DRAFT-3/27/97
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER: 0-5860
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)
<PAGE>
[Continuation of Cover Page]
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___
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.
$128,322,036 based on the closing price on the Nasdaq Stock Market of
$13.50 as of March 21, 1997
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date.
11,377,183 shares of Common Stock as of March 21, 1997
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 1997 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
OVERVIEW
Recoton Corporation, by itself and through its subsidiaries (collectively,
Recoton or the Company), is a worldwide marketer and producer of consumer
electronic products, generally for aftermarket use, primarily sold to retailers
and original equipment manufacturers. Recoton's diverse product line includes
high-fidelity loud speakers, home theater speaker systems, bookshelf speakers, a
complete line of car audio products including in-dash, CD and cassette players,
amplifiers, speakers and installation accessories and other audio products;
video game and computer products; 900 Megahertz (MHz) wireless technology
products; and other highly functional accessories for audio, car audio,
camcorder, cellular and standard telephone, home office, multimedia, music, and
video products. The Company's products are sold under the Advent(R), Ambico(R),
Ampersand(TM), AR(R)/Acoustic Research(R), Calibron(R), Discwasher(R), Heco(TM),
InterAct(R), Jensen(R), MacAudio(TM), Magnat(TM), NHT(R) (Now Hear This),
Parsec(R), PhaseLinear(R), Recoton(R), Rembrandt(R), Ross(R), SoleControl(R)
SoundQuest(TM) and STD(R) brand names, among others.
Recoton Corporation was incorporated in New York State in 1936, and
has significantly expanded its product lines through selected acquisitions,
research efforts and product development. In August 1996 Recoton acquired
International Jensen Incorporated (Jensen), a leading marketer of home and
automotive loudspeakers; it did not acquire the original equipment manufacturing
(OEM) business of Jensen. Sales of Jensen for its fiscal year ending prior to
the acquisition, excluding the OEM business, were over $150 million. Immediately
following the acquisition, Jensen changed its name to Recoton Audio Corporation
(RAC). The Jensen acquisition followed the Company's growth into the field of
hi-fidelity, high-performance loudspeaker design and marketing started with the
formation of Recoton's Christie Design Corporation subsidiary in 1995.
In 1995, the Company significantly expanded its video and computer game
accessory business with the acquisition of STD Holding Limited, a Hong
Kong-based company (STD), and the business of its U.S. distribution arm now
operating under the name InterAct Accessories, Inc. Sales of STD and its
subsidiaries for the fiscal year prior to the acquisition were US$40 million.
Recoton's research and development activities have led to innovative
products using 900 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. Among
other innovative products, Recoton has also developed the "CD20" adapter, which
allows a portable compact disc (CD) player to operate through an automobile
cassette player; the CD HydroBath(R), a non-contact multimedia CD cleaner; and
amplified TV and AM/FM radio antennas.
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 innovative technologies and products. These include personal
computers, CD players, camcorders, video cassette recorders (VCRs), cellular and
cordless telephones and video game systems. Some of these products (such as CD
players, camcorders and VCRs) have reached a plateau of maturity, while others
(such as cellular telephones, video game products, computer products and home
theater systems) are still growing in consumer acceptance. Advances in certain
technologies for mature products such as televisions, camcorders and telephones
are leading to new innovations such as high definition television (HDTV), flat
screen televisions, new TV delivery systems such as direct broadcast satellite
(DBS) systems and the new digital video disc (DVD) systems, which deliver
ultra-high quality pictures and stereo sound. These advances may herald a new
growth in consumer electronics as they are phased in.
The broadening and expansion of the consumer electronics market 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. This trend has been seen in
the strong growth in "home theater" listening and viewing environments and
multimedia products and in the increasing popularity of telecommuting, with the
need for more sophisticated home offices.
The growth of consumer electronics over the last decade also has led to
the development of a distinct market for consumer electronics accessories and
other aftermarket enhancements. The market for these products 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.
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 on accessories typically are higher than on more
expensive, price sensitive, consumer electronics equipment. Additionally,
inventory costs and floor space required to display and sell accessories are
substantially less. Home and car speakers and car amplifiers typically sell at
higher profit margins than do televisions and portable audio systems.
Retailers also have found that a broad offering of accessories provides
additional services to the consumer which allow 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 each year
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.
PRODUCTS
Recoton offers a broad line of over 3750 consumer electronics products
for home and automotive aftermarket use in many consumer electronics categories.
The products are offered under a number of highly recognized brand names and are
positioned, packaged and priced to appeal to virtually every level of retailer
and customer. Suggested retail prices for most of Recoton's products range from
approximately $2 to $500, while some of Recoton's audio speakers and other newer
products have suggested retail prices of up to $4,300.
Recoton aims to continually expand its product offerings to remain at
the forefront of the consumer electronics market. The Company 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.
The following is a detailed description (in alphabetic order) of the
Company's products; there is, however, a large degree of overlap among these
product categories:
o Antennas. A complete line of amplified and passive indoor
television and AM/FM antennas is offered under the Recoton,
Parsec and Rembrandt brand names. Recoton believes that it has
been and continues to be an innovator in the introduction of
amplified antennas. Recoton also believes that it has one of the
leading industry positions 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's
amplified antennas are ideal for use with the new DBS satellite
receiver dishes, which dishes cannot receive local TV broadcasts.
o Audio Accessories. An extensive line of audio accessories
designed for use with stereo and monaural systems (including
home, portable and car systems), CD players, cassette tape
recorders, phonographs and radios is offered under the Discwasher
and Recoton brand names. Products include cables and connectors,
AC/DC power adapters, inverters, intercoms, microphones, surge
protection devices, foreign voltage adapters/converters and blank
audio cassettes.
o Camcorder Accessories. A comprehensive line of camcorder
accessory products is offered under the Ambico brand name. These
products include 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.
o Car Audio Products. Various audio electronic products for the
automobile and marine aftermarket are sold under the Advent
Mobile(TM), Jensen and PhaseLinear brand names in the United
States and Magnat and MacAudio (and certain of the U.S.) brand
names in Europe. These automotive products include speakers,
subwoofers, amplifiers, cassette receivers, equalizers,
electronic crossovers, signal processors and CD players and
changers. An exclusive line of high quality car audio accessory
products is offered under the Ampersand, RoadGear(TM)and
SoundQuest brand names. These products include wires 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" in-door speaker enclosures sold under
the SoundQuest brand name.
o Carrying and Storage Cases. A line of softsided carry cases for
CDs and audio cassettes is offered under the Discwasher and
PerfectCase(TM)brand names. The lines include CD wallets, with
capacities from 12 to 96 CDs; player/CD cases, which hold from 10
to 24 CDs in addition to a portable CD player; CD cases, which
hold from 15 to 60 CDs; and audio cassette cases, which 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.
o CD/Audio Cassette Accessories. A broad line of CD and audio
cassette accessories is offered under the Discwasher and Recoton
brand names. These products include 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 audio cassette players.
o Cellular and Other Telephone Accessories. An extensive line of
add-on and replacement accessories for the expanding cellular
telephone market is offered under the Recoton brand name.
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, compliment the cellular phones of virtually
all leading manufacturers. Numerous other telecommunications
accessories are offered under the Recoton brand name. These
products include 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.
o Computer/Multi-Media Accessories. A complete computer accessory
product line is offered under the InterAct and Recoton brand
names. These products include 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.
o Game (Video and Computer) Accessories. An expanding line of video
and computer game accessories for use with leading game consoles
made by Nintendo, Sony and Sega and for personal computers is
offered under the InterAct and Recoton brand names. These
products include joysticks, controllers, cleaners, maintenance
kits, replacement AC power adapters switches, control pads,
lights, screen magnifiers and carry bags for hand-held games.
o Headphones and Speakers. A full line of stereo headphones and
mini- and bookshelf-sized stereo speakers is offered under the
InterAct, Discwasher and Recoton brand names and, in Europe,
under the Ross name. Some of these products 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.
o Loudspeakers. Advanced design and technology hi-fidelity,
hi-performance stereo and home theater loudspeaker systems are
offered under the Advent, AR/Acoustic Research, Jensen, NHT (Now
Hear This), and Recoton brand names and, in Europe, under the
MacAudio, Magnat and Heco brand names. Each of the speaker lines
is positioned to reach a different target market. In addition,
there are 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.
o 900 MHz and Other Wireless Technologies. A proprietary line of
wireless products, including patented 900 MHz products, using 900
MHz technology and 433 MHz and 20.4 GH3 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 is
offered under the Recoton brand name. 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.
o Remote Controls. A complete line of advanced-technology,
universal remote controls for replacement of lost or damaged
remotes is offered under the SoleControl and Recoton brand names.
They allow remote operation of televisions, VCRs and other
electronic products, and are offered with various features at
different price levels. Recoton believes that its remote controls
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 and also functions
as a standard line-of-sight remote control.
o Video Accessories. A broad line of accessories that are used for
the installation, maintenance, interconnection and enhancement of
VCRs and camcorders is offered under the Recoton brand name.
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.
CUSTOMERS AND DISTRIBUTION
Recoton seeks to provide access to its products on a global basis in as
many countries and through as many distribution channels as possible. The
Company's customers include catalog showrooms, consumer electronics retailers,
department stores, direct mail retailers, drugstore chains, mass merchants,
office and warehouse clubs and music and video chains. Recoton has a strong and
diverse customer base of more than 1,000 retail customers which the Company
believes have more than 30,000 outlets in the United States and Canada. In
addition, Recoton has over 2,000 customers for its car stereo installation
products. The Company's European customer base is similarly diverse.
Within the past few years, Recoton has expanded its presence in the
Asian, Canadian and European markets. Through its Hong Kong subsidiaries and
Recoton Japan, Recoton sells products to customers in China, Japan and other
Asian countries and, through its Hong Kong subsidiaries, it sells Asian-sourced
products to Asian and European-based OEM customers. Through its Canadian
subsidiary, Recoton markets and distributes products to Canadian retailers.
Through its German, Italian, English and Hong Kong subsidiaries, Recoton markets
and distributes audio products to European retailers and distributors. The STD
acquisition in 1995 generated significant growth in terms of Asian sourcing and
sales and the Jensen acquisition in 1996 has led to significant growth in
European sales. Recoton views its OEM and international customer base as an
important source for continued growth.
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, including products acquired through recent
acquisitions. Recoton expects to benefit as its existing retail customers open
new retail locations. As the retail consumer electronics business is highly
cost-competitive, it is normal to expect that various retailers (including
chains) will suffer economic reversals, and may cease operations. While Recoton
has lost some customers due to bankruptcy or merger, such events have not to-
date had any major adverse economic impact on the Company.
Recoton also makes significant sales of selected products to original
equipment manufacturers and via private labels to other accessory vendors which
purchase products ranging from audio, video, CD and telephone accessories to
Recoton's wireless products. The Company also engages in limited direct sales.
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.
FOREIGN AND DOMESTIC OPERATIONS
Since 1995, foreign operations have become a more significant portion
of Recoton's business. Information with respect to Recoton's operations by
geographic area is set forth in the financial statements (see Note P of the
Notes to Financial Statements, Item 8 below). Export sales from Recoton
Corporation and its domestic subsidiaries were less than 10% of consolidated
sales in each of the three years ended December 31, 1994, 1995 and 1996.
SALES, MARKETING AND CUSTOMER SUPPORT
Recoton's marketing strategy is to develop strong relationships with a
broad array of customers. Recoton seeks to establish partnership relationships
with its retail customers by offering "one-stop shopping" for its products, so
as to better attract and support retailers who are consolidating their vendor
relationships to achieve greater purchasing and operating economies, and by
offering extensive marketing, inventory management and customer support
services, including the following:
o Consumer Support Programs. The Company offers 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.
o Distinctive Packaging. The Company's packaging approach is to
offer modern, easy to understand, color-coded packages designed
to attract consumer attention, increase brand awareness and
provide detailed product information.
o Drop Shipping. The Company provides retailers "just-in-time"
inventory management through immediate delivery to multiple
retail locations.
o Electronic Data Interchange. The Company has established
computer-based systems to enable 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.
o Extensive Product Promotion. Promotional efforts include in-store
merchandising, advertising and elaborate product displays for all
product lines.
o In-Store Inventory Management. Through detailing, the Company
periodically counts restocks and fills in-store accessory
displays.
o Pre-Ticketing Services. Recoton places its customers' price
stickers on items prior to shipment from price lists provided by
retail customers.
o Product Display Designs. The Company provides retailers with a
computerized color picture of their individual in-store accessory
layout, called planograms, to help them maximize display and
sales. The planograms depict how the actual merchandise will look
on-site, fully stocked, and are accompanied by 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 of accessories based on
the national movement of its products. Most of Recoton's smaller accessory
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,
Europe 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 independent sales representative
organizations.
The Company has no significant backlog orders.
ACQUISITIONS
STRATEGY AND OVERVIEW
A significant part of Recoton's growth strategy has been to expand
through acquisitions. Through 12 acquisitions since 1989, Recoton has obtained
new products and technologies, strengthened its new product offerings, increased
its manufacturing capacity, enhanced overseas distribution capabilities and
broadened its customer base. 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 through
consolidation and coordination. While there may be certain duplications of
expenses immediately following an acquisition, Recoton believes that cost
savings will result from the introduction of efficiencies of scale, thereby
making Recoton and its products more competitive.
ACQUISITION HISTORY
Since 1989, Recoton has acquired all or selected assets or product
lines of, or merged with, the following companies:
YEAR COMPANY PRINCIPAL PRODUCT LINES
1997 Tambalan Limited Headphones and other
consumer products sold
under the Ross name in
the UK and other countries
in the European Union
1996 Heco GMBH Home speakers
1996 International Loudspeakers and other
Jensen audio products for home
Incorporated and and automotive aftermarket
subsidiaries use
1995 STD Holding Video and computer game
Limited joysticks, controllers
and subsidiaries and accessories marketed
primarily under the trade
name InterAct and other
names
1995 Ampco Industries, Products for car stereo
Inc., d/b/a installation operations
Ampersand
1994 Sound Quest, Inc. Car stereo installation
and accessory products
1994 Infrared Research Universal remote controls
Laboratories, Inc. marketed under the trade
name SoleControl
1992 Ambico, Inc. Camcorder and video
accessories
1991 Discwasher Inc. Consumer electronics
maintenance products
1991 Parsec Delaware AM/FM radio and TV antennas
Ltd.
1989 All Channel Indoor television antennas
Products Inc. marketed under the trade
name Rembrandt
1989 Calibron, Inc. Stereo headphones and
consumer electronics
accessories
JENSEN ACQUISITION
On August 28, 1996, a Recoton subsidiary merged with International
Jensen Incorporated, a Delaware corporation. The Company did not acquire
Jensen's original equipment manufacturing (OEM) business, however. Jensen was
renamed Recoton Audio Corporation (Recoton Audio or RAC). Recoton Audio,
directly and through its U.S. and foreign subsidiaries, is an international
designer, assembler and marketer of home and car stereo loudspeakers, car stereo
players and amplifiers sold under the Advent, Jensen, PhaseLinear, and NHT (Now
Hear This) and in Europe, Mac Audio and Magnat brand names. Its sales for the
last fiscal year prior to the acquisition, excluding the sales by the OEM
business, were over $150 million. The Company also acquired the AR/Acoustic
Research trademarks in the transaction, which marks previously had been licensed
by Jensen to the Company.
The shareholders of Jensen other than Robert G. Shaw, the former
Chairman of the Board, President and Chief Executive Officer of Jensen (and the
current President and a director of RAC), and William Blair Leverage Fund, L.P.
(WBLCF) received $11.00 in cash for each Jensen share held by them and Mr. Shaw
and WBLCF received $8.90 in cash for each Jensen share. The aggregate merger
consideration paid to the Jensen stockholders was approximately $55.6 million.
Jensen had approximately $34 million in notes and loans payable immediately
after the merger.
Bridge financing for the acquisition and related costs in the
approximate amount of $60 million was provided by The Chase Manhattan Bank and
other lenders party to a credit facility in the initial amount of $120 million.
Such facility was also used to repay certain existing indebtedness of Recoton
and Jensen, and can be used to provide working capital, for letters of credit
and, within certain limits, for financing additional acquisitions. In January
1997, the Company privately placed $75 million in senior notes and used the
proceeds to refinance that portion of the facility previously used for the
Jensen acquisition and for other corporate purposes.
Recoton Audio's speaker assembly operations are in Benicia, California;
its research and development and warehousing operations are in Schiller Park,
Illinois; and its corporate headquarters is currently in Lincolnshire, Illinois.
Recoton plans to close the Lincolnshire office and move most of RAC's corporate
operations to Florida in late 1997. Recoton Audio's subsidiaries have operations
in Germany, Italy, the United Kingdom and Japan. The operations of the Magnat
and Mac Audio subsidiaries in Germany were consolidated in late 1996.
The merger was preceded by the sale of Jensen's OEM business, including
its component manufacturing facilities, to IJI Acquisition Corp. (IJI
Acquisition) and the sale of the OEM business receivables to Harris Trust and
Savings Bank, both sales yielding an aggregate of approximately $18.5 million
(after final balance sheet adjustments), with IJI Acquisition also assuming
related debt and liabilities. IJI Acquisition was renamed International Jensen
Incorporated after the acquisition of Jensen by the Company. IJI Acquisition's
sole stockholder is Robert G. Shaw. Mr. Shaw is also President and a director of
RAC and, after the merger, was elected to the Board of Recoton.
Recoton Audio and IJI Acquisition are parties to a number of
agreements, including a Management Services Agreement, a Supply and Services
Agreement, a Shared Facilities Agreement, a Non-Competition Agreement and a
License Agreement. Pursuant to the Management Services Agreement, which has an
initial term of one year and is automatically renewed unless otherwise
terminated, Mr. Shaw and certain other employees of the Company are authorized
to perform various managerial and administrative services for IJI Acquisition
during the course of their employment by the Company, for which IJI Acquisition
pays Recoton a fee. The Supply and Services Agreement provides for IJI
Acquisition to supply Recoton Audio's requirements for certain products and
services for a term of twelve months. The Shared Facilities Agreement governs
the use of facilities in Schiller Park and Lincolnshire, Illinois leased by
Recoton Audio but also used by IJI Acquisition; such agreement may be terminated
by Recoton Audio or IJI Acquisition at any time on six-month's notice after
February 1997. The Non-Competition Agreement provides that Recoton Audio and IJI
Acquisition each will not compete in certain areas of each other's business,
with certain exceptions. Pursuant to the License Agreement, Recoton Audio has
granted IJI Acquisition a ten-year, world-wide royalty- bearing license to use
the trademarks of Recoton Audio in OEM business applications in the automotive,
truck, recreation vehicle, aircraft or other motorized vehicle markets.
HECO AND TAMBALAN ACQUISITIONS
A significant component of the business acquired through the merger
with Jensen was its European sales operations. Recoton has expanded the RAC
presence in the European Union through two recent acquisitions. In late 1996
Recoton acquired the Heco brand of home speakers through a purchase of selected
assets from the receiver in bankruptcy of Heco GmbH. These assets included
trademarks, intellectual property, inventory, tools, office equipment and
selected other assets, as well as the right to use a manufacturing facility in
eastern Germany through June 1997. The purchase price, including closing costs,
was approximately $1.3 million. During its last year of operations prior to the
acquisition, Heco's sales were approximately $12.2 million.
In February 1997, Recoton acquired the stock of Tambalan Limited, a
United Kingdom corporation trading under the name Ross Consumer Products
(Tambalan). Tambalan sells headphones and other consumer products under the name
"Ross" in the United Kingdom and other European Union countries and, through its
Hong Kong operations, to various Pacific area markets. The purchase price,
exclusive of closing costs, was approximately $285,000; at the time of the
closing, Tambalan had notes and loans payable of approximately $2.9 million. The
annual sales of Tambalan were approximately US $ 8 million in its last fiscal
year prior to the acquisition.
RESEARCH AND DEVELOPMENT
Recoton maintains research and development facilities at its Florida,
California, Illinois and Hong Kong locations and in addition utilizes 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 products 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, attract
a growing base of consumer electronics companies as OEM customers and
differentiate itself from its competitors. Recoton has recently expanded its
engineering department to increase its in-house development capabilities.
Recoton has focused much of its R&D 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 radio frequency/infrared (RF/IR) remote
control and a wireless monitoring system.
Additional products in development include new advanced 900 MHz
headphones and speakers, 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 video that provides
low-interference, longer-distance, high-end CD-quality performance for wireless
audio, video and security video products. The Company is in the process of
redesigning the speaker lines sold under the Jensen and Advent brands and adding
models to the AR/Acoustic Research line of speakers. InterAct will begin
manufacturing a line of surge protectors in the second half of 1997 which
contain unique child safety features. In development are additions to InterAct's
line of joysticks and controllers for use with Nintendo 64 bit consoles.
In 1994, 1995 and 1996, Recoton's expenditures for research and
development were approximately $942,000, $1,608,000 and $2,897,000 respectively,
and for product and packaging design were approximately $699,000, $1,214,000 and
$1,331,000 respectively. The growth in R&D expenditures is primarily reflective
of the acquisition and growth of the STD business and, to a lesser degree, the
growth of the speaker business through Christie Design and Recoton Audio.
PRODUCTION
Recoton's strategy is to produce high-quality low-cost consumer
electronics products for its retail and OEM customers.
Recoton utilizes third-party manufacturers, primarily in China, Hong
Kong and Taiwan, for a majority of its products or components of such products.
Components for loudspeakers and certain other car audio products, however, are
currently sourced in the United States from IJI Acquisition but it is
anticipated that these products may also be re-sourced to Asian vendors in the
future. The Company's vendors are required to 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 or
California facilities.
Operations at Recoton's Lake Mary, Florida facilities include molding,
hot stamping, bottle filling, silk screening, packaging and electronics
assembly. Operations conducted at the NHT and Christie Design facilities in
California include molding, packaging and home speaker assembly, as well as
manufacturing of speakers sold under the NHT and AR/Acoustic Research brands and
speakers for the Company's OEM customers. Operations conducted at the Heco
facility in Germany include home speaker assembly.
The Company's facilities in the People's Republic of China are used
primarily to manufacture video game and computer accessories sold under the
InterAct brand but are also used to manufacture other Recoton products.
Recoton's in-house capabilities have been a major strength in obtaining and
increasing its OEM business.
Recoton coordinates most of its offshore sourcing for the North
American market with its buying agents. These agents 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. It has been necessary,
however, from time to time to utilize more expensive air shipments in order to
meet customers' time sensitive needs. 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 inventory 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 market is highly fragmented and subject to
intense competition. Recoton's competitors include (i) various companies which
offer broad lines of consumer electronics products; (ii) other companies which
offer certain product lines; and (iii) manufacturers of brand name consumer
electronics hardware. Specific competitors include Zenith, Philips, Thomson/RCA
and Sony with respect to various accessories; Bose, Boston Acoustics, Infinity,
JBL and Polk with respect to home speakers; and Kenwood, Panasonic, Pioneer and
Sony with respect to automotive aftermarket audio products. Certain of Recoton's
existing or potential competitors have greater financial, technical, marketing
or manufacturing resources and may develop new products 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
the proprietary nature of certain products. Recoton believes that it competes
favorably with respect to these factors.
TRADEMARKS AND PATENTS
Recoton believes that it has established a high level of brand name
recognition with its retailers and their customers. Recoton sells products under
the Advent(R), Ambico(R), Ampersand(TM), AR(R)/Acoustic Research(R),
Calibron(R), Discwasher(R), InterAct(TM), Jensen(R), NHT(R) (Now Hear This),
Parsec(R), PhaseLinear(R), Recoton(R), Rembrandt(R), Sole Control(R),
SoundQuest(TM) and STD(R) brand names, among others . It also sells products
overseas under the Heco(TM), Magnat(TM), MacAudio(TM) and Ross(TM) names, among
others, in addition to sales under certain brand names used in the United
States. Recoton also has over 50 additional United States registered trademarks
for a variety of its individual products, as well as similar or additional marks
overseas. 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, 1996, Recoton had approximately 2,500 employees
worldwide, of which approximately 1,130 reside in the United States or Canada,
approximately 1,250 reside in Hong Kong, the People's Republic of China or Japan
and approximately 120 reside in Germany, Italy or England. The number of
employees in the People's Republic of China fluctuates significantly on a
seasonal basis. Of such U.S. or Canadian employees, approximately 95 were
engaged in sales and marketing, 30 in engineering, research and development, 775
in operations, manufacturing and warehousing and 230 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 3, 1999. 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, 1996:
NAME AGE POSITION
Robert L. Borchardt 59 Director; President, Co-Chairman
of the Board, Chief
Executive Officer
Herbert H. Borchardt 90 Director; Co-Chairman of the
Board
Stuart Mont 56 Director; Chief Operating Officer,
Chief Financial Officer,
Executive Vice President-Operations,
Secretary
Peter Wish 61 Director; Executive Vice
President-Administration
Peter E. Dayton 60 Senior Vice President-National
Sales
Terrence O'Flynn 52 Senior Vice President-OEM Sales
Dennis Wherry 52 Senior Vice President-Operations
Craig W. Dykes 38 Vice President-Information Systems
Peter M. Ildau 59 Vice President-Corporate
Communications
Joseph H. Massot 52 Director; Vice President,
Treasurer, Principal Accounting
Officer, Assistant Secretary
William T. McGreevy 53 Vice President-Engineering
Richard D. Miller 35 Vice President-Compliance
Kevin J. Murphy 46 Vice President-Marketing
Robert G. Shaw 56 Director; Vice President; President of
Recoton Audio Corporation
George Calvi 46 Director
Paul Feffer 75 Director
Irwin S. Friedman 63 Director
Joseph M. Idy 56 Director
Ronald E. McPherson 67 Director
Robert L. Borchardt has served as a director of Recoton since 1964, as
President since 1976, as Co-Chairman since 1992, as Co-Chief Executive Officer
from 1992 until 1996 and as Chief Executive Officer since 1996. 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 Chairman of the Board of Directors and on the Executive Board of the
Consumer Electronic Manufacturing Association (CEMA), a division of the
Electronics Industries Association, is on the Board of Governors of the
Electronic Industries Association and is a trustee of the Electronics Industries
Foundation. Robert Borchardt is Herbert Borchardt's son.
Herbert H. Borchardt has served as a director of Recoton since 1945 and
as Co-Chairman since 1992 and as Co-Chief Executive Officer from 1992 until
1996. 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, as Secretary since February 1989 and as 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.
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.
Terrence O'Flynn has served as Senior Vice President-OEM Sales since
June 1996. He was Senior Vice President-Marketing from June 1994 until June
1996. Prior thereto, he was Director of Marketing of the Ladies Professional
Golf Association from 1993 to 1996, 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 W. 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. 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. 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-Marketing since June 1996. He
was Vice President-Purchasing for January 1991 until June 1996. 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.
Robert G. Shaw has served as a director of Recoton and a Vice President
of Recoton since August 1996. He has been President and a director of Jensen/RAC
since 1984 and was Chairman of the Board of Jensen from 1984 until August 1996,
when Jensen was acquired by Recoton. RAC was acquired by the Company in August
1996. He has been President, a Director and the sole stockholder of
International Jensen Incorporated (f/k/a IJI Acquisition Corp.) since January
1996. RAC sold its original equipment manufacturing business to IJI at the time
of RAC's acquisition by the Company. Mr. Shaw is also a director of Gibraltar
Packaging Group, Inc., a manufacturer and marketer of printed paperboard
packaging, and a trustee of Beloit College.
George Calvi has served as a director of Recoton since 1984. He was
Executive Vice President-Sales and Marketing of the Company from 1992 until
1996, Senior Vice President- Sales and Marketing from 1988 until 1992 and Vice
President from 1978 until 1988.
Paul Feffer has served as a director of Recoton since June 1996. He has
been Chairman of Feffer Consulting Co., Inc., an international media consulting
firm, since 1991 and a consultant to Merck & Company's publishing division. He
founded Feffer and Simons Inc. in 1955, which was sold to Doubleday & Co. in
1962 (where he remained as President of the subsidiary Feffer and Simons until
1986) and was Chairman of Baker & Taylor International, a subsidiary of W. R.
Grace & Co., from 1987 until 1991. Feffer & Simons and Baker & Taylor
specialized in international publishing and book and magazine distribution and
development of overseas markets for U.S. publishers.
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
five years.
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.
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. Recoton's principal domestic manufacturing, assembling,
packaging, product research and development, warehousing and distribution
operations are located in Lake Mary, Florida, a suburb of Orlando. The Lake Mary
complex, owned by the Company, consists of two buildings totaling approximately
445,000 square feet situated on two near-by parcels aggregating approximately 43
acres, and includes state-of-the art office, warehouse, manufacturing and
distribution facilities. The Company plans to erect an additional 318,000 square
foot warehouse facility on its Lake Mary property at an estimated cost of
approximately $5 million. 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 in Baltimore, Maryland; offices near Lake Tahoe, Nevada;
administration, sales, R&D, engineering and distribution facilities near
Chicago, Illinois (two separate facilities); manufacturing, warehouse and office
facilities near Los Angeles, California; assembly, warehouse and office
facilities near San Francisco, California (two separate facilities); and sales
offices in San Francisco, California.
Canada, Europe and Far East. Canadian offices and warehouse facilities
are located in Ontario, Canada. German distribution and office facilities are
near Cologne. Italian office facilities are near Bologna and Milan. United
Kingdom office facilities are near Bolton and Manchester. Hong Kong facilities
include one leased office facility and a paid-up ground lease for offices.
Certain manufacturing facilities in the People's Republic of China are owned by
the Company and others are leased. All foreign facilities, other than certain
manufacturing facilities in the People's Republic of China, are leased.
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) 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. Section 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.
Litigation Regarding Jensen. Two separate actions were commenced in
1996 against Recoton and others in the courts of the state of Delaware in
connection with the merger with Jensen: In Re International Jensen Incorporated
Shareholders Litigation (Chancery Court, Delaware, Civil Action No. 14992) and
Emerson Radio Corp. v. Recoton Audio Corporation, Robert G. Shaw, David G.
Chandler, Robert H. Jenkins, Norman H. McMillan, William Blair Leveraged Capital
Fund, L.P, RC Acquisition Sub, Inc., IJI Acquisition Corp. and Recoton
Corporation (Chancery Court, Delaware, Civil Action No. 15130NC). A separate
case was commenced in the Federal District Court in Chicago, Illinois by Jensen
against Emerson Radio Corporation (Emerson), a competing suitor for Jensen, in
which Emerson has asserted claims against the Company, International Jensen
Incorporated v. Emerson Radio Corp. and Eugene Davis (U.S. District Court,
Northern District of Illinois, Eastern Division, No. 96C 2816), and another case
was commenced in such court by Recoton against Emerson, Recoton Corporation v.
Emerson Radio Corporation (U.S. District Court, Northern District of Illinois,
Eastern Division, No. 96 C 9602).
The claim by Emerson in the Delaware action was dismissed on motion by
Emerson, without prejudice, on March 7, 1997. The Company understands that the
stockholders litigation will be withdrawn, subject only to a claim by the
plaintiffs' counsel for fees and expenses. The two Illinois cases are currently
on hold pending resolution of settlment discussions between the parties. The
following is a summary of the history of these four cases.
STOCKHOLDER SUITS. On May 9, 1996, Randi Marcus filed an action in the
Court of Chancery of the State of Delaware against Jensen, its directors,
Recoton, RC Acquisition Sub Inc. (RC Acquisition), IJI Acquisition Corp. (IJI
Acquisition), William Blair & Company and WBLCF seeking to enjoin the Jensen
merger. The complaint alleged (i) that Jensen's directors and affiliates of some
of the directors had breached their fiduciary duty by taking various actions,
including approving and continuing to pursue the sale of the original equipment
manufacturing business of Jensen to Robert Shaw, refusing to pursue the
allegedly higher priced proposal from Emerson Radio Corp. (Emerson) and imposing
allegedly inappropriate asset lockups and termination fees; (ii) that Recoton
and the other defendants had aided and abetted the alleged breaches of fiduciary
duty; and (iii) that various agreements of Jensen with Recoton and others
(including the termination fee provisions of the Merger Agreement, a
license/option agreement between Jensen and Recoton regarding the Jensen
trademarks Acoustic Research and AR, an agreement between Recoton and Robert
Shaw pursuant to which Recoton would receive certain proceeds if Mr. Shaw sold
his shares of Jensen stock under certain circumstances and a stock option and
voting agreement with WBLCF relating to stock of Jensen (the Stock Option and
Voting Agreement) were invalid as a matter of Delaware law. The plaintiff
requested temporary and permanent injunctive and declaratory relief, rescission
of various agreements, such other equitable or damage relief as the court found
proper and an award of attorneys' fees and expenses.
On May 20, 1996, a second stockholder of Jensen, Harbor Finance
Partners, filed a purported class action in the Court of Chancery of the State
of Delaware against Jensen, its directors, Recoton and RC Acquisition, seeking
to enjoin the merger, alleging claims similar to those asserted in the Marcus
action, and seeking similar legal and equitable relief. On July 3, 1996, the
stockholder cases were consolidated into a single action, and an amended
consolidated stockholder complaint was filed. On July 16, 1996, the Delaware
court denied the plaintiffs' motion for an order to expedite discovery and to
schedule a hearing on the plaintiffs' application for a preliminary injunction
to enjoin the merger, determining that the merger would not result in
irreparable harm to the plaintiffs because any alleged wrongful conduct could be
adequately remedied by a money damages award. By Memorandum Opinion dated August
20, 1996, the Delaware Chancery Court denied in its entirety the motion for a
preliminary injunction made by the plaintiffs and Emerson, which sought to
enjoin the special meeting of the stockholders of Jensen scheduled to take place
on August 28, 1996 to vote on the merger. As stated in a status report submitted
by counsel to plaintiffs on or about February 27, 1997, the plaintiffs expect to
file a motion to dismiss the case, approve notice to the class and apply for
attorneys fees.
EMERSON SUIT. On July 30, 1996, Emerson filed an action in the Court of
Chancery of the State of Delaware against Jensen, its directors, WBLCF, IJI
Acquisition, Recoton and RC Acquisition, seeking to enjoin the merger and the
sale of Jensen's OEM business. The complaint alleged (i) that Jensen and its
directors failed to act in good faith to negotiate with Emerson, rejecting
allegedly superior offers from Emerson and failing to act reasonably in order to
obtain the best price in the sale of Jensen; (ii) that the defendants
deliberately interfered with the prospective business relationship between
Emerson and Jensen; and (iii) that Recoton and WBLCF aided and abetted the
alleged breaches of fiduciary duty by Jensen's Board of Directors. Emerson
sought preliminary and permanent injunctive and declaratory relief, the awarding
of compensatory damages against the defendants and such other and further relief
as the court finds proper. As noted above, Emerson's motion for a preliminary
injunction enjoining the August 28, 1996 meeting to vote on the merger was
denied. Emerson filed a notice of dismissal of its case without prejudice on
March 7, 1997.
ILLINOIS LITIGATION. On May 10, 1996, Jensen filed an action in the
Federal District Court in Chicago, Illinois against Emerson and its President
for violations of proxy solicitation rules and for breach of a confidentiality
agreement with Jensen. On May 20, 1996, Emerson filed a counterclaim in this
action alleging that Jensen and Robert Shaw fraudulently induced Emerson to
enter into the confidentiality agreement and failed to negotiate with Emerson in
good faith. Emerson requested rescission of the Confidentiality Agreement and
such other equitable or damage relief as the court found proper and an award of
attorneys' fees and expenses. On July 2, 1996, Emerson filed an amended
counterclaim and third party complaint in the Chicago Federal District Court
making allegations similar to those in its original counterclaim and additional
claims that Jensen and Mr. Shaw continued to mislead Emerson and negotiate in
bad faith, with Recoton and WBLCF added as alleged co-conspirators with respect
to such continuing conduct. WBLCF was later dismissed as a third-party defendant
without prejudice. On August 8, 1996, Emerson amended its counterclaims and
third party complaint to add claims against Jensen for alleged violation of
Section 14(a) of the Securities Exchange Act of 1934 and moved for a temporary
restraining order and preliminary injunction enjoining Jensen from proceeding
with the August 28, 1996 special meeting of stockholders called to vote on the
merger; utilizing at the special meeting any proxies allegedly improperly
solicited; and enforcing the confidentiality agreement against Emerson.
By Memorandum Opinion dated August 26, 1996, the District Court
abstained from considering Emerson's motion for a temporary restraining order
and a preliminary injunction in light of the proceedings in the Delaware
Chancery Court. On October 22, 1996, Emerson moved for leave to supplement its
counterclaim and third-party complaint to include an additional counterclaim
against Jensen (which had changed its name to Recoton Audio Corporation) for
breach of contract. By Summons and Complaint of that same date, Recoton
commenced an action against Emerson in the Chicago District Court for Emerson's
bad faith interference in Recoton's acquisition of Jensen.
On or about November 18, 1996, Recoton and RAC moved to dismiss the claims
brought against them by Emerson, and Emerson moved to dismiss the complaints
filed against it by RAC and Recoton. The Court ruled on such motions on January
23, 1997 by denying Emerson's motion to dismiss RAC's complaint; granting
Recoton's and RAC's motions to dismiss Emerson's Second Amended Counterclaims
and Third-Party Complaint on procedural grounds, without prejudice to Emerson
re-filing an amended pleading; and requiring that Recoton and Emerson address
the choice of law issue with respect to Emerson's motion to dismiss Recoton's
complaint. On February 13, 1997, Emerson filed its Third Amended Counterclaims
and Third Party Complaint against RAC, Mr. Shaw and Recoton, alleging claims of
breach of contract against Jensen, fraudulent inducement against Jensen and Mr.
Shaw, and tortuous interference against Recoton. On March 14, 1997, Recoton and
RAC moved to dismiss Emerson's Third Amended Counterclaims and Third Party
Complaint and Recoton filed its response to Emerson's motion to dismiss
Recoton's complaint, addressing the choice of law issues as required by the
Court. This court has placed these cases on hold pending resolution of current
settlement discussions between the parties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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
National Market System 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, 1995:
QUARTER ENDED HIGH LOW
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.............................. $22.50 $16.50
June 30............................... 21.25 16.50
September 30.......................... 18.25 14.25
December 31........................... 17.00 13.00
1997
March 31 (through March 21, 1997) $17.125 $13.25
On March 21, 1997, the last reported sale price for the Company's
Common Shares on the Nasdaq Stock Market was $13.50 per share. As of March 21,
1997, there were 413 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. Pursuant to the Adjustable Rate Senior
Notes due January 6, 2007 (the Senior Notes), the Company may not pay dividends
in cash or property unless the aggregate of all dividends, plus other restricted
payments (as defined) and basket investments (as defined) does not exceed $5
million plus 50% (or minus 100% in the case of a loss) of consolidated net
income for the period commencing on January 1, 1997 and ending on and including
the last day of the fiscal quarter of the Company most recently ended as of the
date such basket investment is made or such dividend or other restricted payment
is declared or made; and the Company is not in default under such Senior Notes.
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.
The Company did not sell any equity securities during fiscal 1996 that
were not registered under the Securities Act of 1933, as amended.
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, 1996 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,
1996 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,
1992 1993 1994 1995 1996
(In thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales........................................ $76,682 $121,364 $163,973 $212,677 $331,700
Cost of sales.................................... 44,680 72,607 97,317 129,981 206,715
------ ------- ------- -------- --------
Gross profit.................................. 32,002 48,757 66,656 82,696 124,985
Selling, general and administrative expenses 24,922 36,290 49,454 62,747 109,194
------- ------- ------- -------- --------
7,080 12,467 17,202 19,949 15,791
Interest expense................................. 768 1,106 608 793 4,946
Reversal of estimated cost of patent litigation (490) --- --- --- ---
Provision for consolidation of facilities 565 --- --- --- ---
Net investment income ........................... (101) (11) (479) (569) (271)
----- ------- ------- ------- ------------
Income before income taxes ...................... 6,338 11,372 17,073 19,725 11,116
Income tax provision............................. 2,675 4,050 5,269 4,672 2,736
----- ------ ------ ------- -----------
Net income................................... $3,663 $7,322 $11,804 $15,053 $8,380
====== ====== ======= ======= ==========
Net income per share (1)......................... $0.48 $0.86 $1.12 $1.31 $0.72
===== ===== ===== ===== =====
Weighted average number of common and common
share equivalents outstanding (2) 8,093 8,539 10,572 11,466 11,640
===== ===== ======= ====== ======
<CAPTION>
DECEMBER 31,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands)
BALANCE SHEET DATA:
Working capital.................................. $20,101 $30,454 $ 83,223 $ 96,402 $158,807
Total assets..................................... 59,811 75,439 118,764 185,054 334,733
Short-term debt, including current portion of
long-term debt.................................. 14,952 22,101 863 18,307 51,628
Long-term debt................................... 2,317 6,083 5,221 20,511 101,753
Stockholders' equity............................. 30,191 37,839 96,634 119,397 128,474
- ---------------
</TABLE>
(1) Represents net income per share on a fully diluted basis. On a primary
basis, net income per share was $.58, $.86, $1.12, $1.32 and $.72 for 1992,
1993, 1994, 1995 and 1996 respectively.
(2) As adjusted to give effect to share distributions effected in the form
of stock dividends.
<PAGE>
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,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................. 58.3 59.8 59.3 61.1 62.3
------ ------ ------ ------ -----
Gross profit................................. 41.7 40.2 40.7 38.9 37.7
Selling, general and administrative expenses 32.5 29.9 30.2 29.5 32.9
------ ------ ------ ------ -----
9.2 10.3 10.5 9.4 4.8
Interest expense.............................. 1.0 0.9 0.4 0.4 1.5
Reversal of estimated cost of patent litigation (0.6) -- -- -- --
Provision for consolidation of facilities 0.6 -- -- -- --
Investment income (net)....................... (0.1) -- (0.3) (0.3) --
----- ------ ------ ------ -----
Income before income taxes 8.3 9.4 10.4 9.3 3.3
Income tax provision.......................... 3.5 3.4 3.2 2.2 0.8
------- ------- ------- ------- -----
Net income................................... 4.8% 6.0% 7.2% 7.1% 2.5%
======== ======== ====== ======= ======
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Net sales increased from 1995 to 1996 by $119.0 million or 55.9%, to
$331.7 million. The sales increase is primarily attributable to sales of the
speaker and related product lines which were procured with the acquisition of
the branded product lines of International Jensen Incorporated (now known as
Recoton Audio Corporation, or RAC) in late August 1996 and to a full year's
sales of the InterAct and STD video game and multi-media product lines acquired
in September 1995. RAC's net sales were $64.6 million from the date of
acquisition, while InterAct/STD's net sales in 1996 were $79.6 million, an
increase of $55.0 million over the 4-month period of 1995.
Gross profit increased from 1995 to 1996 by $42.3 million to $125.0
million, but decreased as a percentage of net sales from 38.9% in 1995 to 37.7%
in 1996. The dollar increase resulted from increased sales, of which RAC,
InterAct and STD were the primary contributors. The decrease in gross profit
percentage in 1996 was primarily attributable to the following factors: lower
than anticipated gross margins on the Company's speaker products sold by
Christie Design Corporation and RAC; a change in product mix; aggressive pricing
aimed at expanding the Company's market share in a soft consumer electronics
sales environment; and increased airfreight charges due to strong demand for new
video game products.
Selling, general and administrative expenses increased in 1996 by $46.4
million to $109.2 million, and increased as a percentage of net sales from 29.5%
in 1995 to 32.9% in 1996. The major portions of the dollar increase were
attributable to the acquired RAC operations and also the inclusion of STD
operations for all of 1996. The percentage increase was primarily attributable
to several factors including the continuing earnout expenses related to the
acquisition of STD; higher market development expenses; the costs of Christie
Design Corporation (a subsidiary engaged in the design and marketing of audio
products which began shipments in the first quarter of 1996); increased research
and development expenses; and higher costs related to the expanded Lake Mary,
Florida facility. As the consolidation of the RAC operations into the Florida
facility occurs in the latter half of 1997, certain duplicate selling, general
and administrative expenses which occurred in 1996 should be eliminated.
Interest expense increased by approximately $4.2 million to $4.9
million during 1996. The increase is primarily attributable to the increased
debt associated with the acquisition and operations of RAC (acquired in August
1996), the acquisition of STD (acquired in September 1995), and the financing of
the Company's new Lake Mary, Florida warehouse facility. Interest expense is
expected to increase in 1997 as the debt for RAC is carried for a full year.
The effective income tax rate increased to 24.6% of pre-tax income in
1996 from 23.7% in 1995. This increase is due principally to a higher proportion
of income earned in Europe which is taxed at effective rates equal to or higher
than the U.S., but partially offset by the 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, 1996 may not be
indicative of the effective income tax rate for the year ending December 31,
1997 or thereafter because of changes in the proportion of domestic and foreign
taxable income which might occur.
Income per share of $0.72 in 1996 on both a primary and fully-diluted
basis was based on 11,638,000 (11,640,000 on a fully-diluted basis) shares as
compared with $1.32 on a primary basis and $1.31 on a fully diluted basis based
on 11,402,000 (11,466,000 on a fully diluted basis) shares, for 1995.
The adoption of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" effective January 1, 1996 had no effect on the Company's
operations. Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," also became effective January 1, 1996. The Company
has decided to continue accounting for employee stock-based compensation under
APB 25 rules, as permitted under SFAS No. 123, and has disclosed in the
footnotes to its annual financial statement for the year ended December 31, 1996
the pro forma effect on net income and income per share as if it had adopted the
new standard's alternative accounting treatment.
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 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.
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.
LIQUIDITY AND CAPITAL RESOURCES
In August 1996, the Company entered into a multibank $120 million
bridge facility, which was subsequently increased to $135 million, to
accommodate the acquisition of RAC and to finance the Company's on-going
operations. In January 1997, the Company completed a $75 million private
placement of 10 year senior notes, the proceeds of which were utilized to reduce
the bridge facility, which facility was then converted and increased to a
four-year $15 million term loan and a three-year $50 million committed revolving
line of credit. The four-year term loan refinanced at more favorable interest
rates $15 million of RAC indebtedness assumed on its acquisition. At December
31, 1996, outstanding borrowings and letters of credit under the bridge loan
were approximately $134.8 million, of which $90 million has been classified as
long term debt.
At December 31, 1996, the Company had working capital of approximately
$158.8 million as compared to approximately $96.4 million at December 31, 1995.
The Company's ratio of current assets to current liabilities, however, was 2.6
to 1 at December 31, 1996 as compared with 3.2 to 1 at December 31, 1995. The
August 1996 acquisition of RAC brought about a major change in the components of
the Company's working capital, and its ratio, and is the primary reason for the
$62.4 million net increase in working capital. Trade receivables of RAC
accounted for approximately $40.2 million of the $46.3 million net increase in
overall receivables. Similarly, inventories increased approximately $40.5
million, with RAC accounting for approximately $33.3 million of that increase;
the balance of the increase was due to projected increases in sales volume.
Additionally, short-term bank loans and the current portion of long- term debt
as a whole increased approximately $33.3 million as a result of financing the
acquisition and operations of RAC and its subsidiaries. Accounts payable and
accrued expenses increased approximately $23.9 million, with RAC accounting for
approximately $12.7 million; the balance was necessary to support the increase
in inventory.
In August 1994, the Board of Directors authorized the repurchase by the
Company of up to 500,000 outstanding Common Shares. In 1995, 42,366 shares were
purchased for $.7 million; no shares were repurchased in 1996. In June 1996, the
Board of Directors authorized under certain circumstances, the purchase from
time to time of additional shares of the Company's stock from certain officers.
In July 1996, the Company purchased 65,000 shares of stock from an officer, for
approximately $1.2 million. Any future repurchases may be limited by the terms
of the Company's new loan agreements.
In April 1995, Recoton formed Christie Design Corporation, then located
in (Chatsworth) California. This wholly-owned subsidiary, which develops and
markets speaker products, commenced manufacturing and shipments in March 1996.
Through December 31, 1996, the Company has expended approximately $3.7 million
of start-up and capital costs for this subsidiary.
In September 1995, Recoton acquired STD, 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 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). In connection with the
acquisition the Company assumed notes and loans payable of approximately $6.1
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 August 1996, Recoton acquired the branded product lines of RAC (then
known as International Jensen Incorporated), a leading marketer of home and
automotive loudspeakers and automotive electronics, for a total cost of
approximately $60.2 million, which includes closing costs and estimated
consolidation costs. In connection with the acquisition, Recoton assumed
approximately $34 million in notes and loans payable. The transaction occurred
by merger with a Recoton subsidiary, after the sale of Jensen's original
equipment manufacturing business to a third party.
In December 1996, the Company through a German subsidiary, acquired
selected assets of Heco GmbH and Heco Electronics GmbH (both in Germany), for a
cost of approximately $1.3 million. Heco is a leading brand of home speakers in
Germany.
In February 1997, Recoton acquired the outstanding stock of Tambalan
Limited (Tambalan) at a cost of approximately $285,000 and assumed certain
outstanding debt of approximately $2.9 million. Tambalan markets headphones and
other consumer electronic products in the United Kingdom and other European
countries under the trade name Ross Consumer Products. Tambalan is located in
England and also has a branch operation in Hong Kong.
The Company has plans to erect a 318,000 square foot building on its
Lake Mary, Florida property. The estimated cost of the building construction is
approximately $5 million.
To date foreign currency fluctuations have not materially affected the
Company's results of operations. The Company believes there is currently a
limited exposure to loss due to foreign currency risks in its Asian
subsidiaries. The Hong Kong dollar has been pegged to the U.S. dollar at an
official exchange rate of HK $7.73 to US $1.00. Historically, there have been no
material fluctuations in the Hong Kong/United States and the Hong Kong/Chinese
exchange rates. However, as a result of the RAC, Heco, and Tambalan
acquisitions, the Company's newly acquired operations in Western Europe will be
exposed to any future variations in foreign exchange rates. If there is any
material adverse change in the relationship between the European and Canadian
currencies with the United States dollar, such change would adversely affect the
results of the Company's European and Canadian operations, as reflected in the
Company's financial statements (see Note P of the Consolidated Financial
Statements).
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, 1995 and 1996 F-2
Consolidated Statements of Operations for
the years ended December 31, 1994, 1995
and 1996 F-3
Consolidated Statements of Stockholders'
Equity for the years ended December 31, 1994,
1995 and 1996 F-4 to F-6
Consolidated Statements of Cash Flows for
the years ended December 31, 1994, 1995
and 1996 F-7 to F-8
Notes to Financial Statements F-9 to F-26
(a)(2) INDEX TO FINANCIAL STATEMENT SCHEDULE
Independent Auditor's Report on
Supplemental Schedule F-27
Recoton Corporation and Subsidiaries --
Schedule II -- Valuation and
Qualifying Accounts F-28
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, 1995 and 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. 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, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/S/ Cornick Garber & Sandler, LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
February 28, 1997
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(TABULAR AMOUNTS IN THOUSANDS)
ASSETS As at December 31,
1995 1996
Current assets:
Cash and cash equivalents $ 12,393 $ 29,130
Accounts receivable (less allowance
for doubtful accounts of $1,587,000 in 1995
and $3,119,000 in 1996) 55,019 101,278
Inventories 66,484 106,987
Prepaid, refundable and deferred income taxes 12,182
Prepaid expenses and other current assets 6,583 8,687
Total current assets 140,479 258,264
Property and equipment (at cost, less accumulated
depreciation and amortization) 24,163 30,578
Trademarks and patents (less accumulated amortization) 1,589 5,509
Goodwill (less accumulated amortization) 16,391 31,251
Deferred income taxes 1,069 5,985
Other assets 1,363 3,146
T O T A L $185,054 $334,733
LIABILITIES
Current liabilities:
Bank loans and drafts payable $ 13,176 $ 42,945
Current portion of long-term debt 5,131 8,683
Accounts payable 15,144 28,634
Accrued expenses 7,417 17,834
Income taxes payable 3,209 1,361
Total current liabilities 44,077 99,457
Long-term debt (less current portion above) 20,511 101,753
Other noncurrent liabilities 1,069 5,049
Total liabilities 65,657 206,259
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 12,296,160 shares in
1995 and 12,597,982 shares in 1996 2,459 2,520
Additional paid-in capital 72,926 75,913
Retained earnings 48,797 57,177
Cumulative foreign translation adjustment (300) (1,021)
Total 123,882 134,589
Treasury stock - 1,132,770 shares in 1995 and
1,225,067 shares in 1996, at cost (4,485) (6,115)
Total stockholders' equity 119,397 128,474
T O T A L $185,054 $334,733
The notes to financial statements are made a part hereof.
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended December 31,
1994 1995 1996
Net sales $163,973 $212,677 $331,700
Cost of sales 97,317 129,981 206,715
Gross profit 66,656 82,696 124,985
Selling, general and administrative
expenses 49,454 62,747 109,194
Interest expense 608 793 4,946
Investment income (479) (569) (271)
T o t a l 49,583 62,971 113,869
Income before income taxes 17,073 19,725 11,116
Income tax provision 5,269 4,672 2,736
NET INCOME $ 11,804 $ 15,053 $ 8,380
Income per share:
Primary $1.12 $1.32 $.72
Assuming full dilution $1.12 $1.31 $.72
Average number of shares used in computing
per share amounts:
Primary 10,560 11,402 11,638
Assuming full dilution 10,572 11,466 11,640
The notes to financial statements are made a part hereof.
<PAGE>
<TABLE>
<CAPTION>
RECOTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(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, 1994 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 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
Net income for the year 8,380
Exercise of stock options 301,822 61 2,987 27,297 476
Repurchases of stock 65,000 1,154
Foreign currency translation
adjustment (721)
BALANCE - DECEMBER 31, 1996 12,597,982 $2,520 $75,913 $57,177 $(1,021) 1,225,067 $6,115
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RECOTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(TABULAR AMOUNTS IN THOUSANDS)
Year Ended December 31,
INCREASE (DECREASE) IN CASH AND 1994 1995 1996
CASH EQUIVALENTS
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 11,804 $ 15,053 $8,380
Adjustments to reconcile results of
operations to net cash provided by
operating activities:
Depreciation 1,677 2,496 5,194
Amortization of intangibles 765 1,120 3,045
Provision for losses on accounts receivable 367 847 1,259
Deferred income taxes (305) (776) (312)
Change in asset and liability accounts
(net of effects of acquisitions):
Accounts receivable (7,575) (13,242) (12,210)
Inventory (15,896) (14,195) (6,039)
Prepaid and refundable income taxes (1,242)
Prepaid expenses and other current assets (1,616) (1,858) 3,305
Other assets (187) 95 (347)
Accounts payable and accrued expenses 4,668 923 586
Income taxes payable 1,281 1,114 (2,124)
Other noncurrent liabilities (26) 43 1,751
Total adjustments (16,847) (23,433) (7,134)
Net cash provided by (used for)
operating activities (5,043) (8,380) 1,246
Cash flows from investing activities:
Payments for acquisitions (net of
cash acquired of approximately $2,340,000
in 1995 and $3,014,000 in 1996) (2,994) (12,883) (55,909)
Expenditures for trademarks, patents and
intellectual property (96) (771) (195)
Expenditures for property and equipment (4,420) (10,561) (7,383)
Net cash used for investing activities (7,510) (24,215) (63,487)
Cash flows from financing activities:
Net borrowings (repayments) under credit
agreements $(20,800) $13,193 $ (10,368)
Net proceeds from bridge loans 129,364
Repayments of bank loans assumed upon
acquisition of businesses (1,175) (2,273) (36,173)
Net proceeds from long-term bank borrowings 20,000
Repayment of long-term bank borrowings (1,379) (943) (5,206)
Net proceeds from public offering of common
stock 46,531
Proceeds from exercise of stock options 134 198 1,387
Purchases of treasury stock (125) (710) (1,154)
Income tax benefit applicable to exercise
of stock options 641 62 1,185
Payments for fractional shares (4)
Net cash provided by
financing activities 23,823 29,527 79,035
Effect of foreign exchange rate changes
on cash of foreign subsidiaries 17 (14) (57)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 11,287 (3,082) 16,737
Cash and cash equivalents - January 1 4,188 15,475 12,393
CASH AND CASH EQUIVALENTS -
DECEMBER 31 $15,475 $12,393 $29,130
Supplemental disclosures of cash paid for:
Interest $ 642 $ 713 $ 4,451
Income taxes $ 3,653 $ 4,429 $ 5,686
</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 producer and
marketer of a comprehensive line of consumer electronic products
generally for aftermarket use. The Company's products are sold
primarily to retailers and original equipment manufacturers located
principally in the United States, Canada, the Far East and Europe. In
addition to its domestic facilities, the Company maintains office and
warehouse facilities in Asia, Canada and Western Europe and
manufacturing and assembly facilities in the People's Republic of
China and Germany.
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 foreign subsidiaries 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 which are not insured by the FDIC.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
In management's opinion, the carrying value at December 31, 1996 and
December 31, 1995 of the Company's financial instruments approximates
their fair value because of their short maturities or, for the
majority of long-term debt, because it was recently incurred.
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.
AMORTIZATION OF TRADEMARKS AND PATENTS:
Trademarks are being amortized over terms of 5 to 40 years. Patents
are being amortized over the terms of the related patent, or a shorter
period, based on the estimated commercial life of the related product.
GOODWILL:
Goodwill, representing the excess of the purchase price over the fair
value of the net identifiable assets acquired in business combinations
treated as purchases, is being charged to operations on a
straight-line basis over periods of 15 to 30 years. At each balance
sheet date, the Company reviews 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 is made using undiscounted estimated future cash flows and
estimated current values of the acquired businesses or related assets,
as appropriate.
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. The
per share amounts for 1994 give effect to the stock split effected in
the form of a stock dividend in that year.
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.
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 $2.5 million.
The agreement provides that an additional purchase price, not to
exceed $1.2 million, is contingently payable to Sound Quest, Inc. over
the five year period ending December 31, 1999 based on increases in
sales of the product line (as defined) over base period sales, of
which approximately $300,000 has been recorded through December 31,
1996. Goodwill of approximately $2.6 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.
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 the
Company'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.
On August 28, 1996, the Company acquired for cash, in a purchase
transaction, all of the outstanding stock of International Jensen
Incorporated ("Jensen"). The purchase price, which was partially
financed from the proceeds of a bridge loan facility, was
approximately $60.2 million, which includes investment banker fees and
other closing costs and approximately $3 million estimated relocation,
severance and other costs to eliminate duplicate facilities and
consolidate certain of Jensen's operations into the Company's Lake
Mary, Florida facilities in 1997. This transaction was preceded by
Jensen's sale of its original equipment manufacturing business to a
member of its management.
The $15.6 million excess of the total cost of the Jensen purchase over
the fair market value of the net identifiable assets acquired has been
recorded as goodwill, which is being amortized to operations over 30
years.
The results of operations of the foregoing acquisitions are included
in the accompanying financial statements from their respective dates
of acquisition.
The following presents, on an unaudited pro forma basis, the net
sales, net earnings and earnings per share of the Company as if the
Jensen and STD acquisitions had each occurred on January 1, 1995. The
information for Jensen is based on its audited financial statements
for the year ended February 28, 1996 and unaudited financial
information for the period from January 1, 1996 to August 28, 1996,
after eliminating its original equipment manufacturing operations and
certain costs and expenses pertaining to the acquisition which are
unrelated to the operations acquired. The information for STD is based
on 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 occurred had
the transactions taken place at the beginning of the periods
presented, nor is it indicative of the expected future results of
operations.
In Thousands (Except Per Share Data)
Year Ended December 31,
1995 1996
Net sales $395,432 $437,390
Net earnings $ 8,250 $ 1,083
Primary earnings per share $.71 $.09
In December 1996 the Company acquired for approximately $1.3 million
the Heco brand of home speakers in Germany through a purchase of
selected assets from the receiver in bankruptcy of Heco GmbH.
In February 1997 the Company acquired the outstanding stock of
Tambalan Limited (Tambalan) at a cost of approximately $285,000, plus
closing costs and the assumption of certain outstanding bank and other
loans of approximately $2.9 million. Tambalan sells headphones and
other consumer products in the United Kingdom and other European
countries trading under the name Ross Consumer Products. It also has
branch operations in Hong Kong.
The operations of both Heco and Tambalan prior to acquisition were
immaterial in relation to those of the Company.
NOTE C - INVENTORIES:
Inventories are summarized as follows:
(In Thousands)
December 31,
1995 1996
Raw materials and work-in-process $22,237 $28,778
Finished goods 35,132 69,170
Merchandise in-transit 9,115 9,039
T O T A L $66,484 $106,987
NOTE D - PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
(In Thousands) Estimated
December 31, Useful Life
1995 1996 (Years)
Land $ 3,016 $ 3,281
Buildings, leaseholds
and improvements (1) 12,926 14,345 15 - 40
Machinery and equipment 5,820 7,806 3 - 10
Furniture, fixtures and
office equipment 4,571 7,494 2 - 7
Tools and dies 6,077 9,777 2 - 5
Totals 32,410 42,703
Less accumulated depreciation
and amortization 8,247 12,125
Balance $24,163 $30,578
(1) Includes capitalized interest costs of approximately $298,000 in 1995.
NOTE E - BANK LOANS AND DRAFTS PAYABLE:
In August 1996, the Company entered into a multi-bank, $120 million
bridge loan facility which was increased to $135 million in December
1996. At December 31, 1996, approximately $130.1 million was
outstanding under this facility. On January 6, 1997, the Company sold,
to institutional investors in a private placement, $75 million of
ten-year senior notes, the proceeds of which were used to reduce the
bridge loan facility, which was then converted to a $50 million
revolving credit facility expiring in August 1999 and a four-year $15
million term loan. The $15 million term loan was used to refinance at
lower rates certain debt assumed in the Jensen acquisition. The
balance sheet at December 31, 1996 gives effect to these transactions
and, accordingly, the $90 million aggregate of the ten-year and
four-year loans has been classified as long-term debt (see Note F).
The balance due under the revolving credit facility has been
classified as a current liability at December 31, 1996 because the
related agreement requires that borrowings be reduced to zero for one
thirty-day period during each twelve months the facility is
outstanding. Interest on borrowings under the revolving credit
facility is payable at rates negotiated with banks at the time
borrowings are made. Additionally, the banks require the maintenance
of various financial ratios.
The Company's Hong Kong subsidiaries have lines-of-credit of
approximately $14 million with three overseas banks. The banks have a
security interest to the extent of merchandise purchased using trust
receipt loans. Short-term bank loans under the lines aggregate
approximately $2.8 million at December 31, 1996.
The weighted average interest rate on outstanding borrowings under the
credit agreements at December 31, 1996 was approximately 6.8%.
Outstanding letters of credit, which aggregated approximately $7.6
million at December 31, 1996, reduce the amounts available under these
lines.
NOTE F - LONG-TERM DEBT:
Long-term debt included in the consolidated balance sheets is
summarized as follows:
(In Thousands)
As at December 31,
1995 1996
Senior ten-year notes payable (1) $ 75,000
Notes payable - banks (2):
Due in monthly installments of
$58,350 through October 1998, plus
interest at 6.91% a year $ 1,983 1,283
Due in quarterly installments of
$650,155 through December 2000,
plus interest at 7.80% a year 13,000 10,402
Due in monthly installments of
$116,670 through December 2000,
plus interest at 6.60% a year 7,000 5,600
Due in quarterly installments of
$937,500 through January 2001,
plus interest which varies
with changes in certain of the
Company's financial ratios and
changes in the LIBOR rate
(approximately 6.4% at December
31, 1996) 15,000
Mortgages 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 3,238 3,061
Other debt 421 90
Total long-term debt 25,642 110,436
Less current portion 5,131 8,683
Noncurrent portion $20,511 $101,753
1) In January 1997, the Company sold in a private placement to
institutional investors $75 million of adjustable rate senior notes,
the proceeds of which were used to partially repay certain bank loans
outstanding at December 31, 1996 (see Note E). The notes are payable
in equal annual principal installments of $10,714,286 beginning in
January 2001. Interest is payable quarterly at 8.12% a year, subject
to a retroactive adjustment to 8.75% a year based on the measurement
of certain financial ratios at September 30, 1997 and December 31,
1997. The note agreement provides for, among other things, the
maintenance of various specified financial ratios and minimum tangible
net worth requirements (as defined), contains limitations and
restrictions on additional borrowings, the payment of dividends,
repurchases of the Company's common stock, engaging in business not
directly related to the consumer electronics industry, investments,
mergers and sales of the Company's assets, other than in the ordinary
course of business (as defined).
The agreement also provides, under certain circumstances, for the
acceleration of the payment of all or a portion of the notes in the
event of a sale of the Company's assets (as defined) or in the event
the Company should request a waiver of the restrictions on mergers or
consolidations with other entities.
2) The bank loan agreements contain covenants and restrictions similar
to, but generally less restrictive than, the senior notes payable.
The noncurrent portion of long-term debt at December 31, 1996 is
payable as follows:
Year ending December 31: (In Thousands)
1998 $ 8,578
1999 7,991
2000 7,997
2001 12,901
Subsequent to December 31, 2001 64,286
T O T A L $101,753
NOTE G - STOCKHOLDERS' EQUITY:
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 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 $46.5 million. The $46.2 million excess of the net proceeds over
the par value of the shares issued was credited to additional paid-in
capital.
In July 1994 the Company effected a three-for-two stock split in the
form of a 50% stock dividend and issued 3,566,321 common shares in
connection therewith. Since the par value per share of the common
stock did not change, the aggregate par value of the shares issued was
transferred to the common stock account from 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
approximately $710,000. Future repurchases of shares may be limited
under the terms of the Company's loan agreements (see Note F).
In August 1995, the Company issued 406,092 shares of common stock in
connection with the purchase of STD (see Note B).
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. 250,000 shares of Series A Junior Participating
Preferred Shares have been reserved in connection with the rights
plan.
In connection with the exercise of incentive stock options, in 1995,
51,602 shares of common stock were issued in exchange for 4,649 shares
of previously issued common stock with a market value of approximately
$99,000 and in 1996, 161,368 shares of common stock were issued in
exchange for 27,297 shares of previously issued common stock with a
market value of approximately $475,000; no cash was received in
connection with these transactions. Other transactions with respect to
stock options are described in Note H.
In July 1996, the Company purchased from an officer 65,000 shares of
previously issued common stock for approximately $1,154,000
representing the fair market value of the shares on the date of the
purchase.
NOTE H - STOCK OPTIONS:
At December 31, 1996, the Company has three stock option plans.
Options to purchase 17,066 shares are outstanding under the Company's
1982 Incentive Stock Option Plan. No additional options are available
for grant under this plan.
The Company's Nonqualified Plan provides for the granting of options
to purchase up to 346,666 shares of common stock.
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. An employment
agreement with Mr. Robert Borchardt, the Company's President,
Co-Chairman of the Board and Chief Executive Officer, provides for the
granting of 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 the agreement,
options to purchase 79,741 shares were granted from this plan in 1996
applicable to the Company's 1995 operations.
Also, at December 31, 1996 there are outstanding nonqualified options
to purchase an aggregate of 18,750 shares of common stock, of which
options to purchase 7,500 shares at $20.67 a share were granted to a
director of the Company in 1994 and options to purchase 10,000 shares
at $16.00 a share were granted to a consulting firm in 1995.
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. 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 and are considered fixed plan options, 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.
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock
Based Compensation", for stock options granted to employees, officers
and directors and, therefore, continues to apply Accounting Principles
Board Opinion No. 25 and related interpretations in its accounting for
stock option plans. Accordingly, no compensation cost has been
recognized for options granted under its stock option plans. If the
Company had elected to recognize compensation cost for options granted
under these plans in 1995 and 1996 based on their fair values at the
grant dates, consistent with the method of SFAS No. 123, net income
and income per share would have been reduced to the pro forma amounts
indicated below:
Year Ended December 31,
1995 1996
(In thousands, except per
share information)
Net income:
As reported $15,053 $ 8,380
Pro forma 13,581 5,539
Income per share:
As reported $1.32 $.72
Pro forma 1.19 .48
The fair values of the Company's stock options used to compute the pro
forma net income and income per share disclosures are their estimated
present values at grant date using the Black-Scholes option pricing
model with the following assumptions for 1995 and 1996; expected
volatility of 46.3%, risk free interest rates ranging from 5.2% to
7.6% and expected holding periods ranging from 3 years to 10 years.
A summary of the status of the Company's outstanding stock options as
of December 31, 1995 and 1996 and changes during the years then
ended is presented below:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1996
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
Stock Options (000's) Per Share (000's) Per Share
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 1,005 $ 9.00 1,315 $12.23
Granted 414 17.98 285 17.05
Exercised (97) 3.06 (302) 6.17
Forfeited/expired (7) 14.68 (29) 18.03
Outstanding at end of year 1,315 $ 12.23 1,269 $14.62
Exercisable at year end 667 $ 8.09 848 $13.88
Weighted - average fair
value of options granted
during the year $ 10.89 $ 10.88
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Range of Shares Contractual Price Shares Price
Exercise Prices (000's) Life Per Share (000's) Per Share
<S> <C> <C> <C> <C> <C>
$ 1.13 to $ 3.33 237 4.3 years $ 2.75 237 $ 2.75
12.25 to 16.75 659 8.1 years 15.51 330 15.77
18.07 to 24.00 373 7.5 years 20.58 281 21.03
Totals 1,269 848
</TABLE>
NOTE I - CONCENTRATIONS:
As of December 31, 1996, the Company is not aware of any significant
customer or lender that could, if suddenly eliminated, severely impact
its operations. No single customer accounted for sales in excess of
10% of consolidated net sales for each of the three years ended
December 31, 1996. Revenue from export sales from the United States
was less than 10% of consolidated net sales during this period. 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. Information about
the Company's domestic operations and foreign subsidiaries is set
forth in Note P.
NOTE J - RESEARCH AND DEVELOPMENT:
Research and development costs for new products aggregated
approximately $942,000 in 1994, $1,608,000 in 1995 and $2,897,000 in
1996.
NOTE K - ADVERTISING COSTS:
Advertising costs aggregated approximately $661,000 in 1994,
$1,453,000 in 1995 and $2,768,000 in 1996.
NOTE L - INCOME TAXES:
Income taxes on the statements of operations are comprised of the
following:
(In Thousands)
Year Ended December 31,
1994 1995 1996
Currently payable (refundable):
Federal $4,075 $3,071 $ 467
State and local 610 283 (28)
Foreign 889 2,094 2,609
Totals 5,574 5,448 3,048
Deferred (305) (776) (312)
Net provision $5,269 $4,672 $2,736
Pretax income (loss) was derived from foreign and domestic sources as
follows:
(In Thousands)
Year Ended December 31,
1994 1995 1996
Foreign $ 5,476 $12,431 $14,598
Domestic 11,597 7,294 (3,482)
Totals $17,073 $19,725 $11,116
Deferred tax assets and liabilities and the principal temporary
differences from which they arise are:
(In Thousands)
December 31,
1995 1996
Deferred tax assets:
Allowance for estimated doubtful
accounts and estimated sales returns,
allowances and discounts $ 632 $2,660
Tax basis adjustments to inventory 412 2,725
Deferred compensation accruals 369 441
Difference in basis and amortization periods
of patents, trademarks and package
design costs 899 540
Cumulative foreign translation adjustment 165 250
Estimated Jensen consolidation costs 1,120
Net operating loss and tax credit carryforward 8,089
Other 19 946
Total 2,496 16,771
Less valuation allowance (3,253)
Total deferred tax assets 2,496 13,518
Deferred tax liabilities:
Accelerated depreciation of property
and equipment 383 792
Tax basis adjustments to prepaid
catalog costs 169 159
Other 3 107
Total deferred tax liabilities 555 1,058
Net deferred tax asset $1,941 $12,460
As a result of the Jensen acquisition, the Company has acquired
domestic net operating loss carryforwards of approximately $8 million
and tax credit carryforwards of approximately $1.8 million, which
expire primarily from 2000 through 2009. Utilization of the loss
carryforwards is subject to an annual limitation of approximately $3
million as a result of the provisions of Section 382 of the Internal
Revenue Code. In addition, the Company has available foreign net
operating loss carryforwards of approximately $1.3 million, expiring
in 1998, which are available to reduce future income taxes in Italy.
The Company has recorded a net deferred tax asset for the tax benefit
of such carryforwards considered more likely than not to be realized
prior to their expiration and a valuation allowance for the tax
benefit of the balance of such carryforwards. If the amounts subject
to the valuation allowance are subsequently realized, their income tax
benefit will be recorded as a reduction of the then unamortized
goodwill related to the Jensen acquisition.
The following table reconciles the statutory federal income tax rate
to the Company's effective income tax rates:
Year Ended December 31,
1994 1995 1996
Statutory federal rate 34.0% 34.0% 34.0%
Effect of:
State and local income
taxes (net of federal
benefit) 2.3 .9 (.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 (5.1) (11.2) (9.6)
Other items (net) .6 1.1
Effective income tax
rates 30.9% 23.7% 24.6%
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 $4.4 million based on the subsidiaries'
undistributed earnings which aggregate approximately $24.5 million for
income tax purposes at December 31, 1996. The foregoing amounts are
stated net of U.S. Sub-Part F taxes paid, or payable, which are
considered the equivalent of repatriated earnings.
NOTE M - EMPLOYEE BENEFIT PLANS:
The Company's profit sharing plans for eligible domestic nonunion
employees provide for annual contributions as authorized by the Board
of Directors of up to the maximum allowable as a tax deduction by the
Treasury Department. Profit sharing expense was approximately $250,000
in both 1994 and 1995 and $363,000 in 1996.
NOTE N - COMMITMENTS:
The Company leases certain facilities and equipment under long-term
operating leases which expire at various times through December 2002.
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)
1997 $ 2,966
1998 2,669
1999 2,335
2000 1,426
2001 914
2002 312
T O T A L $10,622
Rent expense was approximately $826,000 in 1994, $1,335,000 in 1995
and $1,827,000 in 1996.
An agreement with Mr. Herbert Borchardt, the Company's Co-Chairman of
the Board, provides for a current minimum annual compensation of
approximately $219,000 while he remains Co-Chairman and $183,000
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 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 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 and 1996, the Company 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.
NOTE O - LITIGATION AND U.S. CUSTOMS INQUIRY:
In connection with the Jensen acquisition, two separate actions were
commenced against the Company and others in the courts of the State of
Delaware in 1996: (i) In Re International Jensen Incorporated
Shareholders Litigation, and (ii) Emerson Radio Corp. v. Recoton Audio
Corporation, Robert G. Shaw, David G. Chandler, Robert H. Jenkins,
Norman H. McMillan, William Blair Leveraged Capital Fund, L.P., RC
Acquisition Sub, Inc., IJI Acqusition Corp. and Recoton Corporation.
The claim by Emerson Radio Corporation (Emerson) was dismissed on
motion by Emerson, without prejudice on March 7, 1997 and, based on
representations made by the shareholders' counsel to the court, the
Company expects that the shareholders litigation will be withdrawn,
subject only to a claim by the plaintiffs' counsel for fees and
expenses.
In addition, a separate action was commenced by Jensen against
Emerson in Federal Court in Chicago claiming Emerson violated the
proxy soliciation rules and breached its confidentiality agreeement in
which action Emerson has alleged claims of breach of contract and
fraudulent inducement against Jensen and tortuous interference against
Recoton. Recoton has instituted a separate case against Emerson
claiming bad faith interference with the Jensen acquisition. The court
has placed these cases on hold pending resolution of current
settlement discussions between the parties.
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.
NOTE P - DOMESTIC AND FOREIGN OPERATIONS:
Information applicable to the Company's domestic operations and
foreign subsidiaries is summarized as follows:
(In Thousands)
Year Ended December 31,
1994 1995 1996
Net sales:
To unaffiliated customers:
United States $ 140,905 $175,774 $257,088
Asia 11,715 21,869 29,941
Canada 11,353 15,034 18,570
Europe 26,101
Total 163,973 212,677 331,700
Intercompany sales between
geographic areas:
United States 2,327 5,651 5,988
Asia 24,379 35,780
Less eliminations (2,327) (30,030) (41,768)
Consolidated $163,973 $212,677 $331,700
Intercompany sales between geographic areas are priced to achieve a
targeted profit to the purchaser/distributor.
(In Thousands)
Year Ended December 31,
1994 1995 1996
Pre-tax income (loss):
United States $11,597 $ 7,294 $ (3,482)
Asia 4,948 14,987 11,171
Canada 528 963 845
Europe 2,312
Eliminations (3,519) 270
Consolidated $17,073 $19,725 $11,116
(In Thousands)
December 31,
1994 1995 1996
Identifiable assets at year end:
United States $104,430 $145,230 $238,641
Asia 7,562 29,844 37,013
Canada 6,772 9,980 11,551
Europe 47,528
Consolidated $118,764 $185,054 $334,733
<PAGE>
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, 1995 and 1996 and for
each of the three years in the period ended December 31, 1996, we have also
audited Schedule II for each of the three years ended December 31, 1996,
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 & Sandler, LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
February 28, 1997
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
RECOTON CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
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
Allowance for possible
losses:
Year ended December 31,
<S> <C> <C> <C> <C> <C>
1994 $ 881 $ 367 $ 259 $ 989
Year ended December 31,
1995 $ 989 $ 847 $ 249 $1,587
Year ended December 31,
1996 $1,587 $1,259 $1,627** $1,354 $3,119
</TABLE>
*Represents write-offs of uncollectible accounts, net of recoveries.
**Represents allowance recorded upon acquisition of Jensen.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
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, 1996 and to be used in
connection with the Annual Meeting of Stockholders of Recoton currently
scheduled to be held in 1997 (the "1997 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, 1996
and to be used in connection with Recoton's 1997 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, 1996 and to be used in connection with Recoton's 1997 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,
1996 and to be used in connection with Recoton's 1997 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 page 29 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. Restated Certificate of Incorporation of
Recoton Corporation, as filed January 28,
1997 (filed herewith)
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. Form of Common Stock Certificate (filed
herewith)
4.2 Rights Agreement, dated as of October 27,
1995, between Recoton Corporation and
ChaseMellon 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 (an asterisk indicates
management contracts and compensatory
plans or arrangements):
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 Amendment dated March 20, 1997 to Consulting
Agreement between Recoton Corporation and
Herbert Borchardt dated August 28, 1996
(filed herewith)
10.3. 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)*
10.4. 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).*
10.5. 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).*
10.6. 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).*
10.7. 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
previously filed agreement relating to
insurance in the principal amount of
$250,000 has been canceled).*
10.8. 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).*
10.9. 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).*
10.10. 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).*
10.11. 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).*
10.12. 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).*
10.13. Recoton Corporation Code Section 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).*
10.14. 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).
10.15. Common Stock Purchase Option, as of
March 1, 1995, with the Equity Group, Inc.
(incorporated by reference to Exhibit 10.14
to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995)
10.16. Stock Purchase Agreement dated as of August
31, 1995, among Recoton Corporation, Recoton
(Far East) Limited, STD Holding Limited
(STD) and the other shareholders of STD
including, as exhibits, employment
agreements with Stephen Chu (as President of
STD),* David Chu (as Vice President of
STD)* and Patrick Ho (as Vice President,
Marketing of STD)* (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 (including,
as an exhibit, an employment agreement with
Todd Hays (as President and Chief Operating
Officer of InterAct Accessories, Inc.)*
(incorporated by reference to Exhibit 2 to
the Registrant's Current Report of Form 8-K
dated September 5, 1995)
10.18. Fourth 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 2.1 to the Registrant's
Current Report on Form 8-K dated June 23,
1996)
10.19. Third Amended and Restated Agreement
for Purchase and Sale of the Assets of the
OEM Business of International Jensen
Incorporated by and to IJI Acquisition
Corp. dated as of January 3, 1996
(incorporated by reference to Exhibit 2.2.to
Jensen's Current Report on Form 8-K dated
June 23, 1996)
10.20. Receivables Sales Agreement among
International Jensen Incorporated, IJI
Acquisition Corp. and Harris Trust and
Savings Bank dated as of august 28, 1996
(incorporated by reference to Exhibit 4 to
the Registrant's Current Report on Form 8-K
dated August 28, 1997)
10.21. Management Services Agreement among IJI
Acquisition Corp. and International Jensen
Incorporated dated August 28, 1996
(incorporated by reference to Exhibit 6 to
the Registrant's Current Report on Form 8-K
dated August 28, 1997)
10.22. Supply and Services Agreement among IJI
Acquisition Corp. and International Jensen
Incorporated dated August 28, 1996
(incorporated by reference to Exhibit 7 to
the Registrant's current Report on Form 8-K
dated August 28, 1996).
10.23. Shared Facilities Agreement among IJI
Acquisition Corp. and International Jensen
Incorporated dated August 28, 1996
(incorporated by reference to Exhibit 8 to
the Registrant's current Report on Form 8-K
dated August 28, 1996).
10.24. Non-Competition Agreement among IJI
Acquisition Corp. and International Jensen
Incorporated dated August 28, 1996
(incorporated by reference to Exhibit 9 to
the Registrant's current Report on Form 8-K
dated August 28, 1996).
10.25. License Agreement among IJI Acquisition
Corp. and International Jensen Incorporated
dated August 28, 1996 (incorporated by
reference to Exhibit 10 to the Registrant's
current Report on Form 8-K dated August 28,
1996).
10.26. Amended and Restated Employment
Agreement between RC Acquisition Sub, Inc.,
Robert G. Shaw, International Jensen
Incorporated and Recoton Corporation dated
August 28, 1996 (filed herewith)*.
10.27. Form of Transitional Employment
Agreement dated November 9, 1995, by and
between International Jensen Incorporated
and selected employees of International
Jensen Incorporated (incorporated by
reference to Exhibit 10.2 to Jensen's
Quarterly Report on Form 10-Q for the
quarterly period ended November 30, 1995,
filed with the Commission on or about
January 12, 1996)*
10.28. Credit Agreement among Recoton Corporation,
The Chase Manhattan Bank, and the Lenders
made party thereto dated as of August 27,
1996 (incorporated by reference to Exhibit 5
to the Registrant's Current Report on Form
8-K dated August 28, 1997)
10.29. Amendment and Waiver to Credit
Agreement filed as Exhibit 10.28, dated as
of August 27, 1996 (filed herewith)
10.30. Amendment to Credit Agreement filed as
Exhibit 10.28, dated as of December 20,
1996 (filed herewith)
10.31. Note Purchase Agreement dated January
6, 1997 between Recoton Corporation and the
several purchasers (filed herewith).
(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 SECURITYHOLDERS: 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
Recoton Audio Corporation Delaware
ReCone, Inc.*** Delaware
Specialty Audio, Inc. *** California
Jensen Japan, Inc. *** Illinois
RAC-FSC*** U.S. Virgin
Islands
Recoton International Holdings, Inc. *** Delaware
Recoton European Holdings, Inc. *** Delaware
Recoton German Holdings GmbH*** Germany
Mac Audio Electronic GmbH*** Germany
Magnat Audio-Produkte GmbH*** Germany
Recoton Audio-Produkte GmbH*** Germany
Arcona s.r.l. *** Italy
Entel s.r.l. *** Italy
Recoton (UK) Limited*** United
Kingdom
Tambalan Limited*** United
Kingdom
* Subsidiary of Recoton (Far East) Limited
** Subsidiary of STD Holding Limited
*** Direct or indirect subsidiary of Recoton
Audio Corporation
(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: filed herewith.
(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/A on
November 8, 1996, filing under Item 7 (Financial Statements, Pro Forma Financial
Information and Exhibits) certain pro forma financial statements in connection
with the acquisition of International Jensen Incorporated.
<PAGE>
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, Chief
Executive Officer and
President
Date: March 28, 1997
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.
SIGNATURE POSITION DATE
/S/ ROBERT L. BORCHARDT President, Co-Chairman, March 28, 1997
Robert L. Borchardt Chief Executive Officer
(Principal Executive
Officer) and Director
/S/ HERBERT H. BORCHARDT Co-Chairman and March 28, 1997
Herbert H. Borchardt Director
/S/ STUART MONT Chief Operating Officer, March 28, 1997
Stuart Mont Chief Financial Officer
(Principal Financial Officer)
and Director
/S/ GEORGE CALVI Director March 28, 1997
George Calvi
/S/ PETER WISH Director March 28, 1997
Peter Wish
/S/ JOSEPH H. MASSOT Treasurer (Principal March 28, 1997
Joseph H. Massot Accounting Officer)
and Director
/S/ IRWIN S. FRIEDMAN Director March 28, 1997
Irwin S. Friedman
/S/ JOSEPH M. IDY Director March 28, 1997
Joseph M. Idy
/S/ RONALD E. MCPHERSON Director March 28, 1997
Ronald E. McPherson
/S/ PAUL FEFFER Director March 28, 1997
Paul Feffer
/S/ ROBERT SHAW
Robert Shaw Director March 28, 1997
/S/ STEPHEN CHU Director March 28, 1997
Stephen Chu
<PAGE>
EXHIBIT INDEX
EXHIBIT NO.
3.1 Restated Certificate of Incorporation of Recoton Corporation, as
filed January 28, 1997
4.1 Form of Common Stock Certificate
10.2 Amendment dated March 20, 1997 to Consulting Agreement between Recoton
Corporation and Herbert Borchardt (dated August 28, 1996
10.26 Amended and Restated Employment Agreement between RC Acquisition
Sub, Inc., Robert G. Shaw, International Jensen Incorporated and Recoton
Corporation
10.29 Amendment and Waiver to Credit Agreement filed as Exhibit 10.28,
dated as of August 27, 1996
10.30 Amendment to Credit Agreement filed as Exhibit 10.28, dated as of
December 20, 1996
10.31 Note Purchase Agreement dated January 6, 1997 between Recoton Corporation
and the several purchasers
23 Consent of the Independent Public Accountants
27 Financial Data Schedule
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
RECOTON CORPORATION
Under Section 807 of the
Business Corporation Law
We, Robert L. Borchardt and Stuart Mont, being respectively the
President and the Secretary of Recoton Corporation, in accordance with Section
807 of the Business Corporation Law do hereby certify:
FIRST: The name of the Corporation is Recoton Corporation. The name
under which the corporation was formed is Recotone Co., Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed
by the Department of State on December 30, 1936.
THIRD: The text of the Certificate of Incorporation as amended
theretofore is hereby restated without further amendment or change to read as
herein set forth in full:
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, liqui dation 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 or 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 New York, 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 Recoton Corporation, 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 1987 Annual Meeting
of Shareholders and the term of office of the third class to expire at
the 1988 Annual Meeting of Shareholders. At each Annual Meeting of
Shareholders following such initial classification and election,
directors elected to succeed those whose terms expire shall be elected
for a term of office 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 other cause shall be filled by a majority vote of the directors then
in office, and directors so chosen shall hold office for a term
expiring at the Annual Meeting of 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 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 per 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 (1) 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 (1) 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 an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the
date in question was the beneficial owner, directly or indirectly, of
10% or more of the voting power of the then outstanding Voting Stock;
or
(iii) is an assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially owned by
any Interested Shareholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act of
1933.
C. "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 under the Securities Exchange Act of 1934 as in effect on April 1,
1985 provided, however, and without limitation, any individual, corporation,
partnership, group, association or other person or entity which has the right to
acquire any Voting Stock at any time in the future, whether such right is
contingent or absolute, pursuant to any agreement, arrangement or understanding
or upon exercise or conversion rights, warrants or options, or otherwise, shall
be deemed the Beneficial Owner of such Voting Stock.
D. "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934,
as in effect on April 1, 1985.
E. "Subsidiary" means any corporation of which a majority any class of
equity security is owned, directly or indirectly, by the Corporation; provided,
however, that for the @purposes of the definition of Interested Shareholder set
forth in paragraph B of this Section 3, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is owned,
directly or indirectly, by the Corporation.
F. "Disinterested Director" means any member of the Board of Directors
of the Corporation (the "Board") who is not affiliated with or the nominee of
the Interested Shareholder or an Affiliate of the Interested Shareholder that is
involved in the Business Combination under consideration by the Board of
Directors.
G. "Fair Market Value" means: (i) in the case of stock, the highest
closing sale price during the 30-day period preceding the date in question of a
share of such stock on the Composite Tape for New York Stock Exchange-Listed
Stocks, or if such stock is not quoted on the Composite Tape, on the New York
Stock Exchange or if such stock is not listed on such Exchange, on the principal
United States securities exchange on which such stock is listed, of if such
stock is not listed on any such exchange, the highest closing sale price or bid
quotation, whichever is reported in the financial press, with respect to a share
of such stock during the 30-day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated Quotations System or
any system then in use, or if no such quotations are available, the fair market
value on the date in question of a share of Common Stock as determined by the
Board in good faith; and (ii) in the case of property other than cash or stock,
the fair market value of such property on the date in question as determined by
the Board in good faith.
H. "Institutional Voting Stock" shall mean any class of Voting Stock
which was issued to and continued to be held solely by one or more insurance
companies, pension funds, commercial banks, savings banks or similar financial
institutions or institutional investors.
I. In the event of any Business Combination in which the Corporation
survives, the phrase "other consideration to be received" as used in paragraphs
3(i) and (ii) of Section 2 of this Article 10 shall include the shares of Common
Stock and/or the shares of any other class of outstanding Voting Stock retained
by the holders of such shares.
Section 4. Certain Powers of the Disinterested Directors. A majority
of the Disinterested Directors of the Corporation shall have the power and duty
to determine for the purposes of this Article 10, on the basis of information
known to them after reasonable inquiry, (A) whether a person is an Interested
Shareholder, (B) the number of shares of Voting Stock beneficially owned by any
person, (C) whether a person is an Affiliate or Associate of another, (D)
whether a class of Voting Stock is Institutional Voting Stock, (E) whether a
transaction or series of transactions constitutes a Business Combination, (F)
whether the requirements of Section 2 of this Article 10 have been met and (G)
whether the assets which are the subject of any Business Combination have, or
the consideration to be received for the issuance or transfer of securities by
the Corporation or any Subsidiary in any Business Combination constitute more
than twenty percent of the Fair Market Value of the total assets of the entity
involved.
Section 5. No Effect on Fiduciary Obligations of Interested
Shareholders. Nothing contained in this Article 10 shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
Section 6. Amendment. Renewal. etc. Notwithstanding any other
provisions of this Certificate of Incorporation or the By-Laws of the
Corporation (and notwithstanding the fact that a lesser percentage may be
specified by law, this Certificate of Incorporation or the By-Laws of the
Corporation), the affirmative vote of the holders of 80% or more of the voting
power of the shares of the then outstanding Voting Stock, voting together as a
single class, shall be required to amend or repeal, or adopt any provisions
inconsistent with, this Article 10 of this Certificate of Incorporation.
11. No director shall be personally liable to the Corporation or any
of its shareholders for damages for any breach of duty as a director; provided,
however, that the foregoing provision shall not eliminate or limit (i) the
liability of a director if a judgment or other final adjudication adverse to him
establishes that his acts or omissions were in bad faith or involved intentional
misconduct or a knowing violation of law or that he personally gained in fact a
financial profit or other advantage to which he was not legally entitled or that
his acts violated Section 719 of the New York Business Corporation Law; or (ii)
the liability of a director for any act or omission prior to the adoption of
this Article 11 by the shareholders of the Corporation.
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.
FOURTH: This restatement of the Certificate of Incorporation was
authorized by the Board of Directors.
IN WITNESS WHEREOF, we have made and subscribed this certificate, this
21st day of January, 1997.
/s/ Robert L. Borchardt
Robert L. Borchardt
President
/s/ Stuart Mont
Stuart Mont
Secretary
STATE OF FLORIDA )
ss.:
COUNTY OF SEMINOLE)
Stuart Mont being duly sworn, deposes and says that he is one of the
persons described in and who executed the foregoing certificate, that he has
read the same and knows the contents thereof, and that the statements contained
therein are true.
/s/ Stuart Mont
Stuart Mont
Sworn to before me this 21st day
of January, 1997.
/s/ Deborah S. Adkins
Notary Public
Exhibit 4.1
COMMON STOCK COMMON STOCK
NUMBER SHARES______
CB______
RECOTON(Registration Mark)
RECOTON CORPORATION
INCORPORATED UNDER THE LAWS CUSIP 756268 10 8
OF THE STATE OF NEW YORK SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT __________________________
IS THE OWNER OF ______________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.20 EACH,
OF THE COMMON STOCK OF
RECOTON CORPORATION
transferable on the books of the Corporation by the owner hereof in person or by
duly authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent
and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
CERTIFICATE OF STOCK
Dated: ____________
/s/ Robert L. Borchardt /s/ Herbert H. Borchardt
CO-CHAIRMAN, PRESIDENT CO-CHAIRMAN
RECOTON CORPORATION
CORPORATE
SEAL
1936
NEW YORK
Countersigned and Registered:
CHEMICAL BANK
(New York, New York)
Transfer Agent and Registrar
Authorized Signature
RECOTON CORPORATION
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUEST, THE POWERS, DESIGNATIONS, PREFERENCE AND RELATIVE, PARTRICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF
THE COPRORATION, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS, SUCH REQUEST MAY BE MADE TO THE CORPORATION OR THE
TRANSFER AGENT.
- ------------------------------------------------------------------------------
The following abreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenant in common UNIF GIFT MIN ACT- _________________
TEN ENT - as tenants by the entireties (cust)
JT TEN - as joint tenants with right
of survivorship and not as Custodian____________________________
tenants in common (Minor)
under Uniform Gifts to Minors
Act__________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value received, ________________ hereby sell, assign and
transfer unto
Please insert social security or other
identifying number of assignee
- --------------------------------
Please print or typewrite name and address of assignee
==============================================================================
_____________________________________________________________Shares of the
capital stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint____________________________________ Attorney to transfer
the said stock on the books of the within-named Corporation with full power of
substitution in the premises.
Dated, _________________________X________________________________
X________________________________ NOTICE: THE
SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAMES (S) AS WRITTEN UPON THE FACE OF
THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE
WHATEVER.
SIGNATURES GUARANTEED:___________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION, (BANKS
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
This certificate also evidences and entities the holder hereof to certain
Rights as set forth in the Rights Agreement between Recoton Corporation (the
"Company") and the Chemical Mellon Shareholders Services, L.L.C. dated as of
October 27, 1995 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the principal
offices of the Company. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. The Company will mail to the holder of
this certificate a copy of the Rights Agreement, as in effect on the date of
mailing, without charge promptly after receipt of a written request therefor.
Under certain circumstances set forth in the Rights Agreement, Rights issued to,
or held by, an Person who is, was or becomes an Acquiring Person, or any
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement), whether currently held by or on behalf of such Person or by an
subsequent holder, may become null and void.
Exhibit 10.2
AMENDMENT
THIS AMENDMENT is entered into as of the 20th day of March, 1997
between Herbert H. Borchardt ("Mr. Borchardt") , Mutz Borchardt ("Mrs.
Borchardt") and Recoton Corporation (the "Company").
WHEREAS, the Company engages Mr. Borchardt's services pursuant to an
employment and consulting agreement dated as of May 8, 1987 (the "Agreement");
WHEREAS, Mrs. Borchardt, the wife of Mr. Borchardt, has assisted Mr.
Borchardt over his years with the Company and is a resource with information
valuable to the Company; and
WHEREAS, the parties desire to make certain amendments to the
Agreement.
NOW, THEREFORE, the Agreement is hereby amended to renumber the
current Section 11 as Section 12 (and to make any appropriate changes in cross
references) and to add a new Section 11 which shall read as follows:
11. Upon the death of Mr. Borchardt, if he is an
employee of or consultant to the Company pursuant to this Agreement,
Mrs. Borchardt shall be retained by the Company for so long as she
shall live to provide consulting services as requested by the Company,
for which she shall receive annual compensation at a rate equal to 50%
of the Contract Amount in effect for services as a consultant at the
date of Mr. Borchardt's death, which payment shall be subject to CPI
adjustment as set forth in Section 4. The Company shall maintain for
Mrs. Borchardt's benefit such of the hospitalization and major medical
benefits as it was maintaining for Mr. Borchardt at the date of his
death, to the extent that the Company has the legal ability to do so.
While Mrs. Borchardt is receiving payments hereunder and during the
term of Mr. Borchardt's employment and retainer hereunder, she shall be
bound by the terms of Sections 6, 7, 9, 10 and 12 of this Agreement as
if she was the party named therein.
IN WITNESS WHEREOF, the Company has caused this Amendment to be
executed by its officer thereunto duly authorized, and Mr. Borchardt and Mrs.
Borchardt have signed this Amendment, as of the 20th day of March,
1997.
RECOTON CORPORATION
By: /s/ Stuart Mont
Name: Stuart Mont
Title: Executive Vice President
/s/ Herbert Borcharart /s/ Mutz Borchardt
- ------------------------- ----------------------
Herbert Borchardt Mutz Borchardt
Exhibit 10.26
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into as of
the 28th day of August, 1996 (the "Commencement Date"), between RC Acquisition
Sub, Inc., a Delaware corporation to be renamed Recoton Audio Corporation (the
"Corporation"), Robert Shaw (the "Employee"), International Jensen Incorporated,
a Delaware corporation ("Jensen") and Recoton Corporation, a New York
corporation ("Recoton").
W I T N E S S E T H:
WHEREAS, the Employee is currently employed by Jensen as its President
and Chief Executive Officer;
WHEREAS, the Corporation, Recoton and Jensen have entered into a
Fourth Amended and Restated Agreement and Plan of Merger dated as of January 3,
1996 (the "Merger Agreement"), pursuant to which Jensen will merge with and into
the Corporation;
WHEREAS, the Corporation and the Employee desire to enter into an
agreement pursuant to which the Employee is employed by the Corporation
effective as of the filing date of the Merger Agreement with the Delaware
Secretary of State's office (the "Effective Time");
WHEREAS, in consideration for this Agreement, the Employee has agreed
to release Jensen and the Corporation from any and all compensation, benefits
and fees, payable or owing under the Employment Agreement dated December 19,
1991, but effective as of January 1, 1992, by and between Jensen and the
Employee (the "1991 Employment Agreement") as of the Effective Time;
WHEREAS, Jensen, the Corporation and Recoton have agreed to release
Employee from any duties or obligations and any claims arising under the 1991
Employment Agreement as of the Effective Time;
WHEREAS, the Employee also may serve as President, or in another
executive capacity, of IJI Acquisition Corporation, an Illinois Corporation
("IJI Acquisition"); and
WHEREAS, the Corporation and the Employee desire to assure the service
of the Employee to the Corporation as of the Effective Time.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, representations, warranties and conditions herein contained, the
parties hereto agree as follows:
1. EFFECT OF THIS AGREEMENT ON THE 1991 EMPLOYMENT AGREEMENT. As of
the Effective Time, the 1991 Employment Agreement shall automatically terminate.
By executing this Agreement, the Employee, on behalf of himself, his heirs,
executors, administrators and assigns, or anyone else acting on his behalf,
hereby unconditionally and irrevocably releases Jensen, the Corporation, and its
successors and assigns, subsidiaries, affiliates, directors, officers, agents
and employees, in both their individual and representative capacities, from any
obligations under the 1991 Employment Agreement, and unconditionally and
irrevocably waives any compensation, benefits, termination payments, or other
payments provided for in the 1991 Employment Agreement, as of the Effective
Time. By executing this Agreement, Jensen, Recoton and the Corporation, jointly
and severally, and on behalf of their respective successors and assigns,
subsidiaries affiliates, directors, officers, agents and employees, in their
representative capacities, hereby unconditionally and irrevocably release
Employee from any obligations or duties arising under the 1991 Employment
Agreement and any claims arising thereunder, as of the Effective Time. This
Agreement shall terminate AB INITIO if the Merger Agreement is terminated and
the 1991 Employment Agreement shall remain in full force and effect.
2. EMPLOYMENT AND DUTIES.
(a) The Corporation shall employ the Employee, and the Employee shall
accept employment, effective as of the Effective Time for the period of time set
forth in Section 3(a), upon such terms and conditions as set forth in this
Agreement. The Employee shall serve the Corporation as President and as Chief
Executive Officer subject to the conditions set forth in this Agreement, under
the direction of the Board of Directors of the Corporation, and shall exercise
such responsibilities and perform such duties for the Corporation as the Board
of Directors shall from time to time reasonably designate and which are
commensurate with the typical duties of a President or Chief Executive Officer
of a wholly-owned subsidiary of a public company in the business in which the
Corporation is engaged. The Employee also shall be elected to the Board of
Directors of Recoton and the Board of Directors of the Corporation as of the
Effective Date and shall serve as an executive officer of Recoton (in which
capacity he shall exercise such responsibilities and perform such duties for
Recoton as the President/Co-Chief Executive Officer and the Chief Operating
Officer shall from time to time designate commensurate with the Employee's
position as the President and Chief Executive Officer of a significant
subsidiary. As set forth following this Agreement, Robert L. Borchardt
("Borchardt"), the President and Co- Chief Executive Officer of Recoton, has
agreed to vote the common shares of Recoton, which he beneficially owns or as to
which he has discretionary voting authority in favor of the election and
reelection of the Employee to serve as a director of Recoton for so long as the
Employee is employed by Recoton or the Corporation or any affiliate thereof
whether during or after the termination of this Agreement. Recoton shall vote
the common shares of the Corporation in favor of the election and reelection of
the Employee to serve as a director of the Corporation, for so long as the
Employee is employed by the Corporation whether during or after the termination
of this Agreement. For purposes of the foregoing, Borchardt shall be deemed to
own beneficially any common shares of Recoton which are owned by himself, his
spouse, any descendant of his, any trust, partnership, corporation, joint
venture, and limited liability company which has been created primarily for his
benefit or the benefit of his spouse or any descendant of Borchardt, or over
which he has discretionary voting authority. At such time as the Employee ceases
to be employed by the Corporation, the Employee shall resign as a director of
the Corporation and Recoton.
(b) The Employee shall report to the President/Co-Chief Executive
Officer, or to the President/Co-Chief Executive Officer and the Chief Operating
Officer of Recoton, together, as an officer of Recoton and to the Board of
Directors of the Corporation as the President or as an executive officer of the
Corporation. With the exception of that business time which will be devoted to
the performance of the Employee's responsibilities to IJI Acquisition pursuant
to an agreement to be entered into between Recoton, Jensen and IJI Acquisition
captioned Management Services Agreement (the "MS Agreement"), the form of which
is attached to the Third Amended and Restated Agreement for Purchase and Sale of
the Assets of International Jensen Incorporated by and between Jensen and IJI
Acquisition dated as of January 3, 1996 (the "Purchase Agreement") and such
other business time as is devoted to other responsibilities as set forth herein,
the Employee shall devote all of his business time and attention to the
performance of his duties under this Agreement and to promoting the best
interests of the Corporation and Recoton and the Employee shall not, either
during or outside of such normal business hours, directly or indirectly engage
in any activity inimical to such best interests. The Employee shall not perform
services for compensation and/or bonuses for himself or for any entity or person
other than the Corporation, or Recoton, without the prior express written
permission of Recoton's Board of Directors. Notwithstanding anything to the
contrary contained herein, it shall not be a violation of this Agreement for the
Employee to (i) serve on civic or charitable boards; (ii) participate in
professional activities and organizations; (iii) manage his personal investments
and his real estate development concerns at a level of activity currently so
engaged so long as those activities do not interfere with the Employee's
performance of his responsibilities under this Agreement; and (iv) be an officer
of or serve on the Board of Directors and be an employee of IJI Acquisition and
receive compensation in connection therewith, so long as those activities do not
interfere with the Employee's performance of his responsibilities under this
Agreement. The Employee shall exert his best efforts in the performance of his
duties under this Agreement.
(c) The Employee and the Corporation acknowledge that there may be
situations which arise, in light of the Employee being an officer, director,
stockholder and/or employee of IJI Acquisition and an officer, director and/or
employee of Recoton or the Corporation, which would constitute, or give rise to
the possibility of, a conflict of interest or the appearance of a conflict of
interest. The Employee agrees that he shall refrain from taking action which
would constitute a violation of his fiduciary duties to Recoton or the
Corporation. To the extent that he is aware of any conflicts (or potential
conflicts) of interest, he shall promptly so advise the Corporation and Recoton.
Recoton and the Corporation may take such reasonable efforts as they deem
appropriate (including without limitation the establishment of a "Chinese Wall"
between the Employee and other employees of Recoton and the Corporation working
on, or with knowledge of, the matter or matters in conflict or potential or
possible conflict (the "Conflicting Matters") and the reasonable exclusion of
the Employee from those portions of meetings which are relevant and from having
access to those portions of the files, documents, data bases and communications
regarding or relating to the Conflicting Matters) in order to reasonably
insulate the Employee from any such Conflicting Matters). The purpose of this
paragraph is to protect the Corporation and Recoton against injury due to the
Employee's conflict of interest. In no event shall the parties construe this
provision as a means to derogate the Employee's duties, as described herein, or
otherwise negate the Corporation's obligations and responsibilities under the MS
Agreement (as defined in Section 2(b)), or the Supply Agreement (as defined in
Section 5(a)). Any reasonable action taken by Recoton or the Corporation in good
faith, pursuant to this Section 2(c), shall not constitute an event giving the
Employee the right to terminate this Agreement pursuant to the third sentence of
Section 3(d). Subject to the terms and conditions set forth in Section 5, the
Employee shall not use or transmit, to IJI Acquisition or others, Recoton or
Corporation Proprietary Information relating to any Conflicting Matters.
3. TERM; PAYMENT UPON TERMINATION.
(a) The term of the Employee's employment under this Agreement shall
commence as of the Effective Time and shall terminate on the earlier of the
death of the Employee, the Employee ceasing to be employed by the Corporation
other than by reason of breach by the Corporation of this Agreement, or 5:00
p.m. on the second anniversary of the Effective Time (the "Employment Term").
Except with respect to the provisions of Sections 2, 3(d) and 3(e) which
expressly survive the termination of this Agreement, the continued employment of
the Employee following the expiration of the Employment Term shall be other than
pursuant to this Agreement.
(b) The Corporation, in the sole discretion of its Board of Directors,
may terminate the employment of the Employee, and its obligation to pay
compensation pursuant to Section 4, during the Employment Term at any time for
"cause." "Cause" as used in this Agreement shall mean (i) conviction of a felony
or any crime having larceny as an essential element, (ii) willful conduct that
is materially injurious to the Corporation or Recoton, (iii) willful and
repeated dereliction of duty or breach of the Employee's material obligations
under this Agreement, (iv) failure to perform any material covenants under the
agreement dated as of January 3, 1996 among the Employee and the Corporation
entitled Shareholders' Agreement (the "Shareholders' Agreement") and (v) serious
violation of law relating to the Corporation's or Recoton's business or
securities. For the purpose of this section, no act or failure to act on the
Employee's part will be considered "willful" unless done, or omitted to be done,
by him not in good faith and without the reasonable belief that his action or
omission was in the interest of the Corporation or not opposed to the interests
of the Corporation. For termination for cause, written notice of the termination
shall be served upon the Employee and, except as otherwise provided herein,
shall be effective as of the date of such service ("Termination Notice"). With
respect to items (iii) and (iv) of this subsection 3(b), Employee shall have ten
(10) days within receipt of the Termination Notice to cure the cause violation,
and his failure to do so shall result in his termination. Such written notice
shall specify in reasonable detail the act or acts of the Employee underlying
such termination.
(c) The Corporation may terminate the employment of the Employee for
reasons other than for cause provided that the Corporation shall continue to pay
or provide the Employee the salary and other benefits (including bonus which
would be paid if the Employee were still employed hereunder) provided for in
this Agreement until the expiration of the Employment Term.
(d) The Employee may terminate his employment hereunder at any time
upon sixty (60) days prior written notice. If the Employee has been employed by
the Corporation for a period of two (2) years or more, at the time he gives his
written notice of termination, the Corporation shall pay Employee a severance
payment in an amount equal to one (1) year of his then-current Base Salary and
Guaranteed Bonus, payable in one lump sum upon the termination of his
employment. If the Employee has been employed by the Corporation for less than
two (2) years, his compensation and benefits under this Agreement shall cease at
the time of the termination of his employment. Notwithstanding anything herein
to the contrary, the Employee's rights under the Option Plan, shall be governed
by the terms and conditions of the Option Agreement, a form of which is attached
hereto as Exhibit 4(d). If the Employee terminates his employment hereunder or
notifies the Corporation of his intent to terminate his employment hereunder,
the Corporation in its sole discretion may require the Employee to cease the
exercise of his responsibilities and the performance of his services for the
Corporation at any time prior to the effective date of the notice of termination
and to refrain from entering the Corporation's premises but the Employee's
compensation hereunder shall continue until the effective date of termination.
If the Corporation shall: (i) materially breach any term of this Agreement,
which breach shall not have been cured within ten (10) days after written notice
thereof has been given to the Corporation by the Employee, (ii) assign duties or
a title to the Employee or delegate powers to the Employee inconsistent, in any
material respect with the Employee's position as President or as an executive
officer of the Corporation; (iii) (A) relocate the Employee to an office or
location outside of a radius of ten (10) miles from the Lincolnshire office and
which is further than two (2) miles from an expressway (excluding the Employee's
relocation to the Corporation's Schiller Park Facility), or (B) require the
Employee to travel out-of-town in excess of an average of three (3) days per
week over any period of twelve (12) consecutive weeks, other than with the prior
written consent of the Employee, (iv) fail to require a successor of Recoton to
perform under the Employment Agreement; and/or (v) materially change the
Employee's reporting requirements; then the Employee may terminate his
employment under this Agreement and the Corporation shall continue to be
obligated to pay or provide to the Employee the salary and bonus provided for in
this Agreement until the expiration of the Employment Term and the Corporation
shall be obligated to provide to the Employee the payments and benefits
specified in Section 3(e).
(e) If the employment of the Employee is terminated by the Corporation
at any time, whether during the Employment Term or thereafter (including, but
not limited to, termination due to the death or disability of the Employee and
the "constructive termination" specified in the last sentence of Section 3(d)
above), unless terminated by the Corporation for cause, (i) the Employee will
receive a severance payment equal to twice the sum of the Base Salary (as
defined below) in effect at the time of termination and the Guaranteed Bonus (as
defined below), of which one-half shall be paid upon the effective date of such
termination and one-half of which shall be paid in equal monthly installments
over a 24-month period commencing upon the effective date of such termination,
(ii) all options to purchase the common shares of the Corporation in the
Employee's name shall immediately vest, (iii) the Corporation shall pay (or, if
desired by the Employee, reimburse the Employee for) all premiums for COBRA
insurance coverage for 18 months and shall reimburse the Employee for any
comparable coverage obtained thereafter (but not for an amount in the aggregate
in excess of the premiums paid or reimbursed for COBRA coverage) until the
second anniversary of such termination and (iv) the Corporation shall pay the
premiums for the life insurance policy noted in Section 4(c) for two years.
Recoton agrees to guaranty the obligations of the Corporation under Sections 3
and 4.
4. COMPENSATION; BENEFITS; AND EXPENSES.
For all services to be rendered to the Corporation or any affiliate
thereof in any capacity, including services as an officer, director, member of
any committee or otherwise, so long as the Employee is employed by the
Corporation or Recoton during the Employment Term pursuant to Section 3(a) or as
otherwise set forth in the last sentence of Section 3(d);
(a) The Corporation or the Surviving Corporation shall pay the
Employee a salary at the rate of $300,000 per year (the "Base Salary").
Such Base Salary shall be payable in equal installments, less any usual
payroll deductions, in accordance with prevailing payroll practices of
the Corporation from time to time. The Board of Directors may in its
sole discretion increase the Employee's Base Salary and benefits over
those provided for hereunder. Other than as provided in this Agreement,
in no event may Employee's compensation or benefits be decreased by the
Board of Directors except to the extent that such benefits (other than
Base Salary and Guaranteed Bonus, as defined below) are provided to
other employees and such employee benefits are similarly generally
reduced.
(b) The Employee shall receive an annual bonus in respect of
services for each twelve (12) month period during the Employment Term
in the amount of at least $150,000 (the "Guaranteed Bonus"). The
Guaranteed Bonus shall be paid in one (1) installment, payable on the
fifteenth day following the end of each twelve month period. The
Employee also shall be eligible for an additional annual
performance-based bonus which may be granted by the Board of Directors
of the Corporation in its sole discretion (the "Performance Bonus").
(c) The Employee shall be eligible to participate in all
executive medical, dental, life, long-term disability, and qualified or
non-qualified retirement benefit plans and all key executive and other
employee benefit plans or arrangements of the Corporation, including,
without limitation, any Section 401(k) savings and profit sharing plan,
and any standard life, disability, accidental death and dismemberment
and retirement plans or programs consistent with the terms and
coverages of such plans or arrangements and such other individual plans
and arrangements applicable to key executives or employees generally,
each as may from time to time be established, amended or terminated;
PROVIDED, HOWEVER, that the value of all such benefits shall not be
less than the aggregate value of those benefits provided to the
Employee under Section 4(e) of the 1991 Employment Agreement except
that the key man life insurance policies with aggregate benefits
totalling $16.5 million can be terminated or assigned to IJI
Acquisition but the Corporation shall pay the premiums on the
Transamerica Life insurance policy owned by the Robert G. Shaw Trust in
the principal amount of $2.5 million during the Employment Term, and
for a period of two (2) years following the termination of the
Employment Term, to the extent required pursuant to Section 3(e).
(d) On the Effective Date, the Employee shall be granted an
option pursuant to the terms of the Recoton Corporation 1991 Stock
Option Plan (the "Option Plan") to purchase 50,000 Recoton Common
Shares, par value $.20 (the "Common Shares") at the closing price for
the Common Shares on the day prior to the Effective Time which option
shall vest in five equal annual installments, commencing on the first
anniversary of the grant, and shall have a term of ten years from the
date hereof. The options granted under this paragraph (d) shall be
issued under the form of option agreement attached hereto as Exhibit
4(d).
(e) The Corporation shall reimburse the Employee for all
reasonable and necessary expenses incurred by the Employee requested or
authorized by the Corporation in connection with the Corporation's
business where such expenses are properly documented and accounted for
in accordance with the current policy of the Corporation.
5. RESTRICTIONS ON THE DISCLOSURE OF PROPRIETARY INFORMATION;
INVENTIONS.
(a) During the period from the Effective Time until the expiration of
the Employment Term and thereafter, and except as may be necessary in the
ordinary course of the Corporation's business, the Employee shall not, without
the prior written consent of the Corporation, directly or indirectly (i) record,
photograph, photocopy or by any other means copy or cause to be copied any
document, list, drawing, writing, photograph, sketch, sound recording or other
material that embodies Proprietary Information as defined herein or (ii) use, or
disclose or divulge to any person, firm or corporation, any Proprietary
Information. Notwithstanding the above, the parties acknowledge that the MS
Agreement will be entered into pursuant to the Purchase Agreement and that a
certain Supply and Services Agreement will be entered into between Jensen and
IJI Acquisition (the "Supply Agreement"), the form of which is attached to the
Purchase Agreement, and recognize that the non-disclosure limitation as set
forth herein does not apply to information properly transmitted to any of the
parties in the performance of the MS Agreement and/or the Supply Agreement and
maintained in confidence by the recipient. As used in this Agreement,
"Proprietary Information" means information disclosed to or obtained by the
Employee, whether or not acquired during business hours, concerning Jensen's,
the Corporation's, Recoton's and/or their subsidiaries' business, operations,
products, manufacturing or other processes, services, customers, vendors, costs
and pricing policies, research, development, formulae, specifications, methods,
expertise, techniques, inventions, equipment, purchasing, merchandising and
selling including, but not limited to, customer lists, financial and/or
marketing reports and plans, product configurations and compositions, pricing
guidelines or information, financial reports, financial projections and other
financial information, business plans and any other information not readily
known or obtainable by the general public, and any proprietary software. Notwith
standing the foregoing sentence, Proprietary Information does not include (i)
information acquired by the Employee before the Employee became an employee of
Jensen, (ii) information acquired by the Employee pursuant to his employment by
or ownership of IJI Acquisition, (iii) information which is or becomes public
knowledge (except as may be disclosed by the Employee in violation of this
Agreement), (iv) information acquired by the Employee from a source other than
Jensen, the Corporation, Recoton or an affiliate thereof or a party providing
such information to Jensen, the Corporation, Recoton or such affiliate that
legally acquired such information and was free to disclose the same or, (iv)
information independently developed by the Employee without the use of
Proprietary Information or the Corporation's, Recoton's, Jensen's or an
affiliates' facilities. Upon termination of employment hereunder for any reason,
Employee shall, to the extent feasible, promptly return to the Corporation that
portion of all books, records, lists, tapes and other written, typed, computer
or printed materials or data and all copies thereof which contain any
Proprietary Information, and the Employee shall not make or retain any copies
thereof.
(b) If at any time during the term of employment by the Corporation
the Employee conceives, develops, participates in the development of or causes
to be developed any products, methods, techniques, inventions, improvements,
works, techniques, processes, programs, software, works of art, products, ideas
or formulae which are not related to any of the businesses conducted by IJI
Acquisition or any of its affiliates (collectively, the "Corporation
Intellectual Property"), whether or not patentable or copyrightable and whether
or not done within or after normal business hours or alone or in conjunction
with others, relating exclusively to the business of the Corporation or any of
its affiliates, or their affiliates or any part thereof, such Corporation
Intellectual Property shall be and remain the sole and exclusive property of the
Corporation. The Employee shall promptly communicate and disclose all such
Corporation Intellectual Property or Employee Intellectual Property as defined
below to the Corporation, and to further effectuate the purposes of this
provision, each of the Corporation and the Employee shall execute and deliver to
the other at the requesting party's expense any instruments deemed necessary by
the requesting party to effect the disclosure thereof to, and ownership thereof
by, the requesting party, including without limitation any assignments of rights
to patents, copyrights and all other proprietary interests which the Employee or
the Corporation, as applicable might have in any Corporation Intellectual
Property or Employee Intellectual Property, defined below, and shall further
assist the requesting party, as the requesting party may reasonably request, to
obtain patent, trademark or copyright registration, or other protections for the
Corporation Intellectual Property or Employee Intellectual Property, as defined
below, including testifying in any hearings, depositions or trials related
thereto.
If at any time during the term of employment the Employee conceives,
develops, participates in the development of or causes to be developed any
products, methods, techniques, inventions, improvements, works, techniques,
processes, programs, software, works of art, products, ideas or formulae which
are not related to any of the business conducted by the Corporation or any of
its affiliates (collectively the "Employee Intellectual Property"), whether or
not patentable or copyrightable and whether or not done within or after normal
business hours or alone or in conjunction with others, relating exclusively to
the business of IJI Acquisition, or its affiliates or any part thereof, such
Employee Intellectual Property shall be and remain the sole and exclusive
property of the Employee. To the extent the Employee conceives, develops,
participates in the development of or causes to be developed any products,
methods, techniques, inventions, improvements, works, techniques, processes,
programs, software, works of art, products, ideas or formulae which are related
to the business conducted by both the Corporation or any of its affiliates and
IJI Acquisition or any of its affiliates (collectively the "Shared Intellectual
Property"), whether or not patentable or copyrightable and whether or not done
within or after normal business hours or alone or in conjunction with others,
which does not relate exclusively to the business of IJI Acquisition, the
Corporation or any of their affiliates, shall be and remain the shared property
of the Employee, IJI Acquisition and the Corporation, as the case may be. The
parties shall, in good faith, endeavor to agree on an appropriate bifurcation or
other allocation of such Shared Intellectual Property, to the extent the parties
cannot agree on such bifurcation or allocation, or other appropriate arrangement
the parties shall each hold a perpetual worldwide royalty free license to use
such Shared Intellectual Property on a non- exclusive basis.
6. RESTRICTIONS ON COMPETITION. During the period of time during which
the Employee is employed by the Corporation (for the purpose of this section,
the term "Corporation" shall include the Corporation's subsidiaries and Recoton)
(the "Employment Period") and for that period of time after the Employment
Period in which the Employee is deemed to receive benefits pursuant to Section
3(d) (i.e. one (1) year after termination of the Employment Agreement if the
severance payment referenced in the second sentence of Section 3(d) is made), or
Section 3(e), as applicable, the Employee shall not:
(a) directly or indirectly, either individually or as a
principal, partner, agent, employer, consultant, stockholder, joint
venturer, or investor, or in any other manner or capacity whatsoever,
engage in, assist or have any active interest in a business that
engages in the Branded Business or any business of Recoton or its
affiliates as that term is defined in that certain Non-Competition
Agreement to be entered into by and among Jensen, IJI Acquisition, the
Corporation, Recoton, and Fuji Cone, Inc., a Delaware corporation (the
"Non-Competition Agreement") the form of which is attached to the
Purchase Agreement, as it exists on the Commencement Date, located
anywhere in the United States of America or any foreign country in
which the Corporation has conducted business in the last three (3)
years. Notwithstanding anything to the contrary contained herein: (A)
this Section shall not preclude the Employee from owning not more than
5% of the outstanding securities of a corporation which is publicly
traded, either on a securities exchange or over-the-counter; and which
engages in a business or lines of business similar to the Branded
Business, as that term is defined in the Non-Competition Agreement; and
(B) it shall not be a violation of this Agreement for Employee (whether
during employment or after termination of employment of the Employee
hereunder) to: (i) provide services pursuant to the MS Agreement, (ii)
act as an executive officer or director of IJI Acquisition, so long as
those activities do not interfere with the Employee's performance of
his responsibilities under this Agreement, (iii) own stock in IJI
Acquisition, or (iv) be employed by IJI Acquisition so long as those
activities do not interfere with the Employee's performance of his
responsibilities under this Agreement.
(b) directly or indirectly, either individually or as a
principal, partner, agent, employer, consultant, stockholder, joint
venturer, or investor, or in any other manner or capacity whatsoever:
(i) divert or attempt to divert from
the Corporation or an affiliate any Branded Business, as that
term is defined in the Non-Competition Agreement, with respect
to any customer or account, with which the Corporation or any
of its affiliates had any contact or association, or which was
under the supervision of the Corporation within three (3)
years prior thereto;
(ii) induce any employee, salesperson,
distributor, supplier, vender, manufacturer, representative,
agent, jobber, or other person transacting business relating
to the Branded Business, as that term is defined in the
Non-Competition Agreement, with the Corporation, or any of the
affiliates, to terminate their relationship or association
with the Corporation or any of its affiliates, or to represent
or sell services or products in competition with services or
products relating to the Branded Business, as that term is
defined in the Non-Competition Agreement, of the Corporation
or any of its affiliates, excluding, however, any employee
first hired after the Employee's employment with the
Corporation terminated (a "PROHIBITED EMPLOYEE") for
employment by any person, business, firm or corporation, or
any other entity;
(iii) employ or retain, directly
or indirectly, a Prohibited Employee; or
(iv) be an officer, director, partner,
sole proprietor, the holder of outstanding securities (except
the holder of not more than 5% of the securities of any
corporation which is publicly traded, either on a securities
exchange or over-the-counter, or principal of any person,
business, firm, corporation or other entity that employs or
retains a Prohibited Employee; PROVIDED, HOWEVER, that nothing
in this Section 6 shall be construed to in any way prohibit
IJI Acquisition's right to hire any of the persons named as
Management Service Providers in the MS Agreement as an
officer, director, employee or agent of IJI Acquisition during
the course of the Employee's employment with the Corporation
and for six months after termination of such employment
pursuant to the Non-Competition Agreement.
Nothing contained in this Agreement shall prevent Employee during the
Employment Period or thereafter, from performing his duties as an employee of
IJI Acquisition while IJI Acquisition engages in activities consistent with the
Non-Competition Agreement, so long as such performance conforms with Section
2(c). The Employee acknowledges that the time, scope, geographic area and other
provisions of this Section 6 have been specifically negotiated by sophisticated
commercial parties and that all such provisions are reasonable under the
circumstances of the transactions contemplated by this Agreement. It is
understood that the Employee is agreeing to the terms of this Section 6 in order
to induce the Corporation and Recoton to enter into this Agreement. The parties
acknowledge that the business which the Corporation plans to conduct will be
conducted throughout the United States and worldwide and that, given the current
sophistication of the information and telecommunication "highway," a narrow
geographic limitation would deny the Corporation protection to which it is
entitled in this Agreement.
7. PRIOR AGREEMENTS. The Employee represents and warrants to the
Corporation that, except for his current employment by Jensen and the Purchase
Agreement and all ancillary documents thereto, he is not currently subject to
any agreements, obligations or restrictions regarding prior employment,
competition, solicitation of employees or customers or disclosure of proprietary
information.
8. CERTAIN BUSINESS PRACTICES. The Employee shall not during the term
of his employment by the Corporation take or cause or knowingly permit others to
take any action which would cause the Corporation or Recoton to be in violation
of the United States Foreign Corrupt Practices Act or any other similar
legislation of the United States or any other country or any subdivision
thereof.
9. GOVERNING LAW; ARBITRATION; ATTORNEYS FEES.
(a) This Agreement and its validity, construction and performance
shall be governed in all respects by the law of the State of Illinois, without
giving effect to principles of conflict of law.
(b) The parties shall promptly cooperate in good faith to carry out
the provisions of this Agreement and the activities contemplated hereby and
shall also cooperate in good faith to resolve any disputes or differences which
may arise in connection with the provisions hereof and the activities
contemplated hereby. Except as otherwise noted in this Agreement, any dispute,
question, difference, controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be finally settled by arbitration in the
jurisdiction where the Corporation's main offices are located at the time of
institution of such action (the "Main Office") in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, as then in effect at
the time of filing of the notice of demand. The parties consent to the
jurisdiction of the trial court for the county where the Main Office is located
and of the United States Federal District Court for the District where the Main
Office is located for all purposes in connection with arbitration. The parties
consent that any process or notice of motion or other application to either of
said courts, and any paper in connection with arbitration, may be served by
certified mail, return receipt requested or by personal service or in such other
manner as may be permissible under the rules of the applicable court or
arbitration tribunal, provided a reasonable time for appearance is allowed. The
arbitrators shall not alter or disregard any express provisions of this
Agreement. Any arbitration award in accordance with this Section 9(b) shall be
final and binding upon the parties and judgment thereon may be entered in any
court having jurisdiction over such party. The arbitrators are hereby authorized
to award to the prevailing party the costs (including reasonable attorneys' fees
and expenses) of any such arbitration.
(c) In the event of litigation or arbitration hereunder, the court or
arbitration panel shall be authorized to award the prevailing party in such
action or proceeding any or all reasonable attorney fees and disbursements paid
by it in pursuing or defending such action.
10. ENFORCEABILITY. Any provision of this Agreement which is
prohibited by, or unlawful or unenforceable under, any applicable law of any
jurisdiction shall be ineffective as to such jurisdiction without affecting any
other provision of this Agreement in such jurisdiction or all of the provisions
of this Agreement in other jurisdictions. To the full extent, however, that the
provisions of such applicable law may be waived, or the provisions of this
Agreement "blue-penciled" or reformed by any competent court or arbitration
panel, so that they become enforceable, such provisions of law shall be hereby
deemed waived or such provisions of this Agreement shall be so blue-penciled or
reformed to the end that this Agreement is deemed to be a valid and binding
agreement enforceable in accordance with its terms. If any term or provision of
this Agreement shall be held invalid by a competent court or arbitration panel,
the remainder of this Agreement shall not be affected thereby and the parties
hereto shall continue to be bound by the remaining terms hereof. In such event,
the relevant term or provision (or should such term(s) or provision(s) be such a
material element of this Agreement, then the entire Agreement) shall be
renegotiated by the parties in a good faith effort to achieve mutual agreement
consistent with such holding and the parties shall continue to perform under
this Agreement in a manner consistent with the intent and objectives of the
parties to this Agreement.
11. EQUITABLE REMEDIES. The Employee acknowledges that because of the
nature of the business of the Corporation and the subject matter of this
Agreement, a breach of Section 5 or 6 of this Agreement will cause irreparable
injury to the Corporation for which money damages will not provide an adequate
remedy, and the Employee agrees that the Corporation shall have the right to
have the provisions of such Sections specifically enforced by a court having
equity jurisdiction, in addition to, and not in limitation of, any remedies at
law that the Corporation may have.
12. NO WAIVER. The failure by either party at any time to require
performance or compliance by the other of any of its obligations or agreements
shall in no way affect the right to require such performance or compliance at
any time thereafter. The waiver by either party of a breach of any provision
hereof shall not be taken or held to be a waiver of any preceding or succeeding
breach of such provision or as a waiver of the provision itself. No waiver of
any kind shall be effective or binding, unless it is in writing and is signed by
the party against which such waiver is sought to be enforced.
13. ASSIGNMENT. This Agreement and all rights hereunder are personal
to the Employee and may not be transferred or assigned by the Employee at any
time. The Corporation may assign its rights to any parent or subsidiary or, with
the Employee's consent (not to be unreasonably withheld), any successor or in
connection with any sale, transfer or other disposition of all, or substantially
all, of its business and assets, provided, however, that any such assignee
assumes the Corporation's obligations hereunder and provided, further, that such
assignment and assumption shall not relieve the Corporation of its obligations
hereunder.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire and only
agreement between the parties relating to employment of the Employee by or with
the Corporation, and this Agreement supersedes and cancels any and all previous
contracts, arrangements or understandings with respect thereto.
15. AMENDMENT. This Agreement may be amended, modified, superseded,
canceled, renewed or extended only by a written instrument executed by both of
the parties hereto.
16. NOTICES. Any notice, request, consent or communication
(collectively "Notice") sent under this Agreement shall be effective only if it
is in writing and (a) personally delivered, (b) sent by certified or registered
mail, return receipt requested, postage prepaid, (c) sent by a nationally
recognized overnight delivery service, with delivery confirmed, or (d) telexed
or telecopied with receipt confirmed, addressed as follows:
(i) To the Employee:
Robert G. Shaw
c/o International Jensen Incorporated/
Recoton Audio Corporation
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Telecopier: 847-317-3855
Telephone No.: 847-317-3700
- copy to (which shall not constitute notice) -
Wildman Harrold Allen & Dixon
225 W. Wacker Drive
Chicago, IL 60606-229
Attn: Richard B. Thies, Esq.
Telecopier: 312-201-2555
Telephone No.: 312-201-2000
(ii) To the Corporation:
RC Acquisition Sub, Inc./Recoton Audio Corporation
2950 Lake Emma Road
Lake Mary, Florida 32746
Attn: Stuart Mont
Telecopier No.: 407-333-8903
Telephone No.: 407-333-8900
- copy to (which shall not constitute notice) -
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004
Attn: Theodore S. Lynn, Esq.
Telecopier No.: 212-806-6006
Telephone No.: 212-806-5400
(iii) To Jensen
International Jensen Incorporated
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Attention: Mr. Marc T. Tanenberg
Telecopier: 847-317-3855
Telephone : 847-317-3700
(iv) To the Corporation:
RC Acquisition Sub, Inc./Recoton Audio Corporation
2950 Lake Emma Road
Lake Mary, Florida 32746
Attn: Stuart Mont
Telecopier No.: 407-333-8903
Telephone No.: 407-333-8900
- copy to (which shall not constitute notice) -
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004
Attn: Theodore S. Lynn, Esq.
Telecopier No.: 212-806-6006
Telephone No.: 212-806-5400
or such other persons or addresses as shall be furnished in writing by any party
to the other parties. A notice shall be deemed to have been given as of the date
when (i) personally delivered, (ii) five days after the date when deposited with
the Unites States mail properly addressed, (iii) when a receipt of a Notice sent
by a overnight delivery service is confirmed by such overnight delivery service,
or (iv) when receipt of the telex or telecopy is confirmed, as the case may be,
unless the sending party has actual knowledge that a Notice was not received by
the intended recipient.
17. BINDING NATURE. This Agreement shall be binding upon and inure to
the benefit of the personal representatives and successors of the respective
parties hereto.
18. HEADINGS; LANGUAGE. The headings contained in this Agreement are
for reference purposes only and shall in no way affect the meaning or
interpretation of this Agreement. In this Agreement, the singular includes the
plural, the plural the singular and the word "or" is used in the inclusive sense
and all references to "including" shall mean "including without limitation,"
unless the context requires otherwise.
19. SURVIVAL. Unless otherwise provided herein, the provisions of
Sections 2, 3(d), 3(e), 4(b), 4(d), 5, 6, 9, 10, 11, 12, 13 and 16 of this
Agreement shall survive the termination of this Agreement as a continuing
agreement of the Corporation and the Employee.
20. CROSS-REFERENCES; EXHIBITS. References in this Agreement to
Articles, Sections, Schedules and Exhibits are references to Articles and
Sections of this Agreement and to Schedules and Exhibits attached to or
delivered pursuant to this Agreement. Any Schedules and Exhibits are hereby made
a part of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original.
22. ADVICE OF COUNSEL. The Employee acknowledges that he was given the
opportunity to receive the advice of counsel before signing this Agreement and
has consulted counsel.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
INTERNATIONAL JENSEN RECOTON CORPORATION
INCORPORATED
By: /S/ MARC T. TANENBERG By: /S/ STUART MONT
Name: Marc T. Tanenberg Name: Stuart Mont
Title: Executive Vice Title: Executive Vice President-Operations
Title: Vice President
RC ACQUISITION SUB, INC.
By: /S/ STUART MONT By: /S/ ROBERT G. SHAW
Name: Stuart Mont Robert G. Shaw
Title: Secretary
<PAGE>
EXHIBIT 4(D)
NO. OF SHARES SUBJECT TO OPTION: 50,000 OPTION NO.: ----------------
RECOTON CORPORATION
1991 STOCK OPTION PLAN AGREEMENT
This AGREEMENT dated as of the ________ day of
________________________, 1996 between RECOTON CORPORATION, a New York
corporation (the "Company"), and Robert G. Shaw (the "Optionee").
W I T N E S S E T H:
1. GRANT OF OPTION. Pursuant to the provisions of the Recoton
Corporation 1991 Stock Option Plan (the "Plan"), the Company hereby grants to
the Optionee, subject to the terms and conditions set forth in the Plan and this
Agreement, the right and option (the "Option") to purchase from the Company all
or any part of an aggregate of 50,000 Common Shares, $.20 par value ("Common
Shares"), of the Company at the purchase price of $______________ per share. The
Option is intended to qualify as an incentive stock option pursuant to Section
422 of the Internal Revenue Code of 1986, as amended, to the maximum extent
allowable by law.
2. TERMS AND CONDITIONS. The Option is subject to the following terms
and conditions:
(A) EXPIRATION DATE. The Option shall expire ten years
after the date of this Agreement (the "Expiration Date"), except as
otherwise noted in subparagraph (d) of this paragraph 2.
(B) EXERCISE OF OPTION. The Option may be exercised, to the
extent otherwise exercisable by its terms, in five equal annual
cumulative installments with the first installment occurring on the
first anniversary date of the Agreement; PROVIDED, HOWEVER, that no
options granted to executive officers, directors and beneficial owners
of more than ten percent of any class of the Company's equity
securities ("Section 16 Persons") may be exercised in part or in full
prior to six months from the date of grant of the Option.
Notwithstanding the foregoing, all or any part of any remaining
unexercised Option (without regard to any installment limitations) may
be exercised in the following circumstances (but in the case of Section
16 Persons in no event during the six month period commencing on the
date of grant of the Option): (i) immediately upon Employee's
termination of employment with the Company (other than "for cause")
pursuant to the Employment Agreement (as defined in Section 2(d)(4)),
(ii) immediately upon (but prior to the expiration of the term of the
Option) the Optionee's retirement from the Company and all Subsidiaries
on or after the Optionee's 65th birthday, (iii) upon the disability or
death of the Optionee, (iv) upon the occurrence of such special
circumstances or event as in the opinion of the Stock Option Committee
constituted pursuant to the Plan (the "Committee") merits special
consideration, or (v) if, while the Optionee is employed by the Company
or a Subsidiary (as defined below), there occurs a Change in Control.
For purposes of this Plan, a "Change in Control" shall be
deemed to have occurred if (i) any "person" or group of "persons" (as
the term "person" is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended and the rules and regulations
promulgated thereunder (the "Exchange Act")) ("Person"), including any
Affiliate or Associate of such Person, as defined in Rule 12b-2 of the
Exchange Act, acquires (or has acquired during the twelve-month period
ending on the date of the most recent acquisition by such Person) the
beneficial ownership, directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the
then outstanding securities of the Company; (ii) during any period of
twelve months, individuals who at the beginning of such period
constitute the Board of Directors of the Company ("Board"), and any new
director whose election or nomination was approved by the individuals
who either were members of the Board at the beginning of the period,
cease for any reason to constitute at least a majority of the Board;
(iii) a Person acquires ownership of Common Shares of the Company that,
together with Common Shares held immediately prior to such acquisition
by such Person, possesses more than 50% of the total fair market value
or total voting power of the Common Shares ("50% Ownership") of the
Company, unless the additional Common Shares is acquired by a Person
possessing, immediately prior to such acquisition, ownership of 40% or
more of the Common Shares; or (iv) a Person acquires (or has acquired
during the twelve- month period ending on the date of the most recent
acquisition by such Person) assets from the Company that have a total
fair market value equal to or more than one-third (_) of the total fair
market value of all of the assets of the Company immediately prior to
such acquisition. Notwithstanding the foregoing, for purposes of
subsections (i) and (ii) above, a Change in Control will not be deemed
to have occurred if the power to control (directly or indirectly) the
management and policies of the Company is not transferred from a Person
to another Person; and for purposes of subsection (iv), a Change in
Control will not be deemed to occur if the assets of the Company are
transferred: (A) to a shareholder in exchange for his stock, (B) to an
entity in which the Company has (directly or indirectly) 50% Ownership,
or (C) to a Person that has (directly or indirectly) at least 50%
ownership of the Company with respect to its stock outstanding, or to
any entity in which such Person possesses (directly or indirectly) 50%
Ownership.
To the extent otherwise permitted by this Agreement, Common
Shares with respect to which the Option becomes exercisable may be
purchased in whole or from time to time in part at any time prior to
the expiration of the Option. Any exercise shall be accompanied by a
written notice to the Company in a form substantially as attached to
this Agreement as Exhibit 1 (including the last paragraph of such
Exhibit if applicable), specifying the number of shares as to which the
Option is being exercised. Notation of any partial exercise shall be
made by the Company on Schedule 1 to this Agreement.
(C) PAYMENT OF PURCHASE PRICE UPON EXERCISE. At the time of
any exercise, the purchase price of the shares as to which the Option
shall be exercised shall be paid (i) in cash or by check (subject to
clearance) made payable to the Company, (ii) in stock of the Company
valued at its fair market value on the date of exercise by the
Committee, (iii) by providing an order to a designated broker to sell
part or all of the shares being purchased pursuant to exercise of the
Option and to deliver sufficient proceeds to the Company, in cash or by
check payable to the order of the Company, to pay the full purchase
price of such shares and all applicable withholding taxes, or (iv) by
such other methods as the Committee may permit from time to time. As
soon as practicable following receipt of such cash, check, stock,
option or order, the Company shall issue to Optionee a certificate for
the number of shares as to which the Option is being exercised.
Delivery of such shares shall be at the principal office of the Company
and the obligation of the Company with respect to the purchase of such
shares shall be fulfilled by delivery of such shares registered in the
name of the Optionee.
(D) EXERCISE UPON DEATH OR TERMINATION OF EMPLOYMENT.
(i) In the event of the death of Optionee while an
employee of the Company or of a subsidiary of the Company as
defined in the Plan (a "Subsidiary") all unexercised Options
may be exercised by the person or persons to whom Optionee's
rights under the Option pass by will or applicable law, or if
no such person has such right, by Optionee's executors or
administrators, at any time, or from time to time within one
year after the date of Optionee's death, but not later than
the Expiration Date.
(ii) If Optionee's employment by the Company or a
Subsidiary shall terminate because of Optionee's permanent
disability, Optionee may exercise all unexercised Options at
any time, or from time to time within one year after such
termination, but not later than the Expiration Date.
(iii) If Optionee's employment by the Company or a
Subsidiary shall terminate for any reason other than death or
permanent disability as aforesaid, Optionee may exercise all
unexercised Options, at any time, or from time to time within
three months from the date of termination, but not later than
the Expiration Date.
(iv) Notwithstanding anything in this subparagraph
(d) to the contrary, if Optionee's employment is terminated
"for cause" as that term is defined in the Employment
Agreement between the Company and the Optionee dated
__________, 1996 ("Employment Agreement"), all unexercised
Options of Optionee shall terminate immediately upon such
termination of Optionee's employment by the Company and all
subsidiaries, the Optionee shall have no right after such
termination "for cause" to exercise any unexercised Option
which Optionee might have exercised prior to the termination
of employment.
(E) NONTRANSFERABILITY. The Option and any rights hereunder
shall not be transferable or assignable other than by will or by the
laws of descent and distribution. During the lifetime of Optionee, the
Option shall be exercisable only by Optionee.
(F) ADJUSTMENTS. In the event of any change in the Common
Shares of the Company by reason of any stock dividend,
recapitalization, reorganization, merger, consolidation, split-up,
combination or exchange of shares, or any rights offering to purchase
Common Shares at a price substantially below fair market value, or of
any similar change affecting the Common Shares, then the number and
kind of shares subject to the Option and their purchase price per share
shall be appropriately adjusted consistent with such change in such
manner as the Committee may deem equitable to prevent substantial
dilution or enlargement of the rights granted to Optionee hereunder.
Any adjustment so made shall be final and binding upon Optionee.
(G) NO RIGHTS AS STOCKHOLDER. Optionee shall have
no rights as a stockholder with respect to any shares of
Common Shares subject to the Option prior to the date of
issuance of a certificate or certificates for such shares.
(H) NO RIGHT TO CONTINUED EMPLOYMENT. The Option shall not
confer upon Optionee any right with respect to continuance of
employment by the Company or any Subsidiary, nor shall it interfere in
any way with the right of the Company to terminate Optionee's
employment pursuant to and in accordance with the terms of the
Employment Agreement.
(I) COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The
Option and the obligation of the Company to sell shares
and deliver certificates for shares of Common Shares
pursuant to the Option shall be subject to all applicable
federal and state laws, rules and regulations and to such
approvals by any government or regulatory agency as may
be required. No Option may be granted pursuant to the
Plan or exercised at any time when such Option, or the
granting, exercise or payment thereof, may result in the
violation of any law or governmental order or regulation.
The Plan is intended to comply with the Rule 16b-3 under
the Exchange Act. Any provision inconsistent with such
Rule shall be inoperative and shall not affect the
validity of the Plan. If at any time the Committee shall
determine in its discretion that the listing, registration
or qualification of the shares covered by the Plan upon
any national securities exchange or under any state or
federal law, or the consent or approval of any
governmental regulatory body, is necessary as a condition
of, or in connection with, the sale or purchase of shares
under the Plan, no Common Shares will be delivered unless
and until such listing, registration, qualification,
consent or approval shall have been effected or obtained,
or otherwise provided for, free of any conditions not
acceptable to the Committee. If Common Shares are not
required to be registered, but are exempt from
registration, upon exercising all or any portion of the
Option the Company may require Optionee (or any person
acting under subparagraph (d) of paragraph 2), to
represent that the Common Shares is being acquired for
investment only and not with a view to their sale or
distribution, and to make such other representations and
furnish such information deemed appropriate by counsel to
the Company. Stock certificates evidencing unregistered
Common Shares acquired upon exercise of an Option may be
subject to stop orders and shall bear any legend required
by applicable state securities laws and a restrictive
legend substantially as follows:
"The securities represented hereby have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be transferred in the absence of such
registration or an opinion of counsel acceptable to the
Company that such transfer will not require registration under
such Act."
3. OPTIONEE BOUND BY PLAN. Optionee acknowledges receipt of a copy of
the Plan and agrees to be bound by all the terms and provisions of the Plan.
4. NOTICES. All notices, requests, demands and other communications
provided for in this Agreement shall be in writing and addressed to the address
(or telecopier number) of the parties stated below or to such changed address as
such party may have fixed by notice:
(a) To the Employee:
Robert G. Shaw
c/o International Jensen Incorporated/
Recoton Audio Corporation
25 Tri-State International Office Center
Suite 400
Lincolnshire, Illinois 60069
Telecopier: 847-317-3855
Telephone No.: 847-317-3700
- copy to (which shall not constitute notice) -
Wildman Harrold Allen & Dixon
225 W. Wacker Drive
Chicago, IL 60606-1229
Attn: Richard B. Thies, Esq.
Telecopier: 312-201-2555
Telephone No.: 312-201-2521
(b) To the Corporation:
Recoton Corporation
2950 Lake Emma Road
Lake Mary, Florida 32746
Attn: Stuart Mont
Telecopier No.: 407-333-8903
Telephone No.: 407-333-0900
- copy to (which shall not constitute notice) -
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004
Attn: Theodore S. Lynn, Esq.
Telecopier No.: 212-806-6006
Telephone No.: 212-806-5400
(or to such other address or telecopier number as any party may specify by
notice to all other parties as aforesaid). Unless otherwise specifically
provided in this Agreement, such communications shall be deemed to have been
given (a) three days after mailing, when mailed by registered or certified
postage-paid mail, (b) on the next business day, when delivered to a same- day
or overnight national courier service or the U.S. Post Office Express Mail or
(c) upon the date of receipt by the addressee when delivered personally or by
telecopier; PROVIDED, HOWEVER, that any notice of change of address shall be
effective only upon receipt. Notice may be given on behalf of a party by his or
its counsel.
5. COUNTERPARTS. This Agreement has been executed in two counterparts,
each of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, Recoton Corporation has caused this Agreement to
be executed by its President or a Vice President and Optionee has executed this
Agreement, both as of the day and year first above written.
RECOTON CORPORATION
By:
Name:
Title:
(L.S.)
Optionee
<PAGE>
EXHIBIT 1
STOCK OPTION EXERCISE FORM
[DATE]
Recoton Corporation
2950 Lake Emma Road
Lake Mary, FL 32746
Attention: Secretary
Dear Sirs:
The undersigned elects to exercise the option to purchase ______
shares, $.20 par value, of the Common Shares ("Common Shares") of Recoton
Corporation (the "Company") under and pursuant to 1991 Stock Option Plan
Agreement No. ___ between the Company and the under signed dated
___________________.
Delivered herewith is a [check in the amount of $______] [certificate
for ____ shares of Common Shares of the Company] [order to a broker to sell part
or all of the shares being purchased and to deliver sufficient proceeds to the
Company, in cash or by check payable to the order of the Company, to pay the
full purchase price of the shares and all applicable withholding taxes]
[unexercised options sufficient to pay the full purchase price of the shares of
Common Shares and all applicable withholding taxes] in payment of the option
price.
[The undersigned hereby represents and agrees that all of the Common
Shares being purchased hereunder is being acquired for investment and not with a
view to the sale or distribution thereof and that the undersigned understands
that such Common Shares has not been registered under the Securities Act of 1933
(the "Act"), as amended, and such Common Shares may not be sold, pledged,
hypothecated, alienated, or otherwise assigned or transferred in the absence of
registration under the Act, or an opinion of counsel which opinion is
satisfactory to the Company to the effect that such registration is not
required.]
Very truly yours,
[Optionee]
<PAGE>
SCHEDULE 1 -- NOTATIONS AS TO PARTIAL EXERCISE
- -------------------------------------------------------------------------------
Date of Number of Balance of Signature Notation
Exercise Option Authorized Date
Shares Shares
Purchased
- -------------------------------------------------------------------------------
EXHIBIT 10.29
AMENDMENT AND WAIVER
AMENDMENT AND WAIVER, dated as of August 27, 1996 (this "Amendment and
Waiver"), to the Credit Agreement, dated as of August 27, 1996 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
among RECOTON CORPORATION, a New York corporation (the "Borrower"), the several
lenders from time to time parties thereto (the "Lenders"), and THE CHASE
MANHATTAN BANK, a New York banking corporation, as administrative agent (in such
capacity, the "Administrative Agent").
W I T N E S S E T H.:
WHEREAS, the Borrower, the Lenders, and the Administrative Agent are
parties to the Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders and the Administrative
Agent agree to amend and waive certain provisions of the Credit Agreement, and
the Lenders, and the Administrative Agent have agreed to such amendments and
waivers upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and for other valuable consideration the receipt of which is
hereby acknowledged, the Borrower, the Lenders and the Administrative Agent
hereby agree as follows:
1. DEFINITIONS. All terms defined in the Credit Agreement shall have such
defined meanings when used herein unless otherwise defined herein.
2. WAIVER OF CERTAIN PROVISIONS IN SECTION 7. (a)
- ----------------------------------------- Subsection 7.2 of the Credit Agreement
is hereby waived to the extent, and only to the extent, that Borrower is not in
compliance therewith as a result of outstanding Indebtedness owed by the
Borrower's Subsidiaries incorporated in Germany, provided that (i) in no event
shall such Indebtedness equal or exceed 6,500,000 Deutsche Marks at any time and
(ii) such Indebtedness shall be fully eliminated by, and shall not be
outstanding after, November 30, 1996.
(b) Subsection 7.2 of the Credit Agreement is hereby further waived to the
extent, and only to the extent, that Borrower was not in compliance therewith as
of September 30, 1996 as a result of outstanding Indebtedness owed by the
Borrower's Subsidiaries incorporated in Italy, provided that such Indebtedness
has been fully eliminated by, and shall not be outstanding after, November 1,
1996.
3. AMENDMENT OF SECTION 6. Subsection 6.9 of the Credit Agreement is hereby
amended by deleting such subsection in its entirety and inserting in lieu
thereof the following new Subsection 6.9:
"6.9 ADDITIONAL GUARANTORS. With respect to any Person that, subsequent to
the Closing Date, becomes a Subsidiary, promptly upon the request of the
Administrative Agent: (i) cause such new Subsidiary (other than IJI-FSC and
Entel Limited) to become a Guarantor under the Guarantee pursuant to
documentation which is in form and substance satisfactory to the Administrative
Agent, (ii) cause such new Subsidiary (other than IJI- FSC and Entel Limited) to
deliver to the Administrative Agent the certificates and documents relating
thereto that are described in subsections 5.1(d), (e) and (f), and (iii) if
requested by the Administrative Agent, deliver to the Administrative Agent legal
opinions relating to the matters described in clause (i) above, which opinions
shall be in form and substance, and from counsel, reasonably satisfactory to the
Administrative Agent, provided that (i) with respect to IJI and any other Person
(other than IJI-FSC and Entel Limited) that shall become a Subsidiary of the
Borrower as a result of the Merger, the documents described in clauses (ii) and
(iii) of this subsection including, without limitation, opinions of local
counsel in Germany and Italy, shall be received no later than November 30, 1996;
(ii) no such documents described in this subsection shall be required for Avelco
Trading Ltd., a Hong Kong corporation ("Avelco"), on the condition that (x) the
aggregate book value of the total assets of Avelco shall not at any time exceed
the equivalent of US$2,000,000 and (y) the Borrower shall exercise its best
efforts to cause Avelco to be liquidated as soon as practicable after November
12, 1996; and (iii) no such documents described in clauses (ii) and (iii) of
this subsection shall be required for IJI (UK) Limited (f/k/a Grandcave
Limited), a United Kingdom corporation, ("IJI (IJK)"), so long as the aggregate
book value of the total assets of IJI (UK) does not exceed the equivalent of
USS1,000,000."
4. AMENDMENT OF SUBSECTION 7. Subsection 7.2 of the Credit Agreement is
hereby amended by adding thereto the following new subsection:
"; and (h) Indebtedness of the Borrower and any of its Subsidiaries for
discounted drafts, provided, that (i) no such discounted draft shall have a
maturity of more than 120 days and (ii) the aggregate amount of all such
discounted drafts shall not at any time exceed 6,000,000 Deutsche Marks."
5. LIMITED AMENDMENT AND WAIVER. Except as expressly amended and waived
hereby, the Credit Agreement and each other Loan Document shall continue to be,
and shall remain, in full force and effect in accordance with the provisions
thereof. This Amendment and Waiver shall not be deemed to be a waiver of, or
consent to, or a modification or an amendment of, any other term or condition of
the Credit Agreement or any other Loan Document or to prejudice any other right
or rights which the Administrative Agent or any Lender may now have or may have
in the future under or in connection with the Credit Agreement or any of the
instruments or agreements referred to therein, as the same may be amended from
time to time.
6. COSTS AND EXPENSES. The Borrower agrees to pay or reimburse the
Administrative Agent for all its reasonable and customary out-of-pocket costs
and expenses included in connection with the preparation, negotiation and
execution of this Amendment and Waiver, including, without limitation, the
reasonable fees and disbursements of its counsel.
7. COUNTERPARTS. This Amendment and Waiver may be executed by one or more
of the parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
8 GOVERNING LAW. THIS A1VIENDMENT AND WAIVER SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
waiver to be executed and delivered by their respective duly authorized
officers.
RECOTON CORPORATION
By:
THE CHASE MANHATTAN BANK,
as Administrative Agent and as a
Lender
By:
Title:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION, as a Lender
By.
Title:
HARRIS TRUST AND SAVINGS BANK, as a
Lender
By:
Title:
MARINE MIDLAND BANK, as a Lender
By:
Title:
EXHIBIT 10.30
AMENDMENT
AMENDMENT, dated as of December 20, 1996 (this "Amendment"), to the Credit
Agreement, dated as of August 27, 1996 (as heretofore amended and as the same
may be further amended, supplemented or otherwise modified from time to tone,
the "Credit Agreement"), among RECOTON CORPORATION, a New York corporation (the
"Borrower"), the several banks and other financial institutions from time to
time parties thereto (the "Lenders") and THE CHASE MANHATTAN BANK, a New York
banking corporation, as administrative agent (in such capacity, the
"Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and the Administrative Agent are parties
to the Credit Agreement; and
WHEREAS, the Borrower has requested that the Lenders and the Administrative
Agent agree to amend certain provisions of the Credit Agreement, and the Venders
and the Administrative Agent have agreed to such amendments upon the terms and
subject to the conditions set forth herein;
NOW THEREFORE, in consideration of the premises herein contained and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms used
herein which are defined in the Credit Agreement, are used herein as therein
defined.
2. AMENDMENT TO SUBSECTION 1.1 Subsection 1.1 of the Credit Agreement is
hereby amended by (a) adding thereto the following new defined term in the
appropriate alphabetical order:
"'150-DAY DATE': the date that is 150 days after the
Closing Date (or, if such Date is not a Business Day, the
next succeeding Business Day).";
(b) deleting the reference to "subsection 2.4(e)" from the
definition of "Applicable Margin" and substituting in lieu
thereof the reference "subsection 2.4(f)";
(c) deleting the reference to "subsection 2.1(e)" from the
definition of "Commitment Fee Rate" and substituting in lieu
thereof the reference "subsection 2.4(f)";
(d) deleting the reference to "subsection ~.4(e)." at the end of the
definition of "FUNDED INDEBTEDNESS" and substituting in lieu thereof the
reference "subsection 2.4(f), PROVIDED, however, that if the matters described
in subsection 2.1(b) shall occur on or before the 150-Day Date, as a result of
the incurrence of Indebtedness permitted by subsection 7.2(g), such Indebtedness
shall be deemed, for purposes of calculating the Leverage Ratio, to have been
outstanding on December 31, 1996."
3. AMENDMENT TO SUBSECTION 2.1. Subsection 2.1(b) of the Credit Agreement
is hereby amended by (a) deleting the phrase "120-Day Date" from said subsection
and substituting in lieu thereof the phrase "150-Day Date";
(b) deleting the amount "$50,000,000" wherever it appears
in So id subsection and substituting in lieu thereof the amount
"$65,000,000"; and
(c) deleting the period at the end of the first sentence of said
subsection and substituting in lieu thereof the phrase "under 'Subsequent
Commitments - $15mm Term Loan."'
4. AMENDMENT TO SUBSECTION 2.4. Subsection 2.4 of the Credit Agreement is
hereby amended by deleting such subsection in its entirety and substituting in
lieu thereof the following new subsection 2.4:
"2.4 TERMINATION OR REDUCTION OF COMMITMENTS; MANDATORY PREPAYMENTS. (a)
The Borrower shall have the right, upon not less than five Business Days' notice
to the Administrative Agent, to terminate the Commitments or, from time to time,
to reduce the amount of the Commitments PROVIDED that no such termination or
reduction shall be permitted if, after giving effect thereto and to any
prepayments of the Revolving Credit Loans made on the effective date thereof,
the Aggregate Outstanding Extensions of Credit would exceed the Commitments then
in effect. Any such reduction shall be in an amount equal to S1,000,000 or a
whole multiple thereof and shall reduce permanently the Commitments then in
effect. Termination of the Commitments shall also terminate the obligation of
the Lenders to make the Term Loans.
(b) On each Receipt of Proceeds Date that occurs on or before the 150-Day
Date, the Revolving Credit Loans shall be prepaid, and the Commitments shall be
reduced, by an amount equal to the net cash proceeds of the incurrence of the
related Indebtedness, PROVIDED, HOWEVER, that in no event shall the Commitments
be reduced to less than $65,000,000 pursuant to this paragraph.
(c) On the 150-Day Date (if the matters described in subsection 2.1(b)
shall not have occurred prior to such 150-Day Date) (i) the Commitments shall be
automatically reduced to an amount equal to 550,000,000, (ii) that portion of
any then outstanding Revolving Credit Loans that, when added to the aggregate
amount of LIC Obligations then outstanding, exceeds $110,000,000 shall be
prepaid, and (iii) that portion of any then outstanding Revolving Credit Loans
remaining after giving effect to clause (ii) above that does not exceed
S60,000.000 shall be converted to Term Loans in accordance with subsection 2.5.
(d) On the date upon which the matters described in subsection 2.1(b) shall
occur (i) the Commitments shall be automatically reduced to an amount equal to
$50,000,000 and (ii) that portion of any then outstanding Revolving Credit Loans
that does not exceed $15,000,000 shall be converted to Term Loans in accordance
with subsection 2.5.
(e) On each Receipt of Proceeds Date that occurs while any Term Loans are
outstanding in accordance with the provisions of subsection 2.4(c), such Term
Loans shall be prepaid by an amount equal to the net cash proceeds of the
incurrence of the related Indebtedness. Each such prepayment shall be applied to
the installments of principal of such Term Loans in the inverse order of their
stated maturity.
(f) The Borrower shall, without notice or demand, prepay the Revolving
Credit Loans, together with interest accrued to the date of such payment or
prepayment and any amounts payable under subsection 2.17 and/or repay
Reimbursement Obligations to the extent necessary so that the Aggregate
Outstanding Extensions of Credit (other than in respect of (A) the undrawn
portion of any Letters of Credit or (B) any Term Loans) with respect to all
Lenders is equal to zero for at least one consecutive thirty day period during
each period of twelve consecutive calendar months.
(g) Each prepayment of the Loans pursuant to paragraphs (b) and (e) of this
subsection shall be accompanied by payment of all accrued and unpaid interest on
the amount prepaid and any amounts payable pursuant to subsection 2.18."
5. AMENDMENT TO SUBSECTION 2.5. Subsection 2.5 of the Credit Agreement is
hereby amended by deleting said subsection in its entirety and substituting in
lieu thereof the following new subsection:
"2.5 TERM LOANS. Subject to the terms and conditions hereof, each Lender
severally agrees to make a term loan (a "Term Loan") to the Borrower (a) on the
150 Day Date pursuant to a conversion in accordance with subsection 2.4(c) of
Revolving Credit Loans to Term Loans in an amount equal to such Lender's pro
rata share (based upon the respective amounts of the Term Loans of each Lender
specified in Schedule II hereto under "Subsequent Commitments - $60 mm Term
Loan") of the amount provided for in such subsection to be so converted or (b)
on the date upon which the matters described in subsection 2.1(b) shall occur
pursuant to a conversion in accordance with subsection 2.4(d) of Revolving
Credit Loans to Term Loans in an amount equal to such Lender's pro rata share
(based upon the respective amounts of the Term Loans of each Lender specified in
Schedule II hereto under "Subsequent Commitments - $15 mm Term Loan") of the
amount provided for in such subsection to be so converted. The Term Loans may
from time to time be (a) Eurodollar Loans, (b) ABR Loans or (c) a combination
thereof, as determined by the Borrower and notified to the Administrative Agent
in accordance with subsections 2.2 and 2.8."
6. AMENDMENT TO SUBSECTION 7.9. (a) Subsection 7.2 of the Credit Agreement
is hereby amended by (a) deleting the reference to "subsection 2.4(d)" from
subsection 7.2(g) and substituting in lieu thereof the reference "subsection
2.4(e)";
(b) deleting the word "and" from the end of subsection 7.X(g);
(c) deleting the period at the end of subsection 7.2(h); and
(d) adding thereto the following new subsection:
"; and (i) Indebtedness of the Borrower and/or any of its Subsidiaries
pursuant to letter of credit financing with respect to Hong Kong operations;
PROVIDED that (i) no such letters of credit shall have a tenor of more than 120
days and (ii) the aggregate undrawn face amount of all such letters of credit
shall not at any time exceed the equivalent of US$2,500,000."
7. AMENDMENT TO SUBSECTION 7.4. Subsection 7.4 of the Credit Agreement is
hereby amended by (a) deleting the word "and" from the end of Subsection 7.4(c);
(b) deleting the period from the end of subsection 7.4(d); and
(c) adding thereto the following new subsection:
"; and (e) Guarantee Obligations of the Borrower and/or any of its
Subsidiaries pursuant to guarantees given in connection with letter of credit or
trust receipts financing with respect to Hong Kong OPERATIONS; PROVIDED that (i)
no such letters of credit shall have a tenor of more than 120 days and (ii) the
aggregate undrawn face amount of all such letters of credit and trust receipts
shall not at any time exceed the equivalent of US$2,500,000."
8. AMENDMENT TO SCHEDULES I. II AND III. Schedules I, II and III to the
Credit Agreement are hereby amended by deleting the same in their entireties and
substituting in lieu thereof Schedules I, II and II attached hereto; PROVIDED,
however, that in no event will Schedule I attached hereto become effective prior
to December 30, 1996.
9. EFFECTIVENESS. This Amendment shall become effective (the date upon
which this Amendment shall become effective being herein called the "EFFECTIVE
DATE") on the condition that (a) the Borrower shall have delivered to the
Administrative Agent duly executed copies of this Amendment, which copies shall
include the acknowledgement and consent of the Guarantors, (b) the
Administrative Agent shall have received duly executed copies of this Amendment
from each Lender, (c) the Borrower shall have delivered to the Agent on behalf
of each Lender a duly executed Revolving Credit Note in substantially the form
of Exhibit A to the Credit Agreement in an amount equal to such Lender's amended
Commitment (each Lender hereby agreeing to return to the Borrower as soon as
practicable thereafter such Lender's original Revolving Credit Noted, (d) the
Administrative Agent shall have received, with a counterpart for each Lender, a
copy of the resolutions, in form and substance satisfactory to the
Administrative Agent. of the Board of Directors of the Borrower authorizing the
execution, delivery and performance of this Amendment, certified by the
Secretary or an Assistant Secretary of the Borrower as of the Effective r)ate,
which certificate shall be in form and substance satisfactory to the
Administrative Agent and shall state that the resolutions thereby certified have
not been amended, modified, revoked or rescinded, (e) the Administrative Agent
shall have received, with a counterpart for each Lender, a certificate of the
Borrower, dated the Effective Date, as to the incumbency and signature of the
officers of the Borrower executing this Amendment satisfactory in form and
substance to the Administrative Agent, executed by the President or any Vice
President and the Secretary or any Assistant Secretary of the Borrower, (f) the
Administrative Agent shall have received on or before December 20, 1996 the
Amendment Fee provided for in the Fee Letter Amendment, dated December 20, 1996,
between the Borrower and The Chase Manhattan Bank, and (g) the Administrative
Agent shall have received, with a counterpart for each Lender, the executed
legal opinion of Stroock & Stroock & Lavan LLP, counsel to the Borrower and the
other Loan Parties, in form and substance satisfactory to the Administrative
Agent.
10. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants that the representations and warranties contained in the Credit
Agreement (except those which expressly speak as of a certain date) will be,
after giving effect to this Amendment, true and correct in all material
respects, as if made on and as of the date hereof.
11. CONTINUING EFFECT OF CREDIT AGREEMENT. This Amendment shall not
constitute an amendment or waiver of any other provision of the Credit Agreement
not expressly referred to herein and shall not be construed as a waiver or
consent to any further or future action on the part of the Borrower that would
require a waiver or consent of the Administrative Agent and/or the Lenders.
Except as expressly amended hereby, the provisions of the Credit Agreement are
and shall remain in full force and effect.
12. COUNTERPARTS. This Amendment may be executed in counterparts and all of
the said counterparts taken together shall be deemed to constitute one and the
same instrument.
13. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
14. EXPENSES. The Borrower agrees to pay or reimburse the Administrative
Agent for all of its out-of-pocket costs and expenses incurred in connection
with the preparation, negotiation and execution of this Amendment, including,
without limitation, the fees and disbursements of counsel to the Administrative
Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers as of the date first
written above.
RECOTON CORPORATION
By:
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By:
Title:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION, as a Lender
By:
Title:
HARRIS TRUST AND SAVINGS BANK,
as a Lender
By:
Title:
MARINE MIDLAND BANK, as a Lender
By:
Title:
JENSEN JAPAN, INC., an Illinois
corporation
By:
Name: Stuart Mont
Title: Vice President
RECOTON INTERNATIONAL HOLDINGS,
INC., a Delaware corporation
By:
Name: Stuart Mont
Title: Vice President
RECOTON EUROPEAN HOLDINGS, INC., a
Delaware corporation
By:
Name: Stuart Mont
Title: Vice President
RECOTON GERMAN HOLDINGS GMBH, a
German corporation
By:
Name:
Title:
MAC AUDIO ELECTRONIC GMBH, a
German corporation
By:
Name:
Title:
MAGNAT AUDIO-PRODUKTE GMBH, a
German corporation
By:
Name:
Title:
RECOTON AUDIO-PRODUKTE GMBH, a
German corporation
By:
Name:
Title:
ARCONA S.R.L., an Italian
corporation
By:
Name: Robert Shaw
Title: Authorized Agent
RECOTON CANADA LTD., a Canadian
corporation
By:
Name: Stuart Mont
Title: President
RECOTON (FAR EAST) LIMITED, a Hong
Kong corporation
By:
Name:
Title:
STD HOLDING LIMITED, a Hong Kong
corporation
By:
Name:
Title:
STD ELECTRONIC INTERNATIONAL LIMITED,
a Hong Kong corporation
By:__________________________
Name: Robert L. Borchardt
Title: Director
STD MANUFACTURING LIMITED, a
Hong Kong corporation
By:__________________________
Name: Robert L. Borchardt
Title: Director
STD PLASTIC INDUSTRIAL LIMITED, a
Hong Kong corporation
By:__________________________
Name: Robert L. Borchardt
Title: Director
STD TRADING LIMITED, a Hong Kong
corporation
By:__________________________
Name: Robert L. Borchardt
Title: Director
PEAK HERO LIMITED, a Hong Kong
corporation
By:__________________________
Name: Robert L. Borchardt
Title: Director
EVER SMART MANAGEMENT LIMITED,
a Hong Kong corporation
By:__________________________
Name: Robert L. Borchardt
Title: Director
<PAGE>
Schedule I
ORIGINAL COMMITMENTS
LENDER COMMITMENT
The Chase Manhattan Bank . $46,875,000
SunTrust Bank, Central Florida, National Association $28,125,000
Harris Trust and Savings Bank $30,000,000
Marine Midland Bank $30,000,000
<PAGE>
Schedule II
SUBSEQUENT COMMITMENTS - $15MM TERM LOANS
<TABLE>
<CAPTION>
LENDER COMMITMENT TERM LOANS
<S> <C> <C>
The Chase Manhattan Bank $16,828,000 $ 5,047,000
SunTrust Bank, Central Florida, National Association $10,096,000 $ 3,029,000
Harris Trust and Savings Bank $11,538,000 $ 3,462,000
Marine Midland Bank $11,538,000 $ 3,462,000
----------- ------------
$50,000,000 $15,000,000
</TABLE>
SUBSEQUENT COMMITMENTS -- 560MM TERM LOANS
<TABLE>
<CAPTION>
LENDER COMMITMENT TERM LOANS
<S> <C> <C>
The Chase Manhattan Bank $16,828,000 $21,431,000
SunTrust Bank, Central Florida, National Association $10,096,000 $12,819,000
Harris Trust and Savings Bank $11,538,000 $12,875,000
Marine Midland Bank $11,538,000 $12,875,000
----------- ------------
$50,000,000 $60,000,000
</TABLE>
<PAGE>
Schedule III to
Credit Agreement
APPLICABLE MARGIN
AND COMMITMENT FEE RATE
<TABLE>
<CAPTION>
ABR Loans Eurodollar Loans Commitment
Leverage Ratio Applicable Margin Applicable Margin Fee Rate
<S> <C> <C> <C>
Greater than or equal to 4.00 to 1.00 1.25% 2.00% 025%
Less than 4.00 to 1.00 but greater than 0.90% 1.65% 0.25%
or equal to 3.50 to 1.00
Less than 3.50 to 1.00 but greater than 0.25% 1.00% 0.25%
or equal to 2.75 to 1.00
Less than 2.75 to 1.00 but greater than 0.00% 0.75% 0.20%
or equal to 2.00 to 1.00
Less than 2.00 to 1.00 but greater than 0.00% 0.625% 0.185%
or equal to 1.25 to 1.00
Less than 1.25 to 1.00 0.00% 0.50% 0.125%
</TABLE>
Exhibit 10.31
RECOTON CORPORATION
-----------------------------------------------------
NOTE PURCHASE AGREEMENT
-----------------------------------------------------
DATED AS OF JANUARY 6, 1997
ADJUSTABLE RATE SENIOR NOTES DUE JANUARY 6, 2007
<PAGE>
TABLE OF CONTENTS
(NOT PART OF AGREEMENT)
PAGE
1. AUTHORIZATION OF ISSUE OF NOTES.................................. 1
2. PURCHASE AND SALE OF NOTES....................................... 1
3. CONDITIONS OF CLOSING............................................ 1
3A. Opinion of Purchasers' Special Counsel............. 2
3B. Opinions of Company's Counsel and Subsidiaries'
Counsel............................................ 2
3C. Subsidiary Guaranty and Sharing Agreement.......... 2
3D. Representations and Warranties; No Default......... 2
3E. Purchase Permitted By Applicable Laws.............. 2
3F. Sale of Notes to Other Purchasers.................. 3
3G. Placement Number................................... 3
3H. Closing Expenses................................... 3
3I. Indebtedness of Recoton Audio Corporation.......... 3
3J. Proceedings........................................ 3
3K. Amendment to Bank Credit Agreement; Bank Consent... 3
4. PREPAYMENTS AND INTEREST.................................... 3
4A. Required Prepayments............................... 3
4B. Optional Prepayment With Yield-Maintenance Amount.. 4
4C. Notice of Optional Prepayment...................... 4
4D. Partial Payments Pro Rata.......................... 4
4E. Obligation to Purchase during Existence of Put
Condition.......................................... 4
4F. Retirement of Notes................................ 5
4G. Interest Payments.................................. 6
5. AFFIRMATIVE COVENANTS....................................... 7
5A. Financial Statements............................... 7
5B. Information Required by Rule 144A.................. 8
5C. Inspection of Property............................. 9
5D. Other Information.................................. 9
5E. Payment of Taxes and Claims........................ 10
5F. Maintenance of Properties; Corporate Existence;
etc................................................ 10
5G. Covenant to Secure Notes Equally................... 11
6. NEGATIVE COVENANTS.......................................... 11
6A. Line of Business................................... 11
6B. Current Debt....................................... 11
6C. Funded Debt........................................ 11
6D. Interest Expense Coverage.......................... 13
6E. Net Worth.......................................... 13
6F. Restricted Investments and Restricted Payments..... 14
6G. Mergers and Consolidations......................... 14
6H. Transfers of Property; Subsidiary Stock............ 15
6I. Liens.............................................. 18
6J. Permitted Investments.............................. 20
6K. Transactions with Affiliates....................... 20
6L. Designation of Subsidiaries........................ 20
6M. Subsidiary Guaranty................................ 20
6N. PRC Subsidiaries................................... 20
7. EVENTS OF DEFAULT........................................... 20
7A. Acceleration....................................... 20
7B. Rescission of Acceleration......................... 24
7C. Notice of Acceleration or Rescission............... 24
7D. Other Remedies..................................... 24
8. REPRESENTATIONS, COVENANTS AND WARRANTIES................... 24
8A. Organization; Subsidiaries and Affiliates.......... 24
8B. Financial Statements............................... 25
8C. Actions Pending.................................... 25
8D. Outstanding Debt................................... 25
8E. Title to Properties................................ 26
8F. Taxes.............................................. 26
8G. Conflicting Agreements and Other Matters........... 26
8H. Offering of Notes.................................. 26
8I. Use of Proceeds.................................... 26
8J. ERISA.............................................. 27
8K. Governmental Consent............................... 27
8L. Environmental Compliance........................... 27
8M. Disclosure......................................... 27
9. REPRESENTATIONS OF EACH PURCHASER........................... 28
9A. Nature of Purchase................................. 28
9B. Source of Funds.................................... 28
10. DEFINITIONS................................................. 29
10A. Yield-Maintenance Terms............................ 29
10B. Other Terms........................................ 30
10C. Generally Accepted Accounting Principles........... 42
11. MISCELLANEOUS............................................... 43
11A. Note Payments...................................... 43
11B. Expenses........................................... 43
11C. Consent to Amendments.............................. 43
11D. Form, Registration, Transfer and Exchange of
Notes; Lost Notes.................................. 44
11E. Persons Deemed Owners; Participations.............. 44
11F. Survival of Representations and Warranties;
Entire Agreement................................... 44
11G. Successors and Assigns............................. 45
11H. Notices............................................ 45
11I. Payments Due on Non-Business Days.................. 45
11J. Disclosure to Other Persons........................ 45
11K. Satisfaction Requirement........................... 46
11L. Governing Law...................................... 46
11M. Severability....................................... 47
11N. Descriptive Headings............................... 47
11O. Counterparts....................................... 47
11P. Severalty of Obligations........................... 47
Annex 1 -- Purchaser Schedule
Annex 2 -- Wire Information
Annex 3 -- Information as to Company
Exhibit A -- Form of Note
Exhibit B1 -- Form of Opinion of Stroock & Stroock & Lavan
Exhibit B2 -- Form of Opinion of McCarthy TJtrault
Exhibit B3 -- Form of Opinion of Siao, Wen and Leung
Exhibit B4 -- Form of Opinion of Lang & Rahmann
Exhibit B5 -- Form of Opinion of de Libero Camilli Boniello
Bartoli Di Garbo
Exhibit C -- Form of Subsidiary Guaranty
Exhibit D -- Form of Sharing Agreement
<PAGE>
RECOTON CORPORATION
2950 LAKE EMMA ROAD
LAKE MARY, FLORIDA 32746
ADJUSTABLE RATE SENIOR NOTES DUE JANUARY 6, 2007
As of January 6, 1997
To Each of the Purchasers Named in the
Purchaser Schedule Attached Hereto
Ladies and Gentlemen:
The undersigned, Recoton Corporation (herein called the "COMPANY"),
hereby agrees with the purchasers named in the Purchaser Schedule attached as
Annex 1 hereto (herein called the "PURCHASERS") as follows:
1. AUTHORIZATION OF ISSUE OF NOTES. The Company will authorize the
issue of its senior promissory notes in the aggregate principal amount of
$75,000,000, to be dated the date of issue thereof, to mature January 6, 2007,
to bear interest on the unpaid balance thereof as set forth in paragraph 4G
hereof, and to be substantially in the form of Exhibit A attached hereto. The
term "NOTES" as used herein shall include each such senior promissory note
delivered pursuant to any provision of this Agreement and each such senior
promissory note delivered in substitution or exchange for any other Note
pursuant to any such provision.
2. PURCHASE AND SALE OF NOTES. The Company hereby agrees to sell to
each Purchaser and, subject to the terms and conditions herein set forth, each
Purchaser agrees to purchase from the Company, the aggregate principal amount of
Notes set forth opposite such Purchaser's name in the Purchaser Schedule
attached as Annex 1 hereto at 100% of such aggregate principal amount. The
Company will deliver to each Purchaser, at the offices of Hebb & Gitlin, a
Professional Corporation, One State Street, Hartford, Connecticut 06103, one or
more Notes registered in such Purchaser's name, evidencing the aggregate
principal amount of Notes to be purchased by such Purchaser and in the
denomination or denominations specified with respect to such Purchaser in the
Purchaser Schedule against payment of the purchase price thereof by transfer of
immediately available funds for credit to the Company's account, as directed by
the Company on Annex 2 hereto, on the date of closing, which shall be January 6,
1997 or any other date on or before January 31, 1997 upon which the Company and
the Purchasers may mutually agree (the "CLOSING DATE").
3. CONDITIONS OF CLOSING. Each Purchaser's obligation to purchase and
pay for the Notes to be purchased by such Purchaser hereunder is subject to the
satisfaction, on or before the Closing Date, of the following conditions:
3A. OPINION OF PURCHASERS' SPECIAL COUNSEL. Such Purchaser shall have
received from Hebb & Gitlin, a Professional Corporation, which is acting as
special counsel for the Purchasers in connection with this transaction, a
favorable opinion satisfactory to such Purchaser as to such matters incident to
the matters herein contemplated as it may reasonably request.
3B. OPINIONS OF COMPANY'S COUNSEL AND SUBSIDIARIES' COUNSEL. Such
Purchaser shall have received from
(i) Stroock & Stroock & Lavan, regular counsel for the
Company, a favorable opinion satisfactory to such Purchaser and
substantially in the form of Exhibit B1 attached hereto;
(ii) McCarthy TJtrault, special counsel for Subsidiaries
organized in Canada, a favorable opinion satisfactory to such Purchaser
and substantially in the form of Exhibit B2 attached hereto;
(iii) Siao, Wen and Leung, special counsel for Subsidiaries
(other than Avelco Trading Limited) organized in Hong Kong, a favorable
opinion satisfactory to such Purchaser and substantially in the form of
Exhibit B3 attached hereto;
(iv) Lang & Rahmann, special counsel for Subsidiaries
organized in Germany, a favorable opinion satisfactory to such
Purchaser and substantially in the form of Exhibit B4 attached hereto;
and
(v) de Libero Camilli Boniello Bartoli Di Garbo, special
counsel for Subsidiaries organized in Italy, a favorable opinion
satisfactory to such Purchaser and substantially in the form of Exhibit
B5 attached hereto.
3C. SUBSIDIARY GUARANTY AND SHARING AGREEMENT. Each Restricted
Subsidiary, other than the Excluded Subsidiaries, shall have executed and
delivered the Subsidiary Guaranty and the Banks shall have executed and
delivered the Sharing Agreement.
3D. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations
and warranties contained in paragraph 8 shall be true on and as of the Closing
Date, except to the extent of changes caused by the transactions herein
contemplated; there shall exist on the Closing Date no Event of Default or
Default; and the Company shall have delivered to such Purchaser an Officer's
Certificate, dated the Closing Date, to both such effects. In addition, the
Company shall have delivered to such Purchaser a certificate from the Secretary
or an Assistant Secretary of the Company certifying the incumbency of officers
of the Company executing this Agreement, the Notes and other documents,
attaching copies of the Company's by-laws and resolutions authorizing its
execution of this Agreement and its issuance of the Notes, and certifying as to
such other matters as the Purchasers shall reasonably request.
3E. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment
for the Notes to be purchased by such Purchaser on the Closing Date on the terms
and conditions herein provided (including the use of the proceeds of such Notes
by the Company) shall not violate any applicable law or governmental regulation
(including, without limitation, section 5 of the Securities Act or Regulation G,
T or X of the Board of Governors of the Federal Reserve System) and shall not
subject such Purchaser to any tax, penalty, liability or other onerous condition
under or pursuant to any applicable law or governmental regulation, and such
Purchaser shall have received such certificates or other evidence as it may
request to establish compliance with this condition.
3F. SALE OF NOTES TO OTHER PURCHASERS. The Company shall have sold to
the other Purchasers the Notes to be purchased by them on the Closing Date and
shall have received payment in full therefor.
3G. PLACEMENT NUMBER. The Company shall have obtained or caused to be
obtained a placement number for the Notes from the CUSIP Service Bureau of
Standard & Poor's.
3H. CLOSING EXPENSES. The Company shall have paid at the closing the
statement for fees and disbursements of the special counsel to the Purchasers
presented on the Closing Date.
3I. INDEBTEDNESS OF RECOTON AUDIO CORPORATION. The indebtedness of
Recoton Audio Corporation (formerly known as International Jensen Incorporated)
evidenced by its 8.02% Senior Notes due May 30, 2004 in the aggregate principal
amount of $15,000,000 shall have been paid in full and the Purchasers shall have
received copies of such documents confirming compliance with the foregoing as
they may reasonably request.
3J. PROCEEDINGS. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby and all documents
incident thereto shall be satisfactory in substance and form to such Purchaser,
and such Purchaser shall have received all such counterpart originals or
certified or other copies of such documents as it may reasonably request.
3K. AMENDMENT TO BANK CREDIT AGREEMENT; BANK CONSENT. The Company and
the Banks shall have entered into an amendment to the Bank Credit Agreement, in
form and substance satisfactory to such Purchaser, and the Banks shall have
delivered to such Purchaser a written consent in respect of the transactions
contemplated by this Agreement and the Subsidiary Guaranty.
4. PREPAYMENTS AND INTEREST. The Notes shall be subject to required
prepayment as set forth in paragraph 4A hereof, optional prepayment at the
option of the Company as set forth in paragraph 4B hereof and prepayment at the
option of the Purchasers as provided in paragraph 4E hereof. Interest shall
accrue and be payable as set forth in paragraph 4G hereof.
4A. REQUIRED PREPAYMENTS. Until the Notes shall be paid in full, the
Company shall apply to the prepayment of the Notes, without premium, the sum of
$10,714,286 on January 6 in each of the years 2001 to 2006, inclusive, and such
principal amounts of the Notes, together with interest thereon to the prepayment
dates, shall become due on such prepayment dates. The remaining unpaid principal
amount of the Notes, if any, together with interest accrued thereon, shall
become due on the maturity date of the Notes.
4B. OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. The Notes shall
be subject to prepayment, in whole at any time or from time to time in part (in
multiples of $5,000,000), at the option of the Company, at 100% of the principal
amount so prepaid plus interest thereon to the prepayment date and the
Yield-Maintenance Amount, if any, with respect to each Note being prepaid. Any
partial prepayment of Notes pursuant to this paragraph 4B shall be applied,
first, to the principal amount due on the maturity date of the Notes and,
second, to the required prepayments applicable to the Notes, as set forth in
paragraph 4A hereof, in the inverse order of the maturity thereof.
4C. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the holder
of each Note irrevocable written notice of any prepayment pursuant to paragraph
4B hereof not less than ten Business Days prior to the prepayment date,
specifying such prepayment date and the principal amount of the Notes, and of
the Notes held by such holder, to be prepaid on such date and stating that such
prepayment is to be made pursuant to paragraph 4B of this Agreement. Notice of
prepayment having been given as aforesaid, the principal amount of the Notes
specified in such notice, together with interest thereon to the prepayment date
and together with the Yield- Maintenance Amount, if any, with respect thereto,
shall become due and payable on such prepayment date. The Company shall, on or
before the day on which it gives written notice of any prepayment pursuant to
paragraph 4B hereof, also call to give telephonic notice of the principal amount
of the Notes to be prepaid and the prepayment date to each Significant Holder
which shall have designated a recipient of (and provided a current telephone
number for) such notices in the Purchaser Schedule attached hereto or by notice
in writing to the Company.
4D. PARTIAL PAYMENTS PRO RATA. Upon any partial prepayment of the
Notes pursuant to paragraph 4A hereof or paragraph 4B hereof, the principal
amount so prepaid shall be allocated to all Notes at the time outstanding
(including, for the purpose of this paragraph 4D only, all Notes prepaid or
otherwise retired or purchased or otherwise acquired by the Company or any of
its Subsidiaries or Affiliates other than by prepayment pursuant to paragraph 4A
hereof or paragraph 4B hereof) in proportion to the respective outstanding
principal amounts thereof.
4E. OBLIGATION TO PURCHASE DURING EXISTENCE OF PUT CONDITION. In the
event that
(i) the Company delivers a written notice (a "WAIVER NOTICE")
to the holders of the Notes requesting a waiver (which notice shall set
forth detailed information concerning the transaction for which the
waiver is requested) of paragraph 6G hereof (a "MERGER PUT Condition"),
or
(ii) the Company or any Restricted Subsidiary shall have
Transferred Property pursuant to paragraph 6H(i)(d) (without giving
effect to the first proviso to paragraph 6H(i)) in any period of 12
consecutive calendar months with an aggregate book value equal to or
greater than 15% of Consolidated Total Assets or that has contributed
15% or more to Consolidated Operating Income (such book value or such
contribution, whichever exceeds the percentage limitation more, herein
called the "EXCESS AMOUNT") during such period (an "ASSET TRANSFER PUT
CONDITION"),
each holder of Notes shall have the right, by delivery of a written notice (a
"PUT NOTICE") within 60 days (the "SECOND PUT CUT-OFF DATE") after (a) receipt
of such request in respect of a Merger Put Condition or (b) the later of (1) the
expiration of such 12 month period or (2) its receipt of a notice pursuant to
paragraph 6H(iii) hereof in respect of an Asset Transfer Put Condition, to
require the Company to purchase, and the Company will purchase, the Put Amount
(determined as set forth in clause (A) or clause (B) below, as applicable).
Promptly, but in any event within two Business Days after its receipt of any Put
Notice, the Company shall give written notice thereof to all other holders of
Notes, such notice to include the First Put Date and the Second Put Date (as
such terms are defined below).
On the date (the "FIRST PUT DATE") which is 30 days after the date of
the first Put Notice delivered to the Company by a holder of Notes (or the first
Business Day thereafter if such 30th day shall not be a Business Day), but only
if the First Put Date would occur prior to the Second Put Date, the Company
shall prepay a principal amount of the Notes equal to the Put Amount to each
holder of Notes that has delivered a Put Notice not later than 25 days after
such first Put Notice (the "FIRST PUT CUT-OFF DATE"), at 100% of the principal
amount thereof, together with interest thereon to such Put Date and the
Yield-Maintenance Amount, if any, in respect thereof.
On the date (the "SECOND PUT DATE") which is 5 days after the Second
Put Cut-Off Date, the Company shall prepay a principal amount of the Notes equal
to the Put Amount to each holder of Notes that has delivered a Put Notice
subsequent to the First Put Cut-Off Date and not later than the Second Put
Cut-Off Date at 100% of the principal amount thereof, together with interest
thereon to such Put Date and the Yield-Maintenance Amount, if any, in respect
thereof. In addition, on the Second Put Date, the Company shall make a payment
to each holder of Notes that delivered a Put Notice on or prior to the First Put
Cut-Off Date in an amount equal to (1) the additional principal amount of Notes,
plus (2) interest thereon accrued to the Second Put Date and Yield-Maintenance
Amount in respect thereof determined as of the Second Put Date, that such holder
would have received had the Put Amount for the First Put Date been determined by
reference to the aggregate principal amount of Notes as to which Put Notices
have been delivered as of the Second Put Date, rather than the outstanding
principal amount of all Notes.
As used in this paragraph 4E, "PUT AMOUNT" shall mean,
(A) in the case of a Merger Put Condition, all or a part of
the Notes of the holder delivering the related Put Notice, as specified
in such Put Notice, or
(B) in the case of an Asset Transfer Put Condition, an amount
equal to the net proceeds received by the Company which are ratably
attributable to the Excess Amount multiplied by a fraction, the
numerator of which, in the case of the First Put Date, is the
outstanding principal amount of all Notes and, in the case of the
Second Put Date, is the outstanding principal amount of such holder's
Notes and the denominator of which is the aggregate principal amount of
all Notes as to which Put Notices have been delivered in connection
with such Asset Transfer Put Condition (or such lesser amount of Notes
as such holder shall have specified in its Put Notice).
Any partial prepayment of Notes pursuant to this paragraph 4E shall be applied
ratably to the principal amount due on the maturity date of the Notes and to the
required prepayments applicable to the Notes as set forth in paragraph 4A
hereof.
4F. RETIREMENT OF NOTES. The Company shall not, and shall not permit
any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or
in part prior to their stated final maturity (other than by prepayment pursuant
to paragraph 4A hereof, paragraph 4B hereof or paragraph 4E hereof or upon
acceleration of such final maturity pursuant to paragraph 7A hereof), or
purchase or otherwise acquire, directly or indirectly, Notes held by any holder
unless the Company or such Subsidiary or Affiliate shall have offered to prepay
or otherwise retire or purchase or otherwise acquire, as the case may be, the
same proportion of the aggregate principal amount of Notes held by each other
holder of Notes at the time outstanding upon the same terms and conditions. Any
Notes so prepaid or otherwise retired or purchased or otherwise acquired by the
Company or any of its Subsidiaries or Affiliates shall not be deemed to be
outstanding for any purpose under this Agreement, except as provided in
paragraph 4D hereof.
4G. INTEREST PAYMENTS.
Interest (computed on the basis of a 360-day year of twelve 30-day
months) shall accrue on the unpaid principal balance of the Notes, from the date
of each Note, and shall be payable to the holders thereof quarterly on the sixth
day of January, April, July and October in each year (each an "INTEREST PAYMENT
DATE"), commencing with the Interest Payment Date next succeeding the date of
such Note, until the principal thereof shall have become due and payable, at the
rate of
(i) 8.12% per annum, provided that a Rate Increase
Event shall not have occurred, and
(ii) 8.75% per annum, if a Rate Increase Event shall
have occurred,
and on any overdue payment (including any overdue prepayment) of principal, any
overdue payment of interest and any overdue payment of any Yield-Maintenance
Amount at the Applicable Default Interest Rate. If a Rate Increase Event shall
have occurred, the rate of 8.75% per annum shall be deemed to be the interest
rate applicable to each Note, retroactive to the Closing Date, and the Company
shall pay to each holder of Notes, on the Interest Payment Date immediately
succeeding the date of the Rate Increase Event, an amount equal to
(a) the amount of interest which would have accrued on the
outstanding principal balance of such Notes (including, without
limitation, any interest which may have accrued at the Applicable
Default Interest Rate), for the period beginning on the Closing Date
through and including the day preceding such Interest Payment Date, if
the interest rate applicable to such Notes had been 8.75% during such
period, minus
(b) the amount of interest that accrued on the outstanding
principal balance of such Notes (including, without limitation, any
interest which may have accrued at the Applicable Default Interest
Rate), for the period beginning on the Closing Date through and
including the day preceding such Interest Payment Date.
The term "RATE INCREASE EVENT" as used herein shall mean the occurrence of any
one or more of the following conditions:
(i) Funded Debt Percentage of Consolidated Tangible Gross
Worth -- Consolidated Funded Debt shall have exceeded 52.5% of
Consolidated Tangible Gross Worth as of September 30, 1997 or as of
December 31, 1997, in each case determined as of such dates; or
(ii) Ratio of Funded Debt to Consolidated Adjusted Cash Flow
-- the ratio of (a) Consolidated Funded Debt, determined as of
September 30, 1997, to Consolidated Adjusted Cash Flow for the period
of four consecutive complete fiscal quarters of the Company ending on
such date shall have been greater than 4.00 to 1.00 or (b) Consolidated
Funded Debt, determined as of December 31, 1997, to Consolidated
Adjusted Cash Flow for the period of four consecutive complete fiscal
quarters of the Company ending on such date, shall have been greater
than 3.50 to 1.00; or
(iii) Ratio of Consolidated Adjusted Cash Flow to Interest
Expense -- the ratio of (a) Consolidated Adjusted Cash Flow for the
period of four consecutive complete fiscal quarters of the Company
ending on September 30, 1997 to Consolidated Interest Expense for such
period shall have been less than 3.75 to 1.00 or (b) Consolidated
Adjusted Cash Flow for the period of four consecutive complete fiscal
quarters of the Company ending on December 31, 1997 to Consolidated
Interest Expense for such period shall have been less than 4.25 to
1.00.
5. AFFIRMATIVE COVENANTS.
5A. FINANCIAL STATEMENTS. The Company covenants that it will deliver
to each Significant Holder in duplicate:
(i) as soon as practicable and in any event within 50 days,
with respect to consolidated statements, or 65 days, with respect to
consolidating statements, after the end of each quarterly period (other
than the last quarterly period) in each fiscal year, consolidating and
consolidated statements of operations and cash flows of the Company and
the Restricted Subsidiaries for the period from the beginning of the
current fiscal year to the end of such quarterly period, and a
consolidating and consolidated balance sheet of the Company and the
Restricted Subsidiaries as at the end of such quarterly period, setting
forth in each case in comparative form figures for the corresponding
period in the preceding fiscal year, all in reasonable detail and
satisfactory in form to the Required Holders and certified by an
authorized financial officer of the Company, subject to changes
resulting from year-end adjustments;
(ii) as soon as practicable and in any event within 95 days,
with respect to consolidated statements, or 105 days, with respect to
consolidating statements, after the end of each fiscal year,
consolidating and consolidated statements of operations and cash flows
and a consolidated statement of stockholders' equity of the Company and
the Restricted Subsidiaries for such year, and a consolidating and
consolidated balance sheet of the Company and the Restricted
Subsidiaries as at the end of such year, setting forth in each case in
comparative form corresponding consolidated figures from the preceding
annual audit, all in reasonable detail and satisfactory in form to the
Required Holders and, as to the consolidated statements, reported on by
Cornick, Garber & Sandler, LLP or independent public accountants of
recognized national standing selected by the Company whose report shall
be without limitation as to the scope of the audit and satisfactory in
substance to the Required Holders and, as to the consolidating
statements, certified by an authorized financial officer of the
Company;
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it shall
send to its public stockholders and copies of all registration
statements (without exhibits) and all financial statements and reports
which it files with or makes to the Securities and Exchange Commission
(or any governmental body or agency succeeding to the functions of the
Securities and Exchange Commission);
(iv) promptly upon receipt thereof, a copy of each other
report submitted to the Company or any Subsidiary by independent
accountants in connection with any annual, interim or special audit
made by them of the books of the Company or any Subsidiary, provided
that audits conducted with respect to foreign Subsidiaries to satisfy
statutory requirements need not be delivered unless requested by any
Significant Holder; and
(v) with reasonable promptness, such other financial
data as such Significant Holder may reasonably request.
The consolidating financial statements required by clause (i) and clause (ii)
above shall include the separate financial position of each direct Subsidiary of
the Company (each, a "FIRST TIER SUBSIDIARY"). The financial statements of each
First Tier Subsidiary, however, may reflect the consolidated position of such
First Tier Subsidiary and its direct and indirect Subsidiaries.
Together with each delivery of consolidating financial statements
required by clause (i) and clause (ii) above, the Company will deliver to each
Significant Holder an Officer's Certificate demonstrating (with computations in
reasonable detail) compliance by the Company and the Restricted Subsidiaries
with the provisions of paragraph 6A through paragraph 6J, inclusive, and
paragraph 6N, and stating that there exists no Event of Default or Default, or,
if any Event of Default or Default exists, specifying the nature and period of
existence thereof and what action the Company proposes to take with respect
thereto. Together with each delivery of consolidated financial statements
required by clause (ii) above, the Company will deliver to each Significant
Holder a certificate of such accountants stating that, in making the audit
necessary for their report on such financial statements, they have obtained no
knowledge of any Event of Default or Default, or, if they have obtained
knowledge of any Event of Default or Default, specifying the nature and period
of existence thereof. The Company also covenants that immediately after any
Responsible Officer obtains knowledge of an Event of Default or Default, it will
deliver to each Significant Holder an Officer's Certificate specifying the
nature and period of existence thereof and what action the Company proposes to
take with respect thereto.
5B. INFORMATION REQUIRED BY RULE 144A. The Company covenants that it
will, upon the request of the holder of any Note, provide such holder, and any
qualified institutional buyer designated by such holder, such financial and
other information as such holder may reasonably determine to be necessary in
order to permit compliance with the information requirements of Rule 144A under
the Securities Act in connection with the resale of Notes, except at such times
as the Company is subject to the reporting requirements of section 13 or 15(d)
of the Exchange Act. For the purpose of this paragraph 5B, the term "qualified
institutional buyer" shall have the meaning specified in Rule 144A under the
Securities Act.
5C. INSPECTION OF PROPERTY. The Company covenants that it will permit
any Person designated by any Significant Holder in writing, at such Significant
Holder's expense, to visit and inspect any of the properties of the Company and
the Subsidiaries, to inspect the corporate books and financial records of the
Company and the Subsidiaries and make copies thereof or extracts therefrom and
to discuss the affairs, finances and accounts of any of such corporations with
the principal officers of the Company and its independent public accountants,
all at such reasonable times and as often as such Significant Holder may
reasonably request.
5D. OTHER INFORMATION. The Company covenants that it will deliver to
each Significant Holder:
(I) ERISA --
(a) within 30 days of becoming aware of the
occurrence of any "reportable event" (as such term is defined
in section 4043 of ERISA) for which notice thereof has not
been waived pursuant to regulations of the Department of
Labor, or "prohibited transaction" (as such term is defined in
section 406 of ERISA or section 4975 of the Code) in
connection with any Pension Plan or any trust created
thereunder, a written notice specifying the nature thereof,
what action the Company is taking or proposes to take with
respect thereto, and, when known, any action taken by the
Internal Revenue Service, the Department of Labor or the PBGC
with respect thereto, and
(b) prompt written notice of and, where applicable,
a description of
(1) any notice from the PBGC in respect of
the commencement of any proceedings pursuant to
section 4042 of ERISA to terminate any Pension Plan
or for the appointment of a trustee to administer any
Pension Plan, and any distress termination notice
delivered to the PBGC under section 4041 of ERISA in
respect of any Pension Plan, and any determination of
the PBGC in respect thereof,
(2) the placement of any Multiemployer Plan
in reorganization status under Title IV of ERISA, any
Multiemployer Plan becoming "insolvent" (as such term
is defined in section 4245 of ERISA) under Title IV
of ERISA, or the whole or partial withdrawal of the
Company or any ERISA Affiliate from any Multiemployer
Plan and the withdrawal liability incurred in
connection therewith, or
(3) the occurrence of any event, transaction
or condition that could result in the incurrence of
any liability of the Company or any ERISA Affiliate
or the imposition of a Lien on the Property of the
Company or any ERISA Affiliate, in either case
pursuant to Title I or Title IV of ERISA or pursuant
to the penalty or excise tax or security provisions
of the Code;
(II) ACTIONS, PROCEEDINGS -- promptly after the
commencement of any action or proceeding, of which the
Company is aware, relating to the Company or any Restricted
Subsidiary in any court or before any governmental authority or
arbitration board or tribunal as to which there is a reasonable
possibility of an adverse determination and that, if adversely
determined, is reasonably likely to have a material adverse effect on
the business, condition (financial or otherwise) or operations of the
Company and the Restricted Subsidiaries taken as a whole, a written
notice specifying the nature and period of existence thereof and what
action the Company is taking or proposes to take with respect thereto;
and
(III) CERTAIN ENVIRONMENTAL MATTERS -- prompt written notice
of and a description of any event or circumstance that, had such event
or circumstance occurred or existed prior to the Closing Date, would
have been required to be disclosed as an exception to any statement set
forth in paragraph 8L hereof and a description of the action that the
Company is taking or proposes to take with respect thereto.
5E. PAYMENT OF TAXES AND CLAIMS. The Company covenants that it will,
and will cause each Restricted Subsidiary to, pay before they become delinquent
(i) all taxes, assessments and governmental charges or
levies imposed upon it or its Property, and
(ii) all claims or demands of materialmen, mechanics,
carriers, warehousemen, vendors, landlords and other like Persons that,
if unpaid, might result in the creation of a Lien upon its Property,
provided, that items of the foregoing description need not be paid so long as
such items are being actively contested in good faith and by appropriate
proceedings and reasonable book reserves have been established and maintained
with respect thereto.
5F. MAINTENANCE OF PROPERTIES; CORPORATE EXISTENCE; ETC. The Company
covenants that it will, and will cause each Restricted Subsidiary to:
(I) PROPERTY -- maintain its Property in good condition,
ordinary wear and tear and obsolescence excepted, and make all
necessary renewals, replacements, additions, betterments and
improvements thereto;
(II) INSURANCE -- maintain, with financially sound and
reputable insurers, insurance with respect to its Property and
business, against such casualties and contingencies, of such types and
in such amounts as is customary in the case of Persons of established
reputations engaged in the same or a similar business and similarly
situated;
(III) FINANCIAL RECORDS -- keep proper books of record and
account, in which full and correct entries shall be made of all
dealings and transactions of or in relation to the Properties and
business thereof, and that will permit the production of financial
statements in accordance with GAAP;
(IV) EXISTENCE AND RIGHTS -- do or cause to be done all things
necessary to preserve and keep in full force and effect its partnership
or corporate existence, rights and franchises, except as permitted by
paragraph 6G hereof; and
(V) COMPLIANCE WITH LAW -- comply with all laws, ordinances
and governmental rules and regulations to which it is subject
(including, without limitation, any environmental protection law) and
obtain all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of its
Properties and the conduct of its business except for such violations
and failures to obtain that, in the aggregate, could not reasonably be
expected to have a material adverse effect on the business, condition
(financial or otherwise) or operations of the Company and the
Restricted Subsidiaries taken as a whole.
5G. COVENANT TO SECURE NOTES EQUALLY. The Company covenants that, if
it or any Subsidiary shall create or assume any Lien upon any of its Property,
whether now owned or hereafter acquired, other than Liens permitted by the
provisions of paragraph 6I hereof (unless prior written consent to the creation
or assumption thereof shall have been obtained pursuant to paragraph 11C
hereof), it will make or cause to be made effective provision whereby the Notes
will be secured by such Lien equally and ratably with any and all other Debt
thereby secured so long as any such other Debt shall be so secured (provided
that, notwithstanding the foregoing, each holder of Notes shall have the right
to elect, at any time, by delivery of written notice of such election to the
Company, to cause the Notes held by such holder not to be secured by such Lien,
provided, further that the creation or assumption of any such Lien shall
constitute an Event of Default regardless of whether the Notes shall be so
equally and ratably secured).
6. NEGATIVE COVENANTS.
6A. LINE OF BUSINESS. The Company will not, and will not permit any
Restricted Subsidiary to, engage in any material business if, as a result
thereof, the business and operations of the Company and its Restricted
Subsidiaries would not be in or directly related to the consumer electronics
industry or activities that are ancillary, incidental or necessary to such
business, provided that the Company and the Restricted Subsidiaries may acquire
businesses that have operations unrelated to the consumer electronics industry
if, with respect to each such acquisition, (i) the assets in respect of such
unrelated operations (the "UNRELATED ASSETS") constitute less than 50% of
consolidated total assets of any such business and contribute less than 50% to
consolidated operating income of any such business and (ii) the Investment in
such Unrelated Assets shall be permitted by the provisions of paragraph 6F
hereof.
6B. CURRENT DEBT. The Company will not, and will not permit any
Restricted Subsidiary to, have any Current Debt outstanding on any day unless,
within the 12 consecutive complete calendar months immediately preceding such
day, there shall have been at least one period of not less than 30 consecutive
days on each of which Consolidated Current Debt did not exceed
(i) $5,000,000, plus
(ii) an amount equal to the amount of additional Funded Debt
that the Company would have been permitted to incur (but did not incur)
under paragraph 6C(iii) on such day.
6C. FUNDED DEBT. The Company will not, and will not permit any
Restricted Subsidiary to, at any time directly or indirectly create, incur,
issue, assume, guarantee or otherwise become liable with respect to any Funded
Debt except:
(I) EXISTING FUNDED DEBT --
(a) Funded Debt evidenced by the Notes and the
Subsidiary Guaranty,
(b) other Funded Debt existing on the Closing
Date and described in Part 6C of Annex 3 hereto and
(c) Guarantees existing on the Closing Date by
Restricted Subsidiaries in respect of the obligations of the
Company under the Bank Credit Agreement and described in Part
6C of Annex 3 hereto;
(II) RESTRICTED SUBSIDIARY FUNDED DEBT --
(a) Funded Debt of Restricted Subsidiaries owing
to the Company or to another Restricted Subsidiary and
(b) other Funded Debt of Restricted Subsidiaries,
provided that, immediately after, and after giving effect to,
the incurrence of any such Funded Debt, the sum, without
duplication, of
(1) the aggregate amount of outstanding
Funded Debt of Restricted Subsidiaries which was not
outstanding on the Closing Date and which is held by
Persons other than the Company or a Restricted
Subsidiary and outstanding at such time, plus
(2) the aggregate amount of outstanding
Debt secured by Liens permitted by clause (vi)
and clause (vii) of paragraph 6I hereof,
does not exceed 15% of Consolidated Tangible Net Worth; and
(III) ADDITIONAL FUNDED DEBT -- additional Funded Debt of the
Company not otherwise permitted pursuant to this paragraph 6C, provided
that immediately after the incurrence of such Funded Debt and after
giving effect thereto and to any concurrent transactions,
(a) the sum of (x) Consolidated Funded Debt plus
(y) Excess Current Debt shall be less than or equal to
(1) 55% of Consolidated Tangible Gross
Worth, determined as at the end of the then most
recently ended fiscal quarter of the Company, if the
incurrence of such Funded Debt occurs on or prior to
December 31, 1997, and
(2) 50% of Consolidated Tangible Gross
Worth, determined as at the end of the then most
recently ended fiscal quarter of the Company, if the
incurrence of such Funded Debt occurs after December
31, 1997, and
(b) the ratio of (x) the sum of (I) Consolidated
Funded Debt plus (II) Excess Current Debt to (y) Consolidated
Adjusted Cash Flow for the period of four consecutive complete
fiscal quarters of the Company most recently ended at such
time shall be less than or equal to
(1) 4.50 to 1.00, if the incurrence of such
Funded Debt occurs on or prior to December 31,
1997,
(2) 4.00 to 1.00, if the incurrence of such
Funded Debt occurs at any time from and
including January 1, 1998 through and including
December 31, 1998, and
(3) 3.50 to 1.00, if the incurrence of such
Funded Debt occurs at any time on or after
January 1, 1999.
For purposes of this clause (iii), the following terms shall have the
following meanings:
"ADJUSTED CONSOLIDATED CURRENT DEBT" -- shall mean, as of any
date, the amount, if any, by which Consolidated Current Debt exceeds
$5,000,000.
"EXCESS CURRENT DEBT" shall mean, as of any date, the greatest
amount of Adjusted Consolidated Current Debt outstanding on any one day
during the then applicable Excess Current Debt Measuring Period.
"EXCESS CURRENT DEBT MEASURING PERIOD" shall mean, at any
time, the period of 30 consecutive days occurring during the period of
12 consecutive complete calendar months then most recently ended during
which the greatest amount of Adjusted Consolidated Current Debt
outstanding on any one day of such period was lower than the greatest
amount of Adjusted Consolidated Current Debt outstanding on any one day
of any other period of 30 consecutive days occurring during such period
of 12 consecutive complete calendar months.
Any extension or renewal of Funded Debt in existence at any time shall be deemed
to be a new incurrence of such Funded Debt.
6D. INTEREST EXPENSE COVERAGE. The Company will not at any time permit
the ratio of
(i) Consolidated Adjusted Cash Flow for the period of
four consecutive complete fiscal quarters of the Company most recently
ended at such time to
(ii) Consolidated Interest Expense for such period
to be less than 3.50 to 1.00.
6E. NET WORTH. The Company will not at any time permit Consolidated
Tangible Net Worth to be less than the sum of
(i) $90,000,000, plus
(ii) the sum of the Annual Net Worth Increase Amounts
for all fiscal years ended after the Closing Date.
"Annual Net Worth Increase Amount" means, for any fiscal year of the Company
ended after December 31, 1996, the greater of (a) 50% of Consolidated Net Income
for such fiscal year and (b) $0.
6F. RESTRICTED INVESTMENTS AND RESTRICTED PAYMENTS. The Company will
not, and will not permit any Restricted Subsidiary to, make any Basket
Investment, or declare, make, set apart any funds or other Property for, or
incur any liability to make, any Restricted Payment unless:
(i) immediately after, and after giving effect to such Basket
Investment or such Restricted Payment, the aggregate amount of all
Basket Investments outstanding at such time plus all Restricted
Payments declared or made on or after the Closing Date would not exceed
the sum of
(a) $5,000,000, plus
(b) 50% (or minus 100% in the case of a loss) of
Consolidated Net Income for the period commencing on January
1, 1997 and ending on and including the last day of the fiscal
quarter of the Company most recently ended as of the date such
Basket Investment is made or such Restricted Payment is
declared or made; and
(ii) immediately before, and after giving effect to, such
Basket Investment or such Restricted Payment and any concurrent
transactions,
(a) no Default or Event of Default exists or
would exist, and
(b) the Company would be permitted by the
provisions of paragraph 6C hereof to incur at least
$1.00 of additional Funded Debt.
6G. MERGERS AND CONSOLIDATIONS. The Company will not, and will not
permit any Restricted Subsidiary to, merge or consolidate with or into any other
Person, or convey, transfer, spin-off or lease all or substantially all of its
assets in a single transaction or series of transactions to any Person, except
that:
(i) any such Restricted Subsidiary may merge or consolidate
with or into, or convey, transfer or spin-off all or substantially all
of its assets to, the Company (provided that the Company is the
continuing or surviving corporation), another Restricted Subsidiary or
any Person that concurrently with such merger, consolidation,
conveyance, transfer or spin-off becomes a Restricted Subsidiary, and
(ii) the Company may merge or consolidate with or
into, or convey, transfer or spin-off all or substantially
all of its assets to, another corporation, provided that
(a) the successor formed by such consolidation or the
survivor of such merger or the Person that acquires by
conveyance, transfer or spin-off all or substantially all of
the assets of the Company as an entirety, as the case may be
(the "SUCCESSOR CORPORATION"), shall be a solvent corporation
organized and existing under the laws of the United States of
America, any state thereof or the District of Columbia,
(b) if the Company is not the Successor Corporation,
the Successor Corporation shall have executed and delivered to
each holder of Notes its assumption of the due and punctual
performance and observance of each covenant and condition of
this Agreement and the Notes pursuant to such agreements and
instruments as shall be reasonably satisfactory to the
Required Holders, and the Company shall have caused to be
delivered to each holder an opinion, in form and substance
satisfactory to the Required Holders, of independent counsel
reasonably satisfactory to the Required Holders, to the effect
that all agreements or instruments effecting such assumption
are enforceable in accordance with their terms and comply with
the terms hereof, and
(c) immediately after, and immediately after giving
effect to, such transaction, no Default or Event of Default
would exist and the Successor Corporation would be permitted
by the provisions of paragraph 6C hereof to incur at least
$1.00 of additional Funded Debt.
6H. TRANSFERS OF PROPERTY; SUBSIDIARY STOCK.
(I) TRANSFERS OF PROPERTY. The Company will not, and will not
permit any Restricted Subsidiary to, sell, lease as lessor, transfer or
otherwise dispose of any Restricted Subsidiary Stock, except pursuant
to clause (ii) of this paragraph 6H, or any other Property
(collectively, "TRANSFERS") except for:
(a) any Transfer made in compliance with
paragraph 6G hereof or any Transfer of Unrelated
Assets;
(b) Transfers of inventory, payments to vendors and
suppliers, payments of compensation (including, without
limitation, salaries, bonuses, options, insurance, benefits,
payments pursuant to employment agreements and other
perquisites), and other similar payments, in each case in the
ordinary course of business of the Company or such Restricted
Subsidiary;
(c) any Transfer of Property by a Restricted
Subsidiary to the Company or any other Restricted
Subsidiary;
(d) any other Transfer at any time of any Property to
a Person, other than an Affiliate (whether effected in a
single transaction or in a series of related transactions) not
otherwise permitted under clauses (a) through (c), inclusive,
of this paragraph 6H(i) (for purposes of this clause (d), a
"CURRENT TRANSFER"), if each of the following conditions would
be satisfied with respect to such Transfer:
(1) the consideration received in respect of
such current Transfer is an amount not less than that
reasonably obtainable in a comparable arm's-length
transaction or series of transactions with a Person
that is not an Affiliate of the Company or any
Subsidiary, with neither the seller nor the buyer
being under any compulsion to sell or buy,
respectively,
(2) immediately after giving effect to such
current Transfer, no Default or Event of Default
would exist,
(3) the sum of
(A) the net book value of the
Property that is the subject of such current
Transfer, plus
(B) the aggregate net book value of
all other items of Property of the Company
and the Restricted Subsidiaries that were
the subject of prior Transfers under this
clause (d) consummated during the period
beginning on the first day of the four
consecutive complete fiscal quarters of the
Company then most recently ended and ending
immediately prior to the time of such
current Transfer,
would not exceed 20% of Consolidated Total
Assets, determined as at the beginning of such
period, and
(4) the sum of
(A) the contribution (expressed as
a percentage and exclusive of losses) to
Consolidated Operating Income of such
Property, plus
(B) the contribution (expressed as a
percentage and exclusive of losses) to
Consolidated Operating Income of all other
items of Property of the Company and the
Restricted Subsidiaries that were the
subject of prior Transfers under this clause
(d) consummated during the period beginning
on the first day of the four consecutive
complete fiscal quarters of the Company then
most recently ended and ending immediately
prior to the time of such current Transfer,
would not exceed 20%;
provided that the net book value or the contribution to
Consolidated Operating Income of any item of Property shall be
excluded for purposes of clause (3) and clause (4) of this
paragraph 6H(i)(d) if, prior to consummation of any Transfer,
the Company gives written notice (a "REINVESTMENT NOTICE") to
all holders of Notes that, within 12 months after such
Transfer, the entire proceeds of such Transfer, net of
ordinary and reasonable transaction costs and expenses
incurred in connection with such Transfer, will be applied by
the Company or such Restricted Subsidiary to the purchase of
Capital Assets of the Company or any Restricted Subsidiary to
be used in the business of the Company, as described in
paragraph 6A hereof; provided further that such exclusions
only apply to the extent that the aggregate net book value of
all Property so excluded at any one time shall not exceed 25%
of Consolidated Tangible Net Worth and the sum of the
contributions to Consolidated Operating Income (expressed as a
percentage, with each such contribution being determined as of
the date of Transfer of the Property generating such
contribution) of all Property so excluded at any one time
shall not exceed 25%.
If the Company shall fail to apply the proceeds of any Transfer in
accordance with a Reinvestment Notice given in respect thereof, such
failure shall constitute an Event of Default.
(II) TRANSFERS OF SUBSIDIARY STOCK. The Company will not, and
will not permit any Restricted Subsidiary to, Transfer any shares of
the stock (or any warrants, rights or options to purchase stock or
other Securities exchangeable for or convertible into stock) of a
Restricted Subsidiary (such stock, warrants, rights, options and other
Securities herein called "RESTRICTED SUBSIDIARY STOCK"), nor will any
Restricted Subsidiary issue, sell or otherwise dispose of any shares of
its own Restricted Subsidiary Stock, provided that the foregoing
restrictions do not apply to:
(a) the issuance by a Restricted Subsidiary of
shares of its own Restricted Subsidiary Stock to the
Company or another Restricted Subsidiary;
(b) Transfers by the Company or a Restricted
Subsidiary of shares of Restricted Subsidiary Stock
to the Company or another Restricted Subsidiary;
(c) the issuance by a Restricted Subsidiary of
directors' qualifying shares or shares to holders (who hold
for the benefit of the Company or a Restricted Subsidiary) to
meet statutory requirements for domestic holdings or minimum
numbers of stockholders;
(d) the Transfer of all of the Restricted
Subsidiary Stock of a Restricted Subsidiary owned by
the Company and the other Restricted Subsidiaries if:
(1) such Transfer satisfies the requirement
of paragraph 6H(i)(d) hereof (for purposes of such
paragraph, the net book value of such Restricted
Subsidiary Stock being deemed to be the aggregate net
book value of all assets of such Restricted
Subsidiary);
(2) in connection with such Transfer, the
entire investment (whether represented by stock,
Debt, claims or otherwise) of the Company and the
other Restricted Subsidiaries in such Restricted
Subsidiary is Transferred to a Person other than the
Company or a Restricted Subsidiary not
simultaneously being disposed of;
(3) the Restricted Subsidiary being
disposed of has no continuing investment in any
other Restricted Subsidiary not simultaneously
being disposed of or in the Company; and
(4) immediately before and after the
consummation of such Transfer, and after giving
effect thereto, no Default or Event of Default
would exist; and
(e) Transfers of Unrelated Assets consisting of
Restricted Subsidiary Stock if the requirements set forth in
subclauses (2), (3) and (4) of the foregoing clause (d) have
been satisfied.
(III) NOTICES WITH RESPECT TO TRANSFERS. The Company
shall give written notice to each holder of Notes at least ten days
prior to the consummation of any Transfer that would give rise to a
potential prepayment obligation under paragraph 4E hereof specifying:
(a) the anticipated consummation date of the
related Transfer; and
(b) an estimate of the net proceeds to be
received for the Property subject to such Transfer.
6I. LIENS. The Company will not, and it will not permit any Restricted
Subsidiary to, create, assume or suffer to exist any Lien upon any of its
Property, whether now owned or hereafter acquired, except:
(i) Liens outstanding on the Closing Date and listed
in Part 6I(i) of Annex 3 hereto;
(ii) Liens incurred or deposits made in the ordinary
course of business,
(a) in connection with workers' compensation,
unemployment insurance, social security and other
like laws,
(b) to secure the performance of letters of credit,
bids, tenders, sales contracts, surety and performance bonds
(of a type other than set forth in clause (iv) of this
paragraph 6I) and other ordinary course obligations not
incurred in connection with the borrowing of money, the
obtaining of advances or the payment of the deferred purchase
price of Property, and
(c) in respect of statutory obligations or claims or
demands of materialmen, mechanics, carriers, warehousemen,
landlords and other like Persons, provided that the
obligations secured by such Liens shall not be in default and
the title of the Company or the Restricted Subsidiary, as the
case may be, to, and its right to use, the Property subject to
such Lien, is not materially adversely affected thereby;
(iii) Liens for taxes not yet due or that are being actively
contested in good faith by appropriate proceedings;
(iv) Liens, arising in connection with court proceedings,
(a) in the nature of attachments, remedies and
judgments, provided that the execution or other enforcement of
such Liens is effectively stayed and the claims secured
thereby are being actively contested in good faith and by
appropriate proceedings, and
(b) securing appeal bonds, supersedeas bonds and
other similar Liens arising in connection with court
proceedings (including, without limitation, surety bonds and
letters of credit) or any other instrument serving a similar
purpose,
provided that the aggregate amount so secured pursuant to
this clause (iv) shall not at any time exceed $2,500,000;
(v) reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions and other similar
title exceptions or encumbrances affecting real property, provided they
do not in the aggregate materially detract from the value of such real
property or materially interfere with their use in the ordinary conduct
of the owning Person's business;
(vi) any Lien on Property that is acquired or constructed by
the Company or any Restricted Subsidiary that secures Debt incurred by
the owner of such Property to pay for all or a portion of the related
purchase price or construction costs of such Property, provided that
(a) such Lien shall not extend to or cover any
Property other than Property acquired or constructed after the
Closing Date with the proceeds of the Debt secured thereby and
shall not secure Debt other than such Debt,
(b) such Lien shall be created within 12 months
after the acquisition or substantial completion of
such Property, and
(c) such Lien shall secure Debt in an amount not
exceeding 100% of the lesser of (1) the cost of acquisition or
construction of the Property to which such Debt relates and
(2) the Fair Market Value of the Property to which such Debt
relates, determined as the time of the incurrence of such
Debt; and
(vii) Liens securing Debt other than those Liens permitted by
clause (i) through clause (vi) of this paragraph 6I, provided that,
immediately after, and immediately after giving effect to, the
incurrence of any Debt secured by any such Lien,
(a) the sum of
(1) the aggregate amount of all Debt
secured by such Liens, plus
(2) the aggregate amount of all Debt
secured by Liens permitted by clause (vi) of
this paragraph 6I, plus
(3) the aggregate amount of all Debt of
Restricted Subsidiaries then outstanding which
was incurred pursuant to paragraph 6C(ii)(b)
hereof,
would not exceed 15% of Consolidated Tangible Net
Worth, and
(b) the Company would be permitted by the
provisions of paragraph 6C hereof to incur at least
$1.00 of additional Funded Debt.
A violation of this paragraph 6I will constitute an Event of Default, whether or
not any provision is made for an equal and ratable Lien pursuant to paragraph
5G.
6J. PERMITTED INVESTMENTS. The Company will not, nor will it permit
any of its Restricted Subsidiaries to, make any Investment other than a
Permitted Investment or a Basket Investment.
6K. TRANSACTIONS WITH AFFILIATES. The Company will not, and will not
permit any Restricted Subsidiary to, enter into any transaction, including,
without limitation, the purchase, sale or exchange of Property or the rendering
of any service, with any Affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of the business of the Company or such
Restricted Subsidiary and upon fair and reasonable terms no less favorable to
the Company or such Restricted Subsidiary than would be obtained in a comparable
arm's-length transaction with a Person not an Affiliate.
6L. DESIGNATION OF SUBSIDIARIES. Each Person which shall become a
Subsidiary for the first time after the Closing Date shall be a Restricted
Subsidiary unless, within 30 days after such Person shall first have become a
Subsidiary, the Company shall give written notice to all holders of the Notes
stating that such Person shall be an Unrestricted Subsidiary. Any Person so
designated as an Unrestricted Subsidiary may not thereafter be redesignated as a
Restricted Subsidiary without the approval of the Required Holders.
6M. SUBSIDIARY GUARANTY. The Company will cause each corporation which
becomes a Subsidiary after the Closing Date, and which executes a guaranty of
obligations outstanding under the Bank Credit Agreement, as amended or restated
from time to time, to execute and deliver to each holder of Notes,
simultaneously with its execution and delivery of any such guaranty of Bank
Credit Agreement obligations, a copy of the Joinder Agreement in the form
attached to the Subsidiary Guaranty as Annex 2, duly executed by such
corporation.
6N. PRC SUBSIDIARIES. The Company will not permit, on the last day of
any fiscal quarter or any fiscal year of the Company, the aggregate net book
value of the assets (as reported in the consolidating financial statements
referred to in clause (i) and clause (ii) of paragraph 5A hereof, respectively)
of the PRC Subsidiaries to be greater than an amount equal to 20% of
Consolidated Tangible Net Worth.
7. EVENTS OF DEFAULT.
7A. ACCELERATION. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal of or
Yield-Maintenance Amount payable with respect to any Note when the
same shall become due, either by the terms thereof or otherwise as
herein provided; or
(ii) the Company defaults in the payment of any interest on
any Note for more than five days after the date due; or
(iii) the Company fails to perform or observe any agreement
contained in paragraph 6 hereof (other than any default caused by the
incurrence of Debt by a Subsidiary in an amount less than $1,000,000,
provided that such default is remedied within 15 days after such
incurrence); or
(iv) the Company fails to perform or observe any other
agreement, term or condition contained herein and such failure shall
not be remedied within 30 days after any Responsible Officer obtains
actual knowledge thereof; or
(v) any representation or warranty made by the Company herein
or by the Company or any of its officers in any writing furnished in
connection with or pursuant to this Agreement shall be false in any
material respect on the date as of which made; or
(vi) the Company or any Restricted Subsidiary defaults
(whether as primary obligor or as guarantor or other surety) in any
payment of principal of or interest on any other obligation for money
borrowed (or any Capitalized Lease Obligation, any obligation under a
conditional sale or other title retention agreement, any obligation
issued or assumed as full or partial payment for Property whether or
not secured by a purchase money mortgage or any obligation under notes
payable or drafts accepted representing extensions of credit) beyond
any period of grace (not to exceed 30 days) provided with respect
thereto, or the Company or any Restricted Subsidiary fails to perform
or observe any other agreement, term or condition contained in any
agreement under which any such obligation is created (or if any other
event thereunder or under any such agreement shall occur and be
continuing) and the effect of such failure or other event is to cause,
or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, such obligation to become
due (or to be repurchased by the Company or any Restricted Subsidiary)
prior to any stated maturity, provided that the aggregate amount of all
obligations as to which such a payment default shall occur and be
continuing or such a failure or other event causing or permitting
acceleration (or resale to the Company or any Restricted Subsidiary)
shall occur and be continuing exceeds $5,000,000 (it being understood
that a failure to make a prepayment of a portion of any obligations
shall be deemed to be a payment default in respect of the entire amount
of such obligations); or
(vii) the Company or any Restricted Subsidiary (other than a
Minor Subsidiary) makes an assignment for the benefit of creditors or
is generally not paying its debts as such debts become due; or
(viii) any decree or order for relief in respect of the
Company or any Restricted Subsidiary (other than a Minor Subsidiary) is
entered under any bankruptcy, reorganization, compromise, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar
law, whether now or hereafter in effect (the "BANKRUPTCY LAW"), of any
jurisdiction; or
(ix) the Company or any Restricted Subsidiary (other
than a Minor Subsidiary) petitions or applies to any
tribunal for, or consents to, the appointment of, or taking
possession by, a trustee, receiver, custodian, liquidator or similar
official of the Company or any Restricted Subsidiary (other than a
Minor Subsidiary), or of the majority of the assets of the Company or
any Restricted Subsidiary (other than a Minor Subsidiary), or commences
a voluntary case under the Bankruptcy Law of the United States or any
proceedings (other than proceedings for the voluntary liquidation and
dissolution of a Restricted Subsidiary) relating to the Company or any
Restricted Subsidiary (other than a Minor Subsidiary) under the
Bankruptcy Law of any other jurisdiction; or
(x) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Restricted
Subsidiary (other than a Minor Subsidiary) and the Company or such
Restricted Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or
decree is entered appointing any such trustee, receiver, custodian,
liquidator or similar official, or approving the petition in any such
proceedings, and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
(xi) any order, judgment or decree is entered in any
proceedings against the Company decreeing the dissolution of the
Company or any Restricted Subsidiary (other than a Minor Subsidiary)
and such order, judgment or decree remains unstayed and in effect for
more than 60 days; or
(xii) any order, judgment or decree is entered in any
proceedings against the Company or any Restricted Subsidiary (other
than a Minor Subsidiary) decreeing a split-up of the Company or such
Restricted Subsidiary which requires the divestiture of assets
representing a material part, or the divestiture of the stock of a
Restricted Subsidiary whose assets represent a material part, of the
consolidated assets of the Company and the Restricted Subsidiaries
(determined in accordance with GAAP) or which requires the divestiture
of assets, or stock of a Restricted Subsidiary, which shall have
contributed a material part of the consolidated net income of the
Company and the Restricted Subsidiaries (determined in accordance with
GAAP) for any of the three fiscal years then most recently ended, and
such order, judgment or decree remains unstayed and in effect for more
than 60 days; or
(xiii) (a) the Subsidiary Guaranty shall cease to be in full
force and effect or shall be declared by a court or
governmental authority of competent jurisdiction to be void,
voidable or unenforceable against any Subsidiary (other than a
Minor Subsidiary),
(b) the validity or enforceability of the
Subsidiary Guaranty against any Subsidiary shall be
contested by such Subsidiary, the Company or any
Affiliate, or
(c) any Subsidiary, the Company or any Affiliate
shall deny that such Subsidiary has any further
liability or obligation under the Subsidiary Guaranty;
or
(xiv) a final judgment in an amount in excess of $1,000,000 is
rendered against the Company or any Restricted Subsidiary and, within
60 days after entry thereof, such judgment is not discharged or
execution thereof stayed pending appeal, or within 60 days after the
expiration of any such stay, such judgment is not discharged;
(xv) the Company or any ERISA Affiliate, in its capacity as an
employer under a Multiemployer Plan, makes a complete or partial
withdrawal from such Multiemployer Plan resulting in the incurrence by
such withdrawing employer of a withdrawal liability in an amount
exceeding $1,000,000; or
(xvi) (a) any natural person other than Robert L. Borchardt,
his estate, any trust established by him or his heirs, or any
Person or "group" (within the meaning of section 13(d) or
section 14(d) of the Exchange Act) not controlled by Robert L.
Borchardt, his estate, any trust established by him or his
heirs (other than any holder of shares of any outstanding
class of the capital stock of the Company that shall have been
designated as a "permitted holder" in a resolution duly
adopted by the board of directors of the Company and that
shall have been approved in writing by the Required Holders)
(1) shall have acquired beneficial
ownership of 20% or more of any outstanding
class of Voting Stock of the Company or
(2) shall obtain the power (whether or not
exercised) to elect a majority of the Company's
directors or
(b) the board of directors of the Company shall not
consist of a majority of continuing directors (for purposes of
this clause (b), "CONTINUING directors" shall mean the members
of the board of directors of the Company on the Closing Date
and each other director nominated for election to the board of
directors of the Company by a majority of the then continuing
directors);
then
(a) if such event is an Event of Default specified in clause
(viii), clause (ix) or clause (x) of this paragraph 7A with respect to
the Company, all of the Notes at the time outstanding shall
automatically become immediately due and payable, together with
interest accrued thereon, and together with the Yield-Maintenance
Amount, if any, with respect to each Note, without presentment, demand,
protest or notice of any kind, all of which are hereby waived by the
Company;
(b) if such Event of Default is any other Event of Default,
the Required Holders may at their option, by notice in writing to the
Company, declare all of the Notes to be, and all of the Notes shall
thereupon be and become, immediately due and payable together with
interest accrued thereon and together with the Yield-Maintenance
Amount, if any, with respect to each Note, without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by
the Company, and
(c) if such event is an Event of Default specified in clause
(i) or clause (ii) of this paragraph 7A, the holder of any Note (other
than the Company or any of its Subsidiaries or Affiliates) may at its
option, by notice in writing to the Company, declare such Note to be,
and such Note shall thereupon be and become, immediately due and
payable at par together with interest accrued thereon, without
presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Company.
7B. RESCISSION OF ACCELERATION. At any time after any or all of the
Notes shall have been declared immediately due and payable pursuant to paragraph
7A(b), the Required Holders may, by notice in writing to the Company, rescind
and annul such declaration and its consequences if (i) the Company shall have
paid all overdue interest on the Notes, the principal of and Yield-Maintenance
Amount, if any, payable with respect to any Notes which have become due
otherwise than by reason of such declaration, and interest on such overdue
interest and overdue principal and Yield-Maintenance Amount at the rate
specified in the Notes, (ii) the Company shall not have paid any amounts which
have become due solely by reason of such declaration, (iii) all Events of
Default and Defaults, other than non-payment of amounts which have become due
solely by reason of such declaration, shall have been cured or waived pursuant
to paragraph 11C hereof, and (iv) no judgment or decree shall have been entered
for the payment of any amounts due pursuant to the Notes or this Agreement. No
such rescission or annulment shall extend to or affect any subsequent Event of
Default or Default or impair any right arising therefrom.
7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 7A hereof or any such
declaration shall be rescinded and annulled pursuant to paragraph 7B hereof, the
Company shall forthwith give written notice thereof to the holder of each Note
at the time outstanding.
7D. OTHER REMEDIES. If any Event of Default or Default shall occur and
be continuing, the holder of any Note may proceed to protect and enforce its
rights under this Agreement and such Note by exercising such remedies as are
available to such holder in respect thereof under applicable law, either by suit
in equity or by action at law, or both, whether for specific performance of any
covenant or other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy conferred in this
Agreement upon the holder of any Note is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter existing at
law or in equity or by statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents,
covenants and warrants as of the date hereof as follows:
8A. ORGANIZATION; SUBSIDIARIES AND AFFILIATES.
(I) ORGANIZATION. The Company is a corporation duly organized
and existing in good standing under the laws of the State of New York
and each Subsidiary is duly organized and existing in good standing
under the laws of the jurisdiction in which it is incorporated.
(II) OWNERSHIP OF SUBSIDIARIES. Part 8A(ii) of Annex 3 hereto
states the name of each of the Subsidiaries, its jurisdiction of
organization and the percentage of its Voting Stock beneficially owned
by the Company and each other Subsidiary.
(III) AFFILIATES. Part 8A(iii) of Annex 3 hereto sets
forth the name of each Affiliate and the nature of the affiliation of
such Affiliate.
(IV) TITLE TO SHARES. Each of the Company and the Subsidiaries
has good title to all of the shares it purports to own of the stock of
each Subsidiary, free and clear in each case of any Lien. All such
shares have been duly issued and are fully paid and nonassessable.
(V) SUBSIDIARY GUARANTORS. All Subsidiaries that
have guaranteed the Company's obligations under the Bank
Credit Agreement are parties to the Subsidiary Guaranty.
8B. FINANCIAL STATEMENTS. The Company has furnished each Purchaser
with the following financial statements, identified by a principal financial
officer of the Company: (i) a consolidated balance sheet of the Company and the
Subsidiaries as at December 31 in each of the years 1993, 1994 and 1995, and
consolidated statements of operations, stockholders' equity and cash flows of
the Company and the Subsidiaries for each such year, all reported on by Cornick,
Garber & Sandler, LLP; and (ii) a consolidated balance sheet of the Company and
the Subsidiaries as at September 30, 1996 and September 30, 1995 and
consolidated statements of operations and cash flows for the nine-month period
ended on each such date, prepared by the Company. Such financial statements
(including any related schedules and/or notes) are true and correct in all
material respects (subject, as to interim statements, to changes resulting from
audits and year-end adjustments), have been prepared in accordance with GAAP
consistently followed throughout the periods involved and show all liabilities,
direct and contingent, of the Company and the Subsidiaries required to be shown
in accordance with GAAP. The balance sheets fairly present the financial
condition of the Company and the Subsidiaries as at the dates thereof, and the
statements of income, stockholders' equity and cash flows fairly present the
results of the operations of the Company and the Subsidiaries and their cash
flows for the periods indicated. There has been no material adverse change in
the business, condition (financial or otherwise) or operations of the Company
and the Subsidiaries taken as a whole since December 31, 1995.
8C. ACTIONS PENDING. Except as set forth in Part 8C of Annex 3 hereto,
there is no action, suit, investigation or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the
Subsidiaries, or any Properties of the Company or any of the Subsidiaries, by or
before any court, arbitrator or administrative or governmental body which might
result in any material adverse change in the business, condition (financial or
otherwise) or operations of the Company and the Subsidiaries taken as a whole.
8D. OUTSTANDING DEBT. Consolidated Funded Debt outstanding on the
Closing Date is set forth in Part 6C of Annex 3 hereto. Consolidated Current
Debt outstanding on the Closing Date, immediately after giving effect to the
application of the proceeds of the sale of the Notes, is in an amount not in
excess of $50,000,000. There exists no default under the provisions of any
instrument evidencing such Debt or of any agreement relating thereto.
8E. TITLE TO PROPERTIES. Each of the Company and the Subsidiaries has
good and indefeasible title to its respective real Property (other than Property
which it leases) and good title to all of its other respective Property (other
than Property which it leases), including the Property reflected in the balance
sheet as at December 31, 1995 referred to in paragraph 8B hereof (other than
Property disposed of in the ordinary course of business), subject to no Lien of
any kind except Liens permitted by paragraph 6I hereof. All leases necessary in
any material respect for the conduct of the respective businesses of the Company
and the Subsidiaries are valid and subsisting and are in full force and effect.
8F. TAXES. Each of the Company and the Subsidiaries has filed all
federal, state and other income tax returns which, to the knowledge of the
officers of the Company, are required to be filed, and each has paid all taxes
as shown on such returns and on all assessments received by it to the extent
that such taxes have become due, except such taxes as are being contested in
good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP.
8G. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company nor
any of the Subsidiaries is a party to any contract or agreement or subject to
any charter or other corporate restriction which materially and adversely
affects its business, Property or financial condition. Neither the execution nor
delivery of this Agreement or the Notes, nor the offering, issuance and sale of
the Notes, nor fulfillment of nor compliance with the terms and provisions
hereof and of the Notes will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in any
violation of, or result in the creation of any Lien upon any of the Property of
the Company or any of the Subsidiaries pursuant to, the charter or by-laws of
the Company or any of the Subsidiaries, any award of any arbitrator or any
agreement (including any agreement with stockholders), instrument, order,
judgment, decree, statute, law, rule or regulation to which the Company or any
of the Subsidiaries is subject. Neither the Company nor any of the Subsidiaries
is a party to, or otherwise subject to any provision contained in, any
instrument evidencing Debt of the Company or such Subsidiary, any agreement
relating thereto or any other contract or agreement (including its charter)
which limits the amount of, or otherwise imposes restrictions on the incurring
of, Debt of the Company of the type to be evidenced by the Notes except as set
forth in the agreements listed in Part 8G of Annex 3 hereto.
8H. OFFERING OF NOTES. Neither the Company nor any agent acting on its
behalf has, directly or indirectly, offered the Notes or any similar Security of
the Company for sale to, or solicited any offers to buy the Notes or any similar
Security of the Company from, or otherwise approached or negotiated with respect
thereto with, any Person other than the Purchasers and no more than 61 other
institutional investors, and neither the Company nor any agent acting on its
behalf has taken or will take any action which would subject the issuance or
sale of the Notes to the provisions of section 5 of the Securities Act or to the
provisions of any securities or Blue Sky law of any applicable jurisdiction.
8I. USE OF PROCEEDS. Neither the Company nor any Subsidiary owns or
has any present intention of acquiring any "margin stock" as defined in
Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve
System ("MARGIN STOCK"). The proceeds of sale of the Notes will be used to repay
the Debt set forth in Part 8I of Annex 3 hereto and for general corporate
purposes. None of such proceeds will be used, directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of purchasing or carrying
any margin stock or for the purpose of maintaining, reducing or retiring any
Debt which was originally incurred to purchase or carry any stock that is
currently a margin stock or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of such Regulation G. Neither
the Company nor any agent acting on its behalf has taken or will take any action
which might cause this Agreement or the Notes to violate Regulation G,
Regulation T or any other regulation of the Board of Governors of the Federal
Reserve System or to violate the Exchange Act, in each case as in effect now or
as the same may hereafter be in effect.
8J. ERISA. No accumulated funding deficiency (as defined in section
302 of ERISA and section 412 of the Code), whether or not waived, exists with
respect to any Plan (other than a Multiemployer Plan). No liability to the PBGC
has been or is expected by the Company or any ERISA Affiliate to be incurred
with respect to any Plan (other than a Multiemployer Plan) by the Company, any
Subsidiary or any ERISA Affiliate which is or would be materially adverse to the
business, condition (financial or otherwise) or operations of the Company and
the Subsidiaries taken as a whole. Neither the Company, any Subsidiary nor any
ERISA Affiliate has incurred or presently expects to incur any withdrawal
liability under Title IV of ERISA with respect to any Multiemployer Plan which
is or would be materially adverse to the business, condition (financial or
otherwise) or operations of the Company and the Subsidiaries taken as a whole.
The execution and delivery of this Agreement and the issuance and sale of the
Notes will be exempt from, or will not involve any transaction which is subject
to, the prohibitions of section 406 of ERISA and will not involve any
transaction in connection with which a penalty could be imposed under section
502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code.
The representation by the Company in the next preceding sentence is made in
reliance upon and subject to the accuracy of each Purchaser's representation in
paragraph 9B hereof.
8K. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any
Subsidiary, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the offering, issuance, sale or delivery of the
Notes is such as to require any authorization, consent, approval, exemption or
other action by or notice to or filing with any court or administrative or
governmental body (other than routine filings after the Closing Date with the
Securities and Exchange Commission and/or state Blue Sky authorities) in
connection with the execution and delivery of this Agreement, the offering,
issuance, sale or delivery of the Notes or fulfillment of or compliance with the
terms and provisions hereof or of the Notes.
8L. ENVIRONMENTAL COMPLIANCE. The Company and the Subsidiaries and all
of their respective Properties and facilities have complied at all times and in
all respects with all federal, state, local and regional statutes, laws,
ordinances and judicial or administrative orders, judgments, rulings and
regulations relating to protection of the environment except, in any such case,
where failure to comply would not result in a material adverse effect on the
business, condition (financial or otherwise) or operations of the Company and
the Subsidiaries taken as a whole.
8M. DISCLOSURE. Neither this Agreement nor any other document,
certificate or statement furnished to any Purchaser by or on behalf of the
Company in connection herewith contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact peculiar to the
Company or any of the Subsidiaries which materially adversely affects or in the
future may (so far as the Company can now foresee) materially adversely affect
the business, Property or financial condition of the Company or any of the
Subsidiaries and which has not been set forth in this Agreement or in the other
documents, certificates and statements furnished to each Purchaser by or on
behalf of the Company prior to the date hereof in connection with the
transactions contemplated hereby.
9. REPRESENTATIONS OF EACH PURCHASER.
9A. NATURE OF PURCHASE. Each Purchaser represents as of the Closing
Date that such Purchaser is an accredited investor (as defined in the Securities
Act) and is not acquiring the Notes to be purchased by it hereunder with a view
to or for sale in connection with any distribution thereof within the meaning of
the Securities Act, provided that the disposition of such Purchaser's Property
shall at all times be and remain within its control.
9B. SOURCE OF FUNDS. Each Purchaser represents as of the Closing Date:
(i) if it is acquiring the Notes for its own account with
funds from or attributable to its general account, and in reliance upon
the Company's representations set forth in paragraph 8J, that the
amount of the reserves and liabilities for the general account
contracts (as defined by the annual statement for life insurance
companies as in effect on the date hereof and approved by the National
Association of Insurance Commissioners (the "NAIC Annual Statement"))
held by or on behalf of any Pension Plan together with the amount of
the reserves and liabilities for the general account contracts held by
or on behalf of any other Pension Plans maintained by the same employer
(or affiliate thereof, as such term is defined in section V of DOL
Prohibited Transaction Exemption 95-60 (60 FR 35925, July 12, 1995)) or
by the same employee organization (as defined in ERISA) in the general
account do not exceed 10% of the total reserves and liabilities of the
general account (exclusive of separate account liabilities) plus
surplus as set forth in the NAIC Annual Statement filed with the state
of domicile of the insurance company; for purposes of the percentage
limitation in this clause (i), the amount of reserves and liabilities
for the general account contracts held by or on behalf of a Pension
Plan shall be determined before reduction for credits on account of any
reinsurance ceded on a coinsurance basis; or
(ii) if any part of the funds being used by it to purchase the
Notes shall come from assets of an employee benefit plan (as defined in
section 3(3) of ERISA) or a plan (as defined in section 4975(e)(1) of
the Code):
(a) if such funds are attributable to a separate
account (as defined in section 3(17) of ERISA), then
(I) all requirements for an exemption under
DOL Prohibited Transaction Exemption 90-1 (issued
January 29, 1990) are met with respect to the use of
such funds to purchase the Notes, or
(II) the employee benefit plans with an
interest in such separate account have been
identified in a writing delivered by such Purchaser
to the Company;
(b) if such funds are attributable to a separate
account (as defined in section 3(17) of ERISA) that is
maintained solely in connection with fixed contracted
obligations of an insurance company, any amounts payable, or
credited, to any employee benefit plan having an interest in
such account and to any participant or beneficiary of such
plan (including an annuitant) are not affected in any manner
by the investment performance of the separate account;
(c) if such funds are attributable to an investment
fund managed by a qualified plan asset manager (as such terms
are defined in Part V of DOL Prohibited Transaction Exemption
84-14, issued March 13, 1984), all requirements for an
exemption under such Exemption are met with respect to the use
of such funds to purchase the Notes; or
(d) such employee benefit plan is excluded from
the provisions of section 406 of ERISA by virtue of
section 4(b) of ERISA; or
(iii) the source of funds being used by it to purchase the
Notes is:
(a) a governmental plan (as defined in section
3(32) of ERISA);
(b) a bank collective investment fund (within the
meaning of DOL Prohibited Transaction Exemption 91-38, issued
July 12, 1991), and it has identified in writing to the
Company each plan (as defined in section 3(3) of ERISA) or
group of related plans that comprises ten percent of the
assets of such fund; or
(c) one or more plans (as defined in section 3(3) of
ERISA), or a separate account (as defined in section 3(17) of
ERISA) or a trust fund comprised of one or more plans, each of
which has been identified in writing to the Company.
10. DEFINITIONS. For the purpose of this Agreement, the terms defined
in the introductory sentence and in paragraphs 1 and 2 shall have the respective
meanings specified therein, and the following terms shall have the meanings
specified with respect thereto below:
10A. YIELD-MAINTENANCE TERMS.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the principal
of such Note that is to be prepaid pursuant to paragraph 4B or paragraph 4E or
is declared to be immediately due and payable pursuant to paragraph 7A, as the
context requires.
"DISCOUNTED VALUE" shall mean, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due dates
to the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"REINVESTMENT YIELD" shall mean, with respect to the Called Principal
of any Note, 0.50% over the yield to maturity implied by (i) the yields
reported, as of 10:00 a.m. (New York City time) on the Business Day next
preceding the Settlement Date with respect to such Called Principal, on the
display designated as "Page 678" on the Telerate Service (or such other display
as may replace Page 678 on the Telerate Service) for actively traded U.S.
Treasury securities having a maturity equal to the Remaining Average Life of
such Called Principal as of such Settlement Date, or if such yields shall not be
reported as of such time or the yields reported as of such time shall not be
ascertainable, (ii) the Treasury Constant Maturity Series yields reported, for
the latest day for which such yields shall have been so reported as of the
Business Day next preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable
successor publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called Principal
as of such Settlement Date. Such implied yield shall be determined, if
necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent
yields in accordance with accepted financial practice and (b) interpolating
linearly between yields reported for various maturities.
"REMAINING AVERAGE LIFE" shall mean, with respect to the Called
Principal of any Note, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the
sum of the products obtained by multiplying (a) each Remaining Scheduled Payment
of such Called Principal (but not of interest thereon) by (b) the number of
years (calculated to the nearest one-twelfth year) which will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 4B or paragraph 4E or is declared to be immediately due and payable
pursuant to paragraph 7A, as the context requires.
"YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, an
amount equal to the excess, if any, of the Discounted Value of the Called
Principal of such Note over the sum of (i) such Called Principal plus (ii)
interest accrued thereon as of (including interest due on) the Settlement Date
with respect to such Called Principal. The Yield-Maintenance Amount shall in no
event be less than zero.
10B. OTHER TERMS.
"ADJUSTED CONSOLIDATED CURRENT DEBT" shall have the meaning assigned
to it in paragraph 6C of this Agreement.
"AFFILIATE" shall mean any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, the Company,
except a Restricted Subsidiary. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.
"AGREEMENT, THIS" shall mean this Agreement as it may from time to
time be amended, supplemented, modified or restated.
"APPLICABLE DEFAULT INTEREST RATE" shall mean, at any time, the
greater of
(i) the rate of interest which is 2.0% in excess of
the interest rate then applicable to the Notes or
(ii) 2.0% over the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York from time to time in New York
City as its prime rate.
"ASSET TRANSFER PUT CONDITION" shall have the meaning assigned to it
in paragraph 4E(ii) of this Agreement.
"BANK" shall mean the banks that are parties to the Bank Credit
Agreement, as amended or restated from time to time.
"BANK CREDIT AGREEMENT" shall mean the Credit Agreement, dated as of
August 27, 1996, among the Company, The Chase Manhattan Bank, SunTrust Bank,
Central Florida, National Association, Marine Midland Bank and Harris Trust and
Savings Bank.
"BANKRUPTCY LAW" shall have the meaning assigned to it in clause
(viii) of paragraph 7A of this Agreement.
"BASKET INVESTMENT" shall mean any Investment (including, without
limitation, any Investment in Unrelated Assets) other than a Permitted
Investment.
"BUSINESS DAY" shall mean a day other than a Saturday, a Sunday or a
day on which the national banks located in New York City, New York, are required
by law (other than a general banking moratorium or holiday for a period
exceeding four consecutive days) to be closed.
"CAPITAL ASSETS" shall mean all tangible assets of a Person that at
the time of acquisition or construction have an expected economic useful life of
more that one year, and would be shown on a balance sheet of the acquiring or
constructing Person as an asset.
"CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which,
under GAAP, is or will be required to be capitalized on the books of the Company
or any of its Subsidiaries, taken at the amount thereof accounted for as
indebtedness (net of interest expense) in accordance with GAAP.
"CLOSING DATE" shall have the meaning assigned to it in paragraph 2 of
this Agreement.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" shall have the meaning assigned to it in the introductory
sentence of this Agreement.
"CONFIDENTIAL INFORMATION" shall have the meaning assigned to it in
paragraph 11J of this Agreement.
"CONSOLIDATED ADJUSTED CASH FLOW" shall mean, for any period, the sum
of
(i) Consolidated Operating Income, plus
(ii) to the extent, and only to the extent, that such amount
was deducted in the computation of such Consolidated Net Income, the
aggregate amount of depreciation and amortization of the Company and
the Restricted Subsidiaries, determined on a consolidated basis for
such Persons.
"CONSOLIDATED CURRENT DEBT" shall mean, at any time, all Current Debt
of the Company and the Restricted Subsidiaries, determined at such time on a
consolidated basis for such Persons.
"CONSOLIDATED FUNDED DEBT" shall mean, at any time, the aggregate
amount of Funded Debt of the Company and the Restricted Subsidiaries, determined
at such time on a consolidated basis for such Persons.
"CONSOLIDATED INTEREST EXPENSE" shall mean, for any period, the
consolidated interest expense of the Company and the Restricted Subsidiaries for
such period (including the interest component of Capitalized Lease Obligations)
payable in cash.
"CONSOLIDATED NET INCOME" shall mean, for any period, net earnings (or
loss), after income taxes, of the Company and the Restricted Subsidiaries for
such period, determined on a consolidated basis for such Persons in accordance
with GAAP, but excluding on an after-tax basis:
(i) any gain or loss during such period resulting
from the receipt of any proceeds of any insurance policy,
except business interruption insurance;
(ii) any gains or Permitted Losses arising from any sale,
abandonment or other disposition of Capital Assets other than in the
ordinary course of business;
(iii) any gain arising from any re-evaluation or
write-up of assets;
(iv) any gain resulting from the redemption of Debt at
a price below the outstanding principal amount of, and accrued
interest on, such Debt;
(v) extraordinary gains or Permitted Losses, gains or
Permitted Losses resulting from transactions of a non-recurring, or
non-operating, and material nature, and gains or Permitted Losses
arising from the discontinuance of operations;
(vi) net earnings or losses of any Restricted Subsidiary
accrued prior to the date it became a Restricted Subsidiary;
(vii) net earnings of any Person (other than a Restricted
Subsidiary) in which the Company or any of the Restricted Subsidiaries
shall have an ownership interest unless such net earnings shall have
actually been received by the Company or such Restricted Subsidiary in
the form of a cash distribution;
(viii) any portion of the net earnings of any
Restricted Subsidiary that by reason of contract, charter
restriction or applicable law is unavailable for payment to
the Company;
(ix) any earnings or losses of any successor to the
Company, whether through purchase, merger, consolidation,
acquisition of assets or otherwise, for any period prior to
the date of acquisition;
(x) any deferred credit (or the amortization of any deferred
credit) arising in connection with the acquisition of any Person
acquired by the Company or a Restricted Subsidiary through purchase,
merger, consolidation, acquisition of assets or otherwise; and
(xi) any restoration during such period to income of any
contingency reserve, except to the extent that provision for such
reserve was made during such period out of income accrued during such
period.
As used in this definition,
"Permitted Losses" means, for any period for which Consolidated Net
Income is being measured, (a) if aggregate gains for either item (ii) or item
(v) exceed aggregate losses for such item during such period, actual aggregate
losses for such period or (b) if aggregate losses for either item (ii) or item
(v) exceed aggregate gains for such item during such period, the lesser of (1)
that amount by which such aggregate losses exceed such aggregate gains during
such period and (2) $2,500,000.
"CONSOLIDATED OPERATING INCOME" shall mean, for any period, the sum of
(i) Consolidated Net Income for such period, plus
(ii) to the extent, and only to the extent, that such amount
was deducted in the computation of Consolidated Net Income for such
period, the aggregate amount of income tax expense and interest expense
of the Company and the Restricted Subsidiaries during such period,
determined on a consolidated basis for such Persons.
"CONSOLIDATED TANGIBLE GROSS WORTH" shall mean, at any time, the sum
of
(i) Consolidated Tangible Net Worth at such time plus
(ii) Consolidated Funded Debt at such time.
"CONSOLIDATED TANGIBLE NET WORTH" shall mean, at any time, the result
of
(i) the shareholders' equity of the Company and the
Restricted Subsidiaries, minus
(ii) all Intangible Assets of the Company and the
Restricted Subsidiaries, minus
(iii) (a) all Basket Investments, (b) Investments by the
Company or any Restricted Subsidiary set forth in clause (vii) of the
definition of Permitted Investments, and (c) Insider Loans in excess of
the sum of (1) $2,500,000 plus (2) up to an additional $2,500,000 so
long as such additional amount consists of Insider Loans referred to in
subclause (A) of clause (viii) of the definition of "Permitted
Investments", and then only to the extent that such Insider Loans are
each in an original principal amount of $500,000 or less and are used
solely for relocation costs of officers, directors and employees of the
Company or any Restricted Subsidiary (including, without limitation,
financing the purchase of homes),
in each case as would be reflected on a consolidated balance sheet of such
Persons at such time.
"CONSOLIDATED TOTAL ASSETS" means, at any time, the net book value of
all of the assets of the Company and its Restricted Subsidiaries, as such net
book value would be reflected on the Company's balance sheet as of its most
recent fiscal year end prepared at such time on a consolidated basis in
accordance with GAAP.
"CURRENT DEBT" shall mean, with respect to any Person, all Debt of
such Person for borrowed money which by its terms or by the terms of any
instrument or agreement relating thereto matures on demand or within one year
from the date of the creation thereof and is not directly or indirectly
renewable or extendible at the option of the debtor to a date more than one year
from the date of the creation thereof, provided that
(i) Debt for borrowed money outstanding under a revolving
credit or similar agreement, notwithstanding that it obligates the
lender or lenders to extend credit over a period of more than one year,
shall constitute Current Debt and
(ii) Debt for borrowed money which constitutes the current
maturities of Debt with a stated maturity of more than one year from
the date of creation thereof shall constitute Funded Debt and not
Current Debt, even though such current maturities of Debt by their
terms mature within one year.
"DEBT" shall mean, with respect to any Person, without duplication,
(i) all obligations of such Person for borrowed money
(including, without limitation, all obligations of such Person
evidenced by any debenture, bond, note, commercial paper or Security,
but also including all such obligations for borrowed money not so
evidenced);
(ii) all obligations for borrowed money secured by any Lien
existing on Property owned by such Person (whether or not such
obligations have been assumed by such Person or recourse in respect
thereof is available against such Person);
(iii) all Capitalized Lease Obligations of such Person;
(iv) all obligations of such Person to pay the deferred
purchase price of Property or services, all conditional sale
obligations of such Person and all obligations of such Person under any
title retention agreements, provided that trade account payables
incurred in the ordinary course of business of such Person shall be
excluded from this clause (iv);
(v) all obligations of such Person in respect of banker's
acceptances, other acceptances, stand-by letters of credit and other
instruments serving a similar function issued or accepted by banks and
other financial institutions for the account of such Person (whether or
not incurred in connection with the borrowing of money); and
(vi) any Guarantee of such Person of any obligation or
liability of another Person of a type described in any of clause (i)
through clause (v), inclusive, of this definition.
"DOL" shall mean the Department of Labor of the government of the
United States of America or any other department or agency of such government
that shall succeed to the functions of the Department of Labor.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" shall mean any corporation which is a member of the
same controlled group of corporations as the Company within the meaning of
section 414(b) of the Code, or any trade or business which is under common
control with the Company within the meaning of section 414(c) of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in paragraph
7A of this Agreement, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time, or
the happening of any further condition, event or act, and "DEFAULT" shall mean
any of such events, whether or not any such requirement has been satisfied.
"EXCESS AMOUNT" shall have the meaning assigned to it in paragraph
4E(ii) of this Agreement.
"EXCESS CURRENT DEBT" shall have the meaning assigned to it in
paragraph 6C of this Agreement.
"EXCESS CURRENT DEBT MEASURING PERIOD" shall have the meaning assigned
to it in paragraph 6C of this Agreement.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCLUDED SUBSIDIARIES" shall mean the PRC Subsidiaries, RAC-FSC, a
U.S. Virgin Islands corporation, Entel Limited, an English corporation, and
Avelco Trading Limited, a Hong Kong corporation.
"FAIR MARKET VALUE" shall mean, with respect to any Property, the sale
value of such Property that would be realized in an arm's-length sale at such
time between an informed and willing buyer and an informed and willing seller
under no compulsion to buy or sell, respectively.
"FIRST PUT DATE" shall have the meaning assigned to it in paragraph 4E
of this Agreement.
"FIRST PUT CUT-OFF DATE" shall have the meaning assigned to it in
paragraph 4E of this Agreement.
"FIRST TIER SUBSIDIARY" shall have the meaning assigned to it in
paragraph 5A of this Agreement.
"FUNDED DEBT" shall mean, with respect to any Person, at any time, all
Debt of such Person other than Current Debt.
"GAAP" means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board and in such
statements, opinions and pronouncements of such other entities with respect to
financial accounting of for-profit entities as shall be accepted by a
substantial segment of the accounting profession in the United States.
"GUARANTEE" shall mean, with respect to any Person (for the purposes
of this definition, the "guarantor"), any obligation (except the endorsement in
the ordinary course of business of negotiable instruments for deposit or
collection) of such Person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other Person (the "Primary
Obligor") in any manner, whether directly or indirectly, including, without
limitation, obligations incurred through an agreement, contingent or otherwise,
by the guarantor:
(i) to purchase such indebtedness or obligation or
any Property constituting security therefor;
(ii) to advance or supply funds
(a) for the purchase or payment of such
indebtedness, dividend or obligation, or
(b) to maintain working capital or other balance
sheet condition or any income statement condition of the
Primary Obligor or otherwise to advance or make available
funds for the purchase or payment of such indebtedness,
dividend or obligation;
(iii) to lease Property or to purchase securities or other
Property or services primarily for the purpose of assuring the owner of
such indebtedness or obligation of the ability of the Primary Obligor
to make payment of the indebtedness or obligation; or
(iv) otherwise to assure the owner of the indebtedness
or obligation of the Primary Obligor against loss in
respect thereof.
For purposes of computing the amount of any Guarantee, in connection with any\
computation of indebtedness or other liability,
(i) in each case where the obligation that is the subject of
such Guarantee is in the nature of indebtedness for money borrowed it
shall be assumed that the amount of the Guarantee is the amount of the
direct obligation then outstanding, and
(ii) in each case where the obligation that is the subject of
such Guarantee is not in the nature of indebtedness for money borrowed
it shall be assumed that the amount of the Guarantee is the maximum
aggregate amount (if any) of such obligation.
"INSIDER LOANS" shall mean the Investments described in clause (viii)
of the definition of "Permitted Investments."
"INTANGIBLE ASSETS" shall mean any assets of a Person that would be
classified as "intangible assets" under GAAP, including, without limitation,
goodwill, trademarks, trade names, patents, copyrights, franchises and other
intangible assets of such Person.
"INTEREST PAYMENT DATE" shall have the meaning assigned to it in
paragraph 4G of this Agreement.
"INVESTMENT" shall mean any investment made in cash or by delivery of
Property by the Company or a Restricted Subsidiary (i) in any Person, whether by
acquisition of stock, indebtedness or other obligation or Security, or by loan,
Guarantee, advance, capital contribution or otherwise, or (ii) in any Property.
Investments shall be valued at the greater of:
(x) the amount at which such Investment is shown on
the books of the Company or any Restricted Subsidiary; and
(y) either
(1) in the case of any Guarantee of the obligation of
any Person, the amount which the Company or any Restricted
Subsidiary has paid on account of such obligation less any
recoupment by the Company or such Restricted Subsidiary of any
such payments, or
(2) in the case of any other Restricted Investment,
the excess of (A) the greater of (I) the amount originally
entered on the books of the Company or any Restricted
Subsidiary with respect thereto and (II) the cost thereof to
the Company or such Restricted Subsidiary over (B) any return
of capital (after income taxes applicable thereto) upon such
Restricted Investment through the sale or other liquidation
thereof or any part thereof or otherwise.
"LIEN" shall mean any mortgage, pledge, security interest,
encumbrance, lien (statutory or otherwise) or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction) or any other type of preferential arrangement for the purpose,
or having the effect, of protecting a creditor against loss or securing the
payment or performance of an obligation.
"MARGIN STOCK" shall have the meaning assigned to it in paragraph 8I
of this Agreement.
"MERGER PUT CONDITION" shall have the meaning assigned to it in
paragraph 4E(i) of this Agreement.
"MINOR SUBSIDIARY" shall mean, at any time, any Subsidiary that is
organized under a jurisdiction other than the United States of America or any
State thereof and that satisfies the following conditions:
(i) the portion of Consolidated Total Assets, determined as of
the end of the then most recently ended fiscal quarter of the Company,
attributable to such Subsidiary in accordance with GAAP is less than
five percent, determined at such time, of Consolidated Total Assets;
and
(ii) the portion of Consolidated Operating Income, determined
for the then most recently ended period of four consecutive fiscal
quarters of the Company, attributable to such Subsidiary in accordance
with GAAP is less than five percent, determined for such period, of
Consolidated Operating Income.
"MOODY'S" shall mean Moody's Investor Services, Inc.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"NOTES" shall have the meaning assigned to it in paragraph 1 of this
Agreement.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of
the Company by its President, one of its Vice Presidents or its Treasurer.
"PBGC" means the Pension Benefit Guaranty Corporation and any
successor corporation or governmental agency.
"PENSION PLAN" means any "employee pension benefit plan" (as such term
is defined in ERISA) maintained by the Company or any ERISA Affiliate for
employees of the Company or such ERISA Affiliate, excluding any Multiemployer
Plan, but including, without limitation, any Multiple Employer Pension Plan.
As used in this definition,
"Multiple Employer Pension Plan" means any employee benefit
plan within the meaning of Section 3(3) of ERISA (other than a
Multiemployer Plan), subject to Title IV of ERISA, to which the Company
or any ERISA Affiliate and an employer (as such term is defined in
Section 3 of ERISA), other than an ERISA Affiliate or the Company,
contribute.
"PERMITTED INVESTMENTS" means and includes the following:
(i) Investments existing on the Closing Date (other than
Insider Loans) and described in Part 10B-1 of Annex 3 hereto, and
Investments in Property used by the Company or any Restricted
Subsidiary in its operations in the ordinary course of its business;
(ii) Investments in the ordinary course of business of the
Company in one or more Restricted Subsidiaries or any corporation that
concurrently with such Investment becomes a Restricted Subsidiary
(except to the extent that any such Investment is in Unrelated Assets);
(iii) Investments in direct obligations of the
United States of America or any agency thereof, maturing
within one year of the date of acquisition thereof;
(iv) Investments in commercial paper maturing within 270 days
from the date of acquisition and rated A-1 or P-1 (or the equivalent)
or better at the date of acquisition by Standard & Poor's or Moody's;
(v) Investments in debt obligations of corporations organized
under the laws of the United States of America or any state thereof or
obligations of any state of the United States of America or any
municipality thereof, in each case maturing within one year from the
date of acquisition and rated AA or Aa (or the equivalent) or better at
the date of acquisition by Standard & Poor's or Moody's;
(vi) Investments in certificates of deposit issued by an
Acceptable Bank and, in each case, maturing within one year of the date
of acquisition thereof, provided that such Investments issued by
banks deemed to be "Acceptable Banks" pursuant to the proviso of the
definition of "Acceptable Bank" shall not exceed $2,500,000 in any one
such deemed Acceptable Bank, or $5,000,000 in the aggregate for all
such deemed Acceptable Banks, at any one time;
(vii) Investments in any other Person in an amount not
exceeding the net proceeds of a concurrent sale of capital stock of the
Company (other than an Investment of the type referred to in clause
(ii) of this definition); and
(viii) Investments (A) in loans and advances in the ordinary
course of business, and necessary to carrying on the business of the
Company or any Restricted Subsidiary, to officers, directors and
employees of the Company or any Restricted Subsidiary, (B) in loans and
advances to corporations that are acquisition targets of the Company or
any Restricted Subsidiary, and (C) consisting of short term advances or
prepayments to suppliers, provided that the aggregate amount of all
Investments referred to in subclauses (A), (B) and (C) of this clause
(viii) does not at any time exceed $7,000,000.
As used in this definition,
"Acceptable Bank" means (i)(a) a commercial bank or trust
company organized in the United States of America and having combined
capital, surplus and undivided profits aggregating at least
$500,000,000 or (b) any other commercial bank having capital, surplus
and undivided profits of at least $1,000,000,000 and (ii) the long-term
unsecured debt obligations of which (or the long-term unsecured debt
obligations of the bank holding company owning all of the capital stock
of such bank) are rated "A" or higher by Standard & Poor's or "A2" or
higher by Moody's, provided that a commercial bank not organized in the
United States of America that satisfies the requirement set forth in
the foregoing clause (i)(b) but whose long-term unsecured debt
obligations (or the long-term unsecured debt obligations of the bank
holding company owning all of the capital stock of such bank) are not
rated by Standard & Poor's or Moody's shall be deemed to be an
"Acceptable Bank" if the Required Holders shall have consented in
writing to Investments in certificates of deposit issued by such bank.
"PERSON" shall mean and include an individual, a partnership, a
limited liability company, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
"PLAN" shall mean any "employee pension benefit plan" (as such term is
defined in section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any ERISA
Affiliate.
"PRC SUBSIDIARIES" shall mean Subsidiaries organized under the laws of
the People's Republic of China, other than Subsidiaries organized under the laws
of Hong Kong.
"PREFERRED STOCK" shall mean any class of capital stock of a Person
that is preferred over any other class of capital stock of such Person as to the
payment of dividends or the payment of any amount upon liquidation of such
Person.
"PROPERTY" shall mean any interest in any kind of property or assets,
whether real, personal or mixed, and whether tangible or intangible.
"PURCHASERS" shall have the meaning assigned to it in the introductory
sentence of this Agreement.
"PUT AMOUNT" shall have the meaning assigned to it in paragraph 4E of
this Agreement.
"PUT NOTICE" shall have the meaning assigned to it in paragraph 4E of
this Agreement.
"RATE INCREASE EVENT" shall have the meaning assigned to it in
paragraph 4G of this Agreement.
"REINVESTMENT NOTICE" shall have the meaning assigned to it in
paragraph 6H of this Agreement.
"REQUIRED HOLDERS" shall mean the holder or holders of at least 66b%
of the aggregate principal amount of the Notes from time to time outstanding
(exclusive of Notes then owned by any one or more of the Company, any Subsidiary
or any Affiliate).
"RESPONSIBLE OFFICER" shall mean the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of the
Company or any other officer of the Company involved principally in its
financial administration or its controllership function.
"RESTRICTED PAYMENT" means and includes
(i) any dividend or other distribution, direct or indirect and
whether payable in cash or Property, on account of any capital stock or
other equity interests of the Company or any of the Restricted
Subsidiaries, except to the extent such dividend or distribution
(a) is payable solely to the Company or any
Restricted Subsidiary;
(b) is payable solely in capital stock or other
equity interests of the Company or such Restricted
Subsidiary; or
(c) is payable in respect of Preferred Stock issued
by the Company after the Closing Date, provided that the full
purchase price of such Preferred Stock was paid in cash to the
Company prior to the payment of such dividend or distribution;
(ii) any redemption, retirement, purchase or other
acquisition, direct or indirect, of any capital stock or other equity
interests of the Company or any of the Restricted Subsidiaries now or
hereafter outstanding, or of any warrants, rights or options to acquire
any such capital stock or other equity interests or any Securities
convertible into such capital stock or other equity interests, except
to the extent that any amount due in respect of such redemption,
retirement, purchase or other acquisition
(a) is payable to the Company or any of its
Restricted Subsidiaries; or
(b) is payable solely in capital stock or other
equity interests of the Company or such Restricted
Subsidiary; or
(c) is payable with the proceeds of the sale of
capital stock of the Company consummated after the
Closing Date.
"RESTRICTED SUBSIDIARY" shall mean each Wholly-Owned Subsidiary of the
Company which is a Wholly-Owned Subsidiary on the Closing Date and each
Wholly-Owned Subsidiary that becomes a Wholly-Owned Subsidiary after the Closing
Date and that has not been designated as an Unrestricted Subsidiary by the
Company pursuant to paragraph 6L of this Agreement.
"RESTRICTED SUBSIDIARY STOCK" shall have the meaning assigned to it in
paragraph 6H(ii) of this Agreement.
"SECOND PUT CUT-OFF DATE" shall have the meaning assigned to it in
paragraph 4E of this Agreement.
"SECOND PUT DATE" shall have the meaning assigned to it in paragraph
4E of this Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SECURITY" shall mean "security" as defined in section 2(1) of the
Securities Act.
"SHARING AGREEMENT" shall mean the Sharing Agreement in the form of
Exhibit D hereto.
"SIGNIFICANT HOLDER" shall mean (i) each Purchaser, so long as such
Purchaser shall hold (or be committed under this Agreement to purchase) any
Note, or (ii) any other holder of at least five percent of the aggregate
principal amount of the Notes from time to time outstanding.
"STANDARD & POOR'S" shall mean Standard & Poor's Rating Group, a
division of McGraw- Hill, Inc.
"SUBSIDIARY" shall mean any corporation more than 50% of the total
combined voting power of all classes of Voting Stock of which shall, at the time
as of which any determination is being made, be owned by the Company either
directly or through Subsidiaries.
"SUBSIDIARY GUARANTY" shall mean the Subsidiary Guaranty in the form
of Exhibit C hereto.
"SUCCESSOR CORPORATION" shall have the meaning assigned to it in
paragraph 6G(ii)(a) of this Agreement.
"TRANSFEREE" shall mean any direct or indirect transferee of all or
any part of any Note purchased by any Purchaser under this Agreement.
"TRANSFERS" shall have the meaning assigned to it in paragraph 6H(i)
of this Agreement.
"UNRELATED ASSETS" shall have the meaning assigned to it in paragraph
6A of this Agreement.
"UNRESTRICTED SUBSIDIARY" shall mean, at any time, any Subsidiary
other than a Restricted Subsidiary.
"VOTING STOCK" shall mean, with respect to any corporation, any shares
of stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
"WAIVER NOTICE" shall have the meaning assigned to it in paragraph
4E(i) of this Agreement.
"WHOLLY-OWNED SUBSIDIARY" shall mean any corporation 100% of the total
combined voting power of all classes of Voting Stock of which shall, at the time
as of which any determination is being made, be beneficially owned by the
Company either directly or through Wholly-Owned Subsidiaries.
10C. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Where the character or
amount of any asset or liability or item of income or expense, or any
consolidation or other accounting computation is required to be made for any
purpose hereunder, it shall be done in accordance with GAAP as in effect on the
date of, or at the end of the period covered by, the financial statements from
which such asset, liability, item of income, or item of expense, is derived, or,
in the case of any such computation, as in effect on the date as of which such
computation is required to be determined; provided, however, that if any term
defined herein includes or excludes amounts, items, or concepts that would not
be included in or excluded from such term if such term were defined with
reference solely to GAAP, such term will be deemed to include or exclude such
amounts, items or concepts as set forth herein.
11. MISCELLANEOUS.
11A. NOTE PAYMENTS. The Company agrees that, so long as any Purchaser
shall hold any Note, it will make payments of principal of, interest on and any
Yield-Maintenance Amount payable with respect to such Note by wire transfer of
immediately available funds for credit (not later than 12:00 noon, New York City
time, on the date due) to such Purchaser's account or accounts as specified in
the Purchaser Schedule attached hereto, or such other account or accounts in the
United States as such Purchaser may designate in writing, notwithstanding any
contrary provision herein or in any Note with respect to the place of payment.
Each Purchaser agrees that, before disposing of any Note, such Purchaser will
make a notation thereon (or on a schedule attached thereto) of all principal
payments previously made thereon and of the date to which interest thereon has
been paid. The Company agrees to afford the benefits of this paragraph 11A to
any Transferee which shall have made the same agreement as each Purchaser has
made in this paragraph 11A.
11B. EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save each Purchaser and
any Transferee harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with such transactions, including (i) all
document production and duplication charges and the reasonable fees and expenses
of any special counsel engaged by such Purchaser or such Transferee in
connection with this Agreement, the transactions contemplated hereby and any
subsequent proposed modification, amendment or waiver of, or proposed consent
under, this Agreement or the Notes, whether or not such proposed modification,
amendment or waiver shall be effected or proposed consent granted, and (ii) the
costs and expenses, including reasonable attorneys' fees, incurred by such
Purchaser or such Transferee in enforcing or defending (or determining whether
or how to enforce or defend) any rights under this Agreement or the Notes or in
responding to any subpoena or other legal process or informal investigative
demand issued in connection with this Agreement or the transactions contemplated
hereby or by reason of such Purchaser's or such Transferee's having acquired any
Note, including without limitation costs and expenses (including the costs and
expenses of financial advisors) incurred in any bankruptcy case or in connection
with any work-out or restructuring of the transactions contemplated by this
Agreement and the Notes. The Company will pay, and will save each holder of a
Note harmless from all claims in respect of any fees, costs or expenses, if any,
of brokers and finders (other than those retained by any such holder). The
obligations of the Company under this paragraph 11B shall survive the transfer
of any Note or portion thereof or interest therein by any Purchaser or any
Transferee and the payment of any Note.
11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company shall obtain the written consent
to such amendment, action or omission to act, of the Required Holders except
that, without the written consent of the holder or holders of all Notes at the
time outstanding, no amendment to this Agreement shall change the maturity of
any Note, or change the principal of, or the rate or time of payment of interest
on or any Yield- Maintenance Amount payable with respect to any Note, or affect
the time, amount or allocation of any prepayments, or change the proportion of
the principal amount of the Notes required with respect to any consent,
amendment, waiver or declaration. Each holder of any Note at the time or
thereafter outstanding shall be bound by any consent authorized by this
paragraph 11C, whether or not such Note shall have been marked to indicate such
consent, but any Notes issued thereafter may bear a notation referring to any
such consent. No course of dealing between the Company and the holder of any
Note nor any delay in exercising any rights hereunder or under any Note shall
operate as a waiver of any rights of any holder of such Note.
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES.
The Notes are issuable as registered notes without coupons in denominations of
at least $100,000, except as may be necessary to reflect any principal amount
not evenly divisible by $100,000. The Company shall keep at its principal office
a register in which the Company shall provide for the registration of Notes and
of transfers of Notes. Upon surrender for registration of transfer of any Note
at the principal office of the Company, the Company shall, at its expense,
execute and deliver one or more new Notes of like tenor and of a like aggregate
principal amount, registered in the name of such Transferee or Transferees. At
the option of the holder of any Note, such Note may be exchanged for other Notes
of like tenor and of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Note to be exchanged at the principal office of
the Company. Whenever any Notes are so surrendered for exchange, the Company
shall, at its expense, execute and deliver the Notes which the holder making the
exchange is entitled to receive. Every Note surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder of such Note or such
holder's attorney duly authorized in writing. Any Note or Notes issued in
exchange for any Note or upon transfer thereof shall carry the rights to unpaid
interest and interest to accrue which were carried by the Note so exchanged or
transferred, so that neither gain nor loss of interest shall result from any
such transfer or exchange. Upon receipt of written notice from the holder of any
Note of the loss, theft, destruction or mutilation of such Note and, in the case
of any such loss, theft or destruction, upon receipt of such holder's unsecured
indemnity agreement, or in the case of any such mutilation upon surrender and
cancellation of such Note, the Company will make and deliver a new Note, of like
tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment
for registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of, interest on and any Yield-Maintenance Amount
payable with respect to such Note and for all other purposes whatsoever, whether
or not such Note shall be overdue, and the Company shall not be affected by
notice to the contrary. Subject to the preceding sentence, the holder of any
Note may from time to time grant participations in such Note to any Person on
such terms and conditions as may be determined by such holder in its sole and
absolute discretion, provided that any such participation shall be in a
principal amount of at least $100,000.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All
representations and warranties contained herein or made in writing by or on
behalf of the Company in connection herewith shall survive the execution and
delivery of this Agreement and the Notes, the transfer by any Purchaser of any
Note or portion thereof or interest therein and the payment of any Note, and may
be relied upon by any Transferee, regardless of any investigation made at any
time by or on behalf of any Purchaser or any Transferee. Subject to the
preceding sentence, this Agreement and the Notes embody the entire agreement and
understanding between the Purchasers and the Company and supersede all prior
agreements and understandings relating to the subject matter hereof.
11G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in
this Agreement contained by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not.
11H. NOTICES. All written communications provided for hereunder shall
be sent by first class mail, by nationwide overnight delivery service (with
charges prepaid) or by facsimile transmission (confirmed by delivery by
nationwide overnight delivery service sent on the day of the sending of such
facsimile transmission) and (i) if to any Purchaser, addressed to such Purchaser
at the address specified for such communications in the Purchaser Schedule
attached as Annex 1 hereto, or at such other address as such Purchaser shall
have specified to the Company in writing, (ii) if to any other holder of any
Note, addressed to such other holder at such address as such other holder shall
have specified to the Company in writing or, if any such other holder shall not
have so specified an address to the Company, then addressed to such other holder
in care of the last holder of such Note which shall have so specified an address
to the Company, and (iii) if to the Company, addressed to it at 2950 Lake Emma
Road, Lake Mary, Florida 32746, Attention: Stuart Mont (facsimile no.
407-444-0559), with a copy (which shall not constitute notice) to Stroock &
Stroock & Lavan, 180 Maiden Lane, New York, New York 10038, Attention: Theodore
S. Lynn, Esq. (facsimile no. 212-806-6006), or at such other address as the
Company shall have specified to the holder of each Note in writing; provided,
however, that any such communication to the Company may also, at the option of
the holder of any Note, be delivered by any other means either to the Company at
its address specified above or to any officer of the Company.
11I. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or
the Notes to the contrary notwithstanding, any payment of principal of or
interest on any Note that is due on a date other than a Business Day shall be
made on the next succeeding Business Day. If the date for any payment is
extended to the next succeeding Business Day by reason of the preceding
sentence, the period of such extension shall be excluded in the computation of
the interest payable on such Business Day.
11J. DISCLOSURE TO OTHER PERSONS. For purposes of this paragraph 11J,
"CONFIDENTIAL INFORMATION" means information delivered to the Purchasers or
their representatives by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement or the Subsidiary Guaranty that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified when received by
the Purchasers as being confidential information of the Company or such
Subsidiary, provided that such term does not include information that (i) was
publicly known or otherwise known to a Purchaser prior to the time of such
disclosure, (ii) subsequently becomes publicly known through no act or omission
by a Purchaser or any Person acting on a Purchaser's behalf, (iii) otherwise
becomes known to a Purchaser other than through disclosure by the Company or any
Subsidiary or (iv) constitutes financial statements delivered to the holders of
the Notes pursuant to this Agreement that are otherwise publicly available. Each
Purchaser will use its best efforts to maintain the confidentiality of such
Confidential Information in accordance with procedures adopted by it in good
faith to protect confidential information of third parties delivered to it. The
Company acknowledges that each Purchaser may deliver copies of any such
Confidential Information delivered to it, and disclose any other information
disclosed to it, in connection herewith or the Subsidiary Guaranty to
(i) its directors, officers, employees, agents and
professional consultants who have been informed of the
confidential nature of the information provided,
(ii) any other Noteholder,
(iii) any Person to which it offers to sell any Note held by
it or any part thereof if such Person has agreed to be bound by the
provisions of this paragraph 11J,
(iv) any Person to which it sells or offers to sell a
participation in all or any part of any Note held by it if such Person
has agreed to be bound by the provisions of this paragraph 11J,
(v) any federal or state regulatory authority having
jurisdiction over it,
(vi) the National Association of Insurance
Commissioners or any similar organization, or any nationally
recognized rating agency that requires access to information about its
investment portfolio, or
(vii) any other Person to which such delivery or
disclosure may be necessary or appropriate
(a) in compliance with any law, rule, regulation
or order applicable to it,
(b) in response to any subpoena or other legal
process,
(c) in connection with any litigation to which
it is a party, or
(d) in connection with the enforcement or
protection of its rights and remedies under the
Notes, this Agreement or the Subsidiary Guaranty.
Each holder of a Note, by its acceptance of a Note, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this paragraph 11J
as though it were a party to this Agreement.
11K. SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to any Purchaser or to the Required Holders, the
determination of such satisfaction shall be made by such Purchaser or the
Required Holders, as the case may be, in the sole and exclusive judgment
(exercised in good faith) of the Person or Persons making such determination.
11L. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF
THE STATE OF NEW YORK.
11M. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11N. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11O. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
11P. SEVERALTY OF OBLIGATIONS. The sales of Notes to the Purchasers
are to be several sales, and the obligations of the Purchasers under this
Agreement are several obligations. Except as provided in paragraph 3F hereof, no
failure by any Purchaser to perform its obligations under this Agreement shall
relieve any other Purchaser or the Company of any of its obligations hereunder,
and no Purchaser shall be responsible for the obligations of, or any action
taken or omitted by, any other Purchaser hereunder.
[Remainder of page intentionally blank. Next page is signature page.]
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterparts of this letter and return the same to
the Company, whereupon this letter shall become a binding agreement among the
Company and the Purchasers.
Very truly yours,
RECOTON CORPORATION
By /S/ STUART MONT
Name: Stuart Mont
Title: COO, CFO, Executive V.P. -
Operations, Secretary
The foregoing Agreement is
hereby accepted as of the
date first above written.
[EXECUTED BY EACH OF
THE FOLLOWING PURCHASERS]
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By /S/ KEVIN J. KRASKA
Name: Kevin J. Kraska
Title: Vice President
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By /S/ DANIEL C. BUDDE
Name: Daniel C. Budde
Title: Investment Officer
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
By /S/ M. M. STAPLETON
Name: M. M. Stapleton
Title: Vice President
MELLON BANK, N.A., SOLELY IN ITS CAPACITY AS The decision to participate
TRUSTEE FOR THE LONG TERM INVESTMENT TRUST, in this investment, any
(AS DIRECTED BY JOHN HANCOCK MUTUAL LIFE INSURANCE representations made herein
COMPANY), AND NOT IN ITS INDIVIDUAL CAPACITY by the participant, and any
actions taken hereunder by
the participant has/have
been made solely at the
discretion of the
investment fiduciary who
has sole investment
discretion with respect to
this investment.
[SEAL]
By /S/ ALLAN M. SEAMAN
Name: Allan M. Seaman
Title: Associate Counsel
JOHN HANCOCK LIFE INSURANCE COMPANY OF AMERICA
By /S/ M. M. STAPLETON
Name: M. M. Stapleton
Title: Vice President
MELLON BANK, N.A., SOLELY IN ITS CAPACITY AS The decision to participate
TRUSTEE FOR THE NYNEX MASTER PENSION TRUST, in this investment, any
(AS DIRECTED BY JOHN HANCOCK MUTUAL LIFE INSURANCE representations made herein
COMPANY), AND NOT IN ITS INDIVIDUAL CAPACITY by the participant, and any
actions taken hereunder by
the participant has/have
been made solely at the
direction of the
investment fiduciary
who has sole investment
discretion with respect to
this investment
[SEAL]
By /S/ ALLAN M. SEAMAN
Name: Allan M. Seaman
Title: Associate Counsel
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 28, 1997
appearing in this Annual Report on Form 10-K of Recoton Corporation for the year
ended December 31, 1996.
/s/ Cornick Garber, Sandler, LLP
CORNICK, GARBER & SANDLER, LLP
New York, New York
March 28, 1997
<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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 29,130
<SECURITIES> 0
<RECEIVABLES> 104,397
<ALLOWANCES> 3,119
<INVENTORY> 106,987
<CURRENT-ASSETS> 258,264
<PP&E> 42,703
<DEPRECIATION> 12,125
<TOTAL-ASSETS> 334,733
<CURRENT-LIABILITIES> 99,457
<BONDS> 101,753
0
0
<COMMON> 2,520
<OTHER-SE> 125,954
<TOTAL-LIABILITY-AND-EQUITY> 334,733
<SALES> 331,700
<TOTAL-REVENUES> 331,971
<CGS> 206,715
<TOTAL-COSTS> 206,715
<OTHER-EXPENSES> 107,935
<LOSS-PROVISION> 1,259
<INTEREST-EXPENSE> 4,946
<INCOME-PRETAX> 11,116
<INCOME-TAX> 2,736
<INCOME-CONTINUING> 8,380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,380
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
</TABLE>
