<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Cobra Electronics Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF COBRA ELECTRONICS]
6500 West Cortland Street Chicago, Illinois 60707 773-889-8870 Fax: 773-889-
1678
Notice of Annual Meeting of Shareholders
To Be Held on May 9, 2000
To the Shareholders:
The Annual Meeting of Shareholders of Cobra Electronics Corporation (the
"Company") will be held at the offices of Sidley & Austin, Bank One Plaza, 10
South Dearborn Street, 55th Floor, Room 2-C, Chicago, Illinois on Tuesday, May
9, 2000 at 11:00 a.m. to:
1. Elect two Class II directors of the Company to hold office until the
2003 Annual Meeting of Shareholders;
2. Consider and vote upon a proposal to approve the Cobra Electronics
Corporation 2000 Stock Option Plan; and
3. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only shareholders of record at the close of business on April 7, 2000 are
entitled to notice of and to vote at the meeting or any adjournments thereof.
A complete, alphabetic list of such shareholders showing their addresses and
the number of shares registered for each will be kept open at the offices of
the Company, 6500 West Cortland Street, Chicago, Illinois 60707, for
examination by any shareholder during ordinary business hours for a period of
ten days prior to the meeting.
Whether or not you plan to attend the meeting, please mark, sign, date and
return the enclosed proxy card as soon as possible in the enclosed postage-
paid envelope.
A copy of the Summary Annual Report for the year ended December 31, 1999, a
Proxy Statement and proxy card accompany this notice.
By order of the Board of Directors,
GERALD M. LAURES
Secretary
Chicago, Illinois
April 14, 2000
<PAGE>
COBRA ELECTRONICS CORPORATION
6500 West Cortland Street
Chicago, Illinois 60707
Proxy Statement for Annual Meeting of Shareholders
To Be Held on May 9, 2000
This Proxy Statement is furnished in connection with a solicitation of
proxies by the Board of Directors of Cobra Electronics Corporation (the
"Company") to be voted at the Company's 2000 Annual Meeting of Shareholders to
be held on Tuesday, May 9, 2000 at the offices of Sidley & Austin, Bank One
Plaza, 10 South Dearborn Street, 55th Floor, Room 2-C, Chicago, Illinois at
11:00 a.m. The principal executive offices of the Company are located at 6500
West Cortland Street, Chicago, Illinois 60707. This Proxy Statement, the
accompanying proxy card and the 1999 Summary Annual Report were first mailed
to shareholders on or about April 14, 2000.
RECORD DATE AND OUTSTANDING VOTING SECURITIES
Only shareholders of record at the close of business on April 7, 2000 are
entitled to notice of and to vote at the meeting. On that date the Company had
outstanding 6,149,034 shares of Common Stock, par value $.33 1/3 per share.
Owners of Common Stock are entitled to one vote for each share held. The
Company has no other outstanding voting securities.
REVOCATION OF PROXIES AND OTHER VOTING INFORMATION
Proxies given pursuant to this solicitation may be revoked at any time
prior to the voting thereof (by giving written notice to the Secretary of the
Company, by executing a proxy card bearing a later date which is voted at the
meeting or by attending the 2000 Annual Meeting of Shareholders and voting in
person); once voted, however, proxies may not be retroactively revoked.
With respect to the election of directors, a shareholder may (i) vote for
the election of the two nominees designated below as Class II directors, (ii)
withhold authority to vote for all director nominees or (iii) vote for the
election of all director nominees other than a nominee with respect to whom
the shareholder withholds authority to vote by striking a line through the
nominee's name on the proxy. All outstanding shares of Common Stock
represented by properly executed and unrevoked proxies received in time for
the meeting will be voted as instructed in the accompanying proxy. If no
instructions are given, the shares will be voted for the election of all
nominees designated below to serve as Class II directors.
A proxy card submitted by a shareholder may indicate that all or a portion
of the shares represented by the proxy are not being voted with respect to a
particular matter (the "non-voted shares"). Non-voted shares will be
considered shares not present and entitled to vote on the matter, although
those shares may count for purposes of determining the presence of a quorum.
If a quorum is present at the meeting, the two persons receiving the greatest
number of votes will be elected to serve as Class II directors. Accordingly,
non-voted shares and withholding authority to vote for a director nominee will
not affect the outcome of the election of directors. If a quorum is present at
the meeting, approval of the Cobra Electronics Corporation 2000 Stock Option
Plan requires the affirmative vote of a majority of the shares of Common Stock
present in person or by proxy at the meeting and entitled to vote on the
matter. An abstention with respect to the proposal to approve the Cobra
Electronics Corporation 2000 Stock Option Plan has the legal effect of a vote
against the proposal. Non-voted shares with respect to that proposal will not
be considered as being present and entitled to vote on the proposal.
PROPOSAL I--ELECTION OF DIRECTORS
The Company's Certificate of Incorporation classifies the Board of
Directors into three classes, as nearly equal in number as possible, each of
whom serves for three years. The term of office of one class of directors
<PAGE>
expires each year in rotation so that one class is elected at each annual
meeting for a full three-year term. The terms of two of the present directors
will expire at the 2000 Annual Meeting of Shareholders. Mr. Gerald M. Laures,
Vice President-Finance, and Mr. James W. Chamberlain, director, have been
nominated for election as Class II directors for three-year terms expiring at
the 2003 Annual Meeting of Shareholders and until their successors are elected
and qualified. The terms of the other five directors will continue as
indicated below.
Unless otherwise specified on a proxy card, it is the present intention of
the persons named in the accompanying proxy card to vote that proxy for the
election of Gerald M. Laures and James W. Chamberlain. Management is not aware
of any nominee for director to be proposed by others. If on account of death
or unforeseen contingencies, either of Messrs. Laures or Chamberlain should
not be available for election, the persons named in the accompanying proxy
reserve the right to vote that proxy card for such other person or persons as
may be nominated to serve as a Class II director by the management of the
Company. Management has no reason to believe that any Class II nominee will be
unable to serve if elected.
The names of the Company's directors and director nominees, their principal
occupations and certain biographical information relating to them are set
forth below.
<TABLE>
<CAPTION>
Directors and Nominees Age Principal Occupation
- ---------------------- --- ------------------------------------------------------
<S> <C> <C>
James R. Bazet, Class I. 52 President and Chief Executive Officer of the Company,
(Term expiring in 2002) January 1998 to present; Executive Vice President and
Chief Operating Officer of the Company, 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. Director since May 1997.
William P. Carmichael, 56 Director of Opta Food Ingredients, Inc. since 1999.
Class III............... Senior Vice President & Chief Accounting Officer, Sara
(Term expiring in 2001) Lee Corporation, 1991-1993; retired 1993; Senior Vice
President and Chief Financial Officer, Beatrice
Company, 1988-1990. Director since 1994.
James W. Chamberlain, 53 Senior Vice President & General Manager, Ryobi Finance
Class II................ Corporation, April 1998 to present. Vice President and
(Nominee, term, if General Manager, Ryobi Financial Corporation, 1992-
elected, 1998. Director since October 1999.
Expiring in 2003)
Carl Korn, Class III.... 78 Chairman of the Board of the Company, 1961 to present;
(Term expiring in 2001) President and Chief Executive Officer of the Company,
1961-1985. Director since 1961.
Gerald M. Laures, Class 52 Vice President--Finance of the Company, since March
II...................... 1994; Corporate Secretary of the Company, 1989 to
(Nominee, term, if present; Corporate Controller of the Company 1988-
elected, 1994. Director since 1994.
Expiring in 2003)
Ian R. Miller Class III. 49 Strategic Business Advisor, Former President, Consumer
(Term expiring in 2001) Food Worldwide Division, Monsanto Corporation, 1995-
1999. President, Chief Operating Officer and Managing
Partner of Euro RSCG Tatham 1989-1995. Director since
February 2000.
Harold D. Schwartz, 74 President, Chez & Schwartz, Inc., marketing and sales
Class I................. consultants, 1973 to present. Director since 1983.
(Term expiring in 2002)
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors of the Company held six meetings during fiscal year
1999. Each member of the Board of Directors attended at least 75% of all the
meetings of the Board of Directors and committees of which they are members.
The Board of Directors has four committees: the Audit Committee, the Finance
Committee, the Compensation Committee and the Stock Option Plan Committee.
During fiscal year 1999, these committees met four times, two times, five
times and one time, respectively.
2
<PAGE>
The members of the Audit Committee are: Harold D. Schwartz (Chairman),
William P. Carmichael, James W. Chamberlain and Carl Korn. The Audit Committee
assists the Board of Directors in fulfilling its responsibility for the
accounting practices of the Company and reviews the selection of, and
recommendations by, the Company's independent auditors.
The members of the Finance Committee are: William P. Carmichael (Chairman),
James R. Bazet, James W. Chamberlain and Gerald M. Laures. The Finance
Committee reviews and recommends financing plans and agreements.
The members of the Compensation Committee are: William P. Carmichael
(Chairman), James W. Chamberlain, Ian R. Miller and Harold D. Schwartz. The
Compensation Committee reviews the compensation of the Company's executive
officers, except for options issued under the Company's stock option plans.
The members of the Stock Option Plan Committee are: William P. Carmichael
(Chairman) and Harold D. Schwartz. The Stock Option Plan Committee administers
the Company's stock option plans.
The Company has no nominating or similar committee.
COMPENSATION OF DIRECTORS
Mr. Korn in his capacity as Chairman of the Board of the Company currently
receives an annual retainer of $25,000. Throughout 1999, Messrs. Carmichael,
Chamberlain and Schwartz, who are not employees of the Company, received
annual retainers of $10,000 and fees of $1,000 for each Board meeting and $500
for each committee meeting attended, not to exceed one Board meeting and one
committee meeting or two committee meetings on any one day. When a committee
meeting occurs on the same day as a Board meeting or another committee
meeting, the fee for the committee meeting or meetings is reduced to $400 for
each such meeting. In addition, Messrs. Carmichael, and Schwartz, each of whom
serves as a chairman of a committee of the Board, receives a $1,000 annual
retainer. Effective January 1, 2000, the fee structure is as follows. Messrs.
Carmichael, Chamberlain, Miller and Schwartz, who are not employees of the
Company, receive annual retainers of $12,000 and a fee of $1,500 for each
Board meeting and $500 for each committee meeting attended, not to exceed one
Board meeting and one committee meeting or two committee meetings on any one
day. When a committee meeting occurs on the same day as a Board meeting or
another committee meeting, the fee for the committee meeting or meetings is
reduced to $400 for each such meeting. The retainer for committee chairmen
remains unchanged. At the present time, the other directors of the Company who
serve on the Board or any committee thereof receive no compensation for doing
so.
PROPOSAL II--APPROVAL OF 2000 STOCK OPTION PLAN
General
The Board of Directors is proposing for shareholder approval the Cobra
Electronics Corporation 2000 Stock Option Plan (the "Plan"). As of the date of
this Proxy Statement the number of shares available to provide further grants
of stock options under existing Company plans is 122,750. Of these shares,
100,000 are reserved for options to be granted to Mr. Bazet in August 2000
pursuant to the terms of his employment agreement dated May 11, 1999. The
Board of Directors believes that it is in the interest of the Company to
continue its longstanding practice of making stock options available to those
officers and other key employees responsible for significant contributions to
the Company's business. The Board of Directors believes that the equity stake
in the growth and success of the Company afforded by stock options provides
these employees with an incentive to continue to put forth maximum efforts in
applying their talents within the Company. Accordingly, on March 31, 2000, the
Board of Directors unanimously approved the Plan and directed that it be
submitted for approval by the shareholders of the Company.
The purposes of the Plan are (i) to align the interests of the Company's
shareholders and the recipients of options under the Plan by increasing the
proprietary interest of recipients in the Company's growth and success and
(ii) to advance the interests of the Company by attracting and retaining
officers and other employees. Under
3
<PAGE>
the Plan, the Company may grant non-qualified stock options and "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code
of 1986 (the "Code"). Approximately 30 officers and other employees are
eligible to participate in the Plan. On April 7, 2000, the closing sale price
of a share of Common Stock on The Nasdaq National Market was $5.938. Reference
is made to Exhibit A to this Proxy Statement for the complete text of the Plan
which is summarized below.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them FOR approval of the Plan. The Board of Directors recommends a
vote for approval of the Cobra Electronics Corporation 2000 Stock Option Plan.
Description of the Plan
Administration. The Plan will be administered by a committee of the Board
of Directors (the "Committee") consisting of at least two members who may be
"Non-Employee Directors" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934 (the "Exchange Act") and "outside directors" within the
meaning of Section 162(m) of the Code.
Section 162(m) of the Code generally limits to $1 million the amount that a
publicly held corporation is allowed each year to deduct for the compensation
paid to each of the corporation's chief executive officer and the
corporation's four most highly compensated executive officers other than the
chief executive officer, subject to certain exceptions. One such exception is
"qualified performance-based compensation." Compensation attributable to a
stock option is "qualified performance-based compensation" if all of the
following conditions are satisfied: (i) the option is granted by a committee
consisting solely of two or more "outside directors", (ii) the plan under
which the option is granted states the maximum number of shares with respect
to which options may be granted during a specified period to any employee,
(iii) under the terms of the option, the amount of compensation the employee
could receive is based solely on an increase in the value of stock after the
date of grant of the option and (iv) the material terms of the plan under
which the option is granted are disclosed to the publicly held corporation's
shareholders and approved by them before any compensation under the plan is
paid. The Committee which will administer the Plan currently consists solely
of "outside directors" as defined for purposes of Section 162(m) of the Code.
It is expected that the Company generally will seek to satisfy the conditions
described above. If those conditions are satisfied, compensation under the
Plan that is payable with respect to options would not be subject to the $1
million deduction limit under Section 162(m) of the Code.
Subject to the express provisions of the Plan, the Committee has the
authority to select eligible officers and other employees or persons who are
expected to become employees who will receive options and determine all of the
terms and conditions of each option. All options will be evidenced by a
written agreement containing provisions not inconsistent with the Plan as the
Committee approves. The Committee will also have authority to prescribe rules
and regulations for administering the Plan and to decide questions of
interpretation or application of any provision of the Plan.
Available Shares. Under the Plan, 300,000 shares of Common Stock will be
available for grants of options, subject to adjustment in the event of a stock
split, stock dividend, recapitalization, reorganization, merger, spin-off or
other similar event or change in capitalization. To the extent shares subject
to an outstanding option are not issued or delivered because the option
expires, terminates, is cancelled or is forfeited or because shares of Common
Stock are delivered or withheld to pay all or a portion of the exercise price
of the option, or to satisfy all or a portion of the tax withholding
obligations relating to the option, then those shares of Common Stock will
again be available under the Plan. The maximum number of shares of Common
Stock with respect to which options may be granted during any calendar year to
any person is 150,000, subject to adjustment as described above.
Effective Date, Termination and Amendment. If approved by shareholders, the
Plan will become effective as of March 31, 2000 (the date the Plan was
approved by the Board of Directors) and will terminate on March 31, 2010,
unless terminated earlier by the Board of Directors. The Board of Directors
may amend the Plan at any
4
<PAGE>
time, subject to any requirement of shareholder approval required by
applicable law, rule or regulation; provided, however, that no amendment can
be made without stockholder approval if the amendment would (i) increase the
number of shares of Common Stock available under the Plan (other than by
reason of an adjustment as described in the first sentence of the immediately
preceding paragraph), (ii) materially increase the benefits available under
the Plan or (iii) change the class or category of persons eligible to
participate in the Plan.
Exercise of Stock Options. The period for the exercise of a non-qualified
stock option will be determined by the Committee. No incentive stock option
will be exercisable more than ten years after its date of grant, unless the
recipient of the incentive stock option owns greater than ten percent of the
voting power of all shares of capital stock of the Company (a "ten percent
holder"), in which case the option must be exercised within five years after
its date of grant. The exercise price of an option will be determined by the
Committee, but it may not be less than the fair market value of the Common
Stock on the date the option is granted or, if earlier, on the date the
Company agrees to grant the option. The exercise price of an incentive stock
option granted to a ten percent holder will be the price required by the Code,
currently 110% of fair market value. Upon exercise of an option, the purchase
price may be paid in cash or by delivery of previously owned whole shares of
Common Stock.
Termination of Employment. Unless otherwise set forth in the option
agreement, in the event of termination of employment by reason of death, each
non-qualified stock option will be exercisable only to the extent that the
option is exercisable on the date of death, and may thereafter be exercised
for a period of no more than one year (or such other period as set forth in
the option agreement) after the date of death, but in no event after the
expiration of the option.
Unless otherwise set forth in the option agreement, in the event of
termination of employment for any reason other than death, each non-qualified
stock option will be exercisable only to the extent that the option is
exercisable on the date of the termination of employment, and may thereafter
be exercised for a period of no more than three months (or such other period
as set forth in the option agreement) after the date of the termination of
employment, but in no event after the expiration of the option.
Unless otherwise set forth in the option agreement, if an optionee dies
during the three-month period (or such other period as set forth in the option
agreement) following termination of employment for any reason other than
death, each non-qualified stock option will be exercisable only to the extent
that the option is exercisable on the date of death, and may thereafter be
exercised for a period of no more than three months (or such other period as
set forth in the option agreement) after the date of death, but in no event
after the expiration of the option.
In the event of a termination of employment by reason of death or permanent
and total disability (as defined in Section 22(e)(3) of the Code), each
incentive stock option will be exercisable only to the extent that it is
exercisable on the date of the termination of employment, and may thereafter
be exercised for a period of no more than one year (or such shorter period as
set forth in the option agreement) after the termination of employment, but in
no event after the expiration of the incentive stock option.
In the event of a termination of employment for any reason other than death
or permanent and total disability, each incentive stock option will be
exercisable only to the extent that it is exercisable on the date of the
termination of employment, and may thereafter be exercised for a period of no
more than three months after the termination of employment, but in no event
after the expiration of the incentive stock option.
If the holder of an incentive stock option dies during the one-year period
(or such shorter period as set forth in the option agreement) following
termination of employment by reason of permanent and total disability, or
during the three-month period following termination of employment for any
other reason, each incentive stock option will be exercisable only to the
extent that the option is exercisable on the date of death, and may thereafter
be exercised for a period of no more than six months (or such shorter period
as set forth in the option agreement) after the date of death, but in no event
after expiration of the incentive stock option.
5
<PAGE>
Federal Income Tax Consequences
The following is a brief summary of the U.S. federal income tax
consequences generally arising with respect to options granted under the Plan.
An optionee will not recognize any income upon the grant of an option. An
optionee will recognize compensation taxable as ordinary income (and subject
to income tax withholding) upon exercise of a non-qualified stock option equal
to the excess of the fair market value of the shares purchased over their
exercise price, and the Company will be entitled to a corresponding deduction.
An optionee will not recognize income (except for purposes of the alternative
minimum tax) upon exercise of an incentive stock option. If the shares
acquired by exercise of an incentive stock option are held for the longer of
two years from the date the option was granted and one year from the date the
shares were transferred, any gain or loss arising from a subsequent
disposition of those shares will be taxed as long-term capital gain or loss,
and the Company will not be entitled to any deduction. If, however, the shares
are disposed of within the above-described period, then in the year of the
disposition the optionee generally will recognize compensation taxable as
ordinary income equal to the excess of the lesser of (i) the amount realized
upon the disposition and (ii) the fair market value of the shares on the date
of exercise over the exercise price, and the Company will be entitled to a
corresponding deduction.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information as to the beneficial ownership
of Common Stock, as of February 1, 2000, of each of the Company's directors
and director nominees, each person named in the summary compensation table
below and the Company's directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and Nature Percent of
of Beneficial Outstanding
Name Ownership(1) Common Stock
---- ----------------- ------------
<S> <C> <C>
James R. Bazet............................ 115,250(2) 1.9%
William P. Carmichael..................... 20,000 *
James W. Chamberlain...................... 5,000 *
Carl Korn(3).............................. 334,698 5.4%
Gerald M. Laures.......................... 71,900(4) 1.2%
Ian R. Miller............................. -- *
Anthony A. Mirabelli...................... 56,250(5) *
Harold D. Schwartz........................ 24,354(6) *
All directors, director nominees and
executive officers as a group
(8 persons).............................. 627,452 10.2%
</TABLE>
- --------
*Less than 1% of the outstanding Common Stock.
(1) Except as otherwise disclosed, beneficial ownership includes both sole
investment and voting power with respect to the shares indicated.
(2) The amount includes 112,500 shares, which Mr. Bazet may acquire pursuant
to the exercise of stock options.
(3) Mr. Korn's address is 6500 West Cortland Street, Chicago, Illinois 60707
(4) The amount includes 28,000 shares, which Mr. Laures may acquire pursuant
to the exercise of stock options.
(5) The amount consists of 56,250 shares, which Mr. Mirabelli may acquire
pursuant to the exercise of stock options.
(6) The amount shown represents 18,195 shares owned by Chez & Schwartz, Inc.
Profit Sharing Trust and 2,000 shares held by the Chez & Schwartz Pension
Plan, as to both of which Mr. Schwartz is the sole beneficiary, 159 shares
owned by Chez & Schwartz, Inc., of which Mr. Schwartz is President and
sole shareholder, and 4,000 shares held by his spouse.
(7) The amount includes 196,750 which directors and executive officers may
acquire pursuant to the exercise of stock options.
6
<PAGE>
To the knowledge of the Company, as of December 31, 1999, other than Mr.
Korn, the only beneficial owners of more than 5% of the outstanding shares of
Common Stock are as follows:
<TABLE>
<CAPTION>
Amount and Nature Percent of
of Beneficial Outstanding
Name and Address Ownership (1) Common Stock
---------------- ----------------- ------------
<S> <C> <C>
Dimensional Fund Advisors................. 510,850 8.4%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Fidelity Management & Research 599,000 9.8%
Corporation...............................
82 Devonshire Street
Boston, MA 02109-3614
</TABLE>
- --------
(1) Beneficial ownership includes both sole investment and voting power with
respect to the shares indicated.
EXECUTIVE COMPENSATION
The following table sets forth the compensation for services in all
capacities to the Company for the fiscal years ended December 31, 1999, 1998
and 1997 for (i) the chief executive officer of the Company and (ii) each
other executive officer of the Company whose annual salary and bonus exceeded
$100,000 during 1999 (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
--------------- --------------------- All Other
Name and Principal Salary Bonus Securities Underlying Compensation
Position Year ($) ($) Options/SARs (#) ($)(1)
- ------------------ ---- ------- ------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
James R. Bazet.......... 1999 366,057 143,927 100,000 8,000
President and Chief
Executive Officer 1998 353,558 70,000 150,000 3,423
1997 152,212 32,127 150,000 -0-
Gerald M. Laures........ 1999 152,000 45,600 -0- 12,340
Vice President--Finance
and Corporate 1998 142,000 9,940 10,000 9,842
Secretary 1997 130,000 12,927 15,000 9,917
Anthony A. Mirabelli.... 1999 194,000 67,900 -0- 12,800
Senior Vice President,
Marketing and Sales 1998 182,000 12,740 75,000 11,400
1997 152,052 49,710 75,000 10,585
</TABLE>
- --------
(1) Represents the Company's matching contributions under profit sharing and
401(k) plan.
STOCK OPTION GRANTS IN 1999
Shown below is information with respect to grants during 1999 to the Named
Officers of options to purchase Common Stock. No stock appreciation rights
("SARs") were granted in 1999.
<TABLE>
<CAPTION>
Potential
Realizable
Value of
Assumed Annual
Rates of Stock
Price
Securities Percentage of Appreciation
Underlying Total Options/SARs Exercise or for Option Term
Options/SARs Granted to Base Price Expiration ---------------
Name Granted (#) Employees in 1998 ($/share) Date 5% ($) 10% ($)
- ---- ------------ ------------------ ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
James R. Bazet.......... 100,000(1) 100% 4.125 08/01/04 113,966 251,835
</TABLE>
- --------
(1) Option becomes exercisable in annual 25% increments commencing twelve
months after the date of grant.
7
<PAGE>
AGGREGATED OPTION EXERCISES IN 1999 AND
YEAR-END OPTION VALUES
Shown below is information with respect to options excercised during fiscal
year 1999 and unexercised options to purchase Common Stock held by the Named
Officers.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Options December 31, 1999
Number of Shares Value at December 31, 1999 (#) ($)(1)(2)
Underlying Options Received ------------------------- -------------------------
Name Exercised (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James R. Bazet.......... -- -- 112,500 287,500 -- 412,500
Gerald M. Laures........ 25,000 81,250 28,000 17,500 75,938 28,750
Anthony A. Mirabelli.... -- -- 56,250 93,750 126,563 126,563
</TABLE>
- --------
(1) No SARS were outstanding as of December 31, 1999.
(2) Based on the closing price on the Nasdaq National Market on December 31,
1999.
REPORT ON EXECUTIVE COMPENSATION
The members of the Compensation Committee of the Board of Directors and the
Stock Option Plan Committee have furnished the following report on executive
compensation:
The Compensation Committee administers the Company's various incentive
plans, including its annual bonus plan and stock incentive plans, other than
the Company's stock option plans. In addition, the Compensation Committee
reviews with the Board of Directors in detail the compensation of the Named
Officers. The Stock Option Plan Committee administers the Company's stock
option plans.
The compensation policy of the Company, which is endorsed by each
Committee, is designed to align the interests of the Company's executive
officers and key employees with that of the Company's shareholders and to
advance the interests of the Company and its shareholders by attracting and
retaining well-qualified executive officers and key employees. Therefore, it
is the Company's policy that a substantial portion of the incentive
compensation of each Named Officer relates to and must be contingent upon the
performance of the Company, as well as the individual contribution of each
officer. When considering the compensation of the Company's executive
officers, each Committee considers, as applicable, the following factors: (a)
Company performance; (b) the individual performance of each executive officer;
(c) compensation levels for similar positions at comparable companies; (d) the
recommendations of the Chief Executive Officer; (e) in the case of Mr. Bazet,
the terms of his employment agreement dated May 11, 1999 and (f) in the case
of Mr. Mirabelli, the terms of his employment agreement dated January 31,
1997.
Mr. Bazet's salary and bonus are determined pursuant to his employment
agreement. During the period commencing July 28, 1999 and ending July 31,
2000, Mr. Bazet's annual salary is $375,000. During the period commencing
August 1, 2000 and ending July 31, 2001, Mr. Bazet will receive an annual
salary of $390,000. Mr. Bazet's employment agreement provides that he will be
paid an annual bonus of 2.5% of the Company's pretax operating profit.
Accordingly, Mr. Bazet's bonus in respect to 1999 was $143,927.
Mr. Mirabelli's salary and bonus are determined pursuant to his employment
agreement. The agreement provides that Mr. Mirabelli's annual salary is
$194,000 with an annual bonus targeted at 35% of his salary for any year
during which the Company meets or exceeds specified net income targets under
the Approved Profit Plan relating to 1999. The Company did meet the
performance criteria for 1999. Accordingly Mr. Mirabelli's bonus in respect to
1999 was $67,900.
For the other executive officers, base salaries are set at competitive
levels. Salary increases and bonuses are paid based upon both the performance
of the entire Company and individual performance. The Compensation Committee
does not assign any specific weight to any measure of Company or individual
performance.
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The Stock Option Plan Committee may grant options to purchase Common Stock
under the Company's stock option plans to certain key employees. The
Compensation Committee may recommend to the Board of Directors that certain
key employees be granted options to purchase Common Stock under all other
stock incentive plans. The exercise price of each option granted is generally
equal to 100% of the fair market value of the shares on the date of grant and
options granted are generally exercisable commencing twelve months after the
grant date, generally in an amount equal to 25% of the total number of shares
covered during each successive twelve-month period. The Committees believe
that such grants are an important way to link directly the financial interests
of key employees with those of the Company's shareholders. In fiscal year
1999, pursuant to the terms of his employment agreement, Mr. Bazet received
options to purchase 100,000 shares at the exercise price of $4.125 per share.
The foregoing report has been furnished by:
Stock Option Plan Committee: Compensation Committee:
Mr. Carmichael (Chairman) Mr. Schwartz (Chairman)
Mr. Schwartz Mr. Carmichael
Mr. Chamberlain
Mr. Miller
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PERFORMANCE GRAPH
The following Performance Graph compares the yearly percentage change in
the Company's cumulative total shareholder return on the Company's Common
Stock for the five-year period, December 31, 1994 to December 31, 1999, with
the percentage change in the cumulative total return for The Nasdaq Stock
Market (U.S. Companies), which includes the Company, and a peer group of
companies selected by the Company (the "Peer Group").
Companies used to construct the Peer Group index are Koss Corporation,
Audiovox Corporation and Recoton Corporation. In selecting companies for the
Peer Group, the Company focused on publicly traded companies that design and
market electronics products, which have characteristics similar to that of the
Company's in terms of one or more of the following: type of product, end
market, distribution channels, sourcing or sales volume.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
[Performance Graph]
The graph assumes $100 invested on December 31, 1994 in each of the
Company's Common Stock, The Nasdaq Stock Market (U.S. Companies) and the Peer
Group. Reinvestment of dividends, if any, has been assumed. The graph was
plotted using the following data:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Cobra..................... $100.000 $160.000 $180.000 $336.690 $250.026 $263.327
Nasdaq.................... 100.000 141.335 173.892 213.073 300.184 545.672
Peer Group................ 100.000 89.730 81.744 91.627 104.959 444.019
</TABLE>
Note: Sources include The Nasdaq Stock Market, CDA Investment Technologies,
Inc., Standard & Poor's Corporation, and the Securities and Exchange
Commission's EDGAR database.
10
<PAGE>
EMPLOYMENT AGREEMENTS
James R. Bazet Employment Agreement and Deferred Compensation Plan. The
Company has an employment agreement with Mr. Bazet for a term ending July 31,
2004. Mr. Bazet's current annual salary under the agreement is $375,000 plus
an allowance for perquisites of not more than $15,000 annually. He is entitled
to minimum annual salary increases of $15,000 and an annual bonus equal to
2.5% of the Company's operating profit (before taxes), subject to adjustment
for certain non ordinary-course transactions. The agreement provides for the
stock option granted to Mr. Bazet in 1999 and, if he is employed by the
Company on August 1, 2000, a similar option for 100,000 shares to be granted
on that date. These stock options will be exercisable in full in the event of
a change of control of the Company. The agreement also provides for the
Executive Deferred Compensation Plan and related trust described below.
Mr. Bazet will be entitled to receive severance payments equal to his
salary and health and dental insurance benefits through the original term of
the agreement (or, if longer, six months) if the Company terminates his
employment for any reason other than for cause or if the Company does not
timely notify Mr. Bazet of its intention not to renew his employment. He would
also be entitled to receive his bonus for the then current fiscal year. Mr.
Bazet would receive these payments and other benefits if he terminates his
employment with the Company in response to specified changes in his status
with the Company or in the event of a material breach by the Company of its
obligations under the agreement. The Company's obligation to make severance
payments would be reduced to the extent Mr. Bazet receives compensation from
other entities during the severance payment period. If Mr. Bazet dies during
the term of the agreement or becomes disabled, the Company will be obligated
to pay a pro-rated bonus for the then current fiscal year.
The Executive Deferred Compensation Plan was established by the Company to
provide retirement benefits to Mr. Bazet described in his employment
agreement. Mr. Bazet will not begin to vest in his benefits under the plan
unless he remains employed with the Company until August 1, 2001, when he will
be credited with four years of service and be 10% vested. If he remains
employed with the Company, his vested percentage will increase in 10%
increments annually until he has seven years of service and thereafter, his
vested percentage will increase in 20% increments until he is fully vested at
ten years of service (August 1, 2007). His total annual benefits under the
plan will be equal to 60% of his "average annual compensation" (the average of
his salary and bonus for the three years in which that combined amount was the
highest), multiplied by his vested percentage upon termination. If Mr. Bazet
becomes entitled to retirement benefits under the plan, he will receive
benefits for 10 years, plus one year for each year of service in excess of 10
years of service credited to Mr. Bazet, up to a maximum payment period of 15
years.
If Mr. Bazet's employment is terminated by the Company for reasons other
than cause or if he terminates his employment with the Company (i) in response
to specified changes in his status with the Company or (ii) in the event of a
material breach by the Company of its obligations under his employment
agreement before he completes seven years of service, he will be deemed to
have completed seven years of service for purposes of determining his vested
percentage. In addition, Mr. Bazet will be 100% vested if he becomes disabled
or if there is a change of control of the Company. Death benefits are payable
to Mr. Bazet's designated beneficiary if he dies before his accrued benefit is
fully distributed. The Company has established a trust to hold certain assets
that will be used by the Company to fund its liabilities under the plan.
Currently, the only asset held by the trust is a life insurance policy
purchased by the Company in respect of Mr. Bazet's life, which will be used to
fund liabilities under the plan.
Anthony A. Mirabelli Employment Agreement. The Company has an employment
agreement with Mr. Mirabelli for an indefinite term. Mr. Mirabelli's current
annual salary under the agreement is $206,000 plus an allowance for
perquisites of not more than $10,000 annually. He is entitled to minimum
annual salary increases of $12,000 and an annual bonus equal to 35% of his
base salary if certain agreed-upon criteria are satisfied.
If Mr. Mirabelli's employment is terminated other than for cause, he will
be entitled to receive an amount equal to his then current annual salary to be
paid in 26 equal bi-weekly payments and a pro-rated bonus. The Company will,
without regard to the basis for termination, provide a one year continuation
of the then current medical and dental benefits made available to Mr.
Mirabelli and his family. The Company will also provide
11
<PAGE>
specified outplacement benefits. The Company's obligation to make severance
payments would be reduced to the extent Mr. Mirabelli receives compensation
from other entities during the one-year severance payment period.
Deferred Compensation Plan for Select Executives. The Deferred Compensation
Plan for Select Executives was established by the Company to provide
retirement benefits to certain executives selected by the Company. Currently,
the executives covered by the plan are Gerald M. Laures and Anthony A.
Mirabelli. A participant must be credited with at least four years of service
with the Company (beginning on January 1, 1999) to be entitled to any benefits
under the plan. If the participant remains employed with the Company, his
vested percentage will increase in 10% increments annually until he has seven
years of service and thereafter, his vested percentage will increase in 20%
increments until he is fully vested at ten years of service. The total annual
benefits under the plan will be equal to 50% of the participant's "average
annual compensation" (the average of the participant's salary and bonus for
his last three years of employment with the Company), multiplied by his vested
percentage upon termination. If a participant becomes entitled to retirement
benefits under the plan, he will receive benefits for a 10-year period.
A participant will be 100% vested if he becomes disabled or if a change of
control of the Company occurs. In addition, death benefits are payable to a
participant's designated beneficiary in the event the participant dies before
his accrued benefit is fully distributed. Obligations under the plan will be
funded by the cash surrender value of officers' life insurance policies.
CERTAIN TRANSACTIONS
The Company made a bridge loan to Mr. Bazet for the purpose of purchasing a
residence. The loan is in the amount of $80,000 and accrues interest at the
greater of the prime rate or the Company's average weighted interest rate on
its indebtedness for borrowed money. The entire amount of principal and
accrued interest is payable by March 31, 2001. At March 31, 2000, the
outstanding principal and unpaid interest amount to $81,460.
AUDITORS
Deloitte & Touche LLP has been selected by the Board of Directors to serve
as the Company's independent auditors for 2000. The Company expects a
representative of Deloitte & Touche LLP to be present at the 2000 Annual
Meeting of Shareholders and the representative will be given an opportunity to
make a statement and to respond to appropriate questions from shareholders.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of copies of reports of ownership, reports of
changes of ownership and written representations under Section 16(a) of the
Securities Exchange Act of 1934 which were furnished to the Company by persons
who were, at any time during 1999, directors or executive officers of the
Company or beneficial owners of more than 10% of the outstanding shares of
Common Stock, no such persons failed to file on a timely basis reports
required by such Section 16 during or with respect to 1999.
SHAREHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING
In order to be considered for inclusion in the Company's proxy materials
for the 2001 Annual Meeting of Shareholders, a shareholder proposal must be
received by the Company no later than December 15, 2000. In addition,
regardless of whether a shareholder nominee for director or other proposal is
included in the Company's 2001 Proxy Statement as a nominee or proposal to be
considered by shareholders, the Company's Bylaws establish an advance notice
procedure for shareholder nominees and proposals to be brought before the
annual meeting of shareholders. Shareholders at the 2000 Annual Meeting of
Shareholders may consider a nomination
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<PAGE>
or proposal brought by a shareholder of record on April 7, 2000 who is
entitled to vote at the 2000 Annual Meeting and who has given the Company
timely written notice, in proper form, of the shareholder's proposal or
nomination. A shareholder nomination or proposal intended to be brought before
the 2000 Annual Meeting must have been received by the Company after the close
of business on February 1, 2000 and prior to the close of business on February
26, 2000. The Company did not receive notice of any shareholder nomination or
proposal relating to the 2000 Annual Meeting. The 2001 Annual Meeting of
Shareholders is expected to be held on May 8, 2001. A shareholder nomination
or proposal intended to be brought before the 2001 Annual Meeting must be
received by the Company after the close of business on January 29, 2001 and
prior to the close of business on February 23, 2001. All nominations and
proposals should be directed to the attention of Gerald M. Laures, Corporate
Secretary, 6500 West Cortland Street, Chicago, Illinois 60707.
REQUEST TO VOTE, SIGN AND RETURN PROXIES
Whether or not you plan to attend the Annual Meeting of Shareholders on May
9, 2000, please mark, sign, date and return the enclosed proxy card as soon as
possible in the enclosed postage-paid envelope.
OTHER MATTERS
At the date of this Proxy Statement, the Board of Directors is not aware of
any matters, other than the election of Class II directors and the vote on the
Cobra Electronics Corporation 2000 Stock Option Plan, that may be brought
before the 2000 Annual Meeting. However, if any other matters properly come
before the Meeting, it is the intention of the persons named in the enclosed
proxy card to vote that proxy in accordance with their judgment on such
matters. In addition to use of the mails, the Company may also solicit proxies
by telephone, telegraph or similar means. The Company's registrar and transfer
agent, American Stock Transfer & Trust Company, will assist the Company in its
solicitation of proxies and will not receive any additional fee for its
services. Other than American Stock Transfer & Trust Company, no specially
engaged employees or paid solicitors will be used in this solicitation, the
expenses of which will be paid by the Company (such expenses are not expected
to exceed the amount normally expended for an uncontested solicitation in
connection with an election of directors). Officers and other regular
employees of the Company will not receive any additional compensation in
connection with this solicitation.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR 1999 AS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE REQUIRED FINANCIAL
STATEMENTS AND FINANCIAL STATEMENT SCHEDULE, WILL BE FURNISHED WITHOUT CHARGE,
BY FIRST CLASS MAIL, UPON THE WRITTEN OR ORAL REQUEST OF ANY SHAREHOLDER,
INCLUDING ANY BENEFICIAL OWNER ENTITLED TO VOTE AT THE MEETING DIRECTED TO THE
ATTENTION OF GERALD M. LAURES, CORPORATE SECRETARY, 6500 WEST CORTLAND STREET,
CHICAGO, ILLINOIS 60707, TELEPHONE: (773) 889-8870.
By order of the Board of Directors,
Gerald M. Laures
Secretary
Cobra Electronics Corporation
Chicago, Illinois
April 14, 2000
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<PAGE>
EXHIBIT A
COBRA ELECTRONICS CORPORATION 2000 STOCK OPTION PLAN
I. Introduction
1.1 Purposes. The purposes of the 2000 Stock Option Plan (the "Plan") of
Cobra Electronics Corporation (the "Company") and its subsidiaries from time
to time (individually a "Subsidiary" and collectively the "Subsidiaries") are
to align the interests of the Company's stockholders and the recipients of
options under this Plan by increasing the proprietary interest of such
recipients in the Company's growth and success and to advance the interests of
the Company by attracting and retaining officers and other employees. For
purposes of this Plan, references to employment by the Company shall also mean
employment by a Subsidiary.
1.2 Administration. This Plan shall be administered by a committee (the
"Committee") designated by the Board of Directors of the Company (the "Board")
consisting of at least two members of the Board, each of whom may be a "Non-
Employee Director" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and an "outside
director" within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code").
The Committee shall, subject to the terms of this Plan, select eligible
persons for participation in this Plan and determine the number of shares of
common stock, $.33 1/3 par value, of the Company ("Common Stock") subject to
each option granted hereunder, the exercise price of such option, the time and
conditions of exercise of such option and all other terms and conditions of
such option, including, without limitation, the form of the option agreement.
The Committee shall, subject to the terms of this Plan, interpret this Plan
and the application thereof, establish rules and regulations it deems
necessary or desirable for the administration of this Plan and may impose,
incidental to the grant of an option, conditions with respect to the grant,
such as limiting competitive employment or other activities. All such
interpretations, rules, regulations and conditions shall be conclusive and
binding on all parties. Each option hereunder shall be evidenced by a written
agreement (an "Agreement") between the Company and the optionee setting forth
the terms and conditions applicable to such option.
A majority of the Committee shall constitute a quorum. The acts of the
Committee shall be either (i) acts of a majority of the members of the
Committee present at any meeting at which a quorum is present or (ii) acts
approved in writing by all of the members of the Committee without a meeting.
1.3 Eligibility. Participants in this Plan shall consist of such officers
and other employees or persons who are expected to become employees of the
Company and its Subsidiaries as the Committee in its sole discretion may
select from time to time. The Committee's selection of a person to participate
in this Plan at any time shall not require the Committee to select such person
to participate in this Plan at any other time.
1.4 Shares Available. Subject to adjustment as provided in Section 3.7,
300,000 shares of Common Stock shall be available for grants of options under
this Plan. To the extent that shares of Common Stock subject to an outstanding
option are not issued or delivered by reason of the expiration, termination,
cancellation or forfeiture of such option or by reason of the delivery of
shares of Common Stock to pay all or a portion of the exercise price of such
option or to satisfy all or a portion of the tax withholding obligations
relating to such option, then such shares of Common Stock shall again be
available under this Plan.
Shares of Common Stock to be delivered under this Plan shall be made
available from authorized and unissued shares of Common Stock, or authorized
and issued shares of Common Stock reacquired and held as treasury shares or
otherwise, or a combination thereof.
To the extent required by Section 162(m) of the Code and the rules and
regulations thereunder, the maximum number of shares of Common Stock with
respect to which options may be granted during any calendar year to any person
shall be 150,000, subject to adjustment as provided in Section 3.7.
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<PAGE>
II. Stock Options
2.1 Grants Of Stock Options. The Committee may, in its discretion, grant
options to purchase shares of Common Stock to such eligible persons as may be
selected by the Committee. Each option, or portion thereof, that is not an
incentive stock option, shall be a non-qualified stock option. An incentive
stock option shall mean an option to purchase shares of Common Stock that
meets the requirements of Section 422 of the Code, or any successor provision,
which is intended by the Committee to constitute an incentive stock option.
Each incentive stock option shall be granted within ten years of the effective
date of this Plan. To the extent that the aggregate Fair Market Value
(determined as of the date of grant) of shares of Common Stock with respect to
which options designated as incentive stock options are exercisable for the
first time by a participant during any calendar year (under this Plan or any
other plan of the Company, or any parent or Subsidiary) exceeds the amount
(currently $100,000) established by the Code, such options shall constitute
non-qualified stock options. "Fair Market Value" shall mean the closing price
of a share of Common Stock on The Nasdaq Stock Market on the date as of which
such value is being determined or, if there shall be no closing price on such
date, on the next preceding date for which a closing price was reported;
provided, however, that if Fair Market Value for any date cannot be determined
as above provided, Fair Market Value shall be determined by the Committee by
whatever means or method as the Committee, in the good faith exercise of its
discretion, shall at such time deem appropriate.
2.2 Terms Of Stock Options. Options shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as the Committee shall deem
advisable:
(a) Number of Shares and Purchase Price. The number of shares of Common
Stock subject to an option and the purchase price per share of Common Stock
purchasable upon exercise of the option shall be determined by the Committee;
provided, however, that the purchase price per share of Common Stock
purchasable upon exercise of any stock option shall not be less than 100% of
the Fair Market Value of a share of Common Stock on the date of grant of such
option or, if earlier, on the date on which the Company agreed to grant such
option; provided further, that if an incentive stock option shall be granted
to any person who, at the time such option is granted, owns capital stock
possessing more than ten percent of the total combined voting power of all
classes of capital stock of the Company (or of any parent or Subsidiary) (a
"Ten Percent Holder"), the purchase price per share of Common Stock shall be
the price (currently 110% of Fair Market Value) required by the Code in order
to constitute an incentive stock option.
(b) Option Period and Exercisability. The period during which an option may
be exercised shall be determined by the Committee; provided, however, that no
incentive stock option shall be exercised later than ten years after its date
of grant; provided further, that if an incentive stock option shall be granted
to a Ten Percent Holder, such option shall not be exercised later than five
years after its date of grant. The Committee may, in its discretion, establish
performance measures which shall be satisfied or met as a condition to the
grant of an option or to the exercisability of all or a portion of an option.
The Committee shall determine whether an option shall become exercisable in
cumulative or non-cumulative installments and in part or in full at any time.
An exercisable option, or portion thereof, may be exercised only with respect
to whole shares of Common Stock.
(c) Method of Exercise. An option may be exercised (i) by giving written
notice to the Company specifying the number of whole shares of Common Stock to
be purchased and accompanied by payment therefor in full (or arrangement made
for such payment to the Company's satisfaction) either (A) in cash, (B) by
delivery of previously owned whole shares of Common Stock (which the optionee
has held for at least six months prior to the delivery of such shares and for
which the optionee has good title, free and clear of all liens and
encumbrances) having a Fair Market Value, determined as of the date of
exercise, equal to the aggregate purchase price payable by reason of such
exercise, (C) in cash by a broker-dealer acceptable to the Company to whom the
optionee has submitted an irrevocable notice of exercise or (D) a combination
of (A) and (B), in each case to the extent set forth in the Agreement relating
to the option and (ii) by executing such documents as the Company may
reasonably request. The Committee shall have sole discretion to disapprove of
an election pursuant to any
15
<PAGE>
of clauses (B)-(D). Any fraction of a share of Common Stock which would be
required to pay such purchase price shall be disregarded and the remaining
amount due shall be paid in cash by the optionee. No certificate representing
Common Stock shall be delivered until the full purchase price therefor has
been paid.
2.3 Termination Of Employment.
(a) Death. Subject to paragraph (d) below and unless otherwise specified in
the Agreement relating to an option, if an optionee's employment by the
Company terminates by reason of death, each option held by such optionee shall
be exercisable only to the extent that such option is exercisable on the date
of such optionee's death and may thereafter be exercised by such optionee's
executor, administrator, legal representative, beneficiary or similar person,
as the case may be, until and including the earliest to occur of (i) the date
which is one year (or such other period as set forth in the Agreement relating
to such option) after the date of death and (ii) the expiration date of the
term of such option.
(b) Other Termination. Subject to paragraph (d) below and unless otherwise
specified in the Agreement relating to an option, if an optionee's employment
with the Company terminates for any reason other than death, each option held
by such optionee shall be exercisable only to the extent that such option is
exercisable on the effective date of such optionee's termination of employment
and may thereafter be exercised by such optionee (or such optionee's legal
representative or similar person) until and including the earliest to occur of
(i) the date which is three months (or such other period as set forth in the
Agreement relating to such option) after the effective date of such optionee's
termination of employment and (ii) the expiration date of the term of such
option.
(c) Death Following Termination of Employment. Subject to paragraph (d)
below and unless otherwise specified in the Agreement relating to an option,
if an optionee dies during the three-month period (or such other period as set
forth in the Agreement relating to such option) following termination of
employment for any other reason other than death, each option held by such
optionee shall be exercisable only to the extent that such option is
exercisable on the date of such optionee's death and may thereafter be
exercised by such optionee's executor, administrator, legal representative,
beneficiary or similar person, as the case may be, until and including the
earliest to occur of (i) the date which is three months (or such other period
as set forth in the Agreement relating to such option) after the date of death
and (ii) the expiration date of the term of such option.
(d) Termination of Employment--Incentive Stock Options. If the employment
with the Company of a holder of an incentive stock option terminates by reason
of death or Permanent and Total Disability (as defined in Section 22(e)(3) of
the Code), each incentive stock option held by such optionee shall be
exercisable only to the extent that such option is exercisable on the date of
such optionee's death or on the effective date of such optionee's termination
of employment by reason of Permanent and Total Disability, as the case may be,
and may thereafter be exercised by such optionee (or such optionee's executor,
administrator, legal representative, beneficiary or similar person) until and
including the earliest to occur of (i) the date which is one year (or such
shorter period as set forth in the Agreement relating to such option) after
the date of death or the effective date of such optionee's termination of
employment by reason of Permanent and Total Disability, as the case may be,
and (ii) the expiration date of the term of such option.
If the employment with the Company of a holder of an incentive stock option
terminates for any reason other than death or Permanent and Total Disability,
each incentive stock option held by such optionee shall be exercisable only to
the extent such option is exercisable on the effective date of such optionee's
termination of employment, and may thereafter be exercised by such optionee
(or such optionee's legal representative or similar person) until and
including the earliest to occur of (i) the date which is three months after
the effective date of such optionee's termination of employment and (ii) the
expiration date of the term of such option.
If the holder of an incentive stock option dies during the one-year period
following termination of employment by reason of Permanent and Total
Disability (or such shorter period as set forth in the Agreement relating to
such option), or if the holder of an incentive stock option dies during the
three-month period following
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<PAGE>
termination of employment for any reason other than death or Permanent and
Total Disability, each incentive stock option held by such optionee shall be
exercisable only to the extent such option is exercisable on the date of the
optionee's death and may thereafter be exercised by the optionee's executor,
administrator, legal representative, beneficiary or similar person, as the
case may be, until and including the earliest to occur of (i) the date which
is six months (or such shorter period as set forth in the Agreement relating
to such option) after the date of death and (ii) the expiration date of the
term of such option.
III. General
3.1 Effective Date and Term of Plan. This Plan shall be submitted to the
stockholders of the Company for approval and, if approved by the affirmative
vote of a majority of the shares of Common Stock present in person or
represented by proxy at the 2000 Annual Meeting of Stockholders, shall become
effective as of the date of approval by the Board. This Plan shall terminate
ten years after its effective date unless terminated earlier by the Board.
Termination of this Plan shall not affect the terms or conditions of any
option granted prior to termination.
Options may be granted hereunder at any time prior to the termination of
this Plan, provided that no option may be granted later than ten years after
the effective date of this Plan. In the event that this Plan is not approved
by the stockholders of the Company, this Plan and any options granted
hereunder shall be void and of no force or effect.
3.2 Amendments. The Board may amend this Plan as it shall deem advisable,
subject to any requirement of stockholder approval required by applicable law,
rule or regulation, including Section 162(m) of the Code; provided, however,
that no amendment shall be made without stockholder approval if such amendment
would (i) increase the number of shares of Common Stock available under the
Plan (other than by reason of Section 3.7), (ii) materially increase the
benefits available under the Plan or (iii) change the class or category of
persons eligible to participate in the Plan. No amendment may impair the
rights of a holder of an outstanding option without the consent of such
holder.
3.3 Agreement. No option shall be valid until an Agreement is executed by
the Company and the optionee and, upon execution by the Company and the
optionee and delivery of the Agreement to the Company, such option shall be
effective as of the effective date set forth in the Agreement.
3.4 Non-Transferability. No option shall be transferable other than (i) by
will or the laws of descent and distribution or pursuant to beneficiary
designation procedures approved by the Company or (ii) as set forth in the
Agreement relating to an option. Each option may be exercised during the
optionee's lifetime only by the optionee or the optionee's legal
representative or similar person. Except as permitted by the second preceding
sentence, no option shall be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of any option, such option and all rights thereunder shall
immediately become null and void.
3.5 Tax Withholding. The Company shall have the right to require, prior to
the issuance or delivery of any shares of Common Stock, payment by the
optionee of any Federal, state, local or other taxes which may be required to
be withheld or paid in connection with an option hereunder. An Agreement may
provide that the optionee may satisfy any obligation to withhold or pay taxes
arising on any date (the "Tax Date") in connection with the option in the
amount necessary to satisfy any such obligation by any of the following means:
(A) a cash payment to the Company, (B) delivery to the Company of previously
owned whole shares of Common Stock (which the optionee has held for at least
six months prior to the delivery of such shares and for which the optionee has
good title, free and clear of all liens and encumbrances) having an aggregate
Fair Market Value, determined as of the Tax Date, equal to the amount
necessary to satisfy any such obligation, (C) a cash payment by a broker-
dealer acceptable to the Company to whom the optionee has submitted an
irrevocable notice of exercise or (D) a combination of (A) and (B), in each
case to the extent set forth in the Agreement relating to the
17
<PAGE>
option; provided, however, that the Committee shall have sole discretion to
disapprove of an election pursuant to any of clauses (B)-(D). An Agreement may
provide for shares of Common Stock to be delivered having an aggregate Fair
Market Value in excess of the minimum amount required to be withheld, but not
in excess of the amount determined by applying the optionee's maximum marginal
tax rate. Any fraction of a share of Common Stock which would be required to
satisfy such an obligation shall be disregarded and the remaining amount due
shall be paid in cash by the optionee.
3.6 Restrictions on Shares. Each option hereunder shall be subject to the
requirement that if at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock subject to such
option upon any securities exchange or under any law, or the consent or
approval of any governmental body, or the taking of any other action is
necessary or desirable as a condition of, or in connection with, the delivery
of shares thereunder, such shares shall not be delivered unless such listing,
registration, qualification, consent, approval or other action shall have been
effected or obtained, free of any conditions not acceptable to the Company.
The Company may require that certificates evidencing shares of Common Stock
delivered pursuant to any option bear a legend indicating that the sale,
transfer or other disposition thereof by the holder is prohibited except in
compliance with the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
3.7 Adjustment. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Common Stock other than a regular
cash dividend, the number and class of securities available under this Plan,
the number and class of securities subject to each outstanding option and the
purchase price per security shall be appropriately adjusted by the Committee,
such adjustments to be made in the case of outstanding options without an
increase in the aggregate purchase price. The decision of the Committee
regarding any such adjustment shall be final, binding and conclusive. If any
adjustment would result in a fractional security being (i) available under
this Plan, such fractional security shall be disregarded, or (ii) subject to
an option under this Plan, the Company shall pay the optionee, in connection
with the first exercise of the option in whole or in part, occurring after
such adjustment, an amount in cash determined by multiplying (A) the fraction
of such security (rounded to the nearest hundredth) by (B) the excess, if any,
of (x) the Fair Market Value on the exercise date over (y) the exercise price
of the option.
3.8 No Right of Participation or Employment. No person shall have any right
to participate in this Plan. Neither this Plan nor any option granted
hereunder shall confer upon any person any right to continued employment by
the Company, any Subsidiary or any affiliate of the Company or affect in any
manner the right of the Company, any Subsidiary or any affiliate of the
Company to terminate the employment of any person at any time without
liability hereunder.
3.9 Rights as Stockholder. No person shall have any right as a stockholder
of the Company with respect to any shares of Common Stock which are subject to
an option hereunder until such person becomes a stockholder of record with
respect to such shares of Common Stock.
3.10 Governing Law. This Plan, each option hereunder and the related
Agreement, and all determinations made and actions taken pursuant thereto, to
the extent not otherwise governed by the Code or the laws of the United
States, shall be governed by the laws of the State of Delaware and construed
in accordance therewith without giving effect to principles of conflicts of
laws.
Adopted by the Board of Directors on March 31, 2000.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Corporate Overview
Net Sales increased 15% in 1999 while gross margin increased to 25.4% from
23.8% in 1998. As a result, pretax income increased 52% from the prior year.
Inventory levels at December 31, 1999 were $8.7 million compared to $14.2
million at the end of 1998, a 39% reduction. As a result of this, increased
earnings and the fact that the Company pays minimal income taxes because of
its net operating loss carryforwards, short-term debt decreased to $4.1
million at December 31, 1999 versus $14.3 million one year earlier.
Results of Operations
1999 Compared to 1998
Pretax income increased by 52% to $5.8 million in 1999, compared to $3.8
million for the prior year period. Net income for 1999 was $4 million, or
$0.65 per diluted share, compared with net income of $14.2 million or $2.20
per diluted share for the prior year period. If adjusted for the tax rate used
in the current period, net income and diluted earnings per share for 1998's
full year would have been $2.6 million and $0.41, respectively. Net income for
1998 included an income tax benefit of $10.4 million, which was due to the
reversal of Cobra's valuation allowance on its deferred tax assets.
Net sales for 1999 increased 15% to $118.7 million from $103.4 million in
1998. Sales growth, resulted from increased retail distribution and strong
demand for the new microTALK FRS two-way radios and the Company's proprietary
6 Band radar detectors.
Strong sales of FRS two-way radios and radar detectors were partially
offset by a $8.4 million decline in sales of twenty-five channel cordless
telephone products, as the Company exited that business in 1998. FRS two-way
radio sales benefitted from increased distribution of the Company's 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 specialty
stores as new channels of distribution. The increase in radar detector sales
was due to the popularity of the Company's exclusive six-band technology.
These new models, which began shipping at the end of the first quarter of
1998, enabled the Company to expand retail distribution as well as achieve
steady market share gains during the year. International sales were down from
1998 because of significantly lower sales of radar detectors to Russia, but
lower radar detector sales were partially offset by sales of the Company's new
microTALK PMR two-way radios in Great Britain.
Gross margin for 1999 improved to 25.4% from 23.8% in 1998 primarily due to
a greater portion of higher-margin Nightwatch Citizen Band radios, microTALK
two-way radios and 6 Band radar detectors and lower sales of low margin 25
channel cordless phones in the sales mix.
Selling, general and administrative expense increased $3.8 million during
1999 and, as a percentage of net sales, increased to 19.8% from 19.1% in 1998.
Much of the increase was due to higher selling and marketing costs. One reason
for the increase was the $15.3 million increase in sales volume, which
accounted for a $1 million rise in variable selling expenses. Another reason
was a shift in sales mix in 1999 to more domestic sales, which have much
higher selling expenses associated with them compared to international sales.
Also, selling and marketing expenses increased as the Company continued to
invest significantly in new product development, retail account expansion and
distribution 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 were
higher payroll costs, primarily increased bonus expense as a result of the
higher pretax income. Offsetting some of the increase was a decrease in
consulting expense in 1999 versus the prior year as significant consulting
expenses were incurred in 1998 to make the Company's data processing systems
year 2000 compliant.
19
<PAGE>
Interest expense for 1999 decreased to $878,000 from $1.2 million,
primarily because of lower average debt levels, which were driven by reduced
inventory levels, and lower overall interest rates.
The effective tax rate in 1999 was 30.8%. This rate is lower than the
federal statutory rate of 34% primarily due to a permanent difference related
to an increase in the cash surrender value of officer's life insurance. 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 its 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, 1999, the Company had net operating loss carryforwards of $20.1 million.
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 1997'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 percent),
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
distribution and strong demand for the new microTALK FRS two-way radios and
the Company's proprietary 6 Band radar detectors, were up 14 percent from
1997. This helped offset an $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 because 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 specialty stores 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% from 20.7% in 1997 primarily due to
a greater portion of higher-margin SoundTracker Citizen Band 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% from 16.0% 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
20
<PAGE>
development, retail account expansion and distribution 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
worldwide. 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.
Liquidity and Capital Resources
On December 31, 1999, the Company had a $35 million secured credit
agreement with two financial institutions for a three-year revolving credit
facility that expires February 2, 2001. Loans outstanding under the new
agreement bear interest, at the Company's option, at the prime rate or LIBOR
plus 2 percent.
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, 1999, the Company had approximately $22.6 million available under
the credit line.
The Company also has a $4.2 million secured credit agreement with the same
institutions 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 agreement, which expires on August 31, 2000.
Net cash flows from operating activities were $11.5 million for the year
ended December 31, 1999. Operating cash flows were generated principally from
net income of $4 million, depreciation and amortization of $2 million and a
$5.5 million reduction in inventories. Also contributing to the net cash flows
from operating activities were a $1.5 million decrease in receivables and a
$1.4 million increase in accrued liabilities offset by an $1.5 million
increase in other assets and a $2.9 million increase in other current assets.
Inventories decreased mainly because of the strong fourth quarter sales and
lower inventories of cordless telephone products, a business that the Company
exited in 1998. Receivables decreased because of a large payment which was due
at December 31, 1998, but was paid in early January 1999. Accrued liabilities
increased primarily because higher
21
<PAGE>
fourth quarter sales led to higher customer advertising program accruals.
Other assets increased primarily due to an increase in the cash surrender
value of officer's life insurance.
Investing activities required cash of $1.4 million in 1999, principally for
the purchase of tooling and equipment.
Financing activities used cash flows of $10.1 million in 1999, reflecting
net repayments of the Company's borrowings under its line-of-credit agreement,
partially offset by the repurchase of 139,700 shares of Company common stock
for an aggregate cost of $535,660. In August 1998, the Company's Board of
Directors authorized a repurchase of up to $1 million of the Company's common
stock. On May 17, 1999, the Company announced that a second repurchase program
has been approved to acquire up to another $1 million of common stock. Through
December 31, 1999, the Company has repurchased 319,200 shares at an aggregate
cost of $1,218,609.
At December 31, 1999, the Company had no material commitments, other than
approximately $39.7 million in outstanding purchase orders for products
compared with $29.1 million at the end of the prior year.
Working capital requirements are seasonal, with demand for working capital
being higher later in the year as customers begin purchasing for the holiday
selling season. The Company believes that cash generated from operations and
from borrowings under its credit agreement will be sufficient in 2000 to fund
its working capital needs. In addition, the majority of any taxable income in
2000 and the forseeable future will be offset by net operating loss
carryforwards that totaled $20.1 million at December 31, 1999. Until the
Company has utilized its net operating loss carryforwards, the cash payment of
federal income taxes will be minimal.
Year 2000
The Company, with the assistance of an outside consultant, completed its
Year 2000 remediation program during 1999. The program included replacing some
computer hardware and modifying some of the software used in the conduct of
its business. The Company also queried all of its major customers and vendors
as to their preparedness. The responses received indicate that the Company's
major customers and vendors are year 2000 compliant. The final total cost to
the Company of these Year 2000 compliance activities was approximately
$818,000.
To date, the Company has not experienced any significant Year 2000 related
interruptions or failures and does not believe that any of its major customers
or vendors have experienced any such problems that would be expected to have
an adverse impact on the Company's financial condition or results of
operations. Nevertheless, it is possible that Year 2000 related interruptions
or failures could occur in the future.
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 operations.
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, the Company is not aware that any of its major customers have
experienced any Year 2000 related interruptions or failures that would be
expected to have an adverse impact on the Company's financial condition or
results of operations. In the event a major customer is not Year 2000
compliant, the Company believes that such non-compliance would be unlikely to
materially affect the Company's financial condition or results of operations.
22
<PAGE>
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 $4.1
million of debt of the Company outstanding at December 31, 1999. The debt is
priced at interest rates that float with the market, which therefore minimizes
interest rate exposure. A 50 basis point movement in the interest rate on the
floating rate debt would result in an approximately $20,000 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 4.1% of its sales outside the
United States in 1999, 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 acquisitions,
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.
23
<PAGE>
Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
------------------- ------------------ ------------------- --------------------
1999 1998 1999 1998 1999 1998 1999 1998
-------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $ 19,874 $21,172 $26,213 $22,440 $34,346 $26,223 $38,260 $33,579
Cost of sales............ 14,809 16,921 19,700 16,976 26,082 19,720 27,950 25,136
Gross profit............. 5,065 4,251 6,513 5,464 8,264 6,503 10,310 8,443
Selling, general and
administrative expense.. 4,829 3,737 5,091 4,096 6,362 5,300 7,258 6,614
Operating income......... 236 514 1,422 1,368 1,902 1,203 3,052 1,829
Gain on sale of building. -- -- -- -- -- -- -- --
Tax provision (benefit) 23 -- 442 -- 442 -- 867 (10,403)
Net income............... 37 237 833 1,265 885 678 2,228 12,020
Net income per share (a):
Basic................... 0.01 0.04 0.14 0.20 0.15 0.11 .37 1.98
Diluted................. 0.01 0.04 0.14 0.19 0.15 0.11 .36 1.92
Weighted average shares
outstanding:
Basic................... 6,077 6,218 6,019 6,235 5,981 6,210 6,003 6,066
Diluted................. 6,223 6,625 6,122 6,539 6,077 6,383 6,116 6,273
Stock Price:
High.................... 5 1/8 8 5/8 4 5/8 6 3/4 4 1/2 5 5/8 6 3/8 6 1/4
Low..................... 3 1/2 5 5/8 3 4 3/4 3 3 1/2 3 5/32 3 5/8
End of Quarter.......... 3 3/4 6 1/4 4 5 1/16 3 3/16 3 3/4 4 15/16 4 11/16
Trading Volume........... 724 2,931 1,259 2,050 1,077 1,684 2,477 1,304
</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.
FIVE YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales....................... $118,693 $103,414 $104,098 $90,324 $90,442
Gross profit.................... 30,152 24,661 21,551 16,370 16,577
Selling, general and
administrative expense......... 23,540 19,747 16,655 14,374 16,097
Operating income (loss)......... 6,612 4,914 4,896 1,996 480
Gain on sale of building........ -- -- 1,132 -- --
Tax provision (benefit)......... 1,774 (10,403) -- -- --
Net income (loss)............... 3,983 14,200 4,692 601 (1,145)
Net Income (loss) per share:
Basic .......................... 0.66 2.30 0.76 0.10 (0.18)
Diluted......................... 0.55 2.20 0.73 0.10 (0.18)
As of December 31:
Total assets.................... 59,579 64,419 48,279 42,596 50,081
Short-term debt ................ 4,083 14,316 10,995 13,277 19,368
Shareholders' equity............ 41,572 37,496 23,673 18,713 18,174
Book value per share............ 6.80 6.18 3.81 3.29 3.20
Shares outstanding.............. 6,118 6,066 6,218 6,242 6,227
</TABLE>
24
<PAGE>
COBRA ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(in thousands, except per
share amounts)
<S> <C> <C> <C>
Net sales......................................... $118,693 $103,414 $104,098
Cost of sales..................................... 88,541 78,753 82,547
-------- -------- --------
Gross profit...................................... 30,152 24,661 21,551
Selling, general and administrative expense....... 23,540 19,747 16,655
-------- -------- --------
Operating income.................................. 6,612 4,914 4,896
Other income (expense):
Interest expense.................................. (878) (1,204) (1,276)
Gain on sale of building.......................... -- -- 1,132
Other income (expense), net....................... 23 87 (60)
-------- -------- --------
Income before income taxes........................ 5,757 3,797 4,692
Tax provision (benefit)........................... 1,774 (10,403) --
-------- -------- --------
Net income........................................ $ 3,983 $ 14,200 4,692
======== ======== ========
Net income per common share:
Basic........................................... $ .66 $ 2.30 $ 0.76
Diluted......................................... $ .65 $ 2.20 $ 0.73
Weighted average shares outstanding:
Basic........................................... 6,020 6,181 6,207
Diluted......................................... 6,107 6,469 6,459
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
COBRA ELECTRONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At December 31,
------------------
1999 1998
-------- --------
(in thousands,
except share
data)
<S> <C> <C>
ASSETS:
Current assets:
Cash..................................................... $ 93 $ 100
Receivables, less allowances for claims and doubtful
accounts of $1,381 in 1999 and $985 in 1998............. 25,565 27,055
Inventories, primarily finished goods.................... 8,689 14,213
Deferred income taxes.................................... 4,997 6,945
Other current assets..................................... 4,192 1,747
-------- --------
Total current assets................................... 43,536 50,060
-------- --------
Property, plant and equipment, at cost:
Land..................................................... 330 330
Buildings and improvements............................... 3,619 3,614
Tooling and equipment.................................... 13,915 12,765
-------- --------
17,864 16,709
Accumulated depreciation................................. (13,042) (11,960)
-------- --------
Net property, plant and equipment........................ 4,822 4,749
-------- --------
Other assets:
Deferred income taxes.................................... 4,581 4,089
Cash surrender value of officers' life insurance
policies................................................ 5,499 4,553
Other.................................................... 1,141 968
-------- --------
Total other assets..................................... 11,221 9,610
-------- --------
Total assets........................................... $ 59,579 $ 64,419
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable......................................... $ 2,792 $ 3,145
Accrued salaries and commissions......................... 1,326 844
Accrued advertising and sales promotion costs............ 2,800 1,804
Accrued product warranty costs........................... 2,916 2,211
Other accrued liabilities................................ 1,456 2,283
Short-term debt.......................................... 4,083 14,316
-------- --------
Total current liabilities.............................. 15,373 24,603
Deferred compensation...................................... 2,634 2,320
-------- --------
Total liabilities...................................... 18,007 26,923
-------- --------
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 1999 and 1998.......... 2,345 2,345
Paid-in capital.......................................... 20,301 20,799
Retained earnings........................................ 24,455 20,472
-------- --------
47,101 43,616
Treasury stock, at cost (921,009 shares for 1999 and
973,184 shares for 1998)................................ (5,529) (6,120)
-------- --------
Total shareholders' equity............................. 41,572 37,496
-------- --------
Total liabilities and shareholders' equity............. $ 59,579 $ 64,419
======== ========
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
COBRA ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------
1999 1998 1997
-------- -------- -------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ...................................... $ 3,983 $ 14,200 $ 4,692
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization.................. 1,559 1,541 3,198
Deferred taxes................................. 1,456 (10,403) --
Loss (gain) on sale of fixed assets............ 37 (1) (1,132)
Changes in assets and liabilities:
Receivables.................................. 1,490 (11,370) (3,371)
Inventories.................................. 5,524 5,617 (4,412)
Other current assets......................... (2,512) (410) (686)
Other assets................................. (1,356) (1,026) (754)
Accounts payable............................. (353) (492) 302
Accrued liabilities.......................... 1,356 (601) 2,465
Deferred compensation........................ 314 89 238
-------- -------- -------
Net cash flows from (used by) operating
activities...................................... 11,498 (2,856) 540
-------- -------- -------
Cash flows from investing activities:
Proceeds from sale of fixed assets............... -- 1 1,999
Capital expenditures............................. (1,365) (1,579) (1,316)
-------- -------- -------
Net cash flows from (used in) investing
activities...................................... (1,365) (1,578) 683
-------- -------- -------
Cash flows from financing activities:
Net borrowings (repayments) under the line-of-
credit agreement................................ (10,233) 3,321 (2,282)
Transactions related to exercise of stock
options, net.................................... 628 81 268
Transactions related to stock repurchase......... (535) (683) --
-------- -------- -------
Net cash flows from (used in) financing
activities...................................... (10,140) 2,719 (2,014)
Net decrease in cash.............................. (7) (1,715) (791)
Cash at beginning of year......................... 100 1,815 2,606
-------- -------- -------
Cash at end of year............................... $ 93 $ 100 $ 1,815
======== ======== =======
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest....................................... $ 953 $ 1,230 $ 1,274
Income taxes................................... 79 -- 338
Non-cash investing and financing activities:
Tax benefit related to stock options........... -- 225 --
</TABLE>
27
<PAGE>
COBRA ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Three Years Ended December 31, 1999
-------------------------------------------------
Common Paid-In Retaining Treasury Note Rec.
Stock Capital Earnings Stock from Officer
------- ------- --------- -------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance--January 1, 1997....... $ 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) $ --
Net income.................... -- -- 3,983 -- --
Treasury stock purchase........ -- -- -- (535) --
Transactions related to
exercise of options, net..... -- (498) -- 1,126 --
------- ------- ------- ------- ------
$ 2,345 $20,301 $24,455 $(5,529) --
======= ======= ======= ======= ======
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
COBRA ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 1999
(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. Purchases of product from
vendors and sales to international customers are denominated in US dollars to
minimize foreign currency exchange risk.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant intercompany
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>
Building....................................................... 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 $900,000 in 1999 and 1998 and $800,000 in 1997, respectively.
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.
29
<PAGE>
COBRA ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
New Accounting Pronouncements--
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred unless certain capitalization criteria are met. The
effect of this statement does not have a material impact on the Company's
consolidated financial position, results of operations, or cash flows.
In June 1998, the Financial Accounting Standards Board issued 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 also requires changes in the fair
value of derivatives to be recorded each period in current earnings or
comprehensive income depending on the intended use of derivatives. This
statement is effective on the first day of the first fiscal year beginning
after June 15, 2000, or January 1, 2001 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.
(2) TAXES ON INCOME
The provision (benefits) for taxes on earnings for the years ended December
31, 1999, 1998 and 1997 consist of:
<TABLE>
<CAPTION>
1999 1998 1997
------ -------- ------
(in thousands)
<S> <C> <C> <C>
Current:
Federal........................................ $ 318 $ 79 $ 192
State.......................................... -- -- --
------ -------- ------
318 79 192
Deferred:
Federal........................................ 1,128 2,667 1,344
State.......................................... 328 607 304
------ -------- ------
1,456 3,274 1,648
Change in valuation allowance.................... -- (3,353) (1,840)
Reversal of valuation allowance.................. -- (10,403) --
------ -------- ------
Total........................................ $1,774 $(10,403) $ --
====== ======== ======
</TABLE>
Deferred tax assets (liabilities) by component at December 31, 1999 and
1998 were:
<TABLE>
<CAPTION>
1999 1998
------ -------
(in thousands)
<S> <C> <C>
Net operating loss carryforwards......................... $7,760 $10,207
Investment tax credit carryforwards...................... 7 134
Alternative minimum tax credit carryforwards............. 1,400 1,159
Tax lease income......................................... (6,309) (6,872)
Receivable reserves...................................... 305 218
Warranty reserves........................................ 1,198 1,108
Inventory reserves....................................... 455 416
Accrued promotion expenses............................... 2,411 2,144
Sales related reserves................................... 939 681
Compensation reserves.................................... 1,119 1,047
Other, net............................................... 293 792
------ -------
Net deferred tax assets.............................. $9,578 $11,034
====== =======
</TABLE>
30
<PAGE>
COBRA ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, 1999, the Company has net operating loss carryforwards
("NOL") available to offset future taxable income, and alternative minimum tax
credit carryforwards to offset future income tax payments. The alternative
minimum tax credit carryforwards, amounting to $1,400,000 do not expire.
During 1999, $36,000 of investment tax credit carryforwards expired.
The net operating loss carryforward expires as follows (in thousands):
<TABLE>
<CAPTION>
Year of Expiration NOL
------------------ -------
<S> <C>
2000............................. $ --
2007............................. 6,793
2008............................. 9,920
2009............................. 3,355
-------
Total........................ $20,068
=======
</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 rate (34%) is reconciled to the effective
income tax rates as follows: (in thousands)
<TABLE>
<CAPTION>
Description 1999 1998 1997
- ----------- ------ ------- ------
<S> <C> <C> <C>
Income taxes at statutory federal income tax rate...... $1,957 $ 1,291 $1,595
State taxes, net of federal income tax benefit......... 255 178 221
Utilization of net operating loss carryforwards........ -- (1,527) (1,816)
Reversal of the valuation allowance.................... -- (10,403) --
Permanent items........................................ (438) -- --
Other.................................................. -- 58 --
------ ------- ------
Income tax expense (benefit)....................... $1,774 (10,403) $ --
====== ======= ======
</TABLE>
(3) FINANCING ARRANGEMENTS
The Company has a $35 million secured revolving credit facility. In October
1998, the Company and its lenders signed an amendment increasing the credit
line from $35 million to $38.7 million. In August 1999, the
31
<PAGE>
COBRA ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company and its lenders signed an amendment increasing the credit line from
$38.7 million to $39.2 million. Both increases 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, 2000.
Borrowings and letters of credit issued under this agreement are
collateralized by the Company's assets, and usage is limited to certain
percentages of accounts receivable and inventory. Loans outstanding under the
agreement bear interest, at the Company's option, at the prime rate or at
LIBOR plus 2 percent. Outstanding borrowings at December 31, 1999 bear
interest at 8.49%.
Maximum borrowings outstanding at any month-end were $16.2 million and
$27.5 million in 1999 and 1998, respectively. The maximum value of letters of
credit outstanding at any month end were $11.8 million and $7.4 million in
1999 and 1998, respectively. At December 31, 1999, the Company had
approximately $22.6 million available under its unused credit line.
Aggregate average borrowings outstanding were $12.2 million during 1999 and
$15 million during 1998 with weighted average interest rates thereon of 7.84%
and 8.2% during 1999 and 1998, respectively.
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.
(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, 1999 and 1998 was $8.9 million and $5.7 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
agreements 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,
1999 are as follows:
<TABLE>
<CAPTION>
Operating Capital
(in thousands) Leases Leases Total
- -------------- --------- ------- -----
<S> <C> <C> <C>
2000.................................................... $ 78 $42 $120
2001.................................................... 73 -- 73
2002.................................................... 71 -- 71
2003.................................................... 71 -- 71
2004.................................................... 18 -- 18
---- --- ----
Total................................................... $311 $42 $353
==== === ====
</TABLE>
Total rental expense amounted to $57,000 in 1999, $7,000 in 1998 and $6,000
in 1997. Future capital lease rental payments include executory costs of
$8,000, interest expense of $2,000 and principal payments of $32,000, which
are included in other accrued liabilities in the consolidated balance sheet.
32
<PAGE>
COBRA ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(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>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income:
Income available to common
shareholders (thousands).......... $ 3,983 $ 14,200 $ 4,692
Basic earnings per share:
Weighted-average shares
outstanding....................... 6,019,543 6,180,592 6,206,812
Basic earnings per share........... $ 0.66 $ 2.30 $ 0.76
========== ========== ==========
Diluted earnings per share:
Weighted-average shares
outstanding....................... 6,019,543 6,180,592 6,206,812
Dilutive shares issuable in
connection with stock option
plans............................. 494,625 706,750 739,375
Less: shares purchasable with
proceeds.......................... (407,288) (418,645) (487,363)
---------- ---------- ----------
Total............................ 6,106,880 6,468,697 6,458,824
========== ========== ==========
Diluted earnings per share....... $ 0.65 $ 2.20 $ 0.73
========== ========== ==========
</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, "Accounting
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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C>
Net income: As reported $3,983 $14,200 $4,692
Pro forma 3,439 13,545 4,366
Net income per common share:
Basic: As reported $ 0.66 $ 2.30 $ 0.76
Pro forma 0.57 2.19 0.70
Diluted: As reported $ 0.65 $ 2.20 $ 0.73
Pro forma 0.56 2.09 0.68
</TABLE>
33
<PAGE>
COBRA ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 47 percent; risk-free
interest rate of 6 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.......... 250,000 259,625 283,875 500,000 150,000 225,000 525,000
Shares available for
grant at December 31,
1999................... 60,000 40,375 16,125 -0- -0- -0- -0-
Options exercisable at
December 31, 1999...... 37,500 100,625 113,875 214,750 14,875 48,500 375
</TABLE>
A summary of the status of the Plans as of December 31, 1999, 1998 and
1997, and changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ---------------
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.......................... 1,124 $4.39 914 $3.82 935 $3.06
Granted........................ 100 4.13 288 6.36 374 4.46
Exercised...................... (192) 3.36 (28) 2.88 (328) 2.63
Cancellations and Expirations.. ( 5) 2.88 (50) 6.13 (67) 2.65
----- ----- ----- ----- ---- -----
Outstanding at end of year..... 1,027 4.58 1,124 4.39 914 3.82
Options exercisable at year
end........................... 531 518 388
Weighted-average fair value of
options granted during the
year.......................... $2.02 $3.07 $2.20
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Weighted Average Weighted
Number Average Remaining Number Average
Outstanding Exercise Contractual Exercisable Exercise
Range of Exercise Prices (000) Price Life (000) Price
- ------------------------ ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Less than $2............. 17 $1.86 .3 17 $1.86
$2.01 to $3.00........... 155 2.86 1.7 83 2.84
$3.01 to $4.00........... 322 3.67 0.6 285 3.71
$4.01 to $5.00........... 100 4.13 3.6 -- --
$5.01 to $6.00........... 300 5.63 3.1 113 5.63
$6.01 to $7.00........... 95 6.80 3.1 24 6.80
$7.01 to $8.00........... 38 8.00 3.2 9 8.00
----- ----- --- --- -----
Total................ 1,027 4.58 2.1 531 4.13
===== ===== === === =====
</TABLE>
34
<PAGE>
COBRA ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(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 1999, 1998 and 1997 was $245,000, $179,000 and
$169,000, respectively.
As of December 31, 1999 and 1998, deferred compensation of $2.6 million and
$2.3 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, 1999 and
1998. Deferred compensation obligations arise pursuant to outstanding 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, 1999 and 1998, the Company had outstanding inventory
purchase orders with suppliers totaling approximately $39.7 million and $29.1
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 $875,000 at December 31,
1999, assets located outside the United States are not material. International
sales were $4.9 million, $7.4 million and $19.1 million in 1999, 1998 and
1997, respectively. For 1999 and 1998, sales to one particular country were
not material. For 1997, approximately 64% of the international sales were to
customers in Russia. For 1999, sales to one customer totaled 15.7% of
consolidated net sales. For 1998, sales to two customers totaled 12.9% and
11.9% of consolidated net sales. 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 2000. 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 1999, 1998, and 1997, the Company
utilized credits of approximately $2,000, $6,000, and $10,000, respectively.
In 1997, the Company recorded a charge of $1.1 million to reduce the credits
to their estimated net realizable value. The credits had no net carrying value
at December 31, 1999 and 1998.
35
<PAGE>
COBRA ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
(13) OTHER ASSETS
Other assets at December 31, 1999 and 1998 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. See
notes to consolidated financial statements.
36
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Cobra Electronics Corporation
Chicago, Illinois
We have audited the accompanying balance sheets of Cobra Electronics
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Cobra Electronics Corporation
and subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Chicago, Illinois
February 23, 2000
37
<PAGE>
PROXY
COBRA ELECTRONICS CORPORATION
6500 West Cortland, Chicago, IL 60707
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William P. Carmichael and Harold D.
Schwartz as Proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated on the reverse side, all
the shares of common stock of Cobra Electronics Corporation held of record by
the undersigned on April 7, 2000 at the Annual Meeting of Shareholders to be
held on May 9, 2000, or any adjournments thereof.
(To be Signed on Reverse Side)
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Shareholders
COBRA ELECTRONICS CORPORATION
May 9, 2000
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. Please Detach and Mail in the Envelope Provided .
- ------------------------------------------------------------------------------------------------------------------------------------
Please mark your
A [X] votes as in this
example.
<S> <C>
WITHHOLD AUTHORITY
FOR VOTE TO VOTE FOR FOR AGAINST ABSTAIN
1. Election of [_] [_] 2. Approval of 2000 Stock Option Plan. [_] [_] [_]
Directors.
NOMINEES: JAMES W. CHAMBERLAIN 3. In their discretion, the Proxies are authorized to vote upon such other
GERALD M. LAURES business as may properly come before the meeting.
INSTRUCTIONS: To withhold authority This proxy, when properly executed below, will be voted in the manner directed
to vote for any person, ???^ a line herein by the undersigned shareholder. If the direction is made, this proxy will
through the nominee be voted FOR the election of the nominees listed in Item (1) and FOR approval of
the 2000 stock option Plan listed in Item (2).
The Directors recommend a vote FOR the election of the share's nominees to the Board
of Directors.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
SIGNATURE
SIGNATURE _____________________________ DATE___________ (if held jointly) _________________________ DATE __________________________
Note: Please sign exactly as name appears above. When shares are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or as guardian, please give full title as such. If a corporation, please sign in full
corporation name by President or other authorized person. If a partnership, please sign in the partnership name by an
authorized person.
</TABLE>
