Stock Options The Company's stock option plans provide for the grant of options to employees with an exercise price per share of at least the fair market value of such shares on the date prior to grant, and to directors with an exercise price equal to the fair market value on the date of grant. Options granted to certain employees are exercisable in cumulative annual installments of either 20 or 25 percent per year beginning one year after the date of grant. Options granted to non-employee directors are exercisable one year after grant. Certain options held by the Chairman are exercisable immediately. In fiscal year 1997, the Company adopted the disclosure requirements of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (Statement 123). As allowed by Statement 123, the Company has chosen to continue to account for stock based compensation using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the grant date over the amount an employee must pay to acquire the stock. Accordingly, no compensation cost has been recognized. Had compensation cost for the Company's plans been determined under Statement 123, the Company's net income (loss) and net income (loss) per share would have been adjusted to the pro forma amounts indicated below: Year ended - ---------------------------------------------------------------------------------- June 26, 1998 June 27, 1997 June 28, 1996 - ---------------------------------------------------------------------------------- Net income (loss): As reported $ 8,245 $(6,178) $ 5,919 Pro forma $ 6,977 $(6,396) $ 5,614 Net income (loss) per share: Basic As reported $ 0.90 $ (0.65) $ 0.62 Pro forma $ 0.76 $ (0.67) $ 0.59 Diluted As reported $ 0.88 $ (0.64) $ 0.60 Pro forma $ 0.74 $ (0.66) $ 0.57
The per share weighted-average fair values of stock options granted during fiscal years 1998, 1997 and 1996 were $9.81, $4.28 and $9.29, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighed-average assumptions: Fiscal year 1998-expected dividend yield 0%, risk-free interest rate of 5.72%, a volatility factor of the expected market price of the Company's common stock of .4913, and a weighted-average expected life of approximately 4 years: Fiscal year 1997-expected dividend yield 0%, risk-free interest rate of 6.38%, a volatility factor of the expected market price of the Company's common stock of .5941, and a weighted-average expected life of approximately 4 years: Fiscal year 1996-expected dividend yield 0%, risk-free interest rate of 5.95%, a volatility factor of the expected market price of the Company's common stock of .7235, and a weighted-average expected life of approximately 4 years. The fair value of stock options included in the pro forma amounts for fiscal years 1998, 1997 and 1996 is not necessarily indicative of future effects on net income and net income per share. A summary of the status of the Company's two stock option plans as of June 26, 1998, June 27, 1997, and June 28, 1996, and changes during the years ended on those dates is presented below: Fiscal years ended: June 26, 1998 June 27, 1997 June 28, 1996 ---------------------- ------------------------ --------------------- Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Exercise Price ---------------------- ------------------------ --------------------- Outstanding at beginning of year 751,449 $ 14.71 776,542 $ 15.08 752,460 $ 11.41 Granted 836,404 $ 12.86 118,000 $ 14.99 233,265 $ 22.33 Exercised (33,531) $ 7.80 (27,205) $ 8.32 (147,243) $ 7.82 Canceled (136,062) $ 15.35 (115,888) $ 19.02 (61,940) $ 15.02 ---------- --------- --------- Outstanding at end of year 1,418,260 $ 13.72 751,449 $ 14.71 776,542 $ 15.08 ---------- --------- --------- Options exercisable at end of year 470,950 433,292 344,841
The following table summarizes information about the Company's stock option plans as of June 26, 1998: Options Outstanding Options Exercisable --------------------------------------------------------------------- ----------------------------------- Range of Number Outstanding Weighted-Avg. Weighted-Avg. Number Exercisable Weighted-Avg. Exercise Prices at 06/26/98 Remaining Contractual Life Exercise Price at 06/26/98 Exercise Price --------------------------------------------------------------------- ----------------------------------- $2.75 to $8.38 229,910 4.6 years $ 6.61 227,620 $ 6.60 $8.50 to $14.13 401,066 7.0 years $10.30 60,986 $ 11.47 $14.375 to $19.75 545,269 7.9 years $14.87 39,655 $ 15.59 $20.12 to $25.50 166,600 7.6 years $21.85 100,956 $ 21.85 $25.75 to $31.25 75,415 7.0 years $27.35 41,733 $ 27.33 --------- ------- 1,418,260 7.0 years $13.72 470,950 $ 13.10 --------- -------
J. Income Taxes The total income tax expense (benefit) is allocated as follows: Year ended June 26, 1998 June 27, 1997 June 28, 1996 - ------------------------------------------------------------------------------------- Income from continuing operations $ 3,447 $ 1,446 $ 4,280 Results of discontinued operations -- (2,752) (1,505) Gain (loss) on disposal of discontinued operations (94) (1,974) -- ------- -------- ------- $ 3,353 $(3,280) $ 2,775 ------- -------- -------
Income tax expense (benefit) from continuing operations consists of the following components: Year ended June 26, 1998 June 27, 1997 June 28, 1996 - ----------------------------------------------------------------------------- Current: Federal $ 3,262 $ 1,493 $ 3,426 State 263 (97) 167 Foreign 39 (98) 282 - ----------------------------------------------------------------------------- 3,564 1,298 3,875 - ----------------------------------------------------------------------------- Deferred: Federal (105) 133 356 State (12) 15 49 - ----------------------------------------------------------------------------- (117) 148 405 $ 3,447 $ 1,446 $ 4,280 - -----------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 26, 1998, and June 27, 1997, relating to continuing operations are presented below: June 26, 1998 June 27, 1997 - ------------------------------------------------------------------------------- Gross deferred tax assets: Accounts receivable, due to allowance for doubtful accounts $ 144 $ 101 Inventories, due to additional costs for tax purposes 168 143 Inventories, due to accrual for obsolescence 628 315 Vacation expense accrual for accounting purposes 385 358 Workers' compensation expense accrual for accounting purposes 449 395 Warranty expense accrual for accounting purposes 583 762 Employee benefit plan accrual for accounting purposes 224 190 Alternative minimum tax credit carryforward 228 378 State net operating loss carryforward 206 100 Other 140 45 - ------------------------------------------------------------------------------- Total gross deferred tax assets 3,155 2,787 Less valuation allowance - - - ------------------------------------------------------------------------------- Net total deferred tax assets 3,155 2,787 - ------------------------------------------------------------------------------- Gross deferred tax liabilities: Plant and equipment principally due to differences in depreciation (1,732) (1,482) - ------------------------------------------------------------------------------- Total gross deferred tax liabilities (1,732) (1,482) - ------------------------------------------------------------------------------- Net deferred tax assets $ 1,423 $ 1,305 - ------------------------------------------------------------------------------- Reflected on attached consolidated balance sheets as: Current deferred asset $ 2,797 $ 2,616 Non-current deferred liability, net (1,374) (1,311) - ------------------------------------------------------------------------------- Net deferred tax assets $ 1,423 $ 1,305 - -------------------------------------------------------------------------------
At June 26, 1998, the Company had a state net operating loss carryforward of approximately $4,500, which is available to offset future state taxable income through the fiscal year 2008. In addition, the Company has an alternative minimum tax (AMT) credit carryforward of approximately $228, which is available to reduce future federal regular income taxes over an indefinite period. Under Statement 109, a valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Based on the Company's historical and current pretax income, future reversals of existing temporary differences and estimates of future taxable income, management believes it is more likely than not that the recorded deferred tax assets will be realized. The Company has not recognized a deferred tax liability for the basis differences and the undistributed earnings related to its foreign subsidiaries since the investment is essentially permanent in duration. Undistributed earnings were approximately $900 at June 26, 1998. A reconciliation of the effective income tax rate from continuing operations with the statutory federal income tax rate is as follows: Year ended June 26, 1998 June 27, 1997 June 28, 1996 - ---------------------------------------------------------------------------------- Statutory rate 35.0 % 35.0% 35.0% State income taxes, net of federal tax 1.5 (1.7) 1.0 Tax effect of foreign income and losses - (2.8) 2.4 Tax effect of foreign sales corporation (2.7) (11.6) (4.1) Permanent differences 0.2 3.0 (0.3) Other (2.0) 3.5 (1.8) - ---------------------------------------------------------------------------------- 32.0% 25.4% 32.2 % - ----------------------------------------------------------------------------------
A tax benefit of $593, deriving from the Company's Foreign Sales Corporation (FSC), was recorded in the third quarter of fiscal year 1997. The tax benefit resulted from reassessment of the Company's foreign sales transactions for fiscal years 1994, 1995 and 1996. Cash paid for income taxes was $1,914, $1,071 and $2,646 in fiscal years 1998, 1997 and 1996, respectively. K. Retirement Plans The Company has a retirement savings and profit sharing plan, which qualifies under Section 401(k) of the Internal Revenue Code. Participation is available to all employees meeting minimum service and age requirements. During fiscal year 1996, the Company implemented a deferred compensation plan providing officers and key executives with the opportunity to participate in an unqualified deferred compensation plan. This Plan does not qualify under Section 401 of the Internal Revenue Code. The total of net participant deferrals, which is reflected in other long-term liabilities, was $382 and $190 at June 26, 1998, and June 27, 1997, respectively. The Company also has a deferred retirement salary plan, which is limited to certain officers. The Company has accrued the present value of the estimated future retirement benefit payments over the periods from the date of the agreements. The accrued balance of these plans, included in other long-term liabilities, was $659 and $559 at June 26, 1998, and June 27, 1997, respectively. Total expenses for these plans were $1,349, $1,375 and $1,341 for fiscal years ended 1998, 1997 and 1996, respectively. L. Accrued Liabilities June 26, 1998 June 27, 1997 - ------------------------------------------------------------------------------ Accrued incentive plan expense $ 1,716 $ - Accrued vacation expense 1,435 1,358 Accrued salary expense 719 569 Accrued salary and sales tax expense 903 555 Accrued warranty expense 1,716 2,185 Accrued workers' compensation self-insurance expense 1,319 1,162 Accrued restructuring costs 625 - Accrued other 1,812 996 - ------------------------------------------------------------------------------ $ 10,245 $ 6,825 - ------------------------------------------------------------------------------
M. Other Expense (Income) Year ended June 26, 1998 June 27, 1997 June 28, 1996 - ------------------------------------------------------------------------------------------- Investment income $ (27) $ (110) $ (114) Loss (gain) on foreign currency transactions 164 (58) (166) Amortization of intangibles - 22 45 Other, net 247 (104) (106) - ------------------------------------------------------------------------------------------- $ 384 $ (250) $ (341) - -------------------------------------------------------------------------------------------
N. Concentration of Credit Risk The Company's customers are primarily in the CATV industry. The Company performs periodic credit evaluations of its customers' financial conditions and generally does not require collateral. At June 26, 1998, and June 27, 1997, accounts receivable from customers in the CATV industry were approximately $19,286 and $18,307, respectively. Receivables are generally due within 30 days. Credit losses are provided for in the consolidated financial statements and have consistently been within management's expectations. Sales to one customer were $47,098 (31%) in fiscal year 1998. Sales to one customer were $48,026 (36%) in fiscal year 1997. Sales to two customers were $24,966 (18%) and $25,792 (18%), respectively, in fiscal year 1996. O. Commitments and Contingencies The Company had an established letter of credit of $1,400 at June 26, 1998, for its self-insured workers' compensation program. P. Quarterly Results of Operations (Unaudited) First Second Third Fourth 1998 Quarter Quarter Quarter Quarter(1) 1998 - ------------------------------------------------------------------------------------ Net sales $37,065 $37,185 $40,248 $37,646 $152,144 Gross profit 8,592 8,061 8,674 9,260 34,587 Income from continuing operations 1,881 1,586 1,877 1,973 7,317 Discontinued operations - - 363 565 928 Net income 1,881 1,586 2,240 2,538 8,245 - ------------------------------------------------------------------------------------ Net income per share - (basic): Continuing operations $ 0.21 $ 0.17 $ 0.20 $ 0.22 $ 0.80 Discontinued operations - - 0.04 0.06 0.10 Net income per share $ 0.21 $ 0.17 $ 0.24 $ 0.28 $ 0.90 - ------------------------------------------------------------------------------------ Net income per share - (diluted): Continuing operations $ 0.20 $ 0.17 $ 0.20 $ 0.21 $ 0.78 Discontinued operations - - 0.04 0.06 0.10 Net income per share $ 0.20 $ 0.17 $ 0.24 $ 0.27 $ 0.88 - ------------------------------------------------------------------------------------ First Second Third Fourth 1997 Quarter Quarter Quarter Quarter(2) 1997 - ------------------------------------------------------------------------------------ Net sales $31,844 $30,701 $32,801 $36,595 $131,941 Gross profit 7,197 5,982 6,434 7,626 $27,239 Income from continuing operations 1,533 563 1,346 815 4,257 Discontinued operations (774) (228) (1,182) (8,251) (10,435) Net income (loss) 759 335 164 (7,436) (6,178) - ------------------------------------------------------------------------------------ Net income (loss) per share - (basic): Continuing operations $ 0.16 $ 0.06 $ 0.14 $ 0.09 $ 0.45 Discontinued operations ( 0.08) (0.03) (0.12) (0.89) (1.10) Net income (loss) per share $ 0.08 $ 0.03 $ 0.02 $ (0.80) $ (0.65) - ------------------------------------------------------------------------------------ Net income (loss) per share - (diluted): Continuing operations $ 0.16 $ 0.06 $ 0.14 $ 0.09 $ 0.44 Discontinued operations (0.08) (0.03) (0.12) (0.89) (1.08) Net income (loss) per share $ 0.08 $ 0.03 $ 0.02 $ (0.80) $ (0.64) - ------------------------------------------------------------------------------------ (1) Results from continuing operations for the fourth quarter of fiscal year 1998 include a provision for restructuring costs of $625. (2) Results for the fourth quarter of fiscal year 1997 were negatively impacted by the Company's decision to discontinue its Digital Fiber Optics Transmission Products business segment. Discontinued operations include pre-tax charges of $3,300 related to warranty costs, an impairment loss on goodwill of $571 and a $3,830 after-tax charge for the loss on disposal of the Digital Fiber Optics Transmission Products business segment.
Q. Litigation As previously reported in the Company's Annual Report for the fiscal year ended June 27, 1997, on or about March 31, 1995, certain shareholders of the Company filed a complaint in the United States District Court for the Eastern District of Pennsylvania against the Company and its Chief Executive Officer alleging violations of Sections 10 (b) and 20 (a) of the Securities Exchange Act of 1934 and common law. On September 27, 1997, a tentative settlement was reached with respect to this litigation, and the settlement amount was recorded in the financial statements during the first quarter of fiscal year 1998. On July 14, 1998, the United States District Court for the Eastern District of Pennsylvania approved the settlement reached by the parties and dismissed the case with prejudice. R. Segment Information In fiscal year 1998, the Company operated in one industry segment, the Electronic Distribution Products segment, which provides HFC equipment for signal distribution applications primarily to the CATV market. In fiscal years 1997 and 1996, the Company operated in two industry segments: the Electronic Distribution Products segment and the Digital Fiber Optics Transmission Products segment, which has been reported as a discontinued business segment and provides products for long-distance, point-to-point, video, voice and data signal transmission applications, primarily for telephony, distance-learning and other non-CATV markets. On July 10, 1997, the Company announced the discontinuation of its Digital Fiber Optics Transmission Products segment. Information about industry segments for fiscal years 1998, 1997 and 1996 is as follows: Continuing Discontinued Operations Operations Total - ------------------------------------------------------------------------------------------ Year Ended June 26, 1998 - ------------------------------------------------------------------------------------------ Total revenue $ 152,144 $ - $ 152,144 - ------------------------------------------------------------------------------------------ Operating income $ 11,099 $ - $ 11,099 Identifiable assets at June 26, 1998 $ 75,518 $ 2,889 $ 78,407 Capital Expenditures $ 8,575 $ - $ 8,575 Depreciation and amortization $ 5,946 $ - $ 5,946 Year Ended June 27, 1997 - ------------------------------------------------------------------------------------------ Total revenue $ 131,941 $ 7,994 $ 139,935 - ------------------------------------------------------------------------------------------ Operating income (loss) $ 6,021 $ (9,357) $ (3,336) Identifiable assets at June 27, 1997 $ 69,604 $ 7,530 $ 77,134 Capital Expenditures $ 5,884 $ 698 $ 6,582 Depreciation and amortization $ 4,910 $ 1,388 $ 6,298 Year ended June 28, 1996 - ------------------------------------------------------------------------------------------ Total revenue $ 139,539 $ 9,359 $ 148,898 - ------------------------------------------------------------------------------------------ Operating income (loss) $ 14,254 $ (4,600) $ 9,654 Identifiable assets at June 28, 1996 $ 70,648 $ 7,759 $ 78,407 Capital Expenditures $ 7,442 $ 586 $ 8,028 Depreciation and amortization $ 3,972 $ 755 $ 4,727 - ------------------------------------------------------------------------------------------
The Company and subsidiaries operate in various geographic areas as indicated by the following: U.S. Canada Europe Eliminations Total - ---------------------------------------------------------------------------------------------- Year Ended June 26, 1998 - ---------------------------------------------------------------------------------------------- Sales to unaffiliated customers: Domestic $120,237 $ 1,635 $ 146 $ - $122,018 Export 30,126 - - - 30,126 Transfers between geographic areas 798 - - (798) - - ---------------------------------------------------------------------------------------------- Total Revenue $151,161 $ 1,635 $ 146 $ (798) $152,144 - ---------------------------------------------------------------------------------------------- Operating income $ 10,620 $ 290 $ 189 $ - $ 11,099 - ---------------------------------------------------------------------------------------------- Identifiable assets at June 26, 1998 $ 74,283 $ 954 $ 281 $ - $ 75,518 - ---------------------------------------------------------------------------------------------- Capital Expenditures $ 8,574 $ 1 $ - $ - $ 8,575 - ---------------------------------------------------------------------------------------------- Depreciation and amortization $ 5,910 $ 12 $ 24 $ - $ 5,946 - ---------------------------------------------------------------------------------------------- Year Ended June 27, 1997 - ---------------------------------------------------------------------------------------------- Sales to unaffiliated customers: Domestic $106,785 $ 1,523 $ 751 $ - $109,059 Export 22,882 - - - 22,882 Transfers between geographic areas (95) - - 95 - - ---------------------------------------------------------------------------------------------- Total Revenue $129,572 $ 1,523 $ 751 $ 95 $131,941 - ---------------------------------------------------------------------------------------------- Operating income $ 5,842 $ 162 $ 17 $ - $ 6,021 - ---------------------------------------------------------------------------------------------- Identifiable assets at June 27, 1997 $ 67,464 $ 1,542 $ 598 $ - $ 69,604 - ---------------------------------------------------------------------------------------------- Capital Expenditures $ 5,852 $ 6 $ 26 $ - $ 5,884 - ---------------------------------------------------------------------------------------------- Depreciation and amortization $ 4,847 $ 12 $ 51 $ - $ 4,910 - ---------------------------------------------------------------------------------------------- Year ended June 28, 1996 - ---------------------------------------------------------------------------------------------- Sales to unaffiliated customers: Domestic $ 84,792 $ 6,223 $ 5,968 $ - $ 96,983 Export 42,556 - - - 42,556 Transfers between geographic areas 9,570 - - (9,570) - - ---------------------------------------------------------------------------------------------- Total Revenue $136,918 $ 6,223 $ 5,968 $ (9,570) $139,539 - ---------------------------------------------------------------------------------------------- Operating income $ 11,596 $ 2,210 $ 448 $ - $ 14,254 Identifiable assets at June 28, 1996 $ 65,539 $ 3,464 $ 1,645 $ - $ 70,648 - ---------------------------------------------------------------------------------------------- Capital Expenditures $ 7,414 $ 10 $ 18 $ - $ 7,442 - ---------------------------------------------------------------------------------------------- Depreciation and amortization $ 3,848 $ 15 $ 109 $ - $ 3,972 - ----------------------------------------------------------------------------------------------
Financial Report To The Shareholders: The management of C-COR Electronics, Inc. is responsible for the preparation of all financial statements in this Annual Report. These statements were prepared in accordance with generally accepted accounting principles from the books and records maintained by the Company. Adequate accounting systems and financial controls are maintained to assure that these records reflect the transactions of the Company and that its assets are protected from loss or unauthorized use. In addition, the Audit Committee of the Board of Directors meets periodically with management and KPMG Peat Marwick LLP to discuss financial reporting matters, the internal controls, and the scope and results of the audit. /s/ Chris A. Miller Vice President - Finance, Secretary and Treasurer August 12, 1998 Independent Auditors' Report To the Board of Directors C-COR Electronics, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of C-COR Electronics, Inc. and Subsidiaries as of June 26, 1998, and June 27, 1997, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the years in the three-year period ended June 26, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of C-COR Electronics, Inc. and Subsidiaries as of June 26, 1998, and June 27, 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended June 26, 1998, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP State College, Pennsylvania August 12, 1998 DIRECTORS & OFFICERS Year first elected Directors a director Richard E. Perry 1985 Chairman of the Board (2,4,5) Donald M. Cook, Jr. 1988 Retired President and Chief Operating Officer, SEMCOR, Inc. (2,3,4) I.N. Rendall Harper, Jr. 1982 President, Chief Executive Officer and Treasurer, American Micrographics Company, Inc. (1,2,4,5) Javad K. Hassan 1997 President, J. K. Hassan Assoc. LLC (1,4,6) Anne P. Jones, Esq. 1989 Telecommunications Consultant (1,3,4,5) John J. Omlor 1989 President and Chief Executive Officer, John J. Omlor Associates, Ltd. (2,4,6) Dr. Frank Rusinko, Jr. 1990 Senior Scientist and Director, Consortium for Premium Carbon Products from Coal and Carbon Research Center, College of Earth and Mineral Sciences of The Pennsylvania State University (1,4,5,6) Dr. James J. Tietjen 1987 Dean, School of Technology Management, The Stevens Institute of Technology (3,4,6) (1) Member of the Audit Committee (2) Member of the Executive Committee (3) Member of the Compensation Committee (4) Member of the Strategic Planning Committee (5) Member of the Nominating Committee (6) Member of the Technology Innovation Committee
Directors Emeriti Joseph C. Bates 1982 Dr. John L. McLucas 1982 Dr. Marsh W. White 1963
Officers David A. Woodle President and Chief Executive Officer Edwin S. Childs Vice President Human Resources David J. Eng Senior Vice President Sales Lawrence R. Fisher, Jr. Vice President Engineering Lynn D. Hutcheson Senior Vice President Engineering and Technology Chris A. Miller Vice President Finance, Secretary and Treasurer Donald F. Miller Vice President Operations and Manufacturing Gerhard B. Nederlof Senior Vice President Marketing and Services Joseph E. Zavacky Controller and Assistant Secretary CORPORATE DATA Annual Meeting of Shareholders October 13, 1998 at 9:00 a.m. Headquarters - C-COR Electronics, Inc. 60 Decibel Road - State College, Pennsylvania Stock Listing The Common Stock of C-COR Electronics, Inc., traded in The Nasdaq Stock Market's National Market System, was first offered to the public in February 1981. The Nasdaq symbol is CCBL. The range of high and low price information as reported by Nasdaq follows: Quarter Ending Price September 30, 1996 High 18 Low 13 3/4 December 31, 1996 High 17 1/2 Low 11 7/8 March 31, 1997 High 15 3/4 Low 12 June 30, 1997 High 12 1/8 Low 9 1/2 Quarter Ending Price September 30, 1997 High 16 3/4 Low 8 13/16 December 31, 1997 High 18 1/4 Low 14 March 31, 1998 High 16 Low 12 7/8 June 30, 1998 High 19 Low 12 7/8 C-COR Electronics, Inc. has never paid a dividend. As of June 26, 1998, there were 599 shareholders of record of Common Stock. General Counsel McQuaide, Blasko, Schwartz, Fleming & Faulkner, Inc. State College, Pennsylvania SEC Counsel Ballard Spahr Andrews & Ingersoll, LLP Philadelphia, Pennsylvania Independent Auditors KPMG Peat Marwick LLP State College, Pennsylvania Transfer Agent and Registrar American Stock Transfer Company New York, New York Form 10-K A copy of the Company's Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, will be furnished without charge to any shareholder upon written request. We encourage shareholders whose stock is held by brokers or banks to contact the Investor Relations office at the Company's headquarters (Telephone: 814-231-4402, e-mail: sot@c-cor.com) to have their names placed on the financial mailing list, enabling them to receive interim reports. C-COR On The Web C-COR's web site (http://www.c-cor.com) provides a vast array of information, including company profile, news, product information, investor relations and more. M|I|S|S|I|O|N S|T|A|T|E|M|E|N|T C-COR is dedicated to responsive customer service, innovative design and the manufacture of quality products. We will be a leader in communication technology. The Company will research and develop market opportunities within our expertise to enhance profitable growth. WHAT WE STAND FOR At C-COR, our business practices are guided by a respect for ourselves and a profound sense of responsibility to our employees, shareholders and customers. EMPLOYEES Nothing is more important to C-COR than the people who work here. To our people we pledge a good work environment, fair compensation, recognition of accomplishments, honesty in communications and understanding. In return, we expect a positive attitude, an honest effort in the workplace and a dedication to principles that we espouse. CUSTOMERS We realize the value of our customers and we have committed ourselves to delivering a quality product at a fair price, to respond promptly to our customers' requests, to provide superior service and support and, most of all, to respect them and their needs. SHAREHOLDERS We recognize our responsibility to protect and nurture the investments of our shareholders. We will manage C-COR in a manner that will produce a fair return on investment while manifesting itself in capital appreciation. Our management will be cost-effective and efficient. We will be open and honest in communicating with shareholders, and we will conduct our business in an ethical manner. SUPPLIERS The criteria for choosing suppliers will be on the basis of quality, price and performance; we expect of them what our customers expect of us. COMMUNITY C-COR is dedicated to being a good corporate citizen wherever we do business. And, we believe in encouraging our employees to become involved in civic affairs. We expect our employees to conduct business in an ethical manner, to be dedicated in their efforts on behalf of the Company and to work to improve the quality of life in the workplace and the communities in which they live. WORLD HEADQUARTERS 60 Decibel Road State College, PA 16801 800-233-2267 814-238-2461 Fax 814-238-4065 EUROPEAN OFFICE P.O. Box 10.265 1301 AG Almere The Netherlands 31-36-536 4199 Fax 31-36-536 4255 DENVER OFFICE 12742 East Caley Avenue, Suite A Englewood, CO 80111 303-799-1100 Fax 303-643-1743 CANADIAN OFFICE 377 MacKenzie Avenue, Unit 5 Ajax, Ontario L1S 2G2, Canada 905-427-0366 Fax 905-428-0927 REGIONAL SALES OFFICES California, Colorado, Georgia, Indiana, Minnesota, Pennsylvania, North Carolina, and Texas Printed in the U.S.A. All rights reserved. (C) 1996, C-COR Electronics, Inc. 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 12, 1998, included the related financial statement schedule as of June 26, 1998, and for each of the years in the three-year period ended June 26, 1998, included in the annual report on Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the incorporation by reference in the registration statements (Nos. 2-95959, 33-27440, 33-35208, 33-66590 and 333-02505) on Form S-8 of C-COR Electronics, Inc. and Subsidiaries of our report, related to the consolidated balance sheets of C-COR Electronics, Inc. and Subsidiaries as of June 26, 1998 and June 27, 1997, and the related consolidated statements of operations, cash flows and shareholders' equity and related financial statement schedule for each of the years in the three-year period ended June 26, 1998, which report is incorporated by reference in the June 26, 1998 annual report on Form 10-K of C-COR Electronics, Inc. and Subsidiaries. /s/ KPMG Peat Marwick LLP State College, Pennsylvania September 24, 1998 EX-27 12 ART. 5-FDS FOR YEAR END 10K
5 1,000 12-MOS JUN-26-1998 JUN-26-1998 2,313 356 19,834 430 17,375 44,713 55,307 27,556 75,518 17,400 0 0 0 967 49,223 75,518 152,144 152,144 117,557 23,104 384 0 335 10,764 3,447 7,317 928 0 0 8,245 0.90 0.88
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