SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly
period ended June 30, 1995
OR
[ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the transition period
from ___________ to __________.
0-5860
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(Commission file number)
Recoton Corporation
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(Exact name of registrant as specified in its charter)
New York 11-1771737
------------------------------- -----------------
(State or other jurisdiction of (L.R.S. Employer
incorporation or organization) Identification No.)
2950 Lake Emma Road, Lake Mary, Florida 32746
------------------------------------------------------------
(Address of principal executive offices, including zip code)
407-333-8900
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filings
requirements for the past 90 days.
YES X NO
----- ----
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the most recent
practicable date:
Outstanding as of
Class August 9, 1995
---------------- -----------------
Common stock, par
value $.20 a share 10,693,923
PART I - FINANCIAL INFORMATION
<PAGE>
Item 1. Financial Statements
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1995 1994
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 13,705,825 $ 15,475,022
Accounts receivable (less allowance for
possible loss of $1,153,000 in 1995 and
$989,000 in 1994) 28,631,841 35,579,805
Inventories 48,091,940 43,669,443
Prepaid expenses and other current assets 4,090,304 4,299,719
Total current assets 94,519,910 99,023,989
Property and equipment (less accumulated
depreciation and amortization of $6,726,658
in 1995 and $5,854,299 in 1994) 16,588,879 12,947,992
Other assets 7,650,200 6,791,750
T O T A L $118,758,989 $118,763,731
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 870,311 $ 863,471
Accounts payable 7,708,630 8,944,083
Accrued expenses 2,259,207 4,117,191
Income taxes payable 1,677,588 1,876,398
Total current liabilities 12,515,736 15,801,143
Long-term debt (less current portion above) 4,783,998 5,220,899
Deferred compensation and other noncurrent
liabilities 927,632 1,108,222
Total liabilities 18,227,366 22,130,264
STOCKHOLDERS' EQUITY
Preferred stock - $1.00 par value each -
authorized 10,000,000 shares; none issued -- --
Common stock - $.20 par value each - authorized
25,000,000 shares; issued 11,813,868 shares in
1995 and 11,793,198 shares in 1994 2,362,774 2,358,640
Additional paid-in capital 64,488,193 64,393,649
Retained earnings 38,344,879 33,744,271
Cumulative foreign currency translation
adjustment (293,451) (380,624)
104,902,395 100,115,936
Treasury stock - 1,128,011 shares in 1995 and
1,073,859 shares in 1994, at cost (4,370,772) (3,482,469)
Total stockholders' equity 100,531,623 96,633,467
T O T A L $118,758,989 $118,763,731
The attached notes are made a part hereof.
</TABLE>
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $42,527,744 $34,221,362 $79,481,225 $63,266,094
Cost of goods sold 27,233,105 20,109,833 50,028,069 37,043,565
Gross profit 15,294,639 14,111,529 29,453,156 26,222,529
Selling, general and
administrative expenses 12,117,080 11,227,078 23,574,113 20,821,023
Interest expense 56,151 141,404 129,125 434,125
Investment (income) (214,342) (211,703) (419,691) (214,864)
T o t a l 11,958,889 11,156,779 23,283,547 21,040,284
Income before income taxes 3,335,750 2,954,750 6,169,609 5,182,245
Income tax provision 865,000 829,000 1,569,000 1,587,000
NET INCOME $ 2,470,750 $ 2,125,750 $ 4,600,609 $ 3,595,245
Earnings per common share:
Primary $.22 $.19 $.41 $.36
Assuming full dilution $.22 $.19 $.41 $.36
Number of shares used in
computing per share amounts:
Primary 11,200,000 11,127,000 11,201,000 9,897,000
Assuming full dilution 11,273,000 11,135,000 11,285,000 9,909,000
Dividends NONE NONE NONE NONE
</TABLE>
The attached notes are made a part hereof.
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,600,609 $ 3,595,245
Adjustments to reconcile results of operations
to net cash provided by operating activities:
Depreciation and amortization 1,405,790 1,201,270
Provision for losses on accounts receivable 218,260 118,602
Deferred income taxes (166,700) (175,000)
Net change in asset and liability accounts:
Accounts receivable 6,940,192 6,239,131
Inventory (3,986,509) (15,998,980)
Prepaid expenses and other current assets 645 (2,149,645)
Other assets (316,141) (5,470)
Accounts payable and accrued expenses (3,616,203) 3,744,653
Income taxes payable (165,195) 133,925
Deferred compensation and other noncurrent
liabilities 24,218 (15,001)
Total adjustments 338,357 (6,906,515)
Net cash used for operating activities 4,938,966 (3,311,270)
Cash flows from investing activities:
Expenditures for property and equipment (4,553,145) (2,879,143)
Expenditures for trademarks, patents and
intellectual property (414,250) (51,155)
Net assets acquired from Ampersand (711,887)
Net cash used for investing activities (5,679,282) (2,930,298)
Cash flows from financing activities:
Net repayments under credit agreements (20,800,000)
Repayment of long-term bank borrowings (430,061) (872,675)
Proceeds from public offering of common stock 46,527,098
Income tax benefit applicable to exercise
of stock options 2,300 473,200
Proceeds from exercise of stock options 70,592 90,444
Purchases of treasury stock (668,517) (49,311)
Net cash provided by (used for)
financing activities (1,025,686) 25,368,756
Effect of foreign exchange rate changes on cash (3,195) (24,179)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(CARRIED FORWARD) (1,769,197) 19,103,009
</TABLE>
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
-2-
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(BROUGHT FORWARD) $(1,769,197) $19,103,009
Cash and cash equivalents - January 1 15,475,022 4,187,555
CASH AND CASH EQUIVALENTS - JUNE 30 $13,705,825 $23,290,564
Supplemental disclosures of cash paid for:
Interest $ 227,125 $ 465,353
Income taxes $ 1,893,237 $ 1,159,585
</TABLE>
Noncash financing activities:
In connection with the exercise of incentive stock options in
1995, 9,602 shares of common stock were issued in exchange for
1,540 shares of previously issued common stock with a market
value of $25,786.
In April 1995, 11,896 shares of treasury stock with a market
value of $194,000 were acquired in consideration for the
cancellation of a loan receivable.
The attached notes are made a part hereof.
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE A - The attached summarized financial information does not
include all disclosures required to be included in a complete
set of financial statements prepared in conformity with
generally accepted accounting principles. Such disclosures were
included with the consolidated financial statements of the
Company at December 31, 1994, included in its annual report.
Such statements should be read in conjunction with the data
herein.
NOTE B - The financial information reflects all normal recurring
adjustments which, in the opinion of management, are deemed
necessary for a fair presentation of the results for the interim
periods. The results for the interim periods are not
necessarily indicative of the results to be expected for the
year. Historically, the Company's sales and earnings have been
higher in the second half of each year.
NOTE C - Inventory at June 30, 1995 is comprised of:
Raw materials and work-in-process $15,276,019
Finished goods 27,585,482
Merchandise in-transit 5,230,439
T o t a l $48,091,940
NOTE D - Segment Information:
Information applicable to the Company's foreign
operations in Hong Kong and Canada for the three and six months
ended June 30, 1995 is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1995
Consolidated U.S. Hong Kong Canada
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Net sales $ 42,527,744 $ 34,363,960 $ 4,825,155 $3,338,629
Pre-tax income $ 3,335,750 $ 1,393,544 $ 1,847,597 $ 94,609
Six Months Ended June 30,1995
Consolidated U.S. Hong Kong Canada
------------ ------------ ----------- ----------
Net sales $ 79,481,225 $ 63,843,486 $ 9,574,640 $6,063,099
Pre-tax income $ 6,169,609 $ 2,591,737 $ 3,529,898 $ 47,974
Identifiable
assets at
June 30, 1995 $118,758,989 $ 99,625,777 $11,373,081 $7,760,131
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Comparison of the quarters ended June 30, 1995 and 1994 and the
six-month periods ended June 30, 1995 and 1994:
Results of Operations
Net sales for the second quarter of 1995 increased by 24% to
$42,528,000 from $34,221,000 in the same period in 1994. For the
six-month period, net sales increased by 26% to $79,481,000 in
1995 from $63,266,000 in 1994. The sales increase is
attributable to increased unit sales of the Company's various
consumer electronics product lines, continued growth of the
Company's 900 MHz wireless products, growth in new product areas
including cellular phones and computer accessories, sales
generated by the Sound Quest and Ampersand product lines, which
began contributing to Company sales in 1995, and strong increases
in Recoton Canada's and Recoton Far East's OEM product sales.
Gross profit increased by approximately $3,231,000 in the
first six months of 1995 as compared to the comparable period in
1994, but decreased as a percentage of net sales from 41.5% to
37.1%. The percentage decrease was due primarily to a change in
product mix, including sales of newly introduced cellular phone
and remote control products; increased sales of OEM products,
which, compared to sales to retail customers, typically carry
lower gross margins, yet have lower associated selling expenses;
and, to a lesser extent, aggressive pricing aimed at capturing
increased market share.
Selling, general and administrative expenses increased in
1995 primarily because of selling expenses related to the
increased sales volume. However, overall selling, general and
administrative expenses as a percent of net sales decreased by
3.2% and 4.3% respectively, as compared to the same six-month and
three-month periods in 1994. The percentage decreases were due
to the increased proportion of sales to OEM customers and
increased operating efficiencies.
Interest expense decreased by approximately $305,000 in the
first six months of 1995 due to the repayment of short-term
borrowings from the proceeds of the public offering of the
Company's Common Stock concluded in April 1994.
Investment income increased by approximately $205,000 in the
first six months of 1995. The increase in investment income
resulted from the investment of a portion of the proceeds from
the public offering of the Company's Common Stock in short-term
treasury bills.
The effective income tax rate for the six-month period ended
June 30, 1995 decreased to 25.4% from 30.6% in 1994 as a result
primarily from the higher proportion of income earned by the
Company's Hong Kong subsidiary, which is taxed at 16.5%.
Earnings per share were $.41 on both a primary and fully-
diluted basis for the six months ended June 30, 1995 based on
11,201,000 (11,285,000 on a fully-diluted basis) average shares
outstanding. For the comparable six months of 1994, earnings per
share were $.36 on both a primary and fully-diluted basis based
on 9,879,000 (9,909,000 on a fully-diluted basis) average shares
outstanding. The increase in average shares outstanding in
1995 primarily results from the 1,740,000 shares sold in the
public offering of the Company's Common Stock in April 1994.
As a result of the offering the Company's outstanding common
stock increased by approximately 33%.
Liquidity and Capital Resources
Prior to April 1994, the Company had obtained the funds for
increases in working capital, capital expenditures and
acquisitions primarily from cash flow from operations, short-term
bank lines of credit, long-term financing and normal trade
credit. In April 1994, the Company completed a public offering
of 1,740,000 shares of Common Stock, raising net proceeds of
approximately $46.5 million. The Company immediately repaid all
outstanding short-term bank debt. The Company continues to
maintain lines of credit of $45 million with three banks, plus
another $5 million line of credit which can only be used for
acquisition purposes, any of which may be terminated by such
banks at any time.
At June 30, 1995, the Company had working capital of
approximately $82.0 million as compared to approximately $83.2
million at December 31, 1994. The significant changes in the
components of working capital are the increase in inventories of
approximately $4.4 million and the reduction in current
liabilities of approximately $3.3 million which were funded by
the $6.9 million reduction in accounts receivable. The increased
investment in inventory results from the introduction of new
products, recently acquired product lines, and anticipated
increases in sales volume. The reduction in receivables is due
to seasonality. The Company's working capital ratio has
increased to 7.6 to 1 at June 30, 1995 from 6.3 to 1 at December
31, 1994.
In June and August of 1994, the Company purchased
approximately 30 acres of land in Lake Mary, Florida on which it
is constructing a new 245,000 square foot warehouse building.
The estimated cost for the land and building construction is
approximately $6 million of which approximately $4.48 million had
been incurred as of June 30, 1995. The Company intends to
finance the completion of the warehouse construction primarily
through existing cash resources.
In August 1994, the Board of Directors authorized the
repurchase by the Company of up to 500,000 shares of its
outstanding Common Stock. In December 1994, 4,000 shares were
repurchased for $68,000 and, in February 1995, an additional
40,000 shares were repurchased for $655,000.
In September 1994, Recoton purchased selected assets and
assumed certain liabilities of Sound Quest, Inc., a leading
supplier of car audio installation and accessory products, for a
purchase price of approximately $2.5 million plus additional
contingent payments over five years, not to exceed $1.15 million.
After this acquisition, Sound Quest's assumed bank loans of
approximately $1.175 million were repaid.
In February 1995, Recoton purchased selected assets of
Ampersand, a division of Ampco Industries, Inc., of Chatsworth,
California, at a cost of approximately $722,000. Ampersand is a
manufacturer and supplier of car stereo installation accessories.
In April 1995, Recoton announced the formation of a
subsidiary corporation named Christie Design Corporation
(formerly The Audio Group, Inc.) which is located in Chatsworth,
California. The wholly-owned subsidiary will develop and market
speaker products. The Company anticipates that it will have to
provide approximately $750,000 start-up costs for this
subsidiary.
In May 1995, Recoton announced that it had signed a letter
of intent to purchase STD Holding Limited, a Hong Kong based
international manufacturer and marketer of multimedia and
computer accessories, including video game joy sticks,
controllers and accessories and computer speakers sold under the
Interact and Performance brand names. While the definitive
purchase agreement hasn't been executed, the Company anticipates
a closing by late August or early September. While not
finalized, the Company anticipates that the payment of the
purchase price will be some combination of Recoton's stock and
cash. The cash portion of the payout will initially be borrowed
under existing bank lines of credit, which the Company intends to
subsequently replace by term financing.
The Company has no other material commitments for capital
expenditures, although it will continue to evaluate possible
acquisitions which may be attractive to the growth of the
Company.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
(a) Strand Services Corp. v. Recoton Corp., et. al. As
noted in the Company's Form 10-Q for the quarter ended March 31,
1995 a stipulation dismissing the action, without prejudice, had
been executed by both parties in May 1995 and was being submitted
to the Court for its approval. Such dismissal was approved by
the Court on May 24, 1995. Pursuant to the stipulation, the
action was dismissed without prejudice to any later re-filing by
the plaintiff and all applicable statutes of limitations as
respects the plaintiff are tolled from July 22, 1994 (the date
the action was commenced) until December 31, 1995 for the claims
alleged in the complaint.
(b) Recoton Corporation v. Chase Technologies, Inc. By
complaint filed June 2 1995, the Corporation commenced suit in
the United States District Court for the Middle District of
Florida against Chase Technologies, Inc. and its parent Home
Theater Products International, Inc. for infringement of a patent
held by the Corporation covering aspects of 900 MHz wireless
speaker technology and for violation of the Lanham Act arising
from the use of confusingly similar trade dress. Home Theater
has initiated suit against the Corporation in California
contending that the Chase products do not infringe such patent
and, alternatively, that Recoton's patent is invalid. The
Corporation intends to vigorously enforce its rights under its
patent and defend the California suit.
(c) Recoton Corporation v. Gemini Industries, Inc. By
complaint filed August 8, 1995, the Corporation commenced suit in
the United States District Court for the Middle District of
Florida against Gemini Industries, Inc. for infringement by
Gemini of a patent held by the Corporation on the CD-20 CD-to-
cassette adapter, seeking a judgement of infringement, a
preliminary injunction, compensatory damages and enhanced
damages, among other remedies.
Item 4. Submission of Matters to a Vote of Security-Holders
The Annual Meeting of the Shareholders of the Corporation
was held on June 19, 1995. Each of the three candidates for the
position of director, Messrs. Irwin S. Friedman, Joseph M. Idy
and Joseph H. Massot, were elected. The directors whose term of
office continued after the meeting were Messrs. Herbert
Borchardt, Robert L. Borchardt, George Calvi, Ronald McPherson,
Stuart Mont and Peter Wish.
The matters voted upon at the meeting and the number of
votes cast for, against or withheld (including abstentions and
broker non-votes) as to each matter, including nominees for
office, are as follows:
1. Director election:
Irwin S. Friedman
For: 9,640,762
Withhold Authority: 409,620
Joseph M. Idy
For: 9,641,578
Withhold Authority: 408,804
Joseph H. Massot
For: 9,698,939
Withhold Authority: 351,443
2. Authorization of an increase in Common Stock to
25,000,000 shares
For: 9,416,731
Against: 617,749
Abstain: 15,902
Nonvote: 0
3. Authorization of a Class of Series
Preferred Stock
For: 6,035,940
Against: 2,860,833
Abstain: 32,947
Nonvote: 1,120,662
4. Approval of an amendment to the 1991 Stock Option Plan
For: 5,830,639
Against: 3,108,698
Abstain: 58,834
Nonvote: 1,052,211
5. Ratification of the appointment of Cornick, Garber &
Sandler as Independent Auditors for the Fiscal Year
Ending December 31, 1995
For: 9,973,700
Against: 31,052
Abstain: 45,630
Nonvote: 0
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(3) Composite Certificate of Incorporation of
Recoton Corporation, as amended July 25, 1995
(10)(1) Amendment to the 1991 Stock Option Plan,
executed June 19, 1995
(b) Reports on Form 8-K: None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
RECOTON CORPORATION
Date: August 14, 1995 /s/ Robert L. Borchardt
Robert L. Borchardt
Co-Chairman of the Board,
Co-Chief Executive
Officer and President
Date: August 14, 1995 /s/ Stuart Mont
Stuart Mont
Chief Operating Officer,
Executive Vice President
- Operations, Chief
Financial Officer and
Secretary
EXHIBIT INDEX
Number Description
(3) Composite Certificate of Incorporation of
Recoton Corporation, as amended July 25, 1995
(10)(1) Amendment to the 1991 Stock Option Plan,
executed June 19, 1995
(27) Financial Data Schedule
EXHIBIT (3)
COMPOSITE
CERTIFICATE OF INCORPORATION
OF
RECOTON CORPORATION
(as amended July 25, 1995)
Under the New York Business Corporation Law
1. The name of the Corporation is Recoton Corporation.
2. The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized
under the Business Corporation Law of the State of New York.
Notwithstanding the foregoing sentence, the Corporation will not
engage in any act or activity requiring the consent or approval
of any official, department, board or body of the State of New
York without first obtaining such consent or approval.
3. The aggregate number of shares which the Corporation
shall have the authority to issue is thirty five million
(35,000,000), which are divided into ten million (10,000,000)
Preferred Shares of a par value of $1.00 per share and twenty
five million (25,000,000) Common Shares of a par value of $.20
per share. The relative rights, preferences and limitations of
the shares of each class are as follows:
(a) The Preferred Shares authorized hereby may be
issued (i) in such series and with such voting powers,
full or limited, or no voting powers, and such designa-
tions, preferences and relative participating, optional
or other special rights, and with such qualifications,
limitations or restrictions thereon, as the Board of
Directors shall fix by resolution, and (ii) in such
number of shares in each series as the Board of
Directors shall fix by resolution provided that the
aggregate number of all Preferred Shares issued does
not exceed the number of Preferred Shares authorized
hereby.
(b) Holders of Common Shares shall be entitled to
such dividend, liquidation and voting rights and
privileges as are provided by the Business Corporation
Law, subject to the rights of holders of Preferred
Shares issued pursuant to paragraph (a) above."
4. The capital of the Corporation shall be at least equal
to the sum of the aggregate in value of all issued shares having
par value plus the aggregate amount of consideration received by
the Corporation for the issuance of shares without par value plus
such amounts as, from time to time, by resolution of the Board of
Directors may be transferred thereto.
5. The Corporation may issue and may sell its authorized
shares without par value whether now or hereafter authorized from
time to time, for such consideration as shall be the fair market
value of such shares, and in the absence of fraud in the
transaction, the judgment of the Board of Directors, as to the
value received therefore, shall be conclusive, or in the absence
of fraud in the transaction for such consideration as, from time
to time, may be fixed by the Board of Directors shall be
consented to by a majority of the stockholders entitled to vote
thereon at a meeting called for that purpose in accordance with
the By-laws; and any and all shares so issued shall be fully paid
and non-assessable.
6. The Secretary of the State of the State of New York is
hereby designated as the agent of the Corporation upon whom
process in any action or proceeding against it may be served; the
office of the Corporation shall be located in the County of
Queens, City and State of New York and the address to which the
Secretary of State shall mail a copy of process in any action or
proceeding against the Corporation shall be 46-23 Crane Street,
Long Island, New York 11101.
7. The duration of the Corporation is to be perpetual.
8. Board of Directors
(a) Number, election and terms. The number of
directors constituting the entire Board of Directors shall
be not less than nine nor more than fifteen persons. The
exact number of directors within the minimum and maximum
limitations specified in the preceding sentence and the
initial term of office of such directors shall be fixed from
time to time by the Board of Directors pursuant to a
resolution adopted by a majority of the entire Board of
Directors. At the 1985 Annual Meeting of Shareholders, the
directors shall be divided into three classes, as nearly
equal in number as possible, with the term of office of the
first class to expire at the 1986 Annual Meeting of
Shareholders, the term of office of the second class to
expire at the third class to expire of the 1988 Annual
Meeting of Shareholders. At each Annual Meeting of
Shareholders following such initial classification and
election, directors elected to succeed those to expire at
the third succeeding Annual Meeting of Shareholders after
their election.
(b) Newly created directorships and vacancies. Newly
created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board
of Directors resulting from death, resignation, retirement,
disqualification, removal from office or the cause shall be
filled by a majority vote of the directors then in office,
and directors so chosen shall hold office for a term
expiring at the Annual Meeting of Shareholder at which the
term of the class to which they have been elected expires.
(c) Removal. A director may be removed from office
only for cause and only by the affirmative vote of the
holders of at least 80% of the voting power of all of the
shares of the Corporation entitled to vote for the election
of directors.
(d) Amendment, repeal, etc. Notwithstanding anything
contained in this Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least
80% of the voting power of all of the shares of the
Corporation entitled to vote for the election of directors
shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article 8.
9. No holder of shares of the Corporation of any class now
or hereafter authorized shall have any preferential or preemptive
right to subscribe for, purchase or receive any shares of the
Corporation of any class, now or hereafter authorized, or any
options or warrants for such shares, or any rights to subscribe
to or purchase such shares or any securities convertible into or
exchangeable for such shares, which may at any time be issued,
sold or offered for sale by the Corporation.
10. Certain Business Combinations.
Section 1. Vote Required for Certain Business
Combinations.
A. Higher Vote for Certain Business Combinations. In
addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly
provided in Section 2 of this Article 10:
(i) any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with (a) any
Interested Shareholder (as hereinafter defined) or (b) any
other corporation (whether or not itself an Interested
Shareholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an
Interested Shareholder; or
(ii) any plan of exchange for all outstanding shares of
the Corporation or any Subsidiary or for any class of shares
of the Corporation or any Subsidiary with (a) any Interested
Shareholder or (b) any other person (whether or not itself
an Interested Shareholder) which is, or after such plan of
exchange would be, an Affiliate of an Interested
Shareholder; or
(iii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a
series of transactions) to or with any Interested
Shareholder or any Affiliate of any Interested Shareholder
or any Affiliate of any Interested Shareholder of any assets
of the Corporation or any Subsidiary, constituting more than
20% of the Fair Market Value (as hereinafter defined) of 20%
or more of the total assets of the entity involved; or
(iv) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions)
or any securities of the Corporation or any Subsidiary to
any Interested Shareholder or any Affiliate of any
Interested Shareholder in exchange for cash, securities or
other property (or a combination thereof) having an
aggregate Fair Market Value of $1,000,000 or more; or
(v) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or
on behalf of an Interested Shareholder or any Affiliate of
any Interested Shareholder; or
(vi) any reclassification of securities (including any
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise
involving an Interested Shareholder) which has the effect,
directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity
securities of the Corporation or any Subsidiary which is
directly or indirectly owned by any Interested Shareholder
or any Affiliate of any Interested Shareholder;
shall require the affirmative vote of the holders of at least 80%
of the voting power of the then outstanding shares of capital
stock of the Corporation entitled to vote generally in the
election of directors (the "Voting Stock"), voting together as a
single class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a
lesser percentage may be specified, by law or otherwise.
B. Definition of "Business Combination". The term
"Business Combination" as used in this Article 10 shall mean any
transaction which is referred to in any one or more of clauses
(i) through (vi) of paragraph A of this Section 1.
Section 2. When Higher Vote is Note Required. The
provisions of Section 1 of this Article 10 shall not be
applicable to any particular Business Combination, and such
Business Combination shall require only such affirmative vote as
is required by law and any other provision of this Certificate of
Incorporation, if all of the conditions specified in either of
the following paragraphs A and B are met:
A. Approval by Directors. The Business Combination shall
have been approved by the Disinterested Directors (as hereinafter
defined), it being understood that this condition shall not be
capable of satisfaction unless there is at least one
Disinterested Director.
B. Price and Procedural Requirements. All of the
following conditions shall have been met:
(i) The aggregate amount of the cash and the Fair
Market Value (as hereinafter defined) as of the date of the
consummation of the Business Combination of consideration
other than cash to be received per share by holders of
Common Stock in such Business Combination shall be at least
equal to the highest of the following:
(a) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes
and soliciting dealers; fees) paid by the Interested
Shareholder for any shares of Common Stock acquired by
it (1) within the two-year period immediately prior to
the first public announcement of the proposal of the
Business Combination (the "Announcement Date") or (2)
in the transaction in which it became an Interested
Shareholder, whichever is higher;
(b) the Fair Market Value per share of Common
Stock on the Announcement Date or on the date on which
the Interested Shareholder became an Interested
Shareholder (such latter date is referred to in this
Article 10 as the "Determination Date"), whichever is
higher; and
(c) (if applicable) the price per share equal to
the Fair Market Value per share of Common Stock
determined pursuant to paragraph B(i)(b) above,
multiplied by the ration of (1) the highest pr share
(including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by the Interested
Shareholder for any shares of Common Stock acquired by
it within the two-year period immediately prior to the
Announcement Date to (2) the Fair Market Value per
share of Common Stock on the first day in such two-year
period upon which the Interested Shareholder acquired
any shares of Common Stock.
(ii) The aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by holders of shares of any other class
of outstanding Voting Stock (other than Institutional Voting
Stock, as hereinafter defined) shall be at least equal to
the highest of the following (it being intended that the
requirements of this paragraph B(ii) shall be required to be
met with respect to every class of outstanding Voting Stock
(other than Institutional Voting Stock), whether or not the
Interested Shareholder has previously acquired any shares of
a particular class of Voting Stock):
(a) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by the Interested
Shareholder for any shares of such class of Voting
Stock acquired by it (l) within the two-year period
immediately prior to the Announcement Date or (2) in
the transaction in which it became an interested
Shareholder, whichever is higher;
(b) (if applicable) the highest preferential
amount per share to which the holders of shares of such
class of Voting Stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution or
winding up of the Corporation;
(c) the Fair Market Value per share of such class
of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher; and
(d) (if applicable) the price per share equal to
the Fair Market Value per share of such class of Voting
Stock determined pursuant to paragraph B(ii) (c) above,
multiplied by the ratio of (l) the highest per share
price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by the
interested Shareholder for any shares of such class of
Voting Stock acquired by it within the two-year period
immediately prior to the Announcement Date to (2) the
Fair Market Value per share of such class of Voting
Stock on the first day in such two-year period upon
which the interested Shareholder acquired any shares of
such class of Voting Stock.
(iii) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as the
interested Shareholder has previously paid for shares of
such class of Voting Stock. if the interested Shareholder
has paid for shares of Common Stock with varying forms of
consideration, the form of consideration for Common Stock
shall be either cash or the form used to acquire the largest
number of shares of Common Stock previously acquired by it.
(iv) After such interested Shareholder has become an
interested Shareholder and prior to the consummation of such
Business Combination, such interested Shareholder shall have
not become the beneficial owner of any additional shares of
Voting Stock except (a) as part of the transaction which
results in such interested Shareholder becoming an
interested Shareholder or (b) as a result of a pro rate
stock dividend or stock split.
(v) Prior to the consummation of such Business
Combination, such interested Shareholder shall not have,
directly or indirectly, (a) received the benefit (except as
proportionately as a shareholder) of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation
or any Subsidiary, or (b) caused any material change in the
Corporation's business or equity capital structure,
including, without limitation, the issuance of shares of
capital stock of the Corporation.
The requirements of subparagraphs (ii) and (iii) above shall
not apply to any class of Voting Stock (other than Common Stock)
hereinafter authorized if the provision creating or authorizing
such class so provides and such provision has been approved by a
majority of the Disinterested Directors.
Section 3. Certain Definitions. For the purposes of this
Article 10:
A. A "person" shall mean any individual, firm, corporation
or other entity.
B. "Interested Shareholder" shall mean any person (other
than the Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly,
of more than 10% of the voting power of the outstanding
Voting Stock; or
(ii) is art Affiliate of the Corporation and at any
time within the two-year period immediately prior to the
date in question was the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the then
outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question
beneficially owned by any interested Shareholder if such
assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a
public offering within the meaning of the Securities Act of
1933.
C. "Beneficial Owner" shall have the meaning ascribed to
such term in Rule 13d-3 under the Securities Exchange Act of 1934
as in effect on April 1, 1985 provided, however, and without
limitation, any individual, corporation, partnership, group,
association or other person or entity which has the right to
acquire any Voting Stock at any time in the future, whether such
right is contingent or absolute, pursuant to any agreement,
arrangement or understanding or upon exercise or conversion
rights, warrants or options, or otherwise, shall be deemed the
Beneficial Owner of such Voting Stock.
D. "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the
Securities Exchange Act of 1934, as in effect on April 1, 1985.
E. "Subsidiary" means any corporation of which a majority
any class of equity security is owned, directly or indirectly,
by the Corporation; provided, however, that for the *purposes of
the definition of interested Shareholder set forth in paragraph B
of this Section 3, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security
is owned, directly or indirectly, by the Corporation.
F. "Disinterested Director" means any member of the Board
of Directors of the Corporation (the "Board") who is not
affiliated with or the nominee of the interested Shareholder or
an Affiliate of the interested Shareholder that is involved in
the Business Combination under consideration by the Board of
Directors.
G. "Fair Market Value" means: (i) in the case of stock,
the highest closing sale price during the 30-day period preceding
the date in question of a share of such stock on the Composite
Tape for New York Stock Exchange-Listed Stocks, or if such stock
is not quoted on the Composite Tape, on the New York Stock
Exchange or if such stock is not listed on such Exchange, on the
principal United States securities exchange on which such stock
is listed, of if such stock is not listed on any such exchange,
the highest closing sale price or bid quotation, whichever is
reported in the financial press, with respect to a share of such
stock during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such
quotations are available, the fair market value on the date in
question of a share of Common Stock as determined by the Board in
good faith; and (ii) in the case of property other than cash or
stock, the fair market value of such property on the date in
question as determined by the Board in good faith.
H. "Institutional Voting Stock" shall mean any class of
Voting stock which was issued to and continued to be held solely
by one or more insurance companies, pension funds, commercial
banks, savings banks or similar financial institutions or
institutional investors.
I. in the event of any Business Combination in which the
Corporation survives, the phrase "other consideration to be
received" as used in paragraphs 3(i) and (ii) of Section 2 of
this Article 10 shall include the shares of Common Stock and/or
the shares of any other class of outstanding Voting Stock
retained by the holders of such shares.
Section 4. Certain Powers of the Disinterested Directors.
A majority of the Disinterested Directors of the Corporation
shall have the power and duty to determine for the purposes of
this Article 10, on the basis of information known to them after
reasonable inquiry, (A) whether a person is an interested
Shareholder, (B) the number of shares of Voting Stock
beneficially owned by any person, (C) whether a person is an
Affiliate or Associate of another, (D) whether a class of Voting
Stock is institutional Voting Stock, (E) whether a transaction or
series of transactions constitutes a Business Combination, (F)
whether the requirements of Section 2 of this Article 10 have
been met and (G) whether the assets which are the subject of any
Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination constitute more than
twenty percent of the Fair Market Value of the total assets of
the entity involved.
Section 5. No Effect on Fiduciary Obligations of interested
Shareholders. Nothing contained in this Article 10 shall be
construed to relieve any interested Shareholder from any
fiduciary obligation imposed by law.
Section 6. Amendment. Renewal. etc. Notwithstanding any
other provisions of this Certificate of incorporation or the
By-Laws of the Corporation (and notwithstanding the fact that a
lesser percentage may be specified by law, this Certificate of
incorporation or the By-Laws of the Corporation), the affirmative
vote of the holders of 80% or more of the voting power of the
shares of the then outstanding Voting Stock, voting together as a
single class, shall be required to amend or repeal, or adopt any
provisions inconsistent with, this Article 10 of this Certificate
of Incorporation.
11. No director shall be personally liable to the
Corporation or any of its shareholders for damages for any breach
of duty as a director; provided, however, that the foregoing
provision shall not eliminate or limit (i) the liability of a
director if a judgment or other final adjudication adverse to him
establishes that his acts or omissions were in bad faith or
involved intentional misconduct or a knowing violation of law or
that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled or that his acts
violated Section 719 of the New York Business Corporation Law; or
(ii) the liability of a director for any act or omission prior to
the adoption of this Article 11 by the shareholders of the
Corporation.
<PAGE>
EXHIBIT (10)(1)
AMENDMENT
TO THE
RECOTON CORPORATION 1991 STOCK OPTION PLAN
WHEREAS, Recoton Corporation (the "Company") has adopted the
Recoton Corporation 1991 Stock Option Plan (the "Plan"); and
WHEREAS, Section 10 of the Plan permits the Board of
Directors of the Company to amend the Plan; and
WHEREAS, the Board of Directors of the Company now desires
to amend the Plan in certain respects;
NOW, THEREFORE, the Plan is hereby amended as follows:
FIRST: Paragraph 2 of the Plan is hereby amended, in
its entirety, to read as follows:
"2. Number of Shares Available Under Plan.
Options may be granted from time to time to key employees of
either the Company or any Subsidiary (such recipients being
hereafter referred to as "optionees") to purchase up to an
aggregate of 2,500,000 shares of Common Stock ($.20 par
value) of the Company (the "Common Stock") for all optionees
and 2,500,000 such shares shall be reserved for Options
granted under the Plan (subject to adjustment as provided in
paragraph 6). The maximum number of shares of Common Stock
which may be the subject of Options granted to the Company's
Chief Executive Officer (or any co-Chief Executive Officer)
and to each of the other executive officers required to be
named in the Company's proxy statement with respect to the
preceding year pursuant to the proxy rules promulgated under
the Securities Exchange Act of 1934 as amended during any
calendar year shall not exceed 250,000 (subject to
adjustment as provided in paragraph 6). The shares issued
upon exercise of Options granted under the Plan may be
authorized and unissued shares or shares held by the Company
in its treasury, or both. If any Options granted under the
Plan shall terminate, expire or be canceled as to any
shares, new Options may thereafter be granted covering such
shares; provided, however, that with respect to any Option
granted to any person who is a 'covered employee' as defined
in Section 162(m) of the Code that is canceled or as to
which the exercise price is reduced, the number of shares of
Common Stock subject to such Option shall continue to be
counted, in accordance with said Section 162(m) and
regulations promulgated thereunder, against the maximum
number of shares which may be the subject of Options granted
to such person."
SECOND: The last sentence of Paragraph 10 of the Plan
is hereby amended, in its entirety, to read as follows:
"Notwithstanding the foregoing, any amendment by the Board
of Directors or the Committee which would increase the
number of shares issuable under Options or the number of
shares which may be the subject of Options granted to any
individual optionee, or change the class of persons to whom
Options may be granted, shall be subject to the approval of
the shareholders of the Corporation within one year of such
amendment."
THIRD: This Amendment shall become effective and in
full force and effect upon its approval on or before April 2,
1996 by the holders of a majority of the shares of stock of the
Company voting on the subject at any special or annual meeting of
the shareholders of the Company.
FOURTH: Except to the extent hereinabove set forth,
the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this
Amendment to be duly executed by a duly authorized officer on the
19th day of June, 1995.
RECOTON CORPORATION
By /s/ Joseph H. Massot
Name: Joseph H. Massot
Title: Vice President and
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the Condensed Consolidated Statement of Financial Condition
at June 30, 1995 (Unaudited) and the Condensed Consolidated
Statement of Income for the Six Months Ended June 30,
1995 (Unaudited) and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 13,705,825
<SECURITIES> 0
<RECEIVABLES> 29,784,841
<ALLOWANCES> 1,153,000
<INVENTORY> 48,091,940
<CURRENT-ASSETS> 94,519,910
<PP&E> 23,315,537
<DEPRECIATION> 6,726,658
<TOTAL-ASSETS> 118,758,989
<CURRENT-LIABILITIES> 12,515,736
<BONDS> 4,783,998
<COMMON> 2,362,774
0
0
<OTHER-SE> 98,168,849
<TOTAL-LIABILITY-AND-EQUITY> 118,758,989
<SALES> 79,481,225
<TOTAL-REVENUES> 79,900,916
<CGS> 50,028,069
<TOTAL-COSTS> 50,028,069
<OTHER-EXPENSES> 23,355,853
<LOSS-PROVISION> 218,260
<INTEREST-EXPENSE> 129,125
<INCOME-PRETAX> 6,169,609
<INCOME-TAX> 1,569,000
<INCOME-CONTINUING> 4,600,609
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,600,609
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
