SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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|X | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
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| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________ to ________________
Commission File Number: 0-5860
RECOTON CORPORATION
(Exact name of registrant as specified in its charter)
New York 11-1771737
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2950 Lake Emma Road, Lake Mary, Florida 32746
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 333-8900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.20 par value
(Title of class)
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 reporting requirements for the past 90 days:
Yes X No
<PAGE>
[Continuation of Cover Page]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
State the aggregate market value of the voting stock held by
non-affiliates of the registrant (the aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing):
$181,683,259, based on the closing price on Nasdaq Stock Market
of $19.00 as of March 14, 1996
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date:
11,222,479 shares of Common Stock as of March 14, 1996
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be filed with the
Securities and Exchange Commission (the "Commission") not later than 120 days
after the end of the fiscal year covered by this Form 10-K with respect to the
registrant's Annual Meeting of Shareholders to be held in 1996 are incorporated
by reference into Part III of this Form 10-K.
Various exhibits, as listed in Item 14 of Part IV, have been
incorporated by reference.
<PAGE>
PART I
Item 1. Business
General
Recoton Corporation, incorporated in the State of New York in 1936,
is one of the leading suppliers of consumer electronics accessory products in
North America, offering over 3,500 functional and versatile products in
virtually every accessory category. They are used for the enhancement, hook up,
installation, interconnection, maintenance, modification, storage, transmission
and replacement of consumer electronic equipment. Products include antennas for
television and radio (AM/FM), audio accessories, CD/compact disc accessories,
camcorder accessories, car audio accessories, compact carrying and storage
cases for CDs and audio cassettes, cellular phone accessories,
computer/multimedia accessories, game (video and computer) accessories,
headphones, loudspeakers, remote controls, telephone accessories, video
accessories and 900 MHz wireless technology products. Unless the context
otherwise requires, the terms "Recoton" and the "Company" as used herein refer
to Recoton Corporation and all of its wholly-owned subsidiaries.
Recoton's products are currently sold under the Ambico(R),
Ampersand(TM), AR(R)/Acoustic Research(R), Calibron(R), Discwasher(R),
Interact(TM), Parsec(R), Recoton(R), Rembrandt(R), Sole Control(R) and
SoundQuest(TM) brand names.
Recoton seeks to provide access to its products through as many
distribution channels as possible, marketing its products to over 1,000
customers, including retailers, original equipment manufacturers (OEMs) and
other accessory vendors.
Recoton has significantly expanded its product lines through selected
acquisitions, research efforts and product development. In 1995 Recoton
acquired the stock of STD Holding Limited, a Hong Kong based manufacturer and
marketer of video game and computer accessories, including joy sticks and
controllers. In January 1996 Recoton and International Jensen Incorporated
("Jensen") entered into an Amended and Restated Agreement and Plan of Merger
pursuant to which Jensen would be merged into a wholly-owned subsidiary of
Recoton (the "Merger") and each stockholder of Jensen would receive $8.90 in
cash and/or Recoton Common Shares for each share of Jensen Common Stock. Jensen
is a leading marketer of home and automotive loudspeakers. The Merger currently
is anticipated to close in May, subject to the satisfaction of various
conditions.
Recoton's research and development program seeks to develop
innovative products to achieve attractive margins and to expand Recoton's brand
name recognition. Products which Recoton has introduced include Recoton's 900
Megahertz ("MHz") wireless technology, whose signals transmit through walls,
floors and ceilings up to 150 feet away. The 900 MHz products include stereo
headphones, amplified speakers, a portable, weather-resistant outdoor/indoor
loudspeaker, microphones and universal remote controls. Recoton also developed
the "CD20" adapter, which allows a portable compact disc (CD) player to operate
through an automobile cassette player, the CD HydroBath(R), non-contact,
multimedia CD cleaner; and amplified TV and AM/FM radio antennas.
Recoton's marketing, planning and purchasing groups have developed
additional product lines or expanded existing lines to meet customer
requirements, including a line of CD and tape carrying cases, a broad line of
cellular phone accessories and an expanded offering of computer accessories.
Recoton has supplemented its internal product development efforts
with selected acquisitions of complementary businesses or product lines.
Through nine acquisitions completed since 1989, Recoton has obtained new
products and technologies, entered new product markets, increased manufacturing
capacity and further broadened its customer base. Recoton seeks to maximize the
value of its acquisitions by introducing operating efficiencies and by using
its customer support services to increase the sales and profitability of the
newly-acquired businesses and product lines. Recoton also recently has entered
the field of hi-fidelity, high-performance loudspeaker design and marketing
through its Christie Design Corporation subsidiary.
INDUSTRY BACKGROUND
The consumer electronics market is large and diverse, having evolved
from phonographs, radios, home stereos and televisions to encompass a wide
variety of new, innovative technologies and products. These innovations have
included CD players, camcorders, VCRs, cellular and cordless telephones, video
game systems, home computers and facsimile machines. Recently, manufacturers
have introduced products based on new technologies, such as compact disc-read
only memory (CD-ROM) and compact disc-interactive (CD-I) products and other
multimedia products that link various separate technologies such as computers,
telecommunications, audio systems and televisions. Additionally, advances in
mature technologies such as television, camcorder and telephone are leading to
new innovations such as high definition television (HDTV), new TV delivery
systems such as direct broadcast satellite (DBS) systems and the new digital
video disc system (DVD), which delivers ultra-high quality pictures and stereo
sound. The broadening and expansion of the consumer electronics market also has
been due to a greater awareness of consumer electronics products and changes in
consumer tastes, lifestyles and work habits, including a growing desire to
spend more time at home, whether for relaxation or work.
The growth of consumer electronics has led to the development of a
distinct market for consumer electronics accessories. The market for these
accessories is broad and highly fragmented, ranging from low-end products such
as audio and video cables, cassette cleaners and phone cords, to more
sophisticated products such as remote controls, stereo headphones, amplified
antennas, wireless speakers and high-performance loudspeakers. Many of these
products are necessary to maintain and operate consumer electronics products
while others are used to expand, upgrade or enhance the functionality of
particular products. According to the Electronics Industry Association, in 1995
the consumer electronics accessory market in the United States was estimated to
be approximately $930 million in wholesale sales and is projected to grow
approximately 9% in 1996.
The consumer electronics retailing market, which is the primary outlet
for accessory products, is subject to intense competition among a wide variety
of retailers, such as consumer electronics superstores, department stores, mass
merchants, catalog showrooms, direct mail merchants, and office and warehouse
clubs. Competitive pressures have lead to shrinking gross margins on consumer
electronics products, leading retailers to increase their emphasis on
accessories. Although accessories typically sell at lower retail prices, the
gross profit margins realized is typically higher than on more expensive, price
sensitive, consumer electronics equipment. Additionally, inventory costs and
floor space required to display and sell accessories is substantially less.
Retailers also have found that a broad offering of accessories
provides additional services to the consumer which allow these retailers to
differentiate themselves from their competitors. In addition, retailers
recognize that having accessories available can encourage add-on sales to a
consumer electronics purchase, lead to impulse purchases and encourage repeat
visits by customers, all of which provide the opportunity for selling
additional consumer electronics products and accessories.
Recoton believes that retailers are devoting more floor space to
accessories, enhancing their in-store accessory merchandising and spending more
on accessory advertising and promotion. Recoton believes that in order to
achieve greater purchasing and operating economies and to reduce costs,
retailers are looking for suppliers which offer a broad assortment of consumer
electronics accessories and can provide timely product availability and strong
merchandising support.
BUSINESS STRATEGY
Recoton has developed a strategic plan using the following elements
which Recoton believes has lead to its position as the leading supplier of
consumer electronics accessories in North America:
Broad Customer Franchise. Recoton seeks to provide access to its
products through as many distribution channels as possible. Recoton has
established relationships with more than 1,000 customers which Recoton believes
have more than 30,000 outlets. These relationships allow Recoton to achieve
greater penetration of existing customers with current products and provide
broad-based distribution channels for new products. The expansion of existing
customers which have opened new retail locations has further broadened
Recoton's customer base.
One-Stop Shopping. Recoton offers over 3,500 products in virtually
every category of consumer electronics. These products are offered under a
number of highly recognized brand names and a wide range of price points to
address the needs of a diverse customer base. By providing "one-stop shopping,"
Recoton is better able to attract and support retailers who are consolidating
their vendor relationships to achieve greater purchasing and operating
economies.
Strong Customer Support. Recoton seeks to establish partnership
relationships with its customers by offering an array of extensive services
tailored to their needs. These include (i) purchasing and inventory management
such as electronic order entry and invoicing and just-in-time delivery; (ii)
in-store merchandising services such as assistance in designing customized
product display systems, pre-ticketing of the retailer's products and
merchandise detailing; and (iii) promotional and advertising support. Recoton
believes that these services help its retailers to maximize sales and
profitability of Recoton's products and achieve greater customer loyalty.
Brand Name Recognition. Recoton believes that it has established a
high level of brand name recognition with its retailers and their customers.
Recoton sells products under the Ambico(R), Ampersand(TM), AR(R)/Acoustic
Research(R), Calibron(R), Discwasher(R), Interact(TM), Parsec(R), Recoton(R),
Rembrandt(R), Sole Control(R) and SoundQuest(TM) brand names. Recoton believes
that these brand names and Recoton's own proprietary products strengthen its
customer relationships and enhance acceptance of its products by retailers and
consumers.
Dynamic Product Introductions. Recoton continually expands its product
offerings to remain at the forefront of the electronics accessories market.
Recoton frequently solicits feedback from its retailers on accessories for
existing products, as well as for new consumer electronics categories. Through
its research and development capabilities and its continual efforts to identify
acquisition opportunities, Recoton believes that it is able to respond rapidly
to meet new and changing consumer demands for accessories.
Proprietary Products. Recoton has built a research and development team
which has brought to market many innovative products that address consumers'
changing electronics needs. Many of these proprietary products take advantage of
new technologies such as Recoton's 900 MHz wireless product line. Recoton
believes that these innovative products create significant sales opportunities
for retailers and enhance Recoton's brand-name recognition. Recoton believes
that its proprietary products have enabled it to become a more important
supplier to its customers and have helped to differentiate Recoton from its
competitors.
Acquisitions. Recoton makes selected acquisitions to enhance and
broaden its product lines, to enter new product markets and to expand its
customer base. Recoton's strategy is to acquire synergistic businesses or
product lines and introduce operating economies and enhanced distribution
capabilities in order to maximize the value of the acquired assets. Through
nine acquisitions since 1989, including the acquisition of STD Holding Limited
completed in 1995, Recoton has obtained new products and technologies,
increased its manufacturing capacity (including recently-acquired Asian
facilities), enhanced its Canadian distribution and broadened its customer
base. In 1995 Recoton also established a new wholly-owned subsidiary, Christie
Design Corporation, to develop and market hi-fidelity, high performance
loudspeaker systems and hired a leading speaker developer, Cary Christie, to
head the company. In 1996, Recoton entered into an agreement to acquire
International Jensen Incorporated by merger, which is currently anticipated to
close in May subject to the satisfaction of various conditions.
PRODUCTS
Recoton offers a broad line of over 3,500 consumer electronics
accessory products in virtually every accessory category. The products are
positioned, packaged and priced to appeal to every level of retailer and
customer. Suggested retail prices for most of Recoton's products range from
approximately $2 to $100, with some of Recoton's newer products having
suggested retail prices of up to $450.
The following is a listing of many of the product categories offered
by Recoton:
Antenna. Offered under the Recoton, Parsec and Rembrandt brand names
is a complete line of amplified and passive indoor television and AM/FM
antennas. Recoton believes that it has been and continues to be an innovator in
the introduction of amplified antennas. Recoton also believes that it has the
leading industry position in this market and that this market is growing due in
part to the fact that most manufacturers have discontinued supplying antennas
with new TV sets. Recoton amplified antennas are ideal for use with the new DBS
satellite receiver dishes which fail to receive local TV broadcasts.
Audio. Offered under the Discwasher and Recoton brand names is an
extensive line of audio accessories designed for use with stereo and mono
systems (including home, portable and car systems), CD players, cassette tape
recorders, phonographs and radios. Products include cables and connectors,
AC/DC power adapters, inverters, intercoms, microphones, surge protection
devices, foreign voltage adapters/converters and blank audio cassettes.
CD/Compact Disc. Offered under the Discwasher and Recoton brand names
is a broad line of CD and audio cassette accessories including cleaning and
maintenance items, such as the CD HydroBath non- contract hydrodynamic
multimedia cleaner for all types of CDs, a CD laser lens cleaner, storage
boxes, connection cables and Recoton's proprietary CD20 adapter, which permits
a portable CD player to be played through a car, portable or home stereo
system.
Camcorder. Offered under the Ambico brand name is a comprehensive line
of camcorder accessory products including tripods, batteries, camera bags,
chargers/dischargers, cables, dust covers, filters, lenses, lights, microphones
and monopods. The line features video transfer systems, as well as various
editing effects mixers, video title writers, audio mixers and video
enhancers/faders.
Car Audio. Offered under the Ampersand, RoadGear(TM) and SoundQuest
brand names is an exclusive line of high quality wire and cables with
gold-plated connectors, power cables, wiring and installation kits, gold-plated
battery terminals and rings, capacitors, isolators, and assorted connectors and
adapters, as well as the "Audio Forms" and "Z-Box" in-door speaker enclosures
sold under the SoundQuest brand name.
Carrying and Storage Cases. Offered under the Discwasher and
PerfectCase(TM) brand names is a line of softsided carry cases for CDs and
audio cassettes. The line includes CD wallets with capacities from 12 to 96 CDs
and Player/CD cases which hold from 10 to 24 CDs in addition to a portable CD
player. CD cases hold from 15 to 60 CDs and audio cassette cases have
capacities from 15 to 96 cassettes. These cases are available in many colors,
designs and fabrics and are packaged under the PerfectCase name by Discwasher.
Cellular. Offered under the Recoton brand name is an extensive and
growing line of add-on and replacement accessories for the expanding cellular
telephone market. Products including nickel cadmium and nickel metal-hydride
batteries, battery eliminators, travel chargers, desk-top chargers,
"hands-free" kits, extended-life kits and antennas, among other products, to
compliment the cellular phones of all leading manufacturers.
Computer/Multi-Media. Offered under the Interact and Recoton brand
names is a complete product line encompassing joy sticks and controllers,
shielded computer speakers, UL-listed surge protection devices, connection
cables, disc and disc drive cleaning products, dust covers, copy holders, mouse
and wrist pads, stands for monitors and printers, storage cabinets, screen
filters with anti-radiation properties, paper, ribbons and storage cases.
Game (Video and Computer). Offered under the Interact, Discwasher and
Recoton brand names is an expanding line of joysticks, controllers, cleaning
and maintenance kits and a line of replacement AC power adapters and switches.
These lines have been expanded with the addition of such products as control
pads, lights, screen magnifiers and carry bags for hand-held games.
Headphones and Speakers. Offered under the Discwasher and Recoton
brand names is a full line of stereo headphones and mini- and bookshelf-sized
stereo speakers, many of which also are sold to OEM customers. Headphone models
include earbud, lightweight, convertible, headband, and open- and closed-earcup
models. Mini and bookshelf sized stereo speakers, in both amplified and
nonamplified versions, are offered for use with portable CD and cassette
players and computers. Some of these speakers feature graphic equalizers, base
booster circuits and battery or AC operation.
Loudspeakers. Offered under the AR, Acoustic Research, Discwasher and
Recoton brand names is a line of advanced design and technology hi-fidelity,
hi-performance stereo speakers and home theater loudspeaker systems. In
addition there is a wide variety of wireless 900 MHz amplified speakers for
indoor and outdoor use, speakers for use with computer sound cards and a wide
variety of stereo speakers for CD listening.
Remote Controls. Offered under the Sole Control and Recoton brand
names is a complete line of advanced technology, universal remote controls for
replacement of lost or damaged remotes. They allow remote operation of
televisions, VCRs and other electronic products, and are offered with various
features at different price levels. They contain the largest code library in
today's market and therefore can operate virtually all remote-controllable
manufactured products. In 1996, the Company introduced a new, advanced
technology, combination 900 MHz wireless RF (Radio Frequency) and IR (InfraRed)
universal remote control. This unique remote control sends signals through
walls, floors and ceilings to operate remote control products in other rooms.
It also functions as a standard line-of-sight remote control.
Telephone. Offered under the Recoton brand name are numerous products,
including antennas and rechargeable batteries for cordless phones, cables,
extension cords, coiled handset cords, and "do-it-yourself" installation items,
such as duplex and triplex adapters and wall plates. Recoton's patented
Tanglefree(TM) adapter eliminates the twisting from coiled telephone cords.
Video. Offered under the Recoton brand name is a broad line of
products that are used for the installation, maintenance, interconnection and
enhancement of VCRs and camcorders. These products include Recoton's Gold
Connection(TM) line of hookup and dubbing cables, blank VHS video tapes, video
head cleaners, video rewinders, dust covers, connectors, splitters and storage
products. Recoton also offers many switching, dubbing, listening and viewing
accessories that can enhance the visual and audio performance of televisions
and VCRs.
Wireless Technologies. Recoton offers a proprietary line of wireless
products using 900 MHZ technology to transmit pictures and sound signals from a
TV, VCR, cable box, satellite box, stereo or sound system through walls, floors
and ceilings to stereo headphones, amplified loudspeakers, both indoor and
outdoor types, or to other television sets within 150 feet. Recoton believes it
is the leader in developing and marketing a broad range of 900 MHz wireless
technology products such as stereo headphones, amplified speaker systems and
video broadcast systems. These products offer performance comparable to
hard-wired systems and have been expanded to include wireless microphones,
public address systems, a portable outdoor/indoor weather-resistant speaker,
computer speakers and home theater speakers.
CUSTOMERS
Recoton has a strong and diverse customer base of more than 1,000
customers which Recoton believes have more than 30,000 outlets in the United
States and Canada. These include catalog showrooms, consumer electronics
retailers, department stores, direct mail retailers, drugstore chains, mass
merchants, office and warehouse clubs, music and video chains and OEM
customers. In addition, Recoton has over 2,000 customers for its car stereo
installation products.
Recoton believes that its broad customer franchise provides it with
significant competitive advantages and will continue to be a source of future
growth. While some of Recoton's retail customers carry Recoton's broad product
lines, others carry only certain lines or products and are viewed by Recoton as
prospects for additional sales. The strong customer base provides a
distribution channel for new products. Recoton expects to benefit as its
existing retail customers open new retail locations.
Recoton also markets selected products to OEMs and via private labels
to other accessory vendors which purchase products ranging from audio, video,
CD and telephone accessories to Recoton's wireless products. In addition,
Recoton recently has expanded its presence in the Asian and Canadian markets.
Through its Hong Kong subsidiaries, Recoton (Far East) Limited and STD Holding
Limited, Recoton sells Asian-sourced products to Asian and European-based OEM
customers. Through Recoton Canada Ltd., Recoton markets and distributes
products to Canadian retailers. Recoton views its OEM and international
customer base as an important source for future growth.
Although certain of Recoton's customers have contributed significantly
to Recoton's sales, no customer represented more than 10% of its sales in any
of the last three years. Historically, the Company's sales and earnings have
been higher in the second half of each year.
SALES, MARKETING AND CUSTOMER SUPPORT
Recoton's marketing strategy is to develop strong relationships with a
broad array of customers. Recoton seeks to strengthen these relationships by
offering "one-stop shopping" for its accessory products and by offering
extensive marketing, inventory management and customer support services,
including the following:
Consumer Support Programs. Toll-free "hot lines" staffed by trained,
product-knowledgeable people who provide instructions and setup and other
information for all Recoton products. They also handle "money back"
guarantees and "repair or replace" warranties on certain products.
Distinctive Packaging. Offers modern, easy to understand,
color-coded packages designed to attract consumer attention, increase
brand awareness and provide detailed product information.
Drop Shipping. Provides retailers just-in-time inventory management
through immediate delivery to multiple retail locations.
Electronic Data Interchange ("EDI"). Enables customers to send
orders, track shipping, receive invoices and make payment by computer,
thereby expediting the ordering and payment process, lessening errors of
transcription and reducing personnel costs.
Extensive Product Promotion. Includes in-store merchandising,
advertising and elaborate product displays for all product
lines.
In-Store Inventory Management. Called detailing, it involves the
periodic counting, restocking and filling of in-store accessory displays.
Pre-Ticketing Services. Involves placing price stickers on items prior to
shipment from price lists provided by retail customers. Product Display
Designs. Called planograms, they provide retailers
with a computerized color picture of their individual in-store accessory
layout to help them maximize display and sales. They depict how the actual
merchandise will look on-site, fully stocked, and a detailed report with
each item's cost, suggested retail price, anticipated turns and resulting
projected revenue and profit.
Retailers can work with Recoton's sales staff or utilize Recoton's
modern, high visibility color catalogs to choose either a wide assortment of
products, a limited number of "best seller" items or any other combination as
desired. Recoton also offers pre-selected assortments based on the national
movement of its products. Most of Recoton's smaller products are supplied in
attractive blister packs designed to be displayed in hang-tag fashion on
five-row pegboards or slat boards, typically ranging from 2 to 24 feet wide.
Recoton further supports its products by advertising in leading trade
and consumer publications, participating in trade shows and engaging in a wide
variety of regional promotions and sales incentive programs. Recoton's
promotional efforts have included television advertisements and Sunday
newspaper advertising supplements devoted exclusively to its products.
Recoton's products are marketed throughout the United States, Canada
and internationally in a number of foreign countries by Recoton's employed
sales executives and regional managers and independent sales representative
organizations. Recoton compensates its independent sales representatives on a
commission basis. Regional sales staff personnel work in the field with
Recoton's customers and sales representative organizations.
FOREIGN AND DOMESTIC OPERATIONS
In 1995, foreign operations become a more significant portion of
Recoton's business. Information with respect to Recoton's operations by
geographic area and with respect to sales to foreign customers is set forth in
the financial statements (see Note P of the Notes to Financial Statements, Item
8 below).
ACQUISITIONS
In recent years, a significant part of Recoton's growth strategy has
been to expand through acquisitions. Recoton acquires complementary businesses,
products or product lines which enhance those currently offered by Recoton.
This expands Recoton's product offerings into related product lines or offers
access to additional customers. Recoton seeks to maximize the benefit of each
acquisition by reducing the overhead, manufacturing, sourcing, packaging,
distribution, sales and advertising expenses of the acquired business. Recoton
believes that cost savings will result by introducing these efficiencies of
scale, making Recoton and its products more competitive.
Since 1989, Recoton has acquired all or selected assets or product
lines of, or merged with, the following companies:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Company Principal Product Lines
1995 STD Holding Limited Video and game joysticks, controllers and accessories
marketed primarily under the trade name Interact and
other names
1995 Ampco Industries, Car stereo installation operations
Inc., d/b/a Ampersand
1994 Sound Quest, Inc. Car stereo installation and accessory products
1994 Infrared Research Universal remote controls marketed under the trade
Laboratories, Inc. name Sole Control
1992 Ambico, Inc. Camcorder and video accessories
1991 Discwasher Inc. Consumer electronics maintenance products
1991 Parsec Delaware Ltd. AM/FM radio and TV antennas
1989 All Channel Products Indoor television antennas marketed under the
Inc. trade name Rembrandt
1989 Calibron, Inc. Stereo headphones and consumer electronics accessories
</TABLE>
MERGER AGREEMENT WITH INTERNATIONAL JENSEN INCORPORATED
Recoton and Jensen have entered into an Amended and Restated
Agreement and Plan of Merger dated as of January 3, 1996 (the "Merger
Agreement") pursuant to which Jensen would be merged into a wholly-owned
subsidiary of Recoton and the stockholders of Jensen would receive $8.90 in
cash and/or Recoton Common Shares for each share of Jensen Common Stock. The
total merger consideration for Jensen stockholders is approximately $51
million. As a condition to the Merger, Jensen would sell the assets of its
original equipment manufacturing business for approximately $15 million and the
assumption of certain liabilities to IJI Acquisition Corp., a corporation
wholly-owned by Robert G. Shaw, Jensen's President. The Merger is contingent on
a number of conditions, including the approval of Jensen's stockholders. The
Merger is currently anticipated to close in May, subject to the satisfaction of
such conditions. There can, however, be no assurance that all of such
conditions will be satisfied. If the Merger is completed, Recoton will operate
Jensen's business as Recoton Audio Corporation ("RAC") and Robert G. Shaw will
serve as President and Chief Executive Officer of RAC.
ESTABLISHMENT OF CHRISTIE DESIGN CORPORATION AND
LICENSE OF AR AND ACOUSTIC RESEARCH TRADEMARKS
In June 1995, Recoton established a new wholly-owned subsidiary,
Christie Design Corporation ("CDC"), to develop and market speaker products. A
leading designer, Cary Christie, was hired to head up this operation, which is
based near Los Angeles, California. CDC intends to market its speaker products
under the trade names Acoustic Research and AR, which were licensed from Jensen
pursuant to a one-year exclusive worldwide license (extendable under certain
limited circumstances) in January 1996. Pursuant to that license agreement,
Recoton also acquired an option to purchase the licensed marks, exercisable at
any time until the first anniversary of the grant date (or later under certain
limited circumstances), for a purchase price of $6 million; in addition, Jensen
acquired an option to sell the licensed trademarks, exercisable at any time
after the termination of the Merger Agreement and before the first anniversary
of the grant date (or later under certain limited circumstances) for $6
million. It is Recoton's current intention to exercise the purchase option if
the Merger does not occur as planned; in the event of such exercise, Recoton
has the right to offset against its payment any termination fees which may be
owed by Jensen to Recoton under the Merger Agreement (which, under certain
circumstances, would either be $6 million or $1.5 million).
RESEARCH AND DEVELOPMENT
Recoton maintains a research and development program utilizing
in-house and selected outside engineering arrangements. In conjunction with its
agents, customers and contract manufacturers, Recoton continuously reviews its
product line and identifies, develops and introduces new accessories for
growing areas of consumer demand. Recoton seeks to develop innovative products
to achieve attractive margins and to expand Recoton's brand name recognition.
Through its product development efforts, Recoton has been able to
establish new retail accounts, enhance existing customer relationships and
attract a growing base of consumer electronics companies as OEM customers.
Recoton is expanding its engineering department to increase its in-house
development capabilities.
Recoton has focused its efforts on developing new and advanced
audio and video products based on its 900 MHz wireless technology. Wireless
products which Recoton has brought to market include a home theater speaker
system, stereo headphones, amplified indoor stereo speakers, a portable
weather-resistant outdoor speaker, microphones, a public address system, a
computer speaker system, a combination RF/IR remote control and a wireless
monitoring system.
Additional products in development include a wireless 2.4 GHz
transmission system permitting Recoton to offer its wireless audio and video
products on a worldwide basis, and a spread-spectrum transmission system for
wireless audio and a video that provides low-interference, longer-distance,
high-end CD-quality performance for wireless audio, video and security video
products.
In 1993, 1994 and 1995, Recoton's expenditures (including
expenditures by STD since September 1, 1995) for research and development were
approximately $584,000, $942,000 and $1,608,000 respectively, and for product
and packaging design were approximately $642,000, $699,000 and $1,214,000
respectively.
MANUFACTURING
Recoton's manufacturing strategy is to produce low-cost,
high-quality consumer electronics accessories for its retail and OEM customers.
Recoton's domestic manufacturing and assembly activities located at its Lake
Mary, Florida facility include molding, hot stamping, bottle filling, silk
screening, packaging and electronics assembly.
The Company's facilities in the People's Republic of China
currently are used solely to manufacture video and game accessories sold under
the Interact brand but Recoton is exploring the possibility of using such
facilities to manufacture other products. Recoton's in-house capabilities have
been a major strength in obtaining OEM business.
Recoton utilizes third-party manufacturers, primarily in China,
Hong Kong and Taiwan, for most of its products. These vendors produce products
in accordance with strict specifications and quality control standards set by
Recoton, in either finished form or as components, for assembly at Recoton's
Florida facility.
Recoton coordinates most sourcing for the North American market
with its buying agents which coordinate information flows with Recoton's
suppliers, provide translation services, facilitate financing, conduct quality
control inspections and oversee shipping. Recoton's high volume allows it to
consolidate shipments and ship frequently, thereby obtaining preferential
shipping rates and lowering costs. Recoton's Hong Kong subsidiaries coordinate
sourcing and shipping to customers located in Asia, Europe and Australia.
Recoton generally uses standard parts and components which can be
purchased from multiple sources, although in certain instances a business
decision is made to source certain products from a single supplier. Recoton's
wireless products are among the products currently sourced from one vendor,
which in turn subcontracts component manufacturing to other sources. While the
loss of any single-source vendor could have a short-term adverse impact on the
manufacturing and shipping of products if inventories levels were depleted,
Recoton does not believe that the loss of any single vendor would have a
long-term adverse effect. Recoton's policy of maintaining substantial inventory
helps to lessen the risks of off-shore manufacturing. Recoton also maintains
additional inventory of long-lead-time items and continually evaluates
alternative supply sources.
COMPETITION
The consumer electronics accessory market is highly fragmented and
subject to intense competition. Recoton's competitors include (i) various
companies which offer broad lines of consumer electronics accessories; (ii)
other accessory companies which offer certain product lines; and (iii)
manufacturers of brand name consumer electronics hardware, such as Zenith,
Philips, Thomson/RCA and Sony, which market their own lines of similar
accessories. Certain of Recoton's existing or potential competitors have
greater financial, technical, marketing or manufacturing resources and may
develop new accessories that are superior to those of Recoton. Recoton competes
primarily on the basis of product variety and quality, customer service and
support, product reliability, company and brand name reputation, ability to
meet customer delivery needs, price, product features and proprietary products.
Recoton believes that it competes favorably with respect to these factors.
TRADEMARKS AND PATENTS
Recoton believes that the trademarks Ambico, Ampersand, Calibron,
Discwasher, Interact, Parsec, Recoton, Rembrandt, Sole Control and SoundQuest
are important to its business, and it anticipates that the Acoustic Research/AR
trademarks will become important to its business. It also has over 40
additional United States registered trademarks for a variety of its individual
products. As a result of its own product development, recent acquisitions and
exclusive licenses, Recoton has over 25 United States patents, including
patents on its 900 MHz wireless products, non-contact hydrodynamic multimedia
compact disc cleaning product, CD-to-cassette adapter, video synchronizing
separator, cassette head demagnetizer, cassette head cleaner, antennas and an
adapter to eliminate tangles in coiled telephone cords. Recoton licenses
certain of its proprietary rights for use in products manufactured by others.
Recoton on occasion receives communications from others asserting that certain
of Recoton's products may be covered by such parties' patent or intellectual
property rights. Recoton believes that its products do not infringe on the
intellectual property rights of any third parties.
EMPLOYEES
At December 31, 1995, Recoton had approximately 2,300 employees
worldwide, of which approximately 1,050 reside in the United States or Canada
and approximately 1,250 reside in Hong Kong or the People's Republic of China.
The number of employees in the People's Republic of China fluctuates
significantly on a seasonal basis. Of such U.S. or Canadian employees, 63 were
engaged in sales and marketing, 21 in engineering, research and development,
778 in operations, manufacturing and warehousing and 185 in management, support
services and administration. Approximately 600 employees at Recoton's Lake
Mary, Florida premises are covered by a collective bargaining agreement with
the Glass Molders, Pottery, Plastics & Allied Workers International Union,
which runs through August 2, 1996. Recoton considers its employee relations to
be good.
Directors and Executive Officers of Recoton
The following table sets forth the names, ages and positions of the
directors and executive officers of the Company as of December 31, 1995:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Position
Robert L. Borchardt......... 58 Director; President, Co-Chairman of the Board, Co-Chief Executive
Officer
Herbert H. Borchardt........ 89 Director; Co-Chairman of the Board, Co-Chief Executive Officer
Stuart Mont................. 55 Director; Chief Operating Officer, Chief Financial Officer, Executive
Vice President-Operations, Secretary
George Calvi................ 45 Director; Executive Vice President-Sales and Marketing
Peter Wish.................. 60 Director; Executive Vice President-Administration
Peter E. Dayton............. 59 Senior Vice President-National Sales
Terrance O'Flynn............ 51 Senior Vice President-Marketing
Dennis Wherry............... 51 Senior Vice President-Operations
Craig Dykes................. 37 Vice President-Information Systems
Peter M. Ildau.............. 58 Vice President-Corporate Communications
Joseph H. Massot............ 51 Director; Vice President, Treasurer, Principal Accounting Officer,
Assistant Secretary
William T. McGreevy......... 52 Vice President-Engineering
Richard D. Miller........... 34 Vice President-Compliance
Kevin J. Murphy............. 45 Vice President-Purchasing
Joseph M. Idy............... 55 Director
Irwin S. Friedman........... 62 Director
Ronald E. McPherson......... 66 Director
</TABLE>
Robert L. Borchardt has served as a director of Recoton since 1964, as
President since 1976 and as Co-Chairman and Co-Chief Executive Officer since
1992. He was a Vice President from 1964 until 1969, Executive Vice President
from 1969 until 1976 and Treasurer from 1969 until 1975. He started working for
the Company in 1961. He is also on the Board of Governors of the Electronic
Industries Association a trustee of the Electronics Industries Foundation and
Vice Chairman of the Board of Directors and on the Executive Board of the
Consumer Electronics Manufacturing, Association (CEMA). Mr. Robert Borchardt is
Herbert Borchardt's son.
Herbert H. Borchardt has served as a director of Recoton since 1945
and as Co-Chairman and Co- Chief Executive Officer since 1992. He served as
Executive Vice President from 1945 until 1952, as President from 1952 until
1976 and as Chairman from 1976 until 1992.
Stuart Mont has served as a director of Recoton since 1975 and as
Chief Operating Officer since December 1993. He has also served as Chief
Financial Officer since June 1992, Secretary since February 1989 and Executive
Vice President-Operations since 1992. He served as a Vice President from 1978
until February 1989, as Treasurer from 1975 until 1989 and as Senior Vice
President from February 1989 until 1992. He was elected President of Recoton
Canada Ltd.
in 1992.
George Calvi has served as a director of Recoton since 1984 and as
Executive Vice President-Sales and Marketing since 1992. He served as Vice
President from 1978 until 1988 and as Senior Vice President- Sales and
Marketing from 1988 until 1992.
Peter Wish has served as a director of Recoton since 1969 and as
Executive Vice President- Administration since 1992. He served as Vice
President from 1969 until 1976 and as Executive Vice President from 1976 until
1992.
Peter E. Dayton has served as Senior Vice President-National Sales
since December 1993. He served as Vice President-Sales from 1989 until 1993, as
National Sales Manager from January 1987 to 1989 and as National Account Sales
Manager from 1982 until 1987.
Terrance O'Flynn has served as the Senior Vice President-Marketing
since June 1994. Prior thereto, he was Director of Marketing of the Ladies
Professional Golf Association from 1993 to 1994, President and a member of the
Board of Directors of Mitsubishi Electronics America - Consumer Products Group
from 1990 to 1993 and, prior thereto, Executive Vice President of Mitsubishi
Electronics America - Consumer Products Group.
Dennis Wherry has served as Senior Vice President-Operations since
December 1993. He served as Senior Vice President-Operations of the Calibron
Division from 1991 until December 1993. He was President of Calibron, Inc. from
1985 until its assets were acquired by the Company in 1989. Between 1989 and
1991, he was an employee of the Company responsible for Florida operations.
Craig Dykes has served as Vice President-Information Systems since
January 1991. He served as Assistant Vice President from 1989 until 1991 and as
Director of Information Systems from 1987 until 1989.
He was elected a Vice President of Recoton Canada Ltd. in 1994.
Peter M. Ildau has served as Vice President-Corporate Communications
since December 1993; effective December 1995 such position was made an
executive office of the Company. Between December 1991 and December 1993 he was
Vice President-Advertising and from October 1990 until December 1991 he was
Director of Marketing.
Joseph H. Massot has served as a director of Recoton since 1985, as
Principal Accounting Officer, Vice President and Treasurer since 1989 and as
Assistant Secretary since 1983. He served as Recoton's Controller and Assistant
Treasurer from 1978 until 1989.
William T. McGreevy has served as Vice President-Engineering since
December 1991; effective December 1995 such position was made an executive
office of the Company. From September 1989 to December 1991 he was Director of
Engineering.
Richard D. Miller has served as Vice President-Compliance since
December 1995. From January 1995 until December 1995 he was Recoton's Compliance
Officer. Prior thereto, he was a Trade Specialist (April 1992-January 1995)
and Import Specialist (January 1989-April 1992) with the U.S. Customs Service.
Kevin J. Murphy has served as Vice President-Purchasing since January
1991. He served as Director of Purchasing from 1988 until 1991, as Assistant
Vice President from February 1989 until 1991 and as Regional Sales Manager from
1980 until 1988.
Joseph M. Idy has served as a director of Recoton since 1990. He has
been a stockbroker and money manager at PaineWebber Inc. for more than fifteen
years and Senior Vice President of PaineWebber Inc. since 1989.
Irwin S. Friedman has served as a director of Recoton since 1982. He
has been President, Chief Executive Officer and principal shareholder of I.
Friedman Equities, Inc., a corporate financial consulting firm, for more than
the past five years.
Ronald E. McPherson has served as a director of Recoton since 1969.
Until his retirement in 1989, he served as Secretary of the Company from 1964
and as Vice President of the Company from 1978.
Item 2. Properties.
U.S.A. Since June 1993, Recoton's domestic manufacturing, assembling,
packaging, product research and development, warehousing and distribution
operations have been located in Lake Mary, Florida, a suburb of Orlando. The
Lake Mary complex, owned by the Company, consists of two buildings totalling
445,000 square feet situated on two near-by parcels aggregating approximately
38 acres, and includes state-of-the art office, warehouse, manufacturing and
distribution facilities. The Company currently leases sales and corporate
office space in New York City, New York; warehouse facilities in Maitland,
Florida; sales offices in Ft. Lauderdale, Florida; sales office and warehouse
facilities near Baltimore, Maryland; manufacturing, warehouse and office
facilities near Los Angeles, California (two separate facilities); and sales or
engineering offices near Chicago, Illinois and San Francisco, California.
Canada and Far East. Recoton Canada Limited leases offices and
warehouse facilities in Ontario, Canada. STD Holding Limited has a paid-up
ground lease for offices in Hong Kong, and, through a subsidiary, it owns
manufacturing facilities in the People's Republic of China.
Item 3. Legal Proceedings.
Customs Investigation. In July 1994, agents of the United States
Customs Service, working in conjunction with the United States Attorney's
office in Orlando, Florida, seized property (primarily compact disc cleaners
and universal television remote controls costing approximately $150,000 to the
Company) and business records from the Company's Lake Mary, Florida facility
pursuant to a search warrant. The government's investigation of possible
criminal and civil issues remains pending. It appears that the issues in the
investigation may relate to country of origin marking requirements, duty-free
import status under the Caribbean Basin Initiative, duties with respect to
dies, molds and tooling used overseas, commissions paid to agents and
importation of merchandise subject to textile quotas. An administrative
proceeding has been commenced by the Customs Service under Section 596 of the
Tariff Act (19 U.S.C. ss. 1595a) to determine the disposition of the seized
merchandise. Recoton's management is unable to predict what claims, if any,
might be asserted against Recoton as a result of the investigation or the
financial impact of any such claim on Recoton.
Recoton Corporation v. Gemini Industries, Inc. By complaint filed
August 8, 1995, the Company 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 Company on the CD-20
CD-to-cassette adapter. This case was settled in February 1996.
Recoton Corporation v. Chase Technologies, Inc. By complaint filed
June 2, 1995, the Company 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 Company 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 initiated suit against the Company in California
contending that the Chase products do not infringe such patent and,
alternatively, that Recoton's patent is invalid. Both suits were settled in
January 1996 with the Chase/Home Theater claims of patent invalidity being
withdrawn and Chase/Home Theater acknowledging infringement of Recoton's
patent, albeit accidental.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The Company's Common Stock is traded on the Nasdaq Stock Market under
the symbol "RCOT." The following table sets forth for the periods indicated the
high and low sale prices of the Company's Common Shares as reported on the
Nasdaq Stock Market (adjusted for stock dividends) since January 1, 1994:
Quarter Ended High Low
1994
March 31.......................... $20.67 $13.83
June 30........................... 23.67 17.33
September 30...................... 23.00 12.00
December 31....................... 20.75 15.00
1995
March 31.......................... $19.50 $14.00
June 30........................... 22.50 13.50
September 30...................... 29.00 18.00
December 31....................... 28.00 15.75
1996
March 31 (through March 14, 1996). $22.50 $16.50
On March 14, 1996, the last reported sale price for the Company's
Common Shares on the Nasdaq Stock Market was $19.00 per share. As of March 14,
1996, there were 370 record holders of the Common Shares.
The Company has never paid cash dividends on its Common Shares and
does not anticipate paying cash dividends on its Common Shares in the
foreseeable future. The Company's policy has been to retain all available
earnings for the development and growth of its business. In deciding whether to
pay dividends in the future, the Company's Board of Directors will consider
factors it deems relevant, including the Company's earnings and financial
condition and its working capital and capital expenditure requirements.
Item 6. Selected Financial Data.
The selected consolidated financial data presented below as of and for
each of the fiscal years in the five-year period ended December 31, 1995 are
derived from the consolidated financial statements of Recoton Corporation and
its subsidiaries, which financial statements have been audited by Cornick,
Garber & Sandler, LLP, independent public accountants, whose report relating to
the consolidated financial statements for the three years ended December 31,
1995 appears in this report. The selected consolidated financial data should be
read in conjunction with the consolidated financial statements and notes
thereto of the Company and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended December 31,
1991 1992 1993 1994 1995
(In thousands, except per share data) Statement of
Operations Data:
<S> <C> <C> <C> <C> <C>
Net sales........................................ $58,224 $76,682 $121,364 $163,973 $212,677
Cost of sales.................................... 34,536 44,680 72,607 97,317 129,981
------ ------ ------- ------- --------
Gross profit.................................. 23,688 32,002 48,757 66,656 82,696
Selling, general and administrative expenses..... 19,371 24,922 36,290 49,454 62,747
------ ------ ------- ------- --------
.................................................. 4,317 7,080 12,467 17,202 19,949
Interest expense................................. 1,134 768 1,106 608 793
Provision for (reversal of) patent litigation.... 490 (490) -- -- --
Provision for consolidation of facilities........ -- 565 -- -- --
Net investment income ........................... (102) (101) (11) (479) (569)
------- ------ ------- ------- -------
Income before income taxes ...................... 2,795 6,338 11,372 17,073 19,725
Income tax provision............................. 1,014 2,675 4,050 5,269 4,672
----- ----- ------ ------ -------
Net income................................... $1,781 $3,663 $7,322 $11,804 $15,053
====== ====== ====== ======= =======
Net income per share (1)......................... $0.31 $0.48 $0.86 $1.12 $1.31
===== ===== ===== ===== =====
Weighted average number of common and common
share equivalents outstanding (2)............... 7,573 8,093 8,539 10,572 11,466
===== ===== ===== ====== ======
December 31,
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Balance Sheet Data:
Working capital.................................. $19,001 $20,101 $30,454 $ 83,223 $ 96,402
Total assets..................................... 36,172 59,811 75,439 118,764 185,054
Short-term debt, including current portion of
long-term debt.................................. 1,598 14,952 22,101 863 18,307
Long-term debt................................... 13,630 2,317 6,083 5,221 20,511
Stockholders' equity............................. 13,164 30,191 37,839 96,633 119,397
</TABLE>
- ---------------
(1) Represents net income per share on a fully diluted basis. On
a primary basis, net income per share was $.34, $.58, $.86,
$1.12 and $1.32 for 1991, 1992, 1993, 1994 and 1995
respectively.
(2) As adjusted to give effect to share distributions effected
in the form of stock dividends.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data of
the Company expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
Net sales..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................. 59.3 58.3 59.8 59.3 61.1
----- ----- ----- ----- -----
Gross profit................................. 40.7 41.7 40.2 40.7 38.9
Selling, general and administrative
expenses..................................... 33.3 32.5 29.9 30.2 29.5
----- ----- ----- ----- -----
.............................................. 7.4 9.2 10.3 10.5 9.4
Interest expense.............................. 1.9 1.0 0.9 0.4 0.4
Provision for (reversal of) patent
litigation................................... 0.8 (0.6) -- -- --
Provision for consolidation of facilities..... -- 0.6 -- -- --
Investment income (net)....................... (0.1) (0.1) -- (0.3) (0.3)
------ ------ ----- ------ -----
Income before income taxes .................. 4.8 8.3 9.4 10.4 9.3
Income tax provision.......................... 1.7 3.5 3.4 3.2 2.2
----- ----- ----- ----- -----
Net income................................... 3.1% 4.8% 6.0% 7.2% 7.1%
====== ====== ====== ====== ======
</TABLE>
Comparison of Years Ended December 31, 1995 and 1994
Net sales increased from 1994 to 1995 by $48.7 million or 29.7%, to
$212.7 million. The sales increase is attributable to sales of the Interact,
Performance and STD brands (1995 sales were $24.6 million) which were acquired
by the Company in September 1995 through the acquisition of STD Holding Limited
("STD"), strong sales of the Company's OEM product lines, increased
international sales by the Company's Hong Kong marketing and Canadian
subsidiaries, the continued growth of the Company's 900 MHz wireless audio and
video line and the introduction of new products, including computer and
cellular phone accessories.
Gross profit increased from 1994 to 1995 by $16.0 million to $82.7
million but decreased as a percentage of net sales from 40.7% in 1994 to 38.9%
in 1995. The dollar increase was attributable to increased sales, of which the
STD product line was the primary contributor. The percentage decrease was due
primarily to a change in product mix and aggressive pricing aimed at expanding
market share. The change in product mix included sales of newly introduced
cellular phone accessories and universal TV remote control products, which have
lower gross margins and sales of OEM products, which typically carry lower
gross margins, yet have lower associated selling expenses.
Selling, general and administrative expenses increased in 1995 by
$13.3 million to $62.7 million, but decreased as a percentage of net sales from
30.2% to 29.5%. Approximately $6.8 million of the increase was attributable to
the acquired STD operation with the balance attributable to increased selling
expenses related to the increased sales volume. The percentage decrease was due
to the increased proportion of sales to OEM customers and increased operating
efficiencies, which were however offset by increased research and development,
advertising and marketing expenses.
Interest expense in 1995 was approximately $793,000 of which
approximately $600,000 was attributable to the acquisition and the operations
of STD. The Company borrowed $13 million to finance the acquisition and also
assumed STD's bank obligations. Interest expense on domestic borrowings in 1995
decreased by approximately $388,000.
Investment income increased in 1995 by approximately $90,000 to
$569,000. The increase in investment income resulted from the investment of
temporarily surplus funds.
The effective income tax rate decreased to 23.7% of pre-tax income in
1995 from 30.9% in 1994, principally as a result of the higher proportion of
income earned by the Company's subsidiaries in Hong Kong and China, which are
taxed at a maximum rate of 16.5%. The effective income tax rate for the year
ended December 31, 1995 may not be indicative of the effective income tax rate
for the year ending December 31, 1996 or thereafter because of the changes in
the proportion of domestic and foreign taxable income which might occur.
Income per share in 1995 was $1.32 on a primary basis and $1.31 on a
fully-diluted basis. The 1995 per share calculations were based on 11,402,000
(11,466,000 on a fully-diluted basis) average common and common equivalent
shares outstanding, as compared with 10,560,000 and 10,572,000 shares,
respectively, for 1994. 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 Shares in April 1994 being included in the earnings per share
calculation for a full year and the 406,092 shares issued as part of the STD
purchase in September 1995.
In 1996, the Company will be required to adopt Statements of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" and No. 123, "Accounting
for Stock-Based Compensation." The Company does not expect a material impact on
earnings from the adoption of either standard.
Comparison of Years Ended December 31, 1994 and 1993
Net sales increased from 1993 to 1994 by $42.6 million or 35.1%, to
$164 million. This increase in net sales was due to strong sales of the
Company's existing consumer electronics accessory product lines and acceptance
of new cellular telephone and computer products. The Company experienced
continued strong growth of its 900 MHz wireless audio and video line (1994
sales exceeded $30 million, up from over $15 million in 1993) and increased
international sales primarily by the Company's Hong Kong and Canadian
subsidiaries (an increase of approximately $13 million from 1993 to 1994).
Gross profit increased in 1994 by $17.9 million, and increased
slightly as a percentage of net sales from 40.2% to 40.7%. The dollar increase
was primarily attributable to the increase in net sales and the percentage
increase was attributable to a slightly more profitable product mix.
Selling, general and administrative expenses increased in 1994 by
$13.2 million to $49.5 million and increased slightly as a percentage of net
sales from 29.9% to 30.2%. The dollar increase was attributable primarily to
increased selling expenses related to the increased sales volume. The slight
increase in the percentage was attributable to increased promotional costs,
which were partially offset by increased operating efficiencies resulting from
the consolidation of the Company's facilities in the Spring of 1993.
Interest expense decreased in 1994 by approximately $498,000 to
$608,000. The decrease was due to the repayment of short-term borrowing from
the proceeds of the public offering of the Company's Common Shares concluded in
April 1994.
Investment income increased in 1994 by approximately $469,000 to
$479,000. The increase resulted from the investment of a portion of the
proceeds from the public offering of the Company's Common Shares in short-term
treasury bills.
The effective income tax rate decreased to 30.9% in 1994 from 35.6% in
1993. The factors causing the reduction in the effective income tax rate are:
(1) the income earned by the Company's Hong Kong subsidiary, which began
operations in the second half of 1993, was taxed at 16.5% in 1994 (17.5% in
1993); (2) the benefits of lower effective state tax rates due to the Company's
relocation to Florida in the second quarter of 1993; and (3) the nonrecurring
benefit of the 1992 loss carryforward of the Company's Canadian subsidiary
which could not be utilized until 1994.
Income per share data for all periods gives effect to the
three-for-two stock split effected in the form of a 50% stock dividend
distributed by the Company in July 1994. Income per share for 1994 includes the
effect of the 1,740,000 shares sold in the public offering of the Company's
Common Shares in April 1994. As a result of the offering, the Company's then
outstanding Common Shares were 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 Common Shares, raising net proceeds of approximately $46.5 million.
The Company maintains domestic lines of credit of $50 million with three banks
of which $5 million can only be used for acquisition purposes, any of which may
be terminated by such banks at any time. At December 31, 1995, loans and
letters of credit of $7.5 million were outstanding on the domestic lines of
credit and $8.1 million were outstanding under foreign lines of credit. In
January 1996, the Company's Hong Kong subsidiaries replaced their former
borrowing arrangements with an aggregate $19.5 million line of credit with four
foreign banks.
At December 31, 1995, the Company had working capital of approximately
$96.4 million as compared with approximately $83.2 million at December 31,
1994. The net increase of approximately $13.2 million resulted primarily from
profitable operations for the year ended December 31, 1995. However, the
Company's working capital ratio decreased to 3.2 to 1 at December 31, 1995 from
6.3 to 1 at December 31, 1994. The September 1995 purchase of STD Holding
Limited brought about a major change in the components of the Company's working
capital, which effected the working capital ratio. Inventories as a whole
increased approximately $22.8 million, with STD accounting for approximately
$14.8 million of that increase; the balance of the increase was necessitated by
increased investment for the introduction of new products and projected
increases in sales volume. Similarly, trade receivables increased approximately
$19.4 million, of which STD accounted for approximately $14.7 million and the
balance was due to a higher sales volume. Additionally, short-term bank loans
and current portion of long-term debt as a whole increased approximately $17.4
million, with STD accounting for approximately $9.9 million of that increase;
the balance was necessary to support the increase in inventory and trade
receivables. Accounts payable increased approximately $6.2 million, of which
STD accounted for approximately $7.7 million, offset by a $1.4 million decrease
in Recoton Corporation's domestic accounts payable.
In June and August of 1994, the Company purchased approximately 30
acres of land in Lake Mary, Florida on which it completed construction in 1995
of a 245,000 square foot warehouse building. The cost for the land and building
construction was approximately $7.2 million. The Company initially utilized a
combination of its own cash and existing bank lines for this project. However,
in December 1995 the Company obtained a five-year $7 million mid-term
uncollateralized bank loan.
In August 1994, the Board of Directors authorized the repurchase by
the Company of up to 500,000 outstanding Common Shares. In 1994, 6,166 shares
were repurchased for approximately $125,000 and, in 1995, an additional 42,366
shares were repurchased for $710,000.
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 Christie Design
Corporation located in Chatsworth, California. This wholly-owned subsidiary has
developed and will market speaker products. The Company has expended
approximately $3 million for start-up and capital costs for this subsidiary
through December 31, 1995. The Company expects to begin manufacturing and
shipping in early 1996.
In September 1995, Recoton acquired STD Holding Limited, a Hong
Kong-based international manufacturer and marketer of multimedia and computer
accessories, including video game joysticks, controllers and accessories and
computer speakers sold under the Interact, Performance and STD brand names.
STD's operations are in Hong Kong, the People's Republic of China and Maryland
(U.S.A.). The total cost of the purchase of $22.7 million was paid through a
combination of cash and 406,092 Recoton Common Shares (valued at $8.3 million).
The cash portion of the purchase price was initially borrowed under existing
bank lines of credit. In December 1995, the Company obtained a five-year bank
term loan to replace these borrowings.
In January 1996, Recoton announced it had executed a definitive merger
agreement to acquire International Jensen Incorporated (IJI), a leading
marketer of home and automotive loudspeakers at a total estimated cost of
approximately $55 million, plus the assumption of IJI debt. IJI's shareholders
are being offered cash and/or Recoton Common Shares for their IJI shares,
subject to specified maximums and adjustments, as more fully described in the
merger agreement. The cash portion of the purchase is expected to be financed
through medium-term debt and revolving lines of credit. The transaction is
subject to the approval of Jensen's stockholders as well as certain other
conditions. The acquisition is currently anticipated to close in May.
The Company currently believes there is no material exposure to loss
due to foreign currency risks in its foreign subsidiaries. The Hong Kong dollar
has been pegged to the U.S. dollar at an official exchange rate of HK$7.78 to
US$1.00. Historically, there have been no material fluctuations in the Hong
Kong/United States and the Hong Kong/Chinese exchange rates. No material
amounts are invested in Canadian assets.
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.
Item 8. Financial Statements and Supplementary Data.
(a)(1) INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-1
Recoton Corporation and Subsidiaries --
Consolidated Balance Sheets as
at December 31, 1994 and 1995 F-2
Consolidated Statements of Operations for
the years ended December 31, 1993, 1994
and 1995 F-3
Consolidated Statements of Stockholders'
Equity for the years ended December 31, 1993,
1994 and 1995 F-4 to F-6
Consolidated Statements of Cash Flows for
the years ended December 31, 1993, 1994
and 1995 F-7 to F-8
Notes to Financial Statements F-9 to F-25
(a)(2) INDEX TO FINANCIAL STATEMENT SCHEDULE
Independent Auditor's Report on
Supplemental Schedule F-26
Recoton Corporation and Subsidiaries --
Schedule II -- Valuation and
Qualifying Accounts F-27
Other financial statement schedules have not been filed because the
conditions requiring the filing do not exist or the required information is
provided in the consolidated financial statements, including the notes thereto.
The individual financial statements of the Company have been omitted
because the requirements for omission have been met.
<PAGE>
Independent Auditors' Report
Board of Directors
Recoton Corporation
We have audited the accompanying consolidated balance sheets
of RECOTON CORPORATION AND SUBSIDIARIES as at December 31, 1994 and 1995 and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Recoton Corporation and Subsidiaries as at December 31, 1994 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
/s/ CORNICK, GARBER & SANDLER, LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
February 27, 1996
<TABLE>
<CAPTION>
RECOTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(TABULAR AMOUNTS IN THOUSANDS)
ASSETS AS AT DECEMBER 31,
1994 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,475 $ 12,393
Accounts receivable (less allowance for possible
loss of $989,000 in 1994 and $1,587,000 in 1995) 35,580 55,019
Inventories 43,669 66,484
Prepaid expenses and other current assets 4,300 6,583
-------- --------
Total current assets 99,024 140,479
Property and equipment (at cost, less accumulated
depreciation and amortization) 12,948 24,163
Goodwill (less accumulated amortization) 3,809 16,391
Other assets 2,983 4,021
-------- ---------
T O T A L $118,764 $185,054
======== ========
LIABILITIES
Current liabilities:
Bank loans and drafts payable $ 13,176
Current portion of long-term debt $ 863 5,131
Accounts payable 8,944 15,144
Accrued expenses 4,117 7,417
Income taxes payable 1,877 3,209
-------- --------
Total current liabilities 15,801 44,077
Long-term debt (less current portion above) 5,221 20,511
Other noncurrent liabilities 1,108 1,069
-------- --------
Total liabilities 22,130 65,657
-------- --------
Commitments and contingencies (Notes B, N and 0)
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 11,793,198 shares in
1994 and 12,296,160 shares in 1995 2,359 2,459
Additional paid-in capital 64,394 72,926
Retained earnings 33,744 48,797
Cumulative foreign translation adjustment (381) (300)
-------- --------
Total 100,116 123,882
Treasury stock - 1,073,859 shares in 1994 and
1,132,770 shares in 1995, at cost (3,482) (4,485)
-------- --------
Total stockholders' equity 96,634 119,397
-------- --------
T O T A L $118,764 $185,054
======== ==========
</TABLE>
The notes to financial statements are made a part hereof.
<TABLE>
<CAPTION>
RECOTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
1993 1994 1995
<S> <C> <C> <C>
Net sales $121,364 $163,973 $212,677
Cost of sales 72,607 97,317 129,981
-------- -------- --------
Gross profit 48,757 66,656 82,696
-------- -------- --------
Selling, general and administrative
expenses 36,290 49,454 62,747
Interest expense 1,106 608 793
Investment income (11) (479) (569)
-------- -------- ------
T o t a l 37,385 49,583 62,971
-------- -------- -------
Income before income taxes 11,372 17,073 19,725
Income tax provision 4,050 5,269 4,672
-------- -------- ------
NET INCOME $ 7,322 $ 11,804 $ 15,053
======== ======== ======
Income per share:
Primary $.86 $1.12 $1.32
==== ===== ====
Assuming full dilution $.86 $1.12 $1.31
==== ===== =====
Average number of shares used in computing per share amounts:
Primary 8,494 10,560 11,402
===== ====== ======
Assuming full dilution 8,539 10,572 11,466
===== ====== ======
</TABLE>
The notes to financial statements are made a part hereof.
<TABLE>
<CAPTION>
RECOTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Cumulative
Foreign
Additional Currency
Common Stock Paid-In Retained Translation Treasury Stock
Shares Amount Capital Earnings Adjustment Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1993 5,034,372 $1,007 $18,028 $14,618 $ (66) 1,086,509 $3,396
Net income for the year 7,322
Post closing Ambico
purchase price adjustment 1,002 16
Exercise of stock options 25,045 5 82
Repurchase of stock
1,086 23
Issuance of stock option at
less than fair market
value 20
Issuance of stock awards and
bonuses 295 (19,902) (62)
Share distribution in the
form of 33 1/3% stock
dividend (including cash paid
for fractional shares) 1,329,087 266 (269)
Foreign currency translation
adjustment (128)
--------- ----- ------ ------ ----- --------- -----
BALANCE - DECEMBER 31, 1993 6,389,506 1,278 18,172 21,940 (194) 1,067,693 3,357
(CARRY FORWARD) --------- ----- ------ ------ ----- --------- -----
</TABLE>
<TABLE>
<CAPTION>
RECOTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
-2-
Cumulative
Foreign
Additional Currency
COMMON STOCK Paid-In Retained Translation TREASURY STOCK
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT SHARES AMOUNT
----------- --------- ------------- ------------ ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1993
(BROUGHT FORWARD) 6,389,506 $1,278 $18,172 $21,940 $(194) 1,067,693 $3,357
Net income for the year 11,804
Public offering of common stock 1,740,000 348 46,183
Exercise of stock options 97,371 20 756
Repurchase of stock 6,166 125
Share distribution in the form
of 50% stock dividend
(including cash paid for
fractional shares) 3,566,321 713 (717)
Foreign currency translation
adjustment 187)
BALANCE - DECEMBER 31, 1994 ---------- ------ ------- ------ ----- --------- ------
(CARRY FORWARD) 11,793,198 2,359 64,394 33,744 (381) 1,073,859 3,482
---------- ------ ------- ------ ----- --------- ------
</TABLE>
<TABLE>
RECOTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- 3 -
<CAPTION>
Additional Currency
COMMON STOCK Paid-In Retained Translation TREASURY STOCK
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT SHARES AMOUNT
----------- ---------- ----------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - DECEMBER 31, 1994
(BROUGHT FORWARD) 11,793,198 $2,359 $64,394 $33,744 $(381) 1,073,859 $3,482
Net income for the year 15,053
Exercise of stock options 96,870 19 339 4,649 99
Repurchases of stock 42,366 710
Stock issued for acquisition
of STD Holding Limited 406,092 81 8,193
Stock acquired in cancellation
of $194,000 loan receivable 11,896 194
Foreign currency translation
adjustment 81
---------- ------ ------- ------- ----- --------- ------
BALANCE - DECEMBER 31, 1995 12,296,160 $2,459 $72,926 $48,797 $(300) 1,132,770 $4,485
========== ====== ======= ======= ===== ========= ======
</TABLE>
No shares of preferred stock were issued or outstanding during the above
periods.
The notes to the financial statements are made a part
hereof.
<TABLE>
RECOTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(TABULAR AMOUNTS IN THOUSANDS)
<CAPTION>
YEAR ENDED DECEMBER 31,
INCREASE (DECREASE) IN CASH AND 1993 1994 1995
----------- ----------- ---------
CASH EQUIVALENTS
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,322 $ 11,804 $ 15,053
--------- -------- --------
Adjustments to reconcile results of operations to net cash provided by
operating activities:
Depreciation 1,482 1,677 2,496
Amortization of intangibles 679 765 1,120
Provision for losses on accounts receivable 410 367 847
Deferred income taxes 189 (305) (776)
Expense applicable to stock awards issued
from treasury stock and stock option granted
at prices less than fair market value 29
Change in asset and liability accounts (net
of effects of acquisitions):
Accounts receivable (10,212) (7,575) (13,242)
Inventory (4,076) (15,896) (14,195)
Prepaid expenses and other current assets (1,098) (1,616) (1,858)
Other assets (153) (187) 95
Accounts payable and accrued expenses (2,670) 4,668 923
Income taxes payable 169 1,281 1,114
Other noncurrent liabilities (75) (26) 43
-------- -------- --------
Total adjustments (15,326) (16,847) (23,433)
-------- -------- --------
Net cash used for operating activities (8,004) (5,043) (8,380)
-------- -------- --------
Cash flows from investing activities:
Payments for acquisitions (net of
approximately $2,340,000 cash acquired
in 1995) (2,994) (12,883)
Expenditures for trademarks, patents and
intellectual property (344) (96) (771)
Expenditures for property and equipment (2,473) (4,420) (10,561)
-------- -------- --------
Net cash used for investing activities (2,817) (7,510) (24,215)
-------- -------- --------
</TABLE>
<TABLE>
RECOTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(TABULAR AMOUNTS IN THOUSANDS)
<CAPTION>
YEAR ENDED DECEMBER 31,
INCREASE (DECREASE) IN CASH AND 1993 1994 1995
----------- ----------- --------
CASH EQUIVALENTS
<S> <C> <C> <C>
Cash flows from financing activities:
Net borrowings (repayments) under credit
agreements $ 6,447 $(20,800) $13,193
Repayments of bank loans assumed upon
acquisition of businesses (1,175) (2,273)
Net proceeds from long-term bank borrowings 5,054 20,000
Repayment of long-term bank borrowings (682) (1,379) (943)
Net proceeds from public offering of common
stock 46,531
Proceeds from exercise of stock options 66 134 198
Purchases of treasury stock (23) (125) (710)
Income tax benefit applicable to exercise
of stock options 21 641 62
Payments for fractional shares (3) (4)
-------- ------- ------
Net cash provided by
financing activities 10,880 23,823 29,527
-------- ------- ------
Effect of foreign exchange rate changes
on cash of foreign subsidiaries (37) 17 (14)
-------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 22 11,287 (3,082)
Cash and cash equivalents - January 1 4,166 4,188 15,475
-------- ------- -------
CASH AND CASH EQUIVALENTS - DECEMBER 31 $ 4,188 $15,475 $12,393
======== ======= =======
Supplemental disclosures of cash paid for:
Interest $ 1,047 $ 642 $ 713
======== ======= =======
Income taxes $ 3,527 $ 3,653 $ 4,429
======== ======= =======
</TABLE>
The notes to financial statements are made a part hereof.
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
DESCRIPTION OF BUSINESS:
The Company operates in one line of business, as a manufacturer
and supplier of a comprehensive line of accessories for consumer
electronic products. The Company's products are sold principally
to retailers, original equipment manufacturers and other accessory
vendors located primarily in the United States, Canada and the Far
East. In addition to its domestic facilities, the Company
maintains office and warehouse facilities in Hong Kong and Canada
and manufacturing facilities in the People's Republic of China.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of
Recoton Corporation (Company) and its subsidiaries, which are
wholly-owned. All material intercompany accounts 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.
TRANSLATION OF FOREIGN SUBSIDIARY FINANCIAL STATEMENTS:
The assets and liabilities of the Company's foreign subsidiaries
are translated into United States dollars at year end rates of
exchange. Operating accounts are translated at average rates of
exchange during the year. Gains and losses on translation are
reflected as a separate component of stockholders' equity on the
consolidated balance sheet. Also included in the separate
component of stockholders' equity are the effects of exchange rate
changes on certain intercompany balances with the Canadian
subsidiary which are not intended to be settled on a current
basis.
CASH AND CASH EQUIVALENTS:
Cash equivalents on the balance sheet and statement of cash flows
are comprised of money market mutual funds, certificates of
deposit with a maturity of three months or less and U.S. Treasury
bills purchased within three months of their maturity. Due to the
nature and size of the Company and the volume of its transactions,
it maintains certain domestic cash accounts in excess of FDIC
insured limits and cash accounts in foreign banks.
(Continued)
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-2-
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying value at December 31, 1995 and December 31, 1994 of
the Company's financial instruments approximated their fair value
primarily due to the short maturities of these instruments.
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out
method) or market, representing estimated net realizable value.
DEPRECIATION OF PROPERTY AND EQUIPMENT:
For financial accounting purposes, depreciation is computed over
the estimated useful lives of the assets on the straight-line
method. For income tax purposes, accelerated depreciation methods
are utilized for certain assets.
GOODWILL:
Goodwill, representing the excess of the purchase price over the
fair value of the net assets acquired in business combinations
treated as purchases, is being charged to operations on a
straight-line basis over periods of from 15 to 20 years. At each
balance sheet date, the Company intends to periodically review for
impairment the unamortized goodwill balance from each of its
acquisitions. If it appears that there has been a change in events
or circumstances which indicates that the unamortized balance may
not be fully recoverable, an evaluation will be made using
undiscounted estimated future cash flows and estimated current
values of the acquired businesses or related assets, as
appropriate.
OTHER ASSETS:
Other assets are summarized as follows:
(In Thousands)
DECEMBER 31,
---------------------
1994 1995
------ -------
Noncompete covenants $ 709 $ 206
Trademarks, patents and
licensing costs 651 1,589
Long-term debt financing
costs 132 165
Noncurrent deferred income
tax assets 737 1,069
Investments in split dollar
life insurance policies and
miscellaneous assets 754 992
------ ------
T O T A L $2,983 $4,021
====== ======
(Continued)
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-3-
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
OTHER ASSETS (CONTINUED);
Noncompete covenants are being charged to operations over the
term of the related noncompete agreements. Trademarks, patents
and licensing costs are being charged to operations over the
terms of the related trademarks, patent or license period, or a
shorter period based on the estimated commercial life of the
related product. Debt financing costs are charged to operations
over the scheduled term of the related debt instrument; however,
if the related debt is paid prior to its scheduled maturity, such
costs are written off in proportion to the debt reduction.
INCOME TAXES:
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). Previously, the Company had accounted for
income taxes under the provisions of Accounting Principles Board
Opinion No. 11. This change in accounting for income taxes had no
material effect on the net balance of the Company's deferred
income tax assets and liabilities at January 1, 1993 or on its
provision for income taxes for the year ended December 31, 1993.
INCOME PER SHARE:
Primary income per share is based on the weighted average number
of common and, if material, common equivalent shares outstanding
during each year. Fully diluted income per share is based on the
weighted average number of common and common equivalent shares
outstanding. All per share amounts give effect to the stock
splits effected in the form of stock dividends in 1993 and 1994.
NOTE B - ACQUISITIONS:
In January 1994, the Company purchased for approximately $450,000
certain tangible assets and proprietary rights of Infrared
Research Labs, Inc., a supplier of universal remote control
devices.
(Continued)
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-4-
NOTE B - ACQUISITIONS (CONTINUED):
In September 1994, the Company acquired from Sound Quest, Inc.
selected assets relating to its automotive audio accessory
product line and assumed certain liabilities at a net cost of
$2.54 million. An additional purchase price, not to exceed $1.15
million, is contingently payable to Sound Quest, Inc. over the
five year period ending Decem- ber 31, 1999 based on increases in
sales of the product line (as defined) over base period sales.
Goodwill of $2.3 million, representing the excess of the
consideration paid over the fair value of the net assets
acquired, is being charged to operations over 15 years. The prior
year's operations of Sound Quest, Inc. were immaterial in
relation to those of the Company.
In February 1995, the Company purchased, for approximately
$722,000 selected assets of Ampersand (a division of Ampco
Industries, Inc.). Ampersand is a manufacturer and supplier of
car stereo installation accessories.
Effective August 31, 1995, the Company acquired, in a purchase
transaction, the outstanding stock of STD Holding Limited
("STD"), as well as certain net assets owned by one of STD's
subsidiaries. STD is a manufacturer and marketer of video game
joysticks, controllers and computer accessories. The purchase
price was approximately $22.7 million, which included the
issuance of 406,092 shares of Recoton's common stock with a
market value of approximately $8.3 million. The $13 million
excess of consideration paid over the fair market value of the
net assets acquired has been recorded as goodwill, which is being
amortized to operations over 15 years. The results of operations
of STD are included in the accompanying financial statements from
September 1, 1995.
The following presents, on an unaudited pro forma basis, the net
sales, net earnings and earnings per share of the Company for the
years ended December 31, 1994 and 1995, as if STD had been owned
during these years. The information for STD is based on its
audited financial statements for its fiscal year ended March 31,
1995 and its unaudited historical information for the eight
months ended August 31, 1995. The pro forma information does not
purport to be indicative of the results of operations that would
have occured had the transaction taken place at the beginning of
the periods presented, nor is it necessarily indicative of the
expected future results of operations.
(Continued)
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-5-
NOTE B - ACQUISITIONS (CONTINUED):
(In Thousands, Except Per Share Data)
YEAR ENDED DECEMBER 31,
1994 1995
---- ----
Net sales $204,806 $233,897
======== ========
Net earnings $ 13,794 $ 14,137
======== ========
Primary earnings per share $ 1.26 $ 1.21
======== ========
In January 1996, the Company and International Jensen
Incorporated ("Jensen") entered into a merger agreement, pursuant
to which Jensen would be merged into a wholly-owned subsidiary of
the Company and each stockholder of Jensen would receive $8.90 in
cash and/or shares of the Company's common stock for each share
of Jensen's common stock. The total acquisition cost is estimated
at $55 million, including estimated investment banker's fees and
other costs of the merger. As a condition of the merger, Jensen
will sell the assets of its original equipment manufacturing
business for approximately $15 million and the assumption of
certain liabilities to a company owned by Jensen's President. The
merger is contingent on a number of conditions, including the
approval of Jensen's stockholders. Jensen is a leading
manufacturer, marketer of home and automotive loudspeakers. The
merger is currently anticipated to close in May 1996.
The Company has licensed from Jensen certain trademarks for a
period of one year from January 1996 at a fee of $10,000 a month.
The Company has also acquired an option to purchase the licensed
marks, exercisable at any time until the first anniversary of the
grant date (or later under certain limited circumstances), for a
purchase price of $6 million. In addition, Jensen acquired an
option to sell the licensed trademarks exercisable at any time
after the termination of the Merger Agreement and before the
first anniversary of the grant date (or later under certain
limited circumstances) for $6 million. It is Recoton's current
intention to exercise the purchase option if the merger does not
occur as planned; in the event of such exercise, Recoton has the
right to offset against its payment any termination fees which
may be owed by Jensen to Recoton under the Merger Agreement
(which, under certain circumstances, would either be $6 million
or $1.5 million).
(Continued)
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-6-
NOTE C - INVENTORIES:
Inventories are summarized as follows:
(In Thousands)
DECEMBER 31,
1994 1995
-------- ------
Raw materials and
work-in-process $14,765 $22,237
Finished goods 21,751 35,132
Merchandise in-transit 7,153 9,115
------- -------
T O T A L $43,669 $66,484
======= =======
<TABLE>
NOTE D - PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
<CAPTION>
(In Thousands) Estimated
DECEMBER 31, Useful Life
1994 1995 (YEARS)
----------- ---------- ---------
<S> <C> <C> <C>
Land $ 3,016 $ 3,016
Buildings, leaseholds
and improvements (1) 5,656 12,926 15 - 40
Machinery and
equipment 3,731 5,820 3 - 5
Furniture, fixtures
and office equip-
ment 2,804 4,571 3 - 7
Tools and dies 3,595 6,077 2 - 5
------- -------
Totals 18,802 32,410
Less accumulated
depreciation
and amortization 5,854 8,247
------- -------
Balance $12,948 $24,163
======= =======
</TABLE>
(1) Includes interest costs capitalized of approximately
$70,000 in 1994 and $298,000 in 1995.
(Continued)
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-7-
NOTE E - LINES OF CREDIT AND DRAFTS PAYABLE - BANK:
The Company has $50 million of domestic bank lines of credit with
three banks, of which $5 million can only be used for acquisition
purposes. With respect to the remaining $45 million, the banks
have a security interest to the extent of merchandise purchased
utilizing bankers' acceptances. Interest on borrowings under the
lines is payable at rates negotiated with the banks at the time
borrowings are made. At December 31, 1995, outstanding short-term
bank loans under these lines were approximately $6.1 million.
Additionally, at December 31, 1995, the Company's Hong Kong
subsidiaries had short-term bank loans of approximately $7.1
million outstanding under their bank lines of credit. The
weighted average interest rate on the short-term bank loans
outstanding at December 31, 1995 was approximately 6.5% with
respect to the domestic borrowings and approximately 8.7% with
respect to the borrowings by the Hong Kong subsidiaries.
Outstanding letters of credit, which aggregated approximately
$2.4 million, reduce the amounts available under these lines of
credit.
In January 1996, the Company's Hong Kong subsidiaries
renegotiated their bank lines of credit. The new lines of credit,
which aggregate approximately $19.5 million, are with four
overseas banks. Under the terms of the new lines, the banks have
a security interest to the extent of merchandise purchased
utilizing trust receipt loans. Interest on borrowings under these
lines is primarily payable at rates varying from .25% to .50%
above the Hong Kong prime rate.
NOTE F - LONG-TERM DEBT:
Long-term debt included in the consolidated balance sheets is
summarized as follows:
(In Thousands)
AS AT DECEMBER 31,
------------------------
1994 1995
------ ------
Notes payable - banks: (1)
Due in monthly installments of
$58,350 through October 1998, plus
interest at 6.91% a year $2,683 $1,983
Due in quarterly installments of
$650,155 through December 2000,
plus interest at 7.80% a year 13,000
Due in monthly installments of
$116,670 through December 2000,
plus interest at 6.60% a year 7,000
Due in monthly installments of
$2,600 through December 1998,
plus interest at 8.875% 97
(Continued)
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-8-
NOTE F - LONG-TERM DEBT (CONTINUED):
(In Thousands)
As at
DECEMBER 31,
-----------------
1994 1995
------ ------
Mortgages payable - bank:
Collateralized by certain land and
building in Lake Mary, Florida payable in monthly installments of $36,368
to June 2001 with a final installment aggregating approximately $2 million
due in July 2001. The payments include interest at 7.99% to 8.40% a year
$3,401 $ 3,238
Collateralized by certain leasehold land
and buildings in Hong Kong - payable
in monthly installments of $10,461
through April 1997, plus interest at
8% a year 166
Captialized lease obligations (2) 158
------ -------
Total long-term debt 6,084 25,642
Less current portion 863 5,131
------ -------
Noncurrent portion $5,221 $20,511
====== =======
(1) The banks require the maintenance of various financial ratios relating to
certain notes payable.
(2) The capitalized lease obligations, which relate to certain transportation
equipment, expire at various times through March 1999. The monthly
payments range from $1,138 to $3,787 and include interest at rates
varying from 12.05% to 15.99%.
The noncurrent portion of long-term debt at December 31, 1995 is payable as
follows:
Year ending December 31:
(In Thousands)
1997 $ 4,996
1998 4,852
1999 4,231
2000 4,246
2001 2,186
-------
T O T A L $20,511
=======
(Continued)
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-9-
NOTE G - STOCKHOLDERS' EQUITY:
In September 1993, the Company effected a four-for-three stock
split in the form of a 33 1/3% stock dividend and, in July 1994,
the Company effected a three-for-two stock split in the form of a
50% stock dividend. All earnings per share and weighted average
per share amounts and stock option data have been adjusted to
reflect these transactions. Since, in each instance, the par
value per share of the Company's common stock did not change, the
aggregate par value of the shares issued was transferred to the
capital stock account from additional paid-in capital.
In January 1993, the Company issued 600 shares of treasury stock
as restricted stock awards to independent sales representatives.
The excess of the $9,750 fair market value of such stock over its
cost was credited to additional paid-in capital.
In February 1993, the Board of Directors authorized the Recoton
Corporation Stock Bonus Plan, which provides for the issuance to
officers and key employees an aggregate of up to 300,000 shares
of stock held in treasury. Such plan is administered by a
committee of the Board of Directors. Awards under the plan are
charged to operations based on the fair market value of the
shares at the date of issuance. In 1993, the Company awarded
19,302 shares with a fair market value of $347,436.
In April 1994, the Company completed a public offering of
1,740,000 shares of common stock, which resulted in net proceeds
to the Company of $46.53 million. The $46.18 million excess of
the net proceeds over the par value of the shares issued was
credited to additional paid-in capital.
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 1994, a total of 6,166 shares were repurchased for
approximately $125,000 and in 1995, an additional 42,366 shares
were repurchased for approximatly $710,000.
In October 1995, the Company adopted a shareholders' rights plan.
The plan becomes operative in certain events involving the
acquisition of 20% or more of the Company's common stock or the
commencement of a tender or exchange offer by any person or group
in a transaction not approved by the Company's Board of
Directors. Upon the occurrence of such an event, each right,
unless redeemed by the Board at a redemption price of $0.01 per
right, entitles its holder to purchase for $100 an amount of
common stock of the Company, or in certain circumstances the
acquirer, having a market value of twice the purchase price. In
connection with the rights plan, 250,000 shares of Series A
Junior Participating Preferred Shares have been reserved.
(Continued)
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-10-
NOTE G - STOCKHOLDERS' EQUITY (CONTINUED):
In connection with the exercise of incentive stock options, in
1993 10,311 shares of common stock were issued in exchange for
1,649 shares of previously issued common stock with a market
value of approximately $30,000 and in 1995 51,602 shares of
common stock were issued in exchange for 4,049 shares of
previously issued common stock with a market value of
approximately $99,000; no cash was received in connection with
these transactions.
NOTE H - STOCK OPTIONS:
At December 31, 1995, options to purchase 17,066 shares at prices
ranging from $1.13 to $1.88 a share are outstanding under the
Company's 1982 incentive stock option plan. No additional options
are available for grant under this plan. The Company's 1991 Stock
Option Plan provides for the granting of options to purchase up
to 2,500,000 shares of common stock; such options may be either
incentive stock options (as defined in the Internal Revenue Code)
or nonqualified options. The length, vesting schedule, option
price and other terms of the options are determined at the time
each option is granted, although the term of options cannot
exceed 10 years and incentive stock option prices may not be less
than the fair market value of the stock on its date of grant. In
1995, the Company granted nonqualified options to purchase
160,439 shares of common stock at $15.50 a share and incentive
stock options to purchase 143,161 shares at $15.50 to $21.00 a
share. Additionally, in 1995, under the terms of an employment
agreement, a nonqualified option to purchase 100,000 shares of
common stock at a price of $24.00 a share was granted to Mr.
Robert Borchardt, the Company's President, Co- Chairman of the
Board and Co-Chief Executive Officer. The agreement also provides
for the granting of additional nonqualified options each year for
the duration of the agreement, based on a formula related to
annual increases in consolidated net income, as defined, pursuant
to which options to purchase 79,741 shares are issuable for 1995.
At December 31, 1995, options outstanding and issuable under the
Plan aggregate 1,069,564 shares, comprised of incentive stock
options for 403,297 shares and nonqualified options for 666,267
shares, exercis- able at prices ranging from $3.33 to $24.00 a
share.
(Continued)
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-11-
NOTE H - STOCK OPTIONS (CONTINUED):
The Company's Nonqualified Plan provides for the granting of
options to purchase up to 346,666 shares of common stock. At
December 31, 1995, outstanding options under the plan aggregated
194,270 shares, of which 60,936 shares are exercisable at $1.13 a
share and the balance are exercisable at $2.73 a share.
In 1993, the Company issued a consulting firm a nonqualified
option, expiring on March 5, 1996, to purchase 15,000 shares of
common stock for $9.00 a share, all of which are outstanding at
December 31, 1995. The $19,725 difference between the aggregate
option price and the market value of the Company's stock at the
date of issuance of the option has been charged to operations and
credited to additional paid-in capital in 1993. An additional
nonqualified option, expiring in March 1998, to purchase 10,000
shares of common stock at $16.00 a share was granted to the
consulting firm in 1995, all of which is also outstanding at
December 31, 1995.
A nonqualified option to purchase 7,500 shares of common stock at
$20.67 a share was granted to a Director of the Company in 1994
and is outstanding at December 31, 1995.
Since all outstanding options to officers and employees were
granted for at least the fair market value of the Company's stock
at the dates of grant, no charge has been made to operations for
these options. No income tax benefit is received by the Company
upon the granting or exercise of incentive stock options but it
may receive income tax benefits for nonqualified stock options
when they are exercised. Such income tax benefits are credited to
additional paid-in capital when realized.
Transactions involving stock options for the year ended December
31, 1995 are summarized as follows:
Number Exercise Price
OF SHARES PER SHARE
--------- --------------
Options outstanding and
issuable - January 1,
1995 1,004,770 $ 1.13 - $20.90
Options granted 413,600 $15.50 - $24.00
Options exercised (96,870) $ 1.13 - $14.59
Options canceled (6,850) $14.59 - $15.50
---------
Options outstanding -
December 31, 1995 1,314,650 $ 1.13 - $24.00
=========
(Continued)
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-12-
NOTE H - STOCK OPTIONS (CONTINUED):
The following summarizes the status of stock options outstanding
at December 31, 1995:
Number of Exercise Price
DATES EXERCISABLE SHARES PER SHARE
----------------- --------- --------------
Currently exercisable 666,748 $ 1.13 - $21.00
Year ending December 31:
1996 278,402 $ 3.33 - $24.00
1997 118,900 $12.25 - $20.90
1998 118,900 $12.25 - $20.90
1999 79,900 $12.25 - $19.00
2000 51,800 $15.50 - $18.00
---------
T O T A L 1,314,650
=========
NOTE I - CONCENTRATIONS:
As of December 31, 1995, the Company is not aware of any
significant customer or lender that could, if suddenly
eliminated, severely impact its operations.
The Company currently sources certain products from single
suppliers. However, to lessen the risks of off-shore
manufacturing, the Company maintains substantial inventories of
long-lead-time items and continually evaluates alternative supply
sources. Included in the Company's consolidated balance sheet at
December 31, 1995 are the net assets of its Far Eastern
subsidiaries which maintain office and warehouse facilities in
Hong Kong and manufacturing facilities in the People's Republic
of China The net assets of these subsidiaries aggregate
approximately $18.6 million.
NOTE J - RESEARCH AND DEVELOPMENT:
Research and development costs for new products aggregated
approximately $584,000 in 1993, $942,000 in 1994 and $1,608,000
in 1995.
NOTE K - ADVERTISING COSTS:
Advertising costs aggregated approximately $429,000 in 1993,
$661,000 in 1994 and $1,453,000 in 1995.
(Continued)
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-13-
NOTE L - INCOME TAXES:
Income taxes on the statements of operations are comprised of the
following:
(In Thousands)
YEAR ENDED DECEMBER 31,
1993 1994 1995
---------- ---------- -------
Currently payable:
Federal $3,086 $4,075 $ 3,071
State and local 545 610 283
Foreign 230 889 2,094
------ ------ -------
Totals 3,861 5,574 5,448
Deferred 189 (305) (776)
------ ------ -------
Net provisions $4,050 $5,269 $ 4,672
====== ====== =======
Pretax income was derived from foreign and domestic sources as
follows:
(In Thousands)
YEAR ENDED DECEMBER 31,
1993 1994 1995
---------- ---------- -------
Foreign earnings $ 1,325 $ 5,475 $12,430
Domestic earnings 10,047 11,598 7,295
------- ------- -------
Totals $11,372 $17,073 $19,725
======= ======= =======
Deferred tax assets and liabilities and the principal temporary differences
from which they arise are:
(In Thousands)
DECEMBER 31,
1994 1995
-------- --------
Deferred tax assets:
Allowance for estimated doubtful
accounts and sales returns and
discounts $ 496 $ 632
Tax basis adjustments to inventory 168 412
Deferred compensation accruals 317 369
Difference in amortization periods of
patents, trademarks and package
design costs 583 899
Cumulative foreign translation
adjustment 217 165
Miscellaneous 19
------ ------
Total deferred tax assets 1,781 2,496
------ ------
(Continued)
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-14-
NOTE L - INCOME TAXES (CONTINUED):
(In Thousands)
DECEMBER 31,
1994 1995
-------- ---------
Deferred tax liabilities:
Accelerated depreciation of property
and equipment $ 378 $ 383
Tax basis adjustments to prepaid
catalog costs 123 169
Miscellaneous 3 3
------ ------
Total deferred tax liabilities 504 555
------ ------
Net deferred tax asset $1,277 $1,941
====== ======
The following table reconciles the statutory federal income tax
rate to the Company's effective income tax rates:
YEAR ENDED DECEMBER 31,
1993 1994 1995
-------- -------- ---------
Statutory federal rate 34.0% 34.0% 34.0%
Effect of:
State and local income
taxes (net of federal
benefit) 3.7 2.3 .9
Tax benefit of prior year
loss carryforward of
Canadian subsidiary (.9)
Difference between U.S.
and foreign income tax
rates on earnings of
foreign subsidiaries (1.9) (5.1) (11.2)
Other items (net) (.2) .6
---- --- -----
Effective income tax
rates 35.6% 30.9% 23.7%
==== ---- =====
The Company has not provided for additional U.S. income taxes
which would be payable upon the payment of dividends from its
Hong Kong subsidiaries, because the earnings of these
subsidiaries are considered indefinitely invested there. Such
additional taxes would aggregate approximately $4.5 million based
on the subsidiaries' retained earnings which aggregate
approximately $18.6 million at December 31, 1995.
NOTE M - EMPLOYEE BENEFIT PLAN:
The Company's profit sharing plan for eligible nonunion employees
provides that the Board of Directors may authorize an annual
contribution up to the maximum allowable as a tax deduction by
the Treasury Department. Profit sharing expense was approximately
$226,000 in 1993 and $250,000 in both 1994 and 1995.
(Continued)
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-15-
NOTE N - COMMITMENTS:
The Company leases certain facilities and equipment under
long-term operating leases which expire at various times through
December 2001. Additionally, certain warehouse space and sales
offices are leased on a month-to-month basis.
Aggregate minimum rental payments under long-term leases for
premises and equipment are as follows:
Year ending December 31:
(In Thousands)
1996 $ 930
1997 654
1998 469
1999 405
2000 238
2001 230
------
T O T A L $2,926
======
Rent expense was approximately $749,000 in 1993, $826,000 in 1994
and $1,335,000 in 1995.
An agreement with Mr. Herbert Borchardt, the Company's
Co-Chairman of the Board and Co-Chief Executive Officer, provides
for a current minimum annual compensation of approximately
$213,000 while he remains Co-Chairman and Co-Chief Executive
Officer and $177,000 thereafter, for life, for consulting
services. The payments are subject to increases based on changes
in the consumer price index. The foregoing amounts have been
adjusted to reflect the current index.
Effective January 1, 1995, the Company entered into an employment
agreement with Mr. Robert Borchardt, the Company's President,
Co-Chairman of the Board and Co-Chief Executive Officer. The
agreement provides for a 1995 annual salary of $850,000, which is
to be increased annually by the greater of 6% or the change in
the consumer price index, and annual bonuses and nonqualified
stock option grants based on formulas related to annual increases
in the consolidated net income of the Company. Additionally, in
connection with the signing of the agreement, the Company granted
Mr. Borchardt nonqualified options for 100,000 shares in 1995 and
150,000 shares in January 1996. The agreement terminates on
December 31, 2004 and is automatically renewable for successive
two year periods. If an election is made not to renew the
agreement, Mr. Borchardt may thereafter be retained as a
consultant to the Company for life.
In connection with certain business acquisitions and the
formation of new subsidiaries in 1995, the Company has entered
into employment agreements with certain key employees, which
expire at various times through December 2001. The agreements
provide for specified annual salaries. Certain agreements include
provisions for annual increases based on changes in consumer
price indexes and provide for performance based bonuses relating
to the results of operations of the acquired entity or newly
formed subsidiary, which are payable in either cash, stock or a
combination thereof.
(Continued)
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-16-
NOTE O - U.S. CUSTOMS INQUIRY:
In July 1994, the U.S. Customs Service and U.S. Attorney's office
obtained certain property with a cost of approximately $150,000
and business records from the Company's Florida facility pursuant
to a search warrant. The government's investigation of possible
criminal and civil issues remains pending. It appears that the
issues in this investigation may be related to country of origin
marking requirements, duty-free import status under the Caribbean
Basin Initiative, duties with respect to dies, molds and tooling
used overseas, commissions paid to agents and importation of
merchandise subject to textile quotas. An administrative
proceeding (which would allow the Company to recover the seized
property), however, has been commenced by the Customs Service
under Section 596 of the Tariff Act to determine the disposition
of the seized merchandise. Management is unable to predict what
claims, if any, might be asserted against the Company as a result
of the investigation or the financial impact of any such claims
on the Company.
<TABLE>
NOTE P - SEGMENT INFORMATION:
<CAPTION>
Information applicable to the Company's domestic and foreign
operations is summarized as follows:
(In Thousands)
YEAR ENDED DECEMBER 31, 1995
HONG KONG
AND
CONSOLIDATED ELIMINATIONS U.S. CHINA CANADA
------------ ------------ -------- --------- -------
<S> <C> <C> <C> <C> <C>
Net sales $212,677 $(30,030)* $181,425 $46,248 $15,034
======== ======== ======== ======= =======
Pre-tax income $ 19,725 $ (3,519)* $ 7,294 $14,987 $ 963
======== ======== ======== ======= =======
Identifiable
assets at
December 31,
1995 $185,054 $( 3,334) $150,047 $28,276 $10,065
======== ======== ======== ======= =======
</TABLE>
*Results primarily from sales by STD in Hong Kong to a marketing
subsidiary in the U.S.
<TABLE>
<CAPTION>
(In Thousands)
YEAR ENDED DECEMBER 31, 1994
CONSOLIDATED ELIMINATIONS U.S. HONG KONG CANADA
------------ ------------ --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net sales $163,973 $(2,327) $143,232 $11,715 $11,353
======== ======= ======== ======= =======
Pre-tax income $ 17,073 $ 11,597 $ 4,948 $ 528
======== ======== ======= =======
Identifiable
assets at
December 31,
1994 $118,764 $104,430 $ 7,562 $ 6,772
======== ======== ======= =======
</TABLE>
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-17-
NOTE P - SEGMENT INFORMATION (CONTINUED):
Sales by the Company and its foreign subsidiaries to non-U.S.
customers aggregated approximately 11.6%, 17.1% and 18.6% of
consolidated net sales in 1993, 1994 and 1995, respectively.
These sales were made primarily to customers in Canada, the Far
East, Latin America and Europe.
Independent Auditors' Report on Supplemental Schedule
Board of Directors
Recoton Corporation
In connection with our audits of the consolidated financial
statements of RECOTON CORPORATION AND SUBSIDIARIES at December 31, 1994 and
1995 and for each of the three years in the period ended December 31, 1995, we
have also audited Schedule II for each of the three years ended December 31,
1995, included in this annual report on Form 10-K. In our opinion, such
schedule presents fairly the information required to be set forth therein.
/s/ Cornick, Garber & Sander, LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
February 27, 1996
<PAGE>
SCHEDULE II
<TABLE>
RECOTON CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- ---------------------- -------- --------
ADDITIONS
----------------------------
Balance at Charged to Charged to Balance
beginning costs and other at end
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS* OF PERIOD
----------- ----------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for possible
losses:
Year ended December 31,
1993 $771 $410 $300 $ 881
==== ==== ==== ======
Year ended December 31,
1994 $881 $367 $259 $ 989
==== ==== ==== ======
Year ended December 31,
1995 $989 $847 $249 $1,587
==== ==== ==== ======
</TABLE>
*Represents write-offs of uncollectible accounts, net of recoveries.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
That portion of Recoton's definitive Proxy Statement appearing under
the caption "Election of Directors," to be filed with the Commission pursuant
to Regulation 14A within 120 days after December 31, 1995 and to be used in
connection with the Annual Meeting of Stockholders of Recoton currently
scheduled to be held in 1996 (the "1996 Annual Meeting") is hereby incorporated
by reference. The information regarding the executive officers of Recoton is
contained under "Directors and Executive Officers of Recoton" under Item 1 to
this Report.
Item 11. Executive Compensation.
That portion of Recoton's definitive Proxy Statement appearing under
the caption "Compensation of Executive Officers," to be filed with the
Commission pursuant to Regulation 14A within 120 days after December 31, 1995
and to be used in connection with Recoton's 1996 Annual Meeting is hereby
incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
That portion of Recoton's definitive Proxy Statement appearing under
the caption "Security Ownership of Certain Beneficial Owners and Management,"
to be filed with the Commission pursuant to Regulation 14A within 120 days
after December 31, 1995 and to be used in connection with Recoton's 1995 Annual
Meeting is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions.
That portion of Recoton's definitive Proxy Statement appearing under
the caption "Certain Relationships and Related Transactions," to be filed with
the Commission pursuant to Regulation 14A within 120 days after December 31,
1995 and to be used in connection with Recoton's 1996 Annual Meeting is hereby
incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) and (2). Financial Statements and Financial Statement
Schedules:
See "Index to Financial Statements" set forth in Item 8,
"Financial Statements and Supplementary Data" at pages 19-20
of this Report.
(a)(3). Exhibits Required to be Filed by Item 601 of Regulation S-K:
(3) Articles of Incorporation and By-Laws:
3.1. Composite Certificate of Incorporation of Recoton
Corporation, as amended December 14, 1995
3.2. By-Laws of Recoton as amended October 19, 1995 (incorporated by
reference to Exhibit 3(ii) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995)
(4) Instruments defining the rights of security holders,
including indentures:
4.1. Rights Agreement, dated as of October 27, 1995,
between Recoton Corporation and Chemical Mellon Shareholder Services, L.L.C. as
Rights Agent (incorporated by reference to Exhibit 4 to the Registrant's Current
Report on Form 8-K dated October 27, 1995)
(10) Material contracts:
10.1. Consulting Agreement, effective as of May 18, 1987, between Recoton
and Herbert Borchardt (incorporated by reference to Exhibit 10(F) to
the Registrant's Form 10-K for the year ended December 31, 1987).*
10.2. Deferred Compensation Agreement, effective as of July 1, 1982, between
Recoton and Robert Borchardt (incorporated by reference to Exhibit
10(C) to the Registrant's Registration Statement on Form S-2, filed on
October 12, 1983, File No. 2-87097).*
10.3. Deferred Compensation Agreement, effective as of October 1, 1982,
between Recoton and Peter Wish (incorporated by reference to Exhibit
10(E) to the Registrant's Registration Statement on Form S-2, filed on
October 12, 1983, File No. 2-87097).*
10.4. Deferred Compensation Agreement, effective as of October 1, 1991,
between Recoton and George Calvi (incorporated by reference to Exhibit
10(O) to the Registrant's Form 10-K for the year ended December 31,
1991).*
10.5. Split Dollar Life Insurance Agreements, effective as of February 24,
1989, among Recoton and Trudi Borchardt and Marvin Schlacter and Robert
Borchardt in the aggregate face amount of $2,750,000 (incorporated by
reference to Exhibit 10(G) to the Registrant's Form 10-K for the year
ended December 31,1988) (note: the filed agreement relating to
insurance in the principal amount of $250,000 has been canceled).
* -------- * Management contracts or compensatory plans or arrangements
10.6. Split Dollar Life Insurance Agreements, effective as of December 17,
1993, among Recoton, the Robert and Trudi Borchardt 1993 Family Trust
and Robert L. Borchardt in the face amounts of $6,500,000; $3,500,000;
and $1,300,000 (incorporated by reference to Exhibit 10(G) to the
Registrant's Annual Report on Form 10-K for the period ended
December 31, 1993).*
10.7. Recoton Corporation 1982 Stock Option Plan, as revised October 23,
1991 (incorporated by reference to Exhibit 10(J) to the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30,
1991).*
10.8. Recoton Corporation 1991 Stock Option Plan, as revised September 15,
1993 (incorporated by reference to Exhibit 10(I) to the Registrant's
Annual Report on Form 10-K for the period ended December 31, 1993).*
10.9. Recoton Corporation Nonqualified Stock Option Plan, as revised
September 15, 1993 (incorporated by reference to Exhibit 10(J) to the
Registrant's Annual Report on Form 10-K for the period ended December
31, 1993).*
10.10. Recoton Corporation Stock Bonus Plan, as revised September 15, 1993
(incorporated by reference to Exhibit 10(K) to the Registrant's Annual
Report on Form 10-K for the period ended December 31, 1993).*
10.11. Recoton Corporation Code ss. 401(K) Profit Sharing Plan and Trust
Agreement, as amended and restated December 29, 1994 (incorporated by
reference to Exhibit 10(K) to the Registrant's Annual Report on Form
10-K for the period ended December 31, 1994).*
10.12. Option Agreement, dated May 5, 1994, with I. Friedman Equities, Inc.
(incorporated by reference to Exhibit 10(L) to the Registrant's Annual
Report on Form 10-K for the period ended December 31, 1994).
10.13. Common Stock Purchase Option, as of March 5, 1993, with the Equity
Group, Inc. (incorporated by reference to Exhibit 2 to the Registrant's
Current Report on Form 8-K for an event occurring on March 5, 1993).
10.14. Common Stock Purchase Option, as of March 1, 1995, with the Equity
Group, Inc.
10.15. Employment Agreement between Recoton Corporation and Robert L.
Borchardt, dated October 25, 1995 (incorporated by reference to Exhibit
(10)(1) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995)*
10.16. Stock Purchase Agreement dated as of August 31, 1995, among Recoton
Corporation, Recoton (Far East) Limited, STD Holding Limited and the
other shareholders of STD Holding Limited (incorporated by reference to
Exhibit 1 to the Registrant's Current Report of Form 8-K dated
September 5, 1995)
10.17. Asset Purchase Agreement dated as of August 31, 1995 among Recoton
Corporation, Interact Accessories, Inc., STD Holding Limited,
Stephen Chu and others (incorporated by reference to Exhibit 2 to the
Registrant's Current Report of Form 8-K dated September 5, 1995)
10.18. Exclusive World-Wide License and Option to Sell and Option to Purchase
Proprietary Rights by and between International Jensen Incorporated and
Recoton Corporation, dated as of January 3, 1996 (incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report on
Form 8-K dated January 3, 1996)
10.19. Amended and Restated Agreement and Plan of Merger between
Recoton Corporation, RC Acquisition Sub, Inc. and International Jensen
Incorporated dated as of January 3, 1996 (incorporated by reference to
Exhibit 1 to the Registrant's Current Report on Form 8-K dated January
30, 1996)
(11) Statement re computation of per share earnings: not applicable
(12) Statement computation of ratios: not applicable.
(13) Annual report to security holders, Form 10-Q or quarterly report to
security holders:
not applicable.
(16) Letter re change in certifying accountant: not applicable.
(18) Letter re change in accounting principles: not applicable.
(21) Subsidiaries of the registrant:
Company Jurisdiction
Recoton Canada Ltd., Ontario, Canada
Recoton (Far East) Limited Hong Kong
STD Holding Limited Hong Kong*
STD Electronic International Limited Hong Kong**
STD Manufacturing Limited Hong Kong**
STD Plastic Industrial Limited Hong Kong**
STD Trading Limited Hong Kong**
Peak Hero Limited Hong Kong**
Ever Smart Management Limited Hong Kong**
STD Industrial (Shenzhen) Limited P.R. of China**
STD (Tianjin) International Trade
Development Company Limited P.R of China**
Christie Design Corporation Delaware
Interact Accessories, Inc. Delaware
RC Acquisition Sub, Inc. Delaware
* Subsidiary of Recoton (Far East) Limited
** Subsidiary of STD Holding Limited
(22) Published report regarding matters submitted to vote of security
holders: not applicable.
(23) Consent of experts and counsel: Consent of the Independent Public
Accountants.
(24) Power of attorney: not applicable.
(27) Financial Data Schedule: not applicable
(28) Information from reports furnished to state insurance regulatory
authorities: not applicable.
(29) Additional Exhibits: not applicable
(b) Reports on Form 8-K: The Registrant filed a report on Form 8-K
during the last quarter of the period covered by this report, reporting under
Item 5 (Other Events) the adoption of a "Shareholders Rights Plan" dated
October 27, 1995. In addition, on November 17, 1995, the Registrant filed on
Form 8-K/A an amendment to its Form 8-K dated September 5, 1995 regarding the
acquisition of STD Holding Limited to file the following financial statements:
a. Financial Statements of Business Acquired:
1. STD Holding Limited and Subsidiaries Consolidated Financial
Statements as of and for the Years Ended March 31, 1995 and
1994.
(a) Report of Price Waterhouse dated August 15, 1995.
(b) Consolidated Balance Sheets.
(c) Consolidated Income Statements.
(d) Consolidated Statements of Changes in Shareholders'
Equity.
(e) Consolidated Statements of Cash Flows.
(f) Notes to Consolidated Financial Statements.
2. STD Holding Limited and Subsidiaries Consolidated Financial
Statements as of June 30, 1995 and for the Six Month Periods
Ended June 30, 1995 and 1994.
(a) Consolidated Balance Sheet (unaudited).
(b) Consolidated Income Statements (unaudited).
(c) Consolidated Statements of Cash Flows (unaudited).
(d) Notes to Consolidated Financial Statements.
b. Pro Forma Financial Information:
1. Pro Forma Condensed Consolidated Balance Sheet as at June 30,
1995.
2. Pro Forma Condensed Consolidated Statement of Operations for the
Year ended December 31, 1994.
3. Pro Forma Condensed Consolidated Statement of Operations for the
Six Months Ended June 30, 1995.
4. Notes to Pro Forma Financial Statements as at June 30, 1995
and for the Year and Six Month Periods Ended December 31, 1994
and June 30, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the 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
By: /s/ Robert L. Borchardt
Robert L. Borchardt
Co-Chairman, Co-Chief
Executive Officer and
President
Date: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Position Date
/s/ Robert L. Borchardt President, Co-Chairman, March 29, 1996
Robert L. Borchardt Co-Chief Executive Officer
(Principal Executive
Officer) and Director
/s/ Herbert H. Borchardt Co-Chairman and Co-Chief March 29, 1996
Herbert H. Borchardt Executive Officer and Director
/s/ Stuart Mont Chief Operating Officer, March 29, 1996
Stuart Mont Chief Financial Officer
(Principal Financial Officer)
and Director
/s/ George Calvi Director March 29, 1996
George Calvi
/s/ Peter Wish Director March 29, 1996
Peter Wish
/s/ Joseph H. Massot Treasurer (Principal March 29, 1996
Joseph H. Massot Accounting Officer)
and Director
/s/ Irwin S. Friedman Director March 29, 1996
Irwin S. Friedman
/s/ Joseph M. Idy Director March 29, 1996
Joseph M. Idy
/s/ Ronald E. McPherson Director March 29, 1996
Ronald E. McPherson
</TABLE>
EXHIBIT INDEX
Exhibit No. Page
3.1 Composite Certificate of Incorporation of
Recoton Corporation, as amended December 14, 1995
10.14 Common Stock Purchase Option, as of March 1,
1995, with the Equity Group, Inc.
23 Consent of experts and counsel: Consent of the
Independent Public Accountants.
<PAGE>
December 19, 1991
EXHIBIT 3.1
COMPOSITE
CERTIFICATE OF INCORPORATION
OF
RECOTON CORPORATION
(as amended December 14, 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 designations, 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 145 East 57th Street, New York, NY
10022; Attn.: Secretary.
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 o 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.
12. Section 1. Designation, Number of Shares. A series
of Preferred Shares of the Corporation shall be designated as
"Series A Junior Participating Preferred Shares" ("Series A
Junior Participating Preferred Shares"). The number of shares
constituting the Series A Junior Participating Preferred Shares
shall be 250,000.
Section 2. Dividends or Distributions. A. Subject to the
prior and superior rights of the holders of shares of any other class of
capital shares not by its terms ranking on a parity with, or junior to, the
Series A Junior Participating Preferred Shares with respect to dividends, the
holders of Series A Junior Participating Preferred Shares shall be entitled to
receive, when and as declared by the Board of Directors, out of the assets of
the Corporation legally available therefor, quarterly dividends payable in cash
in an amount per whole share of Series A Junior Participating Preferred Shares
equal to the greater of (1) 10% of the Purchase Price (the "Purchase Price"),
as adjusted, per unit of one one-hundredth of a share of Series A Junior
Participating Preferred Shares set forth in the Rights Agreement (the "Rights
Agreement") between the Corporation and Chemical Mellon Shareholder Services,
L.L.P., as Rights Agent, dated as of October 27, 1995 (so that if the Purchase
Price, as adjusted, were $100.00, the quarterly dividend amount per whole share
of Series A Junior Participating Preferred Shares would be $10.00), and (2)
dividends payable in cash on the payment date for each cash dividend (if any)
declared on the Common Shares in an amount per whole share (rounded to the
nearest cent) equal to the Formula Number then in effect times the cash
dividends then to be paid on each outstanding Common Share, payable on the date
declared by the Board of Directors for the payment of quarterly dividends on
the outstanding Common Shares, par value $.20 per share, of the Corporation
(the "Common Shares") but in no event later than the fifteenth day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or a
fraction of a share of Series A Junior Participating Preferred Shares, since
the immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Junior Participating Preferred Shares.
In addition, if the Corporation shall pay any dividend or make any distribution
on the Common Shares payable in assets, securities or other forms of noncash
consideration (other than dividends or distributions solely in shares of Common
Shares), then, in each such case, the Corporation shall simultaneously pay or
make on each outstanding share of Series A Junior Participating Preferred
Shares a dividend or distribution in like kind, of the Formula Number then in
effect times such dividend or distribution on each share of Common Shares. As
used herein, the "Formula Number" shall be 100; provided, however, that if at
any time after October 27, 1995, the Corporation shall (i) declare or pay any
dividend on the Common Shares payable in shares of Common Shares or make any
distribution on the Common Shares in shares of Common Shares, (ii) subdivide
(by a shares split or otherwise) the outstanding shares of Common Shares into a
larger number of shares of Common Shares or (iii) combine (by a reverse shares
split or otherwise) the outstanding shares of Common Shares into a smaller
number of shares of Common Shares, then in each such event the Formula Number
shall be adjusted to a number determined by multiplying the Formula Number in
effect immediately prior to such event by a fraction, the numerator of which is
the number of shares of Common Shares that are outstanding immediately after
such event and the denominator of which is the number of shares that are
outstanding immediately prior to such event (and rounding the result to the
nearest whole number); and provided further that if at any time after October
27, 1995, the Corporation shall issue any shares of its capital shares in a
reclassification or change of the outstanding shares of Common Shares
(including any such reclassification or change in connection with a merger in
which the Corporation is the surviving corporation), then in such event the
Formula Number shall be appropriately adjusted to reflect such reclassification
or change.
(b) The Board of Directors shall declare a dividend or
distribution on the Series A Junior Participating Preferred Shares as provided
in paragraph 2(a) immediately prior to or at the same time it declares a
dividend or distribution on the Common Shares (other than a dividend or
distribution solely in shares of Common Shares). The Board of Directors may fix
a record date for the determination of holders of Series A Junior Participating
Preferred Shares entitled to receive a dividend or distribution declared
thereon, which record date shall be the same as the record date for any
corresponding dividend or distribution on the Common Shares.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Shares from and
after the Quarterly Dividend Payment Date next preceding the date of original
issue of such Series A Junior Participating Preferred Shares; provided,
however, that dividends on such shares which are originally issued after the
record date for the determination of holders of Series A Junior Participating
Preferred Shares entitled to receive a quarterly dividend and on or prior to
the next succeeding Quarterly Dividend Payment Date shall begin to accrue and
be cumulative from and after such Quarterly Dividend Payment Date.
Notwithstanding the foregoing, dividends on shares of Series A Junior
Participating Preferred Shares which are originally issued prior to the record
date for the first Quarterly Dividend Payment, shall be calculated as if
cumulative from and after the date (if any) declared by the Board of Directors
for the payment of the quarterly dividend on the outstanding shares of Common
Shares but in no event later than the fifteenth day of March, June, September
and December, as the case may be, next preceding the date of original issuance
of such shares. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the Series A Junior Participating Preferred Shares in an amount less
than the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding.
(d) So long as any shares of Series A Junior Participating
Preferred Shares are outstanding, no dividends or other distributions shall be
declared, paid or distributed, or set aside for payment or distribution, on the
Common Shares unless, in each case, the dividend required by this Section 2 to
be declared on the shares of Series A Junior Participating Preferred Shares
shall have been declared, paid or distributed.
(e) The holders of shares of Series A Junior Participating
Preferred Shares shall not be entitled to receive any dividends or other
distributions except as provided herein.
Section 3. Voting Rights. The holders of shares of Series
A Junior Participating Preferred Shares shall have the following
voting rights:
(a) Each holder of shares of Series A Junior Participating
Preferred Shares shall be entitled to a number of votes equal to the Formula
Number then in effect for each share of Series A Junior Participating Preferred
Shares held of record on all matters on which holders of the Common Shares or
shareholders generally are entitled to vote.
(b) Except as otherwise provided herein or by applicable law,
the holders of shares of Series A Junior Participating Preferred Shares and the
holders of shares of Common Shares and any other class or series of voting
shares shall vote together as one class for the election of directors of the
Corporation and on all other matters submitted to a vote of shareholders of the
Corporation.
(c) Except as provided herein, in Section 10 hereof or by
applicable law, holders of shares of Series A Junior Participating Preferred
Shares shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of shares
of Common Shares and any other class or series of voting shares as set forth
herein) for authorizing or taking any corporate action.
Section 4. Certain Restrictions. (a) Whenever quarterly dividends or
other dividends or distributions payable on the Series A Junior Participating
Preferred Shares as provided in Section 2 hereof are in arrears, thereafter and
until all accrued and unpaid dividends and distributions, whether or not
declared, on shares of Series A Junior Participating Preferred Shares
outstanding shall have been paid in full, the Corporation shall not:
(1) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire
for consideration any shares ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Junior Participating Preferred Shares;
(2) declare or pay dividends on or make any other
distributions on any shares ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up)
with the Series A Junior Participating Preferred Shares,
except dividends paid ratably on the Series A Junior
Participating Preferred Shares and all such parity shares on
which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are
then entitled;
(3) redeem or purchase or otherwise acquire for
consideration any shares ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up)
with the Series A Junior Participating Preferred Shares,
provided that the Corporation may at any time redeem,
purchase or otherwise acquire any of such parity shares in
exchange for any shares of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Junior Participating Preferred
Shares; or
(4) purchase or otherwise acquire for consideration
any Series A Junior Participating Preferred Shares, or any
shares ranking on a parity with the Series A Junior
Participating Preferred Shares, except in accordance with a
purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and
other relative rights and preferences of the respective
series and classes, shall determine in good faith will result
in fair and equitable treatment among the respective series
or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
the Corporation unless the Corporation could, under paragraph (a) of this
Section 4, purchase or otherwise acquire such shares at such time and in such
manner.
Section 5. Liquidation Rights. Upon the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, no
distribution shall be made (a) to the holders of shares ranking junior (either
as to dividends or upon liquidation, dissolution, or winding up) to the Series
A Junior Participating Preferred Shares unless, prior thereto, the holders of
shares of Series A Junior Participating Preferred Shares shall have received an
amount equal to the accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, plus an amount equal to
the greater of (1) 50% of the Purchase Price per unit of one one-hundredth of a
share of Series A Junior Participating Preferred Shares (so that if the
Purchase Price is $100.00, the liquidation amount would be $50.00 per whole
share), or (2) an aggregate amount per share equal to the Formula Number then
in effect times the aggregate amount to be distributed per share to holders of
shares of Common Shares, or (b) to the holders of shares ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with
the Series A Junior Participating Preferred Shares, except distributions made
ratably on the Series A Junior Participating Preferred Shares and all other
such parity shares in proportion to the total amounts to which the holders of
all such shares are entitled upon such liquidation, dissolution or winding up.
Section 6. Consolidation, Merger, Etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Shares are exchanged for or changed into other shares or
securities, cash or any other property, then in any such case the then
outstanding shares of Series A Junior Participating Preferred Shares shall at
the same time be similarly exchanged or changed in an amount per share equal to
the Formula Number then in effect times the aggregate amount of shares,
securities, cash or any other property (payable in kind), as the case may be,
into which or for which each share of Common Shares is exchanged or changed.
Section 7. No Redemption; No Sinking Fund. (a) The shares of Series A
Junior Participating Preferred Shares shall not be subject to redemption by the
Corporation or at the option of any holder of Series A Junior Participating
Preferred Shares; provided, however, that the Corporation may purchase or
otherwise acquire outstanding shares of Series A Junior Participating Preferred
Shares in the open market or by offer to any holder or holders of shares of
Series A Junior Participating Preferred Shares.
(b) The Series A Junior Participating Preferred Shares shall
not be subject to or entitled to the operation of a retirement or sinking fund.
Section 8. Fractional Shares. The Series A Junior Participating
Preferred Shares shall be issuable upon exercise of the Rights issued pursuant
to the Rights Agreement in whole shares or in any fraction of a share that is
one-hundredth (1/100th) of a share or any integral multiple of such fraction.
At the election of the Corporation prior to the first issuance of a share or a
fraction of a share of Series A Junior Participating Preferred Shares, either
(1) certificates may be issued to evidence any such authorized fraction of a
share of Series A Junior Participating Preferred Shares, or (2) any such
authorized fraction of a share of Series A Junior Participating Preferred
Shares may be evidenced by depositary receipts pursuant to an appropriate
agreement between the Corporation and a depositary selected by the Corporation
provided that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they
are entitled as beneficial owners of shares of Series A Junior Participating
Preferred Shares.
Section 9. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Shares purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Shares, without designation
as to series until such shares are once more designated as part of a particular
series by the Board of Directors pursuant to the provisions of the Certificate
of Incorporation.
Section 10. Amendment. None of the relative rights,
preferences and limitations of the Series A Junior Participating
Preferred Shares as provided herein or elsewhere in the
Certificate of Incorporation shall be amended in any manner
which would alter or change the relative rights, preferences and
limitations of the holders of shares of Series A Junior
Participating Preferred Shares so as to affect them adversely
without the affirmative vote of the holders of at least 66-2/3%
of the outstanding shares of Series A Junior Participating
Preferred Shares, voting as though such series was a separate
class.
<PAGE>
EXHIBIT 10.14
OPTION NO. 11
Recoton Corporation
COMMON STOCK PURCHASE OPTION
For the Purchase of 10,000 Shares
This certifies that, for value received, The Equity Group Inc. (the
"Holder") is entitled, subject to the terms and conditions hereinafter set
forth, at any time, and from time to time, prior to and including January 31,
1998, to purchase up to a total of 10,000 shares of Common Stock, $.20 par
value ("Common Stock"), of Recoton Corporation, a New York corporation (the
"Company"), at a price of $16.00 per share, in lawful funds of the United
States of America payable in cash or by certified or official bank check, such
price and the number of shares purchasable pursuant hereto being subject to
adjustment upon the contingencies set forth in this Option (such price, as
adjusted from time to time, is called the "Purchase Price"). Upon presentation
and surrender of this Option, with the Subscription Form annexed hereto duly
executed, together with payment of the Purchase Price of the shares of Common
Stock thereby purchased, at the principal office of the Company, the Holder
shall be entitled to receive a certificate or certificates representing the
shares of Common Stock so purchased. All shares which may be issued upon the
exercise of this Option will, upon issuance, be fully paid and non-assessable
and free from all taxes, liens and charges with respect thereto.
This Option is subject to the following terms and conditions:
1. EXERCISE
The purchase rights represented by this Option are exercisable at the
option of the Holder in whole at any time but in no event after January 31,
1998. In the case of the purchase of less than all the shares purchasable under
this Option, the Company shall cancel this Option upon the surrender hereof and
shall execute and deliver a new Option of like tenor for the balance of the
shares purchasable hereunder.
2. REGISTRATION
2.1 Registration of Option Common Stock; Option to Purchase. If the
Company shall at any time and from time to time after the date hereof propose
the registration under the Securities Act of 1933 (which Act, together with any
similar Federal statute in force in the future, is hereinafter referred to as
the "Act") of any securities of the Company the Company shall give written
notice of such proposed registration to the Holder and will permit the Holder
to offer for sale, sell or otherwise dispose of such number of shares of Option
Common Stock (as such term is defined below) as the Holder, by written notice
(delivered to the Company within 30 days of the Holder's receipt of the notice
of the proposed registration) specifies, by including such shares of Option
Common Stock in the proposed registration. For purposes of this Option, "Option
Common Stock" shall mean shares of Common Stock issued or issuable upon the
exercise of this Option. Notwithstanding the foregoing, whenever the Holder
shall notify the Company of its intention to exercise its rights under said
Articles, the Company may, instead of granting such rights, and at the
Company's sole option, purchase for cash any shares of Common Stock of the
Company then held by the Holder pursuant to this Option at the greater of any
Public Offering Price (as determined by reference to any then pending
Registration Statement prepared by the Company), the mean between the bid and
asked price on Nasdaq for a previous reasonable period of time, or $16.00 per
share.
2.2. Costs and Expenses. The Holder shall bear all costs and expenses
of any registration and qualifications pursuant to subsection 2.1 directly
attributable to the inclusion in any such registration of any Option Common
Stock; provided, however, that the Company shall bear 50% of such expenses
(legal, printing, filing fees) up to a maximum of $5000. The Company, however,
shall bear all costs and expenses attributable to any such registration which
the Company would have borne had no Option Common Stock been included therein.
2.3. Indemnification. The Company shall indemnify and hold harmless
the Holder and any underwriter (as defined in the Act) for such Holder, and
each person, if any, who controls the Holder or underwriter within the meaning
of the Act, against all losses, claims, damages or liabilities, joint or
several, to which such Holder or underwriter or controlling person may be
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities, joint or several, to which such Holder or underwriter or
controlling person may be subject, under the Act or otherwise, are caused by
any untrue statement or alleged untrue statement of a material fact contained
in any registration statement under which shares of Option Common Stock were
registered under the Act, or qualified under the Blue Sky laws of applicable
jurisdictions, pursuant to this Section 2, any prospectus contained therein, or
any amendment or supplement thereto, or arising out of or based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities arise out of or
are based upon any untrue statement or alleged untrue statement or omission
based upon and made in conformity with information furnished to the Company in
writing by the Holder or by any underwriter for the Holder expressly for use
therein in which case the Holder shall indemnify, hold harmless and defend the
Company against all such losses, claims damages or liabilities.
2.4 Legend. The Company may imprint on all certificates representing
shares of Option Common Stock, or shares issued in substitution or exchange
therefor, the following legend:
"These shares have not been registered under the Securities
Act of 1933, as amended, and may not be sold, assigned or
otherwise transferred without registration thereunder unless
the Company Corporation has received the written opinion of
counsel satisfactory to it that, after investigation of the
relevant facts, such counsel is of the opinion that such
sale, assignment or transfer does not involve a transaction
requiring registration under the Securities Act of 1933, as
amended."
2.5 Additional Acts. The Holder shall take all actions, as may be
required by the Company, to comply with all applicable rules and regulations
promulgated pursuant to the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended.
3. COMPANY'S ACKNOWLEDGEMENT OF OBLIGATIONS
The Company will, at the time of the exercise of this Option, upon the
request of the Holder, acknowledge in writing its continuing obligation to
afford to the Holder any rights (including without limitation, any right to
registration of the shares of Option Common Stock) to which the Holder shall
continue to be entitled after such exercise in accordance with the provisions
of this Option; provided, however, that if the Holder shall fail to make any
such request, such failure shall not affect the continuing obligation of the
Company to afford to the Holder any such rights. The aforementioned rights
shall be personal to the Holder and shall not be transferred or assigned.
4. ADJUSTMENTS
4.1 Subdivision or Combination of Shares. In case the Company shall at
any time subdivide its outstanding shares of Common Stock into a greater number
of shares, the Purchase Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of shares of Option Common
Stock purchasable hereunder shall be proportionately increased. In case the
outstanding shares of the Common Stock of the Company shall be combined into a
smaller number of shares, the Purchase Price in effect immediately prior to
such combination shall be proportionately increased and the number of shares of
Option common Stock purchasable hereunder shall be proportionately reduced.
Except upon consolidation or reclassification of the shares of Common Stock of
the Company as provided for in this subsection 4.1, the Purchase Price in
effect at any time may not be adjusted upward or increased in any manner
whatsoever.
4.2 Reorganization, Mergers, etc. If any capital reorganization or
reclassification of the capital stock of the Company (other than as provided in
subsection 4.1), or consolidation or merger of the Company with another
corporation, or the sale or conveyance of all or substantially all of its
assets to another corporation shall be effected, then, as a condition of such
reorganization, reclassification, consolidation, merger, sale or conveyance,
lawful and adequate provisions shall be made whereby the Holder shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions specified in this Option and in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such Common stock immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby had such reorganization,
reclassification, consolidation, merger, sale or conveyance not taken place. In
any such case appropriate provision shall be made with respect to the rights
and interests of the Holder to the end that the provisions hereof (including
without limitation provisions for adjustment of the Purchase Price and of the
number of shares purchasable upon the exercise of this Option) shall thereafter
be applicable, as nearly as may be in relation to any stock, securities or
assets thereafter deliverable upon the exercise hereof.
4.3. Notice to Holder. (a) Upon any increase or decrease in the number
of shares of Common Stock purchasable upon the exercise of this Option then,
and in each such case, the Company within 30 days thereafter shall give written
notice thereof, pursuant to Section 9, which notice shall state the increased
or decreased number of shares purchasable upon the exercise of this Option,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculations are based. Where appropriate, such notice may be given
in advance and included as a part of the notice required to be mailed under the
provisions of paragraph (b) of this subsection 4.3.
(b) In case at any time:
(i) The Company shall declare any dividend upon its
Common Stock payable otherwise than in cash or in Common
Stock of the Company or payable otherwise than out of net
income or retained earnings of the Company; or
(ii) The Company shall offer for subscription to the
holders of its Common Stock any additional shares of stock of
any class or any other securities convertible into or
exchangeable for shares of stock or any rights or options to
subscribe thereto; or
(iii) There shall be any capital reorganization or
reclassification of the capital stock of the Company, or a
sale or conveyance of all or substantially all of the assets
of the Company, or a consolidation or merger of the Company
with another corporation; or
(iv) There shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
pursuant to Section 9, at the earliest time legally practicable (and not less
than 60 days before any record date or other date set for definitive action) of
the date on which (A) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or option or (B)
such reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding up shall take place, as the case may be.
Such notices shall also specify the date as of which the holders of the Common
Stock of record shall participate in said dividend, distribution, subscription
rights or options or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation, or winding up, as the case may be (on which date, in the event of
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the right to exercise this Option shall cease and terminate).
5. REPLACEMENT
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Option, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Option, if mutilated, the
Company will make and deliver a new Option of like tenor, in lieu of this
Option.
6. NO FRACTIONAL SHARES
The Company shall not be required to issue stock certificates
representing fractions of shares of Common Stock, but may at its option in
respect of any final fraction of a share make a payment in cash based on the
Purchase Price.
7. RESERVATION OF SHARES
The Company will reserve and keep available a sufficient number of
shares of Common Stock to satisfy the requirements of this Option and any other
outstanding Options. Before taking any action which would cause an adjustment
reducing the Purchase Price below the then par value of the shares of Common
Stock issuable upon exercise of this Option, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable shares of such Common Stock at such adjusted Purchase Price.
8. MERGER, ETC.
The Company shall not effect any consolidation, merger or sale of
substantially all of its property to any other corporation, unless prior to or
simultaneously with the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument executed
and mailed or delivered to the Holder at the address indicated in Section 9,
the obligation of such corporation to deliver to the Holder shares of stock,
securities or property as, in accordance with the provisions of this Option,
the Holder may be entitled to purchase and to perform and to observe each and
every covenant and condition of this Option to be performed and observed by the
Company.
9. NOTICES
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid:
(i) if to the Holder, at 919 Third Avenue, New York, New York
10022 or at such other address as may have been furnished to the
Company in writing by the Holder;
(ii) if to the Company, at 2950 Lake Emma Road, Lake Mary,
Florida 32746, Attention: Secretary, or at such other address as may
have been furnished to the Holder in writing by the Company.
10. ASSIGNMENT
The Holder may not sell, transfer or assign this Option, in whole or
in part, except to Robert D. Goldstein ("Goldstein"). In the event of such
transfer or assignment to Goldstein, Goldstein shall assume all of the rights
and obligations of the Holder hereunder, including, but not limited to, the
obligation not to further sell, transfer or assign this Option."
WITNESS the seal of the Company and the signatures of its duly
authorized officers.
Dated: as of March 1, 1995
RECOTON CORPORATION
By: /s/ Joseph H. Massot
Name: Joseph H. Massot
Title: Vice President & Tresurer
Attest:
/s/ Stuart Mort
(SECRETARY)
AGREED:
THE EQUITY GROUP, INC.
BY:/s/ Robert Goldstein
Name:
Title:
<PAGE>
SUBSCRIPTION FORM
To be executed by the Holder
Upon Exercise of the Option
RECOTON CORPORATION
The undersigned hereby exercises the right to purchase ______ shares
of stock covered by this Option at the Purchase Price of $_______ according to
the conditions thereof and herewith makes payment of the Purchase Price of such
shares in full.
Signature
Address
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in Registration
Nos. 33-43571 and 33-59240 on Forms S-8 of our report dated February 27, 1996
appearing in this Annual Report on Form 10-K of Recoton Corporation for the
year ended December 31, 1995.
/s/ CORNICK, GARBER & SANDLER, LLP
New York, New York
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and the Consolidated Statement of Operations filed
as part of the annual report on Form 10-K and is qualified in its entirety by
reference to such annual report on Form 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 12,393
<SECURITIES> 0
<RECEIVABLES> 56,606
<ALLOWANCES> 1,587
<INVENTORY> 66,484
<CURRENT-ASSETS> 140,479
<PP&E> 32,410
<DEPRECIATION> 8,247
<TOTAL-ASSETS> 185,054
<CURRENT-LIABILITIES> 44,077
<BONDS> 20,511
0
0
<COMMON> 2,459
<OTHER-SE> 116,938
<TOTAL-LIABILITY-AND-EQUITY> 185,054
<SALES> 212,677
<TOTAL-REVENUES> 213,246
<CGS> 129,981
<TOTAL-COSTS> 129,981
<OTHER-EXPENSES> 61,900
<LOSS-PROVISION> 847
<INTEREST-EXPENSE> 793
<INCOME-PRETAX> 19,725
<INCOME-TAX> 4,672
<INCOME-CONTINUING> 15,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,053
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.31
</TABLE>
