SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-
12
AUDIOVOX CORPORATION
----------------------------------
(Name of Registrant as Specified In Its Charter)
----------------------------------
(Name of Person(s) Filing Proxy Statement if other than
the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11
(1) Title of each class of securities to which transaction
applies:
-------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
-------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
-------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously.
Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its
filing.
(1) Amount Previously Paid:
-------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------
[Audiovox Corporation Letterhead]
October 30, 1996
Dear Fellow Shareholder:
Your officers and directors join me in inviting you to
attend a Special Meeting of Shareholders of Audiovox Corporation
to be held on Monday, November 25, 1996, at 10:00 A.M., New
York City time at the offices of the Company, 150 Marcus Blvd.,
Hauppauge, New York. The formal notice of this meeting and the
Proxy Statement accompany this letter.
At the Special Meeting, the Shareholders will be asked
to consider and vote upon the issuance of up to 10,725,000 Class
A Common Stock in exchange for the Company's 6 1/4% Convertible
Subordinated Debentures due 2001. This new financial initiative
that the Board of Directors has authorized should improve our
capital structure and allow us to grow our wireless and
automotive businesses.
Specifically, the Board has approved a plan to offer to
exchange the Company's 6 1/4% Convertible Subordinated Debentures
due 2001 for 165 shares of Class A Common Stock. The Exchange
Offer is subject to certain conditions including, among others,
approval by the Shareholders of the issuance of the Class A
Common Stock necessary to effect the Exchange Offer. The Proxy
Statement accompanying this letter explains in more detail the
proposal upon which the Shareholders will be asked to vote, and
contains important financial statements and other information
regarding the proposed transaction and its effect on the Company.
We urge you to read it carefully.
The Exchange Offer would allow the Company to increase
its equity base by approximately $60 million after all related
charges (assuming 100% participation in the Exchange Offer). In
addition to an immediate positive effect on our earnings due to
the reduction of interest and debt service costs, our
strengthened equity base will permit us to grow in tandem with
the rapidly expanding technology markets in which we compete.
As of October 21, 1996, the date that has been fixed as the
record date for the determination of shareholders entitled to vote at
the Special Meeting or any adjournment or postponement thereof, the number
of outstanding shares were 7,233,834 of Class A Common Stock and
2,260,954 of Class B Common Stock. Assuming 100% of the holders of the
Debentures participate in the Exchange, the number of shares of
Class A Common Stock to be issued will be 10,725,000.
As I have reported to you, Audiovox has taken a number
of steps to increase shareholder value. We have reduced
corporate overhead; closed unprofitable retail locations;
strengthened the performance of our remaining locations;
introduced exciting new wireless and automotive products; and
entered new, rapidly growing international markets in Asia,
Europe and Latin America.
Please note that regardless of the outcome of the
Shareholder vote and of the Exchange Offer, I believe the Company
remains well-positioned financially, operationally and
strategically to grow. I intend to vote my personal holdings in
the Company's voting common stock (currently constituting
approximately 74.4% of the Company's outstanding voting power),
which will assure passage of the Shareholder vote in favor of the
issuance of the necessary Class A Common Stock.
Management and the Board of Directors are convinced
that the Exchange Offer is an important part of Audiovox's long-
term strategy to improve our financial strength and meet our
growth objectives even though there will be an increased number
of shares outstanding after the transaction.
I strongly believe that this transaction is in the best
interests of the Company and its shareholders even though my
personal ownership percentage in the Company will be reduced.
I look forward to seeing you at the Shareholders'
meeting and to your continued support of our Company.
Sincerely,
/s/ John Shalam
John Shalam
President and Chief Executive
Officer
AUDIOVOX CORPORATION
150 Marcus Blvd.
Hauppauge, NY 11788
------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 25, 1996
To the Shareholders of Audiovox Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of
Shareholders of Audiovox Corporation, a Delaware corporation (the
"Company"), will be held at the offices of the Company, 150
Marcus Blvd., Hauppauge, NY 11788, on Monday, November 25, 1996,
at 10:00 A.M., New York City time (the "Special Meeting"), for
the purpose of approving the issuance of up to 10,725,000 shares
of Class A Common Stock, par value $.01 (the "Class A Common
Stock"), in exchange for the Company's 6 1/4%
Convertible Subordinated Debentures, due March 15, 2001 (the
"Convertible Debentures"), and to transact such other business as
may properly come before the Special Meeting or any adjournment
or postponement thereof.
At the request of the American Stock Exchange,
Shareholders are being asked to approve the foregoing matters in
accordance with the rules of the American Stock Exchange which
require shareholder approval prior to the issuance of common
stock equal to 20% or more of the presently outstanding stock in
certain circumstances.
Assuming the American Stock Exchange rules are not
otherwise satisfied, failure to obtain shareholder approval for
such issuance would prevent the consummation of an exchange offer
(the "Exchange Offer"), commenced on October 18, 1996, upon terms
and conditions set forth in an Offering Circular and in an
accompanying Letter of Transmittal (the "Letter of Transmittal,"
and, with the Offering Circular, the "Exchange Offer Documents")
to exchange each $1,000 principal amount of its Convertible
Debentures into 165 shares of its Class A Common Stock.
Information regarding the matters to be acted upon at
the Special Meeting is contained in the accompanying Proxy
Statement.
Mr. John J. Shalam (the "Majority Shareholder"),
President and Chief Executive Officer of the Company, currently
owns or controls approximately 74.4% of the Company's voting
power. Mr. Shalam has advised the Company that he intends to
vote in favor of the Proposal and, accordingly, passage of the
Proposal is assured.
The close of business on October 21, 1996 has been
fixed as the record date for the determination of shareholders
entitled to notice of and to vote at the Special Meeting or any
adjournment or postponement thereof.
We hope that you plan to attend the Special Meeting.
However, if you are not able to join us, we urge you to exercise
your right as a shareholder and vote. Please promptly sign, date
and return the enclosed proxy card in the accompanying postage
prepaid envelope. You may, of course, attend the Special Meeting
and vote in person even if you have previously mailed your proxy
card.
By Order of the Board of Directors,
/s/ CHRIS L. JOHNSON
Secretary
Hauppauge, New York
October 30, 1996
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL
MEETING. EACH SHAREHOLDER IS URGED TO SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD WHICH IS BEING SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS. AN ENVELOPE ADDRESSED TO THE COMPANY'S
TRANSFER AGENT IS ENCLOSED FOR THAT PURPOSE AND NEEDS NO POSTAGE
IF MAILED IN THE UNITED STATES.
AUDIOVOX CORPORATION
150 MARCUS BLVD.
HAUPPAUGE, NY 11788
-----------------
PROXY STATEMENT
-----------------
This Proxy Statement is furnished to the holders (the
"Shareholders") of Class A Common Stock, par value $.01 per share
(the "Class A Common Stock"), and Class B Common Stock, par value
$.01 per share (the "Class B Common Stock," and, together with
the Class A Common Stock, the "Shares"), of Audiovox Corporation,
a Delaware corporation (the "Company") in connection with the
solicitation by and on behalf of its Board of Directors of
proxies (a "Proxy" or "Proxies") for use at a Special Meeting of
Shareholders to be held at the offices of the Company, 150 Marcus
Blvd., Hauppauge, New York 11788, on Monday, November 25, 1996, at
10:00 A.M., New York City time (the "Special
Meeting") and at any adjournment or postponement thereof, for the
purpose of approving the issuance of up to 10,725,000 shares of
Class A Common Stock (the "Proposal") in exchange for the Company's
6 1/4% Convertible Subordinated Debentures (the "Convertible
Debentures"), due March 15, 2001.
The purpose of the Exchange Offer is to increase the
Company's equity base to provide it with financial flexibility for
future growth.
The cost of preparing, assembling and mailing the
Notice of Special Meeting of Shareholders, this Proxy Statement
and Proxies is to be borne by the Company. The Company will also
reimburse brokers who are holders of record of Shares for their
expenses in forwarding Proxies and Proxy soliciting material to
the beneficial owners of such Shares. In addition to the use of
the mails, Proxies may be solicited without extra compensation by
directors, officers and employees of the Company by telephone,
telecopy, telegraph or personal interview. The approximate
mailing date of this Proxy Statement is October 30, 1996.
If the enclosed Proxy is properly executed and
returned, the Shares represented thereby will be voted and if a
choice is specified in the Proxy, the Shares represented thereby
will be voted in accordance with the specifications so made. Any
Proxy on which no direction is specified will be voted in favor
of the Proposal.
A Proxy may be revoked by a Shareholder at any time
before its exercise by filing with Chris L. Johnson, the
Secretary of the Company, at the address set forth above, an
instrument of revocation or a duly executed Proxy bearing a later
date, or by attendance at the Special Meeting and electing to
vote in person. Attendance at the Special Meeting will not, in
and of itself, constitute revocation of a Proxy.
The close of business on October 21, 1996 has been fixed
by the Board of Directors as the record date (the "Record Date")
for the determination of Shareholders entitled to notice of, and
to vote at, the Special Meeting and any adjournment or postponement
thereof.
VOTING
As of the Record Date, there were 7,233,834 shares of
Class A Common Stock and 2,260,954 shares of Class B Common Stock
outstanding. The shares of Class B Common Stock are convertible
at any time into shares of Class A Common Stock on a one-for-one
basis. Each holder of Class A Common Stock is entitled to one
vote for each share held by such holder and each holder of Class
B Common Stock is entitled to ten votes for each share held by
such holder. For purposes of this Proxy Statement, shares of
Class A Common Stock and Class B Common Stock vote as one class.
A majority of the Shares entitled to vote, represented
in person or by proxy, is required to constitute a quorum for the
transaction of business. Proxies submitted which contain
abstentions or broker nonvotes will be deemed present at the
Special Meeting for determining the presence of a quorum. The
affirmative vote of the majority of the voting power represented
by the outstanding Shares is necessary to approve the Proposal.
Mr. John J. Shalam (the "Majority Shareholder"), President and
Chief Executive Officer of the Company, currently owns or
controls approximately 74.4% of the Company's voting power. Mr.
Shalam has advised the Company that he intends to vote in favor
of the Proposal and, accordingly, passage of the Proposal is
assured. The Shareholders vote at the Special Meeting by casting
ballots (in person or by proxy) which are tabulated by a person
appointed by the Board of Directors before the Special Meeting to
serve as the inspector of election at the Special Meeting and who
has executed and verified an oath of office. Abstentions and
broker nonvotes are included in the determination of the number
of Shares present at the meeting for quorum purposes but are not
counted in the tabulation of the votes cast on the Proposal.
Thus, an abstention from voting has the same legal effect as a
vote "against" the matter, even though the Shareholder may
interpret such action differently.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the Record Date
certain information with respect to the beneficial ownership of
any Class of Common Stock by all stockholders known by the
Company to own beneficially more than five percent (5%) of the
outstanding shares of any class of Common Stock, each director,
each executive officer and all directors and executive officers
of the Company as a group:
Title of Sole
Class Voting or Percent
of Common Investment of Class
Name and Address Stock Power
- --------------------- ---------- ----------- ----------
John J. Shalam Class A 5,238,528 55.9
150 Marcus Blvd. Class B 1,883,198 83.3
Hauppauge, NY
Philip Christopher Class A 340,154 3.6
150 Marcus Blvd. Class B 260,954 11.5
Hauppauge, NY
All directors and officers as Class A 5,681,182 60.6
a group (10 persons) Class B 2,144,152 94.8
- ----------------------
Cede & Co., nominee of Depository Trust Co., 55 Water
Street, New York, New York 10041, was the record owner of
3,211,500 shares of Class A Common Stock and it is
believed that none of such shares was beneficially owned.
Includes as beneficially owned for each person listed those
shares of Class A Common Stock into which Class B Common
Stock beneficially owned by such person may be converted
upon the exercise of the conversion right of the Class B
Common Stock.
Does not give effect to the issuance of 3,672,316 shares of
Class A Common Stock issuable upon conversion of the
Convertible Debentures at $17.70 per share or up to
10,725,000 shares of Class A Common Stock which may be issued
in exchange for the Convertible Debentures pursuant to the
Exchange Offer or otherwise. The number of shares issuable upon
conversion of the Convertible Debentures is subject to
adjustment in accordance with the terms of the Indenture.
The Exchange Offer is not an event that will result in the
adjustment of such conversion price.
The amount shown excludes 116,802 shares of Class B Common
Stock and 2,202 shares of Class A Common Stock held in
three irrevocable trusts for the benefit of Ari David and
Marc Shalam, the children of John J. Shalam, with respect
to which shares of Mr. Shalam disclaims any beneficial
ownership.
Includes 75,000 shares of Class A Common Stock issuable upon
the exercise of options exercisable within 60 days of
the Record Date.
Includes 102,500 shares of Class A Common Stock issuable upon the
exercise of options exercisable within 60 days of the Record Date.
INTEREST OF CERTAIN PERSONS IN MATTERS
TO BE ACTED UPON
Martin Novick, Vice President, Consumer Electronics,
and former Director of the Company, owns $222,000 in aggregate
principal amount of Convertible Debentures.
PROPOSAL TO ISSUE 10,725,000 SHARES
OF CLASS A COMMON STOCK
IN EXCHANGE FOR CONVERTIBLE DEBENTURES
Description of the Proposal
- ---------------------------
The Proposal is to approve the issuance of up to
10,725,000 shares of Class A Common Stock in exchange for the
Convertible Debentures. The Board of Directors
has determined that it is in the best interest of the
Company to purchase the Convertible Debentures and make an
exchange offer (the "Exchange Offer"), upon
the terms and subject to the conditions set forth in an Offering
Circular, as supplemented (the "Offering Circular"), and in the
accompanying Letter of Transmittal (the "Letter of Transmittal,"
with the Offering Circular collectively referred to as the "Exchange
Offer Documents"), pursuant to Section 3(a)(9) of the Securities Act of
1933, as amended (the "1933 Act"), to holders of its 6 1/4%
Convertible Subordinated Debentures due 2001 (the "Convertible
Debentures") to exchange each $1,000 principal amount of such
Convertible Debentures into 165 shares of Class A Common Stock.
The full text of the Offering Circular and Supplement No. 1 to the
Offering Circular is attached to this Proxy
Statement as Exhibit A and Exhibit B, respectively. The Board has
adopted a resolution authorizing the Proposal and the Exchange Offer
and has directed that the Proposal be submitted to the shareholders
for their consideration.
After the expiration date of the Exchange Offer, if fewer
than all of the Convertible Debentures have been tendered
and exchanged in the Exchange Offer, the Company may, or may
cause any affiliate to, purchase additional Convertible
Debentures in the open market, in privately negotiated
transactions, through subsequent exchange offers or
otherwise or may seek to cause the Convertible Debentures to
be retired or defeased. Any future purchases or exchanges
may be for other securities or for cash and may be on the
same terms or on terms that are more or less favorable to
holders than the terms of the Exchange Offer. Any future
purchases or exchanges by the Company or any affiliate will
depend on various factors at that time. Any future purchases or
exchanges, if any, by the Company or any affiliate of the Convertible
Debentures will take place only after the expiration of at least ten
business days after the termination of the Exchange Offer.
Proposed Exchange Offer
- ------------------------
The Company is currently offering, upon the terms and
subject to the conditions set forth in the Offering Circular and
in its accompanying Letter of Transmittal, to exchange each
$1,000 principal amount of the Company's Convertible Debentures
for 165 shares of Common Stock. The expiration date of the
Exchange Offer will be November 25, 1996, unless extended before
such time (the "Expiration Date"). The Company proposes to
consummate the Exchange Offer promptly after such expiration date.
It is the Company's intention to exchange and retire all
Convertible Debentures tendered to and accepted by the Company
pursuant to the Exchange Offer.
After the expiration date of the Exchange Offer, if fewer
than all of the Convertible Debentures have been tendered
and exchanged in the Exchange Offer, the Company may, or may
cause any affiliate to, purchase additional Convertible
Debentures in the open market, in privately negotiated
transactions, through subsequent exchange offers or
otherwise or may seek to cause the Convertible Debentures to
be retired or defeased. Any future purchases or exchanges
may be for other securities or for cash and may be on the
same terms or on terms that are more or less favorable to
holders than the terms of the Exchange Offer. Any future
purchases or exchanges by the Company or any affiliate will
depend on various factors at that time. Any future purchases or
exchanges, if any, by the Company or any affiliate of the Convertible
Debentures will take place only after the expiration of at least ten
business days after the termination of the Exchange Offer.
The purpose of the Exchange Offer is to increase the
Company's equity base to provide it with financial flexibility
for future growth.
Convertible Debentures may be tendered and will be
accepted for exchange only in denominations of $1,000 principal
amount and integral multiples thereof. Holders of Convertible
Debentures delivered to the Exchange Agent will be entitled to
any payment in respect of accrued and unpaid interest on the
converted securities up to, but not including, the date the
Convertible Debentures are accepted for exchange by the Company
(the "Exchange Offer Acceptance Date").
Tendering holders of Convertible Debentures will not be
required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with
respect to the exchange of Convertible Debentures pursuant to the
Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the
Exchange Offer.
The obligation of the Company to consummate the
Exchange Offer is subject to certain conditions, including, among
others, approval of the Proposal by the Shareholders.
Accordingly, the Exchange Offer will be extended until such time
as the Shareholders have approved the Proposal.
If any of the conditions set forth in the Offering
Circular shall not be satisfied prior to the Expiration Date,
the Company may, subject to applicable law, (i) terminate the
Exchange Offer and return all Convertible Debentures tendered
pursuant to the Exchange Offer to tendering holders; (ii) extend
the Exchange Offer and retain all tendered Convertible Debentures
until the Expiration Date for the extended Exchange Offer;
(iii) amend the terms of the Exchange Offer or modify the
consideration to be provided by the Company pursuant to the
Exchange Offer; or (iv) waive the unsatisfied conditions with
respect to the Exchange Offer and accept all Convertible Debentures
tendered pursuant to the Exchange Offer.
The Company expressly reserves the right, in its sole
discretion, at any time or from time to time, to extend the
period of time during which the Exchange Offer is open by giving
oral or written notice of such extension to Continental Stock
Transfer & Trust Company, the exchange agent (the "Exchange
Agent"), and making a public announcement thereof as described
below. During any extension of the Exchange Offer, all
Convertible Debentures previously tendered pursuant thereto and
not exchanged or withdrawn will remain subject to the Exchange
Offer and may be accepted for exchange by the Company at the
expiration of the Exchange Offer subject to the right of a
tendering holder to withdraw his Convertible Debentures. Under
no circumstances will interest on the consideration to be paid in
the Exchange Offer be paid by the Company by reason of any such
extension.
The Company also expressly reserves the right, subject
to applicable law, (i) to delay acceptance for exchange of any
Convertible Debentures or, regardless of whether such Convertible
Debentures were theretofore accepted for exchange, to delay the
exchange of any Convertible Debentures pursuant to the Exchange
Offer or to terminate the Exchange Offer and not accept for
exchange any Convertible Debentures, if any of the conditions to
the Exchange Offer specified herein fail to be satisfied prior to
the Expiration Date by giving oral or written notice of such
delay or termination to the Exchange Agent; (ii) to waive any condition
to the Exchange Offer and accept all the Convertible Debentures tendered;
and (iii) at any time, or from time to time, to amend the terms of Exchange
Offer in any respect, including the consideration to be paid in
the Exchange Offer. The reservation by the Company of the right
to delay exchange or acceptance for exchange of Convertible
Debentures is subject to the provisions of Rule 13e-4(f)(5) under
the Exchange Act, which requires that the Company pay the
consideration offered or return the Convertible Debentures
deposited by or on behalf of holders thereof promptly after the
termination or withdrawal of the Exchange Offer. Any extension,
delay, termination or amendment of the Exchange Offer will be
followed as promptly as practicable by a public announcement
thereof.
If the Company increases or decreases the consideration
given in the Exchange Offer or the amount of Convertible
Debentures sought in the Exchange Offer, the Exchange Offer will
remain open at least ten business days from the date that the
Company first publishes, sends or gives notice, by public
announcement or otherwise, of such increase or decrease. The
Company has no current intention to increase or decrease the
consideration given in the Exchange Offer currently offered or
the amount of Convertible Debentures sought to be purchased.
For information with respect to the Exchange Offer and
certain pro forma financial effects of the Exchange Offer, see
the Offering Circular under the heading "Summary Selected
Consolidated Financial Data -- Summary Pro Forma Financial Data"
and "The Exchange Offer."
Reasons for the Proposal
- ------------------------
As of the Record Date, there were 7,233,834 shares
of Class A Common Stock issued and outstanding. These shares are
listed on the American Stock Exchange under the symbol "VOX." As
of October 16, 1996, the closing market price of the Class A
Common Stock was $6-1/16 per share and, as of September 30, 1996,
the book value per share was $12.89 per share.
If 100% of the holders of the Convertible Debentures
tender such Convertible Debentures into the Exchange Offer, the
Company will be required to issue up to 10,725,000 shares of
Class A Common Stock, representing an increase in outstanding
Class A Common Stock of greater than 20% or more. The exchange
ratio offered to the holders of the Convertible Debentures
equates to $6.061 per share.
Section 713(a)(ii) of the American Stock Company Guide
requires shareholder approval as a prerequisite to approval of
applications to list additional shares to be issued in connection
with a transaction involving the issuance by a company of common
stock equal to 20% or more of presently outstanding stock for
less than the greater of book or value of the stock. The Class A
Common Stock to be issued pursuant to the Exchange Offer will be
for more than 20% of the currently outstanding Class A Common
Stock and will be at a price equivalent that is below book value
of the Class A Common Stock as of the date hereof. The American
Stock Exchange has requested the Company obtain Shareholder
approval of the issuance of up to 10,725,000 shares of Class A Common
Stock in exchange for Convertible Debentures.
In the event that the Shareholders do not approve the
Proposal and the requirements of the American Stock Exchange are
not otherwise satisfied to permit the issuance of the required
shares, the Exchange Offer will be terminated. The Majority
Shareholder has advised the Company that he intends to vote in
favor of the Proposal and, accordingly, passage of the Proposal
is assured.
There can be no assurance that the proposed Exchange
Offer will be consummated even if the Proposal is adopted or that
the terms of the Exchange Offer will not change substantially
from those described above.
Certain Consequences of the Proposal
- ------------------------------------
The Proposal would not change any of the terms of the
Company's Class A Common Stock or Class B Common Stock (which are
identical, except that the Common Stock has one vote per share
and Class B Common Stock has ten votes per share), but would
result in the issuance of additional shares of Class A Common
Stock, which the Company, under the Certificate of Incorporation,
is already authorized to issue. For a detailed discussion of the
specific consequences of the Proposal, see the Offering Circular
under the heading "Risk Factors--Possible
Volatility of Stock Prices; Effect of Exchange Offer on Stock
Prices," "--History of Losses; Effect of Transactions," "--Shares
Eligible for Future Sales; Dilution," "--Voting Rights of Class A
Common Stock and Voting Control by Principal Shareholder."
Appraisal Rights
- ----------------
There are no rights of appraisal or similar rights of
dissenters with respect to the Proposal.
Effectiveness
- -------------
If approved by the Shareholders, the Proposal will
become effective immediately.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY RECOMMENDED A
VOTE FOR THE PROPOSAL.
OTHER MATTERS
The Board of Directors is not aware of any matters not
set forth herein that may come before the Special Meeting. If,
however, further business properly comes before the Special
Meeting, the persons named in the proxies will vote the Shares
represented thereby in accordance with their judgment.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Shareholders may submit proposals on matters
appropriate for shareholder action at annual meetings in
accordance with regulations adopted by the Securities and
Exchange Commission. To be considered for inclusion in the proxy
statement and form of proxy relating to the 1997 annual meeting,
such proposals must be received by the Company not later than
November 30, 1996. Proposals should be directed to the attention
of the Secretary of the Company and must comply with all
applicable statutes and regulations.
FINANCIAL INFORMATION ON THE COMPANY
Financial information on the Company is included in (i)
the Company's Annual Report on Form 10-K for the fiscal year
ended November 30, 1995, as amended on March 26, 1996 and on
April 30, 1996 (the "1995 Form 10-K"); (ii) the Company's
Quarterly Report on Form 10-Q for the quarter ended February 29,
1996 (the "First Quarter 1996 Form 10-Q"); (iii) the Company's
Quarterly Report on Form 10-Q for the quarter ended May 31, 1996
(the "Second Quarter 1996 Form 10-Q"); and (iv) the Company's
Quarterly Report on Form 10-Q for the quarter ended August 31,
1996 (the "Third Quarter 1996 Form 10-Q" and, together with the
First Quarter 1996 Form 10-Q and the Second Quarter 1996 Form 10-
Q collectively referred to as the "1996 10-Qs"), which
information is incorporated by reference.
A copy of the 1995 Form 10-K and a copy of each of the
1996 Form 10-Qs has, concurrent with the delivery of this Proxy
Statement, been separately provided to the Company's shareholders.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this
Proxy Statement: (i) the 1995 Form 10-K; (ii) the Company's
Current Report on Form 8-K dated March 7, 1996; (iii) the First
Quarter 1996 Form 10-Q; (iv) the Second Quarter 1996 Form 10-Q;
(v) the Third Quarter 1996 Form 10-Q; (vi) the description of
the Company's Class A Common Stock contained in the Company's
Registration Statement on Form 8-A dated May 21, 1987; (vii) the
Company's Current Report on Form 8-K dated October 17, 1996 and
(viii) the Company's Schedule 13E-4, filed October 18, 1996, as
supplemented on October 30, 1996.
The Company also incorporates herein by reference all
documents and reports subsequently filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(a) of the
Exchange Act after the date of this Proxy Statement and prior to
the Shareholders' meeting. Such documents and reports shall be
deemed to be incorporated by reference in this Proxy Statement
and to be a part hereof from the date of filing of such documents
or reports. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Proxy Statement
to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded, except
as so modified or superseded, shall not be deemed to constitute a
part of this Proxy Statement.
The Company will provide without charge to each person
to whom a copy of this Proxy Statement has been delivered, on the
written or oral request of such person, a copy of any or all of
the documents incorporated herein by reference (except the 1995
Form 10-K and the 1996 Form 10-Qs which have been separately
provided to the Company's shareholders, concurrent with the
delivery of this Proxy Statement), other than exhibits to such
documents unless they are specifically incorporated by reference
into such documents. Requests for such copies should be directed
to: Chris L. Johnson, Secretary, Audiovox Corporation, 150
Marcus Boulevard, Hauppauge, New York 11788, telephone 516-231-
7750.
By Order of the Board of Directors,
/s/ CHRIS L. JOHNSON
Secretary
October 30, 1996
PROXY CARD
PROXY PROXY
- ----- -----
AUDIOVOX CORPORATION
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS)
The undersigned holder of Class A Common Stock or Class
B Common Stock, as the case may be, of AUDIOVOX CORPORATION,
revoking all proxies heretofore given, hereby constitutes and
appoints Philip Christopher and Charles M. Stoehr, and each of
them, Proxies, with full power of substitution, for the
undersigned and in the name, place and stead of the undersigned,
to vote all of the undersigned's shares of said stock, according
to the number of votes and with all the powers the undersigned
would possess if personally present, at a Special Meeting of
Shareholders of AUDIOVOX CORPORATION, to be held at the offices
of the Company, 150 Marcus Blvd., Hauppauge, New York 11788, on Monday,
November 25, 1996, at 10:00 A.M., New York City time,
and at any adjournments or postponements thereof.
The undersigned hereby acknowledges receipt of the
Notice of Meeting and Proxy Statement relating to the meeting and
hereby revokes any proxy or proxies heretofore given.
Each properly executed Proxy will be voted in
accordance with the specifications made on the reverse side of
this Proxy and in the discretion of the Proxies on any other
matter that may come before the meeting. Where no choice is
specified, this Proxy will be voted FOR the Proposal set forth on
the reverse side.
PLEASE MARK, DATE AND SIGN THIS PROXY ON THE REVERSE
SIDE
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR THE PROPOSAL
1. Proposal to issue up to an additional 10,725,000 shares of
Class A Common Stock in exchange for 6 1/4% Convertible
Subordinated Debentures due March 15, 2001.
FOR [_] AGAINST [_] ABSTAIN [_]
2. The proxies are authorized to vote in their discretion
upon such other matters as may properly come before the
meeting.
The shares represented by this proxy will be voted in
the manner directed. In the absence of any direction, the shares
will be voted FOR the Proposal and in accordance with their
discretion on such other matters as may properly come before the
meeting.
Dated: , 1996
------------------
------------------------------
------------------------------
Signature(s)
(Signature(s) should conform
to names as registered. For
jointly owned shares, each
owner should sign. When
signing as attorney, executor,
administrator, trustee,
guardian or officer of a
corporation, please give full
title.)
PLEASE MARK AND SIGN ABOVE AND RETURN PROMPTLY
Exhibit A
OFFERING CIRCULAR
AUDIOVOX CORPORATION
OFFER TO EXCHANGE EACH $1,000 PRINCIPAL AMOUNT OF ITS 6 1/4%
CONVERTIBLE SUBORDINATED DEBENTURES DUE MARCH 15, 2001 INTO
165 SHARES OF ITS CLASS A COMMON STOCK
Audiovox Corporation (the "Company") hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions
set forth in this Offering Circular (the "Offering Circular"),
and in the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange each $1,000 principal amount of its 6
1/4% Convertible Subordinated Debentures due March 15, 2001 (the
"Convertible Debentures") into 165 shares of its Class A Common
Stock, par value $.01 share (the "Class A Common Stock"). As
of the date of this Offering Circular, there are Convertible
Debentures in the aggregate principal amount of $65 million
outstanding. The Exchange Offer is being made for the entire
outstanding principal amount of the Convertible Debentures.
The Convertible Debentures currently provide that the holder may
convert such securities into Class A Common Stock at a conversion
price of $17.70. After the expiration of the Exchange Offer the
holders of Convertible Debentures will only be able to convert
such securities into Class A Common Stock at such $17.70
conversion price (as such price may be adjusted in certain
events).
Payment will be made in respect of accrued and unpaid
interest on Convertible Debentures exchanged pursuant to the
Exchange Offer up to, but not including, the date of the exchange
of the Convertible Debentures for the Class A Common Stock. The
terms and conditions of the Exchange Offer will not be applicable
to any Convertible Debentures that are not accepted pursuant to
the Exchange Offer, or which are delivered for exchange after the
Expiration Date.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON NOVEMBER 19, 1996, UNLESS EXTENDED (SUCH DATE AS
EXTENDED FROM TIME TO TIME, THE "EXPIRATION DATE"). CONVERTIBLE
DEBENTURES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY
TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE. AFTER THE EXPIRATION DATE, CONVERTIBLE DEBENTURES TENDERED
IN THE EXCHANGE OFFER MAY NOT BE WITHDRAWN UNLESS THE EXCHANGE
OFFER IS TERMINATED OR EXPIRES WITHOUT CONSUMMATION THEREOF.
Notwithstanding any other provision of the Exchange Offer,
the Company's obligation to accept for exchange, and to exchange,
Convertible Debentures properly tendered and not withdrawn
pursuant to the Exchange Offer is conditioned upon certain
conditions (including, among others, approval by the shareholders
of the Company at a special meeting (the "Special Meeting") of
the shareholders of the issuance of the Class A Common Stock
necessary to effect the Exchange Offer) set forth under "The
Exchange Offer--Conditions to the Exchange Offer." Mr. John J.
Shalam, President and Chief Executive Officer of the Company,
currently owns or controls approximately 74.4% of the Company's
voting power. Mr. Shalam has advised the Company that he intends
to vote in favor of the issuance of Class A Common Stock to
effect the Exchange Offer and, accordingly, satisfaction of the
condition with respect to the above shareholder approval is
assured. The Special Meeting to be called to vote upon the
issuance of the Class A Common Stock is tentatively scheduled for
November 19, 1996. The record date for such Special Meeting is
October 21, 1996. However, the proxy materials to be mailed to
shareholders in connection with the above Special Meeting is
subject to review by the Securities and Exchange Commission, and,
accordingly, the date of the Special Meeting (and, consequently,
the Expiration Date) may be delayed beyond November 19, 1996. If
the conditions of the Exchange Offer are satisfied or waived and
the Convertible Debentures are accepted by the Company for
exchange, the Class A Common Stock will be exchanged on or
promptly after the date on which the Convertible Debentures are
accepted for exchange (the "Exchange Offer Acceptance Date").
Under no circumstances will any additional interest be payable
because of any delay in the transmission of Common Stock or funds
to holders of Convertible Debentures. Subject to applicable
securities laws and the terms set forth in this Offering
Circular, the Company reserves the right (i) to waive any and all
conditions to the Exchange Offer, (ii) to extend the Exchange
Offer or (iii) otherwise to amend the Exchange Offer in any
respect.
The terms of the Exchange Offer equate to approximately
$6.061 principal amount of Convertible Debentures for each share
of Class A Common Stock received in the Exchange Offer. The
Class A Common Stock and the Convertible Debentures are both
traded on the American Stock Exchange ("AMEX"), the symbols of
which are "VOX" and "VOXA," respectively. On October 16, 1996,
the last reported sales prices of the Class A Common Stock and
the Convertible Debentures on the AMEX was $6 1/16 per share and
$76 1/2 per Convertible Debenture, respectively.
See "Risk Factors" on page 14 for a discussion of certain
factors that should be carefully considered in connection with
the exchange offered hereby.
----------------
IMPORTANT
Any beneficial holder of Convertible Debentures desiring to
tender all or any portion of his Convertible Debentures should
either (i) complete and sign the Letter of Transmittal (or a
facsimile thereof) in accordance with the instructions in the
Letter of Transmittal and mail or deliver it, together with the
certificates representing tendered Convertible Debentures and any
other required documents, to Continental Stock Transfer & Trust
Company (the "Exchange Agent") or tender such Convertible
Debentures pursuant to the procedure for book-entry transfer set
forth in "The Exchange Offer -- Procedures for Tendering" or (2)
request his broker, dealer, commercial bank, trust company or
nominee to effect the transaction for him. BENEFICIAL HOLDERS
WHOSE CONVERTIBLE DEBENTURES ARE REGISTERED IN THE NAME OF A
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE
MUST CONTACT SUCH PERSON IF THEY DESIRE TO TENDER THEIR
CONVERTIBLE DEBENTURES. Holders who wish to tender Convertible
Debentures and whose certificates representing such Convertible
Debentures are not immediately available or who cannot comply
with the procedures for book entry transfer on a timely basis may
tender such Convertible Debentures by following the procedures
for guaranteed delivery set forth in "The Exchange Offer --
Procedures for Tendering."
-------------------
The date of this Offering Circular is October 18, 1996.
The Exchange Offer will expire at 5:00 p.m., New York City
time, on November 19, 1996 (such time and date, the "Expiration
Date"), unless the Company, in its sole discretion, extends the
period during which the Exchange Offer is open, in which event
the term "Expiration Date" means the latest time and date at
which the Exchange Offer, as so extended by the Company, shall
expire. As noted earlier, the Expiration Date will be extended
should the Special Meeting be held after November 19, 1996. See
"The Exchange Offer -- Expiration; Extension; Termination;
Amendment." Convertible Debentures may be tendered and will be
accepted for exchange only in denominations of $1,000 principal
amount and integral multiples thereof.
----------------------
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON
BEHALF OF THE COMPANY AS TO WHETHER ANY HOLDER OF CONVERTIBLE
DEBENTURES SHOULD TENDER CONVERTIBLE DEBENTURES PURSUANT TO THE
EXCHANGE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THE
INFORMATION AND REPRESENTATIONS CONTAINED IN THIS OFFERING
CIRCULAR OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH
RECOMMENDATIONS, INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE
DELIVERY OF THIS OFFERING CIRCULAR NOR ANY DISTRIBUTION OF
SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN
NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
This Offering Circular does not constitute an offer to sell
or a solicitation of an offer to buy any securities other than
the securities covered by this Offering Circular, nor does it
constitute an offer to sell or a solicitation of an offer to buy
any such securities by any person in any jurisdiction in which
such offer or solicitation would be unlawful.
The Exchange Offer is being made by the Company in reliance
on the exemption from the registration requirements of the
Securities Act afforded by Section 3(a)(9) thereof. The Company
therefore will not pay any commission or other remuneration to
any broker, dealer, salesman or other person for soliciting
tenders of Convertible Debentures. Officers, directors and
regular employees of the Company may solicit tenders of
Convertible Debentures but they will not receive additional
compensation therefor.
IN DECIDING WHETHER TO ACCEPT THE EXCHANGE OFFER, HOLDERS OF
CONVERTIBLE DEBENTURES MUST RELY ON THEIR OWN EXAMINATION OF THE
COMPANY AND THE TERMS OF THE EXCHANGE OFFER, INCLUDING THE MERITS
AND RISKS INVOLVED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT PASSED
UPON THE FAIRNESS OF SUCH TRANSACTION NOR CONFIRMED THE ACCURACY
OR DETERMINED THE ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
For New Hampshire Residents
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN
APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF
THE NEW HAMPSHIRE REVISED STATUTES ("RSA") WITH THE STATE OF NEW
HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED
OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES
A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER
RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR
A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS
PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR
RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR
TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this
Offering Circular: (i) the Company's Annual Report on Form 10-K
for the fiscal year ended November 30, 1995, as amended on March
26, 1996 and on April 30, 1996 (the "1995 Form 10-K"); (ii) the
Company's Current Report on Form 8-K dated March 7, 1996; (iii)
the Company's Quarterly Report on Form 10-Q for the quarter ended
February 29, 1996 (the "First Quarter 1996 Form 10-Q"); (iv) the
Company's Quarterly Report on Form 10-Q for the quarter ended May
31, 1996 (the "Second Quarter 1996 Form 10-Q"); (v) the Company's
Quarterly Report on Form 10-Q for the quarter ended August 31,
1996 (the "Third Quarter 1996 Form 10-Q"); (vi) the description
of the Company's Class A Common Stock contained in the Company's
Registration Statement on Form 8-A dated May 21, 1987; and (vii)
the Indenture (as defined herein) contained in Exhibit C of the
Company's Current Report on Form 8-K dated March 15, 1994, all of
which have been filed with the Commission (File No. 1-9532).
The Company also incorporates herein by reference all
documents and reports subsequently filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Offering Circular and prior
to termination of this offering. Such documents and reports
shall be deemed to be incorporated by reference in this Offering
Circular and to be a part hereof from the date of filing of such
documents or reports. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this
Offering Circular to the extent that a statement contained herein
or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or
superseded, except as so modified or superseded, shall not be
deemed to constitute a part of this Offering Circular.
The Company will provide without charge to each person to
whom a copy of this Offering Circular has been delivered, on the
written or oral request of such person, a copy of any or all of
the documents incorporated herein by reference, other than
exhibits to such documents unless they are specifically
incorporated by reference into such documents. Requests for such
copies should be directed to: Chris L. Johnson, Secretary,
Audiovox Corporation, 150 Marcus Boulevard, Hauppauge, New York
11788, telephone 516-231-7750.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange
Commission (the "Commission") a Schedule 13E-4, which term shall
encompass any amendments thereto, under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), with respect to the
Exchange Offer. This Offering Circular does not contain all the
information set forth in the Schedule 13E-4 and the exhibits
thereto, to which reference is hereby made for further
information about the Company and the Exchange Offer.
The Company is subject to the informational requirements of
the Exchange Act and in accordance therewith files periodic
reports, proxy and information statements, and other information
with the Commission. The Schedule 13E-4 and all reports, proxy
and information statements, and other information filed by the
Company with the Commission may be inspected at the public
reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices
of the Commission located at 7 World Trade Center, New York, New
York 10048, and Suite 1400, Citicorp Center, 700 West Madison
Street, Chicago, Illinois 60661-2511. Copies of such material may
be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Additionally, the Commission maintains an electronic Web
Site that contains reports, proxy and information statements and
other information regarding registrants that file electronically
with the Commission, the address of such Web Site being
(http://www.sec.gov).
The Company will provide without charge to each person to
whom a copy of this Offering Circular has been delivered, on the
written and oral request of such person, a copy of the Schedule
13E-4. Requests for such copies should be directed to: Chris L.
Johnson, Secretary, Audiovox Corporation, 150 Marcus Boulevard,
Hauppauge, New York 11788, telephone 516-231-7750.
The Convertible Debentures and the Common Stock are listed
on AMEX, and all reports, proxy and information statements, and
other information filed with the Commission also may be inspected
at the American Stock Exchange, 86 Trinity Place, New York, New
York 10006-1881.
----------------------
TABLE OF CONTENTS
Available Information 5
Offering Summary 6
Summary Selected Consolidated Financial Data 10
Pro Forma Financial Data 12
Risk Factors 14
The Exchange Offer 24
The Company 32
Description of the Convertible Debentures 34
Description of Capital Stock 45
Certain Federal Income Tax Considerations 50
Interest in Convertible Debentures 53
Contracts, Arrangements, Understandings or
Relationships with Respect to the
Convertible Debentures 53
OFFERING SUMMARY
The following is a summary of certain information included
in this Offering Circular or in documents incorporated by
reference herein. It is not intended to be complete and is
qualified in its entirety by the more detailed information found
elsewhere in this Offering Circular or in such documents, which
should be read with care. As used herein, unless the context
otherwise requires, the "Company" refers to Audiovox Corporation
and its consolidated shareholders. As used herein, the term
"Offering Circular" shall mean this Offering Circular and all
Appendixes and Exhibits hereto, as the same may be amended,
supplemented, restated or otherwise modified from time to time.
The term "Exchange Offer" shall mean the offering contemplated
hereby. References to the Company's fiscal year shall refer to
the calendar year in which the Company's fiscal year ends (e.g.,
fiscal year 1995 refers to the Company's fiscal year ended
November 30, 1995).
THE COMPANY
Audiovox Corporation (together with its subsidiaries, the
"Company" or "Audiovox") designs and markets cellular telephones
and accessories, automotive aftermarket sound and security
equipment, other automotive aftermarket accessories, and certain
other products. The Company's corporate headquarters is located
at 150 Marcus Boulevard, Hauppauge, New York 11788, and its
telephone number at that address is 516-231-7750.
THE EXCHANGE OFFER
The Offering The Company is offering to
exchange each $1,000 principal amount
of Convertible Debentures tendered to
the Company prior to the Expiration
Date and accepted by the Company for
165 shares of Class A Common Stock
(the "Exchange Offer Consideration").
The terms of the Exchange Offer
equate to $6.061 principal amount of
Convertible Debentures for each share
of Class A Common Stock received in
the Exchange Offer. The Convertible
Debentures currently provide that the
holders may convert such securities
into Class A Common Stock at a
conversion price of $17.70. Although
the Company has no current intention
to do so, if it should modify the
Exchange Offer Consideration, the
modified consideration would be
applicable with regard to all
Convertible Debentures accepted in
the Exchange Offer, including those
tendered before the announcement of
the modification. If the Exchange
Offer consideration is modified, the
Exchange Offer will remain open at
least ten business days from the date
the Company gives notice by public
announcement or otherwise, of such.
See "The Exchange Offer -- Terms of
the Exchange Offer."
Purpose of Offering The purpose of the Offering is
to increase the Company's equity base
to provide it with financial
flexibility and increase its ability
to take advantage of business
opportunities in its markets.
Expiration Date 5:00 p.m., New York City time,
on November 19, 1996, unless extended
by the Company. See "The Exchange
Offer -- Expiration; Extensions;
Termination; Amendment. The
Expiration Date will be extended in
the event the Special Meeting (as
defined below) occurs later than
November 19, 1996. After expiration
of the Exchange Offer, the
Convertible Debentures will be
convertible into Class A Common Stock
at a conversion price of $17.70 (as
such price may be adjusted in certain
events).
Withdrawal of Tenders Tenders of Convertible
Debentures may be withdrawn at any
time prior to the expiration of the
Exchange Offer. Thereafter, such
tenders are irrevocable, except that
they may be withdrawn after the
expiration of 40 business days from
the commencement of the Exchange
Offer, unless accepted for exchange
prior to that date. See "The Exchange
Offer -- Withdrawal Rights."
Accrued Interest on the
Convertible Debentures The Company will pay accrued
interest with respect to Convertible
Debentures that are tendered and
accepted in the Exchange Offer up to
but not including the Exchange Offer
Acceptance Date promptly following
the Expiration Date. Holders of
Convertible Debentures that are
accepted in the Exchange Offer will
have no further right to receive any
payment of accrued and unpaid
interest in respect of the tendered
Convertible Debentures.
Acceptance of Convertible
Debentures and Delivery
of Common Stock The Company will accept for
exchange any and all Convertible
Debentures that are properly tendered
prior to the Expiration Date. The
Class A Common Stock to be issued
pursuant to the Exchange Offer plus
any accrued and unpaid interest due
will be delivered promptly following
the Expiration Date. The Exchange
Agent (as defined herein) will act as
agent for tendering holders for the
purpose of (i) issuing Class A Common
Stock and (ii) paying accrued and
unpaid interest on tendered
Convertible Debentures, to such
holders. See "The Exchange Offer --
Acceptance of Convertible Debentures;
Delivery of Class A Common Stock."
Conditions to the Tender
Offer The obligation of the Company to
consummate the Exchange Offer is
subject to certain conditions
including, among others, approval by
the shareholders of the Company at a
special meeting of the shareholders
(the "Special Meeting") of the
issuance of the Class A Common Stock
necessary to effect the Exchange
Offer, and the Company reserves the
right to amend the Exchange Offer at
any time for any reason. Mr. John J.
Shalam, President and Chief Executive
Officer of the Company, currently
owns or controls approximately 74.4%
of the Company's voting power. Mr.
Shalam has advised the Company that
he intends vote in favor of this
issuance of the Class A Common Stock
to effect the Exchange Offer and,
accordingly, satisfaction of this
condition is assured. The Special
Meeting is tentatively scheduled to
be held on November 19, 1996. See
"The Exchange Offer -- Conditions to
the Exchange Offer."
Procedures for Tendering
Convertible Debentures Each holder of Convertible
Debentures wishing to accept the
Exchange Offer must complete and sign
the Letter of Transmittal, in
accordance with the instructions
contained herein and therein, and
forward or hand deliver such Letter
of Transmittal, together with any
signature guarantees and any other
documents required by the Letter of
Transmittal, including certificates
representing the tendered Convertible
Debentures or confirmations of, or an
Agent's Message (as defined) with
respect to, book entry transfers of
such Convertible Debentures, to the
Exchange Agent at one of its
addresses set forth on the back cover
page of this Offering Circular. Any
beneficial owner of Convertible
Debentures whose securities are
registered in the name of a broker,
dealer, commercial bank, trust
company or other nominee is urged to
contact the registered holder(s) of
such securities promptly to instruct
the registered holder(s) whether to
tender such beneficial owner's
securities. Beneficial Holders whose
certificates representing their
Convertible Debentures are not
immediately available or who cannot
deliver their certificates or any
other required documents to the
Exchange Agent prior to the
Expiration Date may tender their
Convertible Debentures pursuant to
the guaranteed delivery procedure set
forth herein. See "The Exchange Offer
-- Procedures for Tendering --
Guaranteed Delivery."
Certain Federal Income Tax
Consequences For a discussion of certain
federal income tax consequences of
the Exchange Offer to holders of
Convertible Debentures, see "Certain
Federal Income Tax Considerations."
The Convertible Debentures and
the Class A Common Stock
As of the date hereof, there were
7,233,834 shares of Class A Common
Stock issued and outstanding and
969,500 shares of Class A Common
Stock reserved for issuance in
connection with options. In addition,
the Company has 2,260,954 shares of
Class B Common Stock issued and
outstanding. The Company also has
outstanding privately held warrants
to acquire 150,000 shares of Class A
Common Stock and publicly-held
warrants to acquire 1,668,875 shares
of Class A Common Stock. The Company
has an option to acquire 1,668,875
shares of Class A Common Stock from
John J. Shalam, Chief Executive
Officer of the Company under the
Shalam Option (as defined) which is
described under "Description of
Capital Stock -- Other Warrants.
Assuming that all of the holders of
the outstanding Convertible
Debentures accept the Exchange Offer,
there would be additional 10,725,000
shares of Class A Common Stock
outstanding upon consummation of the
Exchange Offer. See "Description of
the Convertible Debentures" and
"Description of Capital Stock."
Trading The Class A Common Stock is
listed on the American Stock Exchange
(the "AMEX") under the symbol "VOX."
The Convertible Debentures are listed
on the AMEX under the symbol "VOXA."
For further information, see
"Description of the Convertibles
Debentures -- Market Price of
Convertible Debentures" and
"Description of Capital Stock --
Market Price of Class A Common
Stock."
Exchange Agent Continental Stock Transfer &
Trust Company. See "The Exchange
Offer -- Exchange Agent."
Risk Factors See "Risk Factors" beginning on
page 12 for discussion of certain
factors that should be carefully
considered in connection with
deciding whether to tender
Convertible Debentures in the
Exchange Offer.
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The summary selected consolidated financial data set forth
below for the fiscal years ended November 30, 1994 and 1995 have
been derived from the audited financial statements of the Company
for such periods. The data for the nine months ended August
31, 1995 and August 31, 1996 is unaudited. The data should be
read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's
consolidated financial statements, and related notes thereto, and
other financial information included in the 1995 Form 10-K and
the Third Quarter 1996 Form 10-Q.
In December, 1993, CellStar Corporation ("CellStar")
completed the initial public offering (the "CellStar Offering")
of 7,935,000 shares of CellStar common stock, par value $.01 per
share ("CellStar Common Stock"). CellStar (the successor to
National Auto Center, Inc. and Audiomex Export Corp.) was formed
by the Company, as a 50% owned joint venture. CellStar markets
and distributes cellular telephones and related products. Prior
to the CellStar Offering, the Company recorded income from
CellStar from two sources: (i) management fees accrued by the
Company in exchange for certain management services and (ii) the
Company's share of CellStar's net income as a 50% owner of
CellStar. In connection with the CellStar Offering, the Company
sold 2,875,000 of its 6,750,000 shares of CellStar Common Stock
at the initial public offering price (net of applicable
underwriting discount) of $10.695 per share, and received
aggregate net proceeds of approximately $29,433,000. Subsequent
to the CellStar Offering, the Company owned 20.88% of the issued
and outstanding CellStar Common Stock. The Company recorded a
pre-tax gain of approximately $27,783,000 on the sale of its
shares of CellStar Common Stock. Taxes on such gain amounted to
approximately $12,231,000, which amount was paid on May 15, 1994.
The Company also recorded a pre-tax gain of approximately
$10,565,000 on the increase in the carrying value of its
remaining shares of CellStar Common Stock due to the CellStar
Offering. Of the proceeds received by CellStar from its initial
public offering, $13,656,000 was paid to the Company in
satisfaction of amounts owed to the Company by CellStar under
certain promissory notes As a result of the CellStar Offering,
the Company will no longer receive management fees from CellStar.
In connection with the CellStar Offering, the Company granted the
majority investor in CellStar an option to purchase up to an
aggregate of 1,500,000 shares of CellStar Common Stock owned by
the Company, which was exercised in full on June 1, 1995, at an
exercise price of $11.50 per share. As a result, the Company
recorded a gain, before provision for income taxes, of $8.4
million during 1995. This reduced the Company's ownership in
CellStar below 20% and, as such, the Company no longer accounts
for CellStar under the equity method of accounting. The
remaining 2,375,000 CellStar shares owned by the Company will be
accounted for as an investment in marketable equity securities.
SUMMARY SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
(In thousands, except per share and Other Data)
(Unaudited) Nine
Years Ended November Months Ended
30, August 31,
------------------- -----------------
1994 1995 1995 1996
----- ----- ----- -----
Statement of Operations Data:
Net sales $486,448 $500,740 $349,378 $406,515
Gross profit 84,911 70,742 49,263 66,102
Operating income (loss) 10,486 (9,734) (13,232) 8,324
Interest and bank charges (6,535) (9,694) (7,306) (6,407)
Other, net [1] 4,235 1,855 2,138 188
Gain on sale of equity
investment 27,783 8,435 8,435 985
Gain on public offering of
equity investment 10,565 0 0 0
Expense related to
issuance of Warrants -- (2,921) (2,921) --
Income (loss) before
provision for (recovery
of) income taxes and
cumulative effect of
change in accounting
principle 46,534 (12,059) (12,886) 3,090
Income (loss) before
cumulative effect of
change in accounting
principle 26,206 (9,256) (9,621) 1,394
Cumulative effect of
change in accounting for
income taxes (178)[3] -- -- --
Net income (loss) $26,028 (9,256) (9,621) 1,394
Per Share of Common Stock [2]:
Income (loss) before
cumulative effect of
change in accounting
principle-primary $2.88 ($1.02) ($1.06) $0.15
Income before cumulative
effect of change in
accounting principle-
fully diluted $2.21 ($1.02) ($1.06) $0.15
Other Data:
Outstanding shares of
Class A Common Stock 6,777,788 6,777,788 6,777,788 6,983,834
Outstanding shares of
Class B Common Stock 2,260,954 2,260,954 2,260,954 2,260,954
Ratio of earnings to fixed
charges [4] 6.29x 0.03x [4] 1.39x
Coverage Deficiency [4] -- ($12,059) ($12,886) --
Book Value per share of
Common Stock $10.18 $12.97 $13.84 $10.19
November August 31,
30, 1995 1996
-------- --------
(Unaudited)
Balance Sheet Data:
Cash and cash equivalents $7,076 $ 6,509
Total current assets 226,214 211,500
Total assets 311,055 254,874
Short term debt and current
maturities of long term
debt 13,569 4,730
Total current liabilities 50,668 48,072
Long term debt 119,534 104,279
Other liabilities and
minority interests 23,631 8,354
Stockholders' equity:
Preferred Stock 2,500 2,500
Class A Common Stock 68 70
Class B Common Stock 22 22
Total stockholders'
equity 117,222 94,169
[1] Other, net income consists principally of management fees
and equity in income of equity investments.
[2] See "Selected Consolidated Financial Data" and Note 1(q)
of Notes to Consolidated Financial Statements contained in
the 1995 Form 10-K incorporated herein by reference.
[3] Relates to adoption of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes."
[4] For purposes of computing the ratio of earnings to fixed
charges (i) "earnings" consist of pre-tax earnings plus
fixed charges and (ii) "fixed charges" consist of gross
interest expense and related bank charges, amortization of
debt issuance cost and an estimation of that portion of
rental expense from operating leases deemed to be
attributable to interest (for these purposes approximately
one-third of such rental expense). For the year ended
November 30, 1995 and nine months ended August 31, 1995,
earnings were insufficient to cover fixed charges by
approximately $12,059,000 and $12,886,000, respectively.
PRO FORMA FINANCIAL DATA
(In thousands, except per share and Other Data)
The following table sets forth certain financial information of
the Company at August 31, 1996 and November 30, 1995 and as
adjusted to give effect to the exchange of the Convertible
Debentures upon consummation of the Exchange Offer, assuming 100%
participation in the Exchange Offer.[6]
Years Ended
November 30, 1995
-------------------------
Historical Pro Forma [1]
-------------- -----------------
Statement of Operations Data:
Net sales $500,740 $ 500,740
Gross profit 70,742 70,742
Operating income (loss) (9,734) (9,734)
Interest and bank charges (9,694) (5,631)
Other, net 1,855 2,434
Gain on sale of equity
investment 8,435 8,435
Expense related to issuance
of Warrants (2,921) (2,921)
Debt Exchange Expense -- (45,785)
Income (loss) before
provision for (recovery
of) income taxes (12,059) (53,202)
Provision for (recovery)
income taxes (2,803) (947)
Net income (loss) (9,256) (52,255)
Per Share of Common Stock:
Income (loss) - primary ($1.02) ($2.64)
Income (loss) - fully diluted ($1.02) ($2.64)
Other Data:
Outstanding shares of Class A
Common Stock 6,777,788 17,502,788
Outstanding shares of Class B
Common Stock 2,260,954 2,260,954
Ratio of earnings to fixed
charges [2] 0.03x [2]
Coverage deficiency [2] ($12,059) ($53,202)
Book Value per share of
Common Stock [5] $12.97 $9.07
Nine Months Ended
August 31, 1996
--------------------
Historical Pro Forma [1]
------------ ---------------
Statement of Operations Data:
Net sales $406,515 $406,515
Gross profit 66,102 66,102
Operating income (loss) 8,324 8,324
Interest and bank charges (6,407) (3,360)
Other, net 188 621
Gain on sale of equity
investment 985 985
Expense related to issuance
of Warrants -- --
Debt Exchange Expense -- --
Income (loss) before
provision for (recovery
of) income taxes 3,090 6,570
Provision for (recovery)
income taxes 1,696 3,088
Net income (loss) 1,394 3,482
Per Share of Common Stock:
Income (loss) - primary $0.15 $0.17
Income (loss) - fully diluted $0.15 $0.17
Other Data:
Outstanding shares of Class A
Common Stock 6,983,834 17,708,834
Outstanding shares of Class B
Common Stock 2,260,954 2,260,954
Ratio of earnings to fixed
charges [2] 1.39x 2.51x
Coverage deficiency [2] -- --
Book Value per share of
Common Stock [5] $10.19 $7.84
November 30, 1995
------------------------
Historical Pro Forma [3]
-------------- --------------
Balance Sheet Data:
Cash and cash equivalents $ 7,076 $7,076
Total current assets 226,214 226,214
Total assets 311,055 308,027
Short term debt and current
maturities of long term
debt 13,569 13,569
Total current liabilities 50,668 50,668
Long term debt 119,534 54,534
Other liabilities and
minority interests 23,631 23,631
Stockholders' equity:
Preferred Stock 2,500 2,500
Class A Common Stock 68 175
Class B Common Stock 22 22
Total stockholders' equity 117,222 179,194
August 31, 1996
------------------------
Historical Pro Forma [4]
-------------- --------------
Balance Sheet Data:
Cash and cash equivalents $6,509 $6,509
Total current assets 211,500 211,500
Total assets 254,874 252,279
Short term debt and
current maturities of long
term debt 4,730 4,730
Total current liabilities 48,072 48,072
Long term debt 104,279 39,279
Other liabilities and
minority interests 8,354 8,354
Stockholders' equity:
Preferred Stock 2,500 2,500
Class A Common Stock 70 177
Class B Common Stock 22 22
Total stockholders'
equity 94,169 156,574
- ---------------------
[1] The pro forma calculations reflect the Exchange Offer as
if the transaction had occurred on December 1, 1994. The
calculation assumes that 100% of the Convertible
Debentures were exchanged for 10,725,000 shares (165
shares per Convertible Debenture) with an assumed fair
market value per share equal to the last reported sales
price of the Class A Common Stock on the AMEX on October
16, 1996 of $6.0625 per share. The actual impact to the
financial statements will be determined by the fair market
value of the Class A Common Stock as determined at the
time the Convertible Debentures are actually exchanged.
The pro forma calculations reflect the charge to earnings
for the difference in the fair market value of the shares
offered in the exchange transaction and the fair market
value of the shares that would have been issued under the
terms of the original conversion feature. In addition,
the pro forma calculations give effect to a reduction in
interest expense and a reduction in the amortization of
debt issuance costs as well as a write off of the
remaining debt issuance costs associated with the
Convertible Debentures as of December 1, 1994. The
provision for income taxes has been adjusted for
reductions in the amortization of debt issuance costs, at
an estimated rate of 40%. Such pro forma calculations do
not reflect any interest income on cash balances.
[2] For purposes of computing the ratio of earnings to fixed
charges (i) "earnings" consist of pre-tax earnings plus
fixed charges and (ii) "fixed charges" consist of gross
interest expense and related bank charges, amortization of
debt issuance cost and an estimation of that portion of
rental expense from operating leases deemed to be
attributable to interest (for these purposes approximately
one-third of such rental expense). For the year ended
November 30, 1995 on a historical and pro forma basis,
earnings were insufficient to cover fixed charges by
approximately $12,059,000 and $53,202,000, respectively.
[3] The pro forma calculations reflect the Exchange Offer as
if the transaction had occurred on November 30, 1995. The
calculation assumes that 100% of the Convertible
Debentures were exchanged for 10,725,000 shares (165
shares per Convertible Debenture) with an assumed fair
market value per share equal to the last reported sales
price of the Class A Common Stock on the AMEX on October
16, 1996 of $6.0625 per share. The actual impact to the
financial statements will be determined by the fair market
value of the Class A Common Stock as determined at the
time the Convertible Debentures are actually exchanged.
The pro forma calculations reflect the reduction in long-
term debt and retained earnings offset by an increase in
additional paid in capital. The reduction in retained
earnings represents the difference between the fair market
value of the shares offered in the exchange transaction
and the fair market value of the shares that would have
been issued under the terms of the original conversion
feature. In addition, the pro forma calculations give
effect to a write off of the remaining debt issuance costs
associated with the Convertible Debentures as of November
30, 1995.
[4] The pro forma calculations reflect the Exchange Offer as
if the transaction had occurred on August 31, 1996. The
calculation assumes that 100% of the Convertible
Debentures were exchanged for 10,725,000 shares (165
shares per bond) with an assumed fair market value per
share equal to the last reported sales price of the Class
A Common Stock on the AMEX on October 16, 1996 of $6.0625
per share. The actual impact to the financial statements
will be determined by the fair market value of the Class A
Common Stock as determined at the time the Convertible
Debentures are actually exchanged. The pro forma
calculations reflect the reduction in long-term debt and
retained earnings offset by an increase in additional paid
in capital. The reduction in retained earnings represents
the difference between the fair market value of the shares
offered in the exchange transaction and the fair market
value of the shares that would have been issued under the
terms of the original conversion feature. In addition,
the pro forma calculations give effect to a write off of
the remaining debt issuance costs associated with the
Convertible Debentures as of August 31, 1996.
[5] The pro forma book value per share calculations are based
upon the balance sheet pro forma calculations which are
described in Notes (3) and (4) above.
[6] On a pro forma basis using the same assumptions as
described in Note (1) above, if 50% of the Convertible
Debentures were exchanged, the number of additional shares
of Class A Common Stock issued in the Exchange Offer
would have been 5,362,500 (165 shares per bond),
resulting in a pro forma earnings (loss) per share of
$(2.14) and $0.17 for the year ended November 30, 1995 and
nine months ended August 31, 1996, respectively. Debt
exchange expense, assuming 50% of the Convertible
Debentures converted on December 1, 1994 would be
$22,892,000 on a pro forma basis for the year ended
November 30, 1995.
RISK FACTORS
Prior to deciding whether to exchange Convertible Debentures
in the Exchange Offer, holders of the Convertible Debentures
should carefully consider all of the information contained or
incorporated by reference in this Offering Circular, especially
the risk factors described or referred to in the following
paragraphs.
CHANGE IN PRIORITY
The Convertible Debentures are debt obligations of the
Company and, accordingly, have priority over the Class A Common
Stock with respect to payment in the event of a liquidation,
dissolution or winding-up of the Company. Upon exchange pursuant
to the Exchange Offer, the Convertible Debentures tendered and
accepted will be exchanged for Class A Common Stock. In any
liquidation or reorganization of the Company under the United
States Bankruptcy Code, the Class A Common Stock, as equity
securities of the Company, would rank below all debt claims,
including claims of the lenders under the Company's Amended
Credit Agreement, and of holders of Convertible Debentures not
tendered pursuant to the Exchange Offer. In addition, holders of
the Class A Common Stock will not be entitled to receive any
payment or other distribution of assets upon the liquidation or
dissolution of the Company until after the holders of Preferred
Stock, if any, have received the entire preferential amounts to
which they may be entitled. See "Description of Capital Stock."
EFFECT OF EXCHANGE OFFER ON UNCONVERTED SECURITIES
The Convertible Debentures are currently traded on the AMEX
(the "AMEX"). The Company does not intend to seek a delisting of
the Convertible Debentures from the AMEX following the
consummation of the Exchange Offer. However, if a substantial
percentage of the Convertible Debentures are tendered in the
Exchange Offer, the Company believes that the Convertible
Debentures may not continue to meet the listing requirements of
the AMEX and may, therefore, be delisted by the AMEX.
To the extent that the Convertible Debentures are delisted
by the AMEX, the trading market for the Convertible Debentures
could be materially adversely effected. If the Convertible
Debentures were no longer to trade on the AMEX, it is possible
that the Convertible Debentures may trade on other securities
exchanges or in the over-the-counter market and that price
quotations for the Convertible Debentures may be reported through
the National Association of Securities Dealers' Automated
Quotation System ("NASDAQ") or other sources. The extent of the
public market for the Convertible Debentures and the availability
of such quotations would, however, depend upon, among other
things, the principal amount of Convertible Debentures held by
holders other than the Company and its affiliates and officers
and directors of the Company, the number of holders and/or the
aggregate market value of the Convertible Debentures remaining at
such time, and the interest in maintaining a market in the
Convertible Debentures on the part of securities firms. The
Company has not been informed by any securities firm that they
would make a market in the Convertible Debentures if they were
delisted by the AMEX. Even if the Convertible Debentures remain
listed after the Exchange Offer, the liquidity of the Convertible
Debentures would be significantly decreased which could have a
material adverse effect on the market price of the Convertible
Debentures.
The terms of the Exchange Offer equate to $6.061 principal
amount of Convertible Debentures for each share of Class A Common
Stock received in the Exchange Offer. After the expiration of
the Exchange Offer, holders of Convertible Debentures will have
the right to convert their Convertible Debentures at $17.70 (as
such conversion price may be adjusted) per share of Class A
Common Stock.
POSSIBLE VOLATILITY OF STOCK PRICE; EFFECT OF EXCHANGE OFFER ON
STOCK PRICE
Since 1991, the market price of the Class A Common Stock has
experienced a high degree of volatility. In addition, as a
result of the significant increase in the number of shares of
Class A Common Stock which may be issued pursuant to the Exchange
Offer (10,725,000 additional shares if 100% participation in the
Exchange Offer), the market price of the Class A Common Stock is
likely to experience an even higher degree of volatility and may
decline materially as a result of the number of shares issued in
the Exchange Offer. There can be no assurance that such
volatility will not continue or become more pronounced. In
addition, recently the stock market has experienced, and is
likely to experience in the future, significant price and volume
fluctuations which could materially adversely effect the market
price of the Class A Common Stock without regard to the operating
performance of the Company. The Company believes that factors
such as the Exchange Offer, quarterly fluctuations in the
financial results of the Company or its competitors and general
conditions in the industry, the overall economy and the financial
markets could cause the price of the Class A Common Stock to
fluctuate substantially.
ABSENCE OF DIVIDENDS ON COMMON STOCK
The Company has not paid any dividends on the Class A Common
Stock in the past and does not anticipate paying dividends on the
Common Stock at any time in the foreseeable future. Moreover,
the Amended Credit Agreement restricts the Company from declaring
or paying cash dividends on the Class A Common Stock.
SUBORDINATION OF UNCONVERTED DEBENTURES
The unconverted Convertible Debentures are effectively
subordinated to all current and future senior indebtedness of the
Company and its subsidiaries. "Senior Indebtedness" includes all
indebtedness of the Company, whether existing on or created or
incurred after the date of issuance of the unconverted
Convertible Debentures, that is not made subordinate to or pari
passu with the Convertible Debentures by the instrument creating
the indebtedness. Since the Convertible Debentures contain no
restrictions on the incurrence of further indebtedness, the
Company would be permitted to incur additional subordinated or
Senior Indebtedness. As of August 31, 1996, there was
$38,760,000 aggregate principal amount of Senior Indebtedness.
See "Description of the Convertible Debentures."
HISTORY OF LOSSES; EFFECT OF TRANSACTION
Although the Company was profitable for the fiscal years
ended November 30, 1993 and 1994, for the fiscal year ended
November 30, 1995, the Company reported a net loss of $9,256,000
which was primarily attributable to a charge of $2,900,000 for
the private placement of the certain warrants of the Company and
an $11,800,000 charge for inventory writedowns and other costs
associated with the downsizing of the Company's retail
operations. The Company was profitable for the nine months ended
August 31, 1996. There can be no assurance that the Company will
maintain its profitably, or have earnings or cash flow sufficient
to cover its fixed charges. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the
1995 Form 10-K and the Third Quarter 1996 Form 10-Q.
The proposed Exchange Offer will result in a non-cash charge
to earnings and related reduction in retained earnings of
approximately $45,785,000 and $22,892,000 assuming (i) 100% and
50% participation in the Exchange Offer, respectively, (ii) the
exchange takes place at 165 shares of Class A
Common Stock per Convertible Debentures, and (iii) a fair market
value per share equal to the last reported sales price of the
Class A Common Stock on the AMEX on October 16, 1996 of $6.0625
per share. The actual impact to the financial statements will be
determined by the fair market value of the Class A Common Stock
as determined at the time the Convertible Debentures are actually
exchanged. See "Pro Forma Financial Data."
CASH FLOW DEFICITS FROM OPERATIONS
During the fiscal years ended November 30, 1994 and 1995,
the Company experienced substantial cash flow deficits from
operations of $45,808,000 and $40,236,000, respectively. In
fiscal 1994, the primary components of this deficit were
increases in accounts receivable ($20,337,000) and inventory
($18,701,000). In fiscal 1995, the Company experienced an
additional increase to inventory of $16,950,000. During 1994,
the Company experienced tremendous growth in the cellular market
place, particularly during the fourth quarter. The growth in the
fourth quarter resulted in an increase in accounts receivable as
of November 30, 1994. The cash flow deficits and the increased
inventory arose, in part, because the favorable growth in the
market did not continue in 1995. Due to the Company's lead time
for ordering product and the growth in the market during 1994,
the Company continued to order cellular product. When the
product became available to sell, the growth in the cellular
market had slowed. Since the Company's lead time is
approximately three to four months depending on the country of
origin, there is an inherent risk that such deliveries may lag
behind product demand. This is indicative of the highly
competitive market in which the Company operates (see " --
Competition"). As a result of this highly competitive
environment, the Company recorded a charge of $11,800,000 during
the third quarter of 1995. This charge was for inventory
writedowns of $9,300,000, primarily for cellular inventory, and
$2,500,000 for the downsizing of the retail operations, including
the closing of several retail stores. The Company had positive
cash flows from operations for the nine months ended August 31,
1996 of $17,405,000. There can be no assurances that the Company
will continue to generate positive cash flow from operations in
the future.
DOWNWARD PRESSURE ON SELLING PRICES AND GROSS MARGINS
Since fiscal 1994, market and customer pricing pressure has
required the Company to reduce unit selling prices in order to
maintain market share. The Company's customers have continually
reduced the cost of cellular telephone products to the end users
in order to increase their market penetration. In addition, the
Company's competitors have reduced the price of their cellular
products during this period. Even though unit sales of cellular
telephones increased by 708,000 units or 141.3% from fiscal 1993
through the end of fiscal 1995, over this same period of time
average unit selling prices dropped from $324 per unit to $203
per unit, a decrease of 37.3%. The average unit cost of goods
sold decreased by only 32.3% over the same period of time. Unit
gross profits as a percentage of unit gross revenues have
decreased from 12.5% in 1993 to 5.5% in fiscal 1995. In fiscal
1995, the Company took an inventory write-off of $9.3 million to
adjust the carrying value of its inventory to market. For the
nine months ended August 31, 1996, unit sales increased by
approximately 535,000 units or 71.4% over the first nine months
of 1995 to 1,284,000. During this same period of time, however,
average selling prices declined 25.4% from $213.00 to $159.00.
Since the Company's lead time for ordering product is
approximately three to four months depending on the country of
origin, there is an inherent risk that selling prices may be
lower than the purchase price from the vendor. This situation
may continue to result in lower than anticipated gross margins
and/or writedowns of the carrying value of the inventory on the
Company's balance sheet. There can be no assurance that
continued downward pressure on selling prices would not have a
material adverse effect on the financial condition and results of
operations of the Company. Many of the Company's competitors
have greater capital resources than the Company and may therefore
be able to withstand downward pressure on selling prices better
than the Company. See "-- Competition."
UNITED STATES TRADE SANCTIONS COULD LIMIT THE COMPANY'S SOURCES
OF SUPPLY
The Company has historically been dependent on foreign
sources, particularly Japan and China, for a majority of its
products.
The U.S. government historically has sought and is
continuing to seek greater access to Japanese markets for U.S.
goods. As a result, the U.S. government has threatened from time
to time to impose trade sanctions on products imported from Japan
if it does not succeed in obtaining greater access for U.S.
goods. For example, during fiscal 1994, the United States
government announced its intention to publish a list of products
imported from Japan on which it might impose trade sanctions in
connection with Motorola, Inc.'s inability to obtain "comparable"
access in Japan for its cellular products. Thereafter, Motorola,
Inc. announced an agreement with the Japanese government, and the
list was not published as announced. However, no assurance can
be given that the United States government will not, in the
future, publish a list of products imported from Japan upon which
it may impose trade sanctions, which could include cellular
products. Such products could also include products produced
outside of Japan made from Japanese components.
In addition, the U.S. government has held discussions with
China concerning violations of certain U.S. copyrights and
trademarks. The U.S. government proposed sanctions on Chinese
products if a satisfactory solution was not reached. Cellular
products were included within the proposed sanctions.
Subsequently, China and the United States reached an agreement
and those sanctions were not imposed. There can be no assurance
that the U.S. government will not, in the future, propose a list
of products imported from China (or other countries), including
cellular products, on which it may impose trade sanctions.
If imposed, such sanctions may include, among other things,
tariffs, duties, import restrictions or other measures. These
sanctions could also include products produced outside of the
sanctioned country with components made in the sanctioned
country. The imposition of such sanctions would have a material
adverse effect on the Company's financial condition and results
of operations, which would include reduced margins due to the
Company's inability to access alternative cellular products at a
competitive cost, and could also include loss of market share to
competitors that are less dependent on Japanese and Chinese
suppliers and/or loss of revenue due to unavailability of
product.
In fiscal 1993, 1994 and 1995 and in the nine months ended
August 31,1996, the Company purchased 89.7%, 91.8%, 97.0% and
52.4%, respectively, of its total dollar amount of cellular
product purchases from Japanese suppliers, and revenues from
cellular products from Japanese suppliers comprised 46.3%, 47.8%,
51.8% and 53.3%, respectively, of the total revenues of the
Company during those periods.
NO ASSURANCE OF ALTERNATIVE SUPPLY SOURCES
If trade sanctions similar to those referenced above are
imposed, there is no assurance that the Company will be able to
obtain adequate alternatives to its Japanese and Chinese supply
sources. There is no assurance that, if obtained, alternatively
sourced products or components would be delivered on a timely
basis, of satisfactory quality, competitively priced, comparably
featured or acceptable to the Company's customers. The Company
believes that it could experience supply shortages as early as 60
days after such trade sanctions were introduced. Additionally,
it is likely that the Company would experience interruptions in
its supply of mobile, transportable and portable cellular
products before any alternative products could be obtained. Any
such supply interruptions would have a material adverse effect on
the Company's operating and earnings per share performance.
In addition, as a result of conditions in China, there has
been, and may be in the future, opposition to the continued
extension of "most favored nation" trade status for China.
China's current status as "most favored nation" will
automatically expire on May 31, 1997 unless extended by Congress
and the President before such date. There can be no assurance
that Congress and the President will renew China's "most favored
nation" status at such time. Loss of China's "most favored
nation" trade status would materially increase the cost of the
products purchased from Chinese manufacturers, as such products
would then become subject to substantially higher rates of duty.
RISKS OF CURRENCY FLUCTUATIONS
The prices that the Company pays for the products purchased
from its suppliers are principally denominated in United States
dollars. Price negotiations depend in part on the relationship
between the foreign currency of the foreign manufacturers and the
United States dollar. This relationship is determined by, among
other things, market, trade and political factors. Because the
Company historically has been dependent on Japanese suppliers for
its cellular products, the yen to dollar relationship has been
the most significant to the Company. The value of the United
States dollar as of September 30, 1996 was 111.6 yen; over the
five years preceding that date the value of the United States
dollar ranged from 159.85 yen to 80.15 yen. The Chinese currency
is also becoming more important to the Company as its purchases
of Chinese products increases.
A decrease in the value of the United States dollar relative
to a foreign currency increases the cost in United States dollars
of products which the Company purchases from foreign
manufacturers. Such an increase could reduce the Company's
margins or make the Company's products less price competitive.
No assurance is given that, if the value of the United States
dollar continues to decrease relative to the yen, because of
potential trade sanctions or otherwise, the Company will be able
to competitively obtain or market the products it purchases from
Japanese sources.
DEPENDENCE ON FOREIGN SUPPLIERS
The Company's business is dependent upon its suppliers'
continuing to provide it with adequate quantities of salable
product on a timely basis and on competitive pricing terms.
Substantially all of the Company's products are imported from
suppliers in the Pacific Rim. There are no agreements in effect
that require any manufacturer to supply the Company with product.
Accordingly, there can be no assurance that the Company's
relationships with its suppliers will continue as presently in
effect. The loss of any significant supplier, substantial price
increases imposed by any such supplier or the inability to obtain
sufficient quantities of product on a timely basis, could have a
material adverse effect on the Company's financial condition and
results of operations.
The Company's arrangements with its suppliers are subject to
the risks of purchasing products from foreign suppliers,
including risks associated with economic and/or political
instability in countries in which such suppliers are located, and
risks associated with potential import restrictions, currency
fluctuations, foreign tax laws, import/export regulations,
tariff, duty and freight rates and work stoppages. These risks
may be increased in the Company's case by the concentration of
its purchases of cellular products from suppliers in Japan and
China. In addition, the Company may be subject to risks
associated with the availability of and time required for the
transportation of products from foreign countries. Because of
the Company's dependence on such foreign suppliers, the Company
is required to order products further in advance of customers'
orders than would be the case if its products were manufactured
domestically.
The Company purchases product from Shintom Co., Limited
("Shintom"), a stockholder who, on November 30, 1994 and November
30, 1995, owned approximately 3.5% of the outstanding Class A
Common Stock and all of the Preferred Stock of the Company, and
from Talk Corporation ("Talk"), a 33% owned joint venture in
Japan with Shintom and other companies. Inventory purchases from
Shintom and Talk approximated 4.0%, 7.0%, 20%, and 25% of total
inventory purchases for the years ended November 30, 1993, 1994,
1995, and the nine months ended August 31, 1996, respectively.
DEPENDENCE ON TOSHIBA
Since 1984, Toshiba has been the principal supplier of
cellular telephone products to the Company, accounting for
approximately 83.7%, 83.7%, 67.3% and 43.1% of the total dollar
amount of the Company's cellular product purchases and
approximately 46.9%, 45.5%, 44.1% and 27.2% of the total dollar
amount of all product purchases by the Company in fiscal 1993,
fiscal 1994 and fiscal 1995 and in the nine months ended August
31, 1996, respectively. During fiscal 1992 and 1993, the Company
was the sole distributor of Toshiba cellular telephone products
in the United States. In 1994, Toshiba began to compete directly
with the Company in the United States by marketing cellular
telephone products through Toshiba's United States distribution
subsidiary. During 1996, Toshiba withdrew its U.S. distribution
subsidiary from the United States cellular telephone market.
There can be no assurance that Toshiba will not reenter the
United States cellular telephone market and again directly
compete with the Company in the United States.
DEPENDENCE ON CELLULAR CARRIERS
The success of the Company's retail cellular telephone
business is dependent upon the Company's relationship with
certain cellular carriers. As a practical matter, the Company
does not believe that it can operate at the retail level on a
profitable basis without agency agreements with cellular
carriers. The Company's agency agreements with cellular carriers
are subject to cancellation by the carriers and give the carriers
the right to unilaterally restructure or revise activation
commissions and residual fees, which they have done from time-to-
time. The agreements also provide that, for specified periods of
time following the expiration or termination of a specific
agreement, generally ranging from three months to two years, the
Company cannot sell, solicit or refer cellular or wireless
communication network services of the kind provided by the
cellular carriers to other competing carriers in particular
geographic areas. The cancellation or loss of one or more of
these agreements could have a material adverse effect on the
Company's financial condition and results of operations.
IMPACT OF ELIMINATION OF MANAGEMENT FEES FROM AND REDUCTION IN
EQUITY IN CELLSTAR; SALE OF CELLSTAR COMMON STOCK
For the fiscal years ended November 30, 1991, 1992 and 1993,
approximately $4,825,000, $5,124,000 and $5,147,000,
respectively, of the Company's income was generated by management
fees and equity in undistributed earnings from the operations of
CellStar Corporation ("CellStar"), a 50% owned joint venture. In
December 1993, CellStar completed the initial public offering
(the "CellStar Offering") of CellStar common stock, par value
$.01 per shares ("CellStar Common Stock"). In connection with
the CellStar Offering, the Company sold 2,875,000 of its
6,750,000 shares of CellStar Common Stock. After the CellStar
Offering, the Company owned 20.88% of the issued and outstanding
CellStar Common Stock and stopped accruing such management fees
in July, 1993; however, the Company was entitled to its portion
of the income from the equity in undistributed earnings of
CellStar, if any, for such time as the Company continued to own
at least 20% of CellStar's outstanding common stock. If the
CellStar Offering had occurred on November 30, 1992, this
accounting treatment would have resulted in net earnings being
reduced by approximately $1,692,000 for the fiscal year ended
November 30, 1993.
On June 2, 1995, the Company sold 1,500,000 shares of
CellStar Common Stock to Alan H. Goldfield, President of
CellStar, for $11.50 per share upon exercise of an option for
such shares by Mr. Goldfield. As a result thereof, the Company's
ownership percentage in CellStar was reduced below 20% and the
Company will no longer account for its investment in CellStar
under the equity method of accounting. On a pro forma basis,
this change would have decreased pretax earnings for fiscal 1994
and fiscal 1995 by approximately $3,393,000 and $2,151,000,
respectively. There can be no assurance that income from other
sources will offset the loss of this income from CellStar. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the 1995 Form 10-K and the Third
Quarter 1996 Form 10-Q.
COMPETITION
The Company operates in a highly competitive environment and
believes that such competition will intensify in the future.
Many of the Company's competitors are larger and have greater
capital and management resources than the Company. Competition
often is based on price, and therefore wholesale distributors and
retailers, including the Company, generally operate with low
gross margins. The Company also is affected by competition
between cellular carriers. Increased price competition relating
not only to cellular telephone products, but also to services
provided by the Company to retail customers on behalf of cellular
carriers, may result in downward pressure on the Company's gross
margins (including that resulting from the loss of residual fees
attributable to customers who change cellular carriers) and could
have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's
cellular products compete principally with cellular telephones
supplied by Motorola, Inc., Nokia Mobile Phones, Inc., Fujitsu
Network Transmission Systems, Inc., Oki Electric Industry Co.,
Nippon Electric Corp., Sony Wireless Telecommunications Co.,
Mitsubishi Wireless Communications, Oki Telecom Corporation, NEC
America, Ericcson Mobile Communications, Qualcomm Inc., and
Toshiba. The Company's non-cellular products compete with other
suppliers including Matsushita Electric Corp., Sony Corp. of
America, Directed Electronics, Inc. and Code Alarm, Inc., as
well as divisions of well-known automobile manufacturers. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the 1995 Form 10-K and the Third
Quarter 1996 Form 10-Q.
RISK OF INVENTORY OBSOLESCENCE AND TECHNOLOGICAL CHANGE
The markets in which the Company competes are characterized
by rapid technological change, frequent new product
introductions, declining prices and intense competition. The
Company's success depends in large part upon its ability to
identify and obtain products necessary to meet the demands of the
marketplace. There can be no assurance that the Company will be
able to identify and offer products necessary to remain
competitive. The Company maintains a significant investment in
its product inventory and, therefore, is subject to the risk of
inventory obsolescence or reduction in value. If a significant
amount of inventory is rendered obsolete, the Company's business
and operating results would be materially and adversely affected.
Alternative technologies to cellular, including enhanced
specialized mobile radio ("ESMR") and personal communications
service ("PCS"), may reduce the demand for cellular telephone
products. The implementation of communications systems based
upon any of these or other technologies could materially change
the types of products sold by the Company and the service
providers with whom the Company presently does business.
Competing communications technologies also may result in price
competition which could result in lower activation commission or
residual fee rates payable to the Company and could have a
material adverse effect on the financial condition and results of
operations of the Company. From time to time, cellular carriers'
technological limitations may result in a shortage of available
cellular phone numbers, which could have the effect of inhibiting
sales of the Company's cellular products.
POSSIBLE HEALTH RISKS FROM CELLULAR TELEPHONES
There have been lawsuits filed (including one such lawsuit
against the Company and others) in which claims have been made
alleging a link between the non-thermal electromagnetic field
emitted by portable cellular telephones and the development of
cancer, including brain cancer. To date, there have been
relatively few medical studies relating to cellular telephones
and the effects of non-thermal electromagnetic fields on health,
nor are there any widely accepted theories regarding how exposure
to a non-thermal electromagnetic field, such as the type emitted
by a portable cellular telephone, could affect living cells or
threaten health. The scientific community is divided on whether
there is any risk associated with the use of portable cellular
telephones and the magnitude of any such risk. There can be no
assurance that medical studies or other findings, or continued
litigation in this area, will not have a material adverse impact
upon the financial condition and results of operations of the
cellular telephone industry and the Company.
RISKS ATTRIBUTABLE TO FOREIGN SALES
For the fiscal years ended November 30, 1993, 1994 and 1995
and in the nine months ended August 31, 1996, approximately
12.6%, 13.8%, 18.6% and 24.6%, respectively, of the Company's net
sales were generated from sales in Canada, Europe, Latin America,
Asia, the Middle East and Australia. The Company is seeking to
continue this trend of increasing foreign sales as a percentage
of total sales. Foreign sales are subject to political and
economic risks, including political instability, currency
controls, exchange rate fluctuations, increased credit risks,
foreign tax laws, changes in import/export regulations and tariff
and freight rates. Political and other factors beyond the
control of the Company, including trade disputes among nations or
internal instability in any nation where the Company sells
products, could have a material adverse effect on the financial
condition and results of operations of the Company.
RISKS ATTRIBUTABLE TO RETAIL SALES
A significant portion of the Company's customer base may be
susceptible to downturns in the retail economy, particularly in
the consumer electronics industry. Additionally, customers
specializing in certain automotive sound, security and accessory
products may be negatively impacted by fluctuations in automotive
sales. Certain of the Company's significant customers are also
believed by the Company to be highly leveraged. Accordingly, a
downturn in the retail economy could have a material adverse
effect on the financial condition and results of operations of
the Company.
LEVERAGE AND DEBT SERVICE
As of August 31, 1996, the Company had outstanding total
interest bearing indebtedness of approximately $109.0 million and
a total debt-to-total capital ratio of .54 to 1. The amount of
indebtedness of the Company will be reduced by the principal
amount of Convertible Debentures that are tendered into the
Exchange Offer. Although a portion of the net proceeds from the
sale of the Convertible Debentures and the CellStar Offering was
used to retire a significant portion of the Company's existing
indebtedness, the Company continues to have substantial annual
fixed debt service requirements including those attributable to
the Convertible Debentures and the Company's Credit Agreement,
as last amended on September 10, 1996 (the "Amended Credit
Agreement"). The ability of the Company to make principal and
interest payments under the Company's long-term indebtedness and
bank loans will be dependent upon the Company's future
performance, which is subject to financial, economic and other
factors affecting the Company, some of which are beyond its
control. There can be no assurance that the Company will be able
to meet its fixed charges as such charges become due. See " --
History of Losses; Effect of Transaction" and "Cash Flow Deficits
From Operations."
RESTRICTIVE COVENANTS
The Amended Credit Agreement contains certain restrictive
covenants which impose prohibitions or limitations on the Company
with respect to, among other things, (i) the ability to make
payments of principal, interest or premium on, subordinated
indebtedness of the Company, (ii) the incurrence of indebtedness,
(iii) capital expenditures, (iv) the creation or incurrence of
liens, (v) the declaration or payment of dividends or other
distributions on, or the acquisition, redemption or retirement
of, any shares of capital stock of the Company, and (vi) mergers,
consolidations and sales or purchases of substantial assets. The
Amended Credit Agreement also requires that the Company satisfy
certain financial tests, maintain certain financial ratios,
maintain minimum pre-tax earnings, and maintain minimum net
worth. Failure to comply with such covenants could result in a
default under the Amended Credit Agreement which could have a
material adverse effect on the financial condition and results of
operations of the Company.
SHARES ELIGIBLE FOR FUTURE SALE; DILUTION
Prior to the Exchange Offer, the Company had approximately
3,871,602 shares of Class A Common Stock held by members of the
public that are able to trade without restriction. Pursuant to
the Exchange Offer, up to an additional 10,725,000 shares of
Class A Common Stock could be issued into the public market
(assuming 100% participation in the Exchange Offer). All of the
shares issued in the Exchange Offer should be freely tradeable
without restriction. The issuance of the shares of Class A
Common Stock in the Exchange Offer and sales of a substantial
number of additional shares of Class A Common Stock in the public
market could materially adversely effect the market price of the
Class A Common Stock. As of October 9, 1996, 3,672,317 shares of
Class A Common Stock were issuable upon conversion of the
Convertible Debentures (assuming no participation in the Exchange
Offer), 100,000 shares of Class A Common Stock were issuable upon
exercise of the Blau Warrant (as defined herein), 50,000 shares
of Class A Common Stock were issuable upon exercise of the Maxim
Warrant (as defined herein) and 1,668,875 shares of Class A
Common Stock were issuable upon exercise of the Warrants (as
defined herein). The shares of Class A Common Stock issuable
upon the exercise of such securities (other than the Maxim
Warrant) should all be freely tradeable without restriction.
Consummation of the Exchange Offer or exercise or conversion, as
the case may be, of a substantial amount of the Company's
presently outstanding warrants or the Convertible Debentures, or
sale of the Class A Common Stock underlying such debenture or
warrants described above also could adversely affect the market
price of the Class A Common Stock, due to the large number of
shares issuable upon exchange, conversion or exercise of such
debentures or warrants in comparison to the relatively small
number of shares held by members of the public that are able to
trade without restriction. In addition, as of October 9, 1996,
(i) John J. Shalam owned 3,355,330 shares of Class A Common Stock
(including for this purpose all of the shares subject to the
Shalam Option (as defined below)) and 1,883,198 shares of Class B
Common Stock of the Company, par value $.01 per share ("Class B
Common Stock"), which are convertible into an equal number of
shares of Class A Common Stock and (ii) other affiliates (as such
term is defined in the Exchange Act) of the Company owned 6,902
shares of Class A Common Stock and 377,756 shares of Class B
Common Stock, which are convertible into an equal number of
shares of Class A Common Stock. All of such shares (other than
the shares subject to the Shalam Option) may be sold pursuant to
Rule 144 under the Securities Act of 1933, as amended ("Rule
144"). Also, Mr. Shalam has granted the Company the Shalam
Option to acquire 1,668,875 shares held by Mr. Shalam. See
"Description of Capital Stock -- Shalam Option." Sales by such
persons of a substantial number of shares of Class A Common Stock
or Class B Common Stock (collectively, "Common Stock") could
materially adversely affect the market price of the Class A
Common Stock. See "Possible Volatility of Stock Price; Effect of
Exchange Offer on Stock Price."
In general, under Rule 144 as currently in effect, any
affiliate of the Company or any person (or persons whose shares
are aggregated in accordance with the Rule) who has beneficially
owned Class A Common Stock which is treated as "Restricted
Securities" (as such term is defined under Rule 144) for at least
two years would be entitled to sell within any three-month period
a number of shares that does not exceed the greater of 1% of the
outstanding shares of Class A Common Stock or the reported
average weekly trading volume in the Class A Common Stock during
the four weeks preceding the date on which notice of such sale
was filed under Rule 144. Sales under Rule 144 are also subject
to certain manner of sale restrictions and notice requirements
and to the availability of current public information concerning
the Company. In addition, affiliates of the Company must comply
with the restrictions and requirements of Rule 144 (other than
the two-year holding period requirements) in order to sell Class
A Common Stock that are not Restricted Securities (such as Class
A Common Stock acquired by affiliates in market transactions).
Further, if a period of at least three years has elapsed from the
date Restricted Securities were acquired from the Company or an
affiliate of the Company, a holder of such Restricted Securities
who is not an affiliate at the time of the sale and who has not
been an affiliate for at least three months prior to such sale
would be entitled to sell the shares immediately without regard
to the volume, manner of sale, notice and public information
requirements of Rule 144.
DEPENDENCE ON EXISTING MANAGEMENT
The continued success of the Company is substantially
dependent on the efforts of John J. Shalam, President and Chief
Executive Officer, Philip Christopher, Executive Vice President,
Charles M. Stoehr, Senior Vice President and Chief Financial
Officer and Patrick Lavelle, Senior Vice President, Automotive
Electronics. The loss or interruption of the continued full time
services of any of such individuals could have a material adverse
impact on the Company's business operations, prospects and
relations with its suppliers. The Company does not have
employment contracts with any of these persons, nor have any of
these persons signed agreements binding them not to compete with
the Company following the termination of their employment with
the Company. The Company maintains a "key man" life insurance
policy only on John J. Shalam.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
This Offering Circular, including the information
incorporated by reference, contains forward-looking statements
within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, including
statements regarding, among other items, (i) the Company's growth
strategies; (ii) anticipated trends in the Company's business and
demographics; (iii) the Company's ability to continue to control
costs and maintain quality of products; (iv) the Company's
ability to respond to changes in regulations; and (v) the
Company's ability to enter into contracts with certain suppliers
and customers. These forward-looking statements are based
largely on the Company's expectations and are subject to a number
of risks and uncertainties, certain of which are beyond the
Company's control. Actual results could differ materially from
these forward-looking statements as a result of the factors
described in "Risk Factors" including, among others (a) changes
in the cellular and other industries as a result of political,
economic or regulatory influences; (b) changes in regulations
governing the cellular and other industries; (c) changes in the
competitive marketplace and (d) continuing downward pressure on
the prices of the Company's products. In light of these risks
and uncertainties, there can be no assurance that the forward-
looking information contained in this Offering Circular will in
fact transpire.
VOTING RIGHTS OF CLASS A COMMON STOCK AND VOTING CONTROL BY
PRINCIPAL STOCKHOLDER
The voting rights of holders of Class A Common Stock for
which the Convertible Debentures are exchangeable pursuant to
the Exchange Offer are entitled to one vote per share and each
share of Class B Common Stock is entitled to ten votes per share.
Both classes vote together as a single class except with respect
to the election and removal without cause of directors and as
otherwise may be required by Delaware law. With respect to the
election of directors, the holders of shares of Class A Common
Stock, voting as a separate class, are entitled to elect 25%
(rounded up to the nearest whole number) of the authorized number
of directors of the Company and the holders of the Class B Common
Stock, voting as a separate class, are entitled to elect the
remaining directors. See "Description of Capital Stock--Class A
Common Stock and Class B Common Stock." John J. Shalam has
effective voting control of the Company and can elect a majority
of the directors through his ownership of 3,355,330 shares of
Class A Common Stock (including the shares of Class A Common
Stock subject to the Shalam Option) and 1,883,198 shares of Class
B Common Stock, which gives him approximately 74.35% of the
aggregate voting power of the issued and outstanding Common
Stock. Pending exercise of the Shalam Option, Mr. Shalam will
have voting control of the shares of Class A Common Stock subject
to the Shalam Option. Assuming the Exchange Offer is consummated
with 100% participation, Mr. Shalam will continue to have
effective voting control of the Company and will be able to elect
a majority of the directors though his ownership of 3,355,330
shares of Class A Common Stock (including the shares of Class A
Common Stock subject to the Shalam Option) and 1,883,198 shares
of Class B Common Stock, which will give him approximately 54.7%
of the aggregate voting power of the issued and outstanding
Common Stock (50.6% of the aggregate voting power of the issued
and outstanding Common Stock, assuming the full exercise of the
Shalam Option). The holders of the Warrants of the Company do
not have any voting rights as shareholders of the Company prior
to exercise. The disproportionate voting rights of the Class A
Common Stock and the Class B Common Stock may effectively
preclude the Company from being taken over in a transaction not
supported by John J. Shalam, may render more difficult or
discourage a merger proposal or a tender offer, may preclude a
successful proxy contest or may otherwise have an adverse effect
on the market price of the Class A Common Stock. See
"Description of Capital Stock--Class A Common Stock and Class B
Common Stock." and "Description of Capital Stock--Effects of
Disproportionate Voting Rights."
THE EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the
conditions set forth in this Offering Circular and in the
accompanying Letter of Transmittal, to exchange each $1,000
principal amount of the Company's Convertible Debentures for 165
shares of Common Stock. Subject to the date that the Special
Meeting is ultimately held, the Company proposes to consummate
the Exchange Offer promptly after November 19, 1996. It is the
Company's intention to exchange and retire all Convertible
Debentures tendered to and accepted by the Company pursuant to
the Exchange Offer.
PURPOSE
The purpose of the Exchange Offer is to increase the
Company's equity base to provide it with financial flexibility
for future growth.
TERMS OF THE EXCHANGE OFFER
Convertible Debentures may be tendered and will be accepted
for exchange only in denominations of $1,000 principal amount and
integral multiples thereof. Holders of Convertible Debentures
delivered to the Exchange Agent will be entitled to any payment
in respect of accrued and unpaid interest on the converted
securities up to, but not including, the Exchange Offer
Acceptance Date.
Although the Company has no present intention to do so, if
it should modify the Exchange Offer Consideration offered for the
Convertible Debentures in the Exchange Offer, that modified
consideration would be provided with regard to all Convertible
Debentures accepted in the Exchange Offer. If the Company
modifies the Exchange Offer Consideration, the Exchange Offer
will remain open at least 10 business days from the date the
Company first publishes, sends or gives notice, by public
announcement or otherwise, of such modification to the holders of
Convertible Debentures.
After the Expiration Date, if fewer than all of the
Convertible Debentures have been tendered and exchanged in the
Exchange Offer, the Company may, or may cause any affiliate to,
purchase additional Convertible Debentures in the open market, in
privately negotiated transactions, through subsequent exchange
offers or otherwise or may seek to cause the Convertible
Debentures to be retired or defeased. Any future purchases or
exchanges may be for other securities or for cash and may be on
the same terms or on terms that are more or less favorable to
holders than the terms of the Exchange Offer. Any future
purchases or exchanges by the Company or any affiliate will
depend on various factors at that time.
Tendering holders of Convertible Debentures will not be
required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with
respect to the exchange of Convertible Debentures pursuant to the
Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the
Exchange Offer.
SHAREHOLDER APPROVAL OF ISSUANCE OF CLASS A COMMON STOCK TO
EFFECT EXCHANGE OFFER
At the request of the American Stock Exchange, shareholders
of Class A Common Stock and Class B Common Stock are being asked
to approve the issuance of Class A Common Stock necessary to
effect the Exchange Offer in accordance with rules of the
American Stock Exchange which require shareholder approval prior
to issuance of common stock equal to 20% or more of the presently
outstanding stock in certain circumstances. Mr. John J. Shalam,
President and Chief Executive Officer of the Company, currently
owns or controls approximately 74.4% of the Company's voting
power. Mr. Shalam has advised the Company that he intends to
vote in favor of this issuance of the Class A Common Stock to
effect the Exchange Offer and, accordingly, approval by the
shareholders is assured. The special meeting of shareholders
(the "Special Meeting") to be called to vote upon the issuance of
the Class A Common Stock is tentatively scheduled for November
19, 1996. The record date for such Special Meeting is October
21, 1996. However, the proxy materials to be mailed to
shareholders in connection with the above Special Meeting is
subject to review by the Securities and Exchange Commission, and,
accordingly, the date of the Special Meeting (and, consequently,
the Expiration Date) may be delayed beyond November 19, 1996.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer,
the Company will not be required to accept for exchange or
subject to any applicable rules or regulations of the Commission,
any Convertible Debentures tendered for exchange and may postpone
the exchange of any Convertible Debentures tendered and to be
exchanged by it, and may terminate or amend the Exchange Offer as
provided herein if any of the following conditions exist:
(1) the holders of the Class A Common Stock and
Class B Common Stock, voting together, do not approve
the issuance of the number of shares of Class A Common
Stock required to effect the Exchange Offer by the
Expiration Date (the "Shareholder Approval Condition");
(2) there shall have been instituted or
threatened or be pending any action or proceeding
before or by any court or governmental, regulatory or
administrative agency or instrumentality, or by any
other person, (a) that challenges the making of the
Exchange Offer, or might, directly or indirectly,
prohibit, prevent, restrict or delay consummation of
the Exchange Offer or otherwise adversely affect, in
any material manner the Exchange Offer or which
requires the Company to file a registration statement
in respect of the Class A Common Stock being offered as
consideration in the Exchange Offer or (ii) that is, or
is reasonably likely to be, in the sole judgment of the
Company, materially adverse to the business,
operations, properties, condition (financial or
otherwise), assets, liabilities or prospects of the
Company;
(3) there shall have occurred any material
adverse development, in the sole judgment of the
Company, with respect to any action or proceeding
concerning the Company;
(4) an order, statute, rule, regulation,
executive order, stay, decree, judgment or injunction
shall have been proposed, enacted, entered, issued,
promulgated, enforced or deemed applicable by any court
or governmental, regulatory or administrative agency or
instrumentality that, in the sole judgment of the
Company, would or might prohibit, prevent, restrict or
delay consummation of the Exchange Offer or that is, or
is reasonably likely to be, materially adverse to the
business, operations, properties, condition (financial
or otherwise), assets, liabilities or prospects of the
Company;
(5) there shall have occurred or be likely to
occur any event affecting the business or financial
affairs of the Company or which, in the sole judgment
of the Company, would or might prohibit, prevent,
restrict or delay consummation of the Exchange Offer,
or that will, or is reasonably likely to, materially
impair the contemplated benefits to the Company of the
Exchange Offer, or otherwise result in the consummation
of the Exchange Offer not being or not reasonably
likely to be in the best interests of the Company;
(6) the Trustee shall have objected in any
respect to, or taken any action that could, in the sole
judgment of the Company, adversely affect the
consummation of the Exchange Offer, or shall have taken
any action that challenges the validity or
effectiveness of the procedures used by the Company in
the making of the Exchange Offer or the acceptance of,
or exchange for, any of the Convertible Debentures;
(7) the Company shall not have received from any
federal, state or local governmental, regulatory or
administrative agency or instrumentality, any approval,
authorization or consent that, in the sole judgment of
the Company, is necessary to effect the Exchange Offer;
and
(8) there shall have occurred (a) any general
suspension of, or limitation on prices for, trading in
securities in the United States securities or financial
markets, (b) any significant adverse change in the
price of the Convertible Debentures or the Class A
Common Stock in the United States securities or
financial markets, (c) a material impairment in the
trading market for debt or equity securities, (d) a
declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States,
(e) any limitation (whether or not mandatory) by any
government or governmental, administrative or
regulatory authority or agency, domestic or foreign,
on, or other event that, in the reasonable judgment of
the Company, might affect, the extension of credit by
banks or other lending institutions, (f) a commencement
of a war or armed hostilities or other national or
international calamity directly or indirectly involving
the United States, (g) any imposition of a general
suspension of trading or limitation of prices on the
New York Stock Exchange or the AMEX, or (h) in the case
of any of the foregoing existing on the date hereof, a
material acceleration or worsening thereof.
All the foregoing conditions are for the sole benefit of the
Company and may be asserted by the Company at any time regardless
of the circumstances giving rise to such conditions and may be
waived by the Company, in whole or in part, at any time and from
time to time, in the sole discretion of the Company. The failure
by the Company at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right, and each
such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
If any of the conditions set forth in this section shall not
be satisfied, the Company may, subject to applicable law, (i)
terminate the Exchange Offer and return all Convertible
Debentures tendered pursuant to the Exchange Offer to tendering
holders; (ii) extend the Exchange Offer and retain all tendered
Convertible Debentures until the Expiration Date for the extended
Exchange Offer; (iii) amend the terms of the Exchange Offer or
modify the consideration to be provided by the Company pursuant
to the Exchange Offer; or (iv) waive the unsatisfied conditions
with respect to the Exchange Offer and accept all Convertible
Debentures tendered pursuant to the Exchange Offer.
EXPIRATION; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer is scheduled to expire at 5:00 PM, New
York City time, on November 19, 1996. The Expiration Date will
be extended should the Special Meeting be held later than
November 19, 1996. Additionally, the Company expressly reserves
the right, in its sole discretion, at any time or from time to
time, to extend the period of time during which the Exchange
Offer is open by giving oral or written notice of such extension
to the Exchange Agent and making a public announcement thereof as
described in the second succeeding paragraph. There can be no
assurance that the Company will exercise its right to extend the
Exchange Offer. During any extension of the Exchange Offer, all
Convertible Debentures previously tendered pursuant thereto and
not exchanged or withdrawn will remain subject to the Exchange
Offer and may be accepted for exchange by the Company at the
expiration of the Exchange Offer subject to the right of a
tendering holder to withdraw his Convertible Debentures. See "The
Exchange Offer -- Withdrawal of Tenders." Under no circumstances
will interest on the Exchange Offer Consideration be paid by the
Company by reason of any such extension.
The Company also expressly reserves the right, subject to
applicable law, (i) to delay acceptance for exchange of any
Convertible Debentures or, regardless of whether such Convertible
Debentures were theretofore accepted for exchange, to delay the
exchange of any Convertible Debentures pursuant to the Exchange
Offer or to terminate the Exchange Offer and not accept for
exchange any Convertible Debentures, if any of the conditions to
the Exchange Offer specified herein fail to be satisfied by
giving oral or written notice of such delay or termination to the
Exchange Agent; (ii) to waive any condition to the Exchange Offer
and accept all the Convertible Debentures tendered; and (iii) at
any time, or from time to time, to amend the terms of Exchange
Offer in any respect, including the Exchange Offer Consideration.
The reservation by the Company of the right to delay exchange or
acceptance for exchange of Convertible Debentures is subject to
the provisions of Rule 13e-4(f)(5) under the Exchange Act, which
requires that the Company pay the consideration offered or return
the Convertible Debentures deposited by or on behalf of holders
thereof promptly after the termination or withdrawal of the
Exchange Offer.
Any extension, delay, termination or amendment of the
Exchange Offer will be followed as promptly as practicable by a
public announcement thereof. Without limiting the manner in which
the Company may choose to make a public announcement of any
extension, delay, termination or amendment of the Exchange Offer,
the Company shall have no obligation to publish, advertise or
otherwise communicate any such public announcement, other than by
issuing a release to the Dow Jones News Service, except in the
case of an announcement of an extension of the Exchange Offer, in
which case the Company shall have no obligation to publish,
advertise or otherwise communicate such announcement other than
by issuing a notice of such extension by press release or other
public announcement, which notice shall be issued no later than
9:00 A.M., New York City time, on the next business day after the
previously scheduled Expiration Date.
If the Company makes a material change in the terms of the
Exchange Offer or the information concerning the Exchange Offer,
or if the Company waives any condition of the Exchange Offer that
results in a material change to the circumstances of the Exchange
Offer, the Company will disseminate additional Exchange Offer
materials in a manner reasonably calculated to inform holders of
Convertible Debentures of such change, and will provide holders
of Convertible Debentures adequate time to consider such
materials and their participation in the Exchange Offer. The
minimum period during which the Exchange Offer must remain open
following a material change in the terms of the Exchange Offer or
the information concerning the Exchange Offer, other than a
change in the Exchange Offer Consideration or the percentage of
the Convertible Debentures sought in the Exchange Offer, will
depend upon the facts and circumstances, including the relative
materiality, of the changed terms or information.
If the Company increases or decreases the Exchange Offer
Consideration or the amount of Convertible Debentures sought in
the Exchange Offer, the Exchange Offer will remain open at least
ten business days from the date that the Company first publishes,
sends or gives notice, by public announcement or otherwise, of
such increase or decrease. The Company has no current intention
to increase or decrease the Exchange Offer Consideration
currently offered or the amount of Convertible Debentures sought
to be purchased.
PROCEDURES FOR TENDERING
TENDERS OF SECURITIES. For a Registered Holder to validly
tender Convertible Debentures pursuant to the Exchange Offer, a
properly completed and validly executed Letter of Transmittal (or
a facsimile thereof), together with any signature guarantees or,
in the case of a Book-Entry Transfer (as defined below), an
Agent's Message (as defined below), and any other documents
required by the instructions to the Letter of Transmittal, must
be received by the Exchange Agent prior to the Expiration Date at
one of its addresses set forth on the back cover page of this
Offering Circular. In addition, the Exchange Agent must receive
either certificates for tendered Convertible Debentures at any of
such addresses or such Convertible Debentures must be transferred
pursuant to the procedures for book-entry transfer described
below and a confirmation of, or an Agent's Message with respect
to, such book-entry transfer must be received by the Exchange
Agent prior to the Expiration Date. A Registered Holder who
desires to tender Convertible Debentures and who cannot comply
with the procedures set forth herein for tender on a timely basis
or whose Convertible Debentures are not immediately available
must comply with the procedures for guaranteed delivery set forth
below. Letters of Transmittal, certificates representing
Convertible Debentures and confirmations of, or an Agent's
Message with respect to, book-entry transfer should be sent only
to the Exchange Agent, and not to the Company or the Trustee.
The term "Agent's Message" means a message transmitted by a
Book-Entry Facility to, and received by, the Exchange Agent and
forming a part of a Book-Entry Confirmation, which states that
such Book-Entry Transfer Facility has received an express
acknowledgment from the participant in such Book-Entry Transfer
Facility, tendering the Convertible Debentures that such
participant has received and agrees to be bound by the terms of
the Letter of Transmittal and that the Company may enforce such
agreement against the participant.
DELIVERY OF LETTERS OF TRANSMITTAL. If the certificates for
Convertible Debentures are registered in the name of a person
other than the signer of the Letter of Transmittal relating
thereto, then, in order to tender such Convertible Debentures
pursuant to the Exchange Offer, the certificates evidencing such
Convertible Debentures must be endorsed or accompanied by
appropriate bond powers signed exactly as the name or names of
the registered owner or owners appear on the certificates, with
the signatures on the certificates or bond powers guaranteed as
provided below.
ANY BENEFICIAL OWNER WHOSE CONVERTIBLE DEBENTURES ARE
REGISTERED IN THE NAME OF A BROKER, DEALER, COMMERCIAL BANK,
TRUST COMPANY OR OTHER NOMINEE AND WHO WISHES TO TENDER
CONVERTIBLE DEBENTURES IN THE EXCHANGE OFFER SHOULD CONTACT SUCH
REGISTERED HOLDER PROMPTLY AND INSTRUCT SUCH REGISTERED HOLDER TO
TENDER THE CONVERTIBLE DEBENTURES ON SUCH BENEFICIAL OWNER'S
BEHALF. IF ANY BENEFICIAL OWNER WISHES TO TENDER CONVERTIBLE
DEBENTURES HIMSELF, THAT BENEFICIAL OWNER MUST, PRIOR TO
COMPLETING AND EXECUTING THE LETTER OF TRANSMITTAL AND, WHERE
APPLICABLE, DELIVERING HIS CONVERTIBLE DEBENTURES, EITHER MAKE
APPROPRIATE ARRANGEMENTS TO REGISTER OWNERSHIP OF THE CONVERTIBLE
DEBENTURES IN SUCH BENEFICIAL OWNER'S NAME OR FOLLOW THE
PROCEDURES DESCRIBED IN THE IMMEDIATELY PRECEDING PARAGRAPH. THE
TRANSFER OF RECORD OWNERSHIP MAY TAKE A CONSIDERABLE AMOUNT OF
TIME.
The method of delivery of Convertible Debentures, Letters of
Transmittal and all other required documents to the Exchange
Agent is at the election and risk of the holder tendering the
Convertible Debentures. If delivery is to be made by mail, it is
suggested that the holder use properly insured, registered mail
with return receipt requested, and that the mailing be made
sufficiently in advance of the Expiration Date to permit delivery
to the Exchange Agent prior to that date and time.
BOOK-ENTRY TRANSFER. Promptly after the commencement of the
Exchange Offer, the Exchange Agent and the Company will seek to
establish a new account or utilize an existing account with
respect to the Convertible Debentures at The Depository Trust
Company (a "Book-Entry Transfer Facility"). Any financial
institution that is a participant in the Book-Entry Transfer
Facility system and whose name appears on a security position
listing as the owner of Convertible Debentures may make book-
entry delivery of such Convertible Debentures by causing the Book-
Entry Transfer Facility to transfer such Convertible Debentures
into the Exchange Agent's account in accordance with the Book-
Entry Transfer Facility's procedures for such transfer. However,
although delivery of Convertible Debentures may be effected
through book-entry transfer at a Book-Entry Transfer Facility,
the applicable Letter of Transmittal (or a facsimile or
electronic copy thereof or an electronic agreement to comply with
the terms thereof), properly completed and validly executed, with
any required signature guarantees, an Agent's Message and any
other required documents, must, in any case, be received by the
Exchange Agent at one of its addresses set forth on the back
cover page of this Offering Circular on or prior to the
Expiration Date, or the tendering holder must comply with the
guaranteed delivery procedures described below. The Company may
elect to waive receipt of a written Letter of Transmittal if
delivery is properly effected through the Book-Entry Transfer
Facility.
IN ORDER TO BE ASSURED OF PARTICIPATING IN THE EXCHANGE
OFFER, ANY BENEFICIAL OWNER WHOSE CONVERTIBLE DEBENTURES ARE
REGISTERED IN THE NAME OF A BROKER, DEALER, COMMERCIAL BANK,
TRUST COMPANY OR OTHER NOMINEE OR WHO WISHES TO TENDER
CONVERTIBLE DEBENTURES SHOULD CONTACT SUCH REGISTERED HOLDER
PROMPTLY (LEAVING SUCH REGISTERED HOLDER WITH SUFFICIENT TIME TO
TENDER THE CONVERTIBLE DEBENTURES ON THE BENEFICIAL HOLDERS
BEHALF) AND INSTRUCT SUCH REGISTERED HOLDER TO TENDER THE
CONVERTIBLE DEBENTURES ON SUCH BENEFICIAL OWNER'S.
SIGNATURE GUARANTEES. Signatures on the Letter of
Transmittal must be guaranteed by a firm which is a member of a
registered national securities exchange or of the National
Association of Securities Dealers, Inc., or by a commercial bank
or trust company having an office or correspondent in the United
States or by any other "eligible guarantor institution" as
defined in Rule 17Ad-15 under the Exchange Act (each of the
foregoing being an "Eligible Institution") unless (a) the Letter
of Transmittal is signed by the registered holder of the
Convertible Debentures tendered therewith (or by a participant in
one of the Book-Entry Transfer Facilities whose name appears on a
security position listing as the owner of such Convertible
Debentures) and neither the "Special Payment Instructions" box
nor the "Special Delivery Instructions" box of the Letter of
Transmittal is completed, or (b) such Convertible Debentures are
tendered for the account of an Eligible Institution.
GUARANTEED DELIVERY. If a holder desires to tender
Convertible Debentures pursuant to the Exchange Offer and (a)
certificates representing such Convertible Debentures are not
immediately available, (b) time will not permit such holder's
Letter of Transmittal, certificates evidencing such Convertible
Debentures or other required documents to reach the Exchange
Agent prior to the Expiration Date or (c) such holder cannot
complete the procedures for book-entry transfer prior to the
Expiration Date, a tender may be effected if all the following
are complied with:
(a) such tender is made by or through an Eligible
Institution;
(b) on or prior to the Expiration Date, the
Exchange Agent has received from such Eligible
Institution, at one of the addresses of the Exchange
Agent set forth on the back cover page of this Offering
Circular, a properly completed and validly executed
Notice of Guaranteed Delivery (by telegram, telex,
facsimile transmission, mail or hand delivery) in
substantially the form accompanying this Offering
Circular, setting forth the name and address of the
registered holder and the principal amount or number of
Convertible Debentures being tendered and stating that
the tender is being made thereby and guaranteeing that,
within three New York Stock Exchange trading days after
the date of the Notice of Guaranteed Delivery, the
Letter of Transmittal validly executed (or a facsimile
thereof), together with certificates evidencing the
Convertible Debentures (or confirmation of, or an
Agent's Message with respect to, book-entry transfer of
such Convertible Debentures into the Exchange Agent's
account with a Book-Entry Transfer Facility), and any
other documents required by the Letter of Transmittal
and the instructions thereto, will be deposited by such
Eligible Institution with the Exchange Agent; and
(c) such Letter of Transmittal (or a facsimile
thereof), properly completed and validly executed,
together with certificates evidencing all physically
delivered Convertible Debentures in proper form for
transfer (or confirmation of, or an Agent's Message
with respect to, book-entry transfer of such
Convertible Debentures into the Exchange Agent's
account with a Book-Entry Transfer Facility) and any
other required documents are received by the Exchange
Agent within three New York Stock Exchange trading days
after the date of such Notice of Guaranteed Delivery.
LOST OR MISSING CERTIFICATES. If a holder desires to tender
Convertible Debentures pursuant to the Exchange Offer but the
certificates evidencing such Convertible Debentures have been
mutilated, lost, stolen or destroyed, such holder should write to
or telephone the Trustee, at the address or telephone number
listed below, about procedures for obtaining replacement
certificates for such Convertible Debentures or arranging for
indemnification or any other matter that requires handling by the
Trustee:
Continental Stock Transfer & Trust Company
Two Broadway, 19th Floor
New York, New York 10004
Telephone No. (212) 509-4000
TENDER CONSTITUTES AN AGREEMENT. The tender of Convertible
Debentures into the Exchange Offer pursuant to any of the
procedures described above, including tendering through a book-
entry delivery, will constitute a binding agreement between the
tendering holder and the Company upon the terms and conditions of
the Exchange Offer, and a representation that (i) such holder
owns the Convertible Debentures being tendered and is entitled to
tender such Convertible Debentures as contemplated by the
Exchange Offer all within the meaning of Rule 14e-4 under the
Exchange Act, and (ii) the tender of such Convertible Debentures
complies with Rule 14e-4.
Further, by executing or transmitting a Letter of
Transmittal (as set forth above, including book-entry transfer,
and subject to and effective upon acceptance for exchange for the
Convertible Debentures tendered therewith or effectively agreeing
to the terms of the Letter of Transmittal pursuant to a book-
entry delivery), a tendering holder irrevocably sells, assigns
and transfers to or upon the order of the Company or its assignee
all right, title and interest in and to all such Convertible
Debentures tendered thereby, waives any and all rights with
respect to the Convertible Debentures (including, without
limitation, the tendering holder's waiver of any existing or past
defaults and their consequences with respect to the Convertible
Debentures, and releases and discharges any obligor or parent of
any obligor of the Convertible Debentures from any and all claims
such holder may have now, or may have in the future, arising out
of or related to the Convertible Debentures, including, without
limitation, any claims that such holder is entitled to receive
additional principal or interest payments with respect to the
Convertible Debentures or to participate in any redemption or
defeasance of the Convertible Debentures, and each such holder
irrevocably selects and appoints the Exchange Agent the true and
lawful agent and attorney-in-fact of such holder (with full
knowledge that the Exchange Agent also acts as agent of the
Company and as the Trustee under the Indenture) with respect to
such Convertible Debentures, with full power of substitution and
resubstitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest) to (a) deliver
certificates representing such Convertible Debentures, or
transfer ownership of such Convertible Debentures on the account
books maintained by a Book-Entry Transfer Facility, together, in
each case, with all accompanying evidences of transfer and
authenticity, to or upon the order of the Company, (b) present
such Convertible Debentures for transfer on the relevant security
register and (c) receive all benefits or otherwise exercise all
rights of beneficial ownership of such Convertible Debentures
(except that the Depositary will have no rights to or control
over funds from the Company).
OTHER MATTERS. Notwithstanding any other provision of the
Exchange Offer, delivery of the shares of Class A Common Stock
for Convertible Debentures tendered and accepted pursuant to the
Exchange Offer will occur only after timely receipt by the
Exchange Agent of such Convertible Debentures (or confirmation
of, or an Agent's Message with respect to, book-entry transfer of
such Convertible Debentures into the Exchange Agent's account
with a Book-Entry Transfer Facility), together with properly
completed and validly executed Letters of Transmittal (or a
facsimile or electronic copy thereof or an electronic agreement
to comply with the terms thereof) and any other required
documents.
All questions as to the form of all documents, the validity
(including time of receipt) and acceptance of tenders of the
Convertible Debentures will be determined by the Company, in its
sole discretion, the determination of which shall be final and
binding. Alternative, conditional or contingent tenders of
Convertible Debentures will not be considered valid. The Company
reserves the absolute right to reject any or all tenders of
Convertible Debentures that are not in proper form or the
acceptance of which, in the Company's opinion, would be unlawful.
The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular
Convertible Debentures. If the Company waives its right to reject
a defective tender of Convertible Debentures, the holder will be
entitled to the Exchange Offer Consideration. The Company's
interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be
final and binding. Any defect or irregularity in connection with
tenders of Convertible Debentures must be cured within such time
as the Company determines, unless waived by the Company. Tenders
of Convertible Debentures shall not be deemed to have been made
until all defects and irregularities have been waived by the
Company or cured. None of the Company, the Exchange Agent, the
Trustee or any other person will be under any duty to give notice
of any defects or irregularities in tenders of Convertible
Debentures, or will incur any liability to holders for failure to
give any such notice.
WITHDRAWAL OF TENDERS
Tenders of Convertible Debentures may be withdrawn at any
time until the Expiration Date as such date may be extended.
Thereafter, such tenders are irrevocable, except that they may be
withdrawn after the expiration of 40 business days from the
commencement of the Exchange Offer (December 16, 1996) unless
accepted for exchange prior to that date.
Holders who wish to exercise their right of withdrawal with
respect to a Exchange Offer must give written notice of
withdrawal, delivered by mail or hand delivery or facsimile
transmission, to the Exchange Agent at one of its addresses set
forth on the back cover page of this Offering Circular prior to
the Expiration Date or at such other time as otherwise provided
for herein. In order to be effective, a notice of withdrawal must
specify the name of the person who deposited the Convertible
Debentures to be withdrawn (the "Depositor"), the name in which
the Convertible Debentures are registered, if different from that
of the Depositor, and the principal amount of the Convertible
Debentures to be withdrawn prior to the physical release of the
certificates to be withdrawn. If tendered Convertible Debentures
to be withdrawn have been delivered or identified through
confirmation of book-entry transfer to the Exchange Agent, the
notice of withdrawal also must specify the name and number of the
account at the Book-Entry Transfer Facility to be credited with
withdrawn Convertible Debentures. The notice of withdrawal must
be signed by the registered holder of such Convertible Debentures
in the same manner as the applicable Letter of Transmittal
(including any required signature guarantees), or be accompanied
by evidence satisfactory to the Company that the person
withdrawing the tender has succeeded to the beneficial ownership
of such Convertible Debentures. Withdrawals of tenders of
Convertible Debentures may not be rescinded, and any Convertible
Debentures withdrawn will be deemed not validly tendered
thereafter for purposes of the Exchange Offer. However, properly
withdrawn Convertible Debentures may be tendered again at any
time prior to the Expiration Date by following the procedures for
tendering not previously tendered Convertible Debentures
described elsewhere herein.
All questions as to the form, validity and eligibility
(including time of receipt) of any withdrawal of tendered
Convertible Debentures will be determined by the Company, in its
sole discretion, which determination shall be final and binding.
None of the Company, the Exchange Agent, the Trustee or any other
person will be under any duty to give notification of any defect
or irregularity in any withdrawal of tendered Convertible
Debentures, or will incur any liability for failure to give any
such notification.
If the Company is delayed in its acceptance for conversion
and payment for any Convertible Debentures or is unable to accept
for conversion or convert any Convertible Debentures pursuant to
the Exchange Offer for any reason, then, without prejudice to the
Company's rights hereunder, tendered Convertible Debentures may
be retained by the Exchange Agent on behalf of the Company and
may not be withdrawn (subject to Rule 13e-4(f)(5) under the
Exchange Act, which requires that the issuer making the tender
offer pay the consideration offered, or return the tendered
securities, promptly after the termination or withdrawal of a
tender offer), except as otherwise permitted hereby.
FRACTIONAL SHARES
Exchanging holders of Convertible Debentures will not
receive fractional shares of Class A Common Stock since the
Company has agreed to accept Convertible Debentures in a
principal amount of $1,000 (or integral multiples thereof) and
such principal amount of Convertible Debentures is convertible
into a whole number of shares of Class A Common Stock. If a
holder of Convertible Debentures seeks to exchange a principal
amount that is not an integral multiple of $1,000, the Company if
it determines to accept such exchange will, at its option, issue
fractional shares or issue a cash payment in lieu thereof equal
to each such holder's proportionate interest in the net proceeds
(following the deduction of applicable transaction costs) from
the sale by the Exchange Agent, on behalf of such holders, of
shares of Class A Common Stock representing the aggregate of such
fractional shares of Class A Common Stock reasonably promptly
after the consummation of the Exchange Offer. See "The Exchange
Offer."
ACCEPTANCE OF CONVERTIBLE DEBENTURES; DELIVERY OF CLASS A COMMON
STOCK
The acceptance of the Convertible Debentures validly
tendered for exchange and not withdrawn will be made as promptly
as practicable after the Expiration Date. For purposes of the
Exchange Offer, the Company will be deemed to have accepted for
exchange validly tendered Convertible Debentures if, as and when
the Company gives oral or written notice thereof to the Exchange
Agent. Such notice of acceptance shall constitute a binding
contract between the Company and the tendering holder pursuant to
which the Company will be obligated to provide the Exchange Offer
Consideration therefor plus any accrued and unpaid interest due
on such tendered Convertible Debentures. Subject to the terms
and conditions of the Exchange Offer, (i) delivery of Class A
Common Stock in respect of Convertible Debentures accepted and
exchanged pursuant to the Exchange Offer and (ii) payment of
accrued and unpaid interest will be made by the Exchange Agent as
soon as practicable after receipt of such notice. The Exchange
Agent will act as agent for the tendering holders of Convertible
Debentures for the purposes of receiving Class A Common Stock and
funds to pay accrued and unpaid interest from the Company and
transmitting the Class A Common Stock (through Book-Entry
Transfer or otherwise) and payment by wire transfer of accrued
and unpaid interest to the tendering holders. Tendered
Convertible Debentures not accepted for conversion by the
Company, if any, will be returned without expense to the
tendering holder of such Convertible Debentures (or, in the case
of Convertible Debentures tendered by book-entry transfer into
the Exchange Agent's account at a Book-Entry Transfer Facility,
such Convertible Debentures will be credited to an account
maintained at a Book-Entry Transfer Facility) as promptly as
practicable following the Expiration Date.
EXCHANGE AGENT
Continental Stock Transfer & Trust Co. has been appointed
Exchange Agent for the Exchange Offer. All deliveries and
correspondence sent to the Exchange Agent should be directed to
one of its addresses set forth on the back cover page of this
Offering Circular. Requests for assistance or additional copies
of this Offering Circular and the Letter of Transmittal should be
directed to the Exchange Agent, at its address set forth on the
back cover page of this Offering Circular. The Company has agreed
to pay the Exchange Agent customary fees for its services and to
reimburse the Exchange Agent for its reasonable out-of-pocket
expenses in connection therewith. The Company also has agreed to
indemnify the Exchange Agent for certain liabilities, including
liabilities under the federal securities laws. The Exchange
Agent also acts as Trustee under the Indenture for the
Convertible Debentures.
MISCELLANEOUS
The Company has not retained any dealer manager or similar
agent in connection with the Exchange Offer and will not make any
payments to brokers, dealers or others for soliciting tenders of
Convertible Debentures. However, directors, officers and
employees of the Company (who will not be separately compensated
for such services) may solicit exchanges by use of the mails,
personally or by telephone, facsimile or similar means of
electronic transmission. The Company also will pay brokerage
houses and other custodians, nominees and fiduciaries their
reasonable out-of-pocket expenses incurred in forwarding copies
of this Offering Circular and related documents to the beneficial
owners of the Convertible Debentures and in handling or
forwarding tenders of Convertible Debentures by their customers.
THE COMPANY
Audiovox Corporation (together with its subsidiaries, the
"Company" or "Audiovox") designs and markets cellular telephones
and accessories, automotive aftermarket sound and security
equipment, other automotive aftermarket accessories, and certain
other products. Over the past thirty years, the Company has
grown from a supplier of automotive sound equipment to a leading
supplier of cellular telephones to the Regional Bell Operating
Companies ("RBOCs"), other cellular carriers and their respective
agents in the United States. As of August 31, 1996, the Company
also operated approximately 30 administrative and retail outlets,
licensed its trade name, or entered into concessionaire
arrangements with, approximately 11 additional retail outlets in
selected markets in the United States, and had two mobile vans.
These outlets focus on the sale and servicing of cellular
telephones. Each of the Company's retail outlets acts as a
licensed agent for one of the two cellular carriers operating in
its geographic area. In addition to generating product revenue
from the sale of cellular telephone products, the Company's
retail outlets, as agents for cellular carriers, are typically
paid activation commissions and residual fees from such carriers.
Through its international distribution network, the Company
also sells cellular telephones in Canada, Europe, Latin America,
Asia, the Middle East and Australia. In fiscal 1993, fiscal
1994 and fiscal 1995, and the nine months ended August 31, 1996,
net sales of cellular telephone products and related fees and
commissions represented 60%, 63%, 64% and 64%, respectively, of
the Company's total net sales. The Company also sells
aftermarket sound, security and accessory products through its
international distribution network.
The Company's automotive aftermarket sound, security and
accessory products include stereo cassette radios, compact disc
players and changers, amplifiers and speakers; key based and
remote control security systems; and cruise controls, door and
trunk locks and rear window defoggers. In fiscal 1994, the
Company introduced a satellite based security system to its
product line. These products are marketed through mass
merchandise chain stores, specialty automotive accessory
installers, distributors and automobile dealers.
Cellular phone service was developed as a mobile alternative
to conventional landline systems. Since its inception over ten
years ago, the industry has grown rapidly. From approximately
one million subscribers in the United States in 1987, the Company
estimates that the industry has grown to more than 31 million
subscribers as of year end 1995. In 1995, the number of cellular
subscribers in the United States grew by approximately 8.9
million, representing a 39.6% increase in the number of cellular
subscribers from the end of 1994. Cellular phone service is now
available in geographic areas that include a substantial majority
of the United States population. In recent years, as retail
prices for cellular telephones have declined, sales of cellular
telephones for personal use have grown more rapidly than sales
for business use. The Company estimates that as of the end of
1995, approximately 12.8% of the U.S. population owned a cellular
telephone. Total domestic cellular subscribers is estimated to
have grown 40% in 1995, and is estimated to increase at a 15%
compounded annual growth rate through the year 2000. Total
international cellular subscribers are estimated to have grown
58% in 1995.
A key component of the Company's operating strategy has been
to bring to market quality products under its own brand names, in
response to established consumer demand, while limiting its
investment in fixed plant and, accordingly, its capital risk
exposure. The Company seeks to accomplish this by controlling
the design of its products through its in-house engineering and
design staff, while having such products produced by contract
manufacturers.
The Company sells its products under several brand names it
owns or licenses, including Audiovox[RT], SPS[RT], Prestige[RT],
Pursuit[RT], Minivox[TM], Minivox Lite[RT], The Protector[RT],
American Radio[RT] and Quintex[RT]. The Company uses several
techniques to promote Company brand awareness, including trade
and customer advertising, attendance at trade shows, and use of a
variety of sales promotional material including brochures and
other literature and point-of-sale displays.
The Company employs a value added marketing approach in
connection with its wholesale sales. In this regard, the Company
typically participates with its wholesale customers in joint
marketing and promotional programs such as sales contests and
cooperative advertising campaigns. The Company also typically
offers its customers customized sales and product training,
inventory management assistance, telemarketing assistance
(including the scripting of telemarketing presentations) and
Company-created advertising materials. In addition, the Company
maintains several Company-operated warranty repair centers to
assist its network of authorized warranty service stations in
technical training and parts procurement. The Company intends to
expand the breadth of its product line (for example, by
introducing a line of moderately priced cellular telephone
products) in order to enable its customers to conveniently obtain
a broad line of products from only one supplier.
The Company has formed a majority-owned subsidiary with its
local distributor in Malaysia as a minority owner and is
considering forming ventures with its distributors in Greece,
Thailand and Venezuela. By joining with an established local
business with an existing customer base, the Company believes
that it can enter a new market more quickly and with minimum
capital expenditures. The Company also believes that its
relationships with North American cellular carriers may aid the
Company's expansion into international markets as such markets
are developed by those carriers.
In August 1994, the Company formed a new joint venture
(known as "Talk Corporation") with Shintom Co., Ltd. ("Shintom")
and others for the purpose of developing, manufacturing and
distributing cellular telephone and other consumer electronic
products. In connection with the formation of the joint venture,
the Company was granted certain exclusive distribution rights
with respect to cellular products manufactured by Shintom. Talk
Corporation commenced operations in October 1994. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations" in the 1995 Form
10-K.
Historically, the Company has been dependent on foreign
suppliers, particularly Japan and China, for a majority of its
products. In 1994 and 1995, the United States government
announced proposed trade sanctions on cellular products imported
from foreign countries, particularly Japan and China. Although
the United States government has not implemented such proposed
trade sanctions, as the Company sources a majority of its
cellular products from Japan and China, if such trade sanctions
(or trade sanctions on other of the Company's products) were to
be imposed, there is no assurance that the Company would be able
to obtain alternatives to its supply sources. The Company is
considering sourcing products from several countries. Such
purchases would be subject to the risks of purchasing products
from foreign suppliers. See "Risk Factors--United States Trade
Sanctions Could Limit the Company's Sources of Supply," "-- No
Assurance of Alternative Supply Sources," "-- Dependence on
Foreign Suppliers," and "--Dependence on Toshiba."
For the nine months ended August 31, 1996, the Company
recorded net income of $1,394,000, or $0.15 per share (both
primary and fully diluted, without giving effect to the Exchange
Offer).
The Company was incorporated in Delaware on April 10, 1987
as a successor to the business of Audiovox Corp., a New York
corporation founded in 1960 by John J. Shalam, the Company's
President, Chief Executive Officer and controlling stockholder.
The Company's corporate headquarters is located at 150 Marcus
Boulevard, Hauppauge, New York 11788, and its telephone number at
that address is 516-231-7750.
DESCRIPTION OF THE CONVERTIBLE DEBENTURES
The Convertible Debentures have been issued under an
Indenture, dated as of March 15, 1994 (the "Indenture"), between
the Company and Continental Stock Transfer & Trust Company, as
trustee (the "Trustee"). As used in this "Description of the
Convertible Debentures," the term "Company" refers only to
Audiovox Corporation and the term "Subsidiary" refers to any
Person (as herein defined) of which more than 50% of the
outstanding voting stock is owned by the Company and/or one or
more other Subsidiaries of the Company.
The following summary of certain provisions of the Indenture
and the Convertible Debentures does not purport to be complete,
and where reference is made to particular provisions of the
Indenture or the Convertible Debentures, such provisions are
qualified in their entirety by reference to all of the provisions
of the Indenture and the Convertible Debentures, as the case may
be, including the definitions therein of certain terms.
GENERAL
The Convertible Debentures are limited to $65,000,000
aggregate principal amount, are unsecured subordinated
obligations of the Company and will mature on March 15, 2001. As
of the date hereof, the aggregate principal amount of Convertible
Debentures outstanding is $65,000,000. The Convertible
Debentures bear interest from the date of issuance and
authentication at a rate of 6 1/4% per annum . Interest is
payable semiannually on March 15 and September 15 (each, an
"Interest Payment Date"), which payments commenced September 15,
1994, to the person in whose name the Convertible Debentures are
registered, subject to certain exceptions, at the close of
business on February 28 and August 31 (each, a "Regular Record
Date"), as the case may be, next preceding such Interest Payment
Date. Principal of (and premium and any Liquidated Damages, if
any) and interest on the Convertible Debentures are payable, and
the Convertible Debentures are convertible and transfers thereof
are registrable, at the office of the Trustee, Two Broadway, New
York, New York 10004, Attention: Steven G. Nelson, provided that,
at the option of the Company, payments of interest and Liquidated
Damages may be made by check mailed to the address of the person
entitled thereto as it appears on the Security Register (as such
term is defined in the Indenture). (Sections 202 and 301.)
The Convertible Debentures and the underlying Class A Common
Stock currently trade on the AMEX. See -- "Market Price of
Convertible Debentures" and -- "Description of Capital Stock --
Market Price of Class A Common Stock."
The covenants and provisions contained in the Indenture and
the Convertible Debentures would not necessarily afford the
Holders of the Convertible Debentures protection in the event of
a highly leveraged transaction involving the Company, including a
leveraged transaction initiated or supported by the Company, the
management of the Company or any Affiliate of such Persons (as
such terms are hereinafter defined).
CONVERSION RIGHTS
The Convertible Debentures or portions thereof (which are
$1,000 or integral multiples thereof), unless called for prior
redemption, are convertible into shares of Class A Common Stock,
at the Holders' option, at any time prior to maturity, at the
initial Conversion Price of $17.70 per share of Class A Common
Stock, subject to adjustment as described below. The right to
convert Convertible Debentures, or portions thereof (which are
$1,000 or integral multiples thereof), will terminate at the
close of business on the Redemption Date or the Purchase Date (as
each such term is hereinafter defined). (Section 1201.) Pursuant
to the Exchange Offer the Convertible Debentures will be
effectively convertible into Class A Common Stock at a conversion
price of $6.061 per share.
No adjustment will be made on conversion of any Convertible
Debenture for interest or dividends. Convertible Debentures
surrendered for conversion during the period from the close of
business on any Regular Record Date to the next succeeding
Interest Payment Date (unless called for redemption during that
period) must be accompanied by payment of an amount equal to the
interest payable on such Interest Payment Date on the principal
amount of Convertible Debentures being surrendered for
conversion. In the case of any Convertible Debenture which has
been converted after any Regular Record Date but on or before the
next Interest Payment Date, interest payable on such Interest
Payment Date shall be paid to the registered Holder of such
Convertible Debenture on the Regular Record Date notwithstanding
such conversion. Fractional shares of Class A Common Stock will
not be issued upon conversion, but, in lieu thereof, the Company
will pay a cash adjustment based upon the market price of the
Class A Common Stock. (Section 1202 and Section 1203.)
The Conversion Price is subject to adjustment in certain
events under formulas set forth in the Indenture, including: (i)
the issuance of any shares of Common Stock to holders of any
class of Common Stock as a dividend or distribution; (ii) the
issuance to the holders of any class of Common Stock of rights,
options or warrants entitling them to subscribe for or purchase
shares of any class of Common Stock for a price per share less
than the then current market price per share of Class A Common
Stock (excluding for this purpose rights, options and warrants
issued under the Company's existing benefit plans ("Existing
Options"), additional rights, options and warrants issued to
employees to purchase up to an aggregate of 500,000 shares of
Common Stock exercisable on a per share basis for at least 85% of
the current per share market price of Class A Common Stock on the
date of grant ("Additional Options"), and certain rights, options
and warrants ("Special Stockholder Rights") which are not
exercisable until the occurrence of a specified event or events
(the adjustment for the issuance of such Special Stockholder
Rights to be made if and when such Special Stockholders Rights
become exercisable)); (iii) subdivisions, combinations and
reclassifications of any class of Common Stock; (iv) the
distribution to holders of Common Stock of evidences of
indebtedness or assets of the Company (including securities, but
excluding those rights, warrants, dividends and distributions
referred to above, Existing Options, Additional Options, Special
Stockholder Rights and the cash portion of any dividends and
distributions paid in whole or in part in cash); (v)
distributions consisting of cash (excluding any cash distributed
upon a merger or consolidation to which the third succeeding
paragraph applies or cash paid in connection with the purchase of
outstanding Common Stock at a per share price equal to or less
than the then current market price per share of Class A Common
Stock or purchases of Convertible Debentures upon the occurrence
of a Risk Event or Redemption Event (as such terms are defined
herein)) to holders of Common Stock in an aggregate amount that,
combined together with (a) other such cash distributions made
within the preceding 12 months in respect of which no adjustment
has been made and (b) the amount by which any cash and the fair
market value (as determined in good faith by the Company's Board
of Directors) of other consideration paid in excess of the then
current aggregate market price of shares tendered in respect of
any tender offer by the Company or any of its Subsidiaries for
any shares of Common Stock concluded within the preceding 12
months in respect of which no adjustment has been made, exceeds
12.5% of the then current aggregate market price of the Common
Stock (assuming the market price of each share of Common Stock is
equal to the per share market price of Class A Common Stock) then
outstanding; and (vi) the successful completion of a tender offer
made by the Company or any of its Subsidiaries for all or a
portion of any class of Common Stock to the extent the fair
market value (as determined in good faith by the Company's Board
of Directors) of the aggregate consideration paid in excess of
the current aggregate market price of the shares tendered in
connection with such tender offer, together with (a) the amount
by which any cash and other consideration paid in excess of the
then current market price of shares tendered in any tender offers
by the Company or any of its Subsidiaries for any class of Common
Stock concluded within the 12 months preceding the expiration of
such tender offer and in respect of which no adjustment has been
made and (b) the aggregate amount of any cash distributions
referred to in (v) above to holders of Common Stock within the 12
months preceding the expiration of such tender offer and in
respect of which no adjustments have been made, exceeds 12.5% of
the then current aggregate market price of the Common Stock on
the expiration of such tender offer (assuming the market price of
each share of Common Stock is equal to the per share market price
of Class A Common Stock). If previously adjusted in respect of
any rights, options or warrants referred to in (ii) above, the
Conversion Price shall be re-adjusted to the extent any such
rights, options or warrants expire unexercised. There will be no
permanent adjustment in the Conversion Price as a result of the
Exchange Offer. (Section 1204.)
Except as stated in the preceding provisions, the initial
Conversion Price will not be adjusted for issuances of shares of
Class A Common Stock at less than the then current market price
of the Class A Common Stock or the then current Conversion Price
of the Convertible Debentures upon the exercise of present or
future stock options granted by the Company to its employees.
Moreover, no adjustment will be made unless such adjustment would
require a change of at least 1% in the Conversion Price then in
effect, but any adjustment that would otherwise be required to be
made shall be carried forward and taken into account in any
subsequent adjustment. The Company has reserved the right to make
such reductions in the Conversion Price in addition to those
required in the foregoing provisions as it considers to be
advisable in order that any event treated for Federal tax
purposes as a dividend of stock or stock rights shall not be
taxable to the recipients. (Section 1204.)
In the event that the Company shall distribute rights,
options or warrants (other than those referred to in (ii) in the
second preceding paragraph) ("Rights") pro rata to holders of the
Class A Common Stock, so long as any such Rights have not expired
or been redeemed, the Holder of any Convertible Debenture
surrendered for conversion, in whole or in part, will be entitled
to receive upon such conversion, in addition to the shares of
Class A Common Stock issuable upon such conversion (the
"Conversion Shares"), a number of Rights to be determined as
follows: (i) if such conversion occurs on or prior to the date
for the distribution to the holders of Rights of separate
certificates evidencing such Rights (the "Distribution Date"),
the same number of Rights to which a holder of a number of shares
of Class A Common Stock equal to the number of Conversion Shares
is entitled at the time of such conversion in accordance with the
terms and provisions of and applicable to the Rights; and (ii) if
such conversion occurs after such Distribution Date, the same
number of Rights to which a holder of the number of shares of
Class A Common Stock into which such Convertible Debenture, or
portion thereof, so converted was convertible immediately prior
to such Distribution Date would have been entitled on such
Distribution Date in accordance with the terms and provisions of
and applicable to the Rights. The Conversion Price of the
Convertible Debentures will not be subject to adjustment on
account of any declaration, distribution or exercise of such
Rights. (Section 1204.)
In case either of the following occurs: (i) any
consolidation or merger involving the Company other than a
consolidation or merger which does not result in any
reclassification, conversion, exchange or cancellation of
outstanding shares of Class A Common Stock; or (ii) any sale or
transfer of all or substantially all of the assets of the
Company, each Convertible Debenture will, without the consent of
any Holder thereof, become convertible only into the kind and
amount of securities, cash or other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number
of shares of Class A Common Stock into which such Convertible
Debenture could have been converted immediately prior to such
consolidation, merger, sale or transfer (assuming such holder of
shares of Class A Common Stock is not a Person with which the
Company consolidated or into which the Company merged or which
merged into the Company or to which such sale or transfer was
made (or an Affiliate of such Person), and failed to exercise any
rights of election and received per share of Class A Common Stock
the kind and amount of cash or other property received per share
of Class A Common Stock by a plurality of non-electing shares).
The foregoing provision will not affect the right of any Holder
of the Convertible Debentures to receive the Purchase Price (as
such term is hereinafter defined) in the event of such Holder's
election to require the Company to purchase the Convertible
Debentures upon a Risk Event or a Redemption Event (as each such
term is hereinafter defined). (Section 1211.)
In the event of a distribution of property to the Company's
stockholders which would be taxable as a dividend for Federal
income tax purposes (e.g., distributions of evidences of
indebtedness or assets of the Company, but generally not stock
dividends on or rights to subscribe for Class A Common Stock) to
holders of the Class A Common Stock that results in an adjustment
of the Conversion Price of the Convertible Debentures pursuant to
the antidilution provisions described above, the Holders of the
Convertible Debentures may, in certain circumstances, be deemed
to have received a taxable dividend for Federal income tax
purposes.
The Company agreed to use its best efforts to cause all
registrations with, and to obtain any approvals by, any
governmental authority under any Federal or state law of the
United States that may be required in connection with the
conversion of the Convertible Debentures into shares of Class A
Common Stock. If at any time during the three-year period
following the Closing Date a registration statement under the
Securities Act covering the Conversion Shares is not effective,
such shares (the "Restricted Shares") may not be sold or
otherwise transferred except in accordance with or pursuant to an
exemption from or otherwise in a transaction not subject to, the
registration requirements of the Securities Act, and, although an
effective registration statement exists as of the date hereof, if
a registration statement under the Securities Act is not
effective at the time of a conversion, the Restricted Shares will
bear a legend to that effect. The transfer agent for the Class A
Common Stock will not be required to accept for registration or
transfer any Restricted Shares, except upon presentation of
satisfactory evidence that these restrictions on transfer have
been complied with, all in accordance with such reasonable
regulations as the Company may from time to time agree with the
transfer agent.
The Indenture contains a covenant which prevents the Company
from granting any voting rights (other than as required by
applicable law) to any share of Preferred Stock (as such term is
defined in the Certificate of Incorporation of the Company).
(Section 1007.)
REDEMPTION AT OPTION OF THE COMPANY
The Convertible Debentures are not redeemable by the Company
prior to March 15, 1997. On or after March 15, 1997, the
Convertible Debentures are redeemable on at least 30 days' notice
and not more than 60 days' notice, at the option of the Company,
in whole at any time or in part from time to time at the
redemption prices set forth below. (Sections 1101 and 1105.)
The redemption prices (expressed as percentages of principal
amount), to which are added accrued interest and Liquidated
Damages, if any, to the date fixed for redemption (the
"Redemption Date"), if redeemed during the 12-month period
beginning March 15 of the years indicated, are as follows:
YEAR PERCENTAGE
---- ----------
1997 103.12%
1998 102.08%
1999 101.04%
and from March 15, 2000 and thereafter at 100% of the principal
amount. (Section 203.)
If less than all of the Convertible Debentures are to be
redeemed, the Trustee will select the Convertible Debentures or
portions thereof to be redeemed on a pro rata basis, or by such
other method that complies with the requirements of any exchange
or market, if any, on which the Convertible Debentures are listed
or traded, as the Trustee deems fair and appropriate, that
provides for the selection for redemption of portions (equal to
$1,000 or any integral multiple thereof) of the principal amount
of the Convertible Debentures of a denomination larger than
$1,000. In the event of redemption of a Convertible Debenture in
part only, a new Convertible Debenture of like tenor for the
unredeemed portion will be issued in the name of the Holder of
the Convertible Debenture upon the cancellation thereof.
(Sections 1104 and 1108.)
Any Convertible Debentures called for redemption, unless
surrendered for conversion on or before the Redemption Date, are
subject to being purchased from the Holder at the then applicable
redemption price set forth above plus accrued interest and
Liquidated Damages, if any, by one or more investment banks or
other purchasers who may agree with the Company to purchase such
Convertible Debentures and convert them into shares of Class A
Common Stock. The Company will, at least 60 days (in case of any
redemption at the election of the Company of less than all of the
Convertible Debentures) or 45 days (in the case of a redemption
at the election of the Company of all of the Convertible
Debentures) prior to the Redemption Date fixed by the Company
(unless a shorter notice is satisfactory to the Trustee), notify
the Trustee in writing of such Redemption Date and of the
principal amount of Convertible Debentures to be redeemed.
(Sections 1103 and 1109.)
PURCHASE AT OPTION OF DEBENTUREHOLDERS UPON A RISK EVENT OR A
REDEMPTION EVENT
In the event that a Risk Event or a Redemption Event (as
such terms are hereinafter defined) shall occur, each Holder of
Convertible Debentures will have the right, at the Holder's
option, to require the Company to purchase such Holder's
Convertible Debentures, in whole or in part (which are $1,000 or
integral multiples thereof), on the date (the "Purchase Date")
that is 45 days after the date of the Company Notice (as such
term is hereinafter defined), at 101% of the principal amount of
the Convertible Debentures to be purchased, plus accrued interest
and any accrued Liquidated Damages to the Purchase Date (the
"Purchase Price"). However, the Company's bank credit facility
includes as an event of default the occurrence of a Risk Event or
a Redemption Event, and any repurchase of Convertible Debentures
by the Company from any Holder following the occurrence of a Risk
Event or a Redemption Event could be blocked pursuant to the
subordination provisions of the Indenture (See "Subordination"
below). Thus, Holders of Convertible Debentures would be
effectively precluded from exercising their rights to require the
Company to repurchase Convertible Debentures following a Risk
Event or a Redemption Event during the effectiveness of the
Amended Credit Agreement. Future credit facilities the Company
may enter into are also likely to contain provisions which would
allow the lenders thereunder to prevent repurchase of the
Convertible Debentures following a Risk Event or Redemption
Event.
In the event that a Risk Event or a Redemption Event shall
occur and the Company shall have not called for the redemption of
all the outstanding Convertible Debentures prior to the
occurrence of such Risk Event or Redemption Event, the Company
(or at the Company's request, the Trustee) shall give notice (the
"Company Notice") of such occurrence on or before the thirtieth
day after the occurrence of such Risk Event or Redemption Event.
The Company Notice shall state the Purchase Date, the date by
which the Holder must notify the Company of such Holder's
intention to exercise the purchase right, the procedure which
such Holder must follow to exercise such right, the Conversion
Price then in effect, the Purchase Price and, in the case of a
Risk Event, that the Company will pay all or a portion of the
Purchase Price in cash, and if not all in cash, that the non-cash
portion will be paid in shares of Class A Common Stock having a
current market price not less than the non-cash portion of the
Purchase Price, or, in the case of a Redemption Event, that the
Purchase Price shall be paid all in cash. The Company must
deliver a copy of such Company Notice to the Trustee. To exercise
such purchase right, the Holder of a Convertible Debenture must
deliver written notice to the Trustee on or before the thirtieth
day after the date of the Company Notice, together with the
Convertible Debenture or Convertible Debentures with respect to
which the right is being exercised, duly endorsed for transfer.
An exercise of the option to require the Company to purchase a
Convertible Debenture is irrevocable, except that a Holder
retains the right to require Convertible Debentures submitted for
such purchase to be converted into shares of Class A Common Stock
prior to the close of business on the Purchase Date so long as
the Holder has complied with the procedures for conversion.
(Sections 1401 and 1402.)
A "Risk Event" will be deemed to have occurred at such time
after the original issuance of the Convertible Debentures as: (i)
all or substantially all of the Company's assets are sold, leased
or transferred, in one or a series of related transactions, to
any Person other than to the Company or any of its Subsidiaries;
(ii) a plan relating to the liquidation or dissolution of the
Company is adopted other than following a transaction in
compliance with the Merger and Sale of Assets by the Company
restrictions described below; or (iii) any Person other than John
J. Shalam and/or any of his Affiliates or Associates becomes the
beneficial owner, directly or indirectly, of more than 50% of the
voting power of the voting Equity Interests (as such term is
defined hereinafter) of the Company. (Section 1403.)
A "Redemption Event" will be deemed to have occurred at such
time after the original issuance of the Convertible Debentures as
the Class A Common Stock (or other common stock or securities
into which the Convertible Debentures are then convertible) is
not listed for trading on a United States national securities
exchange or admitted for trading in the NASDAQ-National Market
System. (Section 1403.)
"Affiliate" means, with respect to any specified Person: (i)
any other Person directly or indirectly controlling or controlled
by or under direct or indirect common control with such specified
Person; (ii) any other Person that owns, directly or indirectly,
5% or more of the aggregate voting power of such Person's voting
Equity Interests or any officer or director of any such Person;
or (iii) with respect to any natural Person, any natural Person
having a relationship with such Person by blood, marriage or
adoption, not more remote than first cousin. For the purposes of
this definition, "control" when used with respect to any
specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through
ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to
the foregoing. (Section 101.)
"Associate" means, with respect to John J. Shalam: (i) any
Person having a relationship with John J. Shalam by blood,
marriage or adoption, not more remote than first cousin ("Family
Members"); (ii) any trust or other estate in which John J. Shalam
or any Family Member or Family Members have, individually or in
the aggregate, a substantial beneficial interest; (iii) upon his
death or incapacity, the legal representative (or any Person
acting in a similar fiduciary capacity) of John J. Shalam's
estate or assets and the beneficiaries, heirs and distributees
thereof; or (iv) any Person as to which John J. Shalam and/or any
Family Member or Family Members are the beneficial owners of more
than 50% of the voting power of the voting Equity Interests of
such Person. For the purposes of this definition, "beneficial
ownership" shall be determined in accordance with Rule 13d-3
promulgated under the Exchange Act. (Section 1403.)
"Corporation" means a corporation, association, company,
joint-stock company or business trust. (Section 101.)
"Equity Interest" of: (i) a partnership means any and all
interests, units, participations or other equivalents (however
designated and whether or not voting) of partnership interests in
such partnership, including all classes and series of such
interests; and (ii) a Corporation means any and all shares,
interests and participations (however designated and whether or
not voting) in such Corporation's preferred or common equity (or
comparable equity interests), including all classes and series of
such equity. (Section 101.)
"Person" means any individual, Corporation, limited or
general partnership, joint venture, trust, unincorporated
organization, "group" (as such term is used in Section 13(d)(3)
of the Exchange Act) or any other entity, including a government
or any agency or political subdivision thereof. (Section 101.)
The right to require the Company to purchase Convertible
Debentures as a result of a Risk Event or a Redemption Event is
limited by the terms of the Amended Credit Agreement, and may be
limited by the terms of loan or credit agreements which the
Company may enter into from time to time. However, the bank
which loaned funds to the Company under the Amended Credit
Agreement has consented to the Exchange Offer. As a result, any
purchase could, absent a waiver, be prohibited by the
subordination provisions of the Indenture. Accordingly, the
purchase of the Convertible Debentures as a result of a Risk
Event or a Redemption Event could be subject to the prior payment
by the Company of outstanding Senior Indebtedness. Failure by
the Company to purchase the Convertible Debentures within 30 days
of when required upon a Risk Event or a Redemption Event, absent
a waiver, will result in an Event of Default under the Indenture
whether or not such purchase is permitted by the subordination
provisions of the Indenture.
The purchase option of a Holder upon a Risk Event or a
Redemption Event could constitute an "issuer tender offer" as
defined in Rule 13e-4 promulgated under the Exchange Act. Rule
13e-4 requires the dissemination of certain information to
security holders in such an event. The Company will be obligated
to comply with this Rule to the extent applicable at that time.
SUBORDINATION OF CONVERTIBLE DEBENTURES
The payment on account of the principal (and premium, if
any), interest on, Liquidated Damages with respect to, and the
Redemption Price or Purchase Price of, the Convertible Debentures
is subordinated in right of payment to the extent set forth in
the Indenture to the prior payment in full of all Senior
Indebtedness of the Company. (Section 1301.)
Senior Indebtedness means: (a) all indebtedness of the
Company, including the principal of and premium, if any, and
interest on such indebtedness, whether outstanding on the date of
the Indenture, or thereafter created, (i) for borrowed money
(including certain fees and expenses and other amounts owing
under the Company's bank credit facility), (ii) constituting
purchase money indebtedness for which the Company is liable;
(iii) for reimbursement obligations under bank letters of credit
and standby letters of credit, (iv) under any lease of any real
or personal property, which obligations are capitalized on the
Company's books, (v) in respect of periodic, settlement or
maturity payments under interest rate and currency swaps, caps,
floors, collars or similar agreements or arrangements, (vi) under
documentary acceptances and bankers' acceptances, (vii) under
airway releases and steamship guarantees, (viii) relating to
indebtedness of others of the kinds referred to in (i) through
(vii) above guaranteed or assumed, directly or indirectly, by the
Company, and (ix) under the Series AA Convertible Debentures or
the Series BB Convertible Debentures, or the agreement pursuant
to which such Convertible Debentures are outstanding, unless in
each such case the instrument creating or evidencing such
indebtedness provides that such indebtedness is not superior in
right of payment to the Convertible Debentures or other
indebtedness which is pari passu with, or subordinated to, the
Convertible Debentures; and (b) any modifications, refundings,
deferrals, renewals or extensions of any such Senior
Indebtedness, or securities, notes or other evidences of
indebtedness issued in exchange for such Senior Indebtedness. At
August 31, 1996, approximately $38,760,000 of Senior Indebtedness
was outstanding. The Convertible Debentures are effectively
subordinated to all liabilities of the Company's Subsidiaries.
The Indenture does not limit the amount of Senior Indebtedness
which the Company may incur nor the amount of liabilities such
Subsidiaries may incur. (Section 1301.)
No payment on account of principal, premium, if any, or
interest on, or Liquidated Damages with respect to, or redemption
or purchase of, the Convertible Debentures shall be made if, at
the time of such payment or immediately after giving effect
thereto: (i) there shall exist a default in the payment of
principal, premium, if any, or interest (including a default
under any purchase, reimbursement or redemption obligations, or
in respect of any periodic, settlement or maturity payments under
interest rate and currency swaps, caps, floors, collars or
similar agreements and arrangements) with respect to any Senior
Indebtedness; or (ii) there shall have occurred an event of
default (other than a default referred to in clause (i) above)
with respect to any Senior Indebtedness, as defined therein or in
the instrument under which the same is outstanding, permitting
the holders thereof to accelerate the maturity thereof, and
written notice of such existence or occurrence shall have been
given to the Company and to the Trustee under the Indenture by
the holder or holders of such Senior Indebtedness and such event
of default shall not have been cured or waived or shall not have
ceased to exist; provided, however, that payments on account of
principal, premium or Liquidated Damages, if any, or interest on,
or a redemption or purchase of, the Convertible Debentures shall
resume in the case of any nonpayment default referred to in
clause (ii) above, notwithstanding cure or waiver, 179 days after
notice of such default is given if the default is not the subject
of judicial proceedings or the holders of such Senior
Indebtedness have not accelerated the maturity thereof.
Notwithstanding the foregoing, the Company may make and the
Trustee may receive and shall apply any payment in respect of the
Convertible Debentures (for principal, premium or Liquidated
Damages, if any, or interest, or purchase or redemption) if such
payment was made prior to the occurrence of any of the
contingencies specified in clauses (i) and (ii) above. By reason
of such subordination, in the event of insolvency, creditors of
the Company who are not Holders of the Convertible Debentures may
recover more ratably than Holders of the Convertible Debentures.
The Company's ability to pay, redeem or purchase the Convertible
Debentures may be limited in certain circumstances by
restrictions on the ability of its Subsidiaries and Affiliates to
pay dividends and certain fees. (Section 1302.)
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made by
the Company and the Trustee with the consent of the Holders of at
least a majority in principal amount of the outstanding
Convertible Debentures; provided that no such modification or
amendment may, without the consent of the Holder of each
outstanding Convertible Debenture affected thereby: (i) change
the stated maturity date of the principal of, or any installment
of interest on, the Convertible Debentures; (ii) reduce the
principal amount of, the premium, if any, or interest on, or the
Liquidated Damages with respect to, any Convertible Debenture;
(iii) change the place or currency of payment; (iv) impair the
right to institute suit for the enforcement of any such payment
when due; (v) adversely affect the conversion rights of the
Holders of the Convertible Debentures; (vi) reduce the percentage
in principal amount of Convertible Debentures, the consent of
whose Holders is required for modification or amendment of the
Indenture or the waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults; (vii) impair the
right of any Holder to require the Company to purchase such
Holder's Convertible Debentures upon the occurrence of a Risk
Event or a Redemption Event; or (viii) modify any provision of
the Indenture with respect to the subordination of the
Convertible Debentures so as to affect adversely the rights of
any Holder of the Convertible Debentures under the Indenture.
(Section 902.)
The Indenture (including the terms and conditions of the
Convertible Debentures) may be modified or amended by the Company
and the Trustee without the consent of the Holder of any
Convertible Debenture, for certain specified purposes not
adversely affecting the rights of the Holders of the Convertible
Debenture. (Section 901.)
EVENTS OF DEFAULT, NOTICE AND WAIVER
The following are defined in the Indenture as Events of
Default: (i) default in the payment of any interest on any
Convertible Debenture, when due, continuing for 30 days, whether
or not such payment is prohibited by the subordination provisions
of the Indenture; (ii) default in the payment of principal of,
premium or Liquidated Damages, if any, with respect to any
Convertible Debenture, when due, whether or not such payment is
prohibited by the subordination provisions of the Indenture;
(iii) failure on the part of the Company to observe or perform
the covenant contained in Section 1007 of the Indenture relating
to the granting of voting rights to the Preferred Stock (See
"Conversion Rights" above); (iv) default in the payment of any
amounts due to the Holder of any Convertible Debenture pursuant
to the exercise of the purchase right upon the occurrence of any
Risk Event or Redemption Event continuing for 30 days; (v)
default in the performance of any other covenant or breach of any
other warranty in the Indenture continuing for 60 days after
notice of such default is provided to the Company by Holders of
at least 25% in principal amount of the outstanding Convertible
Debentures; (vi) default by the Company or any Subsidiary under
any instrument or instruments governing or securing debt of the
Company for borrowed money (other than the Convertible
Debentures), which default shall have resulted in indebtedness in
an amount in excess of $10,000,000 not being paid at the stated
maturity thereof or the maturity of such debt being accelerated
and such acceleration shall not have been rescinded or such
indebtedness shall not have been paid within five business days;
(vii) final judgments or orders rendered against the Company or
any Subsidiary to the extent not fully covered by insurance and
which require the payment of more than an aggregate of
$6,500,000, assuming such judgments or orders remain unstayed,
unbonded or unsatisfied for specified periods; and (viii) certain
events in bankruptcy, insolvency or reorganization with respect
to the Company or a Subsidiary; provided, however, that an event
specified in clauses (vi), (vii) and (viii) with respect to any
Subsidiary shall not be deemed an Event of Default if, after the
occurrence of such event, (i) the consolidated net worth of the
Company (excluding any amount attributable to such Subsidiary) is
at least $70,000,000, (ii) (a) there shall be no Rating Decline
(as herein defined) and (b) the Convertible Debentures shall not
be rated below B- by Standard & Poor's Corporation ("S&P") or B3
by Moody's Investor Service, Inc. ("Moody's") (or the equivalent
by another nationally recognized securities rating agency), in
the case of either (a) or (b), at any time during the 12 months
prior to and the 90 days after public notice of such event, or
(iii) the reduction in the consolidated net worth of the Company
as a result of the occurrence of such event, together with any
other reductions in such net worth during the 12 months preceding
such event attributable to the Subsidiary with respect to which
such event has occurred, shall be equal to or less than
$10,000,000. If an Event of Default shall occur and be
continuing, the Trustee or the Holders of not less than 25% in
principal amount of the outstanding Convertible Debentures may
declare due and payable the principal amount of, premium and
Liquidated Damages, if any, plus any accrued interest on, the
outstanding Convertible Debentures. At any time after a
declaration of acceleration with respect to the Convertible
Debentures has been made, but before a judgment or decree based
on acceleration has been obtained, the Holders of not less than a
majority in principal amount of the outstanding Convertible
Debentures may, under certain circumstances, rescind and annul
such acceleration and its consequences. (Sections 501 and 502.)
A "Rating Decline" shall mean a decrease in the rating of
the Convertible Debentures by two or more gradations (including
gradations within Rating Categories as well as between Rating
Categories) with the effect that the Convertible Debentures shall
be rated lower than the rating of the Convertible Debentures as
of the date of their original issuance by S&P or by Moody's (or
the equivalent of any such rating used by another nationally
recognized securities rating agency), as the case may be.
(Section 101.)
"Rating Category" shall mean (i) with respect to S&P, any of
the following categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and
D (or equivalent successor categories); (ii) with respect to
Moody's, any of the following categories: Aaa, Aa, A, Baa, Ba, B,
Caa, Ca, C and D (or equivalent successor categories); and (iii)
the equivalent of any such category of S&P or Moody's used by
another nationally recognized securities rating agency. In
determining whether the rating of the Convertible Debentures has
decreased by two or more gradations, gradations within Rating
Categories (+ and - for S&P; 1, 2 and 3 for Moody's; or the
equivalent gradations for another nationally recognized
securities rating agency) shall be taken into account (e.g., with
respect to S&P, a decline in a rating from BB+ to BB, as well as
from BB- to B+, will constitute a decrease of one gradation).
(Section 101.)
The Indenture provides that the Trustee will be under no
obligation (subject to the duty of the Trustee while an Event of
Default is continuing to act with the required standard of care)
to exercise any of its rights or powers under the Indenture at
the request or direction of any of the Holders, unless such
Holders shall have offered to the Trustee security and
indemnification reasonably satisfactory to the Trustee. Subject
to such provisions for indemnification of the Trustee, the
Holders of a majority in principal amount of the outstanding
Convertible Debentures have the right to direct the time, method
and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred on the
Trustee. (Sections 602 and 512.)
The Holders of a majority in principal amount of the
Convertible Debentures may, on behalf of the Holders of the
Convertible Debentures, waive compliance by the Company with
certain covenants of the Company in the Indenture. The Holders of
a majority in principal amount of the outstanding Convertible
Debentures may on behalf of the Holders of all Convertible
Debentures waive any defaults except a default in payment of the
principal of (or premium, if any), interest on, or Liquidated
Damages with respect to, any Convertible Debenture or in respect
of a provision which under the Indenture cannot be modified or
amended without the consent of the Holder of each outstanding
Convertible Debenture affected thereby. (Sections 513 and 1009.)
The Company is required to notify the Trustee in writing
promptly upon the occurrence of any default (or Event of Default)
in the performance by the Company of its obligations under the
Indenture. The Company is also required to inform the Trustee
within 90 days after the end of each fiscal year of the Company
whether the Company is in default of any of its covenants under
the Indenture, specifying any such defaults and the nature and
status thereof. (Sections 517 and 1008.)
MERGER AND SALE OF ASSETS BY THE COMPANY
The Indenture provides that the Company may not consolidate
or merge with any other Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person,
unless: (i) the Person formed by such consolidation or into which
the Company is merged or the Person which acquires by conveyance
or transfer, or which leases, the properties and assets of the
Company substantially as an entirety shall be a corporation,
partnership, limited liability company or trust organized and
existing under the laws of the United States, any state thereof
or the District of Columbia and such Person shall assume by a
supplemental indenture the due and punctual payment of the
principal of (and premium, if any), interest on, and Liquidated
Damages with respect to, all of the Convertible Debentures and
the performance of every covenant of the Indenture required to be
performed or observed by the Company and shall have provided for
conversion rights in accordance with the terms of the Indenture;
(ii) immediately after giving effect to such transaction, no
Event of Default (and no event which after notice or lapse of
time or both would become an Event of Default) shall have
happened and be continuing; and (iii) certain other conditions
are met. Upon compliance with these provisions by such Person,
the Company would be relieved of its obligations under the
Indenture and the Convertible Debentures (except in the case of a
lease). (Sections 801 and 802.)
TRANSFER AND EXCHANGE
A Holder may transfer or exchange the Convertible Debentures
in accordance with the Indenture. The Company may require a
Holder, among other things, to furnish appropriate endorsements
and transfer documents, and to pay any taxes and fees required by
law or permitted by the Indenture. The Company is not required to
transfer or exchange any Convertible Debenture selected for
redemption except the unredeemed portion of any Convertible
Debenture being redeemed in part. (Section 305.)
The registered Holder of a Convertible Debenture may be
treated as the owner of it for all purposes. (Section 308.)
BOOK ENTRY; DELIVERY AND FORM
Certificates representing the Convertible Debentures are
issued in fully registered form without interest coupons. The
Convertible Debentures were initially issued in book-entry form
through the facilities of The Depository Trust Company, New York,
New York ("DTC"), and are represented by a permanent global
certificate in definitive, fully registered form without interest
coupons (the "Global Convertible Debenture") which have been
deposited with the Trustee as custodian for DTC and registered in
the name of a nominee of DTC, Cede & Co. Beneficial interests
in the Global Convertible Debentures may be exchanged for
definitive securities ("Certificated Convertible Debentures") in
accordance with the terms of the Indenture.
DTC or its custodian credits on its internal system, the
respective principal amount of Convertible Debentures of the
individual beneficial interests represented by the Global
Convertible Debenture to the accounts of persons who have
accounts with DTC. Ownership of beneficial interests in the
Global Convertible Debenture will be limited to persons who have
accounts with DTC ("participants") or persons who hold interests
through participants. Ownership of beneficial interests in the
Global Convertible Debenture will be shown on, and the transfer
of that ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of
participants). So long as DTC, or its nominee, is the registered
owner or holder of the Global Convertible Debenture, DTC or such
nominee, as the case may be, will be considered the sole owner or
holder of the Convertible Debentures represented by the Global
Convertible Debenture for all purposes under the Indenture and
the Convertible Debentures. No beneficial owner of an interest in
the Global Convertible Debenture will be able to transfer that
interest except in accordance with DTC's applicable procedures,
in addition to those provided for under the Indenture.
Payments of the principal of, premium (if any), interest on
the Global Convertible Debenture, will be made to DTC or its
nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any agent of the Trustee or
the Company will have any responsibility or liability for any
aspect of the records relating to or payments made on account of
beneficial ownership interests in the Global Convertible
Debenture or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of
any payment of principal, premium, interest in respect of the
Global Convertible Debenture, will credit participants' accounts
with payments in amounts proportionate to their respective
beneficial interests in the principal amounts of the Global
Convertible Debenture as shown on the records of DTC or its
nominee. The Company also expects that payments by participants
to owners of beneficial interests in the Global Convertible
Debenture held through such participants will be governed by
standing instructions and customary practice, as is now the case
with securities held for the accounts of customers registered in
the names of nominees for such customers. Such payments will be
the responsibility of such participants.
Transfers between participants in DTC will be effected in
the ordinary way in accordance with DTC rules and will be settled
in same-day funds. If a person holding a beneficial interest in
the Global Convertible Debenture requires physical delivery of a
Certificated Convertible Debenture for any reason, including to
sell Convertible Debentures to persons in states which require
physical delivery of a Certificated Convertible Debenture or to
pledge such Convertible Debentures, such Holder must transfer its
interest in the Global Convertible Debenture in accordance with
the normal procedures of DTC and the procedures set forth in the
Indenture.
DTC has advised the Company that it will take any action
permitted to be taken by a holder of Convertible Debentures only
at the direction of one or more participants to whose account the
DTC interests in the Global Convertible Debenture is credited and
only in respect of such portion of the aggregate principal amount
of Convertible Debentures as to which such participant or
participants has or have given such direction.
DTC has advised the Company as follows: DTC is a limited
purpose trust company organized under the laws of the State of
New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code
and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and
settlement of securities transactions between participants
through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and
certain other organizations. Indirect access to the DTC system is
available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship
with a participant, either directly or indirectly ("indirect
participants").
Although DTC has agreed to the foregoing procedures in order
to facilitate transfers of interests in the New Global
Convertible Debenture among participants of DTC, it is under no
obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee
will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective
obligations under the rules and procedures governing their
respective operations.
If DTC is at any time unwilling or unable to continue as a
depositary for the Global Convertible Debentures and a successor
depositary is not appointed by the Company within 90 days, the
Company will issue Certificated Convertible Debentures in
exchange for the Global Convertible Debentures.
CONCERNING THE TRUSTEE
Continental Stock Transfer & Trust Company acts as Trustee
under the Indenture. The address of the Trustee's corporate trust
office is Two Broadway, New York, New York 10004, Attention:
Steven G. Nelson.
MARKET PRICE OF CONVERTIBLE DEBENTURES
The Convertible Debentures are listed on the AMEX under the
symbol "VOXA." The following table sets forth the high and low
sale prices for the Convertible Debentures during the periods
indicated as reported by the AMEX:
Fiscal Periods
- -------------- High Low
---- ----
1995
Third Quarter (partial period)* 80 63
Fourth Quarter 67 1/2 63
1996
First Quarter 66 1/2 60
Second Quarter 65 1/2 59 1/4
Third Quarter 72 3/4 67 1/2
Fourth Quarter (partial period through 78 1/4 68 1/2
October 16, 1996)
- ------------------
* Note that prior to this period, there was no public market
for the Convertible Debentures.
The Convertible Debentures are currently traded on the
American Stock Exchange. The Company does not intend to seek a
delisting of the Convertible Debentures from the AMEX following
the consummation of the Exchange Offer. However, the Company
believes that, following the consummation of the Exchange Offer
and depending on the extent of participation in the Exchange
Offer, the Convertible Debentures may not be able to meet the
listing requirements of the AMEX, and, therefore, the Convertible
Debentures could be delisted by the AMEX. For a discussion of the
possible consequences of delisting, see "Risk Factors -- Effect
of Exchange Offer on Unconverted Securities." For comparable
information regarding the Class A Common Stock, see "Description
of Capital Stock -- Market Price of Class A Common Stock."
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of
30,000,000 shares of Class A Common Stock, 10,000,000 shares of
Class B Common Stock (the "Class B Common Stock"), 50,000 shares
of Preferred Stock, par value $50 per share, and 1,500,000 shares
of Series Preferred Stock, par value $.01 per share. As of
October 16, 1996, there were 7,233,834 shares of Class A Common
Stock outstanding. As of October 16, 1996, 2,260,954 shares of
Class B Common Stock and 50,000 shares of Preferred Stock were
issued and outstanding. There are no shares of Series Preferred
Stock outstanding. Assuming that all holders of the outstanding
Convertible Debentures accept the Exchange Offer, there would be
up to an additional 10,725,000 shares of Class A Common Stock
outstanding upon consummation of the Exchange Offer.
The following summary description relating to the Class A
Common Stock, the Class B Common Stock, the Preferred Stock (as
defined below), Series Preferred Stock (as defined below), the
Blau Warrant (as defined below), the Maxim Warrant (as defined
below) and the Warrants (as defined below) does not purport to be
complete. A description of the Company's Class A Common Stock,
Class B Common Stock, Preferred Stock and Series Preferred Stock
is contained in the Certificate of Incorporation of the Company.
Additionally, a description of the Blau Warrant, the Maxim
Warrant and the Warrants are contained in their respective
warrant agreements. Reference is made to such Certificate of
Incorporation and, with respect to the Warrants, the warrant
agreement for a detailed description of the provisions thereof
summarized below.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
VOTING RIGHTS
- -------------
Except for the election or removal without cause of
directors, as required by the Certificate of Incorporation, and
except for such separate class votes as may be required by
Delaware law and the Certificate of Incorporation, holders of
both classes of Common Stock vote as a single class on all
matters, including amendment of the Certificate of Incorporation
to increase or decrease the aggregate number of authorized shares
of any class or classes of stock. In all cases, each share of
Class A Common Stock is entitled to cast one vote per share and
each share of Class B Common Stock is entitled to cast ten votes
per share.
Holders of Class A Common Stock, voting separately as a
class, are entitled to elect 25% of the Board of Directors
(rounded up to the nearest whole number) so long as the number of
outstanding shares of Class A Common Stock is at least 10% of the
total number of outstanding shares of both classes of Common
Stock. If the number of outstanding shares of Class A Common
Stock should become less than 10% of the total number of
outstanding shares of both classes of Common Stock, directors
would then be elected by all stockholders voting as one class,
except holders of Class A Common Stock would have one vote per
share and holders of Class B Common Stock would have ten votes
per share. In such event, the American Stock Exchange may
consider delisting the Class A Common Stock.
The holders of a majority of the Class B Common Stock,
voting separately as a class, will continue to be able to elect
the directors not elected by holders of the Class A Common Stock,
so long as the number of outstanding shares of Class B Common
Stock is at least 12.5% of the number of outstanding shares of
both classes of Common Stock. If the number of outstanding shares
of Class B Common Stock falls below that percentage, directors
not elected by the holders of Class A Common Stock will be
elected by the holders of both classes of Common Stock, with
holders of Class A Common Stock having one vote per share and
holders of Class B Common Stock having ten votes per share.
Directors may be removed, with or without cause, provided
that any removal of directors without cause may be made only by
the holders of the class or classes of Common Stock that elected
them. Vacancies in a directorship may be filled by the vote of
the class of shares that had previously filled that vacancy, or
by the remaining directors elected by that class however, if
there are no such directors, the vacancy may be filled by the
remaining directors.
The outstanding shares of Class A Common Stock equal
approximately 75.0% of the shares of both classes outstanding,
and the holders of Class A Common Stock have approximately 23.0%
of the combined voting power of both classes of Common Stock. The
holders of Class B Common Stock, therefore, have the power to
amend the Company's Certificate of Incorporation to authorize the
issuance of enough additional Class B Common Stock to decrease
the outstanding amount of Class A Common Stock to less than 10%.
Because of limitations on dividends in shares of Class A Common
Stock and Class B Common Stock, stock dividends will have the
effect of strengthening the control position of holders of Class
B Common Stock.
DIVIDENDS
- ---------
The holders of Class A Common Stock and Class B Common Stock
are entitled to receive dividends or distributions declared by
the Board of Directors in equal amounts, share for share, except
as hereafter noted. With respect to a cash dividend, the Board
may pay an equal or greater amount per share on the Class A
Common Stock than on the Class B Common Stock or declare and pay
a cash dividend on the Class A Common Stock without any such
dividend being declared and paid on the Class B Common Stock.
The Company has never declared or paid cash dividends on this
Common Stock.
In addition, dividends paid in shares of Class A Common
Stock or Class B Common Stock may be paid only as follows:
(i) shares of Class A Common Stock may be paid only to
holders of shares of Class A Common Stock and shares of Class B
Common Stock may be paid only to holders of Class B Common Stock;
and
(ii) the same number of shares shall be paid in respect of
each outstanding share of Class A Common Stock and Class B Common
Stock.
CONVERSION
- ----------
At the option of the holder, each share of Class B Common
Stock is convertible at any time into one share of Class A Common
Stock. Conversion of a significant number of shares of Class B
Common Stock into Class A Common Stock could put control of the
entire Board of Directors into the hands of such holders of the
Class B Common Stock who so convert.
RESTRICTIONS ON TRANSFER OF CLASS B COMMON STOCK
- ------------------------------------------------
Without the written consent of holders of two-thirds of the
outstanding shares of Class B Common Stock, shares of Class B
Common Stock may not be transferred except to another holder of
Class B Common Stock, certain family members of the holder and
certain other permitted transferees. Upon any nonpermitted sale
or transfer, shares of Class B Common Stock will automatically
convert into an equal number of shares of Class A Common Stock.
Accordingly, no trading market will develop in the Class B Common
Stock and the Class B Common Stock will not be listed or traded
on any exchange or in any market.
OTHER RIGHTS
- ------------
Stockholders of the Company have no preemptive or other
rights to subscribe for additional shares. Subject to any rights
of holders of any Preferred Stock and Series Preferred Stock, all
holders of Common Stock, regardless of class, are entitled to
share ratably in any assets available for distribution on
liquidation, dissolution or winding up of the Company. No shares
of either class of Common Stock are subject to redemption. All
outstanding shares are, and all shares issuable upon conversion
of the Debentures offered hereby will be, when issued upon such
conversion in accordance with the terms of the Debentures,
legally issued, fully paid and nonassessable. The Company may not
subdivide or combine shares of either class of Common Stock
without at the same time proportionally subdividing or combining
shares of the other class of Common Stock.
EFFECTS OF DISPROPORTIONATE VOTING RIGHTS
- -----------------------------------------
The disproportionate voting rights of Class A Common Stock
and Class B Common Stock could have an adverse effect on the
market price of the Class A Common Stock. Such disproportionate
voting rights may effectively preclude the Company from being
taken over in a transaction not supported by holders of Class B
Common Stock, may render more difficult or discourage a merger
proposal or tender offer or may preclude a successful proxy
contest, even if such actions were favored by stockholders of the
Company other than the holders of the Class B Common Stock.
Accordingly, such disproportionate voting rights may deprive
stockholders of an opportunity to sell their shares at a premium
over prevailing market prices, since takeover bids frequently
involve purchases of stock directly from stockholders at such a
premium price.
TRANSFER AGENT
- --------------
The transfer agent and registrar for shares of the Class A
Common Stock and Class B Common Stock is Continental Stock
Transfer & Trust Company, New York, New York.
PREFERRED STOCK
PREFERRED STOCK
- ---------------
The Company is authorized to issue up to 50,000 shares of
Preferred Stock (the "Preferred Stock"), all of which have been
issued and are outstanding. Such shares are nonvoting and have
preference over the Common Stock in the event of liquidation,
dissolution or winding up of the Company to the extent of its par
value of $50 per share.
SERIES PREFERRED STOCK
- ----------------------
The Company is authorized to issue up to 1,500,000 shares of
Series Preferred Stock, par value $.01 per share (the "Series
Preferred Stock"), none of which has been issued. The Certificate
of Incorporation provides that the Board of Directors may issue
by resolution shares of Series Preferred Stock from time to time
in one or more series and fix, as to each such series, the
designations, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations or
restrictions pertaining thereto, including voting rights
(including the right to vote as a series on particular matters),
preferences as to dividends and liquidation and conversion
rights. However, the Company may not issue shares of Series
Preferred Stock carrying in excess of one vote per share or
convertible into Class B Common Stock without prior approval of a
majority in interest of the holders of Class B Common Stock. The
Company has no present plans for the issuance of any shares of
Series Preferred Stock.
It is not possible to state the actual effect of the
authorization of the Series Preferred Stock upon the rights of
holders of Class A Common Stock, Class B Common Stock and
Preferred Stock until the Board determines the specific rights
thereof. However, such effects might include (a) restrictions on
dividends on either class of Common Stock if dividends on Series
Preferred Stock have not been paid; (b) dilution of the voting
power of the Class A Common Stock to the extent that the Series
Preferred Stock has voting rights; (c) dilution of the equity
interest of the Class A Common Stock to the extent that the
Preferred Stock is convertible into Class A Common Stock; or (d)
either class of Common Stock and Preferred Stock not being
entitled to share in the Company's assets upon liquidation,
dissolution or winding up until satisfaction of any liquidation
preference granted to holders of Series Preferred Stock. The
Company has been advised that under its current listing
requirements the American Stock Exchange would consider delisting
the Class A Common Stock if any Series Preferred Stock diluted
the class voting rights of the Class A Common Stock. Issuance of
Series Preferred Stock, while providing desirable flexibility in
connection with possible acquisition and other corporate
purposes, could make it more difficult for a third party to
acquire a majority of the outstanding voting stock. Accordingly,
the issuance of Series Preferred Stock may be used as an
antitakeover device without further action on the part of the
stockholders of the Company.
WARRANTS
BLAU WARRANT
- ------------
The Company and Harvey R. Blau ("Blau") have entered into a
letter agreement, dated April 1, 1993 (the "Consulting
Agreement"). Pursuant to the Consulting Agreement, the term of
which was from April 1, 1993 to March 31, 1995, Blau was to
render up to 20 hours of consulting services to the Company per
year. In connection with the Consulting Agreement, Blau was
awarded a warrant (the "Blau Warrant") to purchase 100,000 shares
of Class A Common Stock at a purchase price of $7.50 per share
(subject to adjustment upon certain events described in the Blau
Warrant). The Blau Warrant is exercisable in whole or in part,
from time-to-time, until December 31, 1998. On December 15,
1993, the Company and Blau executed a letter agreement pursuant
to which it was agreed that Blau had performed in excess of 40
aggregate hours of consulting services under the Consulting
Agreement, that no further services were required to be performed
by Blau under the Consulting Agreement and that the consideration
for the Blau Warrant was deemed fully paid.
MAXIM WARRANT
- -------------
The Company and James Maxim ("Maxim") have entered into an
Agreement, dated September 23, 1993 and effective December 1,
1993, pursuant to which the Company acquired all of the issued
and outstanding stock of H & H Eastern Distributors, Inc. owned
by Maxim, and as a result, the Company became the sole
stockholder of H & H Eastern Distributors, Inc. In connection
with such Agreement, the Company issued to Maxim a warrant (the
"Maxim Warrant") to purchase 50,000 shares of Class A Common
Stock, at a purchase price of $14.375 per share. The per share
purchase price and number of shares purchasable pursuant to the
Maxim Warrant are each subject to adjustment upon the occurrence
of certain events described in the Maxim Warrant. The Maxim
Warrant is exercisable, in whole or in part, from time-to-time,
until September 22, 2003. In connection with the Maxim Warrant,
Maxim has the right to require the Company to file with the SEC,
on or after September 22, 1995, a registration statement relating
to the sale by Maxim of the Class A Common Stock purchasable
pursuant to the Maxim Warrant.
OTHER WARRANTS
- --------------
On May 9, 1995 (the "Warrant Closing Date"), the Company
closed an offering of warrants (the "Warrants") pursuant to the
Warrant Agreement between the Company and Continental Stock
Transfer & Trust Company, as Warrant Agent, a copy of which is
included as an exhibit to this Registration Statement, and is
incorporated herein by reference. 1,668,875 warrants (the
"Warrants") were issued with each Warrant entitling the holder
thereof to purchase one share of Class A Common Stock, par value
$.01 per share (the "Class A Common Stock), of the Company at any
time on or prior to March 15, 2001 (the "Expiration Date"). The
exercise price of each Warrant is $7-1/8 per share (the "Warrant
Exercise Price"). The Warrant Exercise Price and the number of
shares of Class A Common Stock acquirable upon exercise of a
Warrant is subject to adjustment in certain limited
circumstances.
Each beneficial holder of the Convertible Debentures as of
June 3, 1994 who elected to invest in the Warrants acquired 30
Warrants per $1,000 principal amount of Convertible Debentures
(except for Oppenheimer & Co., Inc., which acquired 25 Warrants
per $1,000 principal amount of Convertible Debentures) held as of
such date in consideration for the delivery by such person of a
release which released the Company, the Initial Purchasers, and
their respective directors, officers, partners, employees and
agents, from liability for any and all potential claims, if any,
such beneficial holder may have against such persons in
connection with such purchaser's investment in the Convertible
Debentures and the offering of the Convertible Debentures.
The Warrants may not be exercised (a) until the later of (x)
one year after issuance and (y) the date a registration statement
with respect to the Class A Common Stock issuable upon exercise
of the Warrants has been filed and declared effective by the
Securities and Exchange Commission (the "SEC") or (b) after March
15, 2001 (the "Expiration Date") unless the Warrants are
terminated sooner under certain circumstances. The Warrants are
currently exerciseable.
The Company filed with the SEC within 300 days of the
Warrant Closing Date of the offering and caused such filing to
become effective within 365 days of the Warrant Closing Date, a
registration statement with respect to the issuance of the Class
A Common Stock underlying the Warrants upon exercise thereof.
Had such registration statement with respect to the Common Stock
not been filed within such 300-day period or declared effective
within such 365-day period, the exercise price of the Warrants
would have decreased by $1/8 per share of Class A Common Stock;
subject to additional decreases of $1/8 per share for each
additional six-month period for which such registration statement
was not filed or declared effective, as the case may be. In
addition, the Warrant Exercise Price will also decrease by $1/8
per share of Class A Common Stock should such registration
statement cease to be effective for more than 90 days (180 days
in certain circumstances) in any 365-day period, subject to
additional decreases of $1/8 per share of Class A Common Stock
for each additional six-month period for which such registration
statement ceases to be effective. Notwithstanding the foregoing,
the maximum number of $1/8 per share decreases shall be 10 and
there shall be no more than one such decrease in any six-month
period (each of such events which results in a decrease in the
Warrant Exercise Price being referred to herein as a "Warrant
Registration Default"). The Company will be obligated to use its
reasonable best efforts to cause the registration statement
relating to the Class A Common Stock to remain effective until
the Expiration Date.
If less than 5% of the Warrants initially issued remain
outstanding, the Company may elect, by written notice to each
holder of the Warrants, that the Warrants will expire on the 30th
day after delivery of such notice.
In connection with the Warrant offering, John J. Shalam,
Chief Executive Officer of the Company, granted the Company the
Shalam Option to purchase 1,668,875 shares of Class A Common
Stock. The Shalam Option Price is equal to the sum of (a) the
Warrant Exercise Price (without giving effect to any decreases of
such price as a result of a Registration Default) plus (b) an
additional amount (the "Tax Amount") intended to reimburse Mr.
Shalam for any additional taxes per share required to be paid by
Mr. Shalam as a result of the payment of the Shalam Option Price
being treated for federal, state and local income tax purposes as
the distribution to Mr. Shalam of a dividend (taxed at ordinary
income rates without consideration of Mr. Shalam's basis), rather
than as a payment to Mr. Shalam for the sale of his Class A
Common Stock to the Company (taxed at the capital gains rate with
consideration of Mr. Shalam's basis and considering any stepped
up basis to Mr. Shalam's heirs, successors or assigns (a
"Successor")) pursuant to the Shalam Option. The shares of Class
A Common Stock underlying the Shalam Option have been legended
with a description of the Shalam Option. Any Successor acquiring
the shares of Class A Common Stock underlying the Shalam Option
(whether by sale, transfer or upon Mr. Shalam's death) will
acquire such shares subject to the terms of the Shalam Option.
Mr. Shalam and any Successor will be entitled to the Tax Amount
upon delivery of a satisfactory notice to the Company that the
payment of a Tax Amount is required to reimburse such person for
such additional taxes. The Shalam Option will be exercisable in
the sole discretion of the then-independent members of the Board
of Directors (which shall in no event include Mr. Shalam). The
Company will be able to exercise the Shalam Option in whole or in
part only if the Warrants are exercised and then only for the
same number of shares of Class A Common Stock as are purchased
under the Warrants.
DELAWARE LAW
The Company is subject to the provisions of Section 203 of
the Delaware General Corporation Law. In general, this statute
prohibits a publicly held Delaware corporation from engaging,
under certain circumstances in a "business combination" with an
"interested stockholder" for a period of three years after the
date of the transaction in which the person becomes an interested
stockholder, unless either: (i) prior to the date at which the
stockholder became an interested stockholder, the Board of
Directors approved either the business combination or the
transaction in which the person becomes an interested
stockholder; (ii) the stockholder acquires more than 85% of the
outstanding voting stock of the corporation (excluding shares
held by directors who are officers or held in certain employee
stock plans) upon consummation of the transaction in which the
stockholder becomes in interested stockholder; or (iii) the
business combination is approved by the Board of Directors and by
at least 66 2/3% of the outstanding voting stock of the
corporation (excluding shares held by the interested stockholder)
at a meeting of stockholders (and not by written consent) held on
or subsequent to the date of the business combination. An
"interested stockholder" is a person who, together with
affiliates and associates, owns (or at any time within the prior
three years did own) 15% or more of the corporation's voting
stock. Section 203 defines a "business combination" to include,
without limitation, mergers, consolidations, stock sales and
asset based transactions and other transactions resulting in a
financial benefit to the interested stockholder.
Section 203 of the Delaware General Corporation Law contains
provisions normally considered to have the effect of inhibiting a
non-negotiated merger or other business combination.
Consequently, the market price of the Class A Common Stock may be
less likely to reflect a "premium for control."
MARKET PRICE OF CLASS A COMMON STOCK
The Class A Common Stock is listed on the AMEX under the
symbol "VOX." The following table sets forth the high and low
sales price for the Class A Common Stock during the periods
indicated as reported by the AMEX.
Fiscal Periods High Low
- -------------- ----- ----
1994
First Quarter $ 18 3/8 $14 1/4
Second Quarter 16 11 7/8
Third Quarter 12 3/4 6 1/4
Fourth Quarter 9 3/8 6 3/4
1995
First Quarter 8 1/2 6 3/8
Second Quarter 7 5 1/16
Third Quarter 7 3/8 4 7/16
Fourth Quarter 6 13/16 4 3/8
1996
First Quarter 6 3/8 4 3/4
Second Quarter 7 7/16 4 1/16
Third Quarter 6 5/16 4
Fourth Quarter (partial period through
October 16, 1996) 6 3/4 4 7/8
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion is a summary of certain
United States federal income tax aspects with respect to the
Exchange Offer and is for general information only and does not
consider all aspects of United States federal income tax that may
be relevant to a holder of Convertible Debentures in light of his
or her personal circumstances. The discussion assumes that the
Convertible Debentures are properly classified as indebtedness
for federal income tax purposes. The discussion does not address
the United States federal income tax consequences to holders of
Convertible Debentures who do not hold the Convertible Debentures
and the Class A Common Stock to be issued pursuant to the
Exchange Offer as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the
"Code"). This discussion also does not address the United States
federal income tax consequences to holders of Convertible
Debentures subject to special treatment under the federal income
tax laws, such as dealers in securities or foreign currency, tax-
exempt entities, banks, thrifts, insurance companies, and
investors in pass-through entities. In addition, the discussion
is generally limited to the United States federal income tax
consequences to holders of Convertible Debentures tendering such
Convertible Debentures in the Exchange Offer. The discussion does
not describe any tax consequences arising out of the tax laws of
any state, local or foreign jurisdiction.
This summary is based upon the Code, existing and proposed
regulations thereunder, and current administrative rulings and
court decisions. All of the foregoing are subject to change, and
any such change could affect the continuing validity of this
discussion.
The following discussion is limited to the United States
federal income tax consequences relevant to a holder of
Convertible Debentures that is (i) a citizen or resident of the
United States, (ii) a corporation organized under the laws of the
United States or any political subdivision thereof or therein,
(iii) an estate or trust, the income of which is subject to
United States federal income tax regardless of the source, or
(iv) a "U.S. Trust." For this purpose, for taxable years
beginning prior to January 1, 1997, unless the trustee makes the
election described below, a "U.S. Trust" is any trust, the income
of which is subject to United States federal income tax
regardless of the source; for taxable years beginning after
December 31, 1996, or if the trustee elects to apply the
following definition, a "U.S. Trust" is any trust if (i) a court
within the United States is able to exercise primary supervision
over the administration of the trust and (ii) one or more United
States fiduciaries have the authority to control all substantial
decisions of the trust. Trusts should consult their own tax
advisers regarding their status as U.S. Trusts under these rules.
PERSONS TENDERING CONVERTIBLE DEBENTURES IN EXCHANGE FOR
CLASS A COMMON STOCK IN THE TENDER OFFER SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE APPLICATION OF UNITED STATES FEDERAL
INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR
FOREIGN TAXING JURISDICTION, TO THEIR PARTICULAR SITUATIONS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF CONVERTIBLE
DEBENTURES
THE EXCHANGE OFFER
The determination of whether the exchange of Convertible
Debentures for Class A Common Stock is a tax-free
"recapitalization" for federal income tax purposes depends upon
whether the Convertible Debentures are "securities" for federal
income tax purposes. The term "security" is not defined in the
Code or regulations, and has not been clearly defined by court
decisions. Important factors to be considered in determining
whether the Convertible Debentures constitute securities include,
among other things, length of time to maturity, degree of
continuing interest in the issuer, similarity of the debt
instrument to a cash payment, and the purpose of the borrowing.
Generally, corporate debt instruments with maturities when issued
of less than five years are not considered securities and
corporate debt instruments with maturities when issued of ten
years or more generally are considered securities. Although the
issue is not free from doubt, the Company intends to take the
position that the Convertible Debentures will be treated as
"securities" for federal income tax purposes and, except when
otherwise indicated, the balance of this discussion is based on
the assumption that such treatment will be respected.
If the Convertible Debentures are "securities" for federal
income tax purposes, a holder exchanging Convertible Debentures
for Class A Common Stock in the Exchange Offer will not recognize
gain or loss in respect of such exchange for federal income tax
purposes, except with respect to cash received for accrued but
unpaid interest or in lieu of receipt of fractional shares of
Class A Common Stock. A holder's adjusted tax basis in the Class
A Common Stock received will be equal to the holder's adjusted
tax basis in the Convertible Debentures exchanged therefor (other
than any basis attributable to accrued interest). A holder's
holding period in the Class A Common Stock received in the
exchange will include the holder's holding period in the
Convertible Debentures exchanged therefor.
If the exchange of Convertible Debentures for Class A Common
Stock is not treated as a recapitalization for federal income
tax purposes (e.g., because the Convertible Debentures are not
treated as "securities" for federal income tax purposes), a
holder of Convertible Debentures would recognize gain or loss for
federal income tax purposes in an amount equal to the difference
between the fair market value of the Class A Common Stock
received and the holder's tax basis in the Convertible
Debentures. (not including tax basis attributable to any accrued
and unpaid interest thereon). Subject to the discussion of
accrued interest and "Market Discount" below, gain or loss
recognized by a holder on the exchange generally would be capital
gain or loss and would be long-term capital gain or loss if such
holder's holding period for the Convertible Debentures exceeded
one year at the time of the exchange. If the exchange is not
treated as a recapitalization for federal income tax purposes, a
holder's tax basis in the Class A Common Stock received would
equal its fair market value, and the holding period for such
Class A Common Stock would begin on the day after the date of the
exchange.
Cash will be paid to holders for accrued but unpaid interest
and in lieu of the receipt of fractional shares of Class A Common
Stock in the Exchange. Regardless of whether or not the Exchange
is treated as a recapitalization for tax purposes, holders will
be required to include as ordinary income the amount of cash
received for accrued interest, to the extent such amount has not
previously been included in income. A holder who receives cash
in lieu of a fractional share of Class A Common stock will
generally be treated as having received the cash in exchange for
a fractional share which the holder is deemed to have received,
provided that the distribution of that cash is not "essentially
equivalent to a dividend." Gain or loss recognized as a result
of that deemed exchange will be equal to the cash amount received
less the holder's basis in the fractional share deemed received.
MARKET DISCOUNT
Holders of Convertible Debentures who acquire them at a
"market discount" will be subject to the market discount rules of
the Code applicable to the exchange. Subject to a de minimus
exception, "market discount" is generally defined as the excess
(if any) of (i) the "stated redemption price at maturity" (as
such phrase is defined in the Code) of a debt obligation over
(ii) the tax basis of the obligation in the hands of the holder
immediately after its acquisition. Unless the holder elects
otherwise, the amount of accrued market discount as of a date
generally would be the amount calculated by multiplying the
market discount by a fraction, the numerator of which is the
number of days the Convertible Debentures have been held by the
holder, and the denominator of which is the number of days from
the date of the holder's acquisition of the Convertible
Debentures to their maturity date.
The market discount rules provide that gain recognized on
the disposition of a market discount bond must be included as
ordinary income, rather than as capital gain, to the extent of
the market discount accrued during the holder's period of
ownership, unless the holder elected to include market discount
in income as it accrued. It is possible, though unlikely, that
these rules could require recognition of ordinary income even in
the case of an otherwise tax-free recapitalization. Regulations
have not been issued concerning the recognition of market
discount in the case of tax-free transactions; thus, it is
unclear how these rules will apply to the exchange. Regulations
are expected to be issued which would provide that any accrued
market discount not treated as ordinary income upon an exchange
of market discount bonds in which gain or loss is not recognized
in whole or in part (such as in the Exchange Offer if such
exchange is treated as a recapitalization for federal income tax
purposes) would carry over to the nonrecognition property
received in the exchange (i.e., the Class A Common Stock). If
such regulations are promulgated and are applicable to the
Exchange Offer, any accrued market discount not treated as
ordinary income as a result of the exchange would carry over to
the Class A Common Stock. On the disposition of such Class A
Common Stock, any gain recognized generally would be treated as
ordinary income to the extent of the accrued market discount as
of the time of the Exchange Offer not previously included in the
holder's income.
CLASS A COMMON STOCK
Under Section 301(c) of the Code, distributions made with
respect to shares of Class A Common Stock generally will be
treated as ordinary income to the extent of the Company's current
and accumulated earnings and profits for the taxable year of the
distribution. Amounts distributed in excess of such earnings and
profits are treated as a tax-free return of capital to the extent
of the holder's tax basis in its shares of Class A Common Stock,
with any amount distributed in excess of such tax basis being
treated as an amount received on a sale or exchange of the stock.
A 70% dividends received deduction (80% for corporate holders
owning 20% or more in voting power and fair market value of the
Company's stock) may be available for certain corporate holders,
subject to numerous conditions and exceptions.
Generally, gain or loss is recognized on a sale or other
disposition of Class A Common Stock to the extent of the
difference between the amount of cash (and the fair market value
of other property) received in the disposition and the holder's
tax basis in its Class A Common Stock. Such gain or loss will
subject to the discussion of market discount above, be capital
gain or loss and will be long-term capital gain or loss if the
Class A Common Stock has been held for more than one year.
Currently, net capital gains and ordinary income of corporations
are taxable at the same maximum rate (35%), whereas net long-term
capital gains of individuals are taxable at a maximum rate (28%)
that is lower than the maximum rate applicable to ordinary income
(39.6%). In the case of both individuals and corporations,
capital losses generally may be used to offset only capital
gains, subject to a de minimis exception of $3,000 per annum in
the case of individuals
BACKUP WITHHOLDING
A holder of Class A Common Stock may be subject to backup
withholding at the rate of 31% with respect to dividends paid on
the Class A Common Stock, unless the holder (i) is a corporation
or comes within certain other exempt categories and, when
required, demonstrates this fact or (ii) provides a correct
taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with the
applicable requirements of the backup withholding rules. Holders
receiving Class A Common Stock in exchange for Convertible
Debentures should consult their tax advisors as to their
qualification for exemption from backup withholding and the
procedure for obtaining such an exemption. Any amount paid as
backup withholding will be creditable against the holder's
federal income tax liability.
HOLDERS OF CONVERTIBLE DEBENTURES WHO DO NOT PARTICIPATE IN THE
EXCHANGE OFFER
Holders of Convertible Debentures who elect not to
participate in the Exchange Offer and who consequently do not
exchange their Convertible Debentures for Class A Common Stock
will not recognize gain or loss as a consequence of the Exchange
Offer.
THE FOREGOING IS INTENDED ONLY AS A SUMMARY OF CERTAIN
FEDERAL INCOME TAX ASPECTS OF THE TENDER OFFER AND IS NOT A
SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE BASED UPON THE
INDIVIDUAL CIRCUMSTANCES OF EACH HOLDER OF CONVERTIBLE
DEBENTURES. HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
AS TO THE CONSEQUENCES TO THEM OF THE EXCHANGE.
INTEREST IN CONVERTIBLE DEBENTURES
Based upon the Company's records and upon information
provided to the Company by its directors, executive officers and
affiliates, except as provided below, neither the Company nor any
of its subsidiaries or affiliates nor any of the directors or
executive officers of the Company, nor any associates of any of
the foregoing, including the directors or executive officers of
its subsidiaries, has effected any transactions in the
Convertible Debentures during the forty business day period prior
to the date hereof. Martin Novick, Vice President, Consumer
Electronics, owns $222,000 aggregate principal amount of
Convertible Debentures, $29,000 of which were purchased in the
last forty business days. Any Convertible Debentures owned
directly or indirectly by officers/directors at the time of the
Exchange Offer are eligible for exchange if properly tendered
pursuant to the Exchange Offer on the same basis as all other
Convertible Debentures.
CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS
WITH RESPECT TO THE CONVERTIBLE DEBENTURES
Other than the Indenture none of the Company nor any of its
affiliates, directors or executive officers, or any of the
executive officers or directors of its subsidiaries, is a party
to any contract, arrangement, understanding or relationship with
any other person relating, directly or indirectly, to the
Exchange Offer with respect to any securities of the Company
(including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the
voting of any such securities, joint ventures, loan or option
arrangements, puts or calls, guaranties of loans, guaranties
against loss or the giving or withholding of proxies, consents or
authorizations).
Facsimile copies of the Letter of Transmittal will be
accepted. Letters of Transmittal, certificates for the
Convertible Debentures and any other required documents should be
sent by each Debentureholder or his broker, dealer, commercial
bank, trust company or other nominee to the Exchange Agent at one
of the addresses set forth below:
THE EXCHANGE AGENT:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By Mail: By Hand: Overnight Delivery:
c/o Continental c/o Continental c/o Continental Stock
Stock Transfer & Stock Transfer Transfer & Trust
Trust Company & Trust Company Company
Two Broadway Two Broadway Two Broadway
New York, NY New York, NY New York, NY
10004 10004 10004
Attn: Reorganization
Department.
By Facsimile:
(212) 509-5150
Toll Free Number
(800) 509-5586
Any questions or requests for assistance or additional
copies of this Offering Circular, the Letter of Transmittal
and/or the Notice of Guaranteed Delivery may be directed to the
Exchange Agent at its telephone number and address set forth
above. You may also contact your broker, dealer, commercial bank
or trust company or other nominee for assistance concerning the
Exchange Offers.
Exhibit B
SUPPLEMENT NO. 1
SUPPLEMENT NO. 1
DATED OCTOBER 30, 1996
TO THE OFFERING CIRCULAR
DATED OCTOBER 18, 1996
This Supplement No. 1 amends and supplements the
Offering Circular (the "Offering Circular"), dated October 18,
1996, of Audiovox Corporation ("Audiovox" or the "Company"). The
Offering Circular is in connection with the offer by the Company
to exchange (the "Exchange Offer") 165 shares of the Company's
Class A Common Stock, par value $.01 per share (the "Class A
Common Stock") for each $1,000 aggregate principal amount of the
Company's outstanding 6 1/4% Convertible Subordinated Debentures
due 2001 (the "Convertible Debentures").
This Supplement No. 1 should be read in conjunction
with the Offering Circular. Holders of the Convertible
Debentures should carefully review all of the information
contained in the Offering Circular and this Supplement No. 1
prior to making a decision with respect to the Exchange Offer.
Capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to them in the Offering
Circular.
As noted in the Offering Circular, the obligation of
the Company to consummate the Exchange Offer is subject to
certain conditions including, among others, approval by the
shareholders of the Company at a special meeting of the
shareholders (the "Special Meeting") of the issuance of the Class
A Common Stock necessary to effect the Exchange Offer. The
Special Meeting, tentatively scheduled to be held on November 19,
1996, will now be held at 10:00 A.M. on November 25, 1996.
Accordingly, the expiration date of the Exchange Offer has been
extended from 5:00 p.m. (New York City time) on November 19, 1996
to 5:00 p.m. (New York City time) on November 25, 1996. The
Company may extend further the expiration date of the Exchange
Offer, such extension to be followed by a public announcement in
the manner specified in the Offering Circular. All of the other
terms of the Exchange Offer remain unchanged and will be as set
forth in the Offering Circular.
Mr. John J. Shalam, President and Chief Executive
Officer of the Company, currently owns or controls approximately
74.4% of the Company's voting power. Mr. Shalam has advised the
Company that he intends to vote in favor of this issuance of the
Class A Common Stock to effect the Exchange Offer and,
accordingly, satisfaction of the above referenced shareholder
approval condition is assured.
The text of the Offering Circular is hereby amended as
follows:
1. Under "Risk Factors -- Forward-Looking Statements
and Associated Risk" on page 22 of the Offering Circular, the
following sentence should be added to the end of the section:
THE "SAFE HARBOR" FOR FORWARD LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 DOES
NOT EXTEND TO FORWARD LOOKING STATEMENTS MADE WITH
RESPECT TO A TENDER OFFER.
2. Under the heading "Exchange Offer -- Terms of the
Exchange Offer" on page 24 of the Offering Circular, the
following sentence should be added to the end of the third
paragraph:
Any future purchases or exchanges, if any, by the
Company or any affiliate of the Convertible Debentures
will take place only after the expiration of at least
ten business days after the termination of the Exchange
Offer.
3. Under the heading "Exchange Offer -- Conditions to
the Exchange Offer" on page 25 of the Offering Circular, the lead-
in paragraph shall be restated as follows (changes reflected in
bold):
Notwithstanding any other provision of the Exchange
Offer, the Company will not be required to accept for
exchange or subject to any applicable rules or
regulations of the Commission, any Convertible
Debentures tendered for exchange and may postpone the
exchange of any Convertible Debentures tendered and to
be exchanged by it, and may terminate or amend the
Exchange Offer as provided herein if any of the
following conditions exist prior to the Expiration
Date:
4. Under the heading "Exchange Offer -- Conditions to
the Exchange Offer" on page 25 of the Offering Circular, all
references in the text to "in the sole judgment of the Company"
shall be revised to be "in the reasonable judgment of the
Company."
5. Under the heading "Exchange Offer -- Expiration;
Extension; Termination; Amendment" on page 26 of the Offering
Circular, subsection (i) of the second paragraph shall be
restated as follows (changes reflected in bold):
(i) to delay acceptance for exchange of any Convertible
Debentures or, regardless of whether such Convertible
Debentures were theretofore accepted for exchange, to
delay the exchange of any Convertible Debentures
pursuant to the Exchange Offer or to terminate the
Exchange Offer and not accept for exchange any
Convertible Debentures, if any of the conditions to the
Exchange Offer specified herein fail to be satisfied
prior to the Expiration Date by giving oral or written
notice of such delay or termination to the Exchange
Agent;
If you have any questions or should you require
additional copies of this Supplement No. 1 or the Offering
Circular or any of the documents that need to be executed in
connection with the Exchange Offer, please contact Continental
Stock Transfer & Trust Company at (212) 509-4000.
