UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-511
COBRA ELECTRONICS CORPORATION
(Exact name of Registrant as specified in its Charter)
DELAWARE 36-2479991
(State of incorporation) (I.R.S. Employer Identification No.)
6500 WEST CORTLAND STREET
CHICAGO, ILLINOIS 60707
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (773)889-8870
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.33 1/3 Per Share
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 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. [X]
The aggregate market value of the voting and non-voting common equity (only
Common Sock) held by non-affiliates of the Registrant at March 17, 1999 was
approximately $23,221,617.
The number of shares of Registrant's Common Stock outstanding at that date was
6,090,916.
Portions of the Registrant's Definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held May 11, 1999, are incorporated by reference
into Part III of this Report.
PART I
------
ITEM 1. BUSINESS:
GENERAL
Cobra Electronics Corporation (the "company") was incorporated in Delaware in
1961 and is a designer and wholesale marketer of consumer electronics
products, primarily communications products. The company markets products
under the COBRA brand name. Management believes that the company's future
success will depend upon its ability to predict and respond in a timely and
effective manner to changes in the markets it serves. Product performance,
reliability, price, availability and service are the main competitive factors;
with sales also being dependent upon timely introduction of new products which
incorporate new features desired by consumers, at competitive prices.
RECENT DEVELOPMENTS
James R. Bazet who had joined the company as Executive Vice President and
Chief Operating Officer in July 1997, assumed the position of President and
Chief Executive Officer effective January 1, 1998. Former President and Chief
Executive Officer, Jerry Kalov, retired on January 1, 1998 and remains as Vice
Chairman of the Board of Directors.
In 1998 the company focused on accomplishing two main initiatives: expanding
its distribution base and increasing the flow of fresh new products. During
the year, the company added several new major retail customers, expanded
placement among existing major retail accounts, and added sporting goods and
office supply as new channels of distribution. As a result, the company's
products are now in six of America's top ten electronics retailers: Best Buy,
Circuit City, Sears, Target, Kmart and Office Max. In addition, the company
expanded its distribution base in Europe by adding new distributors during
1998. The company also increased the flow of fresh new products during 1998
by expanding its line of CB radios featuring the company's proprietary
SoundTracker technology and introducing its exclusive line of 6 Band radar
detectors and its new MicroTALK series of Family Radio Service(FRS)two-way
radios.
Also in 1998 the company doubled, to 2000, the number of its patented, FCC-
approved Safety Alert transmitters in use on police, fire and emergency
vehicles throughout the fifty states. Part of this increase was due to orders
from the Lake Ponchartrain Causeway in New Oleans and two major cities, Las
Vegas and Salt Lake City.
SUPPLIERS
One of the company's primary strengths is its product sourcing ability.
Substantially all of the company's products are manufactured to its
specifications and engineering designs by a number of suppliers, primarily in
China, Thailand, Japan, Hong Kong and Korea. The company maintains stringent
control over the design and production quality of its products. The company
has a wholly owned subsidiary in Hong Kong which helps to seek out new
suppliers, monitor technological changes, perform source inspection of key
suppliers, and expedite shipments from vendors.
Over a period of years, the company has developed a network of suppliers for
its products. To maintain flexibility in product sourcing, the company has
not entered into long-term contracts with any of its suppliers. Despite
management's belief that it maintains strong relationships with its current
suppliers, it also believes that, if necessary, other suppliers could be
found. The extent to which a change in a supplier would have an adverse
effect on the company's business depends upon the timing of the change, the
product or products that the supplier produces for the company and the volume
of that production. The company also maintains insurance coverage that would,
under certain limited circumstances, reimburse the company for lost profits
resulting from a vendor's inability to fulfill its commitments to the
company. The company negotiates substantially all of its purchases in U.S.
dollars to protect itself from currency fluctuations. Assets located outside
of the United States, principally company-owned tooling at suppliers, had a
net book value of $1.2 million at December 31, 1998.
PRODUCTS
The company operates only in the consumer electronics industry. Principal
products include:
Citizen Band ("CB") Radios
CB accessories, including antennas, microphones and speakers
MicroTALK Family Radio Service (FRS) two-way radios
FRS accessories
Integrated 6 Band Radar/Laser Detectors
Safety Alert transmitters and receivers
Private Call 900 MHz and Intenna 25-channel Cordless Telephones
Power Inverters
The company competes primarily in the United States with various manufacturers
and distributors of consumer electronics products. The company competes
principally on the basis of product features and price and expects the market
for its products to remain highly competitive.
Research, engineering and product development expenditures are expensed as
incurred. These expenditures amounted to $0.9 million in 1998 and $0.8
million each year in 1997 and 1996.
Except for certain patents, such as its Safety Alert technology, the company
does not believe that patents are of material importance to its products.
However, should the company develop a unique technology (such as SoundTracker
noise reduction technology), patents will be applied for to preserve
exclusivity, wherever possible.
SoundTracker CB radios and accessories, 6 Band integrated radar/laser
detectors, Safety Alert transmitters and receivers, MicroTALK Family Radio
Service two-way radios and accessories, power inverters and 900 MHz cordless
telephones, are marketed under the COBRA trademark.
Cobra is the leading brand in the domestic CB radio market, which in factory
sales is approximately $120 million annually. Approximately 75 percent of the
market is for mobile CB radios, most of which are purchased by professional
drivers. The remaining part of the market is for handheld CB radios used for
sport and recreational activities.
The company has a history of being the technology leader in the CB market. The
company was the first CB radio marketer to combine a National Weather Service
receiver with a mobile CB radio, enabling motorists to obtain weather and
travel information broadcasts. As a major enhancement of this feature, the
company also introduced the industry's first mobile CB radio that incorporates
an automatic alert feature to warn of National Weather Service emergency
advisories. In 1997, the company introduced its Soundtracker technology. This
patent-pending noise reduction technology, which dramatically improves the
sound quality of the CB radios, is the first significant product innovation in
this category in several years. This new feature significantly reduces white
noise, or static, when the CB is in receiving mode. Additionally,
SoundTracker technology allows the user's voice to break through cluttered
airwaves and to be more easily heard when transmitting.
At the January 1999 International Consumer Electronics Show, the company
continued its technology leadership by introducing a new line of CB radios
featuring an adjustable illuminated front panel. The new NightWatch line,
which the company expects to begin shipping in mid-1999, will enhance drivers'
safety by making it dramatically easier for them to see and adjust their CB
controls at night. The company also expects to ship in 1999 several new CB
models specifically designed for the European market.
In 1997, the company entered the market for FRS two-way radios and in the Fall
of 1998 began selling its new MicroTALK line. Because of the success of this
new line, the company is now the number two brand by a wide margin in this
fast growing category. The company estimates that the market for FRS two-way
radios in 1998, in factory sales, approximated that for CB radios and will
increase to approximately $200 million in 1999.
FRS two-way radios operate on UHF FM frequencies, which allow for an extremely
small handheld radio and exceptionally clear sound that penetrates through
buildings and other obstacles. Unlike cellular phones, these radios require no
monthly charge and provide coverage even in the most remote areas. Because of
their range--up to two miles--and exceptionally clear sound quality, the
radios enable families and friends to easily keep in touch in hundreds of
situations where they typically get separated and out of earshot, such as in
shopping malls, amusement parks and ski resorts. FRS two-way radios also
provide parents with an easy way to maintain contact with children when they
are outside playing. In addition, the number of potential business-related
applications for these radios is substantial, including construction crews,
retail stores, restaurants and warehouses.
The company's MicroTALK two-way radios have innovative features, which make
them easy to use. These include: incoming call alert that lets one user
"ring" another user; voice scrambling that keeps users' conversations private;
talk confirmation tones that subtly let users know when the other party is
done talking; and a retractable antenna that makes it easier to store the
unit. One model even has a unique VibrAlert feature that works like a silent
vibrating pager, which makes it perfect for situations where noiseless
operation is important or where a ring alert cannot be easily heard. Later in
1999 the company expects to begin shipping new MicroTALK models. As an
example, one model can receive ten National Weather Service channels and
several models are designed especially for the European market.
Cobra is also the number two brand in the market for domestic integrated
radar/laser detectors, which in factory sales is approximately $94 million.
Currently, there are approximately 190 million cars and light trucks on the
road and, of those, approximately 10 percent have detectors. Cobra commands
this significant market share by offering innovative products with the latest
technology.
In addition, the company has been a leader in applying laser detection
technology, including introducing the industry's first laser-signal detector
and the industry's first integrated radar/laser detector with 360 degree laser
detection capability. The company was the first to introduce to the retail
channel "intelligent" detection systems capable of alerting drivers with a
differentiated signal for each of the frequencies emitted by the company's
patented, FCC-approved Safety Alert transmitter. This transmitter is being
marketed to organizations that operate police, fire, emergency medical
service, construction and public utility vehicles. The company's Safety Alert
Traffic Warning System is designed to help drivers avoid potentially serious
accidents with vehicles operated by these organizations. In 1997, the company
began shipments of its new Safety Alert Traffic Warning Detector. This
detector receives all three Safety Alert signals, but does not detect radar or
laser guns. It is targeted at those consumers who want to enhance their
driving safety but who are not interested in radar detection.
Currently, there are approximately 2000 Safety Alert transmitters installed
and operating throughout the fifty states on police, fire and emergency
medical vehicles. Five cities-- Indianapolis, Dayton, Orlando, Las Vegas and
Salt Lake City--have a concentration of transmitters. Also, scheduled to
begin in mid-1999 is the previously announced Illinois Department of
Transportation's high-visibility study to enhance railroad crossing safety
though a system which utilizes Safety Alert transmitters and receivers. Around
the same time, Safety Alert transmitters will also be featured in a Federal
Highway Administration program to improve highway work zone safety in four
midwestern states.
In the Spring of 1998, the company began shipping its proprietary 6 Band line
of detectors. Unique to the industry, these detectors were designed to alert
drivers to each of the four current speed monitoring systems in use -- X,K,Ka
and Laser -- plus VG-2, the band that advises that a radar detector is being
used, The sixth band is the Safety Alert Traffic Warning System band. This
makes the unique Cobra six-band detector the most comprehensive alert system
in the industry and for the first time allows drivers to be aware of all four
speed monitoring systems as well as the presence of VG-2 and Safety Alert
transmissions. Because of the popularity of the company's unique 6 Band
technology, Cobra was the fastest growing radar detector brand in 1998, which
resulted in solid market share gains for the company.
Major competitors in the CB radio market are Radio Shack (Tandy Corporation)
and Uniden. The major competitor in the FRS market is Motorola. Major
competitors in the radar detector market are Whistler, Uniden, Beltronics and
Radio Shack.
In 1997, the company entered a new accessories category, power inverters.
Power inverters convert a vehicle's battery power to power that can run
appliances and accessories normally powered by household current. The primary
users of inverters are professional truck drivers.
During 1998, the company shifted its cordless phone line from 25-channel
phones to a new line of 900 MHz cordless phones to capitalize on this rapidly
growing segment of the cordless phone market. The company currently sells
three 900 MHz models including a two-line model for the growing home-office
segment.
The cordless phone industry amounts to approximately $2 billion and is
dominated by large companies, including VTech, General Electric, Panasonic,
Sony, Southwestern Bell, and Uniden. Because of this, the company's strategy
is to look for profitable niches and position Cobra as an alternative line of
quality products with innovative features at competitive prices.
SALES AND DISTRIBUTION
Demand for consumer electronics products is somewhat seasonal and varies
according to channel of distribution. Historically, sales in the last half of
the year are greater than in the first half, reflecting increased purchases by
retailers for the holiday selling season. Also, because a greater portion of
the company's business in 1998 was with mass retail accounts, the company
experienced a shift in orders from the third quarter to the fourth quarter
when the mass retailers normally begin their load-in for the holiday selling
season. As the company's channel mix continues to shift more towards retail,
the company expects additional shifts toward heavier third and fourth quarter
sales volumes.
In 1998, sales to Kmart and DAS Distributors were 12.9 percent and 11.9
percent, respectively. In 1997 there were no sales in excess of 10 percent of
total net sales to a single customer or a group of entities under common
control. In 1996, sales to Sprint represented 10.7 percent of net sales. The
company does not believe that the loss of any one customer would have a
material adverse effect on the business of the company. The company's
international sales were $7.4 million, $19.1 million, and $10.1 million in
1998, 1997 and 1996, respectively.
The company's return policies and payment terms are consistent with those of
other companies serving the consumer electronics market. Market conditions
are such that products generally must be shipped within a short time after an
order is received. As a result, order backlog is not significant.
Cobra products are distributed through a strong, well-established network of
approximately 300 retailers and distributors located primarily in the United
States. Approximately 60 percent of the sales are made directly to domestic
mass marketers, such as catalog showrooms, consumer electronics specialty
stores, large department store chains, television home-shopping,
direct-response merchandisers, home centers and specialty stores, which
feature telephone products or mobile electronics products. Most of the
remaining sales are through two-step wholesale distributors, that carry Cobra
products to fill orders for truck stops, small department stores, appliance
dealers, and for export, as well as direct sales to a large truck stop chain.
Cobra's primary sales force is comprised of independent sales representatives
who work on a straight commission basis. They do not sell products of the
company's competitors.
The company's right to sell products under the COBRA trademark is
substantially worldwide. The company believes the COBRA trademark, which is
indefinitely renewable by the company, is a significant factor in the
successful marketing of its products.
EMPLOYEES
As of December 31, 1998, the company employed 119 persons in the U.S. and 8 in
its international operations. None of the company's employees is a member of
a union.
ITEM 2. PROPERTIES:
The company owns one building in Chicago, Illinois containing a total of
approximately 93,000 square feet of office and warehouse space. The company
also leases 2,300 square feet of office space in Hong Kong for its
international operations. The company believes that these facilities are
adequate to meet its current needs.
3. LEGAL PROCEEDINGS:
The company is subject to various unresolved legal actions which arise in the
normal course of its business, none of which is expected to have a material
adverse effect on the company's business or financial condition.
During 1996, the company received notice from the Internal Revenue Service
asserting deficiencies in federal excise tax. The excise tax relates to the
use of ozone-depleting chemicals. The company had protested the deficiencies
and had filed an environmental excise tax protest. During the first quarter of
1998, the company was notified by the Internal Revenue Service that there are
no deficiencies in the company's federal excise tax returns and the
contingency has been eliminated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None.
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS:
The company's common stock trades on The Nasdaq Stock Market under the symbol
COBR. As of March 12, 1999, the company had approximately 932 shareholders of
record and approximately 2,499 shareholders for whom securities firms acted as
nominees. The company's common stock is the only class of equity securities
outstanding. Before April 1, 1993, the common stock of the company traded
under the symbol DYNA.
Under the terms of its credit agreement, the company may not pay cash
dividends.
STOCK PRICE AND TRADING VOLUME DATA
<TABLE>
<CAPTION>
STOCK PRICE RANGE
-------------------------------------------------------------
TRADING VOLUME
1998 1997 1996
(in thousands)
------------------- ------------------- -----------------
- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Quarter High Low High Low High Low
1998 1997 1996
- ----------- --------- --------- --------- --------- -------- --------
<C> <C> <C>
- ------ ------ -----
First...... $ 8 5/8 $ 5 5/8 $ 3 5/8 $ 2 1/2 $ 4 1/8 $ 2 1/4
2,931 704 1,624
Second..... 6 3/4 4 3/4 3 3/8 2 1/2 3 1/8 1 15/16
2,050 583 725
Third...... 5 5/8 3 1/2 8 7/8 2 13/16 3 1/8 2
1,684 9,402 344
Fourth..... 6 1/4 3 5/8 10 7/8 5 1/4 3 7/8 2 1/8
1,304 4,966 1,265
</TABLE>
Note: Data compiled from The Nasdaq Stock Market monthly Summary of Activity
reports.
ITEM 6. SELECTED FINANCIAL DATA:
FIVE YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Years Ended December 31
(in thousands, except per share amounts) 1998 1997 1996
1995 1994
- ---------------------------------------------------- -------- ----------
- ---------- ---------- ----------
<S> <C> <C> <C>
Operating Data:
Net sales......................................... $ 103,414 $104,098 $ 90,324
<C> <C>
$ 90,442 $ 82,131
Gross profit...................................... 24,661 21,551 16,370
16,577 14,466
Selling, general and administrative expense....... 19,747 16,655 14,374
16,097 14,602
Operating income (loss)........................... 4,914 4,896 1,996
480 (136)
Gain on sale of building.......................... -- 1,132 --
-- --
Tax provision (benefit)........................... (10,403) - --
-- --
Net income (loss)................................. 14,200 4,692 601
(1,145) (1,515)
Net Income (loss) per share:
Basic ............................................ 2.30 0.76 0.10
(0.18) (0.24)
Diluted .......................................... 2.20 0.73 0.10
(0.18) (0.24)
As of December 31:
Total assets...................................... 64,419 48,279
42,596 50,081 40,342
Short-term debt .................................. 14,316 10,995
13,277 19,368 11,461
Shareholders' equity.............................. 37,496 23,673
18,713 18,174 19,429
Book value per share.............................. 6.18 3.81
3.29 3.20 3.38
Shares outstanding................................ 6,066 6,218
6,242 6,227 6,227
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CORPORATE OVERVIEW
Strong domestic sales--up 14 percent from the prior year--helped offset a
substantial decline in international detector sales because of the poor
Russian economy. Domestic sales were driven by sales of new MicroTALK
two-way radios and 6-Band radar detectors. Sales of higher-margin new
products led to a significant improvement in gross margin, which hit its
highest level in the 1990s. The increase in gross margin and a one-time
income tax benefit of $10.4 million resulted in net income of $14.2 million
for 1998. Excluding the effects of the 1998 income tax benefit and a 1997
one-time gain of $1.1 million on the sale of a building, net income per
diluted share increased 7.3 percent in 1998.
The tax benefit was due to the elimination of the company's deferred tax
valuation allowance. This valuation allowance had substantially offset the
company's net deferred tax asset, a significant portion of which related to
the company's net operating loss carryforwards. In the fourth quarter of
1998, due to the continued positive trend in earnings and the successful
launch of the company's new products, management determined that this
valuation allowance was no longer needed because the company expects to
fully utilize its remaining net operating loss carryforwards and other
deferred tax assets, arising from temporary differences between financial
and tax reporting, to offset future taxable income. At December 31, 1998, the
company had net operating loss carryforwards of $26.3 million.
RESULTS OF OPERATIONS
1998 Compared to 1997
- ---------------------
Net income for 1998 increased to $14.2 million or $2.20 per diluted share from
$4.7 million or $0.73 per diluted share in 1997. Included in net income for
1998 and 1997 were a $10.4 million income tax benefit and a $1.1 million one-
time gain on the sale of a building, respectively. Excluding the tax benefit
and the prior year's one-time gain, net income and net income per diluted
share for 1998 increased $237,000 (or 6.7 percent) and $0.04 (or 7.3 per-
cent), respectively.
Net sales for 1998 remained relatively flat at $103.4 million compared to $104.1
million in 1997. However, domestic sales, boosted by increased retail distri-
bution and strong demand for the new MicroTALK FRS two-way radios and the com-
pany's proprietary 6-Band radar detectors, were up 14 percent from 1997. This
helped offset a $11.7 million drop in international sales, primarily because
of lower sales of radar detectors into Russia as a result of that country's
ongoing severe economic problems.
Strong sales of FRS two-way radios and domestic radar detectors were partially
offset by an $11 million decline in sales of radar detectors into Russia be-
cause of that country's ongoing economic problems. FRS two-way radio sales
benefitted from the new MicroTALK line, which the company began shipping in
September 1998. This new line has helped the company add several new
customers, expand placement among existing major retail accounts and add
sporting goods and office supply as new channels of distribution. The
increase in domestic radar detector sales was due to the popularity of the
company's proprietary six-band technology. These new models, which began
shipping at the end of the first quarter of 1998, enabled the company
to achieve steady market share gains during the year. Sales of cordless
telephones decreased $5.8 million, or 36 percent. This decline reflected
lower sales of 25-channel products as the company shifts its business to the
new line of 900 MHz cordless telephones, which it began shipping in the third
quarter of 1998.
Gross margin for 1998 improved to 23.8 percent from 20.7 percent in 1997
primarily due to a greater portion of higher-margin SoundTracker CB radios,
MicroTALK two-way radios and 6 Band radar detectors in the sales mix.
Selling, general and administrative expense increased $3.1 million during 1998
and, as a percentage of net sales, increased to 19.1 percent from 16.0 per-
cent in 1997. Much of the increase was due to higher selling and marketing
costs. One reason for the increase was a shift in sales mix in 1998 to more
domestic sales, which have much higher selling expenses associated with them
compared to the selling expenses associated with international sales. Also,
selling and marketing expenses increased as the company continued to invest
significantly in new product development, retail account expansion and distri-
bution channel gains. These investments have resulted in increased placement
of Cobra products as well as gross margin improvement. Also contributing to
the increase in selling, general and administrative costs was consulting
expense incurred to make the company's data processing systems year 2000
compliant and higher legal and related costs incurred to register and protect
the company's trademarks world wide. Offsetting some of the increase was the
fact that 1997 selling, general and administrative expense included a charge
of $1.1 million to reduce advertising credits to their net realizable value.
Interest expense for 1998 decreased slightly to $1.2 million from $1.3 million,
primarily due to a more favorable banking agreement, entered into in early
1998, and lower overall interest rates. In 1997, the company sold a building
that was not needed for operations and was being leased to an outside party
for approximately $2 million, resulting in a one-time gain of $1.1 million.
Other income was $87,000 in 1998 compared to other expense of $60,000 in
1997. The net favorable change was due to decreased bank fees resulting from
the new bank agreement mentioned above.
In 1998 the company recorded an income tax benefit of $10.4 million. The tax
benefit was due to the elimination of the company's deferred tax valuation
allowance. This valuation allowance had substantially offset the company's net
deferred tax asset, a significant portion of which related to the company's
net operating loss carryforwards. Prior to 1996, the company had a history
of net losses resulting in a significant net deferred tax asset and a
corresponding valuation allowance. Under SFAS No. 109, a history of operating
losses in recent years generally requires recognition of such an allowance.
Accordingly, the company recorded a valuation allowance for substantially all
of the net deferred tax asset. However, SFAS No. 109 requires management to
periodically access the need for a valuation allowance. In the fourth
quarter of 1998, due to the continued positive trend in earnings and the
successful launch of the company's new products, management concluded that
there was no need for a valuation allowance because it is more likely than
not that all of the net deferred tax assets will be realized through future
taxable earnings. In the future, the company will report a tax provision
since the deferred tax valuation allowance no longer exists to offset
any tax expense. At December 31, 1998, the company had net operating loss
carryforwards of $26.3 million.
1997 Compared to 1996
- ---------------------
Net income for 1997 increased to $4.7 million from $601,000 in 1996. Included
in net income for 1997 was a $1.1 million gain on the sale of a building
during the third quarter that the company did not need for its operations and
was leasing to an outside party. Net income, excluding the gain on the sale
of the building, increased $3.0 million to $3.6 million in 1997 from $601,000
in 1996. Net sales increased $13.8 million, or 15.2 percent, to $104.1
million from $90.3 million in 1996. Selling, general and administrative
expense increased to $16.7 million from $14.4 million, but, as a percentage
of net sales, remained substantially unchanged at 16 percent.
Sales of CB radios increased 28 percent mainly because of strong demand for
radios with the company's exclusive, patent-pending SoundTracker technology,
introduced early in the year. Additionally, an all-new radar detector lineup
helped drive sales volume in the U.S., while internationally the company
capitalized on the strong demand in Russia for radar detectors. In total,
international sales, which consisted principally of radar detector sales
increased $9.8 million in 1997.
Sales of 25-channel cordless phones and integrated cordless phone answering
systems decreased $10 million because of lower sales to several large retail
customers. Also contributing to the sales decrease was lower sales of factory
reconditioned products as a result of agreements with some of the company's
vendors that allow product returned from the company's customers to be
returned to the vendor for partial credit towards future purchases. Prior to
these agreements, which were entered into in 1996, the company repaired and
resold this returned merchandise as factory reconditioned product. The
company also restricted expanding distribution for its 25-channel cordless
phones as it sought to de-emphasize this product line in favor of the rapidly
growing 900 MHz segment which the company introduced in the Fall of 1998 with
several 900 MHz cordless phone models.
Gross margin for 1997 increased to 20.7% from 18.1% in 1996 primarily due to
an improvement in sales mix of higher margin CB and radar detector products.
Sales of these products increased as a percentage of total sales from 67 per-
cent in 1996 to approximately 81% in 1997. In addition, gross margin on
radar detectors increased due to the new radar detector lineup, which in-
cluded lower cost models that replaced higher cost models. Also contributing
to the gross margin improvement was lower repair costs on returned products,
which declined because of return to vendor agreements discussed above.
Partially offsetting the favorable impact of these items was $555,000 of
increased air freight expense mainly to satisfy the strong demand for CB
radios with the SoundTracker system. Normally the company uses significantly
less expensive ocean freight to import its products.
Selling, general and administrative expense increased $2.3 million during 1997
and, as a percentage of net sales, remained relatively unchanged from 1996.
Sales and marketing expenses increased due to: higher variable expenses
resulting from the increase in sales volume; the addition of a senior vice
president of marketing and sales, a newly created position, in February 1997;
and increased promotional spending mainly to promote the new SoundTracker
technology. In addition, higher bonus and bad debt expense in 1997 also
contributed to the increase in selling, general and administrative expenses.
Bad debt expense increased because of the bankruptcy of a small customer and
a potential preference payment issue for a prior year's bankruptcy. In
addition, prior year's bad debt expense reflected a favorable reserve adjust-
ment because of improvement in the quality of the receivable portfolio and
favorable collections experience. As in 1996, 1997 included a charge for the
write-down of advertising barter credits to estimated net realizable value
amounting to $1.1 million in 1997 compared to a charge of $1.2 million in
1996.
Interest expense for 1997 decreased to $1.3 million from $1.7 million. Debt
levels declined due to lower average inventory and receivable levels.
The company sold a building, which was not needed for operations and was being
leased to an outside party, in the third quarter of 1997 for approximately $2
million. The sale resulted in a $1.1 million gain.
Other expense was $60,000 in 1997 compared to other income of $275,000 in
1996. In 1996 there was a gain of $373,000 from a suit against a former
distributor for violation of a licensing agreement and $217,000 of royalty
income from Safety Alert licensing agreements, offset by a $384,000 writedown
of a building related to a discontinued operation.
LIQUIDITY AND CAPITAL RESOURCES
On February 3, 1998, the company entered into a new $35 million secured credit
agreement with two financial institutions for a three-year revolving credit
facility, replacing an existing $30 million credit agreement. Loans outstand-
ing under the new agreement bear interest, at the company's option, at the
prime rate or LIBOR plus 2 percent. Additionally, the new agreement provides
for higher advance rates on eligible inventory and receivables and eliminates
the 2 percent per annum charge that the company was obligated to pay on its
average outstanding balance of letters of credit under the previously exist-
ing agreement.
On October 10, 1998, the company and its lenders signed an amendment
increasing the credit line from $35 million dollars to $38.7 million. This
increase reflected a separate line of credit under which borrowings are
secured by the cash surrender value of certain life insurance policies owned
by the company. To date, there have been no borrowings under this amendment,
which expires on August 31, 1999.
The credit agreement specifies that the company may not pay cash dividends and
contains a material adverse change clause, which, under certain circumstances,
could accelerate the payment of the debt. The company classifies the debt as
short-term for financial reporting purposes. At December 31, 1998, the
company had approximately $8 million available under the credit line.
Net cash flows used by operating activities were $2.9 million for the year
ended December 31, 1998. Operating cash flows were generated principally from
net income of $14.2 million, depreciation of $1.6 million and a $5.6 million
reduction in inventories, offset by the elimination of the income tax valua-
tion allowance of $10.4 million, an $11.4 million increase in accounts
receivable, and a $1.0 million increase in other assets. Receivables
increased compared to the prior year because of higher fourth quarter sales
volume and an overall increase in average payment terms. Inventories
decreased mainly because of the strong fourth quarter sales and
lower inventories of 25-channel phone products, which are being phased out to
make way for the new 900 MHz products. Accrued liabilities decreased due to
lower product warranty costs as a result of the lower mix of 25-channel
products and decreased accrued salaries and commissions due to a lower bonus
accrual.
Investing activities required cash of $1.6 million in 1998, principally for
the purchase of tooling and equipment and an increase in the cash surrender
value of officers' life insurance.
Financing activities provided cash flows of $2.7 million in 1998, reflecting
changes in the company's borrowing requirements under its line-of-credit
agreement, offset by the repurchase of 179,500 shares of company common stock
for an aggregate cost of $683,000. In August 1998, the company's Board of
Directors authorized a repurchase of up to $1 million of the company's common
stock.
At December 31, 1998, the company had no material commitments, other than
approximately $29.1 million in outstanding purchase orders for products
compared with $21.1 million at the end of the prior year.
The company believes that cash generated from operations and from borrowings
under its credit agreement will be sufficient in 1999 to fund its working
capital needs. In addition, the majority of any taxable income in 1999 and
the forseeable future will be offset by net operating loss carryforwards that
totaled $26.3 million at December 31, 1998. Until the company has utilized
its net operating loss carryforwards, the cash payment of federal income
taxes will be minimal.
YEAR 2000
The company initiated the process of preparing its computer systems and
applications for the Year 2000 in 1997. This process primarily involved two
parts: replacing certain company hardware and modifying software maintained
by the company, as well as inquiring into the Year 2000 compliance of the
company's major customers and vendors. In February 1999, the replacement of
hardware and software modifications were completed by an outside consulting
firm. The company has tested the hardware and modified software for Year 2000
compliance. The company believes its hardware and software are Year 2000
compliant, but it will continue testing during 1999. The company has also
queried all major customers and vendors as to their preparedness. The
responses received to date indicate that the company's major customers and
vendors are or will be Year 2000 compliant by year end.
The final total cost to the company of these Year 2000 compliance activities
is approximately $818,000 and is not expected to be material to its financial
position or results of operations in any given year.
The failure to correct a Year 2000 problem could interrupt, or result in a
failure of, normal business operations and consequently materially affect the
company's financial position or results of operations. While the company
believes its own hardware and software are Year 2000 compliant, the Year 2000
readiness of the company's customers and vendors is inherently uncertain and
beyond the company's control. Accordingly, the company cannot determine at
this time whether the consequences of Year 2000 interruptions or failures
will materially affect the company's financial position or results of opera-
tions.
The company has not developed formal contingency plans to date. However, as
described under Item 1 (Business) in this report, the company has a network of
suppliers and the company does not enter into long-term supply contracts. The
company believes that, if necessary, other suppliers could be found. As
stated above, customer responses to company inquiries indicate that the
company's major customers are or will be Year 2000 compliant by year-end. In
the event a major customer is not Year 2000 compliant, the company believes
that such non-compliance is unlikely to materially affect the company's
financial condition or results of operations.
ITEM 7A MARKET RISK AND FINANCIAL INSTRUMENTS
The company is subject to market risk associated principally with changes in
interest rates. Interest rate exposure is principally limited to the $14.3
million of debt of the company outstanding at December 31, 1998. The debt is
priced at interest rates that float with the market, which therefore mini-
mizes interest rate exposure. A 50 basis point movement in the interest rate
on the floating rate debt would result in an approximately $70,000 increase
or decrease in interest expense and cash flows. The company does not use
derivative financial or commodity instruments for trading or other purposes.
The company's suppliers are located in foreign countries, principally in the
Far East, and the company made approximately 7.2% of its sales outside the
United States in 1998, however, the company minimizes its foreign currency
exchange rate risk by conducting all of its transactions in US dollars.
FORWARD-LOOKING STATEMENTS
In addition to the historical information presented in this annual report, the
company has made and will make certain forward-looking statements in this
report, other reports filed by the company with the Securities and Exchange
Commission, reports to stockholders and in certain other contexts relating to
future net sales, costs of sales, other expenses, profitability, financial
resources, or products and production schedules. Statements relating to the
foregoing or that predict or indicate future events and trends and which do
not relate solely to historical matters identify forward-looking statements.
Forward-looking statements are made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and are based on management's beliefs as well as
assumptions made by and information currently available to management.
Accordingly, the company's actual results may differ materially from those
expressed or implied in such forward-looking statements due to known and
unknown risks and uncertainties that exist in the company's operations
and business environment, including, among other factors, the failure by the
Company to produce anticipated cost savings or improve productivity, the
failure by the Company or its suppliers or customers to achieve Year 2000
compliance, the timing and magnitude of capital expenditures and acquisi-
tions, currency exchange rates, economic and market conditions in the United
States and the rest of the world, changes in customer spending levels, the
demand for existing and new products, the continuing availability of
suppliers, and other risks associated with the Company's operations.
Although the Company believes that its forward-looking statements are based
on reasonable assumptions, there can be no assurance that actual results,
performance or achievements will not differ materially from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Readers are cautioned not to place undue reliance on
forward-looking statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Financial Statements and quarterly financial data are included in this Annual
Report on Form 10-K, as indicated in the index on page 38.
CONSOLIDATED STATEMENTS OF INCOME
Cobra Electronics Corporation
<TABLE>
<CAPTION>
Years Ended December 31 (in
thousands, except per share amounts) 1998 1997 1996
- ----------------------------------- -------- -------- -------
<S> <C> <C> <C>
Net sales.......................... $103,414 $104,098 $90,324
Cost of sales...................... 78,753 82,547 73,954
-------- -------- --------
Gross profit....................... 24,661 21,551 16,370
Selling, general and administrative
expense.......................... 19,747 16,655 14,374
-------- ------- --------
Operating income .................. 4,914 4,896 1,996
Other income (expense):
Interest expense................. (1,204) (1,276) (1,670)
Gain on sale of building......... -- 1,132 --
Other income (expense), net ..... 87 (60) 275
-------- ------- --------
Income before income taxes......... 3,797 4,692 601
Tax provision (benefit)............ (10,403) --- ---
-------- ------- --------
Net income......................... $14,200 $ 4,692 601
======= ======= ========
Net income per common share:
Basic $ 2.30 $ .76 $ 0.10
Diluted $ 2.20 $ .73 $ 0.10
Weighted average shares outstanding:
Basic 6,181 6,207 6,231
Diluted 6,469 6,459 6,285
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Cobra Electronics Corporation
<TABLE>
<CAPTION>
At December 31 (in thousands) 1998 1997
- --------------------------------------- ----------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash.................................. $ 100 $ 1,815
Receivables, less allowance for doubtful
accounts of $985 in 1998 and $958
in 1997........................... 27,055 15,685
Inventories, primarily finished goods. 14,213 19,830
Deferred income taxes................. 6,945 --
Other current assets.................. 1,747 1,337
------- --------
Total current assets.................. 50,060 38,667
------- --------
Property, plant and equipment, at cost:
Land.................................. 330 330
Buildings and improvements............. 3,614 3,553
Tooling and equipment................. 12,765 11,264
------- --------
16,709 15,147
Accumulated depreciation and
amortization.......................... (11,960) (10,436)
-------- --------
Net property, plant and equipment..... 4,749 4,711
-------- --------
Other assets:
Deferred income taxes................. 4,089 406
Cash surrender value of officers'
life insurance policies............. 4,553 3,930
Other................................. 968 565
-------- --------
Total other assets.................... 9,610 4,901
-------- --------
Total assets............................ $64,419 $48,279
======== ========
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Cobra Electronics Corporation
<TABLE>
<CAPTION>
At December 31 (in thousands, except
share data) 1998 1997
- ----------------------------------------- ----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable...................... $ 3,145 $ 3,637
Accrued salaries and commissions...... 844 1,307
Accrued advertising and sales promotion
costs.............................. 1,804 1,093
Accrued product warranty costs........ 2,211 4,173
Other accrued liabilities............. 2,283 1,170
Short-term debt....................... 14,316 10,995
------- -------
Total current liabilities............. 24,603 22,375
Deferred compensation.................... 2,320 2,231
------- -------
Total liabilities........................ 26,923 24,606
------- -------
Commitments and Contingencies
Shareholders' equity:
Preferred stock, $1 par value, shares
authorized-1,000,000; none issued.... --- ---
Common stock, $.33 1/3 par value,
12,000,000 shares authorized,
7,039,100 issued for 1998 and 1997... 2,345 2,345
Paid-in capital........................ 20,799 20,681
Retained earnings...................... 20,472 6,272
------- -------
43,616 29,298
Treasury stock, at cost
(973,184 shares for 1998 and 821,309
shares for 1997)................... (6,120) (5,625)
-------- --------
Total shareholders' equity............. 37,496 23,673
-------- --------
Total liabilities and shareholders'
equity................................. $64,419 $48,279
======== ========
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cobra Electronics Corporation
<TABLE>
<CAPTION>
Years Ended December 31(in thousands) 1998 1997 1996
- ------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ......................... $14,200 $ 4,692 $ 601
Adjustments to reconcile net income
to net cash flows from
operating activities:
Depreciation and amortization..... 1,541 3,198 3,080
Deferred taxes.................... (10,403) -- --
Gain on sale of fixed assets...... (1) (1,132) (123)
Changes in assets and liabilities:
Receivables..................... (11,370) (3,371) 3,447
Inventories..................... 5,617 (4,412) 2,287
Other current assets............ (410) (686) 138
Other Assets.................... (1,026) (754) 666
Accounts payable................ (492) 302 (2,735)
Accrued liabilities............. (601) 2,465 571
Deferred compensation........... 89 238 231
-------- -------- --------
Net cash flows from (used by)
operating activities.............. (2,856) 540 8,163
-------- ------- --------
Cash flows from investing activities:
Proceeds from sale of fixed assets.. 1 1,999 1,086
Capital expenditures................ (1,579) (1,316) (1,789)
-------- ------- --------
Net cash flows from (used in)
investing activities.............. (1,578) 683 (703)
-------- ------- --------
Cash flows from financing activities:
Net borrowings (repayments) under the
line-of-credit agreement.......... 3,321 (2,282) (6,091)
Transactions related to exercise of
stock options, net................ 81 268 (62)
Transactions related to stock
repurchase........................ (683) --- ---
-------- ------- --------
Net cash flows from (used in)
financing activities.............. 2,719 (2,014) (6,153)
-------- ------- --------
Net increase (decrease)in cash........ (1,715) (791) 1,307
Cash at beginning of year............. 1,815 2,606 1,299
-------- ------- --------
Cash at end of year................... $ 100 $ 1,815 $ 2,606
======== ======= ========
1998 1997 1996
-------- -------- --------
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 1,230 $ 1,274 $ 1,716
Income Taxes -- 338 83
Non-cash investing and financing
activities:
Tax benefit related to stock
options 225 -- --
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Cobra Electronics Corporation
<TABLE>
<CAPTION>
Note
Three Years Ended Rec.
December 31, 1998 Common Paid-In Retained Treasury from
(dollars in thousands) Stock Capital Earnings Stock Officer
- ---------------------------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance-January 1, 1996..... $ 2,345 $ 22,118 $ 979 $ 5,545 $ 1,723
Net income................ --- --- 601 --- ---
Note receivable interest.. --- --- --- --- 101
Translations related to
exercise of options, net.. (56) (95)
------- -------- --------- ------- --------
Balance-December 31, 1996... 2,345 22,062 1,580 5,450 1,824
Net income................ --- --- 4,692 --- ---
Note receivable interest.. --- --- --- --- 81
Exchange of note receivable
for common stock (Note 9). --- --- --- 1,905 (1,905)
Transactions related to
exercise of options, net.. --- (1,381) --- (1,730) ---
------- --------- -------- -------- --------
Balance-December 31, 1997... 2,345 20,681 6,272 5,625 ---
Net income................ --- --- 14,200 --- ---
Treasury stock purchase... --- --- --- 683 ---
Transactions related to
exercise of options, net.. --- (107) --- (188) ---
Tax benefit related to
stock options............. --- 225 --- --- ---
------- --------- -------- -------- --------
Balance-December 31, 1998 .. $ 2,345 $ 20,799 $ 20,472 $ 6,120 $ ---
======= ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cobra Electronics Corporation
Three years ended December 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -- The company designs and markets consumer electronics products,
which it sells under the COBRA brand name principally in the United States.
A majority of the company's products are purchased from overseas suppliers,
primarily in China, Thailand, Korea, Hong Kong and Japan. The consumer
electronics market is characterized by rapidly changing technology and
certain products may have limited life cycles. Management believes that it
maintains strong relationships with its current suppliers and, if necessary,
other suppliers could be found. Production delays or a change in suppliers,
however, could cause a delay in obtaining inventories and a possible loss of
sales, which could adversely affect operating results.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of the company and its subsidiaries. All significant inter-
company balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES -- The preparation of 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.
INVENTORIES -- Inventories are recorded at the lower of cost, on a first-in,
first-out basis, or market.
DEPRECIATION --Depreciation of buildings, improvements, tooling and equipment
is computed using the straight-line method and the following estimated useful
lives:
<TABLE>
<CAPTION>
Classification Life
- ------------------------- ----------
<S> <C>
Buildings................ 30 years
Building improvements.... 20 years
Motor vehicles........... 3-5 years
Equipment................ 5-10 years
Tools, dies and molds.... 2 years
</TABLE>
LONG-LIVED ASSETS -- Long-lived assets are reviewed for possible impairment
whenever events indicate that the carrying amount of such assets may not be
recoverable. If such a review indicates an impairment, the carrying amount
of such assets is reduced to estimated recoverable value.
RESEARCH, ENGINEERING AND PRODUCT DEVELOPMENT EXPENDITURES --
Research, engineering and product development expenditures are expensed as
incurred and amounted to $0.9 million in 1998 and $0.8 million in 1997
and 1996.
INCOME TAXES -- The company provides for income taxes under the asset and
liability method of accounting for deferred income taxes. Deferred tax assets
and liabilities are recorded based on the expected tax effects of future
taxable income or deductions resulting from differences in the financial
statement and tax bases of assets and liabilities. A valuation allowance is
recorded when necessary to reduce net deferred tax assets to the amount
considered more likely than not to be realized.
REVENUE RECOGNITION -- Revenue from the sale of goods is recognized at the
time of shipment. Obligations for sales returns and allowances and product
warranties are recognized at the time of sale on an accrual basis.
NEW ACCOUNTING PRONOUNCEMENTS -- In June 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standard
(SFAS) No. 130, Reporting Comprehensive Income, which establishes standards
for reporting and displaying comprehensive income and its components (net
income with non-owner sources of other comprehensive income) in a full set of
financial statements. SFAS No. 130 did not have an effect on the company's
financial statements because the company has no items of other comprehensive
income.
In June 1997, the FASB issued SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information, which changes the way public companies
report information about operating segments. This Statement, which is based
on the management approach to segment reporting, establishes requirements to
report selected segment information. Management of the company considers the
company to have one reportable segment, consumer electronics, and assesses
performance on a single segment basis. Therefore, the adoption of this new
standard did not have an effect on the content of the company's disclosures.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. This Statement revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. The adoption of this
new standard did not have an effect on the company's financial statements
because the company had no such benefit plans.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure these instruments at fair value.
This statement is effective on the first day of the first fiscal year
beginning after June 15, 1999, or January 1, 2000 in the case of the company.
The company is in the process of assessing the impact that adopting SFAS No.
133 will have on its financial position and results of operations when such
statement is adopted.
RECLASSIFICATION -- Certain amounts for prior years have been reclassified to
conform with 1998 financial statement presentations.
(2) TAXES ON INCOME
The components of income tax expense consist of the reversal of the valuation
allowance of $10.4 million. In addition to the 1998 income tax benefit of
$10.4 million, the company received tax benefits of $225,000, which were
credited to shareholders' equity, from the disqualifying disposition of
common shares by an employee after the exercise of stock options.
Deferred tax assets (liabilities) by component at December 31, 1998 and 1997
were:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ------------------------------------------ --------- ---------
<S> <C> <C>
Net operating loss carryforwards.......... $ 10,207 $ 12,006
Investment tax credit carryforwards....... 134 1,938
Alternative minimum tax credit carryforwards 1,159 1,298
Tax lease income.......................... (6,872) (7,354)
Receivable reserves....................... 218 202
Warranty reserves......................... 1,108 1,444
Inventory reserves........................ 416 901
Accrued promotion expenses................ 2,144 1,824
Sales related reserves.................... 681 634
Compensation reserves..................... 1,047 1,153
Other, net................................ 792 116
--------- ---------
Net deferred tax assets................... 11,034 14,162
Valuation allowance....................... -- (13,756)
--------- ---------
Net deferred tax assets................... $ 11,034 $ 406
========= =========
</TABLE>
The tax lease income resulted from the purchase of several 1983 tax lease
agreements to acquire tax benefits under the provisions of the Economic
Recovery Tax Act of 1981. The total cash price paid by the company was
$12.4 million. The economic value of these leases was not impaired by the
Tax Reform Act of 1986. The company realizes temporary tax savings from
accelerated depreciation and permanent tax savings from credits associated
with the leases, subject to statutory limitations. These savings offset
current taxes payable which would otherwise have been due on income from
normal operations.
Prior to 1996, the company had a history of net losses resulting in a
significant net deferred tax asset and a corresponding valuation allowance.
Under SFAS No. 109, a history of operating losses in recent years generally
requires recognition of such an allowance. Accordingly, the company recorded
a valuation allowance for substantially all of the net deferred tax asset as
of December 31, 1997. However, SFAS No. 109 requires management to
periodically assess the need for a valuation allowance. In the fourth quarter
of 1998, due to the continued positive trend in earnings and the successful
launch of the company's new products, management concluded that there was no
need for a valuation allowance because it is more likely than not that all of
the net deferred tax assets will be realized through future taxable earnings.
At December 31, 1998, the company has net operating loss carryforwards(NOL)
available to offset future taxable income, and both investment tax credit
(ITC)and alternative minimum tax credit carryforwards to offset future income
tax payments. The alternative minimum tax credit carryforwards, amounting to
$1,159,000, do not expire. During 1998, $1,804,000 of investment tax credit
carryforwards expired.
The net operating loss and investment tax credit carryforwards expire as
follows (in thousands):
<TABLE>
<CAPTION>
Year of Expiration NOL ITC
- ----------------------- --------- ---------
<S> <C> <C>
1999................... $ -- $ 112
2000................... -- 22
2002................... -- --
2006................... 1,498 --
2007................... 11,575 --
2008................... 9,920 --
2009................... 3,355 --
--------- ---------
Total.................. $ 26,348 $ 134
========= =========
</TABLE>
Until the company has utilized its significant NOL carryforwards, the cash
payment of Federal income taxes will be minimal.
The statutory federal income tax rates are reconciled to the effective income
tax rates as follows: (in thousands)
<TABLE>
<CAPTION>
Description 1998 1997 1996
- -------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Income taxes at statutory federal
income tax rate.................... $ 1,291 $ 1,595 $ 204
State taxes, net of federal income
tax benefits....................... 178 221 28
Utilization of net operating loss
carryforwards...................... (1,527) (1,816) (232)
Reversal of the valuation allowance... (10,403) -- --
Other................................. 58 -- --
------ ------ ------
Income tax expense (benefit)..........$(10,403) $ -- $ --
====== ====== ======
</TABLE>
(3) FINANCING ARRANGEMENTS
The company had a $30 million secured credit facility that included a fixed
term loan. In October, 1996 the agreement for this credit facility was
extended to March 31, 1998. Borrowings and letters of credit issued under
this agreement were collateralized by the company's assets, and usage of the
non-term loan portion was limited to certain percentages of accounts
receivable and inventory. Interest was payable monthly at prime (8.50% at
December 31, 1997) plus one and one-half percent.
On February 3, 1998, the company entered into a new $35 million secured credit
agreement with two financial institutions for a three-year revolving credit
facility, replacing the existing $30 million credit agreement with another
lender. Loans outstanding under the new agreement bear interest, at the
company's option, at the prime rate or at LIBOR plus 2 percent. Outstanding
borrowings at December 31, 1998 bear interest at 7.61 percent.
Additionally, the new agreement provides for higher advance rates on eligible
inventory and receivables and eliminates the 2 percent per annum charge that
the company was obligated to pay on its average outstanding balance of
letters of credit under the previously existing agreement.
Maximum borrowings outstanding at any month-end were $27.5 million and $15.7
million in 1998 and 1997, respectively. The maximum value of letters of
credit outstanding at any month end were $7.4 million and $11.0 million in
1998 and 1997, respectively. At December 31, 1998, the company had
approximately $8 million available under its unused credit line.
Aggregate average borrowings outstanding were $15 million during 1998 and $12
million during 1997 with weighted average interest rates thereon of 8.2% and
10.3% during 1998 and 1997, respectively. On October 10, 1998, the company
and its lenders signed an amendment increasing the credit line from $35
million to $38.7 million. This increase reflected a separate line of credit
under which borrowings are secured by the cash surrender value of certain
life insurance policies owned by the company. To date, there have been no
borrowings under this amendment, which expires on August 31, 1999.
The credit agreement specifies that the company may not pay cash dividends
and contains a material adverse change clause, which, under certain
circumstances, could accelerate the payment of the debt. The company
classifies the debt as short-term for financial reporting purposes. At
December 31, 1998, the company had approximately $8 million available under
the credit line.
4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The company's financial instruments include cash, accounts receivable,
accounts payable, short term debt and letters of credit. The carrying
values of cash, accounts receivable and accounts payable approximate their
fair value because of the short maturity of these instruments. The carrying
amounts of the Company's bank borrowings under its credit facility
approximate fair value because the interest rates are reset periodically to
reflect current market rates. The letters of credit reflect fair value as a
condition of their underlying purpose and are subject to fees competitively
determined in the marketplace. The contract value/fair value of the letters
of credit at December 31, 1998 and 1997 was $5.7 million and $8 million,
respectively. These letters of credit are only executed with major financial
institutions, and full performance is anticipated.
5) LEASE TRANSACTIONS
The company leases facilities and equipment under noncancellable leases with
remaining terms of one year or more. The terms of these agreements provide
that the company pay certain operating expenses. Some of these lease agree-
ments also provide the company with the option to purchase the related assets
at the end of the respective initial lease terms.
Total minimum rental amounts committed in future years as of December 31,
1998 are as follows:
<TABLE>
<CAPTION>
Operating Capital
(in thousands) Leases Leases Total
-------------- --------- ------- -----
<S> <C> <C> <C>
1999 $ 7 $ 118 $ 125
2000 7 104 111
2001 1 -- 1
----- ----- -----
Total $ 15 $ 222 $ 237
===== ===== =====
Total rental expense amounted to $7,000 in 1998, $6,000 in 1997 and $16,000 in
1996. Future capital lease rental payments include executory costs of
$71,000, interest expense of $10,000 and principal payments of $141,000,
which are included in other accrued liabilities in the consolidated balance
sheet.
6) SHAREHOLDERS' EQUITY
PREFERRED STOCK -- Preferred stock is issuable from time to time in one or
more series, each of which may have such voting powers, designations,
preferences, relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the issue of such
stock adopted by the Board of Directors. No preferred stock has been issued.
EARNINGS PER SHARE
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Income:
Income available to common
shareholders (thousands) $14,200 $4,692 $601
Basic Earnings Per Share:
Weighted-Average Shares
Outstanding 6,180,592 6,206,812 6,231,075
Basic Earnings Per Share $2.30 $0.76 $0.10
========= ========= =========
Diluted Earnings Per Share:
Weighted-Average Shares
Outstanding 6,180,592 6,206,812 6,231,075
Dilutive Shares issuable
in connection with
Stock option plans 706,750 739,375 298,375
Less: Shares purchasable
With proceeds (418,645) (487,363) (244,182)
--------- --------- ---------
Total 6,468,697 6,458,824 6,285,268
========= ========= =========
Diluted Earnings Per Share $2.20 $0.73 $0.10
========= ========= =========
</TABLE>
7) STOCK OPTION PLANS
The company has seven Stock Option Plans-- 1998, 1997, 1995, 1988, 1987, 1986
and 1985 (the Plans). Under the terms of the Plans, the consideration
received by the company upon exercise of the options may be paid in cash or
by the surrender and delivery to the company of shares of its common stock,
or by a combination thereof. The optionee is credited with the fair market
value of any stock surrendered and delivered as of the exercise date.
The company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for the Plans. Accordingly, no compensation
cost has been recognized as options are granted with an exercise price equal
to the fair market value of the company's common stock on the date of grant.
Had compensation cost been determined consistent with SFAS No. 123, Account-
ing for Stock-Based Compensation, which requires measuring compensation cost
at the fair value of the options granted, the company's net income and net
income per common share would have been adjusted to the pro forma amounts
indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income: As reported $14,200 $4,692 $ 601
Pro forma 13,545 4,366 467
Net income per common share:
Basic: As reported $2.30 $0.76 $ 0.10
Pro forma 2.19 0.70 0.07
Diluted: As reported $2.20 $0.73 $ 0.10
Pro forma 2.09 0.68 0.07
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used: no dividends; expected volatility of 48 percent; risk-free
interest rate of 5 percent; and expected lives of 5 years.
A summary of certain provisions and amounts related to the Plans follows:
<TABLE>
<CAPTION>
1998 1997 1995 1988
1987 1986 1985
Plan Plan Plan Plan
Plan Plan Plan
--------------------------------------- --------- -------- ------- --------
- -------- ------- ------
<S> <C> <C> <C> <C>
<C> <C> <C>
Authorized, unissued shares originally
available for grant.................. 310,000 300,000 300,000 500,000
150,000 225,000 525,000
Shares granted........................... 150,000 259,625 283,875 500,000
150,000 225,000 525,000 Shares available for grant at December 31,
1998.................................. 160,000 40,375 16,125 -0- -0- -0- -0-
Options exercisable at December 31, 1998. -0- 37,500 67,875 324,250
12,563 50,500 25,188
</TABLE>
A summary of the status of the Plans as of December 31, 1998, 1997 and 1996, and
changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
1998 1997
1996
----------------- ----------------
----------------
Weighted Weighted
Weighted
Average Average
Average
Shares Exercise Shares Exercise
Shares Exercise
Fixed Options (000) Price (000) Price
(000) Price
- --------------------------------------- ------- --------- ------- --------
------- --------
<S> <C> <C> <C> <C>
<C> <C>
Outstanding at beginning of year 914 $3.82 935 $3.06
855 $3.06
Granted 288 6.36 374 4.46
114 2.88
Exercised (28) 2.88 (328) 2.63
(16) 2.56
Cancellations and Expirations (50) 6.13 (67) 2.65
(18) 2.68
------- -------
-------
Outstanding at end of year 1,124 4.39 914 3.82
935 3.06
Options exercisable at year end 518 388
584
Weighted-average fair value of options
granted during the year $ 3.07 $2.20
$1.29
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding
Options Exercisable
-------------------------------------
- -------------------------
Weighted
Weighted Average
Weighted
Number Average Remaining Number
Average
Range of Outstanding Exercise Contractual
Exercisable Exercise
Exercise Prices (000) Price Life (000)
Price
- ---------------- --------- ----------- ----------- -----------
- -------- ---------
<S> <C> <C> <C> <C>
<C>
Less than $2 36 $1.88 1.3 19
$1.88
$2.01 to $3.00 221 2.78 2.3 94
2.67
$3.01 to $4.00 434 3.72 0.7 367
3.80
$4.01 to $5.00 -- -- -- --
--
$5.01 to $6.00 300 5.63 4.1 38
5.63
$6.01 to $7.00 95 6.80 4.1 --
--
$7.01 to $8.00 38 8.00 4.2 --
--
--- ---
1,124 4.39 2.4 518
3.65
=== ===
</TABLE>
(8) RETIREMENT BENEFITS
The only qualified retirement plan for employees is the Cobra Electronics
Corporation Profit Sharing and 401(k) Incentive Savings Plan (the "Plan").
The company may make a discretionary annual profit sharing contribution that
is allocated among accounts of persons employed by the company for more than
one year, prorated based on the compensation paid to such persons during the
year. Profit sharing expense for 1998, 1997 and 1996 was $179,000, $169,000
and $55,000, respectively.
As of December 31, 1998 and 1997, deferred compensation of $2.3 million and
$2.2 million, respectively, was recorded as a long-term liability.
The current portion of the deferred compensation liability was included in
accrued salaries and commissions, and amounted to $253,000 at December 31,
1998 and 1997. Deferred compensation obligations arise pursuant to outstand-
ing key executive employment agreements, the majority of which relates to the
former president and chief executive officer.
(9) RELATED PARTY TRANSACTIONS
In August 1997, the company exchanged its note receivable from the company's
former president and chief executive officer, of approximately $1.9 million,
for 300,000 common shares owned by the executive. In 1990, pursuant to an
employment agreement, the executive exercised options on 375,000 common
shares by executing a note with the company in the amount of $1.25 million.
The face amount of the note plus accrued interest amounted to $1.9 million
at the date of exchange.
(10) COMMITMENTS
At December 31, 1998 and 1997, the company had outstanding inventory purchase
orders with suppliers totaling approximately $29.1 million and $21.1 million,
respectively.
(11) INDUSTRY SEGMENT INFORMATION
The company operates in only one business segment--consumer electronics (see
Note 1). The company has a single sales department and distribution channel
which provides all product lines to all customers. Excluding company-owned
tooling at suppliers with a net book value of $1.2 million at December 31,
1998, assets located outside the United States are not material. Interna-
tional sales were $7.4 million, $19.1 million and $10.1 million in 1998, 1997
and 1996, respectively. For 1997, approximately 64 percent of the interna-
tional sales were to customers in Russia. For 1998 and 1996, sales to one
particular country were not material. For 1998, sales to two customers
totaled 12.9 percent and 11.9 percent of consolidated net sales. For 1996,
sales to one customer totaled 10.7 percent of consolidated net sales. There
were no sales in excess of 10 percent of consolidated net sales to a single
customer or a group of entities under common control in 1997. The company
does not believe that the loss of any one customer would have a material
adverse effect on its results of operations or financial condition.
(12) ADVERTISING BARTER CREDITS
During 1992, the company received $3.8 million of advertising credits in
exchange for certain discontinued products. These credits can be used to
reduce the cash cost of a variety of media services (by 30 to 50 percent)
prior to their expiration date, which has been extended to December 1999. The
company is exploring opportunities to exchange a portion of the credits for
various goods and services used by the company as well as the outright sale
of the credits to third parties. During 1998, 1997, and 1996, the company
utilized credits of approximately $6,000, $10,000, and $20,000, respectively.
In 1997 and 1996 the company recorded charges of $1.1 million and $1.2
million, respectively, to reduce the credits to their estimated net
realizable value. The credits had no net carrying value at December 31, 1998
and 1997.
(13) OTHER ASSETS
Other assets at December 31, 1998 and 1997 included the cash surrender value
of officers' life insurance policies. The cash value of officers' life
insurance policies is pledged as collateral for the company's secured lending
agreement and is maintained to fund deferred compensation obligations (see
Notes 3 and 8).
(14) CONTINGENCIES
The company is subject to various unresolved legal actions which arise in the
normal course of its business. None of these matters is expected to have a
material adverse effect on the company's financial position or results of
operations. However, the ultimate resolution of these matters could result in
a change in the company's estimate of its liability for these matters.
During 1996, the company received notice from the Internal Revenue Service
asserting deficiencies in federal excise tax. The excise tax relates to the
use of ozone-depleting chemicals (ODC'S). The company had protested the
deficiencies and had filed an environmental excise tax protest. During the
first quarter of 1998, the company was notified by the Internal Revenue
Service that there are no deficiencies in the company's federal excise tax
returns and the contingency has been eliminated. Also in 1996, the company
recognized $373,000 of income related to a lawsuit against a former distri-
butor for violation of a licensing agreement.
Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
- ------------------------------------------------------------------------------------------
March 31 June 30 September 30
December 31
--------------------- ---------------------
- --------------------- ---------------------
1998 1997 1998 1997 1998 1997
1998 1997
---------- ---------- ---------- ---------- ----------
- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
Net sales.........$ 21,172 $ 17,915 $ 22,440 $ 29,472 $26,223 $ 31,353
$ 33,579 $ 25,358
Cost of sales..... 16,921 14,403 16,976 23,776 19,720 24,585
25,136 19,783
Gross profit...... 4,251 3,512 5,464 5,696 6,503 6,768
8,443 5,575
Selling, general
and administra-
tive expense.... 3,737 3,134 4,096 4,147 5,300 5,022
6,614 4,352
Operating income.. 514 378 1,368 1,549 1,203 1,746
1,829 1,223
Gain on sale of
building........ -- -- -- -- -- 1,132
-- --
Tax provision (benefit) -- -- -- -- -- --
(10,403) --
Net income 237 93 1,265 1,249 678 2,625
12,020 725
Net income
per share (a):
Basic............. 0.04 0.01 0.20 0.20 0.11 0.43
1.98 0.12
Diluted........... 0.04 0.01 0.19 0.20 0.11 0.39
1.92 0.11
Weighted average
shares outstanding:
Basic............. 6,218 6,242 6,235 6,242 6,210 6,170
6,066 6,173
Diluted........... 6,625 6,332 6,539 6,308 6,383 6,652
6,273 6,643
Stock Price:
High 8 5/8 3 5/8 6 3/4 3 3/8 5 5/8 8 7/8
6 1/4 10 7/8
Low 5 5/8 2 1/2 4 3/4 2 1/2 3 1/2 2
13/16 3 5/8 5 1/4
End of Quarter 6 1/4 2 7/8 5 1/16 3 5/32 3 3/4 7 3/8
4 11/16 6 5/16
Trading Volume 2,931 704 2,050 583 1,684 9,402
1,304 4,966
</TABLE>
(a) The total quarterly income per share may not equal the annual amount
because net income per share is calculated independently for each quarter.
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Board of Directors and Shareholders of
Cobra Electronics Corporation
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of Cobra
Electronics Corporation and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
Our audits also included the financial statement schedule for the three years
ended December 31, 1998, listed in the Index at Item 14. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule 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 signifi-
cant 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Cobra Electronics Corporation and
subsidiaries at December 31, 1998 and 1997, and the results of their opera-
tions and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 24, 1999
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this item will be set forth in a definitive proxy
statement to be filed by the company pursuant to Regulation 14A under
Directors and Nominees, which information is hereby incorporated by
reference. The information under Section 16(a) Beneficial Ownership
Reporting Complilance included in the definitive proxy statement is hereby
incorporated by reference.
The executive officers of the company are as follows:
Name, Age and Has Held Present Prior Business Experience
Present Position Position Since in Past Five Years
- -------------------- ---------------- -------------------------
James Bazet, 51, Jan. 1998 Executive Vice President and
President and Chief Chief Operating Officer,
Executive Officer* July 1997 to December 1997.
President and Chief
Executive Officer, Ryobi
Motor Products Floor Care
Division, 1995 - 1997,
President and Chief
Executive Officer, Code-A-
Phone Corporation, 1991-
1994.
Carl Korn, 77, Nov. 1961
Chairman*
Jerry Kalov, 63, July 1997 President and Chief
Vice Chairman* Executive Officer, 1986-
January 1, 1998; retired
January 1, 1998
Gerald M. Laures, 51, Mar. 1994 Corporate Secretary,
Vice President-Finance July 1989 to present;
and Corporate Secretary* Corporate Controller
June 1988 to March 1994.
Anthony Mirabelli, 57, Feb. 1997 Vice President of
Senior Vice President, Marketing, Uniden America
Marketing and Sales Corporation, 1992 - 1997.
* Is also a director.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this item will be set forth in a definitive proxy
statement to be filed by the company pursuant to Regulation 14A within 120 days
after the close of the company's 1998 fiscal year, and such information, other
than the information required by Item 402(k) (Board Compensation Committee
Report on Executive Compensation) and Item 402(l) (Performance Graph) under
Regulation S-K adopted by the Securities and Exchange Commission, is hereby
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this item will be set forth in a definitive proxy
statement to be filed by the company pursuant to Regulation 14A within 120
days after the close of the company's 1998 fiscal year, and such information
is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this item will be set forth in a definitive proxy
statement to be filed by the company pursuant to Regulation 14A within 120
days after the close of the company's 1998 fiscal year, and such information
is hereby incorporated by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Index to Consolidated Financial Statements and Schedules
--------------------------------------------------------
Page or
Schedule
Description Number
------------------------------------------------ --------
[a] 1. Consolidated Statements of Income for the
three years ended December 31,1998........... 17
Consolidated Balance Sheets as of December 31,
1998 and 1997................................ 18-19
Consolidated Statements of Cash Flows for the
three years ended December 31, 1998.......... 20-21
Consolidated Statements of Shareholders' Equity
for the three years ended December 31, 1998.. 22
Notes to Consolidated Financial Statements...... 23-33
Quarterly Financial Data........................ 34
Independent Auditors' Report.................... 35
2. Schedule:
Valuation and Qualifying Accounts - 1998, 1997
and 1996..................................... 39
All other financial schedules have been omitted
because the required information is contained in
the consolidated financial statements and notes
thereto, or such information is not applicable.
3. Exhibits:
See Index to Exhibits on pages 41 through 42.
[b] During the three months ended December 31, 1998 the Company filed no
Current Reports on Form 8-K.
SCHEDULE II
COBRA ELECTRONICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
(in thousands)
-------------------------------------------
<TABLE>
<CAPTION>
Balance at Additions Deductions
Balance at
beginning charged to from
end of
of period expense reserves
Other,net period
---------- ---------- ----------
- ---------- -----------
<S> <C> <C> <C>
<C> <C>
1998
- ----------------------------------
Allowance for doubtful account.... $ 958 $ 321 $ (294)[a] $
--- $ 985
Advertising barter credit
valuation allowance.............. $ 3,185 $ --- $ --- $
(5) $ 3,180
Tax valuation allowance........... $ 13,756 $ --- $ --- $
(13,756)[c] $ 0
1997
- ----------------------------------
Allowance for doubtful account.... $ 792 $ 127 $ (7)[a] $
46 [b] $ 958
Reserve for disposal of
discontinued operation.......... $ 658 $ --- $ (658)[d] $
--- $ 0
Advertising barter credit
valuation allowance.............. $ 2,041 $ 1,144 $ --- $
--- $ 3,185
Tax valuation allowance........... $ 15,596 $ --- $ --- $
(1,840)[c] $ 13,756
1996
- ----------------------------------
Allowance for doubtful account.... $ 1,451 $ (400) $ (349)[a] $
90[b] $ 792
Reserve for disposal of
discontinued operation.......... $ 274 $ 384 $ --- $
--- $ 658
Advertising barter credit
valuation allowance.............. $ 841 $ 1,200 $ --- $
--- $ 2,041
Tax valuation allowance........... $ 15,675 $ --- $ --- $
(79)[c] $ 15,596
</TABLE>
[a] Uncollectible accounts written off.
[b] Net adjustments to the reserve with an offsetting entry to receivables.
[c] Decrease in allowance reflects the change in net deferred tax assets
excluding alternative minimum income tax paid. 1998 amount includes reversal
of remaining $10,403 valuation allowance on December 31, 1998, as management
has assessed that such valuation allowance is no longer necessary.
[d] All assets related to discontinued operations were sold in 1997.
[e] Reversal of Tax Valuation Reserve
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.
COBRA ELECTRONICS CORPORATION
/S/ Gerald M. Laures
--------------------------
Gerald M. Laures
Vice President-Finance
and Corporate Secretary
Dated: March 31, 1999
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 and on the date indicated above.
/s/ James Bazet Director, President and Chief Executive
- ------------------------- Officer
James Bazet
/s/ Carl Korn Director and Chairman of the Board
- -------------------------
Carl Korn
/s/ Jerry Kalov Director and Vice Chairman of the Board
- -------------------------
Jerry Kalov
/s/ William P. Carmichael Director
- -------------------------
William P. Carmichael
/s/ Samuel B. Horberg Director
- -------------------------
Samuel B. Horberg
/s/ Gerald M. Laures Director, Vice President - Finance and
- ------------------------- Secretary (Principal Financial and
Gerald M. Laures Accounting Officer)
/s/ Harold D. Schwartz Director
- -----------------------
Harold D. Schwartz
INDEX TO EXHIBITS
-----------------
Exhibit
Number Description of Document
- ------- --------------------------------------------------------
3(i) * Restated certificate of Incorporation, as amended October 28,1998.
3(ii) * Amended and Restated Bylaws, as amended October 28, 1998.
10-1 # 1985 Key Employees Nonqualified Stock Option Plan--Filed
as exhibit No. 10-6 to the Registrant's Form 10-K for
the year ended December 31, 1985 (File No. 0-511),
hereby incorporated by reference.
10-2 # 1986 Key Employees Nonqualified and Incentive Stock
Option Plan--Filed as exhibit No. 10-6 to the
registrant's Form 10-K for the year ended December 31,
1990 (File No. 0-511), hereby incorporated by reference.
10-3 # 1987 Key Employees Nonqualified and Incentive Stock
Option Plan--Filed as exhibit No. 10-7 to the
Registrant's Form 10-K for the year ended December 31,
1990 (File No. 0-511), hereby incorporated by reference.
10-4 # 1988 Key Employees Nonqualified and Incentive Stock
Option Plan--Filed as exhibit No. 10-8 to the
Registrant's Form 10-K for the year ended December 31,
1990 (File No. 0-511), hereby incorporated by reference.
10-5 # Deferred Compensation Plan dated as of December 23,
1992--Filed as exhibit No. 10-19 to the Registrant's
Form 10-K for the year ended December 31, 1992 (File No.
0-511), hereby incorporated by reference.
10-6 # Executive Employment Agreement dated as of September 23,
1994--Filed as exhibit No. 10-20 to the Registrant's
Form 10-K for the year ended December 31, 1994 (File No.
0-511), hereby incorporated by reference.
10-7 # Amendment to the Key Executive Employment Agreement
dated as of December 15, 1994--Filed as exhibit No.
10-21 to the Registrant's Form 10-K for the year ended
December 31, 1994 (File No. 0-511), hereby incorporated
by reference.
10-8 1995 Key Employees Nonqualified and Incentive Stock
Option Plan.-- filed as Exhibit No. 10-23 to the Registrant's
Form 10-K for the year ended December 31, 1995 (File No. 0-511).
10-9 Non-Exclusive License Agreement between Cobra Electronics
Corporation and Yupiteru Industries Co., Ltd. dated as of
May 21, 1996 -- filed as Exhibit No. 10-27 to the Registrant's
Form 10-K for the year ended December 31, 1996 (File No. 0-511).
10-10 Non-Exclusive License Agreement between Cobra Electronics Corporation
and Sunkyong America, Inc. dated as of May 1, 1996.-- filed as
Exhibit No. 10-28 to the Registrant's Form 10-K for the year ended
December 31, 1996 (File No. 0-511).
10-11 Employment Agreement between Cobra Electronics Corporation
and Anthony Mirabelli dated January 31, 1997.-- filed as Exhibit
No. 10-29 to the Registrant's Form 10-K for the year ended
December 31, 1996 (File No. 0-511).
10-12 Termination of Safe Harbor Lease between Cobra Electronics
Corporation and the Department of Transportation of Maryland
dated as of November 15, 1996.-- filed as Exhibit No. 10-30 to the
Registrant's Form 10-K for the year ended December 31, 1996
(File No. 0-511.
10-13 Employment Agreement between Cobra Electronics Corporation and
James R. Bazet dated April 21, 1997 -- filed as Exhibit No. 10-33
to the Registrant's Form 10-K for the year ended December 31, 1997
(File No. 0-511).
10-14 Loan and Security Agreement dated February 3, 1998, by and between
the Registrant and LaSalle Business Credit, Inc. and LaSalle National
Bank.
10-15 1998 Stock Option Plan, as amended, (incorporated by reference to
Exhibit 99.1 of the Registration Statement On Form S-8, File No, 333-
63501)
21 * Subsidiaries of the Registrant.
23 * Consent of Deloitte & Touche LLP dated March 30, 1999.
27 * Financial data schedule required under Article 5 of
Regulation S-X.
- -----------------------------------------------------------------
* Filed herewith.
# Executive compensation plan or arrangement.
<PAGE>
EXHIBIT 21 COBRA ELECTRONICS CORPORATION
SUBSIDIARIES OF REGISTRANT
=============================
STATE OR OTHER
NAME UNDER WHICH SUBSIDIARY OWNERSHIP JURISDICTION
DOES BUSINESS PERCENTAGE OF INCORPORATION
=========================== ========== ================
Cobra Electronics (HK) Limited 100% Hong Kong
Cobra Electronics Corporation
Europe Limited 100% England
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS CONSENT
============================
We consent to the incorporation by reference in Registration Statement (File
Number 333-63501) of Cobra Electronics Corporation and subsidiaries on Form
S-8 of our report dated February 24, 1999, appearing in the Annual Report on
Form 10-K of Cobra Electronics Corporation and subsidiaries for the year
ended December 31, 1998.
DELOITTE AND TOUCHE LLP
Chicago, Illinois
March 30, 1999
<PAGE>
EXHIBIT 3(ii)
As Amended and Restated
October 28, 1998
BY-LAWS
OF
COBRA ELECTRONICS CORPORATION
ARTICLE I
Stockholders' Meetings
Section 1. Annual Meeting. The annual meeting of stockholders for the
election of directors and the transaction of such other business as may
properly come before it shall be held at 2:00 P.M., local time, on the last
Tuesday of April of each year, or on such other date or at such other time as
shall be fixed by the Board of Directors. If the day fixed for the annual
meeting is a legal holiday, such meeting shall be held on the next
succeeding business day.
Section 2. Special Meetings. Any action required or permitted to be taken by
the stockholders of the corporation must be effected at a duly called annual
or special meeting of stockholders of the corporation and may not be effected
by any consent in writing by such stockholders. Special meetings of
stockholders of the corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors, upon not less than 10 or more than 50 days' written notice.
Notwithstanding anything contained in these By-Laws to the contrary, the
affirmative vote of the holders of at least 67 percent of the shares of the
corporation entitled to vote for the election of directors shall be required
to amend or repeal, or to adopt any provision inconsistent with, this
section 2.
Section 3. Place of Meetings. Each meeting of stockholders for the election of
directors shall be held in the City of Chicago, State of Illinois, at such
place as may be fixed from time to time by the Board of Directors. Meetings
of stockholders for any other purpose may be held at such time and place,
within or without the State of Delaware, as shall be determined pursuant to
Section 2 of Article I and stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 4. Notice of Meetings and Adjourned Meetings. Written notice of
every meeting of stockholders stating the place, date and hour thereof, and,
in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall, except when otherwise required by the laws of
Delaware be given, in the case of the annual meeting of stockholders, not
less than ten nor more than sixty days before the date of the meeting to each
stockholder of record entitled to vote thereat, and in the case of special
meetings, not less than ten nor more than fifty days before the date of the
meeting to each stockholder of record entitled to vote thereat. Only such
business shall be conducted at a special meeting of stockholders as shall
have been brought before the meeting pursuant to the corporation's notice of
meeting. Any meeting at which a quorum of stockholders is present, in person
or by proxy, may adjourn from time to time without notice other than
announcement at such meeting until its business is completed. At the
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 5. Quorum. The holders of a majority of the shares of stock issued
and outstanding and entitled to vote, present in person or by proxy, shall,
except as otherwise provided by law or the certificate of incorporation,
constitute a quorum for the transaction of business at all meetings Of stock-
holders. If at any meeting a quorum is not present, the chairman of the
meeting or the holders of the majority of the shares of stock present or
represented may adjourn the meeting from time to time without notice other
than announcement at such meeting until a quorum is present. At the adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned to each stockholder of record
entitled meeting shall be given to the stockholders present or represented to
vote at the meeting is present at a duly called or held meeting at which a
quorum may continue to transact business until final adjournment notwith-
standing the withdrawal of enough stockholders to leave less than a quorum.
Section 6. Voting. Each holder of stock entitled to vote at a stockholders
meeting shall, as to all matters before such meeting in respect of which such
stock has voting rights, be entitled to one vote in person or by written
proxy for each share of stock owned of record by him. No holder of stock
shall have any cumulative voting rights in respect of any share of Stock held
by him. No proxy shall be voted or acted upon after three years from its
date unless the proxy provides for a longer period. No vote upon any matter
need be by ballot unless demanded by the holders of at least ten per cent of
the shares represented and entitled to vote at the meeting. All elections
shall be decided by a plurality of the votes cast and all other questions or
matters shall be decided by a majority of the votes cast, unless otherwise
required by the laws of Delaware or the certificate of incorporation.
Section 7. List of Stockholders. At least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder, and the number of shares registered in the name of each
stockholder, shall be prepared by the Secretary. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to
the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present. The
original or duplicate stock ledger shall be the only evidence as to who are
stockholders entitled to examine the stock ledger, the list required by
this section or the books of the corporation, or to vote in person or by
proxy at any meeting of stockholders.
Section 8. Notice of Stockholder Business and Nominations.
(a) Annual Meetings of Stockholders. (1) Nominations of persons for election to
the Board of Directors of the corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of
stockholders (i) pursuant to the corporation's notice of meeting delivered
pursuant to Article I, Section 4 of these By-Laws, (ii) by or at the
direction of the Board of Directors or (iii) by any stockholder of the
corporation who is entitled to vote at the meeting, who complied with the
notice procedures set forth in clauses (2) and (3) of this paragraph (a) of
this Section 8 and who was a stockholder of record at the time such notice
was delivered to the Secretary of the corporation.
(2) For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (iii) of paragraph (a)(1) of this
Section 8, the stockholder must have given timely notice thereof in writing
to the Secretary of the corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice
shall be delivered to the Secretary at the principal office of the corpora-
tion not earlier than the close of business on the 100th calendar day nor
later than the close of business on the 75th calendar day prior to the date
of the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of an annual meeting is more than 30
calendar days before or more than 30 calendar days after the date of the
first anniversary of the preceding year's annual meeting, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 100th calendar day prior to such annual meeting and not later
than the close of business on the later of the 75th calendar day prior to
such annual meeting and the 10th calendar day after the day on which
public announcement of the date of such annual meeting is first made by the
corporation. Such stockholder's notice shall set forth (i) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be dis-
closed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the regulations
promulgated thereunder, including such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected; (ii) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting
and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (iii) as
to the stockholder giving the notice and the beneficial owner, if any,
on whose behalf the nomination or proposal is made, the name and address of
such stockholder, as they appear on the corporation's stock transfer books,
and of such beneficial owner and the class and number of shares of the cor-
poration which are owned beneficially and of record by such stockholder and
such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (a)(2) of
this Section 8 to the contrary, in the event that the number of directors to
be elected to the Board of Directors of the corporation is increased and
there is no public announcement by the corporation naming all of the nominees
for director or specifying the size of the increased Board of Directors made
by the corporation at least 80 calendar days prior to the date of the first
anniversary of the preceding year's annual meeting, a stockholder's notice
required by this Section 8 shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it
shall be delivered to the Secretary at the principal office of the corpora-
tion not later than the close of business on the 10th calendar day after the
day on which such public announcement is first made by the corporation.
(b) Special Meetings of Stockholders. Subject to the rights of the holders of
any Preferred Stock, only such business shall be conducted at a special meet-
ing of stockholders as shall have been brought before the meeting pursuant to
the corporation's notice of meeting pursuant to Article I, Section 4 of these
By-Laws.
(c) General. (1) Subject to the rights of the holders of any Preferred Stock,
only persons who are nominated in accordance with the procedures set forth in
this Section 8 shall be eligible to serve as directors and only such business
shall be conducted at a meeting of stockholders as shall have been brought
before the meeting in accordance with the procedures set forth in this
Section 8. Except as otherwise provided by law, the Certificate of Incorpor-
ation or these By-Laws, the chairman of the meeting shall have the power and
duty to determine whether a nomination or any business proposed to be brought
before the meeting was made or proposed in accordance with the procedures set
forth in this Section 8 and, if any proposed nomination or business is not in
compliance with this Section 8, to declare that such defective proposal or
nomination shall be disregarded.
(2) For purposes of this Section 8, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document public-
ly filed by the corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 8, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
Section 8. Nothing in this Section 8 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II
Directors
Section l. Number, Election and Term of Office. The number of directors
which shall constitute the whole Board shall be not less than five. The
exact number of directors shall be fixed from time to time by the Board of
Directors pursuant to a resolution adopted by a majority of the entire Board
of Directors. The Directors shall be divided into three classes, as nearly
equal in number as possible, with respect to the time for which they shall
severally hold office. Directors of the First Class first chosen shall hold
office for one year or until the first annual election following their
election; Directors of the Second Class first chosen shall hold office until
the second annual election following their election; and Directors of the
Third Class shall hold office until the third annual election following their
election. In each annual election or adjournment thereof, the successors to
the Class of Directors whose terms shall expire at that time shall be
elected to hold office for terms of three years so that the term of office or
one class of Directors shall expire in each year. Each Director elected
shall hold office until his successor shall be elected and shall qualify.
Notwithstanding anything contained in these By-Laws to the contrary, the
affirmative vote of the holders of at least 67 percent of the shares of this
corporation entitled to vote for the election of directors shall be required
to amend or repeal, or to adopt any provision inconsistent with, this Section
1.
Section 2. Resignations and Vacancies.
(a) Resignations. Any director may resign at any time by giving written
notice to the Board of Directors or to the Chairman. Any such resignation
shall take effect at the date of the receipt of such notice or at any later
time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
(b) Newly Created Directorships and Vacancies. Subject to the rights of the
holders of any series of Preferred Stock then outstanding, newly created
directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
shall be filled by a majority vote of the directors then in office, and
directors so chosen shall hold office for a term expiring at the Annual
Meeting of Stockholders at which the term of the class to which they have
been elected expires.
(c) Removal. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the affirma-
tive vote of the holders of at least 67 percent of the shares of this
corporation entitled to vote for the election of directors.
(d) Amendment, Repeal, etc. Notwithstanding anything contained in these By-
Laws to the contrary, the affirmative vote of the holders of at least 67
percent of all of the shares of this corporation entitled to vote for the
election of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Section 2 of Article II.
Section 3. Place of Meetings. Meetings of the Board of Directors may be
held at such places, within or without the State of Delaware, as the Board of
Directors may from time to time determine or as shall be determined pursuant
to Section 5 of Article II.
Section 4. Regular Meetings. A regular annual meeting of the Board of
Directors shall be held without call or notice immediately after and at the
same general place as the annual meeting of stockholders for the purpose of
organizing the Board of Directors, electing officers and transacting any
other business that may properly come before the meeting. In the event such
meeting is not held at such time and place, the meeting may be held at such
time and place as shall be specified in a notice given as provided in Section
5 for special meetings or as shall be specified in a written waiver signed by
all of the directors. Additional regular meetings of the Board of Directors
may be held without call or notice at such place and at such time as shall be
fixed by resolution of the Board of Directors.
Section 5. Special Meetings. Special meetings of the Board of Directors may
be called and the location thereof designated by the President and shall be
called and the location thereof designated by the President or Secretary at
the written request of two directors. Notice of special meetings either
shall be mailed by the Secretary to each director at least three days before
the meeting or shall be given personally or telegraphed to each director by
the Secretary at least forty-eight hours before the meeting. Such notice
shall set forth the time and place of such meeting but need not, unless
otherwise required by law, state the purposes of the meeting.
Section 6. Quorum and Voting. A majority of the whole Board of Directors as
specified in the by-laws shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors. The act of the majority
of the directors present at a meeting at which a quorum is present shall be
the act of the Board of Directors unless otherwise provided by the laws of
Delaware, the certificate of incorporation or these by-laws. A majority of
the directors present at any meeting at which a quorum is present may adjourn
the meeting from time to time without further notice other than announcement
at the meeting. If at any meeting a quorum is not present, a majority of the
directors present may adjourn the meeting from time to time without notice
other than announcement at the meeting until a quorum is present.
Section 7. Committees of the Board of Directors. The Board of Directors may,
by resolution passed by a three-fourths majority of the whole Board of
Directors as specified in the by-laws, designate one or more committees, each
to consist of two or more of the directors of the corporation, and may
appoint chairmen of any such committees. To the extent provided in the
resolution designating such committee, and to the extent permitted under
applicable Delaware law, each such committee shall have and may exercise the
powers of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it. The Board of Directors may
designate one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of any member of such committee
or committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of such absent or disqualified member.
Section 8. Action Without Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board of Directors, or
of such committee, as the case may be, consent thereto in writing, and such
written consent is filed with the minutes of the proceedings of the Board of
Directors or of such committee.
Section 9. Compensation. The directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a
stated salary as director. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 10. Telephonic Meetings. Members of the Board of Directors, or any
committee thereof, may participate in a meeting of the Board of Directors, or
of such committee, by means of conference telephone or other similar communi-
cations equipment by means of which all persons participating in the meeting
can hear each other, and participation in a meeting pursuant to this section
shall constitute presence in person at such meeting.
ARTICLE III
Officers
Section 1. Number. The officers of the Corporation shall be a Chairman of
the Board, a Vice Chairman of the Board, a President, one or more Vice Presi-
dents (the number thereof to be determined by the Board of Directors), a
Treasurer, a Secretary and such Assistant Treasurers, Assistant Secretaries
or other officers as may be elected by the Board of Directors. Any two or
more offices may be held by the same person.
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the Board of Directors at the first meeting of
the Board of Directors held after each annual meeting of stockholders. If
the election of officers shall not be held at such meeting, such election
shall be held as soon thereafter as conveniently may be. New offices may be
created and filled at any meeting of the Board of Directors. Each officer
shall hold office until his successor is elected and has qualified or until
his earlier resignation or removal. Any officer may resign at any time upon
written notice to the Corporation. Election of an officer shall not of itself
create contract rights.
Section 3. Removal. Any officer elected by the Board of Directors may be
removed by the Board of Directors whenever in its judgment the best interests
of the Corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office occurring because of death,
resignation, removal or otherwise, may be filled by the Board of Directors.
Section 5. The Chairman of the Board and Vice Chairman of the Board. The
Chairman of the Board shall preside at all meetings of the Stockholders and
of the Board of Directors and shall perform such other duties as may be
described by the Board of Directors from time to time. In the absence of the
Chairman of the Board, the Vice Chairman of the Board shall preside at
meetings of the Stockholders and of the Board of Directors. In addition, the
Vice Chairman of the Board shall perform such other duties as may be
described by the Board of Directors from time to time.
Section 6. The President. The President shall be the Chief Operating
Officer and shall have such duties and responsibilities as may be assigned to
him from time to time by the Chairman of the Board or the Board of Directors.
In the absence of the Chairman of the Board, the President shall assume the
duties and responsibilities of the Chairman of the Board.
Section 7. The Vice Presidents. Each of the Vice Presidents shall report to
the Chairman of the Board or such other officer as may be determined by the
Board of Directors or the Chairman of the Board. Each Vice President shall
have such duties and responsibilities as from time to time may be assigned to
him by the Chairman of the Board or the Board of Directors.
Section 8. The Treasurer and Assistant Treasurer. The Treasurer, or, in the
event of his absence or inability or refusal to act, the Assistant Treasurer,
if any (or, if there be more than one, the Assistant Treasurers in the order
designated by the Chairman of the Board, or, if he is unable to act, the
President, subject to revision by the Board of Directors, and, absent such
designation or revision, in the order of their first election to that
office), shall be responsible for (i) the custody and safekeeping of all of
the funds of the corporation, (ii) the receipt and deposit of all moneys paid
to the corporation, (iii) where necessary or appropriate, the endorsement for
collection on behalf of the corporation of all checks, drafts, notes, and
other obligations payable to the corporation, (iv) the disbursement of funds
of the corporation under such rules as the Board of Directors may from time
to time adopt, (v) keeping full and accurate records of all receipts and
disbursements, and (vi) the performance of such further duties as are incident
to the office of Treasurer or as may from time to time be prescribed by the
Board of Directors or by the Chairman of the Board.
Section 9. The Secretary and Assistant Secretaries. The Secretary, or in the
event of his absence or inability or refusal to act, the Assistant Secretary,
if any (or, if there be more than one, the Assistant Secretaries in the order
designated by the Chairman, and if the Chairman is unable to act, the President
shall assume the duties and responsibilities, subject to revision by the Board
of Directors, and, absent such designation or revision, in the order of their
first election to that office) shall: (i) record all the proceedings of the
meetings of the stockholders and Board of Directors in one or more books kept
for that purpose; (ii) see that all notices are duly given in accordance with
the provisions of these By-Laws or as required by law; (iii) be custodian of
the corporate records and of the seal of the Corporation and see that the
seal of the Corporation is affixed to all certificates for shares of capital
stock prior to the issue thereof and to all documents, the execution of which
on behalf of the Corporation under its seal is duly authorized in accordance
with the provisions of these By-Laws; (iv) keep a register of the post office
address of each stockholder which shall be furnished to the Secretary by such
stockholder; (v) have general charge of the stock transfer books of the
Corporation and (vi) in general, perform all duties as from time to time may
be assigned to him by the Chairman of the Board or the Board of Directors.
ARTICLE IV
Stock Certificates and Transfer Books
Section 1. Certificates. Every stockholder shall be entitled to have a
certificate, in such form as the Board of Directors shall from time to time
approve, signed by or in the name of the corporation by the Chairman, Presi-
dent or any Vice President and by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary, certifying the number of shares owned by
him.
Section 2. Facsimile Signatures. Any of or all the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with
the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
Section 3. Record Ownership. A record of the name and address of the holder of
each certificate, the number of shares represented thereby, and the date of
issue thereof, shall be made on the corporation's books. The corporation
shall be entitled to treat the holder of record of any share or shares of
stock as the holder in fact thereof, and accordingly, shall not be bound to
recognize any equitable or other claim to or interest in any share on the
part of any other person whether or not it shall have express or other notice
thereof, except as required by the laws of Delaware.
Section 4. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit by the person claiming
the certificate to be lost, stolen or destroyed as to his ownership of the
certificate and of the facts as to its loss, theft, or destruction. He shall
also, if required by the Board of Directors, advertise the alleged loss,
theft or destruction in such manner as the Board of Directors shall require
and/or give the corporation a bond, in such form and amount as may be
approved by the Board of Directors, sufficient to indemnify the corporation
against any claim that may be made against it on account of the alleged loss,
theft or destruction of the certificate or the issuance of a new certificate.
Section 5. Transfer Agent or Registrar. The corporation may maintain one or
more transfer offices or agencies where the shares of stock of the corpora-
tion shall be transferable. The corporation may also maintain one or more
registry offices wherein such shares of stock shall be registered.
Section 6. Transfer of Stock. Transfer of shares shall, except as provided
in Section 4 of this Article IV, be made on the books of the corporation only
by direction of the person named in the certificate or his attorney, lawfully
constituted in writing, and only upon the surrender for cancellation of the
certificate therefor, duly endorsed or accompanied by a written assignment of
the shares evidenced thereby.
Section 7. Fixing Date for Determination of Stockholders of Record. (a) In
order that the corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, to
express consent to corporate action in writing without a meeting, or entitled
to receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change,
conversion or exchange or stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which
shall not be more than sixty nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action.
(b) if no record date is fixed:
(1) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held.
(2) The record date for determining stockholders entitled to express
consent to corporation action in writing without meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed.
(3) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meet-
ing; provided, however, that the Board of Directors may fix a new record date
for the adjourned meeting.
ARTICLE V
General Provisions
Section 1. Offices. The registered office of the corporation in Delaware
shall be in the City of Dover, County of Kent. The corporation may also have
other offices both within or without the State of Delaware. The books of the
corporation may be kept outside the State of Delaware.
Section 2. Seal. The corporation's seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words corporate
seal - Delaware.
Section 3. Fiscal Year. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
Section 4. Inspection of Books. Subject to laws of the State of Delaware,
the directors shall determine from time to time whether, and, if allowed,
when and under what conditions and regulations the accounts and books of the
corporation (except such as may by statute be specifically open to inspec-
tion), or any of them, shall be open to the inspection of the stockholders,
and the stockholders' rights in this respect are and shall be restricted and
limited accordingly.
Section 5. Reliance on Records. Each director and officer shall in the
performance of his duties be fully protected in relying in good faith upon
the books of account or reports made to the corporation by any of its
officers, or by an independent certified public accountant, or by an
appraiser selected with reasonable care by the Board of Directors, or in
relying in good faith upon other records of the corporation.
Section 6. Voting of Stock. Unless otherwise ordered by the Board of
Directors, the Chairman shall have full power and authority, in the name and
on behalf of the corporation, to attend, act and vote at any meeting of
stockholders of any company in which the corporation may hold shares of
stock, and at any meeting shall possess and may exercise any and all rights
and powers incident to the ownership of such shares and which, as the holder
thereof, the corporation might possess and exercise if personally present,
and may exercise such power and authority through the execution of proxies or
of written consents in lieu of meeting pursuant to applicable law or may
delegate such power and authority to any other officer, agent or employee of
the corporation.
Section 7. Notices; Waiver or Notice. Notice by mail or telegraph shall be
deemed to be given at the time when the same shall be deposited in the mails
or delivered to the telegraph company for transmission. Whenever any notice
is required to be given, a waiver thereof in writing, signed by the person or
persons entitled to the notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
Section 8. Indemnification. Each person who at any time is or shall have
been a director, officer, employee or agent of this corporation or is or
shall have been serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, and his heirs, executors and administra-
tors, shall be indemnified by this corporation in accordance with and to the
full extent permitted by the Delaware General Corporation Law as in effect at
the time of adoption of this by-law or as amended from time to time. The
foregoing right of indemnification shall not be deemed exclusive of any other
rights to which a person seeking indemnification may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or other-
wise. If authorized by the Board of Directors, the corporation may purchase
and maintain insurance on behalf of any person to the full extent permitted
by the Delaware General Corporation Law as in effect at the time of the
adoption of this by-law or as amended from time to time.
Section 9. Amendments to By-Laws. Except as provided in Section 2 of
Article 1, Section 1 of Article II and Section 2 of Article II of these By-
Laws, any provision of these By-Laws may be altered, amended or repealed from
time to time by the affirmative vote of a majority of the directors then
qualified and acting at any regular meeting of the Board at which a quorum is
present, or at any special meeting of the Board at which a quorum is present
if notice of the proposed alteration, amendment or repeal be contained in the
notice of such special meeting; provided, however, that no reduction in the
number of directors shall have the effect of removing any director prior to
the expiration of his term in office.
<PAGE>
EXHIBIT 3(i)
RESTATED CERTIFICATE OF INCORPORATION
OF
COBRA ELECTRONICS CORPORATION
Cobra Electronics Corporation, a Delaware corporation, the original
Certificate of Incorporation of which was filed with the Secretary of State
of the State of Delaware on November 27, 1961 under the name DYNASCAN
CORPORATION, HEREBY CERTIFIES that this Restated Certificate of Incorporation
only restates and integrates its Certificate of Incorporation and does not
further amend the provisions of the corporation's Certificate of Incorpora-
tion as heretofore amended or supplemented, and there is no discrepancy
between such provisions and the provisions of this Restated Certificate of
Incorporation. This Restated Certificate of Incorporation was duly adopted
by its Board of Directors in accordance with Section 245 of the General
Corporation Law of the State of Delaware.
CERTIFICATE OF INCORPORATION
OF
COBRA ELECTRONICS CORPORATION
FIRST. The name of the corporation is COBRA ELECTRONICS CORPORATION
SECOND. Its principal office in the State of Delaware is located at 1209
Orange Street, in the City of Wilmington, County of New Castle, Delaware
19801. The name and address of its resident agent is The Corporation Trust
Company.
THIRD. The nature of the business, or objects or purposes to be transacted,
promoted or carried on are:
To manufacture, assemble, fabricate, purchase or otherwise acquire, to design,
invent or develop, to import or export, to lease (as lessor or lessee), to
service or repair, to sell, assign, transfer or otherwise dispose of, at
wholesale, retail or otherwise, and to generally deal in, all kinds,
varieties and combinations of electronic, electrical, magnetic and mechanical
instruments, devices and systems, including but not limited to antennas of
every kind and character and to automatic, automotive, communication,
transmission, receiving, analyzing, testing, detecting, measuring and control
instruments, devices and systems, and products of every other description; to
deal in all kinds of raw materials, semi-finished or finished materials,
parts, supplies, and products; to conduct research, experiments or investiga-
tions for development or improvement of materials, products or processes or
for general purposes; to lease, own, operate, equip and maintain factories,
plants and other facilities; and to lease or own all other real estate and
personal property necessary or advisable to carry on the business of the
corporation.
To manufacture, assemble, fabricate, purchase or otherwise acquire, own,
mortgage, pledge, sell, assign, transfer or otherwise dispose of, to invest,
trade, deal in and deal with, goods, wares and merchandise and real and
personal property of every class and description.
To acquire, and pay for in cash, stock or bonds of the corporation or
otherwise, the good will, rights, assets and property, and to undertake or
assume the whole or any part of the obligations or liabilities of any person,
firm, association or corporation, domestic or foreign.
To acquire, hold, use, sell, assign, lease, grant licenses in respect of,
mortgage or otherwise dispose of letters patent of the United States or any
foreign country, patent rights, licenses and privileges, inventions, improve-
ments and processes, copyrights, trademarks and trade names, relating to or
useful in connection with any business of the corporation.
To acquire by purchase, subscription or otherwise, and to receive, hold, own,
guarantee, sell, assign, exchange, transfer, mortgage, pledge or otherwise
dispose of or deal in and with any shares of the capital stock, voting trust
certificates in respect of the shares of capital stock, scrip, warrants,
rights, bonds, debentures, notes, trust receipts, and other securities, obli-
gations, choses in action and evidences of indebtedness or interest, issued
or created by any corporations, joint stock companies, syndicates, associa-
tions, firms, trusts or persons, public or private, or by the government of
the United States of America, or by any foreign government, or by any state,
territory, province, municipality or other political subdivision or by any
governmental agency, and as owner thereof to possess and exercise all the
rights, powers and privileges of ownership, including the right to execute
consents and vote thereon, and to do any and all acts and things necessary or
advisable for the preservation, protection, improvement and enhancement in
value thereof.
To enter into, make and perform contracts of every kind and description with
any person, firm, association, corporation, municipality, county, state, body
politic or government or colony or dependency thereof.
To borrow or raise moneys for any of the purposes of the corporation and, from
time to time without limit as to amount, to draw, make, accept, endorse,
execute and issue promissory notes, drafts, bills of exchange, warrants,
bonds, debentures and other negotiable or non-negotiable instruments and
evidences of indebtedness, and to secure the payment of any thereof and of
the interest thereon by mortgage upon or pledge, conveyance or assignment in
trust of the whole or any part of the property of the corporation, whether at
the time owned or thereafter acquired, and to sell, pledge or otherwise
dispose of such bonds or other obligations of the corporation for its
corporate purposes.
To loan to any person, firm or corporation any of its surplus funds, either
with or without security.
To issue, purchase, hold, sell and transfer the shares of its own capital
stock; provided that shares of its own capital stock belonging to it shall
not be voted upon directly or indirectly.
To have one or more offices, to carry on all or any of its operations and
business and, without restriction or limit as to amount, to purchase or
otherwise acquire, hold, own, mortgage, sell, convey or otherwise dispose of,
real and personal property of every class and description in any of the
states, districts, territories or colonies of the United States, and in any
and all foreign countries, subject to the laws of such state, district,
territory, colony or country.
In general, to carry on any other business in connection with the foregoing,
and to have and exercise all the powers conferred by the laws of Delaware upon
corporations formed under the General Corporation Law of the State of Delaware,
and to do any or all of the things hereinbefore set forth to the same extent
as natural persons might or could do.
The foregoing clauses shall be liberally construed, both as objects and
powers; and the objects and purposes specified therein shall, except where
otherwise expressed, be in nowise limited or restricted by reference to, or
inference from, the terms of any other clause in this Certificate of
Incorporation, but the objects and purposes specified in each of the fore-
going clauses of this Article shall be regarded as independent objects and
purposes.
FOURTH. The total number of shares of stock which the corporation shall have
authority to issue is thirteen million (13,000,000), divided into two classes
as follows:
(a) One million (1,000,000) shares shall be of the par value of One Dollar
($1.00) per share and shall be designated as Preferred Stock; and
(b) Twelve million (12,000,000) shares shall be of the par value of Thirty-
Three and One Third Cents ($.33 ) per share and shall be designated as Common
Stock.
The Preferred Stock may be issued from time to time in one or more series,
which series may have such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution
or resolutions providing for the issue of such stock adopted by the board of
directors pursuant to the authority which is hereby expressly vested in the
board of directors.
The authority of the board of directors with respect to each series shall
include, but not be limited to, determination of the following:
(a) The distinctive designation of such series and the number of shares which
shall constitute such series, which number may be increased (except where
otherwise provided by the board of directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time by like action
of the board of directors;
(b) The rate of dividends, if any, payable on the shares of such series, the
conditions upon which and the dates when such dividends shall be payable,
whether such dividends shall be cumulative (and, if so, from which date or
dates), and whether payable in preference to dividends payable on any other
class or classes or any other series of stock;
(c) Whether or not the shares of such series shall have voting powers, and if
voting powers are granted, the extent of such voting powers;
(d) Whether or not the shares of such series shall be redeemable and, if so,
the terms and conditions of such redemption, including the date or dates upon
or after which they shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
(e) Whether or not the shares of such series shall be entitled to the benefit
of a retirement fund or sinking fund, and if so, the terms and conditions of
such fund;
(f) Whether or not the shares of such series shall be convertible into or
exchangeable for shares of any other class or classes of stock of the corpora-
tion or of any series thereof, and, if made convertible or exchangeable, the
conversion price or prices or the rate or rates of exchange and the adjust-
ments thereof, if any, at which such conversion or exchange may be made, and
any other terms and conditions of such conversion or exchange;
(g) The rights of the holders of the shares of such series upon the
voluntary or involuntary liquidation, dissolution or winding-up, or merger,
consolidation or distribution or sale of assets of the corporation;
(h) The conditions and restrictions, if any, on the payment of dividends or
on the making of other distributions on, or the purchase, redemption or other
acquisition by the corporation of the Common Stock or of any other class or
series of stock of the corporation ranking junior to the shares of such
series as to dividends or upon liquidation;
(i) The conditions and restrictions, if any, on the creation of indebtedness
of the corporation or any subsidiary, or on the authorization or issue of any
additional stock of the corporation ranking on a parity with or prior to the
shares of such series as to dividends or upon liquidation; and
(j) Any other preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof.
Each share of Common Stock shall entitle the holder thereof to one vote, in
person or by proxy, at any and all meetings of the stockholders of the
corporation, on all propositions before such meetings, including the election
of directors. No
stockholder shall have any cumulative voting rights in respect of any share of
Common Stock held by such stockholder.
Except as otherwise provided by the resolution or resolutions providing for
the issue of any series of Preferred Stock, the number of authorized shares
of any class or classes of stock may be increased or decreased by the
affirmative vote of the holders of a majority of the stock of the corporation
entitled to vote.
No stockholder, as such, shall have any preemptive right to subscribe for or
purchase any additional shares of stock or securities convertible into or
carrying warrants or options to acquire shares of stock of the corporation.
Any and all right, title, interest and claim in or to any dividends declared
by the corporation, whether in cash, stock or otherwise, which are unclaimed
by the stockholder entitled thereto for a period of six years after the close
of business on the payment date, shall be and be deemed to be extinguished
and abandoned; and such unclaimed dividends in the possession of the corpora-
tion, its transfer agents or other agents or depositaries, shall at such time
become the absolute property of the corporation, free and clear of any and
all claims of any persons whatsoever.
FIFTH. The minimum amount of capital with which the corporation will commence
business is One Thousand Dollars ($1,000).
SIXTH. The names and places of residence of the incorporators are as follows:
Name Residence
S. H. Livesay Wilmington, Delaware
J. F. Cook Wilmington, Delaware
L. A. Kyritsis Wilmington, Delaware
SEVENTH. The corporation is to have perpetual existence.
EIGHTH. The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatever.
NINTH. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
Subject to the requirement that the affirmative vote of the holders of at
least 67% of the shares of the corporation entitled to vote for the election
of directors shall be required to amend or repeal, or to adopt any provision
inconsistent with Section 2 of Article I, Section 1 of Article II and Section
2 of Article II of the By-Laws, to make, alter, amend or repeal the By-Laws
of the corporation; to issue, sell, grant options to purchase and dispose of
shares of the authorized and previously unissued stock of any class of the
corporation and shares of its outstanding stock of any class held in its
treasury; to issue, sell and dispose of the bonds, debentures, notes and
other obligations or evidences of indebtedness of the corporation, including
bonds, debentures, notes and other obligations or evidences of indebtedness
of the corporation convertible into stock of any class of the corporation; to
authorize and cause to be executed mortgages and liens upon the real and
personal property of the corporation including after-acquired property; to
declare and pay dividends on the stock of any class of the corporation; to set
apart out of any of the funds of the corporation available for dividends or
otherwise a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
To designate one or more committees, by resolution passed by a three-fourths
majority of the whole board, each committee to consist of two or more of the
directors of the corporation, which, to the extent provided in the resolution
or in the By-Laws of the corporation, shall have and may exercise the powers
of the board of directors in the management of the business and affairs of
the corporation, and may authorize the seal of the corporation to be affixed
to all papers which may require it, and each committee shall have such name
as may be stated in the By-Laws of the corporation or as may be determined
from time to time by resolution adopted by the board of directors.
Subject to the provisions of Article FIFTEENTH of this Certificate of
Incorporation, when and as authorized by the affirmative vote of the holders
of a majority of the stock issued and outstanding having voting power given at
a stockholders' meeting duly called for that purpose or when authorized by the
written consent of the holders of a majority of the voting stock issued and
outstanding, to sell, lease or exchange all of the property and assets of the
corporation, including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may be in whole or in
part shares of stock in, and/or other securities of, any other corporation or
corporations, as the board of directors shall deem expedient and for the best
interests of the corporation.
To exercise all other corporate powers and to do all other acts and things as
may be exercised or done by the corporation, subject, however, to the
provisions of the statutes of the State of Delaware and of this Certificate
of Incorporation and the By-laws of the corporation.
The number of directors which shall constitute the whole Board shall be not
less than five. The exact number of directors shall be fixed from time to
time by the Board of Directors pursuant to a resolution adopted by a majority
of the entire Board of Directors. The Directors shall be divided into three
classes, as nearly equal in number as possible, with respect to the time for
which they shall severally hold office. Directors of the First Class first
chosen shall hold office until the first annual selection of directors after
their election; Directors of the Second Class first chosen shall hold office
until the second annual election of directors after their election; and
Directors of the Third Class shall hold office until the third annual
election of directors after their election. In each annual election or
adjournment thereof, the successors to the Class of Directors whose terms
shall expire at that time shall be elected to hold office for terms of three
years so that the term of office of one class of Directors shall expire in
each year. Each Director elected shall hold office until his successor shall
be elected and shall qualify.
Subject to the rights of the holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall be filled by a majority vote of the directors
then in office, and directors so chosen shall hold office for a term expiring
at the Annual Meeting of Stockholders at which the term of the class to which
they have been elected expires.
Subject to the rights of the holders of any series of Preferred Stock then
outstanding, any director, or the entire Board of Directors, may be removed
from office at any time but only for cause and only by the affirmative vote
of the holders of at least 67 percent of all of the shares of the corporation
entitled to vote for the election of directors.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least 67 percent of the
shares of the corporation entitled to vote for the election of directors
shall be required to amend or repeal, or to adopt any provision inconsistent
with, the provisions of this Article NINTH requiring the affirmative vote of
67 percent of such shares to take various actions.
TENTH. The corporation may enter into contracts or transact business with one
or more of its directors, or with any firm of which one or more of its
directors are members or with any trust, firm, corporation or association in
which any one or more of its directors is a stockholder, director or officer
or otherwise interested, and any such contract or transaction shall not be
invalidated in the absence of fraud because such director or directors have
or may have interests therein which are or might be adverse to the interest
of the corporation, even though the presence and/or vote of the director or
directors having such adverse interest shall have been necessary to
constitute a quorum and/or to obligate the corporation upon such contract or
transaction; and no director having such adverse interest shall be liable to
this corporation or to any stockholder or creditor thereof, or to any other
person, for any loss incurred by it under or by reason of any such contract
or transaction; nor shall any such director or directors be accountable for
any gains or profits realized thereon, except as may be otherwise provided by
law, provided, however, that such contract or transaction shall, at the
time at which it was entered into, have been a reasonable one to have been
entered into and shall have been upon terms that at that time were fair.
ELEVENTH. A. Elimination of Certain Liability of Directors. A director of the
Corporation shall not be personally liable to the Corporation or its stock-
holders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. If the General Corporation Law of the State of
Delaware is amended after approval by the stockholders of this Article
Eleventh to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended. Any
repeal or modification of this Section A by the stockholders of the Corpora-
tion shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
B. Indemnification and Insurance.
1. Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or pro-
ceeding, whether civil, criminal, administrative or investigative
(hereinafter a proceeding), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director, officer
or employee of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the General Corporation Law
of the State of Delaware as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said
law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith, and
such indemnification shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of his or
her heirs, executors and administrators; provided, however, that except as
provided in paragraph (2) of this Section B with respect to proceedings seek-
ing to enforce rights to indemnification, the Corporation shall indemnify any
such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof)
was authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section B shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred
in defending any such proceeding in advance of its final disposition; pro-
vided, however, that if the General Corporation Law of the State of Delaware
requires, the payment of such expenses incurred by a director, officer or
employee in his or her capacity as a director, officer or employee (and not
in any other capacity in which service was or is rendered by such person
while a director, officer or employee, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a pro-
ceeding, shall be made only upon delivery to the Corporation of an undertaking
by or on behalf of such director, officer or employee, to repay all amounts
so advanced if it shall ultimately be determined that such director, officer
or employee is not entitled to be indemnified under this Section B or
otherwise.
2. Right of Claimant to Bring Suit. If a claim under paragraph (1) of this
Section B is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim.
It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required,
has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the General Corporation
Law of the State of Delaware for the Corporation to indemnify the claimant
for the amount claimed, but the burden of proving such defense shall be on
the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of such action that indemnification
of the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the General Corporation Law of
the State of Delaware, nor an actual determination by the Corporation (in-
cluding its Board of Directors, independent legal counsel or stockholders)
that the claimant has not met such applicable code of conduct, shall be a
defense to the action or create a presumption that the claimant has not met
the applicable standard of conduct.
3. Non-Exclusivity of Rights. The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final dis-
position conferred in this Section B shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, By-Law, agreement, vote of
stockholders or disinterested directors or otherwise.
4. Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corpora-
tion or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the General Corporation Law of the State of
Delaware.
5. Indemnification of Agent.. The Corporation may, to the extent authorized
from time to time by the Board of Directors, grant rights to indemnification,
and rights to be paid by the Corporation the expenses incurred in defending
any proceeding in advance of its final disposition, to any agent of the
Corporation to the fullest extent of the provisions of this Section B with
respect to the indemnification and advancement of expenses of directors,
officers and employees of the Corporation.
TWELFTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a sum-
mary way of this corporation or of any creditor or stockholder thereof, or on
the application of any receiver or receivers appointed for this corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation,
as the case may be, to be summoned in such manner as the said court directs.
If a majority in number representing three-fourths in value of the creditors
or class of creditors, and/or of the stockholders or class of stockholders of
this corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this corporation as consequence of such com-
promise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or
on all the stockholders or class of stockholders, of this corporation, as the
case may be, and also on this corporation.
THIRTEENTH. Meetings of stockholders may be held outside the State of
Delaware, if the By-laws so provide. The books of the corporation may be
kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the board of directors or in the By-laws of this corporation. Elections of
directors need not be by ballot unless the By-laws of the corporation shall
so provide.
Any action required or permitted to be taken by the stockholders of the
corporation must be effected at a duly called annual or special meeting of
stockholders of the corporation and may not be effected by any consent in
writing by such stockholders. Special meetings of stockholders of the cor-
poration may be called only by the Board of Directors pursuant to a resolu-
tion approved by a majority of the entire Board of Directors, upon not less
than 10 nor more than 50 days' written notice. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirma-
tive vote of the holders of at least 67 percent of all of the shares of the
corporation entitled to vote for the election of directors shall be required
to amend or repeal, or to adopt any provision inconsistent with, this second
paragraph of this Article THIRTEENTH.
FOURTEENTH. The corporation reserves, subject to the provisions of this
Certificate of Incorporation and the requirement of a concurring vote of 67
percent of all shares of the corporation entitled to vote for the election
of directors to amend certain provisions hereof, the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorpora-
tion, in the manner now or hereafter prescribed by statute, and all rights
conferred upon stockholders herein are granted subject to this reservation.
FIFTEENTH. 1. Vote Required for Certain Business Combinations.
A. Higher Vote for Certain Business Combinations. In addition to any
affirmative vote required by law or this Certificate of Incorporation,
notwithstanding any provision of Article NINTH of this Certificate of
Incorporation and except as otherwise expressly provided in Section 2 of this
Article FIFTEENTH:
(i) Any merger or consolidation of the corporation or any Subsidiary (as
hereinafter defined) with or into (a) any Interested Stockholder (as herein-
after defined) or (b) any other corporation (whether or not itself an
Interested Stockholder) which is, or after such merger or consolidation would
be, an Affiliate (as hereinafter defined) of an Interested Stockholder;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate of any Interested Stockholder of any
assets of the corporation or any Subsidiary having an aggregate Fair Market
Value of $1,000,000 or more:
(iii) the issuance or transfer by the corporation or any Subsidiary (in one
transaction or a series of transactions) of any securities of the corporation
or any Subsidiary to any Interested Stockholder or any Affiliate of any
Interested Stockholder in exchange for cash, securities or other property (or
a combination thereof) having an aggregate Fair Market Value of $1,000,000 or
more;
(iv) the adoption of any plan or proposal for the liquidation or dissolution
of the corporation proposed by or on behalf of an Interested Stockholder or
any Affiliate of any Interested Stockholder; or
(v) any reclassification of securities (including any reverse stock split), or
recapitalization of the corporation, or any merger or consolidation of the
corporation with any of its Subsidiaries or any other transaction (whether or
not with or into or otherwise involving an Interested Stockholder) which has
the effect, directly or indirectly, of increasing the proportionate share of
the outstanding shares of any class of equity or convertible securities of the
corporation or any Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate of any Interested Stockholder; shall
require the affirmative vote of the holders of at least 67 percent of the
then outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors (the "Voting Stock"), voting together
as a single class (it being understood that, for the purposes of this Article
FIFTEENTH, each share of the Voting Stock shall have the number of votes
granted to it pursuant to Article FOURTH of this Certificate of Incorpora-
tion). Such affirmative vote shall be required notwithstanding the fact that
no vote may be required, or that a lesser percentage may be specified, by law
or in any agreement with any national securities exchange or otherwise.
B. Definition of "Business Combination." The term "Business Combination" as
used in this Article FIFTEENTH shall mean any transaction which is referred
to in any one or more of clauses (i) through (v) of paragraph A of this
Section 1.
2. When Higher Vote Is Not Required. The provisions of Section 1 of this
Article FIFTEENTH shall not be applicable to any particular Business Combina-
tion, and such Business Combination shall require only such affirmative vote
as is required by law and any other provision of this Certificate of Incor-
poration, if all of the conditions specified in either of the following
paragraphs A and B are met:
A. Approval by Continuing Directors. The Business Combination shall have been
approved by two-thirds of the Continuing Directors (as hereinafter defined).
B. Price and Procedure Requirements. All of the following conditions shall
have been met:
(i) The aggregate amount of the cash and the Fair Market Value (as
hereinafter defined) as of the date of the consummation of the Business
Combination of consideration other than cash to be received per share by
holders of Common Stock in such Business Combination shall be at least equal
to the highest of the following:
(a) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by the
Interested Stockholder for any shares of Common Stock acquired by it (1)
within the two-year period immediately prior to the first public announcement
of the proposal of the Business Combination (the "Announcement Date") or (2)
in the transaction in which it became an Interested Stockholder, whichever is
higher; and
(b) the Fair Market Value per share of Common Stock on the first trading date
after the Announcement Date or on the first trading date after the date of the
first public announcement that the Interested Stockholder became an Interested
Stockholder (the "Determination Date"), whichever is higher.
(ii) The aggregate amount of the cash and the Fair Market Value as of the
date of the consummation of the Business Combination of consideration other
than cash to be received per share by holders of shares of any other class of
outstanding Voting Stock (other than Institutional Voting Stock, as herein-
after defined) shall be at least equal to the highest of the following (it
being intended that the requirements of this paragraph B(ii) shall be
required to be met with respect to every class (or, if applicable, series
within a class) of outstanding Voting Stock (other than Institutional Voting
Stock), whether or not the Interested Stockholder has previously acquired any
shares of a particular class (or, if applicable, series within a class) of
Voting Stock:
(a) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by the
Interested Stockholder for any shares of such class of Voting Stock acquired
by it (1) within the two-year period immediately prior to the Announcement
Date or (2) in the transaction in which it became an Interested Stockholder,
whichever is higher;
(b) (if applicable) the preferential amount per share to which the holders
of shares of such class (or, if applicable, series within a class) of Voting
Stock are entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the corporation; and
(c) the Fair Market Value per share of such class (or, if applicable, series
within a class) of Voting Stock on the first trading date after the
Announcement Date or on the Determination Date, whichever is higher.
(iii) The consideration to be received by holders of a particular class (or,
if applicable, series within a class) of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as the Interested Stock-
holder has previously paid for shares of such class (or, if applicable,
series within a class) of Voting Stock. If the Interested Stockholder has
paid for shares of any class (or, if applicable, series within a class) of
Voting Stock with varying forms of consideration, the form of consideration
for such class (or, if applicable, series within a class) of Voting Stock
shall be either cash or the form used to acquire the largest number of shares
of such class (or, if applicable, series within a class) of Voting Stock
previously acquired by it.
(iv) After such Interested Stockholder has become an Interested Stockholder
and prior to the consummation of such Business Combination: (a) except as
approved by two-thirds of the Continuing Directors, there shall have been no
failure to declare and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any outstanding Preferred Stock or
other capital stock of the Company other than the Common Stock; (b) there
shall have been (1) no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any subdivision of the Common
Stock), except as approved by two-thirds of the Continuing Directors, and (2)
an increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of reducing
the number of outstanding shares of the Common Stock, unless the failure to
increase such annual rate is approved by two-thirds of the Continuing Dir-
ectors; and (c) such Interested Stockholder shall have not become the
beneficial owner of any additional shares of Voting Stock except as part of
the transaction which results in such Interested Stockholder becoming an
Interested Stockholder.
(v) After such Interested Stockholder has become an Interested Stockholder,
such Interested Stockholder shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or other
tax advantages provided by the corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(vi) A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange
Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed to
public stockholders of the corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions).
3. Certain Definitions. For the purpose of this Article FIFTEENTH:
A. A person shall mean any individual, firm, corporation or other entity.
B. Interested Stockholder shall mean any person (other than the corporation
or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of more than 10 perent
of the outstanding Voting Stock;
(ii) is an Affiliate of the corporation and at any time within the two-year
period immediately prior to the date in question was the beneficial owner,
directly or indirectly, of 10 percent or more of the then outstanding Voting
Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares of Voting
Stock which were at any time within the two-year period immediately prior to
the date in question beneficially owned by any Interested Stockholder, if
such assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering within
the meaning of the Securities Act of 1933.
C. A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or Associates (as hereinafter
defined) beneficially owns, directly or indirectly;
(ii) which such person or any of its Affiliates or Associates has (a) the
right to acquire (whether such right is exercisable or only after the passage
of time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (b) the right to vote pursuant to any agreement, arrangement or
understanding; or
(iii) which are beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring, hold-
ing, voting or disposing of any shares of Voting Stock.
D. For the purposes of determining whether a person is an Interested Stock-
holder pursuant to paragraph B of this Section 3, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed owned
through application of paragraph C of this Section 3 but shall not include
any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
E. Affiliate and Associate shall have the respective meanings ascribed to such
terms in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on April 1, 1983.
F. Subsidiary means any corporation of which a majority of any class of equity
security is owned, directly or indirectly, by the corporation; provided, how-
ever, that for the purposes of the definition of Interested Stockholder set
forth in paragraph B of this Section 3, the term Subsidiary shall mean only a
corporation of which a majority of each class of equity security is owned,
directly or indirectly, by the corporation.
G. Continuing Director means any member of the Board of Directors of the
corporation (the "Board") who is unaffiliated with the Interested Stockholder
and was a member of the Board prior to the time that the Interested Stock-
holder became an Interested Stockholder, and any successor of a Continuing
Director who is unaffiliated with the Interested Stockholder and is
recommended to succeed a Continuing Director by a majority of Continuing
Directors then on the Board.
H. Fair Market Value means: (i) in the case of stock, the highest closing
sale price during the 30-day period immediately preceding the date in
question of a share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on the Composite
Tape, on the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing bid
quotation with respect to a share of such stock during the 30-day period
preceding the date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any system then in use, or if
no such quotations are available, the fair market value on the date in
question of a share of such stock as determined by the Board in good faith;
and (ii) in the case of property other than cash or stock, the fair market
value of such property on the date in question as determined by the Board in
good faith.
I. Institutional Voting Stock shall mean any class or series of Voting Stock
which was issued to and continues to be held solely by one or more insurance
companies, pension funds, commercial banks, savings banks or similar financial
institutions or institutional investors.
J. In the event of any Business Combination in which the corporation
survives, the phrase other consideration to be received as used in paragraphs
B(i) and (ii) of Section 2 of this Article FIFTEENTH shall include the shares
of Common Stock and/or the shares of any other class or series of outstanding
Voting Stock retained by the holders of such shares.
K. A majority of the Continuing Directors shall have the power and duty to
determine for the purposes of this Article FIFTEENTH, on the basis of infor-
mation known to them after reasonable inquiry, (A) whether a person is an
Interested Stockholder, (B) the number of shares of Voting Stock beneficially
owned by any person, (C) whether a person is an Affiliate or Associate of
another, (D) whether a class or series of Voting Stock is Institutional
Voting Stock and (E) whether the assets which are the subject of any Business
Combination have, or the consideration to be received for the issuance or
transfer of securities by the corporation or any Subsidiary in any Business
Combination, has, an aggregate Fair Market Value of $1,000,000 or more.
4. No Effect on Fiduciary Obligations of Interested Stockholder. Nothing
contained in this Article FIFTEENTH shall be construed to relieve any
Stockholder from any fiduciary obligation imposed by law.
5. Amendment, Repeal, etc.. Notwithstanding any other provisions of this
Certificate of Incorporation or the By-Laws of the corporation (and notwith-
standing the fact that a lesser percentage may be specified by law, this
Certificate of Incorporation or the By-Laws of the corporation), the affirma-
tive vote of the holders of 67 percent or more of the shares of the then
outstanding Voting Stock, voting together as a single class, shall be
required to amend, or repeal, or to adopt any provision inconsistent with,
this Article FIFTEENTH.
IN WITNESS WHEREOF, Cobra Electronics Corporation has caused this Restated
Certificate of Incorporation to be signed on this 28th day of October 1998 in
its name and attested by duly authorized officers.
COBRA ELECTRONICS CORPORATION
By: /s/James Bazet
James Bazet
President and Chief Executive Officer
ATTEST:
By: /s/Gerald M. Laures
Gerald M. Laures
Secretary
</page>
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