Back to GetFilings.com
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-511
COBRA ELECTRONICS CORPORATION
(Exact name of Registrant as specified in its Charter)
DELAWARE 36-2479991
(State of incorporation) (I.R.S. Employer Identification No.)
6500 WEST CORTLAND STREET
CHICAGO, ILLINOIS 60635
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312)
889-8870
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.33 1/3 Per Share
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 filing
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 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. [X]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant at March 8, 1996 was
approximately
$17,123,282. The number of shares of Registrant's Common Stock
outstanding at that date was 6,226,648.
Portions of the Registrant's Definitive Proxy Statement relating
to the Annual Meeting of Shareholders to be held May 14, 1996,
are incorporated by reference into Part III of this Report.
PAGE
PART I
------
ITEM 1. BUSINESS:
GENERAL
Cobra Electronics Corporation (the "company") was incorporated in
Delaware in 1961 and is a designer and wholesale marketer of
consumer electronics products. The company markets products
under the COBRA brand name. The company also markets clock
radios under the LLOYD'S brand name. Management believes that
the company's future success will depend upon its ability to
predict and respond in a timely and effective manner to changes
in the markets it serves. Product performance, reliability,
price, availability and service are the main competitive factors,
with sales also being dependent upon timely introduction of new
products which incorporate new features desired by consumers at
competitive prices.
RECENT DEVELOPMENTS
During the third quarter of 1995, the company entered into a
distribution agreement with Code 3, the world's leading producer
and distributor of emergency vehicle warning equipment, to market
the company's patented, FCC-approved Safety Alert transmitter to
police, fire, emergency medical services, road construction and
public utility organizations nationwide. The partnership with
Code 3 is a major step towards the company's goal of having
Safety Alert transmitters on thousands of these organizations'
vehicles by the end of 1996. Drivers of police, fire and
emergency medical services vehicles are at high risk for serious
accidents in performing their duties because, in responding to
emergencies, drivers of these vehicles travel in traffic at high
speeds or stop where they are exposed to oncoming traffic.
Drivers of road construction and public utility vehicles face
similar risks of serious accidents when the vehicles they drive
are parked or moving slowly on a busy highway. Code 3 estimates
that the potential market for the Safety Alert transmitter is 3
million vehicles. The transmitter will sell for approximately
$300, making the investment required to equip even a large fleet
very modest.
The Safety Alert transmitter consists of a small box with a
self-contained transmitter, which is installed easily in the
light
bars of law enforcement, fire, emergency medical services, road
construction and public utility vehicles. It is linked to the
emergency light control, so when the emergency lights are turned
on, the transmitter automatically sends out a special Safety
Alert signal. The Safety Alert transmitter currently produces
two frequencies: one for a fast-moving "emergency vehicle"
warning and one for a "road hazard" (parked vehicle or
slow-moving road construction or public utility vehicle) warning.
A
third frequency for an approaching "train" warning has been
developed and is being tested.
-2-
In order to achieve widespread effects on highway safety, the
Safety Alert transmitter was designed to emit frequencies that
could be picked up by all of the almost 20 million radar
detectors now in use. The detectors receive these Safety Alert
frequencies and sound an alert identical to the one sounded when
a K-band speed monitoring device is used. In addition, the
company's "intelligent" detection systems are capable of alerting
drivers with a differentiated signal for each of the Safety Alert
frequencies. Thus, drivers with the company's "intelligent"
detection systems will know that the Safety Alert signal is a
warning for an "emergency vehicle," a "road hazard" or a "train".
Signals from the transmitter will be received by any of the 20
million radar detectors in use today, warning drivers to slow
down. In addition to three "intelligent" radar/laser detectors
that provide special Safety Alert tone and visual signals, the
company is developing a "safety-only" receiver, which will only
respond to signals from a Safety Alert transmitter. As the
number of Safety Alert transmitters in use increases, the company
expects this to increase sales of these new intelligent detection
systems as current detector owners upgrade their existing units
to benefit from the Safety Alert feature and also as drivers, who
normally would not purchase a radar detector, consider purchasing
a unit that makes driving safer. Presently, there are 190
million cars and light trucks on the road and, of these, only
about 10 percent have detection systems.
Also in 1995, the company and General Motors Corporation entered
into a long-term licensing agreement which allows the company to
sell CB radios to an estimated 8,500 General Motors and Chevrolet
dealers throughout the country. The company's CB models will
carry the General Motors "Mark of Excellence" and Chevrolet
"Bow-Tie" trademarks. The agreement also permits the company to
use
these trademarks on CB products sold through other channels of
distribution. The company expects that combining the Cobra logo
with the General Motors and Chevrolet trademarks will appeal to
loyal General Motors and Chevrolet owners and other consumers who
equate the General Motors and Chevrolet trademarks with quality
and performance.
PRODUCTS
The company operates only in the consumer electronics industry.
Principal products include:
Mobile Electronics: Citizen Band ("CB") Radios
Integrated Radar/Laser Detectors
Telecommunication: Cordless Telephones
Phone Answering Systems
Audio: Clock Radios
-3-
PAGE
The following table shows the company's percentages of net sales
by product category for the three years ended December 31, 1995.
1995 1994 1993
---- ---- ----
Mobile Electronics Products 68% 67% 61%
Telecommunication Products 31% 32% 31%
Audio Products 1% 1% 8%
---- ---- ----
Total Net Sales 100% 100% 100%
==== ==== ====
One of the company's primary strengths is its product sourcing
ability. Substantially all of the company's products are
manufactured to its specifications and engineering designs by a
number of suppliers, primarily in China, Malaysia, Thailand,
Japan, and the U.S.A. The company maintains stringent control
over the design and production quality of its products. The
company has a subsidiary in Hong Kong which helps to seek out new
suppliers, monitor technological changes, evaluate new products
and product enhancements, and expedite shipments from vendors.
Over a period of years, the company has developed a network of
suppliers for its products. To maintain flexibility in product
sourcing, the company has not entered into long-term contracts
with any of its suppliers. Despite management's belief that it
maintains strong relationships with its current suppliers, it
also believes that, if necessary, other suppliers could be found.
The extent to which a change in a supplier would have an adverse
effect on the company's business depends upon the timing of the
change, the product or products that the supplier produces for
the company and the volume of that production. The company also
maintains insurance coverage that would, under certain limited
circumstances, reimburse the company for lost profits resulting
from a vendor's inability to fulfill its commitments to the
company. The company negotiates substantially all of its
purchases in U.S. Dollars to protect itself from currency
fluctuations. Assets located outside of the United States,
excluding company-owned tooling at suppliers, are not material.
The company competes primarily in the United States with various
manufacturers and distributors of mobile electronics and
telecommunication products. The company competes principally on
the basis of product features and price and expects the market
for its products to remain highly competitive.
Research, engineering and product development expenditures are
expensed as incurred. These expenditures amounted to $1.1
million in 1995 and 1994 and $1 million in 1993.
Except for certain patents, such as the Safety Alert transmitter
and Intenna technology, the company does not believe that patents
are of material importance to its products. However, should the
company develop a unique technology, patents will be applied for
to preserve exclusivity, wherever possible.
-4-
Mobile Electronics Products: These products, which include CB
radios and integrated radar/laser detectors, are marketed under
the COBRA trademark. Cobra is the leading brand in the CB radio
market, which at retail is approximately $150 million annually.
This market continues to expand, with growth coming both from the
traditional core truck driver segment, which accounts for the
largest part of the sales volume and reflects more and more
trucks on the highways, and from broader consumer use. For
example, CB is benefitting from the recent surge in sales of
sport utility vehicles as an increasing percentage of owners view
CB radio a necessary part of their "off-road" lifestyle. CB is
also experiencing growing popularity with campers, hikers and
other outdoor enthusiasts. Also, the company's recent agreement
with General Motors will provide the company with added
distribution opportunities. The agreement gives the company
exclusive rights to sell its CB radios with the GM "Mark of
Excellence" and Chevrolet "Bow-Tie" trademarks to an estimated
8,500 General Motors and Chevrolet dealers nationwide.
The company has been the technology leader in the CB radio
market. The company was the first CB radio marketer to combine a
National Weather Service receiver with a mobile CB radio,
enabling motorists to obtain travel information broadcasts. As a
major enhancement of this feature, the company also introduced
the industry's first mobile CB radio that incorporates an
automatic alert feature to warn of National Weather Service
emergency advisories. The company also markets CB radios to
nonprofessional drivers and hand-held CB radios for sport and
recreational use.
Cobra is also one of the leading brands in the market for
integrated radar/laser detectors. Currently, there are
approximately 190 million cars and light trucks on the road and,
of those, approximately 10 percent have detectors. Cobra
commands significant market share by offering innovative products
with the latest technology. For example, the company has been a
leader in applying laser-detection technology, including
introducing the industry's first laser-signal detector and the
industry's first integrated radar/laser detector with 360 degree
laser detection capability. In addition, the company was the
first to introduce to the retail channel "intelligent" detection
systems capable of alerting drivers with a differentiated signal
for each of the frequencies emitted by the company's patented,
FCC-approved Safety Alert transmitter. This transmitter is being
marketed by Code 3 under a distribution agreement to
organizations that operate police, fire, emergency medical
service, construction and public utility vehicles. The company's
Safety Alert system is designed to help drivers avoid potentially
serious accidents with these organizations' vehicles.
Major competitors in the CB radio market are Radio Shack (Tandy
Corporation) and Uniden while major competitors in the radar
detector market include Cincinnati Microwave, Beltronics,
Whistler, and Uniden.
-5-
Telecommunication Products: These products, which include
cordless phones and telephone answering systems, are marketed
under the COBRA trademark. The company entered the
telecommunications market in 1979 with its first cordless
telephone and has since supplemented that entry with other
innovative products. For example, the company introduced the
market's first two-line cordless phone and the first cordless
phone answering system. In 1989, the company introduced its
first Intenna cordless phone, which utilized the company's
patented technology to eliminate the external handset antenna, an
industry first. The company later refined this technology to
also make it possible to eliminate the base antenna, as well.
The company also offered Intenna cordless phones in designer
colors, which was an industry first. Currently, Cobra offers the
only cordless phones in the marketplace with the antenna in the
phone, not in the way, without sacrificing voice quality or
range. This makes it easier to mount the phone under cabinets in
the kitchen or on book shelves in other rooms.
In 1993, the company began offering Intenna models with Private
Call technology, which electronically scrambles voice signals
between the handset and the base to ensure complete security by
eliminating potential eavesdropping over scanning radios, baby
monitoring devices and other cordless phones. Also in 1993, the
company began shipments of its Intenna 900 cordless phone which
was the first 900 MHz phone incorporating digital spread
spectrum, a technology derived from military signal encryption to
ensure conversation privacy. The Intenna 900 MHz cordless phone
also offers extended range and interference-free use making the
phone ideal for both office and home use.
In the market for phone answering systems, the company markets
mainly Intenna all-digital cordless phone answering systems.
Ideal for home or office use, these models offer electronic voice
mail and multiple mailboxes combined with an Intenna cordless
phone.
The telecommunications market is dominated by large companies,
including AT&T, General Electric, Panasonic, Sony, and
Southwestern Bell. Because of this, the company's strategy is to
look for profitable niches and position Cobra as an alternative
line of quality products with innovative features at competitive
prices.
SALES AND DISTRIBUTION
Demand for consumer electronics products is seasonal.
Historically, sales in the last half of the year are greater than
in the first half, reflecting increased purchases by retailers
for the holiday selling season.
In 1994, sales to QVC, Inc. represented 10.2% of net sales. For
the years 1995 and 1993, there were no sales in excess of 10% of
total net sales to a single customer or a group of entities under
common control. The company does not believe that the loss of
any one customer would have a material adverse effect on the
business of the company. The company's foreign sales were $12.2
million, $11.7 million, and $9.3 million in 1995, 1994 and 1993,
respectively.
-6-
The company's return policies and payment terms are consistent
with those of other companies serving the consumer electronics
market. Market conditions are such that products generally must
be shipped within a short time after an order is placed. As a
result, order backlog is not significant.
Cobra products are distributed through a strong, well-established
network of approximately 400 retailers and distributors located
primarily in the United States. Approximately 50% of the sales
are made directly to domestic mass marketers, such as catalog
showrooms, consumer electronics specialty stores, large
department store chains, television home-shopping,
direct-response merchandisers, home centers and specialty stores,
which
feature telephone products or mobile electronics products.
Because of changes in the retail marketplace, the company has
sought to expand its distribution to retailers that offer
assisted-selling environments to help consumers be better
informed about product features and functions when making
purchase decisions. The company believes that these retailers
are more profitable because they offer higher margins and lower
servicing costs. Most of the remaining sales are through
two-step wholesale distributors that carry Cobra products to fill
orders for truck stops, small department stores, appliance
dealers, and for export. Cobra's primary sales force is
comprised of independent sales representatives who work on a
straight commission basis. They do not sell products of the
company's competitors.
The company's right to sell products under the COBRA trademark is
substantially worldwide. The selling rights under the LLOYD'S
trademark excludes Canada and Europe. The company believes the
COBRA trademark, which is indefinitely renewable by the company,
is a significant factor in the successful marketing of its
products.
EMPLOYEES
As of December 31, 1995, the company employed 159 persons in the
U.S. and 9 in its international operations. None of the
company's employees is a member of a union.
ITEM 2. PROPERTIES:
The company owns three adjacent buildings in Chicago, Illinois
containing a total of 250,000 square feet of office and warehouse
space. Maxtec International Corporation leases approximately
83,000 square feet under an agreement that will expire on
December 31, 1996. The company believes that its facilities are
adequate to meet its current needs.
-7-
ITEM 3. LEGAL PROCEEDINGS:
Certain lawsuits and claims are pending against the company.
However, after consultation with legal counsel on these matters,
management believes that the liabilities which may result from
these cases, if any, will not be material to the company's
results of operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS:
The company's common stock trades on The Nasdaq Stock Market
under the symbol COBR. As of March 19, 1996, the company had
approximately 1,300 shareholders of record and approximately
2,400 shareholders for whom securities firms acted as nominees.
The company's common stock is the only class of equity securities
outstanding. Before April 1, 1993, the common stock of the
company traded under the symbol DYNA.
Under the terms of its credit agreement, the company may not pay
cash dividends.
STOCK PRICE AND TRADING VOLUME DATA
STOCK PRICE RANGE
- -------------------------------------------------------------
TRADING VOLUME
1995 1994
1993 (in thousands)
------------------- -------------------
- ------------------- -----------------------
Quarter High Low High Low High
Low 1995 1994 1993
- ----------- --------- --------- --------- ---------
- --------- --------- ------- ------- -------
First...... $ 2 5/8 $1 5/8 $ 3 7/8 $ 2 9/16 $ 4 3/8
$ 3 1,073 1,821 993
Second..... 2 1/8 1 1/2 3 3/4 2 1/2 3 5/8
2 5/8 917 1,435 549
Third...... 2 5/8 1 11/16 3 1/2 2 3/8 3 1/8
2 1/8 1,189 694 1,154
Fourth..... 3 3/8 2 3 1 3/4 3 7/8
2 5/8 2,114 1,264 1,083
Note: Data compiled from The Nasdaq Stock Market monthly Summary
of Activity reports.
-8-
ITEM 6. SELECTED FINANCIAL DATA:
FIVE YEAR FINANCIAL SUMMARY
Years Ended December 31
(in thousands, except per share amounts) 1995
1994 1993 1992 1991
- ---------------------------------------------------- --------
- ---------- ---------- ---------- ----------
Operating Data:
Net sales......................................... $ 90,442
$ 82,131 $ 98,844 $ 117,733 $ 135,901
Gross profit...................................... 16,577
14,466 13,903 14,945 20,858
Selling, general and administrative expense....... 16,097
14,602 15,741 19,433 22,206
Operating income (loss)........................... 480
(136) (2,914) (5,683) (4,848)
Loss from continuing operations before cumulative
effect of a change in accounting principle...... (1,145)
(1,515) (4,392) (8,679) (5,656)
Cumulative effect of a change in accounting
principle [a] ................................... ---
--- --- (835) ---
Net Loss.......................................... (1,145)
(1,515) (4,392) (9,514) (5,656)
Loss per share:
Continuing operations before cumulative effect
of a change in accounting principle [a] ........ (0.18)
(0.24) (0.70) (1.39) (0.90)
Cumulative effect of a change in accounting
principle....................................... ---
--- --- (0.13) ---
Net loss.......................................... (0.18)
(0.24) (0.70) (1.52) (0.90)
As of December 31:
Total assets...................................... 50,081
40,342 46,389 54,286 72,807
Long-term debt [b]................................ ---
--- --- 15,038 14,335
Shareholders' equity.............................. 18,174
19,429 20,960 25,477 35,082
Book value per share.............................. 3.20
3.38 3.62 4.33 5.86
Shares outstanding................................ 6,227
6,227 6,227 6,227 6,220
[a] Effective January 1, 1992, the company changed its accounting
for income taxes by adopting prospectively
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes".
[b] Borrowings under the company's credit agreement at December
31, 1995, 1994 and 1993 were $19,368,000,
$11,461,000 and $13,689,000, respectively, and were
classified as short-term debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
CORPORATE OVERVIEW
In 1995, sales increased, reversing the downward trend that the
company had been experiencing. In addition, gross margin
improved for the third year in a row, reaching its highest level
since 1990. However, the sluggish retail environment that
characterized the year-end holiday selling season negatively
impacted sales and gross margin during that critical period and
was mainly responsible for the net loss in the fourth quarter of
1995.
-9-
Also in 1995, the company entered into two important agreements
that will help the company achieve its goal of returning to
consistent profitability in the future. One of these is an
exclusive license agreement with General Motors Corporation under
which the company will be selling its CB products under both the
GM "Mark of Excellence" and Chevrolet "Bow Tie" trademarks
through
an estimated 8,500 General Motors and Chevrolet dealers
nationwide. The second agreement is with Code 3, the world's
leading producer and distributor of emergency and construction
vehicle warning equipment, for the distribution of the company's
patented, FCC-approved Safety Alert transmitter.
In 1996, management will continue to focus on increasing sales
volume by adding new products and customers as well as increasing
the number of products that the company's existing customers
carry. Management also sees continued opportunities for margin
growth and has identified cost reduction programs that will cut
the company's overhead by approximately $1.5 million in 1996.
RESULTS OF OPERATIONS
1995 Compared to 1994
- ---------------------
Sales for 1995 increased by 10.1% to $90.4 million from $82.1
million in 1994. The net loss for 1995 narrowed to $1.1 million,
or $.18 per share, from $1.5 million, or $.24 per share in 1994.
Sales for all major product lines increased with the exception of
cordless phones.
Sales of mobile electronics products (mainly CB radios and
integrated radar/laser detectors) increased approximately $6
million in 1995 compared to 1994. The increase reflected higher
sales of CB radios and integrated radar/laser detectors. CB
sales were driven by an expanding market for CBs because of
growth in the core truck driver segment and broader usage to more
consumers. Other contributing factors were increased sales of CB
models to export distributors and the sales of new weather alert
models, introduced in the second quarter of 1994. Increased
sales of integrated radar/laser detectors was due primarily to
sales of two new models: a cordless model and a model with 360
degree laser detection capability, an industry first.
Telecommunication product sales increased $2 million in 1995
compared to 1994, primarily due to increased phone answering
system sales, which were partially offset by a decline in
cordless phone sales. Phone answering system sales increased
because of new all-digital models which were not available until
1995. Cordless phone sales declined as a result of lower prices
and unit sales of 10-channel models because of the introduction
of new 25-channel phones into the marketplace. Combined unit
sales for both telecommunication products and mobile electronics
products increased approximately 9% in 1995.
-10-
Gross margin for 1995 increased to 18.3% from 17.6% a year ago.
Higher margins in CB, integrated radar/laser detectors and
answering systems were partially offset by lower cordless phone
margins and increased factory reconditioned cordless phones sold
at below cost. CB margins showed improvement because 1994 CB
margins were depressed due to air freight charges incurred on new
models in backlog. Detection and answering system margins were
up because of high-margin new models, which were not available in
1994. Cordless phone margins declined because of the drop in
10-channel prices, resulting from the introduction of 25-channel
phones into the marketplace, and also because of air freight
charges incurred to get the company's new 25-channel models to
market in time for the year-end holiday selling season.
Selling, general and administrative expense increased $1.5
million during 1995. The increase was due to higher marketing
and product development costs, incurred to build sales volume,
and higher payroll costs to strengthen the company's senior
management staff. In addition, the company had lower bad debt
expense in 1994 because of a favorable adjustment to the
company's allowance for doubtful accounts. The favorable 1994
adjustment reflected an improvement in the quality of the
receivable portfolio and favorable collections experience. Also,
approximately $350,000 of the increase reflected certain Hong
Kong office expenses, which in prior years had been included in
cost of sales.
Interest expense for 1995 was $1.8 million compared to $1.1
million in 1994. The increase was due to higher borrowings for
working capital, which increased to help support the overall
growth in sales.
Other income increased $449,000 primarily because of interest
earned on the cash value on officer life insurance, which is
maintained to fund deferred compensation obligations.
1994 Compared to 1993
- ---------------------
Sales for 1994 were $82 million compared to $99 million in 1993.
The net loss for 1994 was $1.5 million, or $.24 per share,
compared to $4.4 million, or $.70 per share in 1993. The sales
decline reflected mainly lower unit sales volumes in all
principal product lines, except CB radios. In addition, the
prior year included $5 million in sales from the company's former
Professional Products Group, which was sold in late 1993.
Sales of mobile electronics products (including CB radios,
integrated radar/laser detectors and single unit laser and radar
detectors) declined approximately $5 million in 1994 compared to
1993. The decline reflected mainly lower unit sales of detectors
and was partially offset by higher CB sales. Sales of integrated
radar/laser detectors were down due to the company's decision to
-11-
limit its purchases of certain models to better assist in
controlling inventory, which resulted in lower 1994 sales. Also,
the prior year sales benefited from large closeout sales of
three-band radar detectors that coincided with the introduction
of two new integrated detector models. Besides an overall
increase in demand for CB radios compared to the prior year, the
current period benefited from sales of the company's new
weather-alert CBs, which were introduced in the second quarter of
1994.
Telecommunication product sales were down approximately $5
million, mainly because of lower phone answering system sales.
Sales of phone answering systems declined because of the
company's strategy to refocus the product line to offer only
all-digital models, which would not be available in meaningful
quantities until early 1995. Sales of the company's ten-channel
Intenna cordless phones fell slightly from the prior year because
of product shortages during the peak sales season. These
temporary product shortages were the result of production delays
for several new models and the company's underestimation of
demand for several existing models when it placed orders with its
vendors earlier in the year.
Combined unit sales for both telecommunication products and
mobile electronics products declined approximately 7% in 1994.
The remaining sales decline was attributable to reduced sales of
Lloyd's clock radios and the elimination of sales from the
company's former Professional Products Group, which was sold in
late 1993.
Gross margins for 1994 increased to 17.6% from 14.1% a year ago.
The margin improvement reflected a better customer mix and an
improved product mix because of more sales of high-margin CB
radios and improved margins on cordless phones and integrated
radar/laser detector sales. Also, 1993's margin was depressed
because of sizable closeout sales of discontinued cordless phones
and detectors, which were minimized in 1994 through better
inventory control. The margin improvement, as a result of the
better sales mix, was partially offset by costs associated with
the 1994 expansion of the company's consumer
hotline(1-800-COBRA22). This expansion was implemented to enable
the company to
answer all of its calls from consumers for installation and
operational assistance--to partially offset the lack of skilled
sales personnel in many retail stores--as well as for information
on where to purchase company products.
During the second quarter of 1993, the company recorded a
one-time charge of $1.1 million to cover the estimated costs of a
restructuring program. Approximately 40% of the charge was for
severance and termination costs related to a significant
downsizing of the company's workforce, which was carried out
during the third quarter of 1993. The remaining portion of the
restructuring charge was to cover additional one-time costs to be
incurred as a result of the lower staffing levels. As of
December 31, 1993, all restructuring costs had been incurred.
Annualized savings from this workforce reduction in
payroll-related expenses were estimated to be approximately $2.1
million.
Because the workforce reduction was implemented in mid-1993,
payroll-related savings approximated $1.2 million in 1994
compared to 1993.
-12-
Selling, general and administrative expense declined $1.1 million
during 1994 and, as a percent of sales, increased to 17.8% from
15.9% a year ago. Approximately two-thirds of the decline was
due to the elimination of expenses for the Professional Products
Group, which was sold in late 1993. The remaining decline was
realized because of reduced payroll-related expenses in
connection with the workforce reduction, reduced variable selling
costs because of lower sales and lower bad debt expense. The
expense for bad debts declined due to a reduction in receivable
balances, an improvement in the quality of the receivable
portfolio and favorable collections experience. Expenses as a
percent of sales increased in the current year because the fixed
portion of such expenses was spread over a smaller sales volume.
Interest expense for 1994 declined 16% compared to the prior year
because of reduced working capital requirements, which resulted
in lower borrowings under the company's line-of-credit agreement.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the company had a $30 million secured
credit facility that included a fixed term loan. In January,
1995, the agreement for this credit facility was extended to
January 10, 1997 and the term loan was increased from $2.6
million to $3.7 million. Borrowings and letters of credit issued
under this agreement are collateralized by the company's assets,
and usage of the non-term loan portion is limited to certain
percentages of accounts receivable and inventory. The fixed term
loan is secured by the company's buildings and equipment and
requires both monthly principal payments of $43,000 and a balloon
payment of $2.6 million at the time of expiration.
The credit agreement specifies that the company may not pay cash
dividends and contains a material adverse change clause, which,
under certain circumstances, can accelerate the payment of the
debt. Because of this clause, and the company's recent history
of losses, the company classified the debt as short-term for
financial reporting purposes. The company does not believe a
material adverse change is likely and does not believe that
repayment of the debt will be accelerated. At December 31, 1995,
the company had approximately $2.6 million of unused credit line.
Cash flows used in operating activities were $4.8 million for the
year ended December 31, 1995; losses from operations of $1.1
million together with an increase in working capital requirements
provided for the cash outflow. The increase in receivables is
due mainly to higher fourth quarter sales compared to the prior
year as well as payments from several large customers which were
due prior to year end but were received shortly thereafter.
Inventories increased mainly as a result of lower than
anticipated sales during the year-end holiday selling season
because of soft demand at the retail level. Accounts payable
increased because of additional purchases of product on open
account from a domestic supplier. The majority of purchases are
from foreign suppliers and are financed with letters of credit,
which require payment at the time of shipment.
-13-
Cash flows provided by operating activities were $3.7 million and
$1.9 million for the years ended December 31, 1994 and 1993,
respectively; losses from operations of $1.5 million and $4.4
million, respectively, were more than offset by non-cash expenses
of depreciation and amortization and reduced working capital
requirements. Cash provided by the reduction in receivables
during 1994 was primarily the result of reduced sales during the
fourth quarter compared to the prior year. The reduction in
accrued liabilities was due to a decrease in the cost of
estimated future product warranty obligations.
Investing activities required cash of $1.9 million, $1.5 million,
and $788,000 for the years ended December 31, 1995, 1994 and
1993, respectively. Most of the cash outflows during these years
related to the purchase of tooling and equipment. During 1993,
the company sold the assets of its Professional Products Group.
The purchase price, which exceeded the net book value of the
assets sold, amounted to $1.3 million and consisted of $867,000
of cash and the assumption of certain liabilities.
Cash flows provided by and used for financing activities for the
three years ending December 31, 1995, primarily reflect changes
in the company's borrowing requirements under its line-of-credit
agreement.
At December 31, 1995, the company had no material commitments,
other than approximately $26.6 million in outstanding purchase
orders for products compared with $23.2 million at the end of the
prior year.
The company believes that cash generated from operations and from
borrowings under its credit agreement will be sufficient in 1996
to fund its working capital needs. In addition, the majority of
any taxable income in 1996 will be offset by net operating loss
carryforwards that totaled $46.4 million at December 31, 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Financial Statements and quarterly financial data are included in
this Annual Report on Form 10-K, as indicated in the index on
page 33.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE:
During 1994, the company changed independent accountants. The
change was previously reported on the company's Current Reports
on Form 8-K dated July 19, 1994, as amended, and August 15, 1994,
and are hereby incorporated by reference.
-14-
CONSOLIDATED STATEMENTS OF OPERATIONS
Cobra Electronics Corporation
Years Ended December 31 (in
thousands, except per share amounts) 1995 1994 1993
- ----------------------------------- -------- -------- -------
Net sales.......................... $ 90,442 $ 82,131 $98,844
Cost of sales...................... 73,865 67,665 84,941
-------- -------- --------
Gross profit....................... 16,577 14,466 13,903
Selling, general and administrative
expense.......................... 16,097 14,602 15,741
Restructuring costs................ --- --- 1,076
-------- ------- --------
Operating income (loss)............ 480 (136) (2,914)
Other expense:
Interest expense................. (1,752) (1,057) (1,258)
Other income (expense), net ..... 127 (322) (220)
-------- ------- --------
Loss before income taxes........... (1,145) (1,515) (4,392)
Income taxes....................... --- --- ---
-------- ------- --------
Net loss........................... $(1,145) $(1,515) $(4,392)
======= ======= ========
Net loss per common share.......... $ (0.18) $ (0.24) $ (0.70)
======== ======= ========
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
-15-
PAGE
CONSOLIDATED BALANCE SHEETS
Cobra Electronics Corporation
At December 31 (dollars in thousands) 1995 1994
- --------------------------------------- ----------- -----------
ASSETS:
Current assets:
Cash.................................. $ 1,299 $ 197
Receivables, less allowance for doubtful
accounts of $1,451 in 1995 and $638
in 1994............................. 15,228 10,280
Inventories, primarily finished goods. 18,238 15,627
Other current assets.................. 896 1,399
------- --------
Total current assets.................. 35,661 27,503
------- --------
Property, plant and equipment, at cost:
Land.................................. 593 593
Building and improvements............. 6,892 6,848
Tooling and equipment................. 15,462 13,837
------- --------
22,947 21,278
Accumulated depreciation and
amortization.......................... (15,877) (14,294)
-------- --------
Net property, plant and equipment..... 7,070 6,984
-------- --------
Other assets............................ 7,350 5,855
-------- --------
Total assets............................ $50,081 $40,342
======== ========
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
-16-
PAGE
CONSOLIDATED BALANCE SHEETS
Cobra Electronics Corporation
At December 31 (dollars in thousands) 1995 1994
- ----------------------------------------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable...................... $ 6,070 3,422
Accrued salaries and commissions...... 2,217 1,846
Accrued advertising and sales promotion
costs.............................. 868 791
Accrued product warranty costs........ 1,992 2,073
Other accrued liabilities............. 1,392 1,320
Short-term debt....................... 19,368 11,461
------- -------
Total current liabilities................ 31,907 20,913
------- -------
Shareholders' equity:
Preferred stock, $1 par value, shares
authorized-1,000,000; none issued.... --- ---
Common stock, $.33 1/3 par value,
12,000,000 Shares authorized,
7,039,100 issued and 6,226,648
outstanding for both 1995 and 1994... 2,345 2,345
Paid-in capital........................ 22,118 22,118
Retained earnings...................... 979 2,124
------- -------
25,442 26,587
Treasury stock, at cost
(812,452 shares).................... (5,545) (5,545)
Note receivable from officer's
exercise of stock options.......... (1,723) (1,613)
-------- --------
Total shareholders' equity............... 18,174 19,429
-------- --------
Total liabilities and shareholders'
equity................................. $50,081 $40,342
======== ========
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
-17-
PAGE
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cobra Electronics Corporation
Years Ended December 31(in thousands) 1995 1994 1993
- ------------------------------------- -------- -------- --------
Cash flows from operating activities:
Net Loss............................ $(1,145) $(1,515) $(4,392)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization..... 1,826 2,287 1,741
Changes in assets and liabilities:
Receivables..................... (4,948) 5,377 3,812
Inventories..................... (2,611) 501 2,274
Other current assets............ 340 72 (307)
Other assets.................... (1,303) (694) 326
Accounts payable................ 2,648 (29) (522)
Accrued liabilities............. 439 (2,259) (1,052)
-------- -------- --------
Net cash provided by (used for)
operating activities.............. (4,754) 3,740 1,880
-------- ------- --------
Cash flows from investing activities:
Capital expenditures................ (1,678) (1,160) (1,481)
Proceeds from sale of division...... --- --- 867
Net cash used for discontinued
operation......................... (263) (315) (174)
-------- ------- --------
Net cash used for investing
activities........................ (1,941) (1,475) (788)
-------- ------- --------
Cash flows from financing activities:
Net borrowings (repayments) under the
line-of-credit agreement.......... 7,907 (2,228) (1,349)
Transactions related to exercise of
stock options, net................ (110) (16) (125)
-------- ------- --------
Net cash provided by (used for)
financing activities.............. 7,797 (2,244) (1,474)
-------- ------- --------
Net increase (decrease) in cash....... 1,102 21 (382)
Cash at beginning of year............. 197 176 558
-------- ------- --------
Cash at end of year................... $ 1,299 $ 197 $ 176
======== ======= ========
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
-18-
PAGE
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Cobra Electronics Corporation
Note
Rec.
Three Years Ended
for
December 31, 1995 Common Paid-In Retained
Treasury Options
(dollars in thousands) Stock Capital Earnings Stock
Exer.
- ---------------------------- ------- ------- -------- -------
- -------
Balance-January 1, 1993..... $ 2,345 $ 22,118 $ 8,031 $ 5,545
$ 1,472
Net loss.................. --- --- (4,392) ---
---
Note receivable interest.. --- --- --- ---
125
------- -------- --------- -------
- --------
Balance-December 31, 1993... 2,345 22,118 3,639 5,545
1,597
Net loss.................. --- --- (1,515) ---
---
Note receivable interest.. --- --- --- ---
16
------- -------- --------- -------
- --------
Balance-December 31, 1994... 2,345 22,118 2,124 5,545
1,613
Net loss.................. --- --- (1,145) ---
---
Note receivable interest.. --- --- --- ---
110
------- -------- --------- -------
- --------
Balance-December 31, 1995... $ 2,345 $ 22,118 $ 979 $ 5,545
$ 1,723
======= ======== ========
======== ========
The accompanying notes to consolidated financial statements are
an integral
part of these financial statements.
-19-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cobra Electronics Corporation
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -- The company designs and markets consumer electronics
products, a majority of which are purchased from overseas
suppliers, primarily in China, Malaysia, Thailand, and Japan.
The consumer electronics market is characterized by rapidly
changing technology and certain products may have limited life
cycles. The company believes that it maintains strong
relationships with its current suppliers and, if necessary, other
suppliers could be found. Production delays or a change in
suppliers, however, could cause a delay in obtaining inventories
and a possible loss of sales, which could adversely affect
operating results.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial
statements include the accounts of the company and its
subsidiaries.
USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
INVENTORIES -- Inventories are recorded at the lower of cost, on
a first-in, first-out basis, or market.
DEPRECIATION -- Depreciation of buildings, improvements, tooling
and equipment is computed using the straight-line method and the
following estimated useful lives:
Classification Life
- ------------------------- ----------
Buildings................ 30 years
Building improvements.... 20 years
Motor vehicles........... 3 years
Equipment................ 5-10 years
Tools, dies and molds.... 2 years
RESEARCH, ENGINEERING AND PRODUCT DEVELOPMENT EXPENDITURES --
Research, engineering and product development expenditures are
expensed as incurred and amounted to $1.1 million in 1995 and
1994 and $1 million in 1993.
REVENUE RECOGNITION -- Revenue from the sale of goods is
recognized at the time of shipment. Obligations for sales
returns and allowances and product warranties are recognized on
an accrual basis.
-20-
(2) TAXES ON INCOME
Deferred tax assets (liabilities) by component at December 31,
1995 and 1994 were:
(in thousands) 1995 1994
- ------------------------------------------ --------- ---------
Net operating loss carryforwards.......... $ 19,235 $ 20,228
Investment tax credit carryforwards....... 1,938 1,938
Alternative minimum tax credit carryforwards 885 885
Tax lease income.......................... (10,506) (11,028)
Receivable reserves....................... 325 148
Warranty reserves......................... 771 803
Inventory reserves........................ 738 649
Accrued promotion expenses................ 662 584
Sales related reserves.................... 602 617
Compensation reserves..................... 775 624
Other, net................................ 250 223
--------- ---------
Net deferred tax assets................... 15,675 15,671
Valuation allowance....................... (15,675) (15,671)
--------- ---------
Net deferred tax assets after allowance... $ --- $ ---
========= =========
The tax lease income resulted from several 1983 tax lease
agreements to acquire tax benefits under the provisions of the
Economic Recovery Tax Act of 1981. The total cash price paid by
the company was $12.4 million. The economic value of these
leases was not impaired by the Tax Reform Act of 1986. The
company realized temporary tax savings from accelerated
depreciation and permanent tax savings from credits associated
with the leases, subject to statutory limitations. These savings
offset current taxes payable which would otherwise have been due
on income from normal operations.
The statutory Federal income tax rates are reconciled to the
effective income tax rates as follows:
Description 1995 1994 1993
- -------------------------------------- ------ ------ ------
Statutory Federal income tax rate. ... 34.0% 34.0% 34.0%
State taxes, net of Federal income tax
benefits........................... 4.7 4.7 4.8
Utilization of net operating loss
carryforwards...................... (38.7) --- ---
Losses for which no tax benefit was
recorded........................... --- (38.7) (38.5)
Other, net............................ --- --- (0.3)
------ ------ ------
Effective tax rate.................... ---% ---% ---%
====== ====== ======
-21-
At December 31, 1995, the company has net operating loss
carryforwards("NOL") available to offset future taxable income,
and both investment tax credit ("ITC")and alternative minimum tax
credit carryforwards to offset future income tax payments. The
alternative minimum tax credit carryforwards, amounting to
$885,000, do not expire.
The net operating loss and investment tax credit carryforwards
expire as follows (in thousands):
Year of Expiration NOL ITC
- ----------------------- --------- ---------
1996................... $ 6,918 $ ---
1997................... 1,089 ---
1998................... 1,378 1,804
1999................... 1,827 112
2000................... 7,536 22
2002................... 183 ---
2006................... 5,762 ---
2007................... 8,343 ---
2008................... 9,997 ---
2009................... 3,341 ---
--------- ---------
Total.................. $ 46,374 $ 1,938
========= =========
(3) FINANCING ARRANGEMENTS
The company has a $30 million secured credit facility that
includes a fixed term loan. In January, 1995, the agreement for
this credit facility was extended to January 10, 1997 and the
term loan was increased from $2.6 million to $3.7 million.
Borrowings and letters of credit issued under this agreement are
collateralized by the company's assets, and usage of the non-term
loan portion is limited to certain percentages of accounts
receivable and inventory. The fixed term loan is secured by the
company's buildings and equipment and requires both monthly
principal payments of $43,000 and a balloon payment of $2.6
million at the time of expiration. Interest is payable monthly
at prime (8.5% at December 31, 1995) plus one and one-half
percent.
The credit agreement specifies that the company may not pay cash
dividends and contains a material adverse change clause, which,
under certain circumstances, can accelerate the payment of the
debt. Because of this clause, and the company's recent history
of losses, the company classified the debt as short-term for
financial reporting purposes. The company does not believe a
material adverse change is likely and does not believe that
repayment of the debt will be accelerated.
Maximum borrowings outstanding at any month-end were $20.7
million and $13.3 million in 1995 and 1994, respectively.
Aggregate average borrowings outstanding were $17 million and
$11.3 million during 1995 and 1994, respectively, with weighted
-22-
average interest rates thereon of 10.4% and 9.4%, respectively.
The maximum value of letters of credit outstanding at any month
end were $8.1 million and $7.1 million in 1995 and 1994,
respectively. At December 31, 1995, the company had
approximately $2.6 million of unused credit line.
During 1995, 1994 and 1993, the company made interest payments of
$1.7 million, $1.1 million and $1.3 million, respectively.
4) LEASE TRANSACTIONS
The company leases facilities and equipment under noncancellable
operating leases with remaining terms of one year or more. The
terms of these agreements provide that the company pay certain
operating expenses. Some of these lease agreements also provide
the company with the option to purchase the related assets at the
end of the respective initial lease terms. Rental expense for
these operating leases for 1995, 1994 and 1993 was $225,000,
$215,000 and $256,000, respectively. At December 31, 1995,
future minimum lease payments required under operating leases
that have initial or remaining noncancellable lease terms in
excess of one year are $50,045 through the year 2001.
5) SHAREHOLDERS' EQUITY
PREFERRED STOCK -- Preferred stock is issuable from time to time
in one or more series, which series may have such voting powers,
and such designations, preferences, and relative participating,
optional or other special rights, and qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issue of such stock
adopted by the Board of Directors. No preferred stock has been
issued.
EARNINGS PER SHARE -- Earnings per share are calculated using the
treasury stock method and giving effect to common share
equivalents. Weighted average common shares outstanding used in
the calculation were 6,226,648 in 1995 and 1994 and 6,229,813 in
1993.
(6) STOCK OPTION PLANS
The company has six Stock Option Plans-- 1995, 1988, 1987, 1986,
1985 and 1981 ("the Plans"). The company applies Accounting
Principles Board Opinion No. 25 and related Interpretations in
accounting for the Plans. Accordingly, no compensation cost has
been recognized. Had compensation cost been determined
consistent with Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", the company's net
loss and loss per share would have been increased to $1,178,201
and $.19, respectively.
-23-
A summary of certain provisions and amounts related to the Plans
follows:
1995
1988 1987 1986 1985 1981
Plan
Plan Plan Plan Plan Plan
- ------------------------------------------------- --------
- -------- -------- -------- -------- ------
Authorized, unissued shares available for grant.. 300,000
500,000 150,000 225,000 525,000 368,963
Nonqualified options granted at not less than
80% of fair value at date of grant............ x
x x x x x
Incentive stock options granted at 100% of
fair value at date of grant................... x
x x x x x
Shares exercisable at December 31, 1995.......... Nil
406,493 28,500 34,750 6,250 Nil
The fair value of each option is estimated on the date of grant
using the Black-Scholes
option-pricing model with the following weighted average
assumptions used: no dividends;
expected volatility of 35 percent; risk-free interest rate of 5.2
percent; and expected
lives of 5 years.
A summary of the status of the Plans as of December 31, 1995,
1994 and 1993, and changes during the years ended on those dates
is presented below:
1995
1994 1993
-----------------
---------------- ----------------
Weighted
Weighted Weighted
Average
Average Average
Shares Exercise
Shares Exercise Shares Exercise
Fixed Options (000) Price
(000) Price (000) Price
- --------------------------------------- -------
- --------- ------- -------- ------- --------
Outstanding at beginning of year 1,039 $3.24
684 $3.61 621 $3.91
Granted 178 2.44
429 2.64 205 2.90
Cancellations and Expirations (362) 3.24
(74) 3.17 (142) 3.90
-------
------- -------
Outstanding at end of year 855
1,039 684
Options exercisable at year end 476
455 306
Weighted-average fair value of options
granted during the year $.97
n/a n/a
The following table summarizes information about stock options
outstanding at December 31, 1995:
Options Outstanding
Options Exercisable
- -------------------------------------
- -------------------------
Weighted
Weighted Average
Weighted
Number Average
Remaining Number Average
Range of Outstanding Exercise
Contractual Exercisable Exercise
Exercise Prices (000) Price Life
(000) Price
- ---------------- --------- ----------- -----------
- ----------- -------- ---------
Less than $2 81 $1.87 4.3
Nil $ --
$2 to $3 376 2.63 2.7
155 2.71
Greater than $3 398 3.73 3.4
321 3.88
---
---
855 3.07 3.2
476 3.50
===
===
Under the terms of the Plans, the consideration received by the
company upon exercise of the options may be paid in cash or by
-24-
the surrender and delivery to the company of shares of its common
stock, or by a combination thereof. The optionee is credited
with the fair market value of any stock surrendered and delivered
as of the exercise date.
Options granted under the 1985 nonqualified plan may include
provisions that are similar to stock appreciation rights in that
they entitle the holder to additional compensation at the date of
exercise or, if later, at the date when the exercise transaction
becomes taxable. The anticipated cost is recognized over the
vesting period of the options, which ranges from one to five
years. Currently there are no options outstanding that include
these provisions.
(7)RETIREMENT BENEFITS
The only qualified retirement plan for employees is the Cobra
Electronics Corporation Profit Sharing and 401(k) Incentive
Savings Plan (the "Plan"). The company may make a discretionary
annual profit sharing contribution that is allocated among
accounts of persons employed by the company for more than one
year, prorated based on the compensation paid to such persons
during the year. There were no profit sharing contributions in
1995, 1994 or 1993.
Deferred compensation of $1.8 million and $1.6 million is
included in the balances of accrued salaries and commissions at
December 31, 1995 and 1994, respectively. Deferred compensation
obligations arise pursuant to outstanding key executive
employment agreements.
(8) RELATED PARTY TRANSACTIONS
During 1993, the company sold the assets of its Professional
Products Group to its division president, who was an officer of
the company. The purchase price, which exceeded the net book
value of the assets sold, amounted to $1.3 million and consisted
of $867,000 of cash and the assumption of $393,000 in
liabilities.
During 1990, pursuant to an employment agreement, the company
lent an officer $1.25 million for the exercise of options on
375,000 shares of common stock. The officer signed a promissory
note with recourse, which is secured by the related shares. The
promissory note was amended during 1994 to extend the due date to
December 30, 1997 and to change the interest rate to the
appropriate Applicable Federal Rate, to be adjusted monthly. The
interest rate was retroactively changed to conform the promissory
note to the variable interest rate specified in the employment
agreement. The amount of the note is shown as a reduction of
shareholders' equity. From the inception of the loan through
December 31, 1995, accrued interest of $472,945 has been added to
the loan balance reflecting an average interest rate of 6.6%.
-25-
(9) COMMITMENTS
At December 31, 1995 and 1994, the company had outstanding
inventory purchase orders with suppliers totaling approximately
$26.6 million and $23.2 million, respectively.
(10) RESTRUCTURING COSTS
During the second quarter of 1993, the company recorded a
one-time charge of $1.1 million to cover the estimated costs of a
restructuring program. Approximately 40% of the charge was for
severance and termination costs related to a significant
downsizing of the company's workforce, which was carried out
during the third quarter of 1993. The remaining portion of the
restructuring charge was to cover additional one-time costs to be
incurred as a result of the lower staffing levels. As of
December 31, 1993, all restructuring costs had been incurred.
(11) INDUSTRY SEGMENT INFORMATION
The company operates in only one business segment--consumer
electronics. Excluding company-owned tooling at suppliers with a
net book value of $1.2 million at December 31, 1995, assets
located outside the United States are not material. Foreign
sales were $12.2 million, $11.7 million and $9.3 million in 1995,
1994 and 1993, respectively. For 1994, sales to one customer
totaled 10.2% of consolidated net sales. There were no sales in
excess of 10% of consolidated net sales to a single customer or a
group of entities under common control for either 1995 or 1993.
The company does not believe that the loss of any one customer
would have a material adverse effect on its business.
(12) ADVERTISING BARTER CREDITS
During 1992, the company received $3.8 million of advertising
credits in exchange for certain discontinued products. These
credits can be used to reduce the cost of a variety of media
services (by 40 to 50 percent) prior to their expiration in
December 1998. The company is exploring opportunities to
exchange a portion of the credits for various goods and services
used by the company as well as the outright sale of the credits
to third parties. In 1995 and 1994, the company recorded charges
of $126,000 and $300,000, respectively to reduce the credits to
their estimated net realizable value. Although realization is
not assured, management believes that all of the recorded credits
will be utilized or sold prior to their expiration. If
management is unsuccessful in their efforts to use or sell the
remaining credits, it is reasonably possible that the company's
estimate of net realizable value will change in the near term.
During 1995, 1994, and 1993, the company utilized credits of
approximately $329,000, $40,000, and $70,000, respectively. The
-26-
net book value of the credits at December 31, 1995 and 1994 was
$2.4 million and $2.8 million, respectively.
(13) OTHER ASSETS
In addition to the advertising barter credits, other assets at
December 31, 1995 and 1994 included the cash value on officer
life insurance policies of $3 million and $2.5 million,
respectively. The cash value of officer life insurance policies
is pledged as collateral for the company's secured lending
agreement and is maintained to fund deferred compensation
obligations (see Notes 3 and 7).
-27-
Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
Quarter
Ended
- ------------------------------------------------------------------------------------------
March 31 June 30
September 30 December 31
--------------------- ---------------------
- --------------------- ---------------------
1995 1994 1995 1994
1995 1994 1995 1994
---------- ---------- ---------- ----------
- ---------- ---------- ---------- ----------
Net sales.........$ 20,737 $ 18,481 $21,350 $ 21,132 $
24,513 $ 21,823 $ 23,842 $ 20,695
Cost of sales..... 16,938 14,890 17,066 17,480
19,548 17,755 20,313 17,540
Gross profit...... 3,799 3,591 4,284 3,652
4,965 4,068 3,529 3,155
Selling, general
and administra-
tive expense.... 3,762 3,167 4,152 3,448
4,296 4,348 3,887 3,639
Operating income
(loss).......... 37 424 132 204
669 (280) (358) (484)
Net income (loss). (293) 102 (206) 54
104 (696) (750) (975)
Net income (loss)
per share....... (0.05) 0.02 (0.03) 0.01
0.02 (0.11) (0.12) (0.16)
Weighted average
shares outstanding 6,227 6,232 6,227 6,236
6,231 6,241 6,227 6,227
-28-
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Board of Directors and Shareholders of
Cobra Electronics Corporation
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of
Cobra Electronics Corporation and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the
two years in the period ended December 31, 1995. Our audits also
included the financial statement schedule for the years ended
December 31, 1995 and 1994 listed in the Index at Item 14. These
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such 1995 and 1994 consolidated financial
statements present fairly, in all material respects, the
financial position of Cobra Electronics Corporation and
subsidiaries at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the two years
in the period ended December 31, 1995 in conformity with
generally accepted accounting principles. Also, in our opinion,
such 1995 and 1994 financial statement schedule, when considered
in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
March 1, 1996
-29-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ----------------------------------------
To the Shareholders and Board of Directors of
Cobra Electronics Corporation:
We have audited the accompanying consolidated balance sheet of
Cobra Electronics Corporation (a Delaware corporation) and
Subsidiaries as of December 31, 1993, and the related
consolidated statements of operations, shareholders' equity and
cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Cobra Electronics Corporation and Subsidiaries as of
December 31, 1993, and the results of their operations and their
cash flows for the year then ended, in conformity with generally
accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. Schedule II is the
responsibility of the company's management and is presented for
purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
March 7, 1994
-30-
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this item is set forth in the
company's definitive proxy statement filed pursuant to Regulation
14A under "Directors and Nominees," which information is hereby
incorporated by reference. The information under "Section 16(a)
Reports" included in the definitive proxy statement is hereby
incorporated by reference.
The executive officers of the Registrant are as follows:
Name, Age and Has Held Present Prior Business Experience
Present Position Position Since in Past Five Years
- -------------------- ---------------- -------------------------
Carl Korn, 74, Nov. 1961
Chairman*
Jerry Kalov, 60, Aug. 1986 In 1991, assumed duties
President and of President, Cobra
Chief Executive Electronics Group
Officer*
Gerald M. Laures, 48, Mar. 1994 Corporate Secretary,
Vice President-Finance July 1989 to present;
and Corporate Secretary* Corporate Controller
June 1988 to March 1994.
* Is also a director.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this item will be set forth in a
definitive proxy statement to be filed by the company pursuant to
Regulation 14A within 120 days after the close of the company's
1995 fiscal year, and such information, other than the
information required by Item 402(k) ("Board Compensation
Committee Report on Executive Compensation") and Item 402(l)
("Performance Graph") under Regulation S-K adopted by the
Securities and Exchange Commission, is hereby incorporated by
reference.
-31-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information in response to this item will be set forth in a
definitive proxy statement to be filed by the company pursuant to
Regulation 14A within 120 days after the close of the company's
1995 fiscal year, and such information is hereby incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this item will be set forth in a
definitive proxy statement to be filed by the company pursuant to
Regulation 14A within 120 days after the close of the company's
1995 fiscal year, and such information is hereby incorporated by
reference.
-32-
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Index to Consolidated Financial Statements and Schedules
--------------------------------------------------------
Page or
Schedule
Description Number
------------------------------------------------ --------
[a] 1. Consolidated Statements of Operations for the
three years ended December 31, 1995, 1994 and
1993......................................... 15
Consolidated Balance Sheets as of December 31,
1995 and 1994................................ 16-17
Consolidated Statements of Cash Flows for the
three years ended December 31,1995........... 18
Consolidated Statements of Shareholders' Equity
for the three years ended December 31,1995... 19
Notes to Consolidated Financial Statements...... 20-27
Quarterly Financial Data........................ 28
Independent Auditors' Reports................... 29-30
[a] 2. Schedule:
Valuation and Qualifying Accounts - 1995, 1994
and 1993..................................... 34
All other financial schedules have been omitted
because the required information is contained in
the consolidated financial statements and notes
thereto, or such information is not applicable.
[a] 3. Exhibits:
See Index to Exhibits on pages 36 through 39
[b] Current Reports on Form 8-K:
During the three months ended December 31, 1995,
there were no Form 8-K's filed.
-33-
Schedule II
COBRA ELECTRONICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(in thousands)
-------------------------------------------
Balance at Additions
Deductions Balance at
beginning charged to
from end of
of period expense
reserves Other,net period
---------- ----------
- ---------- ---------- ----------
1995
- ----------------------------------
Allowance for doubtful account.... $ 638 $ 440
$ (42) [a] $ 415 [c] $ 1,451
Reserve for disposal of
discontinued operation.......... $ 501 $ ---
$ (227) $ --- $ 274
Advertising barter credit
valuation allowance.............. $ 715 $ 126
$ --- $ --- $ 841
Tax valuation allowance........... $ 15,671 $ ---
$ --- $ 4 [b] $ 15,675
1994
- ----------------------------------
Allowance for doubtful accounts... $ 795 $ (13)
$ (144) [a] $ --- $ 638
Reserves for disposal of
discontinued operation.......... $ 776 $ ---
$ (275) $ --- $ 501
Advertising barter credit
valuation allowance............. $ 415 $ 300
$ --- $ --- $ 715
Tax valuation allowance........... $ 14,156 $ ---
$ --- $ 1,515 [b] $ 15,671
1993
- ----------------------------------
Allowance for doubtful accounts... $ 4,235 $ 269
$ (3,709) [a] $ --- $ 795
Reserves for disposal of
discontinued operation.......... $ 856 $ ---
$ (80) $ --- $ 776
Advertising barter credit
valuation allowance............. $ 415 $ ---
$ --- $ --- $ 415
Tax valuation allowance........... $ 11,570 $ ---
$ --- $ 2,586 [b] $ 14,156
[a] Uncollectible accounts written off.
[b] Increase in allowance to offset additional net operating loss
carryforwards generated during the year,
net of carryforwards expiring, and the inability of the
company to realize certain tax assets because
of its operating loss.
[c] Net adjustments to the reserve with an offsetting entry to
receivables.
-34-
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
COBRA ELECTRONICS CORPORATION
By Gerald M. Laures
--------------------------
Gerald M. Laures
Vice President - Finance
and Corporate Secretary
Dated: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the date
indicated above.
Carl Korn Director and Chairman of the Board
- ---------------------
Carl Korn
Jerry Kalov Director, President and Chief Executive
- --------------------- Officer (Principal Executive Officer)
Jerry Kalov
William P. Carmichael Director
- ---------------------
William P. Carmichael
Samuel B. Horberg Director
- ----------------------
Samuel B. Horberg
Gerald M. Laures Director, Vice President - Finance and
- ---------------------- Secretary (Principal Financial and
Gerald M. Laures Accounting Officer)
Harold D. Schwartz Director
- -----------------------
Harold D. Schwartz
-35-
INDEX TO EXHIBITS
-----------------
Exhibit
Number Description of Document
- ------- --------------------------------------------------------
3(i)(a) Articles of Incorporation, as amended February 23, 1990-
-Filed as exhibit No. 3-1 to the Registrant's Form 10-K
for the year ended December 31, 1990 (File No. 0-511),
hereby incorporated by reference.
3(i)(b) Certificate of Ownership and Merger, filed with the
Secretary of State of Delaware on March 29, 1993--Filed
as exhibit No. 3-2 to the Registrant's Form 10-K for the
year ended December 31, 1992 (File No. 0-511), hereby
incorporated by reference.
3(ii) Bylaws, as amended December 6, 1983--Filed as exhibit
No. 3-2 to the Registrant's Form 10-K for the year ended
December 31, 1990 (File No. 0-511), hereby incorporated
by reference.
10-1 # 1981 Nonqualified and Incentive Stock Option Plan--Filed
as exhibit No. 10-1 to the Registrant's Form 10-K for
the year ended December 31, 1992 (File No. 0-511),
hereby incorporated by reference.
10-2 # Amendment No. 1 to 1981 Nonqualified and Incentive Stock
Option Plan--Filed as exhibit No. 10-2 to the
Registrant's Form 10-K for the year ended December 31,
1992 (File No. 0-511), hereby incorporated by reference.
10-3 # 1985 Key Employees Nonqualified Stock Option Plan--Filed
as exhibit No. 10-6 to the Registrant's Form 10-K for
the year ended December 31, 1985 (File No. 0-511),
hereby incorporated by reference.
10-4 # Key Executive Employment Agreement dated as of January
1, 1988--Filed as exhibit No. 10-15 to the Registrant's
Form 10-K for the year ended December 31, 1987 (File No.
0-511), hereby incorporated by reference.
10-5 # 1986 Key Employees Nonqualified and Incentive Stock
Option Plan--Filed as exhibit No. 10-6 to the
registrant's Form 10-K for the year ended December 31,
1990 (File No. 0-511), hereby incorporated by reference.
10-6 # 1987 Key Employees Nonqualified and Incentive Stock
Option Plan--Filed as exhibit No. 10-7 to the
Registrant's Form 10-K for the year ended December 31,
1990 (File No. 0-511), hereby incorporated by reference.
10-7 # 1988 Key Employees Nonqualified and Incentive Stock
Option Plan--Filed as exhibit No. 10-8 to the
Registrant's Form 10-K for the year ended December 31,
1990 (File No. 0-511), hereby incorporated by reference.
-36-
10-8 Lease Agreement dated August 16, 1989 between Registrant
and CMD Midwest Eight Limited Partnership for Aurora,
Illinois facility--Filed as exhibit No. 10-9 to the
Registrant's Form 10-K for the year ended December 31,
1990 (File No. 0-511), hereby incorporated by reference.
10-9 # Key Executive Pledge Agreement and Term Loan Promissory
Note dated December 31, 1990--Filed as exhibit No. 10-12
to the Registrant's Form 10-K for the year ended
December 31, 1990 (File No. 0-511), hereby incorporated
by reference.
10-10 Sublease Agreement dated December 1, 1992 between
Registrant and Petcare Plus, Inc. for Aurora, Illinois
facility--Filed as exhibit No. 10-16 to the Registrant's
Form 10-K for the year ended December 31, 1992 (File No.
0-511), hereby incorporated by reference.
10-11 Lease Agreement dated October 15, 1987, including
Amendment Numbers 1, 2 and 3, between Registrant and
Maxtec International Corp. for approximately 85% of the
Registrant's building located at 6460 West Cortland
Street, Chicago, IL--Filed as exhibit No. 10-17 to the
Registrant's Form 10-K for the year ended December
31, 1992 (File No. 0-511), hereby incorporated by
reference.
10-12 Loan and Security Agreement dated November 12, 1992,
including Amendment No. 1, by and between the Registrant
and Congress Financial Corporation (Central)--Filed as
exhibit No. 10-18 to the Registrant's Form 10-K for the
year ended December 31, 1992 (File No. 0-511), hereby
incorporated by reference.
10-13 # Deferred Compensation Plan dated as of December 23,
1992--Filed as exhibit No. 10-19 to the Registrant's
Form 10-K for the year ended December 31, 1992 (File No.
0-511), hereby incorporated by reference.
10-14 Asset Purchase Agreement between Registrant and
Superscope Technologies, Inc. dated as of September 30,
1993--Filed as exhibit No. 10-18 to the Registrant's
Form 10-K for the year ended December 31, 1993 (File No.
0-511), hereby incorporated by reference.
10-15 Omnibus Amendment To All Loan Documents between
Registrant and Congress Financial Corporation (Central)
dated as of March 29, 1993--Filed as exhibit No. 10-19
to the Registrant's Form 10-K for the year ended
December 31, 1993 (File No. 0-511), hereby incorporated
by reference.
10-16 Amendment No. 3 to the Loan and Security Agreement
between Registrant and Congress Financial Corporation
-37-
(Central) dated as of August 17, 1993--Filed as exhibit
No. 10-20 to the Registrant's Form 10-K for the year
ended December 31, 1993 (File No. 0-511), hereby
incorporated by reference.
10-17 Amendment No. 4 to the Loan and Security Agreement
between Registrant and Congress Financial Corporation
(Central) dated as of December 29, 1993--Filed as
exhibit No. 10-21 to the Registrant's Form 10-K for the
year ended December 31, 1993 (File No. 0-511), hereby
incorporated by reference.
10-18 Amendment No. 5 to the Loan and Security Agreement
between Registrant and Congress Financial Corporation
(Central) dated as of February 25, 1994--Filed as exhibit
No. 10-22 to the Registrant's Form 10-K for the year
ended December 31, 1993 (File No. 0-511), hereby
incorporated by reference.
10-17 Amendment No. 6 to the Loan and Security Agreement
between Registrant and Congress Financial Corporation
(Central) dated as of November 23, 1994--Filed as exhibit
No. 10-17 to the Registrant's Form 10-K for the year
ended December 31, 1994 (File No. 0-511), hereby
incorporated by reference.
10-18 Amendment No. 7 to the Loan and Security Agreement
between Registrant and Congress Financial Corporation
(Central) dated as of December 14, 1994--Filed as
exhibit No. 10-18 to the Registrant's Form 10-K for the
year ended December 31, 1994 (File No. 0-511), hereby
incorporated by reference.
10-19 Amendment No. 8 to the Loan and Security Agreement
between Registrant and Congress Financial Corporation
(Central) dated as of January 20, 1995--Filed as exhibit
No. 10-19 to the Registrant's Form 10-K for the year
ended December 31, 1994 (File No. 0-511), hereby
incorporated by reference.
10-20 # Executive Employment Agreement dated as of September 23,
1994--Filed as exhibit No. 10-20 to the Registrant's
Form 10-K for the year ended December 31, 1994 (File No.
0-511), hereby incorporated by reference.
10-21 # Amendment to the Key Executive Employment Agreement
dated as of December 15, 1994--Filed as exhibit No.
10-21 to the Registrant's Form 10-K for the year ended
December 31, 1994 (File No. 0-511), hereby incorporated
by reference.
10-22 # Amended and Restated Term Loan Promissory Note dated as
of December 15, 1994--Filed as exhibit No. 10-22 to the
Registrant's Form 10-K for the year ended December 31,
1994 (File No. 0-511), hereby incorporated by reference.
-38-
10-23 * 1995 Key Employees Nonqualified and Incentive Stock
Option Plan.
10-24 * Letter of Intent with Code 3.
10-25 * Trademark License Agreement with General Motors
Corporation Service Parts Operations.
21 * Subsidiaries of the Registrant.
23 * Consents of Deloitte & Touche LLP, and Arthur Andersen
LLP.
27 * Financial data schedule required under Article 5 of
Regulation S-X.
- -----------------------------------------------------------------
* Filed herewith.
# Executive compensation plan or arrangement.
-39-
EXHIBIT 10-23
COBRA ELECTRONICS CORPORATION
1995 STOCK OPTION PLAN
I. INTRODUCTION
1.1 Purposes. The purposes of the 1995 Stock Option Plan (the
"Plan") of Cobra Electronics Corporation (the "Company") and its
subsidiaries from time to time (individually a "Subsidiary" and
collectively the ("Subsidiaries") are to align the interests of
the Company's stockholders and the recipients of options under
this Plan by increasing the proprietary interest of such
recipients in the Company's growth and success and to advance the
interests of the Company by attracting and retaining officers and
other key employees. For purposes of this Plan, references to
employment by the Company shall also mean employment by a
Subsidiary.
1.2 Administration. This Plan shall be administered by a
committee (the "Committee") designated by the Board of Directors
of the Company (the "Board") consisting of at least two members
of the Board, each of whom shall be a "disinterested person"
within the meaning of Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and an "outside
director" within the meaning of Section 162(m)of the Internal
Revenue Code of 1986, as amended (the "Code"), subject to any
transition rules applicable to the definition of outside
director.
The Committee shall, subject to the terms of this Plan,
select eligible officers and other key employees for
participation in this Plan and determine the number of shares of
common stock, $.33 1/3 par value, of the Company ("Common Stock")
subject to each option granted hereunder, the exercise price of
such option, the time and conditions of exercise of such option
and all other terms and conditions of such option, including,
without limitation, the form of the option agreement. The
Committee shall, subject to the terms of this Plan, interpret
this Plan and the application thereof, establish rules and
regulations it deems necessary or desirable for the
administration of this Plan and may impose, incidental to the
grant of an option, conditions with respect to the grant, such as
limiting competitive employment or other activities. All such
interpretations, rules, regulations and conditions shall be
conclusive and binding on all parties. Each option hereunder
shall be evidenced by a written agreement (an "Agreement")
between the Company and the options setting forth the terms and
conditions applicable to such option.
The Committee may delegate some or all of its power and
authority hereunder to the Chief Executive Officer or other
executive officer of the Company as the Committee deems
appropriate; provided, however, that the Committee may not
delegate its power and authority with regard to (i) the grant of
-40-
an option under this Plan to any person who is a "covered
employee" within the meaning of Section 162(m) of the Code or
who, in the Committee's judgment, is likely to be a covered
employee at any time during the period an option granted
hereunder to such employee would be outstanding or (ii) the
selection for participation in this Plan of an officer or other
person subject to Section 16 of the Exchange Act or decisions
concerning the timing, pricing or amount of an option grant to
such an officer or other person.
A majority of the Committee shall constitute a quorum. The
acts of the Committee shall be either (i) acts of a majority of
the members of the Committee present at any meeting at which a
quorum is present or (ii) acts approved in writing by a majority
of the members of the Committee without a meeting.
1.3 Eligibility. Participants in this Plan shall consist of such
officers or other key employees of the Company and its
Subsidiaries as the Committee in its sole discretion may select
from time to time. The Committee's selection of a person to
participate in this Plan at any time shall not require the
Committee to select such person to participate in this Plan at
any other time.
1.4 Shares Available. Subject to adjustment as provided in
Section 3.7, 300,000 shares of Common Stock shall be
available for grants of options under this Plan. To the extent
that shares of Common Stock subject to an outstanding option are
not issued or delivered by reason of the expiration, termination,
cancellation or forfeiture of such option or by reason of the
delivery of shares of Common Stock to pay all or a portion of the
exercise price of such option or to satisfy all or a portion of
the tax withholding obligations relating to such option, then
such shares of Common Stock shall again be available under this
Plan.
Shares of Common Stock to be delivered under this Plan shall
be made available from authorized and unissued shares of Common
Stock, or authorized and issued shares of Common Stock reacquired
and held as treasury shares or otherwise, or a combination
thereof.
To the extent required by Section 162(m) of the Code and the
rules and regulations thereunder, the maximum number of shares of
Common Stock with respect to which options may be granted during
any calendar year to any person shall be 100,000, subject to
adjustment as provided in Section 3.7.
II. STOCK OPTIONS
2.1 Grants of Stock Options. The Committee may, in its
discretion, grant options to purchase shares of Common Stock to
such eligible persons as may be selected by the Committee. Each
option, or portion thereof, that is not an incentive stock
option, shall be a non-qualified stock option. An incentive stock
-41-
option shall mean an option to purchase shares of Common Stock
that meets the requirements of Section 422 of the Code, or any
successor provision, which is intended by the Committee to
constitute an incentive stock option. Each incentive stock option
shall be granted within ten years of the effective date of this
Plan. To the extent that the aggregate Fair Market Value
(determined as of the date of grant) of shares of Common Stock
with respect to which options designated as incentive stock
options are exercisable for the first time by a participant
during any calendar year (under this Plan or any other plan of
the Company, or any parent or Subsidiary) exceeds the amount
(currently $100,000) established by the Code, such options shall
constitute non-qualified stock options. "Fair Market Value" shall
mean the closing price of a share of Common Stock on the NASDAQ
National Market System on the date as of which such value is
being determined or, if there shall be no closing price on such
date, on the next preceding date for which a closing price was
reported; provided, however, that if Fair Market Value for any
date cannot be determined as above provided, Fair Market Value
shall be determined by the Committee by whatever means or method
as the Committee, in the good faith exercise of its discretion,
shall at such time deem appropriate.
2.2 Terms of Stock Options. Options shall be subject to the
following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of this
Plan, as the Committee shall deem advisable:
(a) Number of Shares and Purchase Price. The number of shares
of Common Stock subject to an option and the purchase price per
share of Common Stock purchasable upon exercise of the option
shall be determined by the Committee; provided, however, that the
purchase price per share of Common Stock purchasable upon
exercise of any option shall not be less than 100% of the Fair
Market Value of a share of Common Stock on the date of grant of
such option; provided further, that if an incentive stock option
shall be granted to any person who, at the time such option is
granted, owns capital stock possessing more than ten percent of
the total combined voting power of all classes of capital stock
of the Company (or of any parent or Subsidiary) (a "Ten Percent
Holder"), the purchase price per share of Common Stock shall be
the price (currently 110% of Fair Market Value) required by the
Code in order to constitute an incentive stock option.
(b) Option Period and Exercisability. The period during which
an option may be exercised shall be determined by the Committee;
provided, however, that no incentive stock option shall be
exercised later than ten years after its date of grant; provided
further, that if an incentive stock option shall be granted to a
Ten Percent Holder, such option shall not be exercised later than
five years after its date of grant. The Committee may, in its
discretion, establish performance measures which shall be
satisfied or met as a condition to the grant of an option or to
the exercisability of all or a portion of an option. The
-42-
Committee shall determine whether an option shall become
exercisable in cumulative or non-cumulative installments and in
part or in full at any time. An exercisable option, or portion
thereof, may be exercised only with respect to whole shares of
Common Stock.
(c) Method of Exercise. An option may be exercised (i) by
giving written notice to the Company specifying the number of
whole shares of Common Stock to be purchased and accompanied by
payment therefor in full (or arrangement made for such payment to
the Company's satisfaction) either (A) in cash, (B) by delivery
of previously owned whole shares of Common Stock (which the
optionee has held for at least six months prior to the delivery
of such shares and for which the optionee has good title, free
and clear of all liens and encumbrances) having a Fair Market
Value, determined as of the date of exercise, equal to the
aggregate purchase price payable by reason of such exercise, (C)
in cash by a broker-dealer acceptable to the Company to whom the
optionee has submitted an irrevocable notice of exercise or (D) a
combination of (A) and (B), in each case to the extent set forth
in the Agreement relating to the option and (ii) by executing
such documents as the Company may reasonably request. The
Committee shall have sole discretion to disapprove of an election
pursuant to any of clauses (B)-(D) and in the case of an optionee
who is subject to Section 16 of the Exchange Act, the Company may
require that the method of making such payment be in compliance
with Section 16 and the rules and regulations thereunder. Any
fraction of a share of Common Stock which would be required to
pay such purchase price shall be disregarded and the remaining
amount due shall be paid in cash by the optionee. No certificate
representing Common Stock shall be delivered until the full
purchase price therefor has been paid.
2.3 Termination of Employment.
(a) Death. Subject to paragraph (d) below and unless
otherwise specified in the Agreement relating to an option, if an
optionee's employment by the Company terminates by reason of
death, each option held by such optionee shall be exercisable
only to the extent that such option is exercisable on the date of
such optionee's death and may thereafter be exercised by such
optionee's executor, administrator, legal representative,
beneficiary or similar person, as the case may be, until and
including the earliest to occur of (i) the date which is one year
(or such other period as set forth in the Agreement relating to
such option) after the date of death and (ii) the expiration date
of the term of such option.
(b) Other Termination. Subject to paragraph (d) below and
unless otherwise specified in the Agreement relating to an
option, if an optionee's employment with the Company terminates
for any reason other than death, each option held by such
optionee shall be exercisable only to the extent that such option
is exercisable on the effective date of such optionee's
termination of employment and may thereafter be exercised by such
-43-
optionee (or such optionee's legal representative or similar
person) until and including the earliest to occur of (i) the date
which is six months (or such other period as set forth in the
Agreement relating to such option) after the effective date of
such optionee's termination of employment and (ii) the expiration
date of the term of such option.
(c) Death Following Termination of Employment. Subject to
paragraph (d) below and unless otherwise specified in the
Agreement relating to an option, if an optionee dies during the
six-month period (or such other period as set forth in the
Agreement relating to such option) following termination of
employment for any other reason other than death, each option
held by such optionee shall be exercisable only to the extent
that such option is exercisable on the date of such optionee's
death and may thereafter be exercised by such optionee's
executor, administrator, legal representative, beneficiary or
similar person, as the case may be, until and including the
earliest to occur of (i) the date which is six months (or such
other period as set forth in the Agreement relating to such
option) after the date of death and (ii) the expiration date of
the term of such option.
(d) Termination of Employment Incentive Stock Options. If
the employment with the Company of a holder of an incentive stock
option terminates by reason of death or Permanent and Total
Disability (as defined in Section 22(e)(3) of the Code), each
incentive stock option held by such optionee shall be exercisable
only to the extent that such option is exercisable on the date of
such optionee's death or on the effective date of such optionee's
termination of employment by reason of Permanent and Total
Disability, as the case may be, and may thereafter be exercised
by such optionee (or such optionee's executor, administrator,
legal representative, beneficiary or similar person) until and
including the earliest to occur of (i) the date which is one year
(or such shorter period as set forth in the Agreement relating to
such option)after the date of death or the effective date of such
optionee's termination of employment by reason of Permanent and
Total Disability, as the case may be, and (ii) the expiration
date of the term of such option.
If the employment with the Company of a holder of an
incentive stock option terminates for any reason other than death
or Permanent and Total Disability, each incentive stock option
held by such optionee shall be exercisable only to the extent
such option is exercisable on the effective date of such
optionee's termination of employment, and may thereafter be
exercised by such optionee (or such optionee's legal
representative or similar person) until and including the
earliest to occur of (i) the date which is three months after the
effective date of such optionee's termination of employment and
(ii) the expiration date of the term of such option.
If the holder of an incentive stock option dies during the
one-year period following termination of employment by reason of
Permanent and Total Disability (or such shorter period as set
-44-
forth in the Agreement relating to such option), or if the holder
of an incentive stock option dies during the three-month period
following termination of employment for any reason other than
death or Permanent and Total Disability, each incentive stock
option held by such optionee shall be exercisable only to the
extent such option is exercisable on the date of the optionee's
death and may thereafter be exercised by the optionee's executor,
administrator, legal representative, beneficiary or similar
person, as the case may be, until and including the earliest to
occur of (i) the date which is six months (or such shorter period
as set forth in the Agreement relating to such option) after the
date of death and (ii) the expiration date of the term of such
option.
III. GENERAL
3.1 Effective Date and Term of Plan. This Plan shall be submitted
to the stockholders of the Company for approval and, if approved
by the affirmative vote of a majority of the shares of Common
Stock present in person or represented by proxy at the 1995
Annual Meeting of Stockholders, shall become effective as of the
date of approval by the Board. This Plan shall terminate ten
years after its effective date unless terminated earlier by the
Board. Termination of this Plan shall not affect the terms or
conditions of any option granted prior to termination.
Options may be granted hereunder at any time prior to the
termination of this Plan, provided that no option may be granted
later than ten years after the effective date of this Plan. In
the event that this Plan is not approved by the stockholders of
the Company, this Plan and any options granted hereunder shall be
void and of no force or effect.
3.2 Amendments. The Board may amend this Plan as it shall deem
advisable, subject to any requirement of stockholder approval
required by applicable law, rule or regulation, including Rule
16b-3 under the Exchange Act and Section 162(m) of the Code. No
amendment may impair the rights of a holder of an outstanding
option without the consent of such holder.
3.3 Agreement. No option shall be valid until an Agreement is
executed by the Company and the optionee and, upon execution by
the Company and the optionee and delivery of the Agreement to the
Company, such option shall be effective as of the effective date
set forth in the Agreement.
3.4 Non-Transferability. No option shall be transferable other
than (i) by will or the laws of descent and distribution or
pursuant to beneficiary designation procedures approved by the
Company or (ii) as otherwise permitted under Rule 16b-3 under the
Exchange Act as set forth in the Agreement relating to an option.
Each option may be exercised during the optionee's lifetime only
by the optionee or the optionee's legal representative or similar
person. Except as permitted by the second preceding sentence, no
option shall be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by
-45-
operation of law or otherwise) or be subject to execution,
attachment or similar process. Upon any attempt to so sell,
transfer, assign, pledge, hypothecate, encumber or otherwise
dispose of any option, such option and all rights thereunder
shall immediately become null and void.
3.5 Tax Withholding. The Company shall have the right to require,
prior to the issuance or delivery of any shares of Common Stock,
payment by the optionee of any Federal, state, local or other
taxes which may be required to be withheld or paid in connection
with an option hereunder. An Agreement may provide that the
optionee may satisfy any obligation to withhold or pay taxes
arising on any date (the "Tax Date") in connection with the
option in the amount necessary to satisfy any such obligation by
any of the following means: (A) a cash payment to the Company,
(B) delivery to the Company of previously owned whole shares of
Common Stock (which the optionee has held for at least six months
prior to the delivery of such shares and for which the optionee
has good title, free and clear of all liens and encumbrances)
having an aggregate Fair Market Value, determined as of the Tax
Date, equal to the amount necessary to satisfy any such
obligation, (C) a cash payment by a broker-dealer acceptable to
the Company to whom the optionee has submitted an irrevocable
notice of exercise or (D) a combination of (A) and (B), in each
case to the extent set forth in the Agreement relating to the
option; provided, however, that the Committee shall have sole
discretion to disapprove of an election pursuant to any of
clauses (B)-(D) and that in the case of an optionee who is
subject to Section 16 of the Exchange Act, the Company may
require that the method of satisfying any such obligation be in
compliance with Section 16 and the rules and regulations
thereunder. An Agreement may provide for shares of Common Stock
to be delivered having an aggregate Fair Market Value in excess
of the minimum amount required to be withheld, but not in excess
of the amount determined by applying the optionee's maximum
marginal tax rate. Any fraction of a share of Common Stock which
would be required to satisfy such an obligation shall be
disregarded and the remaining amount due shall be paid in cash by
the optionee.
3.6 Restrictions on Shares. Each option hereunder shall be
subject to the requirement that if at any time the Company
determines that the listing, registration or qualification of the
shares of Common Stock subject to such option upon any securities
exchange or under any law, or the consent or approval of any
governmental body, or the taking of any other action is necessary
or desirable as a condition of, or in connection with, the
delivery of shares thereunder, such shares shall not be delivered
unless such listing, registration, qualification, consent,
approval or other action shall have been effected or obtained,
free of any conditions not acceptable to the Company. The Company
may require that certificates evidencing shares of Common Stock
delivered pursuant to any option bear a legend indicating that
the sale, transfer or other disposition thereof by the holder is
prohibited except in compliance with the Securities Act of 1933,
as amended, and the rules and regulations thereunder.
-46-
3.7 Adjustment. In the even