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, 1997
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 (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2950 LAKE EMMA ROAD, LAKE MARY, FLORIDA 32746
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (407) 333-8900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.20 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
reporting requirements for the past 90 days. Yes X No ______
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:
$226,018,737 based on the closing price on the Nasdaq Stock Market of $23.25 as
of March 16, 1998. For purposes of this computation, all executive officers and
directors of the Registrant have been deemed to be affiliates. Such
determination should not be deemed to be an admission that such persons are, in
fact, affiliates of the Registrant.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date: 11,581,485 shares of
Common Stock as of March 16, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive Proxy Statement to be filed with the Securities and Exchange
Commission (the "Commission") with respect to the registrant's Annual Meeting of
Shareholders to be held in 1998 (the "1998 Proxy Statement") is incorporated by
reference into Part III of this Form 10-K.
<PAGE>
PART I
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF THAT TERM IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
(THE ACT) (SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934). ADDITIONAL WRITTEN OR ORAL FORWARD-LOOKING
STATEMENTS MAY BE MADE BY THE COMPANY FROM TIME TO TIME, IN FILINGS WITH THE
SECURITIES EXCHANGE COMMISSION, PRESS RELEASES OR OTHERWISE. STATEMENTS
CONTAINED HEREIN THAT ARE NOT HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS
MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE ACT. FORWARD-LOOKING
STATEMENTS MAY INCLUDE, BUT ARE NOT LIMITED TO, PROJECTIONS OF REVENUE, INCOME
OR LOSS AND CAPITAL EXPENDITURES, STATEMENTS REGARDING FUTURE OPERATIONS,
FINANCING NEEDS, ANTICIPATED COMPLIANCE WITH FINANCIAL COVENANTS IN LOAN
AGREEMENTS, PLANS FOR ACQUISITION OR SALE OF ASSETS OR BUSINESSES AND
CONSOLIDATION OF OPERATIONS OF NEWLY ACQUIRED BUSINESSES, AND PLANS RELATING TO
PRODUCTS OR SERVICES OF THE COMPANY, ASSESSMENTS OF MATERIALITY, PREDICTIONS OF
FUTURE EVENTS AND THE EFFECTS OF PENDING AND POSSIBLE LITIGATION, AS WELL AS
ASSUMPTIONS RELATING TO THE FOREGOING. IN ADDITION, WHEN USED IN THIS
DISCUSSION, THE WORDS "ANTICIPATES," "BELIEVES," "ESTIMATES," "EXPECTS,"
"INTENDS," "PLANS" AND VARIATIONS THEREOF AND SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD- LOOKING STATEMENTS.
FORWARD-LOOKING STATEMENTS ARE INHERENTLY SUBJECT TO RISKS AND
UNCERTAINTIES, SOME OF WHICH CANNOT BE PREDICTED OR QUANTIFIED BASED ON CURRENT
EXPECTATIONS. CONSEQUENTLY, FUTURE EVENTS AND ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE SET FORTH IN, CONTEMPLATED BY, OR UNDERLYING THE
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS ANNUAL REPORT, OTHER FILINGS, PRESS
RELEASES OR OTHERWISE. STATEMENTS IN THIS ANNUAL REPORT, PARTICULARLY IN "ITEM
1. BUSINESS", "ITEM 3. LEGAL PROCEEDINGS", THE NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS AND "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," DESCRIBE CERTAIN FACTORS, AMONG OTHERS,
THAT COULD CONTRIBUTE TO OR CAUSE SUCH DIFFERENCES. OTHER FACTORS THAT COULD
CONTRIBUTE TO OR CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
UNANTICIPATED DEVELOPMENTS IN ANY ONE OR MORE OF THE FOLLOWING AREAS: THE
RECEPTIVITY OF CONSUMERS TO NEW CONSUMER ELECTRONICS TECHNOLOGIES, THE RATE AND
CONSUMER ACCEPTANCE OF NEW PRODUCT INTRODUCTIONS, COMPETITION, THE NUMBER AND
NATURE OF CUSTOMERS AND THEIR PRODUCT ORDERS, PRICING, PRODUCTION BY EXCLUSIVE
THIRD PARTY VENDORS, FOREIGN MANUFACTURING, SOURCING AND SALES (INCLUDING
FOREIGN GOVERNMENT REGULATION, TRADE AND IMPORTATION CONCERNS, FLUCTUATION IN
EXCHANGE RATES) AND ADOPTION OF A UNIFORM CURRENCY IN CERTAIN EUROPEAN
COUNTRIES, BORROWING COSTS, CHANGES IN TAXES DUE TO CHANGES IN THE MIX OF U.S.
AND NON-U.S. REVENUE, PENDING OR THREATENED LITIGATION AND INVESTIGATIONS, THE
AVAILABILITY OF KEY PERSONNEL, THE OPERATION OF MANAGEMENT INFORMATION AND
COMPUTER SYSTEMS AT THE COMPANY'S CUSTOMERS AND VENDORS, ESPECIALLY AS IT
RELATES TO THE YEAR 2000 ISSUE, AND OTHER RISKS FACTORS WHICH MAY BE DETAILED
FROM TIME TO TIME IN THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISIONS TO
THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNEXPECTED
EVENTS.
ITEM 1. BUSINESS
OVERVIEW
Recoton Corporation was incorporated in New York State in 1936. By itself
and through its subsidiaries (collectively, Recoton or the Company), it is a
worldwide marketer and producer of consumer electronic products 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, multimedia speakers, a complete line of car audio
products (including in-dash, CD and cassette players, amplifiers, speakers and
installation accessories) and other audio products; 900 Megahertz (MHz) and
various other RF (radio frequency) wireless technology products; and other
highly functional accessories for audio, car audio, camcorder, video game,
cellular and standard telephone, home office, computer, multimedia, music, and
video products. The Recoton family of products are sold under the AAMP(TM),
ADVENT(TM), AMBICO(TM), AMPERSAND(TM), AR(TM)/ACOUSTIC RESEARCH(TM),
DISCWASHER(TM), HECO(TM), INTERACT(TM), JENSEN(TM), MACAUDIO(TM), MAGNAT(TM),
NHT(TM) (NOW HEAR THIS), PARSEC(TM), PERIPHERAL(TM), PHASE LINEAR(TM),
RECOTON(TM), REMBRANDT(TM), ROSS(TM), SOLE CONTROL(TM) SOUND QUEST(TM), and
STINGER(TM) brand names,(TM) among others.
Recoton has significantly expanded its product lines through selected
acquisitions, research efforts and product development. Recoton's presence in
Europe was enhanced in February 1997 with the acquisition of Tambalan Limited
(Tambalan), a United Kingdom corporation selling headphones and other consumer
electronic accessory products under the name "Ross" in various European Union
countries. The annual sales of Tambalan for the year prior to the acquisition
were approximately $8 million. In November, Recoton acquired AAMP of Florida,
Inc., d/b/a AAMP of America (AAMP), a leading car audio accessories company
whose products are sold under the Stinger, AAMP and Peripheral brand names.
AAMP's annual sales for the previous year were approximately $17 million. In
December, Recoton acquired selected assets of Capa Industries, Inc. (Capa), an
audio electronic design and manufacturing company based in Valencia, California.
Capa's annual sales for the previous year were approximately $1.7 million.
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 entree into hi-fidelity, high-performance loudspeaker manufacturing,
design and marketing 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 (STD), a Hong
Kong-based company, and with 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 approximately
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 HydroBath(R), a non-contact multimedia CD, CD-ROM and DVD
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), plasma
screen televisions, new satellite TV delivery systems such as direct broadcast
satellite (DBS) systems and the new digital versatile disc (DVD) systems, which
deliver ultra-high quality pictures and stereo sound. These advances should
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, speakers,
multimedia and electronic game products and other aftermarket enhancements. The
market for these products is broad and highly fragmented, ranging from low-cost
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, computer and office supply superstores,
mass merchants, catalog showrooms, drug chains, home centers, department stores,
direct mail merchants, TV shopping channels, warehouse clubs and audio, music
and video retailers. 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. Game
products manufacturers, such as Sony and Nintendo, sell game platforms (e.g.,
Sony PlayStation(R) and Nintendo 64(R)) as low profit vehicles to increase sales
of accessories (such as joy sticks and other products which both they and the
Company sell) and software (which the Company does not sell).
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, speakers, multimedia products and electronic game products,
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 that 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 4000 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 $5,000.
Recoton aims to continually expand its product offerings to remain at the
forefront of the consumer electronics after 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 and PARSEC 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 RECOTON brand name. Products include cables and
connectors, AC/DC power adapters, inverters, microphones, surge
protection devices, foreign voltage adapters/converters and blank
audio cassettes. In addition, the Company offers a complete line of
high-end accessories for home theater installation under the ACOUSTIC
RESEARCH brand name. These products include a variety of video, audio,
speaker and digital cables, connectors, splitters, wall plates and
hookup kits.
O CAMCORDER ACCESSORIES. A comprehensive line of camcorder accessory
products is offered under the AMBICO brand name. These products
include tripods, batteries, carry cases for camcorders and cameras,
chargers/dischargers, cables, lights and microphones.
O CAR AUDIO PRODUCTS. Various audio electronic products for the
automobile and marine aftermarket are sold under the ADVENT
MOBILE(TM), JENSEN, ROAD GEAR(TM) and PHASE LINEAR 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. A line of
high quality car audio accessory products is offered under the
AAMP/STINGER, ROADGEAR, PERIPHERAL and SOUND QUEST 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.
O CARRYING AND STORAGE CASES. A line of carry cases for CDs and audio
cassettes is offered under the DISCWASHER and PERFECTCASE(TM) brand
names. The lines include CD wallets, CD/player cases, CD cases, and
audio cassette cases. These cases are available in many colors,
designs and fabrics.
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
HydroBath non-contact hydrodynamic multimedia cleaner for CDs, CD-ROM
and DVD, CD laser lens cleaners, 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 and the new personal communication system (PCS) market is
offered under the RECOTON brand name. Products, including nickel
cadmium, lithium ion and nickel metal-hydride batteries, battery
eliminators, travel chargers, desktop 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. An extensive computer accessory
product line is offered under the INTERACT brand name. These products
include joy sticks, controllers, wheels, 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. Shielded computer speakers are sold under the ADVENT, JENSEN
and AR brand names.
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 brand name. These products include joysticks,
controllers, game steering wheels, cleaners, maintenance kits,
replacement AC power adapters, switches, control pads, lights, surge
protectors, screen magnifiers and carry bags for hand-held games. Sony
and Nintendo have granted licenses to the Company to use certain of
their marks in connection with the sale of certain of the Company's
products..
O HEADPHONES AND SPEAKERS. A full line of stereo headphones and mini-
and bookshelf-sized stereo speakers is offered under the 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, as well as patented noise reaction headphones.
Mini- and bookshelf-sized stereo speakers, in both amplified and
nonamplified versions, are offered for use with portable CD and
cassette players and computers.
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 MAGNAT and HECO
brand names. Each of the speaker lines is positioned to reach a
different target market segment. In addition, there are a wide variety
of wireless 900 MHz amplified speakers for indoor and outdoor use,
speakers for use with computers and a variety of portable 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 863MHz, 433 MHz and 2.45 GHz 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 JENSEN,
ADVENT and RECOTON brand names. 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 and to
program multiple remotes into a single remote is offered under the
SOLE CONTROL, JENSEN 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 consumer electronic products. In 1996, the Company
introduced a new patented advanced universal remote control, combining
RF wireless technology and IR (infrared) technology. 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.
In addition, a full line of accessories for satellite systems is
offered under the RECOTON brand name. These include installation kits
and parts, cables, connectors, splitters, surge protectors and various
RF products including remote control and video signal
transmitter/receivers.
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 consumer electronics, computer and office supply
superstores, mass merchants, catalog showrooms, drug chains, home centers,
department stores, direct mail merchants, TV shopping channels, warehouse clubs
and audio, music and video retailers. 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 global
marketplace. 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 OEM customers around
the world. Through its Canadian subsidiary, Recoton markets and distributes
products to Canadian retailers. Through its German, Italian, U.K. and Hong Kong
subsidiaries, Recoton markets and distributes 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
competitive, it is normal to expect that various retailers (including chains)
may 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 audio, video, CD and telephone accessories, loudspeakers and Recoton's
wireless products. The Company also has two factory outlet stores (in Florida
and Arizona).
Although certain of Recoton's customers have contributed significantly to
Recoton's sales, only one customer represented more than 10% of its sales in any
of the last three years. In 1997, sales to Wal-Mart represented approximately
$57 million, or 11% of the total sales for the year. Historically, the Company's
sales and earnings have been higher in the second half of each year, which
difference has increased in the past two years.
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, 1995, 1996 and 1997.
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 "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 certain 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
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. The Company also
advertises and provides support via a number of Internet web sites, including
the following:
Acoustic Research www.acoustic-research.com
AAMP www.stinger-aamp.com
Advent www.poweredpartners.com
InterAct www.interact-acc.com
www.gameshark.com
Jensen www.jensenaudio.com
Magnat www.magnat.de
NHT www.nhthifi.com
Phase Linear www.phase-linear.com
Recoton www.recoton.com
Recoton Financial www.rcot.com
Ross www.rosscp.com
Sole Control www.solecontrol.com
Recoton's products are sold worldwide by Recoton's employed sales
executives and regional managers and independent sales representative
organizations and exclusive distributors. 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 14 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 AAMP of Florida, Inc., Car audio accessories marketed under the
d/b/a AAMP of America, tradenames STINGER and PERIPHERAL in the
Inc. United States
1997 Capa Industries, Inc. Audio electronic design and manufacturing
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 A German brand of home audio loudspeakers
sold worldwide
1996 International Jensen Loudspeakers and other audio products for
Incorporated and home and automotive aftermarket use
subsidiaries worldwide
1995 STD Holding Limited Video and computer game joysticks,
and subsidiaries controllers and accessories marketed
primarily under the trade name INTERACT and
other names worldwide
1995 Ampco Industries, Products for car stereo installation
Inc., d/b/a Ampersand operations
1994 Sound Quest, Inc. Car stereo installation and accessory
products
1994 Infrared Research Universal remote controls marketed under
Laboratories, Inc. the trade name SOLECONTROL
1992 Ambico, Inc. Camcorder and video accessories
1991 Discwasher Inc. Consumer electronics maintenance products
1991 Parsec Delaware Ltd. AM/FM radio and TV antennas
1989 All Channel Products Inc. Indoor television antennas marketed under
the trade name REMBRANDT
1989 Calibron, Inc. Stereo headphones and consumer electronics
accessories
JENSEN ACQUISITION
In August 1996, a Recoton subsidiary merged with International Jensen
Incorporated, a Delaware corporation, which was then 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,
MACAUDIO and MAGNAT brand names. Its sales for the last fiscal year prior to the
acquisition, excluding the sales by the original equipment manufacturing (OEM)
business (which was not acquired), were approximately $150 million.
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.
Substantially all of RAC's U.S. home audio speaker assembly, warehousing
and research and development operations (carried on through the newly
reorganized subsidiary Recoton Home Audio, Inc.) are in Benicia, California. Its
corporate headquarters and mobile electronics operations were relocated to Lake
Mary, Florida in late 1997. Recoton Audio's subsidiaries have operations in
Germany, Italy, the United Kingdom and Japan.
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, the former president of Jensen and, between August 1996 and
August, 1997, a director and officer of Recoton.
Recoton Audio and IJI Acquisition are parties to a number of agreements,
including a Shared Facilities Agreement, a Non-Competition Agreement and a
License Agreement. The Shared Facilities Agreement governs the use of facilities
in Schiller Park leased by Recoton Audio but also used by IJI Acquisition; such
agreement runs through September 30, 2000, although it may be terminated by IJI
Acquisition after October 1, 1999 upon payment of an early termination fee. 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 August 1996 License Agreement, Recoton Audio granted
IJI Acquisition a ten-year, worldwide 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 loudspeakers 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.
AAMP ACQUISITION
In November 1997, a Recoton subsidiary merged into AAMP of Florida, Inc., a
Florida corporation. AAMP is a leading car audio accessories company whose
products are sold under the STINGER and PERIPHERAL brands, among others. AAMP's
1996 sales were approximately $17 million (unaudited). In consideration for
their shares in AAMP, the former stockholders of AAMP received 169,706 Recoton
Common Shares, valued at approximately $2.3 million. The Company retained
substantially all of the employees of AAMP, including management. Because of
AAMP's expertise in tele-marketing its products to installation oriented car
audio retailers, Recoton intends to utilize AAMP's telemarketing expertise to
distribute a variety of other product lines.
CAPA ACQUISITION
In December 1997, a Recoton subsidiary acquired substantially all of the
assets of Capa Industries, Inc., a debtor in possession. Capa was an audio
electronic design and manufacturing company based in Valencia, California which
was under contract with a Recoton subsidiary to provide certain development
related services. Recoton understands that Capa's annual sales for the prior
fiscal year were approximately $1.7 million, of which approximately $1.1 million
represented transactions with the Company. The $1.1 million cost of the Capa
acquisition is comprised of a nominal cash payment, forgiveness of pre-petition
and debtor-in-possession financing owed by Capa to Recoton aggregating
approximately $873,000, costs related to lease buyouts and consolidation into
the Company's facilities and closing costs. The principals of Capa were engaged
by the Recoton subsidiary after such acquisition. In 1998 Recoton expects to
integrate the Capa operations into its engineering and manufacturing facilities
in Benicia, California to provide the Company with "state of the art" electronic
components.
RESEARCH AND DEVELOPMENT
Recoton maintains research and development facilities at its Florida,
California, Hong Kong and Illinois 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 recognition of the Company's brand names.
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 been expanding its engineering department to
increase its in-house development capabilities.
Recoton has focused much of its R&D efforts on developing new and advanced
home and car audio loudspeaker systems and audio and video products based on
its 900 MHz and various other frequencies of RF 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. In addition, Recoton has established a
digital engineering group to support its product lines so that the Company can
be well positioned to take advantage of the expected digital revolution in
consumer electronics.
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 1998 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, Sony
PlayStation and PCs.
In 1995, 1996 and 1997, Recoton's expenditures for research and development
were approximately $1,608,000, $2,897,000 and $4,245,000, respectively, and for
product and packaging design were approximately $1,214,000, $1,331,000 and
$2,472,000, respectively. The growth in R&D expenditures from 1995 to 1996 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 and from 1996 to 1997 is primarily reflective of a full year of
Recoton Audio operations.
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 and Taiwan,
for a majority of its products or components of such products. This includes
components for loudspeakers and certain other car audio products, acquired with
the Jensen acquisition, some of which were originally sourced in the United
States but which have been re-sourced to Asian vendors. 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, silk screening, packaging and electronics assembly. Operations
conducted at the facilities in California include the assembly of home speakers
sold under the NHT, AR/Acoustic Research, Jensen and Advent brands and speakers
for the Company's OEM customers.
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 such as
computer speakers and remote controls. 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 outside of the United States.
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 offshore 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 Nintendo and Sony with
respect to video game products; Gemini/Magnavox, Philips, Thomson/RCA and Sony
with respect to various accessories; Bose, Boston Acoustics, Infinity, JBL and
Polk with respect to home speakers; and Kenwood, Pioneer, Audiovox 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 company and brand name
reputation, product variety and quality, customer service and support, product
reliability, the 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 in
the United States and Canada under the AAMP, ADVENT, AMBICO, AMPERSAND,
AR/ACOUSTIC RESEARCH, DISCWASHER, INTERACT, JENSEN, NHT (NOW HEAR THIS), PARSEC,
PERIPHERAL, PHASE LINEAR, RECOTON, REMBRANDT, SOLE CONTROL, SOUND QUEST, and
STINGER brand names, among others . It sells products overseas under the HECO,
MAGNAT, MACAUDIO and ROSS brand names, in addition to sales under certain of
the other brand names used in the United States. As a result of its own product
development, recent acquisitions and exclusive licenses, Recoton has many United
States and foreign patents, including patents on its 900 MHz wireless products,
speakers, headphones, amplifiers, non-contact hydrodynamic multimedia compact
disc cleaning product, CD-to-cassette adapter, cassette head demagnetizer,
cassette head cleaner, antennas and an adapter to eliminate tangles in coiled
telephone cords. Additionally, Recoton has various patents pending including
applications relating to speakers, surge protectors, remote controls, car
stereos and battery terminals.
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.
REGULATORY AND ENVIRONMENTAL MATTERS
With operations in numerous jurisdictions, the Company is subject to the
laws of general business applicability of many national, state and local
governments. Under various national, state and local environmental laws and
regulations, a current or previous owner or operator (including a lessee) of
real property may become liable for the cost of removal or remediation of
hazardous substances on such property. Such legal requirements often impose
liability without regard to fault. Although the Company has not been notified
of, and is not aware of, any environmental liability in connection with its
leased and owned facilities, there can be no assurance that the Company will not
be required to bear any such costs in the future.
EMPLOYEES
At December 31, 1997, Recoton had approximately 4,100 employees worldwide,
of which approximately 1,200 resided in the United States or Canada,
approximately 2,800 resided in Hong Kong, the People's Republic of China or
Japan and approximately 120 resided in Germany, Italy or England. The number of
employees in the People's Republic of China fluctuates significantly on a
seasonal basis, between approximately 2,000 and 3,000. Of the U.S. and Canadian
employees, approximately 105 were engaged in sales and marketing, 45 in
engineering, research and development, 750 in operations, manufacturing and
warehousing and 300 in management, support services and administration.
Approximately 500 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
and approximately 34 employees in Canada are covered by a collective bargaining
agreement with the National Automobile, Aerospace, Transportation and General
Workers Union, which was entered into in 1997 and runs through August 10, 2000.
The negotiation and development of the initial Canadian contract went smoothly
and the Company believes it has a positive relationship with both the union and
its members. This unionization did not result in a material impact on wages.
Recoton considers its employee relations to be good.
DIRECTORS AND EXECUTIVE OFFICERS OF RECOTON CORPORATION
The following table sets forth the names, ages and positions of the
directors and executive officers of Recoton Corporation as of December 31, 1997:
NAME AGE POSITION
Robert L. Borchardt 59 Director; President, Co-Chairman of the
Board, Chief Executive Officer
Herbert H. Borchardt 91 Director; Co-Chairman of the Board
Stuart Mont 57 Director; Chief Operating Officer, Chief
Financial Officer, Executive Vice
President-Operations, Secretary
Peter Wish 62 Director; Executive Vice President-
Administration
Peter E. Dayton 61 Senior Vice President-National Sales
Terrence O'Flynn 53 Senior Vice President-OEM Sales
Dennis Wherry 53 Senior Vice President-Operations
Craig W. Dykes 39 Vice President-Information Systems
Peter M. Ildau 60 Vice President-Corporate Communications
Joseph H. Massot 53 Director; Vice President, Treasurer,
Principal Accounting Officer, Assistant
Secretary
William T. McGreevy 54 Vice President-Engineering
Richard D. Miller 36 Vice President-Compliance
Kevin J. Murphy 47 Vice President-Marketing
Stephen Chu 40 Director; President of STD Holding Limited
George Calvi 47 Director
Paul Feffer 76 Director
Irwin S. Friedman 64 Director
Joseph M. Idy 57 Director
Ronald E. McPherson 68 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 began 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 Alliance (EIA), is on the Executive Board and on the Board of
Governors of the Electronic Industries Alliance 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 1993. He has also served as Chief Financial Officer
since 1992, as Secretary since 1989 and as Executive Vice President-Operations
since 1992. He served as a Vice President from 1978 until 1989, as Treasurer
from 1975 until 1989 and as Senior Vice President from 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
1993. He served as Vice President-Sales from 1989 until 1993, as National Sales
Manager from 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 1996.
He was Senior Vice President-Marketing from 1994 until 1996. Prior thereto, he
was Director of Marketing of the Ladies Professional Golf Association from 1993
to 1994, President and a member of the Board of Directors of Mitsubishi
Electronics America - Consumer Products Group from 1990 to 1993 and, prior
thereto, Executive Vice President of Mitsubishi Electronics America - Consumer
Products Group.
DENNIS WHERRY has served as Senior Vice President-Operations since 1993. He
served as Senior Vice President-Operations of the Calibron Division from 1991
until 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 1991.
He served as Assistant Vice President from 1989 until 1991 and as Director of
Information Systems from 1987 until 1989.
PETER M. ILDAU has served as Vice President-Corporate Communications since
1993. Between 1991 and 1993 he was Vice President-Advertising and from 1990
until 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 1991.
From 1989 to 1991 he was Director of Engineering.
RICHARD D. MILLER has served as Vice President-Compliance since 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 1996. He
served as Vice President- Purchasing from 1991 to 1996, as Director of
Purchasing from 1988 until 1991, as Assistant Vice President from 1989 until
1991 and as Regional Sales Manager from 1980 until 1988.
STEPHEN CHU has served as a director of Recoton since January 1997. He has
been President and a Managing Director of STD Holding Limited, a Hong Kong
subsidiary of the company, and of its various subsidiaries since 1990. STD was
acquired by the Company in 1995. Mr. Chu was elected President of Recoton Japan
Inc. in 1998.
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 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.
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 763,000 square feet,
including a recent 318,000 square foot warehouse addition, situated on two
near-by parcels aggregating approximately 43 acres, and includes state-of-the
art office, warehouse, manufacturing and distribution facilities.
Recoton and its subsidiaries leased the following facilities as of December
31, 1997:
<TABLE>
<CAPTION>
LOCATION Description Companies Primarily Using
------------- ----------- -------------------------
<S> <C> <C>
New York, NY Sales and corporate offices Recoton
Baltimore, MD Sales and warehouse facilities InterAct
Maitland, FL Warehouse Recoton (closed February
1998)
Ft. Lauderdale, FL Sales office Interact
Clearwater, FL Sales and warehouse facilities AAMP
Schiller Park, IL Sales, R&D, engineering and Recoton and Recoton Audio
distribution
Springfield, MO Warehouse facilities AAMP
Sparks, NV Warehouse facilities AAMP
Lake Tahoe, NV Office Christie Design
Benecia, CA Loudspeaker manufacturing, assembly, Recoton Audio
R&D, warehouse and office facilities
Chatsworth, CA Manufacturing, warehouse and office Capa
facilities
San Diego, CA R&D and assembly facility AAMP
Pickering, Ontario, Office and warehouse facilities Recoton Canada
Canada
Bolton, England Offices, sales and warehouse Tambalan/Ross
London, England Sales and warehouse Recoton (UK)
Pulheim, Germany Office and distribution facilities Magnat, MacAudio and
HECO
Bologna, Italy Offices and warehouse Recoton Italia
Milan, Italy Offices Arcona
Hong Kong, PRC Offices and R&D STD, Recoton (Far East)
and Ross HK
Tokyo, Japan Offices Recoton Japan
</TABLE>
In addition to the leased facilities noted above, a Recoton subsidiary owns
and leases manufacturing and warehousing facilities in the Shenzhen Province of
the People's Republic of China.
ITEM 3. LEGAL PROCEEDINGS.
CUSTOMS INVESTIGATION. In July 1994, agents of the United States Customs
Service, working in conjunction with the United States Attorney's office in
Orlando, Florida, seized property and business records from the Company's Lake
Mary, Florida facility pursuant to a search warrant and commenced a criminal and
civil investigation. The Company is in communication with the government
regarding such investigation, which the Company has been advised has focused on
country of origin marking, duty-free import status under the Caribbean Basin
Initiative, duties with respect to dies, molds and tooling used overseas,
commissions paid to agents, importation of merchandise subject to textile quota,
other instances of undervaluation and other miscellaneous matters. Management is
hopeful of reaching a settlement of this matter. However, based on the current
status of the Company's communication with the government, the Company is unable
to make a realistic estimate of the probable amount or probable range of amounts
for its ultimate outcome, which could be material in relation to the Company's
current operations and/or financial condition.
STOCKHOLDER SUITS. In connection with the then-proposed merger with Jensen,
certain stockholders of Jensen filed actions in the Court of Chancery of the
State of Delaware against Jensen, its directors, Recoton, RC Acquisition Sub
Inc. (RC Acquisition), IJI Acquisition, William Blair & Company and William
Blair Leveraged Capital Fund seeking to enjoin the Jensen merger and obtain
damages and other equitable relief. The Delaware Chancery Court denied in its
entirety the plaintiff's motion for a preliminary injunction. In April 1997 the
plaintiffs filed a motion to approve the dismissal of such action with
prejudice, which motion is still pending. Plaintiff's counsel is seeking
approximately $340,000 for its fees and expenses, which the Company is
contesting.
OTHER. Although the Company is also, from time to time, involved in
ordinary, routine litigation incidental to its business, it is not presently a
party to any other legal proceeding, the adverse determination of which, either
individually or in the aggregate, would be expected to have a material adverse
affect on the Company's business or financial condition.
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 since January 1, 1996:
QUARTER ENDED HIGH LOW
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........................... 17.125 13.125
June 30............................ 14.25 11.00
September 30....................... 16.50 11.50
December 31........................ 15.375 12.50
1998
March 31 (through March 26, 1998) 25.625 13.125
On March 26, 1998, the last reported sale price for the Company's Common
Shares on the Nasdaq Stock Market was $25.375 per share. As of March 26, 1998,
there were 391 record holders of the Common Shares.
DIVIDEND POLICY. 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.
SALES OF UNREGISTERED SECURITIES. Pursuant to a written agreement executed
in the Second Quarter of 1997 but effective February 25, 1997, the Company
issued 5,311 shares of its Common Stock, through certain subsidiaries of the
Company, to Gian Piero Staffa, the Admministratori of the Company's Italian
subsidiary Recoton Italia s.r.l., at $15.25 per share, the fair market value
thereof at February 25, 1997. Such issuance was in satisfaction of the
Admministratori's right under a prior agreement with RAC to be paid a portion of
his annual compensation ($81,000 with respect to calendar 1995) in stock, which
the parties agreed would henceforth be issued in stock of the Company instead of
stock of RAC.
On November 18, 1997 shares were issued to the former stockholders of AAMP
pursuant to the merger with AAMP, as follows, all of which were issued at an
exchange price of $14.7312 per share (a price computed at the average closing
price over a stated period prior to the closing date of the merger):
Micah Ansley 114,383
Diane Eberlein 42,426
Joyce Ansley 12,897
The issuances of the stock noted in the prior two paragraphs was exempt
from registration pursuant to Section (2) of the Securities Act of 1993, as
amended, as not involving a public offering based in part on certain
representations made and undertakings given by the acquiring shareholders
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, 1997 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, 1997
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.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(In thousands, except income per share data)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales...................................... $121,364 $163,973 $212,677 $331,700 $502,048
Cost of sales.................................. 72,607 97,317 129,981 206,715 306,725
------ ------- -------- -------- --------
Gross profit............................ 48,757 66,656 82,696 124,985 195,323
Selling, general and administrative expenses 36,290 49,454 62,747 109,194 175,873
------ ------- -------- -------- -------
Operating income 12,467 17,202 19,949 15,791 19,450
Interest expense............................... 1,106 608 793 4,946 12,496
Investment income ............................. (11) (479) (569) (271) (534)
---- ------- ------- ------------ -------
Income before income taxes 11,372 17,073 19,725 11,116 7,488
Income tax (provision) credit (4,050) (5,269) (4,672) (2,736) 6,093
-------- --------- --------- --------- -------
Net income.............................. $7,322 $11,804 $15,053 $8,380 $13,581
====== ======= ======= ========== =======
Income per share (1)(3)........................ $0.88 $1.13 $1.34 $0.73 $1.18
===== ===== ===== ===== =====
Weighted average shares (2)(3) 8,343 10,421 11,255 11,542 11,546
===== ====== ====== ====== ======
December 31,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(In thousands)
BALANCE SHEET DATA:
Working capital.................................. $30,454 $83,223 $96,402 $158,807 $222,388
Total assets..................................... 75,439 118,764 185,054 334,733 407,262
Short-term debt, including current portion of
long-term debt................................ 22,101 863 18,307 51,628 14,570
Long-term debt................................... 6,083 5,221 20,511 101,753 161,427
Stockholders' equity............................. 37,839 96,634 119,397 128,474 139,283
- ---------------
(1) Represents income per share on an as diluted basis. Basic income per share
was $0.92, $1.18, $1.39, $0.74 and $1.19 for 1993, 1994, 1995, 1996 and
1997 respectively. (3)
(2) As adjusted to give effect to share distributions effected in the form of
stock dividends.
(3) The income per share amounts and the number of shares used in computing
income per share amounts in 1993, 1994, 1995 and 1996 have been restated to
conform to SFAS No. 128.
</TABLE>
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,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................... 59.8 59.3 61.1 62.3 61.1
---- ------ ------ ------ ------
Gross profit................................ 40.2 40.7 38.9 37.7 38.9
Selling, general and administrative expenses 29.9 30.2 29.5 32.9 35.0
----- ------ ------ ------ ------
Operating income 10.3 10.5 9.4 4.8 3.9
Interest expense............................ 0.9 0.4 0.4 1.5 2.5
Investment income........................... -- (0.3) (0.3) - (0.1)
------ ------- ------ ----- -------
Income before income taxes 9.4 10.4 9.3 3.3 1.5
Income tax (provision) credit (3.4) (3.2) (2.2) (0.8) 1.2
------- ------ ------- ------- -----
Net income.................................. 6.0% 7.2% 7.1% 2.5% 2.7%
====== ====== ====== ====== ======
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Net sales in 1997 increased from 1996 by $170.3 million or 51.4%, to $
502.0 million. The sales increase was primarily attributable to three factors.
The first factor is the inclusion of a full year's sales of the speaker and
related product lines for Recoton Audio Corporation (RAC, f/k/a International
Jensen Incorporated), acquired in late August 1996. The second factor is growth
in the STD and InterAct video game and multi-media product lines. The third
factor is the acquisitions of Heco Audio Produkte GmbH, acquired in December
1996, Tambalan Limited, acquired in February 1997, and AAMP of America, Inc.,
acquired in November 1997. These increases were partially offset by slight
declines in sales of certain other accessory product lines.
Gross profit increased $70.3 million to $195.3 million and increased as a
percentage of net sales to 38.9% from 37.7% in 1996. The dollar increase
resulted from increased sales, of which RAC, InterAct and STD were the primary
contributors. The increase in gross margin percentage is attributable primarily
to a higher margin product mix.
Selling, general and administrative expenses increased in 1997 by $66.7
million to $175.9 million, and increased as a percentage of net sales from 32.9%
to 35.0% in 1997. The primary portion of the dollar increase was attributable to
the inclusion of a full year of the RAC operations, acquired in late August
1996, and the other 1996-1997 acquisitions. The percentage increase was
attributable to several factors, including increases in the provision for
doubtful accounts as a result of the bankruptcy of three customers and increases
in market development expenses.
Interest expense increased by $7.5 million to $12.5 million in 1997. This
was primarily attributable to the increased debt associated with the RAC
acquisition, which was carried for a full year in 1997 as compared to four
months in 1996. In addition, the Company has incurred debt to finance the growth
in sales of the video and computer product lines. Interest expense is expected
to increase in 1998 as additional funds are obtained to support anticipated
growth.
The Company's income taxes and effective consolidated income tax rate have
been affected by changes in the proportion of domestic and foreign earnings and
losses. While earnings from North America and Western Europe are primarily taxed
at or above United States income tax rates, earnings from the Company's Asian
operations are taxed at a maximum rate of 16.5%. The actual tax rate from Asian
operations is dependent on the proportion of earnings from mainland China. The
Company's 1997 pretax income of $7.5 million is comprised of a combination of
foreign earnings and domestic losses. This resulted in a net income tax credit
of $6.1 million, primarily because the tax credits attributable to domestic tax
losses were at higher tax rates than the income tax expense attributable to
earnings at foreign subsidiaries. Also in 1997 the Company recorded the benefit
of a $1.3 million tax credit in Germany relating to the Company's decision to
declare dividends from that subsidiary to its U.S. parent. This compares to 1996
pretax income of $11.1 million and corresponding income tax expense of $2.7
million. Management estimates that this trend will not continue in 1998 because
of projected changes in the proportion of domestic and foreign taxable earnings
and because of the expiration of a portion of a "tax holiday" applicable to
certain earnings from mainland China.
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share," which establishes revised standards for computing
and presenting earnings per share (EPS). In accordance with this standard, all
prior period EPS data has been restated. There was no material impact from the
adoption of this standard. For 1997 basic EPS was $1.19/share and diluted EPS
was $1.18/share as compared with basic EPS of $0.74/share and diluted EPS of
$0.73/share for 1996. Outstanding shares in 1997 were 11,414,000 (basic) and
11,546,000 (diluted) as compared to 11,300,000 (basic) and 11,542,000 (diluted)
in 1996.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." This statement, effective for fiscal years beginning after December 15,
1997, will require the Company to report components of comprehensive income in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is defined as the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. To date, the Company's comprehensive income has been comprised of the
Company's net income and foreign currency translation adjustments included in
the consolidated statements of stockholders' equity. The Company has not yet
determined the manner in which it will display its comprehensive income in its
1998 financial statements.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement, also effective for financial statements for
periods beginning after December 15, 1997, requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. Generally, financial information is required to be reported
on the basis that is used internally for evaluating segment performance and
deciding how to allocate resources to segments. While management is currently
evaluating the provisions of SFAS No. 131 in the context of its present and
planned operating structure, it does not currently believe the SFAS No. 131 will
result in significantly different financial statement disclosures.
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 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.
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.
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%.
As restated in accordance with FASB No. 128, basic EPS for 1996 was
$.74/share and diluted EPS was $.73/share as compared with basic EPS of
$1.39/share and diluted EPS of $1.34/share for 1995. Outstanding shares in 1996
were 11,300,000 (basic) and 11,542,000 (diluted) as compared to 10,847,000
(basic) and 11,255,000 (diluted) 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, but the
Company decided to continue accounting for employee stock-based compensation
under APB 25 rules, as permitted under SFAS No. 123. Footnote H of the Notes to
the Consolidated Financial Statements discloses the pro forma effect on net
income and income per share as if it had adopted SFAS No. 123's alternative
accounting treatment.
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 1997,
the Company completed a $75 million private placement of 10-year senior notes.
The proceeds 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 $71.5 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. In January 1998, the $71.5 million committed
revolving line of credit was restructured to a $66.5 million committed revolving
line of credit through December 1999 and a $5.0 million four-year term loan..
The outstanding borrowings and letters of credit under the revolving facility
were approximately $65.5 million at December 31, 1997. At December 31, 1997, the
Company was not in compliance with certain covenants involving the maintenance
of financial ratios and minimum tangible net worth under the note and bank loan
agreements. However, both the senior loan holders and the bank lenders have
agreed to waive these covenants at December 31, 1997 and temporarily relax them
until such time as the loan agreements have been amended to include certain less
restrictive requirements, but not later than June 29, 1998.
In November 1997 the Company borrowed $5.0 million under a demand note
agreement to finance the acquisition of AAMP. The note was paid in January 1998.
At December 31, 1997, the Company had working capital of approximately
$222.4 million as compared to approximately $158.8 million at December 31, 1996.
The Company's ratio of current assets to current liabilities increased to 3.3 to
1 at December 31, 1997 as compared with 2.6 to 1 at December 31, 1996. The
increases in working capital and the working capital ratio are primarily the
result of the reclassification of loans under the Company's revolving line of
credit to a noncurrent liability as a result of extensions in their terms and
the elimination of a provision for an annual "clean-up" less the effects of
funding the growth in the video game, computer, home audio and car audio product
lines. While trade receivables increased $28.6 million due to the increased
sales volume and inventories increased $35.4 million in response to the added
sales volume, accounts payable and accrued expenses only increased approximately
$33.4 million to support the increase in inventory. In 1997, cash flows used
for operations were $12.6 million as compared to cash flows provided by
operations of $1.2 million in the prior year. This change was primarily due to
substantial increases in accounts receivable and inventories which are described
above.
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 approximately $710,000; no shares were repurchased pursuant to
such authorization in 1996 or 1997. 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 loan agreements.
In April 1995, Recoton formed Christie Design Corporation. This
wholly-owned subsidiary, which develops and markets speaker products, commenced
manufacturing and shipments in March 1996. Through March 1996, the Company
expended approximately $3.9 million for start-up and capital costs for this
subsidiary.
In September 1995, Recoton acquired STD Holding Limited (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 the People's Republic of China (including Hong Kong) 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 $61.6 million, which includes closing costs and consolidation
costs in 1997. 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 plus closing costs and
assumed certain outstanding debt of approximately $2.9 million. Tambalan markets
headphones and other consumer electronics 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.
In November 1997, the Company acquired AAMP of Florida, Inc. (AAMP), d/b/a.
AAMP of America, Inc., at a cost of approximately $2.4 million paid by the
issuance of 169,706 Recoton Common Shares. In conjunction with the acquisition,
the Company assumed approximately $4.5 million in debt, which was repaid in
November 1997 from the proceeds of a $5 million loan. AAMP is a leading car
audio accessories company based in Clearwater, Florida whose business includes
the STINGER and PERIPHERAL brands.
In December 1997, the Company acquired, out of bankruptcy, selected assets
of Capa Industries, Inc. at a cost of approximately $1.1 million. The
acquisition provided expanded manufacturing and electronic engineering capacity
to enhance the home and car audio products line.
The Company completed construction, in January 1998, of a 318,000 square
foot expansion of its warehouse on its Lake Mary, Florida property. The cost of
the building construction was approximately $5 million.
There has been limited exposure to loss due to foreign currency risks in
the Company's Asian subsidiaries, because the Hong Kong dollar in recent years
has been pegged to the U.S. dollar at an official exchange rate of HK 7.75 to US
$1.00. Additionally, in recent years there have been no material fluctuations in
the Hong Kong/Chinese exchange rates. Also, the Company maintains the majority
of its currency in Asia in U.S. dollar accounts. However, as a result of
turmoil in the Asian currency markets during 1997, there can be no assurance
that these relationships will continue.
With the RAC, Heco and Tambalan acquisitions, the Company's operations in
Western Europe are exposed to variations in foreign exchange rates. Due to the
strengthening of the U.S. dollar against the German mark and Italian lira during
1997, the Company's stockholders' equity was reduced by a foreign currency
translation adjustment of approximately $5.3 million of which approximately $3.3
million occurred in the first quarter of 1997. If there are any further material
adverse changes in the relationships between the European and/or Canadian
currencies with the United States dollar, such changes could adversely affect
the results of the Company's European and/or Canadian operations included in the
consolidated financial statements and could cause further increases in the
amount of foreign currency translation adjustments which are charged directly to
stockholders' equity.
As further described in Note O to the Notes to Financial Statements, the
financial impact of the pending criminal and civil customs investigation cannot
be determined at this time, but could be material to the Company.
The Company has addressed what has become known as the Year 2000 Issue.
This issue has arisen because many existing computer programs use only two
digits to identify a year in the date field. These programs were designed and
developed without considering the impact of the upcoming change in the century.
The Company believes that all of its computer systems are year 2000 compliant.
The Company is contacting its customer and vendor base to ascertain their
compliance to the extent that their problems could affect the Company.
The Company has no other material commitments for capital expenditures.
However, the Company is considering the acquisition of additional computer
hardware and software to be used both in the United States and in its foreign
locations. In addition, the Company is evaluating options for the future growth
of its manufacturing facilities in China. The Company will also continue to
evaluate possible acquisitions that may be attractive to the growth of the
Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable
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, 1996 and 1997 F-2
Consolidated Statements of Operations for
the years ended December 31, 1995, 1996
and 1997 F-3
Consolidated Statements of Stockholders'
Equity for the years ended December 31, 1995,
1996 and 1997 F-4 to F-6
Consolidated Statements of Cash Flows for
the years ended December 31, 1995, 1996
and 1997 F-7 to F-8
Notes to Financial Statements F-9 to F-30
(a)(2) INDEX TO FINANCIAL STATEMENT SCHEDULE
Independent Auditor's Report on
Supplemental Schedule F-31
Recoton Corporation and Subsidiaries --
Schedule II -- Valuation and
Qualifying Accounts F-32
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.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
RECOTON CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS
FORM 10-K ITEM 8
YEAR ENDED DECEMBER 31, 1997
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, 1996 and 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. 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, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/S/ CORNICK, GARBER & SANDLER LLP
-------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
NEW YORK, NEW YORK
FEBRUARY 27, 1998
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(TABULAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS AS AT DECEMBER 31,
1996 1997
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 29,130 $ 17,247
Accounts receivable (less allowance for doubtful accounts
of $3,119,000 in 1996 and $3,797,000 in 1997) 101,278 129,852
Inventories 106,987 142,362
Prepaid, refundable and deferred income taxes 12,182 18,220
Prepaid expenses and other current assets 8,687 9,484
----------- ------------
TOTAL CURRENT ASSETS 258,264 317,165
PROPERTY AND EQUIPMENT (at cost, less accumulated
depreciation and amortization) 30,578 36,184
TRADEMARKS AND PATENTS (less accumulated amortization) 5,509 5,126
GOODWILL (less accumulated amortization) 31,251 38,554
DEFERRED INCOME TAXES 5,985 6,724
OTHER ASSETS 3,146 3,509
--------- ------
T O T A L $ 334,733 $ 407,262
=========== =============
LIABILITIES
CURRENT LIABILITIES:
Bank loans and drafts payable $ 42,945 $ 5,000
Current portion of long-term debt 8,683 9,570
Accounts payable 28,634 53,231
Accrued expenses 17,834 26,588
Income taxes payable 1,361 388
----------- ------------
TOTAL CURRENT LIABILITIES 99,457 94,777
LONG-TERM DEBT (less current portion above) 101,753 161,427
OTHER NONCURRENT LIABILITIES 5,049 11,775
--------- -------
TOTAL LIABILITIES 206,259 267,979
----------- -------
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 12,597,982 shares in
1996 and 12,797,601 shares in 1997 2,520 2,560
ADDITIONAL PAID-IN CAPITAL 75,913 78,376
RETAINED EARNINGS 57,177 70,758
CUMULATIVE FOREIGN TRANSLATION ADJUSTMENT (1,021) (6,295)
----------- ------------
TOTAL 134,589 145,399
TREASURY STOCK - 1,225,067 shares in 1996 and
1,225,167 shares in 1997, at cost (6,115) (6,116)
---------- ---------------
TOTAL STOCKHOLDERS' EQUITY 128,474 139,283
----------- ------------
T O T A L $ 334,733 $ 407,262
=========== =============
The notes to financial statements are made a part hereof.
</TABLE>
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT INCOME PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
<S> <C> <C> <C>
NET SALES $ 212,677 $ 331,700 $ 502,048
COST OF SALES 129,981 206,715 306,725
----------- ----------- -----------
GROSS PROFIT 82,696 124,985 195,323
----------- ----------- -----------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 62,747 109,194 175,873
INTEREST EXPENSE 793 4,946 12,496
INVESTMENT INCOME (569) (271) (534)
----------- ----------- -----------
T O T A L 62,971 113,869 187,835
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 19,725 11,116 7,488
INCOME TAX (PROVISION) CREDIT (4,672) (2,736) 6,093
----------- ----------- -----------
NET INCOME $ 15,053 $ 8,380 $ 13,581
============ ============ ===============
INCOME PER SHARE:
BASIC $1.39 $.74 $1.19
===== ==== =====
AS DILUTED $1.34 $.73 $1.18
===== ==== =====
NUMBER OF SHARES USED IN COMPUTING PER SHARE AMOUNTS:
BASIC 10,847 11,300 11,414
====== ====== ======
AS DILUTED 11,255 11,542 11,546
====== ====== ======
The notes to financial statements are made a part hereof.
</TABLE>
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
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, 1995 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)
------------- -------- ---------- ---------- --------- ------------ ---------
Net income for the year 13,581
Exercise of stock options 24,602 5 126
Repurchases of stock 100 (1)
Stock issued as payment
of bonus 5,311 1 80
Stock issued for acquisition
of AAMP of Florida, Inc. 169,706 34 2,257
Foreign currency translation
adjustment (5,274)
---------- -------- ---------- ---------- --------- ------------ ---------
BALANCE - DECEMBER 31, 1997 12,797,601 $ 2,560 $ 78,376 $ 70,758 $ (6,295) 1,225,167 $ (6,116)
============= ======== ========== ========== ========= ========= =========
The notes to financial statements are made a part hereof.
</TABLE>
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(TABULAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
---------- ---------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 15,053 $ 8,380 $ 13,581
----------- ----------- -----------
Adjustments to reconcile results of operations to net cash provided by
operating activities:
Depreciation 2,496 5,194 7,953
Amortization of intangibles 1,120 3,045 3,002
Provision for losses on accounts receivable 847 1,259 4,932
Deferred income taxes (776) (312) (2,578)
Change in asset and liability accounts (net of effects of acquisitions):
Accounts receivable (13,242) (12,210) (34,339)
Inventory (14,195) (6,039) (33,812)
Prepaid and refundable income taxes (1,242) (6,061)
Prepaid expenses and other current assets (1,858) 3,305 (588)
Other assets 95 (347) (625)
Accounts payable and accrued expenses 923 586 28,890
Income taxes payable 1,114 (2,124) (911)
Other noncurrent liabilities 43 1,751 7,987
---------- ---------- -----------
TOTAL ADJUSTMENTS (23,433) (7,134) (26,150)
---------- ---------- ----------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES (8,380) 1,246 (12,569)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions of businesses (net of
cash acquired of approximately $2,340,000 in
1995, $3,014,000 in 1996 and $932,000 in 1997) (12,883) (55,909) (755)
Expenditures for trademarks, patents and
intellectual property (771) (195) (216)
Expenditures for property and equipment (10,561) (7,383) (12,937)
---------- ---------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (24,215) (63,487) (13,908)
----------- ------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under credit
agreements and other bank debt $ 13,193 $(10,368) $ 29,639
Net proceeds from (repayments of) bridge loans 129,364 (75,000)
Net proceeds from sale of senior notes 75,000
Repayments of bank loans assumed upon
acquisition of businesses (2,273) (36,173) (7,336)
Net proceeds from long-term bank borrowings 20,000
Repayment of long-term bank borrowings (943) (5,206) (7,456)
Proceeds from exercise of stock options 198 1,387 39
Purchases of treasury stock (710) (1,154) (1)
Income tax benefit applicable to exercise
of stock options 62 1,185 92
---------- ----------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 29,527 79,035 14,977
--------- ------------ ---------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES
ON CASH OF FOREIGN SUBSIDIARIES (14) (57) (383)
---------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,082) 16,737 (11,883)
CASH AND CASH EQUIVALENTS - JANUARY 1 15,475 12,393 29,130
---------- ----------- ---------
CASH AND CASH EQUIVALENTS -
DECEMBER 31 $ 12,393 $ 29,130 $ 17,247
========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH PAID
FOR:
Interest $ 713 $ 4,451 $ 10,913
========== =========== ==========
Income taxes $ 4,429 $ 5,686 $ 1,513
========== =========== ==========
The notes to financial statements are made a part hereof.
</TABLE>
<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, 1997 and
December 31, 1996 of the Company's financial instruments approximates
their fair value because of their short maturities or, for the majority
of long-term debt, because there have been no significant changes in
the market rates for such debt since it was 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:
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings per Share". SFAS 128
eliminates the presentation of primary and fully diluted earnings per
share and requires presentation of basic and diluted earnings per
share. The income per share amounts and the number of shares used in
computing the income per share amounts in 1995 and 1996 have been
restated to conform to SFAS No. 128.
Under SFAS 128, basic income per share is computed by dividing the net
income by the weighted average common shares outstanding for the
period, without regard to outstanding stock options, warrants or other
potentially dilutive securities or contingent stock issuances. Diluted
earnings per share reflects the dilution that would have occurred if
potential dilutive securities were exercised (after application of the
treasury stock method) and contingent stock issuances were made.
A reconciliation of the number of shares used in computing the per
share amounts is as follows:
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
1995 1996 1997
---- ---- ----
Weighted average common shares
outstanding 10,847 11,300 11,414
Dilutive effect of stock options 408 242 132
------ ------- -------
Adjusted common shares used for
dilutive computation 11,255 11,542 11,546
====== ====== ======
The above excludes outstanding options to purchase approximately
100,000 shares in 1995, 406,000 shares in 1996 and 565,000 shares in
1997 because these options are considered anti-dilutive based on the
relationship of their exercise price to the average market prices of
the Company's common stock. Also excluded are contingent stock
issuances relative to accrued bonuses of approximately $5,650,000 at
December 31, 1997, which may, solely at the Company's option, be
settled in common stock beginning on January 1, 1999; the Company
expects to pay such bonuses in cash.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." This statement, effective for fiscal years
beginning after December 15, 1997, will require the Company to report
components of comprehensive income in a financial statement that is
displayed with the same prominence as other financial statements.
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. To date, the Company's comprehensive income
has been comprised of the Company's net income and foreign currency
translation adjustments included in the consolidated statements of
stockholders' equity. The Company has not yet determined the manner in
which it will display its comprehensive income in its 1998 financial
statements.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." This statement, also effective for financial
statements for periods beginning after December 15, 1997, requires that
a public business enterprise report financial and descriptive
information about its reportable operating segments. Generally,
financial information is required to be reported on the basis that is
used internally for evaluating segment performance and deciding how to
allocate resources to segments. While management is currently
evaluating the provisions of SFAS No. 131 in the context of its present
and planned operating structure, it does not currently believe that
SFAS No. 131 will result in significantly different financial statement
disclosures.
NOTE B - ACQUISITIONS:
The results of operations of the following acquisitions during the
three years ended December 31, 1997 are included in the attached
consolidated statements of operations from their respective dates of
acquisition.
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 recorded in the 1996
financial statements was approximately $60.2 million and included
investment banker fees and other closing costs, Jensen's estimated
income taxes and 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.
Actual costs exceeded estimated costs by approximately $1.4 million,
which was recorded as additional purchase price of Jensen in 1997. The
Jensen purchase was preceded by Jensen's sale of its original equipment
manufacturing business to a member of its management. The $17.8 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.
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, in a purchase transaction, 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.
In November 1997, the Company acquired, in a purchase transaction, the
outstanding stock of AAMP of Florida, Inc.("AAMP"), a manufacturer and
marketer of automotive audio accessories. The purchase price was
approximately $2.4 million, which included the issuance of 169,706
shares of the Company's common stock, with a market value of
approximately $2.3 million. Goodwill of approximately $4.1 million,
comprised of the purchase price and the excess of liabilities assumed
over the fair value of assets acquired, is being amortized to
operations over 15 years.
In December 1997, the Company acquired, for approximately $1.1 million,
from the receiver in bankruptcy, substantially all the assets of CAPA
Industries, Inc. ("CAPA"). CAPA is a designer and manufacturer of
electronic components which are used in certain home and car audio
accessories. The excess of the purchase price over the fair value of
the assets acquired, aggregating approximately $797,000, has been
recorded as goodwill and is being amortized to operations over 15
years.
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
AAMP acquisitions had each occurred on January 1, 1996. The information
for Jensen is based on its unaudited financial data 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 AAMP is based on its unaudited historical
information for the year ended December 31, 1996 and for the period
January 1, 1997 to November 18, 1997. 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,
1996 1997
---- ----
Net sales $ 454,589 $ 518,131
=========== ===========
Net earnings $ 2,681 $ 15,071
=========== ===========
Basic earnings per share $.23 $1.30
==== =====
The operations of Heco, Tambalan and CAPA prior to acquisition were
immaterial in relation to those of the Company
NOTE C - INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
1996 1997
<S> <C> <C>
Raw materials and work-in-process $ 28,778 $ 38,188
Finished goods 71,031 93,602
Merchandise in-transit 7,178 10,572
----------- ------------
T O T A L $ 106,987 $ 142,362
=========== ============
</TABLE>
NOTE D - PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) ESTIMATED
DECEMBER 31 USEFUL LIFE
1996 1997 (YEARS)
--------- ---------- ------------
<S> <C> <C> <C>
Land $ 3,281 $ 3,144
Buildings, leaseholds
and improvements * 14,345 18,952 15 - 40
Machinery and equipment 7,806 8,648 3 - 10
Furniture, fixtures and
office equipment 7,494 10,790 2 - 7
Tools and dies 9,777 13,428 2 - 5
--------- ----------
TOTALS 42,703 54,962
Less accumulated depreciation
and amortization 12,125 18,778
--------- ----------
BALANCE $ 30,578 $ 36,184
========= ==========
* Includes capitalized interest costs of approximately $118,000 in 1997.
</TABLE>
NOTE E - BANK LOANS AND DRAFTS PAYABLE:
In 1996, the Company entered into a multi-bank, $135 million bridge
loan facility of which approximately $130.1 million was outstanding at
December 31, 1996. 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 gave effect to these transactions and, accordingly, the $90
million aggregate of the ten-year and four-year loans was classified as
long-term debt (see Note F). The amount due under the revolving credit
facility was classified as a current liability at December 31, 1996
because the related agreement required 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 (see Note F (3)).
In September 1997, the credit agreement was amended and the credit
facility was increased to approximately $71.5 million to January 30,
1998 at which time it was replaced by a $5 million four year term loan
and a revolving credit facility of approximately $66.5 million expiring
in December 1999. The balance sheet at December 31, 1997 gives effect
to this transaction and, accordingly, the $5 million term loan and the
$63 million of outstanding borrowings under the revolving credit
facility have been classified as long-term debt (see Note F).
The weighted average interest rate on outstanding borrowings under the
credit agreement at December 31, 1997 was approximately 8.1%.
The Company's Hong Kong subsidiaries have lines-of-credit of
approximately $15 million with three overseas banks. The banks have a
security interest to the extent of merchandise purchased using trust
receipt loans. There were no outstanding borrowings under the lines at
December 31, 1997.
Outstanding letters of credit, which aggregated approximately $9.4
million at December 31, 1997, reduce the amounts available under these
lines.
In November 1997, the Company borrowed $5 million from a bank, in the
form of a demand note. The proceeds were used to repay debt which was
assumed on the acquisition of AAMP. The loan was repaid in January
1998, with interest at 8.75%.
NOTE F - LONG-TERM DEBT:
Long-term debt included in the consolidated balance sheets is
summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
AS AT DECEMBER 31,
1996 1997
<S> <C> <C>
Senior ten-year notes payable (1) (3) $ 75,000 $ 75,000
Notes and loans payable - banks (2) (3):
Bank credit facility loans (see Note E) 63,000
Due in monthly installments of
$58,350 through October 1998, plus
interest at 6.91% a year 1,283 583
Due in quarterly installments of
$649,150 through December 2000,
plus interest at 7.80% a year 10,402 7,790
Due in monthly installments of
$116,670 through December 2000,
plus interest at 6.60% a year 5,600 4,200
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 (approxi-
mately 5.81% at December 31, 1997) 15,000 12,188
Due in quarterly installments of $312,500
through January 2002, plus interest
which varies with changes in certain
of the Company's financial ratios and
changes in the LIBOR rate 5,000
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 3,061 2,868
Other debt 90 368
----------- -----------
Total long-term debt 110,436 170,997
Less current portion 8,683 9,570
----------- -----------
Noncurrent portion $ 101,753 $ 161,427
=========== ===========
</TABLE>
(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 8.75% a year and was adjusted retroactively from
8.12% a year based on the measurement of certain financial ratios
at September 30, 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.
(3) At December 31, 1997, the Company was not in compliance with
certain covenants involving the maintenance of financial ratios
and minimum tangible net worth under the note and bank loan
agreements. However, both the senior loan holders and the bank
lenders have agreed to waive these covenants at December 31, 1997
and temporarily relax them until such time as the loan agreements
have been amended to include certain less restrictive
requirements, but not later than June 29, 1998.
The noncurrent portion of long-term debt at December 31, 1997 is
payable as follows:
YEAR ENDING DECEMBER 31: (IN THOUSANDS)
1999 $ 72,319
2000 9,339
2001 15,172
2002 11,027
Subsequent to December 31, 2002 53,570
-------------
T O T A L $ 161,427
===========
NOTE G - STOCKHOLDERS' EQUITY:
In 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, of which 261.396 shares are available for future grants at
December 31, 1997. 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 1994, the Board of Directors authorized the repurchase by the
Company of up to 500,000 shares of its outstanding common stock. The
Company has repurchased 48,352 shares for approximately $835,000, of
which 42,366 shares were acquired in 1995 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, which
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.
In May 1997, the Company issued 5,311 shares of common stock with a
market value of approximately $81,000 to an employee as payment for a
bonus which was earned and charged to operations in 1996.
In November 1997, the Company issued 169,706 shares of common stock in
connection with the purchase of AAMP of Florida, Inc. (see Note B).
The Board of Directors has voted to increase the amount of authorized
common stock to 40 million shares, subject to stockholder approval.
NOTE H - STOCK OPTIONS:
At December 31, 1997, 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, of which options for
1,002 shares are available for future grants at December 31, 1997.
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. At December 31, 1997,
options to purchase 1,007,404 shares are available for future grants
under this plan. 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 and options to
purchase 130,975 shares were granted in 1998 applicable to the
Company's 1997 operations.
Also, at December 31, 1997 there are non-plan nonqualified options
outstanding 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 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 1997
(IN THOUSANDS, EXCEPT PER
SHARE INFORMATION)
Net income:
As reported $ 15,053 $ 8,380 $13,581
Pro forma 13,581 5,539 12,016
Income per share:
Basic:
As reported $1.39 $.74 $1.19
Pro forma 1.25 .49 1.05
As diluted:
As reported $1.34 $.73 $1.18
Pro forma 1.21 .48 1.04
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 based on the following assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
-------------- --------------- ----------
<S> <C> <C> <C>
Expected volatility 46.3% 46.3% 46.9%
Average risk-free interest rate 7.0% 6.0% 6.5%
Average expected holding period,
in years 8 9 7
A summary of the status of the Company's outstanding stock options as
of December 31, 1995, 1996 and 1997 and changes during the years then
ended is presented below:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1995 1996 1997
---------------------- ---------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
STOCK OPTIONS (000'S) PER SHARE (000'S) PER SHARE (000'S) PER SHARE
-------------------------- ---------- --------- --------- --------- ------- ---------
Outstanding at beginning
<S> <C> <C> <C> <C> <C> <C>
of year 1,005 $ 9.00 1,315 $ 12.23 1,269 $ 14.62
Granted 414* 17.98 285 17.05 424* 13.55
Exercised (97) 3.06 (302) 6.17 (25) 1.60
Forfeited/expired (7) 14.68 (29) 18.03 (322) 19.91
------ ------- ------ ------- ------ -------
Outstanding at end of year 1,315 $ 12.23 1,269 $ 14.62 1,346 $13.26
===== ======= ===== ======= ===== ======
Exercisable at year end 667 $ 8.09 848 $ 13.88 929 $12.84
===== ======= ===== ======= ===== ======
Weighted - average fair
value of options granted
during the year $ 10.89 $ 10.88 $ 7.56
======= ======= =====
*Excludes options for 79,741 shares at $18.75 a share earned in 1995 and 130,975
shares at $14.06 a share earned in 1997 but issued in 1996 and 1998,
respectively, pursuant to the terms of the executive employment agreement with
the Company's President, Co-Chairman of the Board and Chief Executive Officer.
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
<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> <C>
$ 1.13 to $ 3.33 212 3.5 years $ 2.89 212 $ 2.89
12.25 to 16.75 1,014 7.3 years 14.71 600 15.07
18.07 to 21.00 120 6.7 years 19.36 117 19.39
----- ---
Totals 1,346 929
===== ===
</TABLE>
Subsequent to December 31, 1997, the Company also issued to officers
and employees options to purchase 371,100 shares at $13.50 a share and
100,000 shares at $22.63 a share from the 1991 Stock Option Plan. Also,
the Board of Directors authorized, subject to stockholder approval, the
adoption of the 1998 Stock Option Plan which provides for grants of
either incentive stock options or nonqualified stock options to
officers, employees or consultants to purchase up to 1,500,000 shares
of common stock and in connection therewith no further options will be
granted under the Company's other plans after such new plan is
approved. After giving effect to the foregoing, option grants in 1998,
there are 405,429 shares available for future option grants under the
1991 Stock Option Plan.
NOTE I - CONCENTRATIONS:
In 1997, sales to one customer represented approximately 11% of
consolidated net sales. No single customer accounted for sales in
excess of 10% of consolidated net sales in 1996 and 1995. Revenue from
export sales from the United States was less than 10% of consolidated
net sales in each of the three years ended December 31, 1997. 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 $1,608,000 in 1995, $2,897,000 in 1996 and $4,245,000 in
1997.
NOTE K - ADVERTISING COSTS:
Advertising costs aggregated approximately $1,453,000 in 1995,
$2,768,000 in 1996 and $5,141,000 in 1997.
NOTE L - INCOME TAXES:
<TABLE>
<CAPTION>
Income taxes on the statements of operations are comprised of the
following:
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
1995 1996 1997
Currently (payable) refundable:
<S> <C> <C> <C>
Federal $ (3,071) $ (467) $ 4,163
State and local (283) 28 (162)
Foreign (2,094) (2,609) (486)
---------- ---------- ----------
Totals (5,448) (3,048) 3,515
Deferred 776 312 2,578
---------- ---------- ----------
NET (PROVISION) CREDIT $ (4,672) $ (2,736) $ 6,093
=========== ========== ==============
Pretax income (loss) was derived from foreign and domestic sources as
follows:
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
1995 1996 1997
Foreign $ 12,431 $ 14,598 $ 29,313
Domestic 7,294 (3,482) (21,825)
---------- ---------- ----------
TOTALS $ 19,725 $ 11,116 $ 7,488
========== ========== ==========
</TABLE>
The following table reconciles statutory U.S. federal income taxes on
the Company's income before income taxes to the Company's actual income
tax (provision) credit:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1995 1996 1997
--------------------- --------------------- ---------------------
RATE AMOUNT RATE AMOUNT RATE AMOUNT
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S. federal income
taxes (34.0%) $(6,707) (34.0)% $ (3,779) (34.0)% $ (2,546)
Effect of:
State and local income
tax (provision) credit
(net of federal effect) (.9) (170) .9 105 6.4 480
Difference between U.S.
and foreign income tax
rates on earnings of
foreign subsidiaries 11.2 2,205 9.6 1,080 101.2 7,591
German tax benefit
relating to dividend
distribution deduction 17.4 1,300
Other items (net) (1.1) (142) (10.0) (732)
------ ------- ----- ----- ----- -------
Actual income tax
(provision) credit (23.7)% $(4,672) (24.6)% $(2,736) 81.0% $ 6,093
====== ====== ====== ======= ===== ========
</TABLE>
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. Such additional taxes would aggregate
approximately $17.8 million based on the subsidiaries' undistributed
earnings which aggregate approximately $59.6 million for income tax
purposes at December 31, 1997. The foregoing amounts are stated net of
U.S. Sub-Part F taxes paid, or payable, which are considered the
equivalent of repatriated earnings.
Deferred tax assets and liabilities and the principal temporary
differences from which they arise are:
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
1996 1997
Deferred tax assets:
Allowance for estimated doubtful
accounts and estimated sales returns,
<S> <C> <C>
allowances and discounts $ 2,660 $ 1,967
Tax basis adjustments to inventory 2,618 3,418
Deferred compensation accruals 441 513
Difference in basis and amortization periods
of patents, trademarks and package
design costs 540 1,075
Cumulative foreign translation adjustment 250 666
Estimated Jensen consolidation costs 1,120 545
Net operating loss and tax credit carryforwards 7,389 9,598
Other 946 885
-------- -----
TOTAL 15,964 18,667
Less valuation allowance (2,553) (2,424)
--------- ----------
TOTAL DEFERRED TAX ASSETS 13,411 16,243
--------- ----------
Deferred tax liabilities:
Accelerated depreciation of property
and equipment 792 538
Tax basis adjustments to prepaid
catalog costs 159 186
--------- ----------
TOTAL DEFERRED TAX LIABILITIES 951 724
-------- -----
NET DEFERRED TAX ASSETS $ 12,460 $ 15,519
========= ==========
</TABLE>
As a result of the Jensen acquisition in 1996, the Company has acquired
domestic net operating loss carryforwards of approximately $9.8 million
and tax credit carryforwards of approximately $1.4 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. As a result of the Ross acquisition in 1997, the Company
has available approximately $2,500,000 of net operating loss
carryforwards in the United Kingdom, which are available to be applied
against future United Kingdom earnings. The Company has recorded a
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 is recorded as a
reduction of the then unamortized goodwill related to the acquisition.
In 1997, goodwill was reduced by approximately $600,000 from the
realization of such benefits.
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 1995, $363,000 in 1996 and $562,000 in 1997.
NOTE N - COMMITMENTS:
The Company leases certain facilities under long-term operating leases
which expire at various times through July 2020. 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
are as follows:
YEAR ENDING DECEMBER 31: (IN THOUSANDS)
1998 $ 4,129
1999 3,974
2000 3,205
2001 2,264
2002 1,425
Subsequent to December 31, 2002 7,498
--------
T O T A L $ 22,495
==========
Rent expense was approximately $1,335,000 in 1995, $1,827,000 in 1996
and $5,576,000 in 1997.
An agreement with Mr. Herbert Borchardt, the Company's Co-Chairman of
the Board, provides for a current minimum annual compensation of
approximately $224,000 while he remains Co-Chairman and $187,000
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 base annual salary ($945,000 for 1997), 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 November 2002. 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 at the Company's option.
NOTE O - LITIGATION AND U.S. CUSTOMS INQUIRY:
In connection with the Jensen acquisition, actions were commenced
against the Company and others in the courts of the State of Delaware
in 1996 (in Re International Jensen Incorporated Shareholders
Litigation). 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 totalling $340,000, which the Company is
contesting.
In July 1994, the U.S. Customs Service and U.S. Attorney's office
obtained certain property and business records from the Company's
Florida facility pursuant to a search warrant and commenced a criminal
and civil investigation. The Company is in communication with the
government regarding such investigation, which the Company has been
advised has focused on 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, importation of merchandise subject to textile quotas, other
instances of undervaluation and other miscellaneous matters. Management
is hopeful of reaching a settlement of this matter. However, based on
the current status of the Company's communication with the government,
the Company is unable to make a realistic estimate of the probable
amount or probable range of amounts for the ultimate outcome, which
could be material in relation to the Company's current operations
and/or financial condition.
NOTE P - DOMESTIC AND FOREIGN OPERATIONS:
Information applicable to the Company's domestic operations and foreign
subsidiaries is summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
1995 1996 1997
Net sales:
To unaffiliated customers:
<S> <C> <C> <C>
United States $175,774 $257,088 $368,328
Asia 21,869 29,941 37,375
Canada 15,034 18,570 18,283
Europe 26,101 78,062
-------- ----------- -----------
Total 212,677 331,700 502,048
Intercompany sales from the
following geographic areas:
United States 5,651 5,988 9,655
Asia 24,379 35,780 115,368
Europe 110
Eliminations (30,030) (41,768) (125,133)
--------- ----------- -----------
CONSOLIDATED $212,677 $331,700 $502,048
======== ======== ========
Intercompany sales between geographic areas are priced to achieve a
targeted profit based on the relative functions performed by the
purchaser/distributor.
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
1995 1996 1997
Pre-tax income (loss):
<S> <C> <C> <C>
United States $ 7,294 $ (3,482) $ (21,825)
Asia 14,987 11,171 41,468
Canada 963 845 (1,463)
Europe 2,312 1,868
Eliminations (3,519) 270 (12,560)
----------- ----------- -----------
CONSOLIDATED $ 19,725 $ 11,116 $ 7,488
=========== =========== ===========
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
1995 1996 1997
Identifiable assets at year end:
United States $ 145,230 $ 238,641 $ 275,230
Asia 29,844 37,013 44,529
Canada 9,980 11,551 12,681
Europe 47,528 74,822
----------- ------------ -----------
CONSOLIDATED $ 185,054 $ 334,733 $ 407,262
=========== ============ ===========
</TABLE>
<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, 1996 and 1997 and for each
of the three years in the period ended December 31, 1997, we have also audited
Schedule II for each of the three years ended December 31, 1997, 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 27, 1998
<PAGE>
SCHEDULE II
RECOTON CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- ---------------------- -------- --------
ADDITIONS
Balance at Charged to Charged to Balance
beginning costs and other at end
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS* OF PERIOD
Allowance for possible
losses:
Year ended December 31,
<S> <C> <C> <C> <C> <C>
1995 $ 989 $ 847 $ 249 $ 1,587
========= ======== ======= ========
Year ended December 31,
1996 $ 1,587 $ 1,259 $ 1,627** $ 1,354 $ 3,119
========= ======== ======= ======= ========
YEAR ENDED DECEMBER 31,
1997 $ 3,119 $ 4,932 $ 4,254 $ 3,797
========= ======== ======= ========
</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 1998 Proxy Statement appearing under
the caption "Election of Directors," 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 1998 Proxy Statement appearing under
the caption "Compensation of Executive Officers" is hereby incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
That portion of Recoton's definitive 1998 Proxy Statement appearing under
the caption "Security Ownership of Certain Beneficial Owners and Management" is
hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
That portion of Recoton's definitive 1998 Proxy Statement appearing under
the caption "Certain Relationships and Related Transactions" 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" 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, 1998
(incorporated by reference to Exhibit 3.1 to the
Registrant's Form 10-K for the year ended
December 31, 1996)
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 (incorporated
by reference to Exhibit 4.1 to the Registrant's
Form 10-K for the year ended December 31, 1996)
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
(incorporated by reference to Exhibit 10.2 to
the Registrant's Form 10-K for the year ended
December 31, 1996)*
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. 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)*
10.7. 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)*
10.8. 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)*
10.9. Recoton Corporation 1991 Stock Option Plan, as
revised March 23, 1998, and form of option
agreement [filed herewith]*
10.10. Recoton Corporation Nonqualified Stock Option
Plan, as revised March 23, 1998 [filed
herewith]*
10.11. 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*
10.12. 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)*
10.13. 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)
10.14. 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)
10.15. 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)
10.16. 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)
10.17. 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)
10.18. Third Amended and Restated Agreement for
Purchase and Sale of the Assets of the OEM
Business of International Jensen Incorporated
(now Recoton Audio Corporation) by and to IJI
Acquisition Corp. (now International Jensen
Incorporated) 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)
10.19. Shared Facilities Agreement between IJI
Acquisition Corp. (now International Jensen
Incorporated) and International Jensen
Incorporated (now Recoton Audio Corporation)
dated August 28, 1996 (incorporated by reference
to Exhibit 8 to the Registrant's current Report
on Form 8-K dated August 28, 1996)
10.20. Amendment to Shared Facilities Agreement between
IJI Acquisition Corp. (now International Jensen
Incorporated) and International Jensen
Incorporated (now Recoton Audio Corporation)
(Exhibit 10.19), dated March 3, 1998 [filed
herewith]
10.21. Non-Competition Agreement among IJI Acquisition
Corp. (now International Jensen Incorporated)
and International Jensen Incorporated (now
Recoton Audio Corporation) dated August 28, 1996
(incorporated by reference to Exhibit 9 to the
Registrant's current Report on Form 8-K dated
August 28, 1996)
10.22. License Agreement among IJI Acquisition Corp.
and International Jensen Incorporated (now
Recoton Audio Corporation) dated August 28, 1996
(incorporated by reference to Exhibit 10 to the
Registrant's current Report on Form 8-K dated
August 28, 1996)
10.23. Amended and Restated Credit Agreement among
Recoton Corporation, The Chase Manhattan Bank
and the lenders made party thereto dated as of
September 9, 1997 (incorporated by reference to
Exhibit 10.34 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1997)
10.24. Amendment to Amended and Restated Credit
Agreement with The Chase Manhattan Bank, et. al
(Exhibit 10.23), dated as of March 4, 1998.
10.25. Note Purchase Agreement dated January 6, 1997
between Recoton Corporation and the several
purchasers (incorporated by reference to Exhibit
10.31 to the Registrant's Form 10-K for the year
ended December 31, 1996)
10.26. Amendment to Note Purchase Agreement dated
January 6, 1997 between Recoton Corporation and
the several purchasers, dated May 13, 1997
(incorporated by reference to Exhibit 10.32 to
Exhibit 10.25 the Registrant's Form 10-Q for
the quarter ended March 30, 1997)
10.27. Amendment to Note Purchase Agreement dated
January 6, 1997 between Recoton Corporation and
the several purchasers, dated August 13, 1997
(incorporated by reference to Exhibit 10.33 to
Exhibit 10.25 the Registrant's Form 10-Q for
the quarter ended June 30, 1997)
10.28. Amendment to Note Purchase Agreement dated
January 6, 1997 between Recoton Corporation and
the several purchasers Exhibit 10.25, dated
March 25, 1988 [filed herewith]
10.29. Recoton Corporation 1998 Stock Option Plan and
form of option certificate, as adopted March 23,
1998 (subject to shareholder approval) [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 [filed herewith]
(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 [filed herewith]
(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: not applicable
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 27, 1998
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 27, 1998
Robert L. Borchardt Chief Executive Officer
(Principal Executive
Officer) and Director
/S/ HERBERT H. BORCHARDT Co-Chairman and March 27, 1998
Herbert H. Borchardt Director
/S/ STUART MONT Chief Operating Officer, March 27, 1998
Stuart Mont Chief Financial Officer
(Principal Financial Officer)
and Director
/S/ GEORGE CALVI Director March 27, 1998
George Calvi
/S/ PETER WISH Director March 27, 1998
Peter Wish
/S/ JOSEPH H. MASSOT Treasurer (Principal March 27, 1998
Joseph H. Massot Accounting Officer)
and Director
/S/ IRWIN S. FRIEDMAN Director March 27, 1998
Irwin S. Friedman
/S/ JOSEPH M. IDY Director March 27, 1998
Joseph M. Idy
/S/ RONALD E. MCPHERSON Director March 27, 1998
Ronald E. McPherson
/S/ PAUL FEFFER Director March 27, 1998
Paul Feffer
/S/ STEPHEN CHU Director March 27, 1998
Stephen Chu
<PAGE>
EXHIBIT INDEX
EXHIBIT NO.
10.9. Recoton Corporation 1991 Stock Option Plan, as revised March 23,
1998 and form of option agreement
10.10. Recoton Corporation Nonqualified Stock Option Plan, as revised
March 23, 1998
10.20. Amendment to Shared Facilities Agreement between IJI Acquisition
Corp. (now International Jensen Incorporated) and International
Jensen Incorporated (now Recoton Audio Corporation), dated March
3, 1998
10.24 Amendment to Amended and Restated Credit Agreement with the Chase
Manhattan Bank, et. al dated as of March 4, 1998
10.28 Amendment to Note Purchase Agreement dated January 6, 1997
between Recoton Corporation and the several purchasers, dated
March 25, 1988
10.29 Recoton Corporation 1998 Stock Option Plan and form of option
certificate, as adopted March 23, 1998
21 Subsidiaries of the registrant
23 Consent of the Independent Public Accountants
27 Financial Data Schedule
EXHIBIT 10.9
Effective: 10/23/91
Board Approval: 10/23/91
Shareholder Approval: 6/17/92
Amended: 4/16/93
Shareholder Approval: 6/16/93
Amended: 4/4/95
Shareholder Approval: 6/19/95
Amended (by Board): 3/23/98
RECOTON CORPORATION
1991 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to provide a means whereby Recoton
Corporation (the "Company") may, through the grant to employees of options to
purchase the Company's Common Stock (as defined below), attract and retain
persons of ability (including officers and directors who are also employees) of
the Company and of any Subsidiary (as defined below), as key employees and
motivate such employees to exert their best efforts on behalf of the Company and
any Subsidiary. The Plan authorizes the grant to key employees of the Company of
stock incentives in the form of (a) options to purchase shares of Common Stock
of the Company under Section 422 of the Internal Revenue Code of 1986, as
amended from time to time (the "Code") ("Incentive Options"); and (b) options to
purchase shares of Common Stock of the Company which are not Incentive Options
("Nonqualified Options") (Incentive Options and Nonqualified Options granted
under the Plan being referred to collectively as "Options").
As used herein, the term "Subsidiary" shall mean any corporation which at
the time of the granting of an Option qualifies as a subsidiary of the Company
under the definition of "subsidiary corporation" in Section 424(f) of the Code,
or any similar provision hereinafter enacted.
2. NUMBER OF SHARES AVAILABLE UNDER PLAN. Options may be granted by the
Company from time to time to key employees of either the Company or any
Subsidiary (such recipients being hereafter referred to as "optionees") to
purchase up to an aggregate of 2,500,000* shares of Common Stock ($.20 par
value) of the Company (the "Common Stock") for all optionees and 2,500,000* such
shares shall be reserved for Options granted under the Plan (subject to
adjustment as provided in paragraph 6). The maximum number of shares of Common
Stock which may be the subject of Options granted to the Company's Chief
Executive Officer (or any co-Chief Executive Officer) and to each of the other
executive officers required to be named
- -------- * Increased in 1992 by action of the Option Committee pursuant to
Section 6 of the Plan from 350,000 to 466,666 to reflect 33-1/3% stock
dividend distributed in December 1992; increased from 466,666 to 766,666 by
action of the Board of Directors on April 16, 1993 (approved by the
shareholders at the 1993 Annual Meeting); increased in 1993 by action of
the Option Committee pursuant to Section 6 of the Plan from 766,666 to
1,022,221 to reflect the 33-1/3% stock dividend distributed in October
1993; increased in 1994 by action of the Option Committee pursuant to
Section 6 of the Plan from 1,022,221 to 1,533,331 to reflect the 50% stock
dividend distributed in July 1994; and increased from 1,533,331 to
2,500,000 by action of the Board of Directors on April 4, 1995 (approved by
the shareholders at the 1995 Annual Meeting).
<PAGE>
in the Company's proxy statement with respect to the preceding year pursuant to
the proxy rules promulgated under the Securities Exchange Act of 1934 as amended
during any calendar year shall not exceed 250,000 (subject to adjustment as
provided in paragraph 6). The shares issued upon exercise of Options granted
under the Plan may be authorized and unissued shares or shares held by the
Company in its treasury, or both. If any Options granted under the Plan shall
terminate, expire or be canceled as to any shares, new Options may thereafter be
granted covering such shares; PROVIDED, HOWEVER, that with respect to any Option
granted to any person who is a "covered employee" as defined in Section 162(m)
of the Code that is canceled or as to which the exercise price is reduced, the
number of shares of Common Stock subject to such Option shall continue to be
counted, in accordance with said Section 162(m) and regulations promulgated
thereunder, against the maximum number of shares which may be the subject of
Options granted to such person.
3. ADMINISTRATION. The Plan shall be administered by a Committee which
shall consist of two or more directors of the Corporation, each of whom shall be
a "Non-Employee Director" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and an "outside director"
within the meaning of Section 162 (m) of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), to the extent that such persons are
available to serve (and at any time when there are not at least two of such
persons, the Board of Directors shall function as the Committee). The members of
the Committee shall be selected by the Board of Directors. Any member of the
Committee may resign by giving written notice thereof to the Board of Directors,
and any member of the Committee may be removed at any time, with or without
cause, by the Board of Directors. If, for any reason, a member of the Committee
shall cease to serve, the vacancy shall be filled by the Board of Directors. The
Committee shall establish such rules and procedures as are necessary or
advisable to administer the Plan.
The Committee may interpret the Plan, prescribe, amend, and rescind any
rules and regulations necessary or appropriate for the administration of the
Plan, and make such other determinations and take such other action as it deems
necessary or advisable, except as such action may be otherwise expressly
reserved in the Plan to the Board. Without limiting the generality of the
foregoing, the Committee may, in its sole discretion, treat all or any portion
of any period during which an optionee is on military leave or on an approved
leave of absence from the Company or a Subsidiary as a period of employment of
such optionee by the Company or such Subsidiary, as the case may be, for the
purpose of accrual of his rights under his Option. Any interpretation,
determination, or other action made or taken by the Committee shall be final,
binding and conclusive. Any decision or determination reduced to writing and
signed by all members of the Committee shall be fully as effective as if made by
unanimous vote at a meeting duly called and held.
The Committee may employ such legal counsel, consultants and agents as it
may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent.
No member or former member of the Committee or of the Board shall be liable
for any action or determination made in good faith with respect to the Plan or
any Option awarded under it. To the maximum extent permitted by applicable law,
each member or former member of the Committee or of the Board shall be
indemnified and held harmless by the Company against any cost or expense
(including counsel fees, which fees may be advanced by the Company), or
liability (including any sum paid in settlement of a claim with the approval of
the Company) arising out of any act or omission to act in connection with the
Plan unless arising out of such member's or former member's own fraud or bad
faith. Such indemnification shall be in addition to any rights of
indemnification the members or former members may have as directors or under the
Certificate of Incorporation or By-Laws of the Company.
4. ELIGIBILITY AND AWARDS. Subject to the provisions of the Plan, the
Committee shall have the power to (a) authorize the granting of Options; (b)
determine and designate from time to time those employees of the Company or of
any Subsidiary to whom Options are to be granted; provided, however, that no
employee who owns, directly or indirectly, at the time the Option is granted to
him, more than 10% of the total combined voting power of all classes of stock of
the Company or of its Subsidiaries shall be eligible to receive any Incentive
Option under the Plan except as may be permitted by Section 422 of the Code; (c)
determine the number of shares subject to each Option; (d) determine whether
said Option is to be considered an Incentive Option or a Nonqualified Option;
and (e) determine the time or times and the manner when each Option shall be
exercisable and the duration of the exercise period. No director of the Company
who is not also an employee of the Company or a Subsidiary shall be entitled to
receive any Option under the Plan. The Committee may condition the grant of any
Option on the surrender of any option under this or any other plan.
5. TERMS AND CONDITIONS OF OPTIONS. Each Option granted under the Plan
shall be evidenced by an agreement, in form approved by the Committee, which
shall be subject to the following express terms and conditions and to such other
terms and conditions as the Committee may deem appropriate:
(a) OPTION PERIOD. Each Option agreement shall specify the period for which
the Option thereunder is granted (which, in the case of Incentive Options, shall
not exceed ten years from the date of grant) and shall provide that the Option
shall expire at the end of such period.
(b) OPTION PRICE. The Option price per share shall be determined by the
Committee at the time any Option is granted, and, in the case of Incentive
Options, shall not be less than the fair market value of the Common Stock of the
Company on the date the Option is granted, as determined in good faith by the
Committee.
(c) EXERCISE OF OPTION. No part of any Option may be exercised until the
optionee shall have remained in the employ of the Company or of a Subsidiary for
such period, if any, after the date on which the Option is granted as the
Committee may specify in the Option agreement. Subject in each case to the
provisions of paragraphs (a) through (c) and (e) of this paragraph 5, any Option
may be exercised, to the extent exercisable by its terms, at such time or times
as may be determined by the Committee at the time of grant; PROVIDED, HOWEVER,
that no Option may be exercised in part or in full prior to the approval of the
Plan by a majority vote of the shareholders of the Company as provided in
Section 11 and, PROVIDED FURTHER, that no options granted to executive officers,
directors and beneficial owners of ten percent or more of any class of the
Company's equity securities may be exercised in part or in full prior to the
later of six months from the date of grant of the Option or six months from date
of approval of the Plan by the shareholders of the Company. Notwithstanding the
foregoing, all or any part of any remaining unexercised Options granted to any
person may, after approval of the Plan by the shareholders of the Company as
provided in Section 11, be exercised in the following circumstances (but in no
event during the six month period commencing on the later of the date of grant
of the Option or the date of shareholder approval of the Plan): (a) immediately
upon (but prior to the expiration of the term of the Option) the holder's
retirement from the Company and all Subsidiaries on or after such person's 65th
birthday, (b) subject to the provisions of Section 5(e) hereof, upon the
disability (to the extent and in a manner as shall be determined by the
Committee in its sole discretion) or death of the holder, (c) upon the
occurrence of such special circumstances or event as in the opinion of the
Committee merits special consideration, or (d) if, while the holder is employed
by the Company or a Subsidiary, 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 (the "Exchange
Act")) ("Person"), 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, and any new director
whose election or nomination was approved by the directors in office who either
were directors at the beginning of the period or whose election or nomination
was previously so approved, cease for any reason to constitute at least a
majority thereof; (iii) a Person acquires beneficial ownership of stock of the
Company that, together with stock 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 stock ("50% Ownership") of the Company, unless the
additional stock is acquired by a Person possessing, immediately prior to such
acquisition, beneficial ownership of 40% or more of the Common Stock; 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 clauses (i) and
(ii), 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 clause
(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 Corporation has (directly or indirectly) 50% Ownership,
or (C) to a Person that has (directly or indirectly) at least 50% ownership of
the Corporation with respect to its stock outstanding, or to any entity in which
such Person possesses (directly or indirectly) 50% Ownership.
(d) PAYMENT OF PURCHASE PRICE UPON EXERCISE. Upon the exercise of an
Option, the form of exercise notice required by the Option agreement shall be
delivered with the purchase price paid (i) in cash or check payable to the order
of the Company; (ii) if the Option Agreement so provides, in stock of the
Company, by the Committee valued at its fair market value on the date of
exercise; PROVIDED, HOWEVER, that if the Option is treated in part as an
incentive stock option and in part as an Option which is not an incentive stock
option, the Company shall designate the shares that are treated as purchased
pursuant to the exercise of an incentive stock option by causing to be delivered
a separate certificate therefor; (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.
(e) EXERCISE IN THE EVENT OF DEATH OR TERMINATION OF EMPLOYMENT. (1) If an
optionee dies while an employee of the Company or a Subsidiary, such person's
Option may be exercised to the extent that the optionee could have done so at
the date of his or her death by the person or persons to whom the optionee's
rights under the Option pass by will or applicable law, or if no such person has
such right, by the optionee's executors or administrators, at any time, or from
time to time, within one year after the date of the optionee's death but not
later than the expiration date specified pursuant to paragraph (a) of this
paragraph 5. (2) If an optionee's employment by the Company or a Subsidiary
terminates because of the optionee's permanent disability, the optionee may
exercise his or her Option, to the extent that the optionee could have done so
at the date of termination of employment, at any time, or from time to time,
within one year of such determination but not later than the expiration date
specified pursuant to paragraph (a) of this paragraph 5. (3) If an optionee's
employment by the Company or a Subsidiary terminates for any reason other than
death or permanent disability as aforesaid, the optionee may exercise his or her
Option, to the extent that the optionee could have done so at the date of
termination of employment, at any time, or from time to time, within three
months of the date of termination of employment but not later than the
expiration date specified pursuant to paragraph (a) of this paragraph 5. (4)
Notwithstanding anything in this paragraph 5(e) to the contrary, if an
optionee's employment is terminated because of the Option holder's violation of
the duties of such employment by the Company or a Subsidiary as such person may
from time to time have, the existence of which violation shall be determined by
the Committee in its sole discretion (which determination by the Committee shall
be conclusive) all unexercised Options of such Option holder shall terminate
immediately upon such termination of the holder's employment by the Company and
all Subsidiaries, and an Option holder whose employment by the Company and
Subsidiaries is so terminated shall have no right after such termination to
exercise any unexercised Option which such employee might have exercised prior
to the termination of employment by the Company and Subsidiaries.
Notwithstanding anything in the Plan or in this paragraph 5(e) to the contrary,
with respect to any Option, the Committee may determine, in its sole discretion,
either at the time of grant or thereafter, to permit such Option to be exercised
for such period extending beyond the one-year and three-month periods specified
above as the Committee deems appropriate, but in no event beyond the expiration
date specified pursuant to paragraph (a) of this paragraph 5.
(f) RESTRICTIONS ON TRANSFERABILITY OF OPTIONS. Options shall not be
transferable otherwise than by will or by the laws of descent and distribution
or as provided in this paragraph 5(f). Notwithstanding the preceding, the
Committee may, in its discretion, authorize a transfer of all or a portion of
any Option, other than an Incentive Option, by the initial holder who is an
executive officer of the Company, as determined from time to time by the Board
of Directors of the Company to (i) the stepchildren, grandchildren or other
family members of the initial holder ("Family Members"), (ii) a trust or trusts
for the exclusive benefit of such Family Members, or (iii) such other persons or
entities which the Committee may permit; PROVIDED, HOWEVER, that subsequent
transfers of such Options shall be prohibited except by will or the laws of
descent and distribution. Any transfer of such an Option shall be subject to
such terms and conditions as the Committee shall approve, including that such
Option shall continue to be subject to the terms and conditions of the Option
and of the Plan as amended from time to time. The events of termination of
employment (including by death) under paragraph (e) of this paragraph 5 shall
continue to be applied with respect to the initial holder, following which a
transferred Option shall be exercisable by the transferee only to the extent and
for the periods provided pursuant to paragraph (e) of this paragraph 5. An
Incentive Option shall not be transferable otherwise than by will or by the laws
of descent and distribution and shall be exercisable during the holder's
lifetime only by the holder thereof.
(g) DOLLAR LIMITATION. As provided by Section 422(d) of the Code, no
Incentive Option may be granted under the Plan to any employee to the extent
that the aggregate fair market value (determined as of the date of grant of the
Option) of the common stock of the Company or any Subsidiary for which such
employee has been granted options under all incentive stock option plans of the
Company and its Subsidiaries qualifying as incentive stock options under Section
422 of the Code exercisable for the first time by such optionee during any
calendar year exceeds $100,000. Options with respect to which no designation is
made by the Committee shall be deemed to be Incentive Options to the extent that
the $100,000 limitation described in the preceding sentence is met. This
paragraph shall be applied by taking Options into account in the order in which
they are granted.
(h) OTHER OPTION PROVISIONS. Each Option agreement shall contain such terms
and provisions as the Committee may determine to be necessary or desirable.
(i) NO RIGHTS AS A SHAREHOLDER. No optionee shall have any rights as a
shareholder with respect to any shares of Common Stock subject to option prior
to the date of issuance of a certificate or certificates for such shares.
6. ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK. In the event of any
change in the Common Stock of the Company by reason of any stock dividend,
recapitalization, reorganization, merger, consolidation, split-up, combination,
or exchange of shares, or rights offering to purchase Common Stock at a price
substantially below fair market value, or of any similar change affecting the
Common Stock, the number and kind of shares which thereafter may be issued upon
the issuance of Options and the number and kind of shares subject to Options and
the purchase price per share under outstanding Option agreements 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, or available for, optionees under the Plan.
7. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and
exercise of Options thereunder, and the obligation of the Company to sell and
deliver shares of Common Stock under such Options, 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
government regulatory body, is necessary or desirable as a condition of, or in
connection with, the sale or purchase of shares under the Plan, no 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 shares are not
required to be or have not been registered, upon exercising all or any portion
of a Option, the Company may require each optionee (or any person acting under
paragraph 5(e)), as a condition of such exercise, to represent that the shares
are being acquired for investment only and not with a view to their sale or
distribution, and shall make such other representations and furnish such
information deemed appropriate by counsel to the Company. Stock certificates
evidencing unregistered shares acquired upon exercise of Options 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 to the absence of such
registration or any opinion of counsel acceptable to the
Company that such transfer will not require registration under
such Act.
8. NO RIGHTS TO CONTINUED EMPLOYMENT. The Plan and any Option granted under
the Plan shall not confer upon any optionee any right with respect to
continuance of employment by the Company or any Subsidiary, nor shall they
affect in any way the right of the Company or any Subsidiary by which an
optionee is employed to terminate such person's employment at any time.
9. WITHHOLDING. The Committee in its discretion may cause to be made as a
condition precedent to the payment of any cash or stock appropriate arrangements
for the withholding of any federal, state, local or foreign taxes.
10. AMENDMENT, SUSPENSION AND DISCONTINUANCE. Except as hereinafter
provided, the Board of Directors or the Committee may at any time withdraw or
from time to time amend the Plan as it relates to, and the terms and conditions
of, any Options not theretofore granted, and the Board of Directors or the
Committee, with the consent of the affected holder of an Option, may at any time
withdraw or from time to time amend the Plan as it relates to, and the terms and
conditions of, any outstanding Option. Notwithstanding the foregoing, any
amendment by the Board of Directors or the Committee which would increase the
number of shares issuable under Options or the number of shares which may be the
subject of Options granted to any individual optionee, or change the class of
persons to whom Options may be granted, shall be subject to the approval of the
shareholders of the Corporation within one year of such amendment.
11. EFFECTIVE DATE AND TERM. The effective date of the Plan shall be
October 23, 1991, subject to approval of the Plan by the vote of the holders of
a majority of the Common Stock the not later than October 22, 1992. Options may
be granted, but not exercised, prior to such shareholder approval; PROVIDED,
HOWEVER, that if such shareholder approval is not obtained, any Options granted
under this Plan shall be of no effect. This Plan shall terminate on and no
Option shall be granted after October 22, 2001; PROVIDED, HOWEVER, that any
Options previously granted may be exercised in accordance with their terms.
12. NAME. The Plan shall be known as the "Recoton Corporation 1991 Stock
Option Plan."
<PAGE>
FORM OF OPTION FOR GRANTS OF 1000 SHARES OR MORE
CODE #1 = NUMBER OF SHARES PER OPTION
2 = OPTION NUMBER
3 = NAME OF OPTIONEE
4 = SAME AS #1
5 = OPTION EXERCISE PRICE
6 = WHETHER OR NOT THE OPTION IS AN INCENTIVE OPTION
NO. OF SHARES SUBJECT TO OPTION: 1 OPTION NO.: 2
RECOTON CORPORATION
1991 STOCK OPTION PLAN AGREEMENT
This AGREEMENT dated as of the ______ day of __________, 199_ between
RECOTON CORPORATION, a New York corporation (the "Company"), and 3~ (the
"Optionee").
W I T N E 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 4~ shares of Common Stock, $.20 par value, of the Company at
the purchase price of $______ 4~ per share. The Option [is][is not] intended to
qualify as an incentive stock option pursuant to Section 422 of the Internal
Revenue Code of 1986, as amended [NOTE ANY NEED TO ALLOCATE BETWEEN ISO AND
NQSO]6~.
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. No part of the Option may be exercised until
Optionee has remained in the continuous employ of the Company, or of a
subsidiary of the Company as defined in the Plan (a "Subsidiary"), for a period
of one year from the date hereof. 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 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): (a) immediately upon (but prior to the expiration
of the term of the Option) the holder's retirement from the Company and all
Subsidiaries on or after such person's 65th birthday, (b) subject to the
provisions of Section 5(e) hereof, upon the disability (to the extent and in a
manner as shall be determined by the Committee in its sole discretion) or death
of the holder, (c) 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 (d) if, while the holder is
employed by the Company or a Subsidiary, there occurs a Change in Control. For
purposes of this Plan, a "Change in Control" shall be deemed to have occurred if
(a) 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 (the
"Exchange Act")) ("Person"), 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; (b) during any period of twelve months, individuals
who at the beginning of such period constitute the Board of Directors, and any
new director whose election or nomination was approved by the directors in
office who either were directors at the beginning of the period or whose
election or nomination was previously so approved, cease for any reason to
constitute at least a majority thereof; (c) a Person acquires ownership of stock
of the Company that, together with stock 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 stock ("50% Ownership") of the Company,
unless the additional stock is acquired by a Person possessing, immediately
prior to such acquisition, ownership of 40% or more of the Common Stock; or (d)
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 (a) and
(b), 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
(d), a Change in Control will not be deemed to occur if the assets of the
Company are transferred: (i) to a shareholder in exchange for his stock, (ii) to
an entity in which the Corporation has (directly or indirectly) 50% Ownership,
or (iii) to a Person that has (directly or indirectly) at least 50% ownership of
the Corporation 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, 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. Subject to the provisions of
subparagraph (i), as soon as practicable following receipt of such cash, check,
stock 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.
(1) In the event of the death of Optionee while an employee of
the Company or a Subsidiary, the Option may be exercised, to the extent
that Optionee could have done so at the date of death, 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.
(2) If Optionee's employment by the Company or a Subsidiary
shall terminate because of Optionee's permanent disability, Optionee
may exercise the Option, to the extent that Optionee could have done so
at the date of termination of employment, at any time, or from time to
time, within one year of such termination but not later than the
Expiration Date.
(3) 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 the Option, to the extent that
Optionee could have done so at the date of termination of employment,
at any time, or from time to time, within three months of the date of
termination of employment but not later than the Expiration Date.
(4) Notwithstanding anything in this subparagraph (d) to the
contrary, if Optionee's employment is terminated because of the Option
holder's violation of the duties of such employment by the Company or a
Subsidiary as such person may from time to time have, the existence of
which violation shall be determined by the Committee in its sole
discretion (which determination by the Committee shall be conclusive),
all unexercised Options of such Option holder shall terminate
immediately upon such termination of the holder's employment by the
Company and all Subsidiaries, and an Option holder whose employment by
the Company and Subsidiaries is so terminated shall have no right after
such termination to exercise any unexercised Option which such
employee might have exercised prior to the termination of employment by
the Company and Subsidiaries.
(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 Stock 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 Stock at a price substantially below fair
market value, or of any similar change affecting the Common Stock, 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 Stock 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 Optionee's
employer to terminate Optionee's employment at any time.
(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 Stock 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 or desirable as a condition of, or in connection
with, the sale or purchase of shares under the Plan, no 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 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 shares are 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 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. Any notice under this Agreement the Company shall be addressed
to it at its office, 2950 Lake Emma Road, Lake Mary, FL 32746; Attention:
President, and any notice under this Agreement to Optionee shall be addressed to
Optionee at Optionee's home address as shown on the records of the Company,
subject to the right of either party to designate at any time hereafter in
writing some other address.
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>
SCHEDULE 1 -- NOTATIONS AS TO PARTIAL EXERCISE
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Number of Balance of
Date of Shares Shares on Authorized Notation
EXERCISE PURCHASED OPTION SIGNATURE DATE
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<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 Stock of Recoton Corporation (the "Company") under
and pursuant to 1991 Stock Option Plan Agreement No. ___ between the Company and
the undersigned dated ___________________________, 19____.
Delivered herewith is a [check in the amount of $______] [certificate for
____ shares of Common Stock 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] in
payment of the option price.
[The undersigned hereby represents and agrees that all of the Common Stock
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 Stock has not been registered under the Securities Act of 1933 (the
"Act"), as amended, and such Common Stock 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]
EXHIBIT 10.10
EFFECTIVE: 9/1/89
BOARD APPROVAL: 10/23/91
SHAREHOLDER APPROVAL: 6/17/92
AMENDED (BY BOARD): 3/23/98
RECOTON CORPORATION
NONQUALIFIED STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to provide a means whereby Recoton
Corporation (the "Company") may, through the grant to employees of options to
purchase the Company's Common Stock (as defined below), attract and retain
persons of ability (including officers and directors who are also employees) of
the Company and of any Subsidiary (as defined below), as key employees and
motivate such employees to exert their best efforts on behalf of the Company and
any Subsidiary. The Plan authorizes the grant to key employees of the Company of
stock incentives in the form of options to purchase shares of Common Stock of
the Company which are not incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended from time to time (the "Code") (such
options being referred to as "Nonqualified Options" or "Options").
As used herein, the term "Subsidiary" shall mean any corporation which at
the time of the granting of an Option qualifies as a subsidiary of the Company
under the definition of "subsidiary corporation" in Section 424(f) of the Code,
or any similar provision hereinafter enacted.
2. NUMBER OF SHARES AVAILABLE UNDER PLAN. Options may be granted by the
Company from time to time to key employees of either the Company or any
Subsidiary (such recipients being hereafter referred to as "optionees") to
purchase up to an aggregate of 231,110* shares of Common Stock ($.20 par value)
of the Company (the "Common Stock") for all optionees and 231,110* such shares
shall be reserved for Options granted under the Plan (subject to adjustment as
provided in paragraph 6). The shares issued upon exercise of Options granted
under the Plan may be authorized and unissued shares or shares held by the
Company in its treasury, or both. If any Options granted under the Plan shall
terminate, expire or be canceled as to any shares, new Options may thereafter be
granted covering such shares.
3. ADMINISTRATION. The Plan shall be administered by a Committee which
shall consist of two or more directors of the Corporation, each of whom shall be
a "Non-Employee Director" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and an "outside director"
within the meaning of Section 162 (m) of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), to the extent that such persons are
available to serve (and at any time when there are not at least two of such
- --------
* Increased from 130,000 to reflect 33-1/3% stock dividend distributed
in December 1992 and October 1993.
<PAGE>
persons, the Board of Directors shall function as the Committee). The members of
the Committee shall be selected by the Board of Directors. Any member of the
Committee may resign by giving written notice thereof to the Board of Directors,
and any member of the Committee may be removed at any time, with or without
cause, by the Board of Directors. If, for any reason, a member of the Committee
shall cease to serve, the vacancy shall be filled by the Board of Directors. The
Committee shall establish such rules and procedures as are necessary or
advisable to administer the Plan.
The Committee may interpret the Plan, prescribe, amend, and rescind any
rules and regulations necessary or appropriate for the administration of the
Plan, and make such other determinations and take such other action as it deems
necessary or advisable, except as such action may be otherwise expressly
reserved in the Plan to the Board. Without limiting the generality of the
foregoing, the Committee may, in its sole discretion, treat all or any portion
of any period during which an optionee is on military leave or on an approved
leave of absence from the Company or a Subsidiary as a period of employment of
such optionee by the Company or such Subsidiary, as the case may be, for the
purpose of accrual of his rights under his Option. Any interpretation,
determination, or other action made or taken by the Committee shall be final,
binding and conclusive. Any decision or determination reduced to writing and
signed by all members of the Committee shall be fully as effective as if made by
unanimous vote at a meeting duly called and held.
The Committee may employ such legal counsel, consultants and agents as it
may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent.
No member or former member of the Committee or of the Board shall be liable
for any action or determination made in good faith with respect to the Plan or
any Option awarded under it. To the maximum extent permitted by applicable law,
each member or former member of the Committee or of the Board shall be
indemnified and held harmless by the Company against any cost or expense
(including counsel fees, which fees may be advanced by the Company) or liability
(including any sum paid in settlement of a claim with the approval of the
Company) arising out of any act or omission to act in connection with the Plan
unless arising out of such member's or former member's own fraud or bad faith.
Such indemnification shall be in addition to any rights of indemnification the
members or former members may have as directors or under the By-Laws of the
Company.
4. ELIGIBILITY AND AWARDS. Subject to the provisions of the Plan, the
Committee shall have the power to (a) authorize the granting of Options; (b)
determine and designate from time to time those employees of the Company or of
any Subsidiary to whom Options are to be granted; (c) determine the number of
shares subject to each Option; and (d) determine the time or times and the
manner when each Option shall be exercisable and the duration of the exercise
period. No director of the Company who is not also an employee of the Company or
a Subsidiary shall be entitled to receive any Option under the Plan. The
Committee may condition the grant of any Option on the surrender of any option
under this or any other plan.
5. TERMS AND CONDITIONS OF OPTIONS. Each Option granted under the Plan
shall be evidenced by an agreement, in form approved by the Committee, which
shall be subject to the following express terms and conditions and to such other
terms and conditions as the Committee may deem appropriate:
(a) OPTION PERIOD. Each Option agreement shall specify the period for which
the Option thereunder is granted and shall provide that the Option shall expire
at the end of such period.
(b) OPTION PRICE. The Option price per share shall be determined by the
Committee at the time any Option is granted.
(c) EXERCISE OF OPTION. No part of any Option may be exercised until the
optionee shall have remained in the employ of the Company or of a Subsidiary for
such period, if any, after the date on which the Option is granted as the
Committee may specify in the Option agreement. Subject in each case to the
provisions of paragraphs (a) through (c) and (e) of this paragraph 5, any Option
may be exercised, to the extent exercisable by its terms, at such time or times
as may be determined by the Committee at the time of grant; PROVIDED, HOWEVER,
that no Option may be exercised in part or in full prior to the approval of the
Plan by a majority vote of the shareholders of the Company as provided in
Section 11 and, PROVIDED FURTHER, that no Options granted to executive officers,
directors and beneficial owners of ten percent or more of any class of the
Company's equity securities may be exercised in part or in full prior to the
later of six months from the date of grant of the Option or six months from date
of approval of the Plan by the shareholders of the Company.
(d) PAYMENT OF PURCHASE PRICE UPON EXERCISE. Upon the exercise of an
Option, the form of exercise notice required by the Option agreement shall be
delivered and the purchase price shall be paid (i) in cash or check payable to
the order of the Company or (ii) if the Option agreement so provides, in stock
of the Company, valued by the Committee at its fair market value on the date of
exercise.
(e) EXERCISE IN THE EVENT OF DEATH OR TERMINATION OF EMPLOYMENT. (1) If an
optionee dies while an employee of the Company or a Subsidiary, such person's
Option may be exercised to the extent that the optionee could have done so at
the date of his or her death by the person or persons to whom the optionee's
rights under the Option pass by will or applicable law, or if no such person has
such right, by the optionee's executors or administrators, at any time, or from
time to time, within one year after the date of the optionee's death but not
later than the expiration date specified pursuant to paragraph (a) of this
paragraph 5. (2) If an optionee's employment by the Company or a Subsidiary
terminates because of the optionee's permanent disability, the optionee may
exercise his or her Option, to the extent that the optionee could have done so
at the date of termination of employment, at any time, or from time to time,
within one year of such determination but not later than the expiration date
specified pursuant to paragraph (a) of this paragraph 5. (3) If an optionee's
employment by the Company or a Subsidiary terminates for any reason other than
death or permanent disability, the optionee may exercise his or her Option, to
the extent that the optionee could have done so at the date of termination of
employment, at any time, or from time to time, within three months of the date
of termination of employment but not later than the expiration date specified
pursuant to paragraph (a) of this paragraph 5. (4) Notwithstanding anything in
this paragraph 5(e) to the contrary, if an optionee's employment is terminated
for because of the Option holder's violation of the duties of such employment by
the Company or a Subsidiary as such person may from time to time have, the
existence of which violation shall be determined by the Committee in its sole
discretion (which determination by the Committee shall be conclusive), all
unexercised Options of such Option holder shall terminate immediately upon such
termination of the holder's employment by the Company and all Subsidiaries, and
an Option holder whose employment by the Company and Subsidiaries is so
terminated shall have no right after such termination to exercise any
unexercised Option which such employee might have exercised prior to the
termination of employment by the Company and Subsidiaries. Notwithstanding
anything in the Plan or in this paragraph 5(e) to the contrary, with respect to
any Option, the Committee may determine, in its sole discretion, either at the
time of grant or thereafter, to permit such Option to be exercised for such
period extending beyond the one-year and three-month periods specified above as
the Committee deems appropriate, but in no event beyond the expiration date
specified pursuant to paragraph (a) of this paragraph 5.
(f) RESTRICTIONS ON TRANSFERABILITY OF OPTIONS. Options shall not be
transferable otherwise than by will or by the laws of descent and distribution
or as provided in this paragraph 5(f). Notwithstanding the preceding, the
Committee may, in its discretion, authorize a transfer of all or a portion of
any Option by the initial holder who is an executive officer of the Company, as
determined from time to time by the Board of Directors of the Company to (i) the
spouse, children, stepchildren, grandchildren or other family members of the
initial holder ("Family Members"), (ii) a trust or trusts for the exclusive
benefit of such Family Members, or (iii) such other persons or entities which
the Committee may permit; PROVIDED, HOWEVER, that subsequent transfers of such
Options shall be prohibited except by will or the laws of descent and
distribution. Any transfer of such an Option shall be subject to such terms and
conditions as the Committee shall approve, including that such Option shall
continue to be subject to the terms and conditions of the Option and of the Plan
as amended from time to time. The events of termination of employment (including
by death) under paragraph (e) of this paragraph 5 shall continue to be applied
with respect to the initial holder, following which a transferred Option shall
be exercisable by the transferee only to the extent and for the periods provided
pursuant to paragraph (e) of this paragraph 5.
(f) OTHER OPTION PROVISIONS. Each Option agreement shall contain such terms
and provisions as the Committee may determine to be necessary or desirable.
(g) NO RIGHTS AS A SHAREHOLDER. No optionee shall have any rights as a
shareholder with respect to any shares of Common Stock subject to option prior
to the date of issuance of a certificate or certificates for such shares.
6. ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK. In the event of any
change in the Common Stock by reason of any stock dividend, recapitalization,
reorganization, merger, consolidation, split-up, combination, or exchange of
shares, or rights offering to purchase Common Stock at a price substantially
below fair market value, or of any similar change affecting the Common Stock,
the number and kind of shares which thereafter may be issued upon the issuance
of Options and the number and kind of shares subject to Options and the purchase
price per share under outstanding Option agreements 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, or available for, optionees under the Plan.
7. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and
exercise of Options thereunder, and the obligation of the Company to sell and
deliver shares of Common Stock under such Options, 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
government regulatory body, is necessary or desirable as a condition of, or in
connection with, the sale or purchase of shares under the Plan, no 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 shares are not
required to be or have not been registered, upon exercising all or any portion
of a Option, the Company may require each optionee (or any person acting under
paragraph 5(e)), as a condition of such exercise, to represent that the shares
are being acquired for investment only and not with a view to their sale or
distribution, and shall make such other representations and furnish such
information deemed appropriate by counsel to the Company. Stock certificates
evidencing unregistered shares acquired upon exercise of Options 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 to the absence of such
registration or any opinion of counsel acceptable to the
Company that such transfer will not require registration under
such Act.
8. NO RIGHTS TO CONTINUED EMPLOYMENT. The Plan and any Option granted under
the Plan shall not confer upon any optionee any right with respect to
continuance of employment by the Company or any Subsidiary, nor shall they
affect in any way the right of the Company or any Subsidiary by which an
optionee is employed to terminate such person's employment at any time.
9. WITHHOLDING. The Committee in its discretion may cause to be made as a
condition precedent to the payment of any cash or stock appropriate arrangements
for the withholding of any federal, state, local or foreign taxes.
10. AMENDMENT, SUSPENSION AND DISCONTINUANCE. Except as hereinafter
provided, the Board of Directors or the Committee may at any time withdraw or
from time to time amend the Plan as it relates to, and the terms and conditions
of, any Options not theretofore granted, and the Board of Directors or the
Committee, with the consent of the affected holder of an Option, may at any time
withdraw or from time to time amend the Plan as it relates to, and the terms and
conditions of, any outstanding Option. Notwithstanding the foregoing, any
amendment by the Board of Directors or the Committee which would increase the
number of shares issuable under Options or change the class of persons to whom
Options may be granted shall be subject to the approval of the shareholders of
the Corporation within one year of such amendment.
11. EFFECTIVE DATE AND TERM. The effective date of the Plan shall be
September 1, 1989, subject to approval of the Plan by the vote of the holders of
a majority of the Common Stock. Options may be granted, but not exercised, prior
to such shareholder approval. This Plan shall terminate and no Option shall be
granted after August 30, 1999; PROVIDED, HOWEVER, that any Options previously
granted may be exercised in accordance with their terms.
12. NAME. The Plan shall be known as the "Recoton Corporation Nonqualified
Stock Option Plan."
EXHIBIT 10.20
AMENDMENT TO SHARED FACILITIES AGREEMENT
Amendment, dated as of March 3rd, 1998, between Recoton Audio Corporation
("LICENSOR," formerly known as International Jensen Incorporated), and
International Jensen Incorporated ("LICENSEE," formerly known as IJI
Acquisition) to the Shared Facilities Agreement between RAC and IJI dated as of
August 28, 1996 (the " AGREEMENT.")
In consideration of the following covenants and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Licensor and Licensee hereby agree to amend the Agreement as follows:
1. Effective April 1, 1998, the Schiller License shall extend until
September 30, 2000, subject to termination rights set forth in Section 5.1 of
the Agreement, as amended hereby, and Licensee's Schiller Park Proportionate
Share shall be fixed for the term of the Schiller License at 62%, which
percentage shall not be further adjusted without prior written agreement of the
parties.
2. Section 5.1(a) (iii) is hereby amended to read as follows: "For any
reason or for no reason, by Licensee on or after October 1, 1999 on written
notice (the "TERMINATION NOTICE") given to Licensor at least 90 days prior to
the effective termination date (the "EFFECTIVE DATE OF TERMINATION") on the
following terms: (i) if the noticed Effective Date of Termination is between
October 1, 1999 and December 31, 1999 (dates inclusive), Licensee shall pay
Licensee $100,000 as liquidated damages; (ii) if the noticed Effective Date of
Termination is between January 1, 2000 and March 31, 2000 (dates inclusive),
Licensee shall pay Licensee $60,000 as liquidated damages; (iii) if the noticed
Effective Date of Termination is between April 1, 2000 and June 30, 2000 (dates
inclusive), Licensee shall pay Licensee $45,000 as liquidated damages; and (iv)
if the noticed Effective Date of Termination is between July 1, 2000 and
September 30, 2000 (dates inclusive), Licensee shall pay Licensee $15,000 as
liquidated damages, which amount of liquidated damages shall be paid with and be
a condition of the effectiveness of the Termination Notice."
3. Section 5.2 is amended to read: "All of Licensee's Property, including
the Purchased Assets as that term is defined in the Purchase Agreement, shall be
removed by Licensee from a Shared Facility not later than the termination of the
license for such facility, at the expense of Licensee."
4. Section 7.2 is amended to provide that notice to Licensor shall be sent
to the address for Recoton Corporation as set forth in Section 7.2, attn.: Joe
Massot, notice to Stroock & Stroock & Lavan LLP should be sent to 180 Maiden
Lane, New York , NY 10038 and notice to Licensee shall be sent to International
Jensen Incorporated at the address set forth for Licensee.
5. The parties acknowledge that the license with respect to the
Lincolnshire Facility has terminated.
<PAGE>
6. The Agreement continues in full force and effect in accordance with its
terms as amended hereby.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered as of the date set forth above.
LICENSOR:
RECOTON AUDIO CORPORATION, a Delaware
corporation
By: /s/ Stuart Mont
Its: Vice President
LICENSEE:
INTERNATIONAL JENSEN INCORPORATED,
an Illinois corporation
By: James E. Sula
Its: Senior Vice President
EXHIBIT 10.24
AMENDMENT
AMENDMENT, dated as of March 4, 1998 (this "AMENDMENT"), to the Amended and
Restated Credit Agreement, dated as of September 9, 1997 as heretofore amended
(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, as
Administrative Agent for the Lenders (in such capacity, the "AGENT").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make,
and have made, certain loans and other extensions of credit to t he Borrower,
and
WHEREAS, the Borrower has requested, and upon this Amendment becoming
effective, the Lenders have agreed, that certain provisions of the Credit
Agreement be amended in the manner provided for in this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and in consideration of the premises, the parties
hereto hereby agree as follows:
SECTION I. AMENDMENTS
1.1. AMENDMENT TO SECTION 7.2. Subsection 7.2(g) of the Credit Agreement is
hereby amended by deleting therefrom the amount "US$2,500,000" and substituting
in lieu thereof the amount "US$12,000,000".
SECTION II. MISCELLANEOUS
2.1. NOTICES. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by facsimile
transmission) and, unless otherwise expressly provided herein, shall be deemed
to have been duly given or made (a) in the case of delivery by hand, when
delivered, (b) in the case of delivery by registered or certified mail, five
days (or ten days, in the case of mailings between locations inside and outside
of the United States) days after being deposited in the mails, postage prepaid
(airmail, in the case of mailings between locations inside and outside of the
United States), or (c) in the case of delivery by facsimile transmission, when
sent and receipt has been confirmed, addressed as follows, or to such other
address as may be hereafter notified by the respective parties hereto:
The Borrower: Recoton Corporation
2950 Lake Emma Road
Lake Mary, Florida 32746
Attention: Stuart Mont
Fax: 407-444-0559
With a copy to:
Theodore Lynn, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Fax: 212 806-6006
The Agent: The Chase Manhattan Bank
92-25 Queens Boulevard, 11th Floor
Rego Park, New York 11374
Attention: Recoton Account Officer
Fax: 718-830-5892
2.2. SUCCESSORS AND ASSIGNS: PARTICIPATIONS AND ASSIGNMENTS. This Amendment
shall be binding upon and inure to the benefit of the Borrower and the Agent and
their respective successors and assigns, except that the Borrower may not assign
or transfer any of its rights or obligations under this Amendment without the
prior written consent of the Agent.
2.3. COUNTERPARTS. This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Amendment signed by all the parties shall be lodged with Borrower and the Agent.
2.4. SEVERABILITY. Any provision of this Amendment 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.
2.5. INTEGRATION. This Amendment represents the agreement of the Borrower
and the Agent with respect to the subject matter hereof and thereof, and there
are not promises, undertakings, representations and warranties by the Agent
relative to the subject matter hereof and thereof not expressly set forth or
referred to herein.
2.6. FEES AND EXPENSES. The Borrower hereby agrees to pay all reasonable
legal fees and disbursements incurred by the Agent in connection with the
preparation, execution and delivery of this Amendment.
2.7. CONTINUING EFFECT OF PREVIOUS AGREEMENTS. Except as expressly amended
hereby, the terms and provisions of the Credit Agreement and each of the
documents executed and delivered in connection therewith shall remain in full
force and effect and are hereby ratified and confirmed.
2.8. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
RECOTON CORPORATION
By: /S/ ARNOLD KEZSBOM
Name: Arnold Kezsbom
Title: Vice President
THE CHASE MANHATTAN BANK
as Administrative Agent and as a Lender
By: /S/ C.F. MATTHIESSEN
Name: C.F. Matthiessen
Title: Vice President
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By: /S/ WILLIAM C. BARR III
Name: William C. Barr III
Title: First Vice President
HARRIS TRUST AND SAVINGS BANK
By: /S/ RAYMOND WHITACRE
Name: Raymond Whitacre
Title: Vice President
<PAGE>
MARINE MIDLAND BANK
By:
Name:
Title:
RECOTON CORPORATION
2950 LAKE EMMA ROAD
LAKE MARY, FL 32746
March 25, 1998
To the holders of the Notes
Listed as Noteholders on the
signature page hereto
RE: ADJUSTABLE RATE SENIOR NOTES (THE "NOTE") OF RECOTON
CORPORATION DUE JANUARY 6, 2007 ISSUED PURSUANT TO THE
NOTE PURCHASE AGREEMENT DATED AS OF JANUARY 6, 1997
Ladies and Gentlemen:
The purpose of this letter is to provide notice to each of the holders of
the Notes (the "NOTEHOLDERS") of the noncompliance of Recoton Corporation (the
"COMPANY") with certain of the negative covenants of the Note Purchase Agreement
dated as of January 6, 1997 and to request from the Noteholders a waiver of
certain Events of Default and a modification of certain covenants contained in
the Note Purchase Agreement pursuant to Section 11C of the Note Purchase
Agreement (as amended by that certain Amendment Agreement dated as of May 13,
1997 and the Second Amendment Agreement dated as of August 13, 1997, the "NOTE
PURCHASE AGREEMENT"). All terms used herein and not otherwise defined herein
have the meanings specified in the Note Purchase Agreement.
WAIVER OF EVENTS OF DEFAULT
0.1 DEBT TO NET WORTH - SECTION 6C. As of December 31, 1997, the sum of
Consolidated Funded Debt plus Excess Current Debt of the Company was equal to
55.9% of the Consolidated Tangible Gross Worth of the Company. Section 6C of the
Note Purchase Agreement requires that this percentage remain less than 55%
determined at the end of the then most recently ended fiscal quarter of the
Company. As a consequence, the Company is in violation of Section 6C of the Note
Purchase Agreement as of December 31, 1997 and this violation constitutes an
Event of Default.
0.2 CASH FLOW TO INTEREST - SECTION 6D. As of December 31, 1997, the ratio
of Consolidated Adjusted Cash Flow for the then ended period of four fiscal
quarters of the Company to the Consolidated Interest Expense of the Company for
the same period was equal to 2.95 to 1.00. Section 6D of the Note Purchase
Agreement requires that the Company not permit this ratio to be less than 3.5 to
1.00. As a consequence, the Company is in violation of Section 6D of the Note
Purchase Agreement as of December 31, 1997 and this violation constitutes an
Event of Default.
0.3 NET WORTH - SECTION 6E. As of December 31, 1997, the Consolidated
Tangible Net Worth of the Company was $95,477,000. Section 6E of the Note
Purchase Agreement requires that the Company not permit its Consolidated
Tangible Net Worth to be less than the sum of $90,000,000 plus the Annual Net
Worth Increase Amount for the year ended December 31, 1997, a sum equal to
$96,791,000 as of December 31, 1997. As a consequence, the Company is in
violation of Section 6E of the Note Purchase Agreement as of December 31, 1997
and this violation constitutes an Event of Default.
AMENDMENTS TO COVENANTS
The Company requests the agreement of the Noteholders to the following
amendments to certain of the covenants in the Note Purchase Agreement.
0.1 DEBT TO NET WORTH - SECTION 6C. During the period beginning on and
including January 1, 1998 and ending on and including the earlier of
(a) the date when the Note Purchase Agreement is amended to include
certain less restrictive covenants, or
(b) June 29, 1998,
(such date referred to as the "PERMANENT AMENDMENT DATE") the reference in
Section 6C(iii)(a)(3) to "50% of Consolidated Tangible Gross Worth" shall be
amended to be a reference to "59% of Consolidated Tangible Gross Worth." On and
after June 30, 1998, such reference shall, unless amended subsequently to the
date hereof, be amended to be a reference to A50%of Consolidated Tangible Gross
Worth.A
0.2 CASH FLOW TO INTEREST - SECTION 6D. During the period beginning on and
including January 1, 1998 and ending on and including the Permanent Amendment
Date, the reference in Section 6D to "3.50 to 1.00" shall be amended to be a
reference to "2.50 to 1.00." On and after June 30, 1998, such reference shall,
unless amended subsequently to the date hereof, be amended to be a reference to
"3.50 to 1.00."
0.3 NET WORTH - SECTION 6E. During the period beginning on and including
January 1, 1998 and ending on and including the Permanent Amendment Date, the
reference in Section 6E(iii)(a) to "$90,000,000" shall be amended to be a
reference to "$88,000,000." On and after June 30, 1998, such reference shall,
unless amended subsequently to the date hereof, be amended to be a reference to
"$90,000,000."
Accordingly, the Company hereby requests that the Required Holders waive
the Events of Default specifically described in the preceding paragraph 1, agree
to the amendments set forth in the preceding paragraph 2, and evidence such
waiver and agreement in accordance with the final paragraph hereof.
The waiver and amendments set forth herein are subject to the full
execution and delivery of this letter by the Company and the Required Holders.
The execution, delivery and effectiveness of this letter shall not be deemed,
except as expressly provided herein,
(a) to operate as a waiver of any right, power or remedy of the
Noteholders under the Note Purchase Agreement,
(b) to constitute a waiver of any other present or future Event of
Default,
(c) to constitute an amendment of any other provision of the Note
Purchase Agreement, or
(d) to prejudice any rights which any Noteholder now has or may have
in the future under or in connection with the Note Purchase Agreement or
any other documents referred to therein.
Except for the waivers and amendments herein contained, all terms and conditions
of the Note Purchase Agreement shall remain unchanged and in full force and
effect.
This letter and all acceptances hereof may be executed simultaneously in
any number of counterparts, each of which shall be deemed an original, with the
same effect as if the signatures thereto and hereto were upon the same
instrument.
If you are in agreement with the foregoing, please sign both copies of this
letter and return each copy to your special counsel, Hebb & Gitlin, a
Professional Corporation, One State Street, Hartford, Connecticut 06103,
Attention: Thomas Love.
Very truly yours,
RECOTON CORPORATION
By: /s/ Arnold Kezsbom
------------------------
Name: Arnold Kezsbom
Title: Vice President
NOTEHOLDERS:
ACCEPTED AND AGREED:
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: Authorized Signatory
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
By: /s/ Daniel C. Budde
Name: Daniel C. Budde
Title: Authorized Signatory
JOHN HANCOCK LIFE INSURANCE COMPANY OF AMERICA
By: /s/ Daniel C. Budde
Name: Daniel C. Budde
Title: Authorized Signatory
MELLON BANK, N.A., SOLELY IN ITS CAPACITY AS The decision to participate in
TRUSTEE FOR THE LONG TERM INVESTMENT TRUST, this investment, any
COMPANY), AND NOT IN ITS INDIVIDUAL CAPACITY representations made herein by
the participant, and any actions
By: ------------------------------------
Name: taken hereunder by the
Title: participant has/have been made
solely at the discretion of
the investment fiduciary who has
sole investment discretion with
respect to this investment
[Seal]
MELLON BANK, N.A., SOLELY IN ITS CAPACITY The decision to participate
AS TRUSTEE FOR THE NYNEX MASTER PENSION TRUST, in this agreement, any
(AS DIRECTED BY JOHN HANCOCK MUTUAL LIFE representations made herein by
INSURANCE COMPANY), AND NOT IN ITS INDIVIDUAL the participant, and any
CAPACITY actions taken hereunder by the
participant has/have been
solely at the direction of the
investment fiduciary who has
By: -------------------------------- sole investment discretion
Name: with respect to this
Title: investment
[Seal]
EXHIBIT 10.29
BOARD APPROVAL: 3/23/98
SHAREHOLDER APPROVAL: ../../...
RECOTON CORPORATION
1998 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Stock Option Plan is to advance the
interests of the Corporation by encouraging and enabling the acquisition of a
larger personal proprietary interest in the Corporation by directors, employees
and consultants of the Corporation and its Subsidiaries upon whose judgment and
keen interest the Corporation is largely dependent for the successful conduct of
its operations. It is anticipated that the acquisition of such proprietary
interest in the Corporation will stimulate the efforts of such directors,
employees and consultants on behalf of the Corporation and its Subsidiaries and
strengthen their desire to remain with the Corporation and its Subsidiaries. It
is also expected that the opportunity to acquire such a proprietary interest
will enable the Corporation and its Subsidiaries to attract desirable personnel,
directors and consultants.
2. DEFINITIONS. When used in this Plan, unless the context otherwise
requires: "Board of Directors" shall mean the Board of Directors of the
Corporation, as constituted at any time.
a) "Chairman of the Board" shall mean the person who at the time shall
be Chairman (or Co-Chairman) of the Board of Directors.
b) "Committee" shall mean the Committee hereinafter described in
Section 3.
c) "Corporation" shall mean Recoton Corporation.
d) "Fair Market Value" on a specified date shall mean the closing
price at which one Share was traded on the stock exchange, if any, on which
Shares are primarily traded on the prior day, or the last sale price or
average of the bid and asked closing prices at which one Share was traded
on the over-the-counter market on the prior day, as reported on the
National Association of Security Dealers Automated Quotation System, but if
no Shares were traded on such date, then on the last previous date on which
a Share was so traded, or, if none of the above are applicable the value of
a Share as established by the Committee for such date using any reasonable
method of valuation.
e) "Options" shall mean the stock options granted pursuant to this
Plan.
f) "Plan" shall mean this 1998 Stock Option Plan of Recoton
Corporation, as adopted by the Board of Directors on March 23, 1998, as
such Plan from time to time may be amended.
g) "Share" shall mean a common share of the Corporation.
h) "Subsidiary" shall mean any corporation 50% or more of whose stock
having general voting power is owned by the Corporation, or by another
Subsidiary as herein defined, of the Corporation.
3. COMMITTEE. The Plan shall be administered by a Committee which shall
consist of two or more directors of the Corporation, each of whom shall be a
"Non-Employee Director" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and an "outside director"
within the meaning of Section 162 (m) of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), to the extent that such persons are
available to serve (and at any time when there are not at least two of such
persons, the Board of Directors shall function as the Committee). The members of
the Committee shall be selected by the Board of Directors. Any member of the
Committee may resign by giving written notice thereof to the Board of Directors,
and any member of the Committee may be removed at any time, with or without
cause, by the Board of Directors. If, for any reason, a member of the Committee
shall cease to serve, the vacancy shall be filled by the Board of Directors. The
Committee shall establish such rules and procedures as are necessary or
advisable to administer the Plan.
4. PARTICIPANTS. The class of persons who are potential recipients of
Options granted under this Plan consist of the (i) employees of the Corporation
or a Subsidiary, as determined by the Committee in its sole discretion; (ii)
directors of the Corporation or a Subsidiary who are not also employees of the
Corporation or a Subsidiary, as determined by the Board of Directors in its sole
discretion and (iii) consultants to the Corporation or a Subsidiary, as
determined by the Committee or the Board of Directors in its sole discretion.
Notwithstanding any other provision of the Plan to the contrary, all
determinations with respect to any Option granted to a director of the
Corporation or a Subsidiary who is not also an employee of the Corporation or a
Subsidiary shall be made by the Board of Directors and, with respect to any such
Option and Options to consultants granted by the Board of Directors, all
references in the Plan to the Committee shall be deemed to refer to the Board of
Directors.
5. SHARES. Subject to the provisions of Section 14, the aggregate number of
Shares which may be the subject of Options granted under this Plan shall be
1,500,000 Shares, which may be either Shares held in treasury or authorized but
unissued Shares. The maximum number of Shares which may be the subject of
Options granted to any individual during any calendar year shall not exceed
250,000 Shares. If the Shares that would be issued or transferred pursuant to
any Option are not issued or transferred and cease to be issuable or
transferable for any reason, the number of Shares subject to such Option will no
longer be charged against the limitation provided for herein and may again be
made subject to Options; PROVIDED, HOWEVER, that with respect to any Option
granted to any person who is a "covered employee" as defined in Section 162(m)
of the Code and the regulations promulgated thereunder that is canceled or
repriced, the number of Shares subject to such Option shall continue to count
against the maximum number of Shares which may be the subject of Options granted
to such person and such maximum number of Shares shall be determined in
accordance with Section 162(m) of the Code and the regulations promulgated
thereunder.
6. GRANT OF OPTIONS. The number of Options to be granted to any individual
shall be determined by the Committee in its sole discretion.
At the time an Option is granted, the Committee may, in its sole
discretion, designate whether such Option (a) is to be considered as an
incentive stock option within the meaning of Section 422 of the Internal Revenue
Code, or (b) is not to be treated as an incentive stock option for purposes of
this Plan and the Internal Revenue Code. No Option which is intended to qualify
as an incentive stock option shall be granted under this Plan to any individual
who, at the time of such grant, is not an employee of the Corporation or a
Subsidiary.
Notwithstanding any other provision of this Plan to the contrary, to the
extent that the aggregate Fair Market Value (determined as of the date an Option
is granted) of the Shares with respect to which Options which are designated as
incentive stock options, and any other incentive stock options, granted to an
employee (under this Plan, or any other incentive stock option plan maintained
by the Corporation or any Subsidiary that meets the requirements of Section 422
of the Internal Revenue Code) first become exercisable in any calendar year
exceeds $100,000, such Options shall be treated as Options which are not
incentive stock options. Options with respect to which no designation is made by
the Committee shall be deemed to be incentive stock options to the extent that
the $100,000 limitation described in the preceding sentence is met. This
paragraph shall be applied by taking options into account in the order in which
they are granted.
If any Option shall expire, be canceled or terminate for any reason without
having been exercised in full, the unpurchased Shares subject thereto may again
be made subject to Options under the Plan.
Nothing herein contained shall be construed to prohibit the issuance of
Options at different times to the same employee, director or consultant.
A certificate of Option signed by the Chairman of the Board of Directors or
the President or a Vice President of the Corporation, shall be issued to each
person to whom an Option is granted, in the form attached hereto as Exhibit A
with respect to an incentive stock option, in the form attached hereto as
Exhibit B with respect to a non-qualified stock option granted to an employee or
consultant and in the form attached hereto as Exhibit C with respect to a
non-qualified stock option granted to a director who is not also an employee.
7. PRICE. The price per Share of the Shares to be purchased pursuant to the
exercise of any Option shall be determined by the Committee at the time of
grant; PROVIDED, HOWEVER, that the purchase price per share of the Shares to be
purchased pursuant to the exercise of an Option which is intended to be an
incentive stock option shall not be less than the Fair Market Value of a Share
on the day on which the Option is granted.
8. DURATION OF OPTIONS. The duration of any Option granted under this Plan
shall be determined by the Committee in its sole discretion at the time of
grant; PROVIDED, HOWEVER, that no Option which is intended to be an incentive
stock option shall remain in effect for a period of more than ten years from the
date upon which the Option is granted.
9. TEN PERCENT SHAREHOLDERS. Notwithstanding any other provision of this
Plan to the contrary, no Option which is intended to qualify as an incentive
stock option may be granted under this Plan to any employee who, at the time the
Option is granted, owns shares possessing more than ten percent of the total
combined voting power or value of all classes of stock of the Corporation,
unless the exercise price under such Option is at least 110% of the Fair Market
Value of a Share on the date such Option is granted and the duration of such
Option is no more than five years.
10. CONSIDERATION FOR OPTIONS. The Corporation shall obtain such
consideration for the grant of an Option as the Committee in its discretion may
request.
11. RESTRICTIONS ON TRANSFERABILITY OF OPTIONS. Options shall not be
transferable otherwise than by will or by the laws of descent and distribution
or as provided in this Section 11. Notwithstanding the preceding, the Committee
may, in its discretion, authorize a transfer of all or a portion of any Option,
other than an Option which is intended to qualify as an incentive stock option,
by such holders who are or were executive officers of the Company (as such
officers are determined from time to time by the Board of Directors of the
Company) to (i) the spouse, children, stepchildren, grandchildren or other
family members of the initial holder ("Family Members"), (ii) a trust or trusts
for the exclusive benefit of such Family Members or (iii) such other persons or
entities which the Committee may permit; PROVIDED, HOWEVER, that subsequent
transfers of such Options shall be prohibited except by will or the laws of
descent and distribution. Any transfer of such an Option shall be subject to
such terms and conditions as the Committee shall approve, including that such
Option shall continue to be subject to the terms and conditions of the Option
and of the Plan as amended from time to time. The events of termination of
employment or service under Section 13 shall continue to be applied with respect
to the initial holder, following which a transferred Option shall be exercisable
by the transferee only to the extent and for the periods provided pursuant to
Section 13. An Option which is intended to qualify as an incentive stock option
shall not be transferable otherwise than by will or by the laws of descent and
distribution and shall be exercisable during the holder's lifetime only by the
holder thereof.
12. EXERCISE OF OPTIONS. An Option, after the grant thereof, shall be
exercisable by the holder at such rate and times as may be determined by the
Committee.
Notwithstanding the foregoing, all or any part of any remaining unexercised
Option granted to any person may be exercised in the following circumstances
(but in no event prior to approval of the Plan by shareholders as provided in
Section 18 or after the expiration of the Option): (a) subject to the provisions
of Section 13 hereof, upon the holder's retirement as an employee from the
Corporation and all Subsidiaries at or after age 65, (b) subject to the
provisions of Section 13 hereof, upon the disability (to the extent and in a
manner as shall be determined by the Committee in its sole discretion) or death
of the holder, (c) upon the occurrence of such special circumstance or event as
in the opinion of the Committee merits special consideration, or (d) if, while
the holder is employed by, or serving as a director of or consultant to, the
Corporation or a Subsidiary, 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 Exchange Act ("Person"), 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
Corporation representing 20% or more of the combined voting power of the then
outstanding securities of the Corporation; (ii) during any period of twelve
months, individuals who at the beginning of such period constitute the Board of
Directors, and any new director whose election or nomination was approved by the
directors in office who either were directors at the beginning of the period or
whose election or nomination was previously so approved, cease for any reason to
constitute at least a majority thereof; (iii) a Person acquires beneficial
ownership of stock of the Corporation that, together with stock 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 stock ("50% Ownership") of the
Corporation, unless the additional stock is acquired by a Person possessing,
immediately prior to such acquisition, beneficial ownership of 40% or more of
the Common Stock; 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 Corporation 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 Corporation immediately prior to such acquisition. Notwithstanding the
foregoing, for purposes of clauses (i) and (ii), 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 Corporation is not transferred from a Person to
another Person; and for purposes of clause (iv), a Change in Control will not be
deemed to occur if the assets of the Corporation are transferred: (A) to a
shareholder in exchange for his or her stock, (B) to an entity in which the
Corporation has (directly or indirectly) 50% Ownership, or (C) to a Person that
has (directly or indirectly) at least 50% ownership of the Corporation with
respect to its stock outstanding, or to any entity in which such Person
possesses (directly or indirectly) 50% Ownership.
An Option shall be exercised by the delivery of a written notice duly
signed by the holder thereof to such effect ("Exercise Notice"), together with
the Option certificate and the full purchase price of the Shares purchased
pursuant to the exercise of the Option, to the Chairman of the Board or an
officer of the Corporation appointed by the Chairman of the Board for the
purpose of receiving the same. Payment of the full purchase price shall be made
as follows: in cash or by check payable to the order of the Corporation; by
delivery to the Corporation of Shares which shall be valued at their Fair Market
Value on the date of exercise of the Option (provided, that a holder may not use
any previously owned Shares unless the holder has beneficially owned such Shares
for at least six months); by providing with the Exercise Notice an order to a
designated broker to sell part or all of the Shares and to deliver sufficient
proceeds to the Corporation, in cash or by check payable to the order of the
Corporation, to pay the full purchase price of the Shares and all applicable
withholding taxes; or by such other methods as the Committee may permit from
time to time.
Within a reasonable time after the exercise of an Option, the Corporation
shall cause to be delivered to the person entitled thereto, a certificate for
the Shares purchased pursuant to the exercise of the Option. If the Option shall
have been exercised with respect to less than all of the Shares subject to the
Option, the Corporation shall also cause to be delivered to the person entitled
thereto a new Option certificate in replacement of the certificate surrendered
at the time of the exercise of the Option, indicating the number of Shares with
respect to which the Option remains available for exercise, or the original
Option certificate shall be endorsed to give effect to the partial exercise
thereof.
13. TERMINATION OF EMPLOYMENT OR SERVICE. All or any part of any Option, to
the extent unexercised, shall terminate immediately (i) in the case of an
employee, upon the cessation or termination for any reason of the Option
holder's employment by the Corporation and all Subsidiaries, or (ii) in the case
of a director of the Corporation or a Subsidiary who is not also an employee of
the Corporation or a Subsidiary or in the case of a consultant to the
Corporation or a Subsidiary, upon the holder's ceasing to serve as a director of
or consultant to (as the case may be) the Corporation or a Subsidiary, except
that in either case under clause (i) or (ii) above, the Option holder shall have
three months following the cessation of the holder's employment with the
Corporation and Subsidiaries or his service as a director of or consultant to
the Corporation or a Subsidiary, as the case may be, and no longer, to exercise
any unexercised Option that the holder could have exercised on the day on which
such employment, or service as a director or consultant, terminated; PROVIDED,
HOWEVER, that such exercise must be accomplished prior to the expiration of the
term of such Option and PROVIDED, FURTHER, that if the cessation of employment
or service as a director or consultant is due to disability (to an extent and in
a manner as shall be determined in each case by the Committee in its sole
discretion) or to death, the Option holder or the representative of the Estate
or the heirs of a deceased Option holder shall have the privilege of exercising
the Options which are unexercised at the time of such disability or death, at
any time within one year after the Option holder's disability or death, as the
case may be, but prior to the expiration of the term of such Option.
Notwithstanding the foregoing or any other provision of the Plan to the
contrary, with respect to any Option, the Committee may determine, in its sole
discretion, either at the time of grant or thereafter, to permit such Option to
be exercised for such period extending beyond the three-month and one-year
periods specified above as the Committee deems appropriate, but in no event
beyond the expiration of the term of such Option. If the employment or service
of any Option holder with the Corporation or a Subsidiary shall be terminated
because of the Option holder's violation of the duties of such employment or
service with the Corporation or a Subsidiary as such holder may from time to
time have, the existence of which violation shall be determined by the Committee
in its sole discretion (which determination by the Committee shall be
conclusive), all unexercised Options of such Option holder shall terminate
immediately upon such termination of the holder's employment or service with the
Corporation and all Subsidiaries, and an Option holder whose employment or
service with the Corporation and Subsidiaries is so terminated, shall have no
right after such termination to exercise any unexercised Option that such holder
might have exercised prior to the termination of employment or service with the
Corporation and Subsidiaries.
Nothing contained herein or in the Option certificate shall be construed to
confer on any employee, director or consultant any right to be continued in the
employ of the Corporation or any Subsidiary or as a director of or consultant to
the Corporation or a Subsidiary or derogate from any right of the Corporation
and any Subsidiary to request the resignation of or discharge any employee,
director or consultant (without or with pay), at any time, with or without
cause.
14. ADJUSTMENT OF OPTIONED SHARES. If prior to the complete exercise of any
Option there shall be declared and paid a stock dividend upon the common stock
of the Corporation or if the common stock of the Corporation shall be split up,
converted, exchanged, reclassified, or in any way substituted for, the Option,
to the extent that it has not been exercised, shall entitle the holder thereof
upon the future exercise of the Option to such number and kind of securities or
other property subject to the terms of the Option to which such holder would
have been entitled had such holder actually owned the Shares subject to the
unexercised portion of the Option at the time of the occurrence of such stock
dividend, split-up, conversion, exchange, reclassification or substitution; and
the aggregate purchase price upon the future exercise of the Option shall be the
same as if the originally optioned Shares were being purchased thereunder. Any
fractional shares or securities payable upon the exercise of the Option as a
result of such adjustment shall be payable in cash based upon the Fair Market
Value of such shares or securities at the time of such exercise. If any such
event should occur, the number of Shares with respect to which Options remain to
be issued, or with respect to which Options may be reissued, shall be adjusted
in a similar manner. Notwithstanding any other provision of the Plan, in the
event of a recapitalization, merger, consolidation, rights offering, separation,
reorganization or liquidation, or any other change in the corporate structure or
outstanding Shares, the Committee may make such equitable adjustments to the
number of Shares and the class of shares available hereunder or to any
outstanding Options as it shall deem appropriate to prevent dilution or
enlargement of rights.
15. ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES ACT. The Corporation
may postpone the issuance and delivery of Shares upon any exercise of an Option
until (a) the admission of such Shares to listing on any stock exchange on which
Shares of the Corporation of the same class are then listed, and (b) the
completion of such registration or other qualification of such Shares under any
State or Federal law, rule or regulation as the Corporation shall determine to
be necessary or advisable. Any person exercising an Option shall make such
representations and furnish such information as may, in the opinion of counsel
for the Corporation, be appropriate to permit the Corporation, in the light of
the then existence or non-existence with respect to such Shares of an effective
Registration Statement under the Securities Act of 1933, as from time to time
amended (the "Securities Act"), to issue the Shares in compliance with the
provisions of the Securities Act or any comparable act. The Corporation shall
have the right, in its sole discretion, to legend any Shares which may be issued
pursuant to the exercise of an Option, or may issue stop transfer orders in
respect thereof.
16. INCOME TAX WITHHOLDING. If the Corporation or a Subsidiary shall be
required to withhold any amounts by reason of any national, state or local tax
rules or regulations in respect of the issuance of Shares pursuant to the
exercise of such Option, the Corporation or the Subsidiary shall be entitled to
deduct and withhold such amounts from any cash payments to be made to the holder
of such Option. In any event, the holder shall make available to the Corporation
or Subsidiary, promptly when requested by the Corporation or such Subsidiary,
sufficient funds to meet the requirements of such withholding; and the
Corporation or Subsidiary shall be entitled to take and authorize such steps as
it may deem advisable in order to have such funds made available to the
Corporation or Subsidiary out of any funds or property due or to become due to
the holder of such Option.
17. ADMINISTRATION AND AMENDMENT OF THE PLAN. Except as hereinafter
provided, the Board of Directors or the Committee may at any time withdraw or
from time to time amend the Plan as it relates to, and the terms and conditions
of, any Options not theretofore granted, and the Board of Directors or the
Committee, with the consent of the affected holder of an Option, may at any time
withdraw or from time to time amend the Plan as it relates to, and the terms and
conditions of, any outstanding Option. Notwithstanding the foregoing, any
amendment by the Board of Directors or the Committee which would increase the
number of Shares issuable under Options granted pursuant to the Plan or to any
individual during any calendar year or change the class of persons to whom
Options may be granted shall be subject to the approval of the shareholders of
the Corporation within one year of such amendment.
Determinations of the Committee as to any question which may arise with
respect to the interpretation of the provisions of the Plan and Options shall be
final. The Committee may authorize and establish such rules, regulations and
revisions thereof not inconsistent with the provisions of the Plan, as it may
deem advisable to make the Plan and Options effective or provide for their
administration, and may take such other action with regard to the Plan and
Options as it shall deem desirable to effectuate their purpose.
18. EFFECTIVE DATE. This Plan is conditioned upon its approval by the
shareholders of the Corporation on or before March 22, 1999, at any special or
annual meeting of the shareholders of the Corporation, except that this Plan is
adopted and approved by the Board of Directors effective March 23, 1998, to
permit the grant of Options prior to the approval of the Plan by the
shareholders of the Corporation as aforesaid. If this Plan is not approved by
the shareholders of the Corporation within the time period noted above, this
Plan and any Options granted hereunder shall be void and of no force or effect.
19. FINAL ISSUANCE DATE. No Option shall be granted under the Plan after
March 22, 2008.
<PAGE>
EXHIBIT A
Form of Certificate
for Incentive
Stock Options
OPTION CERTIFICATE
INCENTIVE STOCK OPTION
(Non-Assignable)
To Purchase _____________ Common Shares of
RECOTON CORPORATION
Issued Pursuant to the 1998
Stock Option Plan of Recoton Corporation
THIS CERTIFIES that on ________________, 19__,
_________________________________ (the "Holder") was granted an option
("Option"), to purchase at the Option price of $_________ per share all or any
part of _____________ fully paid and non-assessable shares Common Shares, p.v.
$.20 (the "Shares") of Recoton Corporation ("Corporation"), upon and subject to
the following terms and conditions.
This Option shall expire on _________________, 20__.
This Option may be exercised or surrendered during the Holder's lifetime
only by the Holder. This Option shall not be transferable by the Holder
otherwise than by will or by the laws of descent and distribution.
Except as otherwise provided in the1998 Stock Option Plan of Recoton
Corporation (the "Plan"), this Option shall be exercisable as follows: [insert
vesting schedule; also insert any extension of post-termination exercise period
beyond three-month and one-year periods, if determined at time of grant].1 In no
event, however, may this Option be exercised after the Option's expiration date.
The Option and this Option certificate are issued pursuant to and are
subject to all of the terms and conditions of the Plan, the terms and conditions
of which are hereby incorporated by reference and a copy of which is attached to
this certificate. A determination of the Committee under the Plan as to any
questions which may arise with respect to the interpretation of the provisions
of the Option and of the Plan shall be final. The Committee may authorize and
establish such rules, regulations and revisions thereof not inconsistent with
the provisions of the Plan, as it may deem advisable.
WITNESS the signature of the Corporation's duly authorized officer.
Dated: _______________________, 19__.
RECOTON CORPORATION
By: _________________________
- --------
1 If, at the time of grant, the post-termination exercise period extends beyond
the three-month and one-year periods, then also add the following: In the event
the Option is exercised more than three months after the Holder's termination of
employment for reasons other than death or disability, or more than one year
after the Holder's termination of employment due to the Holder's disability,
then the Option, to the extent so exercised, shall be deemed not to be an
incentive stock option.
<PAGE>
EXHIBIT B
Form of Certificate
for Employees' and Consultants'
Non-Qualified Options
OPTION CERTIFICATE
NON-QUALIFIED STOCK OPTION
To Purchase _____________ Common Shares of
RECOTON CORPORATION
Issued Pursuant to the 1998
Stock Option Plan of Recoton Corporation
THIS CERTIFIES that on ________________, 19__, ____________________ (the
"Holder") was granted an option ("Option"), which is not an incentive stock
option, to purchase at the Option price of $_________ per share all or any part
of _____________ fully paid and non-assessable Common Shares, p.v. $.20 (the
"Shares"). of Recoton Corporation ("Corporation"), upon and subject to the
following terms and conditions.
This Option shall expire on _________________, 20__.
This Option shall not be transferable by the Holder otherwise than by will
or by the laws of descent and distribution or as provided pursuant to the 1998
Stock Option Plan of Recoton Corporation (the "Plan").
Except as otherwise provided in the Plan, this Option shall be exercisable
as follows: [insert vesting schedule; also insert any extension of
post-termination exercise period beyond three-month and one-year periods, if
determined at time of grant]. In no event, however, may this Option be exercised
after the Option's expiration date.
The Option and this Option certificate are issued pursuant to and are
subject to all of the terms and conditions of the Plan, the terms and conditions
of which are hereby incorporated by reference and a copy of which is attached to
this certificate. A determination of the Committee or the Board of Directors
under the Plan as to any questions which may arise with respect to the
interpretation of the provisions of the Option and of the Plan shall be final.
The Committee or the Board of Directors may authorize and establish such rules,
regulations and revisions thereof not inconsistent with the provisions of the
Plan, as it may deem advisable. WITNESS the signature of the Corporation's duly
authorized officer. Dated: _______________________, 19__.
RECOTON CORPORATION
By: _________________________
<PAGE>
EXHIBIT C
Form of
Certificate
for Non-Employee
Directors' Options
OPTION CERTIFICATE
NON-QUALIFIED STOCK OPTION
To Purchase _____________ Common Shares of
RECOTON CORPORATION
Issued Pursuant to the 1998
Stock Option Plan of Recoton Corporation
THIS CERTIFIES that on ________________, 19__, _____________________ (the
"Holder") was granted an option ("Option"), which is not an incentive stock
option, to purchase at the Option price of $_________ per share all or any part
of _____________ fully paid and non-assessable shares Common Shares, p.v. $.20
(the "Shares") of Recoton Corporation ("Corporation"), upon and subject to the
following terms and conditions.
This Option shall expire on _________________, 20__.
This Option shall not be transferable by the Holder otherwise than by will
or by the laws of descent and distribution or as provided pursuant to the 1998
Stock Option Plan of Recoton Corporation (the "Plan").
Except as otherwise provided in the Plan, this Option shall be exercisable
as follows: [insert vesting schedule; also insert any extension of
post-termination exercise period beyond three-month and one-year periods, if
determined at time of grant]. In no event, however, may this Option be exercised
after the Option's expiration date.
The Option and this Option certificate are issued pursuant to and are
subject to all of the terms and conditions of the Plan, the terms and conditions
of which are hereby incorporated by reference and a copy of which is attached to
this certificate. A determination of the Board of Directors of the Corporation
as to any questions which may arise with respect to the interpretation of the
provisions of the Option and of the Plan shall be final. The Board of Directors
of the Corporation may authorize and establish such rules, regulations and
revisions thereof not inconsistent with the provisions of the Plan, as it may
deem advisable.
WITNESS the signature of the Corporation's duly authorized officer.
Dated: _______________________, 19__.
RECOTON CORPORATION
By: _________________________
EXHIBIT 21
SUBSIDIARIES OF RECOTON CORPORATION
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
AAMP of Florida, Inc., d/b/a AAMP of America, Inc. Florida
Recoton Audio Corporation, d/b/a
Recoton Mobile Electronics Delaware
ReCone, Inc. +++# Delaware
Recoton Home Audio, Inc. +++ California
Recoton 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
HECO Audio-Produkte GmbH +++ Germany
Recoton Italia s.r.l. +++ Italy
Arcona s.r.l. +++ Italy
Recoton (UK) Limited +++ United Kingdom
Tambalan Limited, d/b/a Ross Consumer Products+++ United Kingdom
Ross Consumer Products(HK)+++# Hong Kong
+ Subsidiary of Recoton (Far East) Limited
++ Subsidiary of STD Holding Limited
+++ Direct or indirect subsidiary of Recoton Audio Corporation
# Inactive
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in Registration Nos.
33-43571 and 33-59240 on Forms S-8 of our report dated February 27, 1998
appearing in this Annual Report on Form 10-K of Recoton Corporation for the year
ended December 31, 1997.
/S/ CORNICK, GARBER & SANDLER, LLP
NEW YORK, NEW YORK
March 27, 1998
<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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 17,247
<SECURITIES> 0
<RECEIVABLES> 133,649
<ALLOWANCES> 3,797
<INVENTORY> 142,362
<CURRENT-ASSETS> 317,165
<PP&E> 54,962
<DEPRECIATION> 18,778
<TOTAL-ASSETS> 407,262
<CURRENT-LIABILITIES> 94,777
<BONDS> 161,427
<COMMON> 2,560
0
0
<OTHER-SE> 136,723
<TOTAL-LIABILITY-AND-EQUITY> 407,262
<SALES> 502,048
<TOTAL-REVENUES> 502,582
<CGS> 306,725
<TOTAL-COSTS> 306,725
<OTHER-EXPENSES> 170,941
<LOSS-PROVISION> 4,932
<INTEREST-EXPENSE> 12,496
<INCOME-PRETAX> 7,488
<INCOME-TAX> (6,093)
<INCOME-CONTINUING> 13,581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,581
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.18
</TABLE>
