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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 February 28, 1998
or
[ ] Transition Report pursuant Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ___________________ to
___________________
Commission File No. 2-74238-B
LOJACK CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2664794
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
333 ELM STREET
DEDHAM, MASSACHUSETTS 02026
(Address of Principal Executive Offices) (Zip Code)
(781) 326-4700
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS: Common Stock, $.01 par value
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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 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 the 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 in Part III of this Form 10-K or any amendments to this Form 10-K.
The aggregate market value of the Common Stock of the registrant held by non-
affiliates was approximately $206,955,052 as of May 22, 1998.
As of May 22, 1998, there were issued and outstanding 18,127,461 shares of the
registrant's Common Stock, $.01 par value.
- --------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended February 28, 1998
(Items 5, 6, 7, 8 and 14(a)(1))
(2) Portions of the definitive Proxy Statement for Registrant's Annual Meeting
of Stockholders to be held on July 15, 1998 (Items 10, 11, and 12)
LOJACK CORPORATION
Securities and Exchange Commission
Item Number and Description Page
- --------------------------- ----
PART I
ITEM 1. Business .................................................................... 1
ITEM 2. Properties .................................................................. 6
ITEM 3. Legal Proceedings ........................................................... 7
ITEM 4. Submission of Matters to a Vote of Security Holders ......................... 7
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matter .... 7
ITEM 6. Selected Financial Data ..................................................... 7
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................................... 7
ITEM 8. Financial Statements and Supplementary Data ................................. 7
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ......................................... 7
PART III
ITEM 10. Directors and Executive Officers of the Registrant .......................... 7
ITEM 11. Executive Compensation ...................................................... 8
ITEM 12. Security Ownership of Certain Beneficial Owners and Management .............. 8
ITEM 13. Certain Relationships and Related Transactions .............................. 8
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ............. 8
SIGNATURES ........................................................................... 12
INDEX TO AUDITORS' REPORT AND FINANCIAL STATEMENT SCHEDULE ........................... 13
In as much as the calculation of shares of the registrant's voting stock held by
non-affiliates requires a calculation of the number of shares held by
affiliates, such figure, as shown on the cover page hereof, represents the
registrant's best good faith estimate for purposes of this annual report on Form
10-K, and the registrant disclaims that such figure is binding for any other
purpose. The aggregate market value of Common Stock indicated is based upon the
last traded price of the Common Stock as reported by NASDAQ on May 22, 1998.
All outstanding shares beneficially owned by executive officers and directors of
the registrant or by any shareholder beneficially owning more than 10% of
registrant's Common Stock, as disclosed herein, were considered for purposes of
this disclosure to be held by affiliates.
PART I
ITEM 1 - BUSINESS
GENERAL
LoJack Corporation ("LoJack" or the "Company") was organized as a Massachusetts
corporation in 1978. Its telephone number is (781) 326-4700.
LoJack developed and markets the LoJack System, a unique, patented system
designed to assist law enforcement personnel in locating, tracking and
recovering stolen vehicles. In addition, LoJack developed and markets
CarSearch, a product line of its patented LoJack System, designated for use in
international markets where it may not be practicable or desirable to implement
the fully integrated LoJack System.
The LoJack System is comprised of a Registration System maintained and operated
by LoJack; a Sector Activation System and Police Tracking Computers operated by
law enforcement officials (the "Law Enforcement Components"); and the LoJack
Unit, a VHF (very high frequency) transponder sold to consumers. The LoJack
System is designed to be integrated into existing law enforcement computers and
telecommunication networks and procedures. If a car equipped with a LoJack Unit
is stolen, its owner reports the theft as usual to the local police department.
Existing law enforcement computer and communication networks and procedures
operate in the normal manner for a report of a stolen vehicle. If the theft
involves a vehicle equipped with a LoJack Unit, a unique radio signal will be
transmitted automatically to the LoJack Unit in the stolen vehicle activating
its tracking signal. The tracking signal emitted from the LoJack Unit can be
detected by the Police Tracking Computer installed in police patrol cars and
aircraft throughout the coverage areas and used to lead law enforcement officers
to the stolen vehicle. The Company also sells conventional vehicle security
devices, which may be purchased as options with the LoJack Unit, under the names
"LoJack Prevent" and "LoJack Alert."
OPERATION OF THE LOJACK SYSTEM IN THE UNITED STATES
Under agreements with state police agencies, LoJack generally furnishes the Law
Enforcement Components for distribution to state, county, and municipal law
enforcement agencies for a nominal rent. The installation, testing and
maintenance of the Law Enforcement Components are primarily the responsibility
of LoJack. The Law Enforcement Components are generally owned by LoJack or a
LoJack subsidiary; the respective state, county or city law enforcement agency
operate the LoJack System as required during the term of each such agreement.
The agreements with the applicable law enforcement agencies are generally for
initial terms of up to five (5) years. To date, any such agreements which have
expired have been renewed or are in the process of renewal. Renewal or extension
of any such agreement may be subject to competitive bidding.
The LoJack System has been implemented in the following domestic jurisdictions
pursuant to agreements with applicable law enforcement agencies:
Jurisdiction Date Operational
- ------------ ----------------
Massachusetts July 1986
Rhode Island June 1994
Connecticut April 1995
New York June 1994
New Jersey March 1990
Pennsylvania March 1997
Delaware March 1998
Maryland February 1997
Virginia August 1993
District of Colombia September 1994
Georgia August 1992
Florida:
Dade, Broward,
Palm Beach and surrounding areas; December 1988
Indian River, St. Lucie and Martin
counties, and surrounding areas
Tampa, St. Petersburg and
surrounding areas in West Florida; and July 1994
Orlando and surrounding areas April 1996
Michigan April 1990
Illinois November 1990
Texas (Dallas) May 1997
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California:
Los Angeles County July 1990
San Diego and Orange County June 1995
San Bernadino and Riverside March 1997
Ventura County April 1998
The Company is presently pursuing negotiations with several law enforcement
agencies in the United States regarding the implementation of the LoJack System
in jurisdictions in addition to those mentioned above. The Company's strategy
is to expand the LoJack System to those jurisdictions where the combination of
new vehicle sales, population density, and the incidence of vehicle theft is
high. To date, LoJack has expanded into 15 of the original 16 markets it has
targeted. Certain improvements to the Company's technology and interface with
law enforcement systems have made expansion beyond the 16 targeted states
economically feasible for the Company. Accordingly, over the next two years the
Company plans to expand to certain jurisdictions which are contiguous to
existing LoJack coverage areas as well to markets that have increased incidence
of car theft. During fiscal 1999 the Company plans to expand coverage to
Arizona, New Hampshire, Ohio, as well as to continue to expand the Texas
operation to Houston and Austin.
THE LOJACK SYSTEM
The LoJack System consists of four basic components:
1. LoJack Unit
2. Police Tracking Computer
3. Sector Activation System
4. Registration System
The LoJack Unit. The LoJack Unit is the consumer component of the LoJack System
and is installed in a purchaser's motor vehicle. The LoJack Unit consists of a
VHF transponder, a microprocessor based computer, and a modem. The computer's
memory contains a set of codes unique to the particular LoJack Unit and the
vehicle in which it is installed. The microprocessor activates the Unit's
transmitter upon receipt of its unique activation code from the Sector
Activation System. Since each LoJack Unit has its own unique activation code
and reply code, the microprocessor responds only upon receipt of the appropriate
code. An activated LoJack Unit will continue to broadcast its reply code until
it receives a properly coded message to stop. That message is sent after the
police have recovered the vehicle. All transmissions are made on a nationwide
radio frequency allocated by the Federal Communications Commission ("FCC") as a
law enforcement radio service.
Police Tracking Computer. The Police Tracking Computer ("PTC") is a
sophisticated radio direction finder. The PTC is used by police to locate and
track activated LoJack Units. The PTC consists of a radio receiver with a
directional antenna array, doppler signal processor, microprocessor based
computer and a controllable display. When the PTC detects a LoJack Unit
transmission from a stolen vehicle, it displays the reply code along with
graphic indications of signal strength and the direction toward the stolen
vehicle. The officer may then radio the reply code to the police dispatcher and
obtain a vehicle description.
The PTC is generally installed in police vehicles. Modified designs of the PTC
have been developed for use in helicopters, as well as fixed locations such as
toll booths, radio towers, or police communication centers. Effective tracking
range varies under different topographical and other conditions, from about one
mile to approximately five miles under ideal conditions.
Sector Activation System. The Sector Activation System ("SAS") is a
computerized system that controls and commands the LoJack System and activates
LoJack Units in stolen vehicles. It is designed to function with existing law
enforcement computer and telecommunication networks and procedures. Routine and
normal processing of a stolen vehicle report activates the SAS, even if the
person reporting the theft and the officer responding are unfamiliar with the
LoJack System.
The Sector Activation Computer ("SAC") contains a file with up-to-date
information on vehicles equipped with LoJack Units. This computer works in
conjunction with pre-existing law enforcement computer and communication
systems. This file contains, for each LoJack equipped vehicle, the vehicle
identification number ("VIN") assigned by the vehicle's manufacturer, and the
activation and reply codes for the LoJack Unit installed in that vehicle.
When the VIN of a stolen vehicle is entered into existing stolen vehicle
reporting systems, it is compared automatically to those contained in the LoJack
file. When a match occurs, the SAC automatically transmits the appropriate
activation code. Police officers who have detected the transmissions of an
activated LoJack Unit call into a dispatcher for a description of the
transmitting vehicle. After the vehicle is recovered, the VIN is again entered
into the SAC to generate the appropriate deactivation code and to reset the
LoJack Unit for future use.
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The SAC controls a network of radio transmitters positioned on sites throughout
the coverage area. The SAC accepts stolen vehicle reports from the state law
enforcement computer and initiates activations and deactivations of LoJack
Units.
Registration System. The Registration System is a proprietary method of
assigning digital codes to be transmitted and received by LoJack Units in such
manner that unique activation codes are permanently correlated with the unique
VIN assigned to the vehicle in which the LoJack Unit has been installed.
MARKETING AND DISTRIBUTION OF LOJACK UNITS - UNITED STATES
LoJack's marketing approach in each jurisdiction focuses on franchised new car
dealers who will offer the LoJack Unit as an option on both their new and used
car sales. LoJack also markets conventional vehicle security devices sold under
the names "LoJack Prevent" and "LoJack Alert."
LoJack's sales force routinely visits franchised new car dealers to educate and
train dealership personnel on the benefits of the LoJack System. LoJack's
direct marketing efforts emphasize the benefits to the dealers and their
customers of the LoJack Unit as a purchase option for new and used car buyers.
Like other options, the LoJack Unit can usually be financed conveniently as a
part of the purchase price of the vehicle. LoJack uses direct advertising to
consumers to generate product awareness and demand.
LoJack also has plans to increase its efforts to market its products directly to
operators of fleet and commercial vehicles.
LoJack maintains full responsibility for installation and warranty service of
LoJack Units sold by the Company both for the convenience of dealers through
whom the LoJack Units are marketed and for LoJack to maintain a high degree of
quality control and security over its technology.
In addition to distributing LoJack Units itself, through its subsidiaries or
licensees, LoJack may consider joint ventures or other cooperative arrangements
to expedite the expansion of the LoJack System. The actual method of
distribution will be determined on a market-by-market basis.
INTERNATIONAL OPERATIONS
The Company also licenses the use of its stolen vehicle recovery system
technology in selected international markets. In connection with its efforts to
expand outside of the United States, the Company has utilized its stolen
recovery vehicle technology to develop the CarSearch Stolen Vehicle Recovery
System ("CarSearch"). Unlike the LoJack System currently operational in the
United States, CarSearch has the flexibility of operating independent of
existing law enforcement communication networks.
The Company targets CarSearch for use by either law enforcement or private
security companies in selected international markets where the implementation of
a fully integrated LoJack System may not be feasible. This application of
the LoJack technology allows stolen vehicles to be activated, tracked and
recovered without the direct involvement of local police.
Present international license agreements have thus far been denominated in U.S.
dollars and structured with up-front licensing fees, which may be substantial
and are non-recurring, and provide that the Company will subsequently either
supply components and products at prices to be determined from time to time
and/or receive royalties based upon the licensees' revenues. It is the Company's
intention to continue to license the use of either the LoJack System or
CarSearch in other selected international markets on the same basis as described
above. The Company was granted an option, exercisable through March 1998, to
purchase up to 5% of the outstanding common stock of its United Kingdom
licensee. In March, 1998 the Company exercised this option and purchased 292,507
common shares for an aggregate exercise price of $1,259,170. The Company
subsequently sold 150,000 shares of its investment in this licensee in April,
1998. The Company does not anticipate making any additional direct investments
in the operations of foreign licensees in the foreseeable future. The Company
generally does not recognize revenues during the period immediately after
entering into an agreement with a licensee. Recognition of revenues does not
generally commence until after the licensee receives any required governmental
approvals, such as frequency allocation for the CarSearch or LoJack System. The
governmental approval process may be time-consuming.
As of February 28, 1998, the Company had Licensees operating stolen vehicle
recovery systems using LoJack's technology in the following countries:
Argentina, Colombia, Czech Republic, Ecuador, Greece, Hong Kong, Kenya, Korea,
Panama, Russia, Slovak Republic, South Africa, Trinidad and Tobago, United
Kingdom, and Venezuela. The Company also has
3
entered into agreements to license the use of LoJack's technology in countries
such as Germany, Mexico, Brazil, the Peoples Republic of China, Nigeria and
Poland. The Company expects that the Mexican licensee will be operational during
early fiscal 1999. The date for commencement of operations in these countries
has not been set, as their ability to operate may be subject to the licensees
obtaining certain governmental approval which may be time consuming or may not
be obtained, as well as adequate financing. The Company is also pursuing similar
agreements for other countries.
Approximately 19% of the Company's revenues in fiscal 1998 were derived from
export revenues. These revenues were comprised of product sales and licensing
revenues from unaffiliated customers in foreign countries. Approximately 95% of
the Company's foreign product sales are covered by letters of credit or require
payment in advance from the licensee. (See "Management's Discussion and
Analysis--International Operations" and Note 9 to the Notes to Financial
Statements which are included in LoJack's 1998 Annual Report which is filed as
Exhibit 13 hereto.)
GOVERNMENT REGULATION AND APPROVAL
In 1989, the FCC put into effect a rule change to allocate frequency 173.075 MHz
for nationwide use by state and local law enforcement agencies for stolen
vehicle recovery systems. Law enforcement agencies in jurisdictions where the
Company operates have been granted authority by the FCC to use this frequency
for LoJack's stolen vehicle recovery system.
In connection with its domestic operations, the Company must obtain the approval
of law enforcement agencies, as well as executive or legislative bodies, for
implementation of the LoJack System before sales of LoJack Units can commence in
a given jurisdiction. The approval process may be time consuming and costly and
is subject to considerations generally affecting the process of governmental
decision making. In some jurisdictions, governmental approval may be terminable
at the convenience of the executive or legislative body. Any such termination
could have a material effect on future sales in any such jurisdiction.
If LoJack were to seek to charge more than nominal prices for the Law
Enforcement Components, governmental appropriation of funds will be required.
Most government agencies have established, by policy, statute or regulation, a
process requiring competitive bidding for all acquisitions of products and
equipment. This process may cause delay and expense to the Company. To date,
the Company has not sought to charge law enforcement agencies more than nominal
prices for the Law Enforcement Components, and does not expect to do so in the
near future.
AUTOMOBILE INSURANCE BENEFITS
Management considers automobile insurance premium discounts to be an inducement
for the purchase of LoJack Units by vehicle owners. The application of insurance
premium discounts, which are generally applied to the vehicle owner's
comprehensive insurance, varies from state to state and, in some cases, from
insurance company to insurance company. For example, insurance regulations in
some states, such as Massachusetts, Rhode Island, New York and New Jersey,
provide for mandated insurance discounts for automobiles protected by automobile
security systems. In other states, such as California, where the granting of
such discounts is not regulated, the determination is made by individual
insurance carriers. Currently, insurance discounts, which vary from state to
state, and nationally by certain insurance carriers, provide for discounts of up
to 35% on comprehensive insurance premiums for vehicles equipped with a vehicle
recovery and anti-theft device. The Company continues to work on legislative
initiatives in states where the LoJack System is operational which would
establish or increase discounts available to vehicle owners who install the
LoJack Unit. Since the insurance industry is, in general, heavily regulated, the
process of seeking voluntary or mandatory discounts for vehicles may involve
significant time and effort by LoJack.
PRODUCT WARRANTY
LoJack warrants to consumers that the LoJack Unit will be free from defects in
material or workmanship for a period of two years, subject to extension at the
customer's option for an additional charge. LoJack also warrants to purchasers
of LoJack Units that if their LoJack equipped vehicle is stolen within two years
of installation and not recovered within 24 hours from the time that the report
of the theft is reported to the police, LoJack will refund the full purchase
price of the LoJack Unit up to a maximum of $595.
PATENTS AND TRADEMARKS
LoJack holds United States Patent Nos. 4,818,998 and 4,908,629, which expire in
2006 and 2007, respectively, covering the LoJack System. The Company also holds
patents in various countries in Europe, Asia, South America, and North America.
Patent protection has also been sought by LoJack in several other countries.
Although management believes the patents have
4
value, there can be no assurance such patents will effectively deter others from
manufacturing and marketing a stolen vehicle recovery system. LoJack's name and
logo are registered trademarks in the United States and many foreign countries.
COMPETITION
Several competitors or potential competitors are marketing or have announced the
development of products, including those which are GPS-based, which claim to
have stolen vehicle recovery features that may be directly competitive with the
LoJack System. To the knowledge of management, none are compatible with the
LoJack System, and none are proposed to be operated or actively monitored
exclusively by law enforcement agencies as is the LoJack System. Additionally,
most of these potential competitors require the consumer to pay recurring fees
for their service which LoJack does not.
LoJack markets the LoJack System as a stolen vehicle recovery device.
Management believes, however, that makers of auto theft prevention devices view
the LoJack System as competitive, and, consequently, LoJack believes it faces
competition from companies that sell vehicle security devices.
Some of the competitors and potential entrants into the vehicle tracking
industry may have greater resources than LoJack. In addition, there can be no
assurance that a competitor will not develop a system of theft detection or
recovery, including other stolen vehicle recovery systems that may or may not
require government approvals, that would compete with or be superior to the
LoJack System.
SUBCONTRACTORS
LoJack has subcontracted the manufacture of the LoJack Unit, which is designed
for automated production using surface mounted technology, to Motorola, Inc.
LoJack believes that several companies have the capability to manufacture LoJack
Units using this technology. The Company also has contracted with Motorola for
development and redesign of the LoJack Unit which would accommodate additional
applications, and would meet the technical and economical constraints of the
leasing and trucking industries.
LoJack subcontracts with Micrologic, Inc. ("Micrologic") of Waltham,
Massachusetts, to perform a substantial portion of the engineering, design and
implementation of the LoJack and CarSearch Systems in new jurisdictions as well
as to perform certain research and development. LoJack owns all rights in any
new developments created by Micrologic as a subcontractor of LoJack.
LoJack has granted to Micrologic, through April 2000, the exclusive rights to
assemble Police Tracking Computers. LoJack believes that other companies have
the same capabilities as Micrologic, but that changing to a new subcontractor
for these tasks could involve delays and additional cost to LoJack.
INVENTORY
LoJack seeks to maintain a 60-day supply of LoJack Units, which it believes is
in line with sales levels and sufficient to rapidly fulfill orders. The Company
maintains an inventory of certain Law Enforcement Components beyond its current
requirements in order to facilitate expansion into additional domestic markets.
RESEARCH AND DEVELOPMENT
During fiscal years 1998, 1997 and 1996 the approximate amounts spent by LoJack
on company-sponsored research and development activities were $244,000,
$518,000, and $516,000, respectively.
EMPLOYEES
As of May 1, 1998, the Company and its subsidiaries had a total of 414 full-time
employees.
EXECUTIVE OFFICERS OF THE REGISTRANT
There is incorporated herein by reference the information concerning C. Michael
Daley, who is Chairman of the Board, Chief Executive Officer and Treasurer of
the Company, from the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on July 15, 1998, under the headings
"Proposal No. 1 - Election of Directors" and "Board of Directors." Information
concerning the Company's other executive officers is set forth below.
5
Name Age Title
---- --- -----
Joseph F. Abely 45 President and Chief Operating Officer
William R. Duvall 46 Senior Vice President (Operations and Technical Development)
Peter J. Conner 57 Vice President (Government Relations)
Kevin M. Mullins 43 Vice President (Sales and Marketing)
Mr. Abely joined LoJack in October 1988 as Senior Vice President and Chief
Financial Officer. He was named President and Chief Operating Officer in January
1996. From 1976 until October 1988, Mr. Abely was employed by the accounting
firm of Deloitte Haskins & Sells, where he served as a partner since 1985. Mr.
Abely is a Certified Public Accountant.
Mr. Duvall joined LoJack in 1985 and is Senior Vice President of Operations and
Technical Development. From 1984 to 1985, he was a part owner and manager of
Rich's Car Tunes, a company engaged in the sale and installation of consumer
electronic products in the automotive aftermarket. For six years prior to 1984,
Mr. Duvall was Vice President of Marketing and Sales for Analog and Digital
Systems, Inc., a manufacturer of consumer electronic products.
Mr. Mullins joined LoJack in February 1996 and was appointed Vice President of
Sales and Marketing as of March 1, 1996. From 1976 until joining LoJack Mr.
Mullins served in a variety of positions at Proctor & Gamble Company, Inc.,
including District Sales Manager, Customer Business Development Manager, and
most recently as Northeast Operation Manager.
Mr. Conner joined LoJack in 1985 and is Vice President of Government Relations.
From 1982 to 1985, he was a franchise director for Continental Cablevision of
Boston, Massachusetts. From 1980 to 1982, Mr. Conner was a franchise director
for American Television Communications of Denver, Colorado, a cable television
operator.
Each executive officer is elected for a term scheduled to expire at the meeting
of Directors following the annual meeting of Stockholders or until a successor
is duly chosen and qualified. There are no arrangements or understandings
pursuant to which any executive officer was or is to be selected for election or
reelection. There are no family relationships among any Directors or executive
officers, except that C. Michael Daley, a Director and executive officer, and
James A. Daley, a Director, are brothers.
ITEM 2 - PROPERTIES
The Company's executive offices are located at 333 Elm Street, Dedham,
Massachusetts, under a lease for such space expiring in May 2001. In addition,
the Company leases various facilities in Massachusetts, New Jersey,
Pennsylvania, Michigan, California, Illinois, Georgia, Virginia, Florida and
Texas under operating leases whose terms expire from 1998 to 2003. The leases
contain renewal options ranging from two to five years. Because the Company's
operations do not require any special facilities, the Company does not
anticipate any difficulty in finding space adequate for its purposes at
reasonable rates.
ITEM 3 - LEGAL PROCEEDINGS
On March 9, 1998, Thomas Coffey, John Redmond, Bob Gnatowski and Richard
McNichol (collectively, the "Plaintiffs"), all former employees of the Company,
filed a lawsuit against the Company in the Superior Court of New Jersey alleging
that the Company wrongfully terminated the Plaintiff's employment. The
Plaintiffs allege age discrimination claims and assert that the Company
intentionally inflicted emotional distress upon them. The Plaintiffs are seeking
compensatory damages, punitive damages, attorney's fees and costs. The Company
believes the claims are without merit and intends to vigorously defend the
lawsuit. However, there can be no assurance as to the outcome of the lawsuit.
Even if the lawsuit were not to proceed to trial, the litigation could result
in substantial costs to the Company. An adverse judgment or settlement could
subject the Company to significant liabilities and expenses. The Company has
procured insurance which may cover all or part of the liabilities associated
with the claims made by the Plaintiffs. However, there can be no assurance that
such insurance will cover all, if any part, of any liabilities.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated herein by reference to the
section entitled "Market for Registrant's Common Equity and Related Stockholder
Matters" on page 1 of the Company's 1998 Annual Report, which is filed herewith
as Exhibit 13.
6
ITEM 6 - SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by reference to the
section entitled "Selected Financial Data" on page 4 of the Company's 1998
Annual Report, which is filed herewith as Exhibit 13.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated herein by reference to the
section entitled "Management's Discussion and Analysis," pages 5 through 8 of
the Company's 1998 Annual Report, which is filed herewith as Exhibit 13.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by reference to the
consolidated financial statements of the Company (including the notes thereto)
and the auditors' report thereon appearing on pages 9 through 19 of the
Company's 1998 Annual Report, which is filed herewith as Exhibit 13.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K and instruction 3 to Item
401(b), the information required by this item concerning executive officers,
including certain information incorporated herein by reference to the
information appearing in the Company's definitive Proxy Statement concerning C.
Michael Daley, who is also Chairman of the Board, Chief Executive Officer and
Treasurer of the Company, is set forth in Part I, Item 1 under the heading
"Executive Officers of the Registrant" and information concerning Directors,
including Mr. Daley, is incorporated by reference to the sections entitled
"Proposal No. 1 - Election of Directors" and "Board of Directors" in the
Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders
to be held July 15, 1998.
There is incorporated herein by reference to the discussion under "Principal and
Management Stockholders - Compliance with Section 16(a) of the Securities
Exchange Act of 1934" in the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held July 15, 1998 the information with respect to
any delinquent filings of reports pursuant to Section 16(a) of the Securities
Exchange Act of 1934.
ITEM 11 - EXECUTIVE COMPENSATION
Information required by this Item is incorporated herein by reference to the
information appearing in the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on July 15, 1998 under the heading "Executive
Compensation."
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated herein by reference to the
information appearing in the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on July 15, 1998 under the heading "Principal
and Management Stockholders."
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are included as part of this report:
(1) CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
The following financial statements of the Company and the report of
the independent certified public accountants are incorporated by
reference to the Company's 1998 Annual Report:
Independent Auditors' Report Relating to the Consolidated Financial
Statements (and notes thereto)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
-----------------------------------------
The following report and consolidated financial statement schedule
is filed as part of this report and should be read in conjunction with
the consolidated financial statements (and notes thereto):
Independent Auditors' Report Relating to the Consolidated Financial
Statement Schedule
Schedule II - Valuation and Qualifying Accounts
Other financial statement schedules have been omitted because they are
not required or not applicable or because the required information is
included in the consolidated financial statements or notes thereto.
(3) EXHIBITS
--------
Certain of the exhibits listed hereunder have been previously filed
with the Commission as exhibits to certain registration statements and
periodic reports as indicated in the footnotes below and are incorporated
herein by reference pursuant to Rule 411 promulgated under the Securities
Act and Rule 24 of the Commission's Rules of Practice. The location of
each document so incorporated by reference is indicated by footnote.
3A. Restated Articles of Organization (incorporated by reference to Exhibit
3A filed with the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1994 (the "1994 Form 10-K"))
3B. Amended By-Laws (incorporated by reference to exhibit 3B filed with the
Company's Annual Report on Form 10-K for the fiscal year ended February
29, 1992 (the "1992 Form 10-K"))
4A. Specimen Share Certificate (incorporated by reference to exhibit 4A to
File No. 2-74238-B)
4A1. Amended Specimen Share Certificate (incorporated by reference to exhibit
4B to File No. 2-98609)
10A. Volume Assembly Contract with Micrologic, Inc. (incorporated by reference
to exhibit 10I to the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1986 (the "1986 Form 10-K"))
10B. Supply Agreement with Motorola (incorporated by reference to exhibit 10J
to the 1986 Form 10-K)
10C. Agreement with the City of Los Angeles dated March 9, 1989 (incorporated
by reference to exhibit 10K to File No. 33-27457)
10D. Contract between the State of Michigan and LoJack Corporation dated as of
April 24, 1989 (incorporated by reference to exhibit 10O filed with the
Company's Annual Report on Form 10-k for the fiscal year ended February
28, 1990 ("the 1990 Form 10-K"))
10E. Agreement between LoJack Corporation and the Illinois State Police dated
as of August 23, 1990 (incorporated by reference to exhibit 10P to the
1990 Form 10-K)
10F.++ 1985 Non-Qualified Stock Option Plan, as amended (incorporated by
reference to exhibit 10F to 1992 Form 10-K)
8
10G.++ Directors' Compensation Plan (incorporated by reference to exhibit 10G
to 1992 Form 10-K)
10H.++ LoJack Corporation Restated and Amended Stock Incentive Plan
(incorporated by reference to Exhibit 10H to the
1994 Form 10-K)
10I.++ Amendment Number One to Restated and Amended Stock Incentive Plan
(incorporated by reference to Exhibit 10ss filed with the Company's
Annual Report on Form 10-K for the fiscal year ended February 29, 1996
(the "1996 Form 10-K"))
10J.++ Amendment Number Two to Restated and Amended Stock Incentive Plan
10K. Form of Agreement with respect to options granted to certain officers and
employees (incorporated by reference to exhibit 10H to File No. 33-27457)
10L. Lease Agreement LoJack Sector Activation System dated February 23, 1988
between Recovery Systems, Inc. and the Florida Department of Motor
Vehicles (incorporated by reference to exhibit 10K to 1992 Form 10-K)
10M. Accepted Proposal by LoJack Corporation to the Massachusetts Department
of Public Safety (incorporated by reference to exhibit 10F to File No.
2-74238-B)
10N. Lease Agreement between Auto Recovery Systems, Inc. and the State of New
Jersey dated July 31, 1989 (incorporated by reference to exhibit 10M to
1992 Form 10-K)
10O. Loan Agreement dated December 10, 1993 among The First National Bank of
Boston and LoJack Corporation, LoJack Midwest Corporation, LoJack of New
Jersey Corporation, Recovery Systems, Inc. and CarSearch Corporation
(incorporated by reference to Exhibit 10N to the 1994 Form 10-K)
10P. Lease Agreement Number VA-901212-LOJ between LoJack Corporation and the
Commonwealth of Virginia dated September 17, 1991 (incorporated by
reference to exhibit 10W to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1993 (the "1993 Form 10-K"))
10Q. Lease Agreement between LoJack Corporation and the State of Georgia
Department of Public Safety dated June 6, 1991 (incorporated by reference
to exhibit 10X to 1993 Form 10-K)
10R.++ Form of Senior Management Option (incorporated by reference to exhibit
10Z to 1993 Form 10-K)
10S. License, Trademark and Supply Agreement dated July 16, 1992, by and
between CarSearch Corporation, a subsidiary of LoJack Corporation, and
Secar, Ltd. Kutuzovovn, Bratislava, Czechoslovakia (incorporated by
reference to exhibit 10aa to 1993 Form 10-K)
10T. Patent License and Ancillary Know-How Agreement dated December 30, 1991,
and Second Amendment (relating to the Patent, License and Know-How
Agreement of December 30, 1991), dated January 29, 1993, (the Second
Amendment incorporates by reference the First Amendment to the Patent,
License and Know-How Agreement dated April 27, 1992 which is superseded),
each by and between LoJack Corporation and Stolen Vehicle Recovery
Systems Limited, Aylesbury, Buckingham, UK (incorporated by reference to
exhibit 10bb to 1993 Form 10-K)
10U. Agreement dated January 21, 1994 between the New York Division of State
Police and LoJack Corporation (incorporated by reference to Exhibit 10aa
to the 1994 Form 10-K)
10V. Memorandum of Understanding dated July 29, 1993 with the District of
Columbia Metropolitan Police Department (incorporated by reference to
Exhibit 10cc filed with the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 1995 (the "1995 Form 10-K"))
10W. Memorandum of Understanding dated February 28, 1994 with Rhode Island
State Police (incorporated by reference to Exhibit 10dd to the 1995 Form
10-K)
10X. Contract dated July 15, 1993 with the State of Connecticut (incorporated
by reference to Exhibit 10ee to the 1995 Form 10-K)
10Y. License, Trademark, and Supply Agreement dated August 10, 1993 between
CarSearch Corporation and Vehicles Security Resources Limited, Nassau,
Bahamas (incorporated by reference to Exhibit 10ii to the 1995 Form 10-K)
10Z. License, Trademark, and Supply Agreement dated August 23, 1993 between
CarSearch Corporation and MaxRich Consultants, Ltd., Kowloon, Hong Kong
(incorporated by reference to Exhibit 10jj to the 1995 Form 10-K)
10aa. License, Trademark, and Supply Agreement dated April 15, 1994 between
CarSearch Corporation and Triones Taiwan Co., Ltd., Taichung, Taiwan,
R.O.C. (incorporated by reference to Exhibit 10ll to the 1995 Form 10-K)
10bb. Patent, License, Trademark, and Supply Agreement dated October 4, 1994
between LoJack International Corporation, a subsidiary of LoJack
Corporation, and Sucess Trading, S.A., Buenos Aires, Argentina
(incorporated by reference to Exhibit 10mm to the 1995 Form 10-K)
10cc. License, Trademark, and Supply Agreement dated October 13, 1994 between
LoJack International Corporation and Tracker Vehicle Location Systems
(PTY) Ltd., Cape Town, South Africa (incorporated by reference to Exhibit
10nn to the 1995 Form 10-K)
10dd. License and Ancillary Know-How Agreement dated October 1, 1995 between
LoJack International Corporation and Detektor, Bad Homburg, Germany
(incorporated by reference to Exhibit 10oo to the 1996 Form 10-K)
10ee. Patent License and Ancillary Know-How Agreement dated November 30, 1994
between LoJack International Corporation and LoJack Italia, Bologna,
Italy (incorporated by reference to Exhibit 10pp to the 1995 Form 10-K)
9
10ff. License and Supply Agreement dated April 25, 1995 between LoJack
International Corporation and United States Consolidated Technologies
Corporation (incorporated by reference to Exhibit 10qq to the 1995 Form
10-K) Amendment No. 1 to Restated and Amended Stock Incentive Plan
10gg. Second Amendment to Loan Agreement dated as of February 20, 1996 among
The First National Bank of Boston and LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc. and LoJack Holdings Corporation (incorporated by reference
to Exhibit 10tt to the 1996 Form 10-K)
10hh. Amended and Restated Revolving Credit and Term Note dated as of February
20, 1996 in the amount of $7,500,000 made by LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc. and LoJack Holdings Corporation payable to the order of The
First National Bank of Boston (incorporated by reference to Exhibit 10mm
to the 1996 Form 10-K)
10ii. Trademark and Supply Agreement dated August 15, 1995 between LoJack
International and CarTrack Kenya Limited, Nairobi, Kenya (incorporated by
reference to Exhibit 10yy to the 1996 Form 10-K)
10jj. Third Amendment to Loan Agreement dated as of October 31, 1996 among The
First National Bank of Boston and LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc., LoJack Holdings Corporation and LoJack Venture Corporation
(incorporated by reference to Exhibit 10jj filed with the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 1997
(the "1997 Form 10-K"))
10kk. Second Amended and Restated Revolving Credit and Term Note dated as of
October 31, 1996 in the amount of $7,500,000 made by LoJack Corporation,
LoJack International Corporation, LoJack of New Jersey Corporation,
Recovery Systems, Inc., LoJack Holdings Corporation, and LoJack Venture
Corporation payable to the order of The First National Bank of Boston
(incorporated by reference to Exhibit 10kk to the 1997 Form 10-K)
10ll. Fourth Amendment to Loan Agreement dated as of February 28, 1997among The
First National Bank of Boston and LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc., LoJack Holdings Corporation, and LoJack Venture
Corporation (incorporated by reference to Exhibit 10ll to the 1997 Form
10-K)
10mm. Third Amended and Restated Revolving Credit and Term Note payable to the
order of The First National Bank of Boston dated as of February 28, 1997
in the amount of $7,500,000 made by LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc., LoJack Holdings Corporation, LoJack Venture Corporation,
and LoJack of Pennsylvania Corporation, and LoJack FSC, Ltd.
(incorporated by reference to Exhibit 10mm to the 1997 Form 10-K)
10nn. License, Trademark and Supply Agreement dated September 10, 1996 between
LoJack International and S1 Corporation, Seoul, Korea (incorporated by
reference to Exhibit 10nn to the 1997 Form 10-K)
10oo. Agreement dated September 1, 1996 between LoJack Corporation and the
Texas Department of Public Safety (incorporated by reference to Exhibit
10oo to the 1997 Form 10-K)
10pp. Agreement between Commonwealth of Pennsylvania, Pennsylvania State Police
and LoJack Corporation dated May 14, 1996 (incorporated by reference to
Exhibit 10pp to the 1997 Form 10-K)
10qq. Agreement between the Maryland Department of State Police and LoJack
Corporation dated November 8, 1996 (incorporated by reference to Exhibit
10qq to the 1997 Form 10-K)
10rr. Joint Venture Agreement dated as of December 1, 1995 by and between
LoJack Venture Corporation and Micrologic, Inc. (incorporated by
reference to Exhibit 10rr to the 1997 Form 10-K)
10ss. License Agreement dated as of December 1, 1995 between SCT Development
Venture and LoJack Corporation (incorporated by reference to Exhibit 10ss
to the 1997 Form 10-K)
10tt. Development Agreement dated as of December 1, 1995 by and between SCT
Development Venture and Micrologic, Inc. (incorporated by reference to
Exhibit 10tt to the 1997 Form 10-K)
10uu.* Fifth Amendment to Loan Agreement dated February 28, 1998 among
BankBoston N. A. and LoJack Corporation, LoJack International
Corporation, LoJack New Jersey Corporation, Recovery Systems Inc., LoJack
Holdings Corporation, LoJack Venture Corporation, LoJack of Pennsylvania
Corporation, and LoJack FSC, Ltd.
10vv.* Fourth Amended and Restated Revolving Credit and Term Note payable to the
order of BankBoston N.A.dated as of February 28, 1998 in the amount of
$7,500,000 made by LoJack Corporation, LoJack International Corporation,
LoJack of New Jersey Corporation, Recovery Systems, Inc.,LoJack Holdings
Corporation, LoJack Venture Corporation, and LoJack of Pennsylvania
Corporation, and LoJack FSC, Ltd.
11.* Statement re: Computation of per share earnings
13.* 1998 Annual Report to Stockholders
21.* Subsidiaries of the Registrant
23.* Consent of Deloitte & Touche LLP
27.* Financial Data Schedule
99. "Safe Harbor" Statement under Private Securities Litigation Reform Act of
1995 ( incorporated by reference to Exhibit 99 to the 1996 Form 10-K)
10
- ----------------------------
* Indicates an exhibit which is filed herewith.
++ Indicates an exhibit which constitutes an executive compensation plan.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the Company during the last quarter of
the period covered by this report.
11
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, in the Town of Dedham,
Commonwealth of Massachusetts, on the 27th day of May 1998.
LOJACK CORPORATION
(Registrant)
BY: /s/ C. Michael Daley
-----------------------------------------
C. Michael Daley
Chief Executive Officer
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 their capacities and on the date indicated.
Signature Capacity Date
- --------- -------- ----
/s/ C. Michael Daley Director, Chairman, Chief May 27, 1998
- -------------------- Executive Officer, and Treasurer
C. Michael Daley (Principal Executive Officer)
/s/ Robert J. Murray Director May 27, 1998
- --------------------
Robert J. Murray
/s/ James A. Daley Director May 27, 1998
- ------------------
James A. Daley
/s/ Harold W. Shad, III Director May 27, 1998
- -----------------------
Harold W. Shad, III
/s/ Lee T. Sprague Director May 27, 1998
- ------------------
Lee T. Sprague
/s/ Larry C. Renfro Director May 27, 1998
- -------------------
Larry C. Renfro
/s/ Harvey Rosenthal Director May 27, 1998
- --------------------
Harvey Rosenthal
/s/ Joseph F. Abely President and Chief Operating May 27, 1998
- ------------------- Officer (Principal Financial
Joseph F. Abely and Accounting Officer)
12
INDEX TO INDEPENDENT AUDITORS' REPORT AND FINANCIAL STATEMENT SCHEDULE
PAGE
Independent Auditors' Report Relating to the Financial Statement Schedule.. F-1
Schedule II - Valuation and Qualifying Accounts ........................... F-2
13
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
LoJack Corporation:
We have audited the consolidated financial statements of LoJack Corporation and
subsidiaries as of February 28, 1998 and 1997, and for each of the three years
in the period ended February 28, 1998, and have issued our report thereon dated
April 24, 1998; such consolidated financial statements and report are included
in your 1998 Annual Report to Stockholders and are incorporated herein by
reference. Our audits also included the consolidated financial statement
schedule of LoJack Corporation, listed in Item 14. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statement taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 24, 1998
F-1
SCHEDULE II
LOJACK CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED FEBRUARY 28, 1998, 1997 AND FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
COLUMN C
COLUMN B ADDITIONS COLUMN E
BALANCE AT CHARGED TO BALANCE
COLUMN A BEGINNING COSTS AND COLUMN D AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
For the year ended:
February 28, 1998 $553,442 $217,139 $(191,394)(1) $579,187
======== ======== ========= ========
February 28, 1997 $395,202 $223,384 $ (65,144)(1) $553,442
======== ======== ========= ========
February 29, 1996 $193,381 $230,942 $ (29,121)(1) $395,202
======== ======== ========= ========
WARRANTY RESERVE:
For the year ended:
February 28, 1998 $388,679 $358,447 $(264,395) $482,731
======== ======== ========= ========
February 28, 1997 $324,813 $371,275 $(307,409) $388,679
======== ======== ========= ========
February 29, 1996 $223,509 $267,036 $(165,732) $324,813
======== ======== ========= ========
(1) Net accounts written off.
F-2