As filed with the Securities and Exchange Commission on
February 8, 1996
Registration No. 33-
- ------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
___________________________________
Audiovox Corporation
(Exact Name of Registrant as Specified in its Charter)
___________________________________
Delaware
(State or Other Jurisdiction of Incorporation or
Organization)
13-1964841
(I.R.S. Employer Identification Number)
___________________________________
150 Marcus Boulevard, Hauppauge, New York 11788
516-231-7750
(Address, Including Zip Code, and Telephone Number,
Including
Area Code, of Registrant's Principal Executive Offices)
___________________________________
Charles M. Stoehr
Senior Vice President
150 Marcus Boulevard,
Hauppauge, New York 11788
516-231-7750
(Name, Address, Including Zip Code, and Telephone Number,
Including
Area Code, of Registrant's Agent for Service)
___________________________________
Please send copies of all communications to:
Robert S. Levy, Esq.
Levy & Stopol, LLP
One Pennsylvania Plaza, 49th Floor
New York, New York 10119
___________________________________
Approximate date of commencement of proposed sale to
public: From time to time after the effective date of the
Registration Statement.
If the only securities being registered on this form are
being offered pursuant to dividend or interest reinvestment
plans, please check the following box. [ ]
If any of the securities being registered on this form
are to be offered on a delayed or continuous basis pursuant
to Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [x]
If this form is filed to register additional securities
for an offering pursuant to Rule 462(b) under the Securities
Act, please check the following box and list the Securities
Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
___________
If this form is a post-effective amendment filed pursuant
to Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement
number of the earlier effective registration statement for
the same offering. [ ] ___________
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [ ]
___________________________________
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
- ------------------------------------------------------------
Proposed Proposed
Title of Each Class of Securities Amount to be Maximum Maximum Amount of
to be Registered Registered(1) Offering Aggregate Registration
Price Per Offering Fee
Security Price(2)
- ------------------------------------------------- -------------- -------- --------- -----------
<S> <C> <C> <C> <C>
Class A Common Stock Purchase Warrants............. 1,668,875 -- -- --
Class A Common Stock, par value $.01 per share..... 1,668,875 $7.125(2) 11,890,734 $ 4,101
- ------------------------------------------------------------
<FN>
(1) Pursuant to Rule 416 under the Securities Act of
1933, this Registration Statement also covers such
additional securities as may become issuable upon the
exercise of the Warrants being registered through the
antidilution provisions thereof.
(2) Calculated based upon the exercise price of the
Warrants solely for the purpose of calculating the
registration fee pursuant to Rule 457(g).
</TABLE>
The Registrant hereby amends this Registration Statement
on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further
amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until
this Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section
8(a), may determine.
===================================================================
<PAGE>
**************************************************************** *
*INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR *
*AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE *
*SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE *
*COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO *
*BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT *
*BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN *
*OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL *
*THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
*SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
*REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY *
*SUCH STATE. *
* *
*************************************************************** *
SUBJECT TO COMPLETION, PRELIMINARY
PROSPECTUS, DATED FEBRUARY 8, 1996
1,668,875 Warrants
1,668,875 Shares of Common Stock
AUDIOVOX CORPORATION
COMMON STOCK PURCHASE WARRANTS AND COMMON STOCK
-------------
This Prospectus relates to the registration of
(i) 1,668,875 common stock purchase warrants (the
"Warrants") exercisable for shares of Class A Common Stock,
par value $.01 per share (the "Class A Common Stock"), of
Audiovox Corporation (the "Company") and (ii) the shares of
Class A Common Stock issuable upon the exercise of the
Warrants (the "Warrant Shares"). The Warrants were issued
by the Company in a private placement effected on May 9,
1995 (the "Closing Date"). All of the Warrants and Warrant
Shares are being registered for resale from time to time by
the holders thereof (the "Selling Securityholders") and the
Warrant Shares are also being registered for their issuance
by the Company to the Selling Securityholders of the
Warrants upon their exercise of the Warrants. See "Selling
Securityholders." Information concerning the Selling
Securityholders may change from time to time and will be set
forth in
<PAGE>
Supplements to this Prospectus. The Company will not
receive any of the proceeds from the resale by the Selling
Securityholders of the Warrants or the Warrant Shares. The
Company will receive proceeds of $7 1/8 per Warrant Share
(subject to adjustment in certain circumstances) issued upon
exercise of the Warrants. See "Use of Proceeds."
The Warrants are exercisable at the later of (a) May 9,
1996 (one year after the issuance of the Warrants), and (b)
the date a registration statement with respect to the
Warrant Shares has been filed and declared effective by the
Securities and Exchange Commission (the "SEC"), at an
initial exercise price of $7 1/8 per share, subject to
adjustment under certain circumstances. Unless exercised,
the Warrants will automatically expire at 5:00 p.m. (New
York City time) on March 15, 2001 (the "Expiration Date").
If less than 5% of the Warrants initially issued (i.e.,
83,444 Warrants) remain outstanding at any given time, 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. See "Description of
Warrants."
The outstanding Class A Common Stock is traded on the
American Stock Exchange ("AMEX") (Symbol: "VOX"). On
February 6, 1996, the last reported sale price of the Class
A Common Stock on the American Stock Exchange was $5-7/16
per share. The AMEX, the National Association of Securities
Dealers Automated Quotation System Small Capitalization
Market, the Boston Stock Exchange, the Midwest Stock
Exchange, the Pacific Stock Exchange and the Philadelphia
Stock Exchange (the "Exchanges") have each informed the
Company that the number of holders of the Warrants is
insufficient to list such Warrants. Among other listing
requirements, each such Exchange requires at least 250
holders of an equity security, such as the Warrants, as a
prerequisite for the approval of the listing of such
Warrants. Currently, there are approximately 40
Warrantholders. If and when a sufficient number of holders
exist and the Company satisfies the other listing
requirements, the Company presently intends to seek to list
the Warrants on one of the Exchanges.
If this Registration Statement has not been declared
effective at any time prior to the Expiration Date of the
Warrants, the Company will be required to redeem all of the
outstanding Warrants for $1.60 per Warrant (subject to
adjustment in certain limited circumstances).
The Warrants have been approved for trading in the
Private Offering Resales and Trading through Automated
Linkages ("PORTAL") Market since the Closing Date. However,
no public trading market for the Warrants exists and no
active trading market in PORTAL has developed. Josepthal,
Lyon & Ross Incorporated has advised the Company that it
presently intends to make a market in the Warrants after the
effectiveness of this Registration Statement. Josepthal,
Lyon & Ross Incorporated, however, is not obligated to do so
and any such market-making may be discontinued at any time
without notice, in
<PAGE>
the sole discretion of Josepthal, Lyon & Ross Incorporated.
No assurance can be given that any market for the Warrants
will develop or be maintained. Moreover, once the Warrants
are registered under this Registration Statement, the
Warrants which are registered under this Registration
Statement will no longer be eligible for trading on PORTAL.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CAREFULLY
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Company has agreed to bear all expenses (other than
selling expenses) in connection with the registration of the
securities hereby and to indemnify the Selling
Securityholders against certain liabilities including
liabilities under the Securities Act of 1933, as amended.
See "Plan of Distribution." The Company has been advised by
the Selling Securityholders that the Selling
Securityholders, acting as principals for their own account,
directly, through agents designated from time to time, or
through dealers or underwriters also to be designated, may
sell all or a portion of the Warrants or Warrant Shares
which may be offered hereby by them from time to time on
terms to be determined at the time of sale. The aggregate
proceeds to the Selling Securityholders from the sale of
Warrants and Warrant Shares which may be offered hereby by
the Selling Securityholders will be the purchase price of
such Warrants or Warrant Shares less commissions, if any.
For information concerning indemnification arrangements
between the Company and the Selling Securityholders, see
"Plan of Distribution."
The Selling Securityholders and any broker-dealers,
agents or underwriters that participate with the Selling
Securityholders in the distribution of the Warrants or
Warrant Shares may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the
"Securities Act"), in which event any commissions received
by such broker-dealers, agents or underwriters and any
profit on the resale of the Warrants or Warrant Shares
purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. There
can be no assurance that any of the Warrants or the Warrant
Shares will be sold by the Selling Securityholders.
-------------------------------------
<PAGE>
The date of this Prospectus is , 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith,
files reports and other information with the SEC . Such
reports and other information may be inspected and copied at
the public reference facilities maintained by the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C.
20549 and at the SEC's Regional Offices located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington D.C. 20549, at prescribed rates.
The Company's outstanding Class A Common Stock and its 6 1/4%
Convertible Subordinated Debentures due 2001 (the
"Debentures") are listed on the American Stock Exchange, and
such reports and other information can also be inspected at
the offices of the American Stock Exchange, 86 Trinity
Place, New York, New York 10006.
The Company has filed with the SEC a registration
statement on Form S-3 (such registration statement, together
with all amendments and exhibits thereto, being hereinafter
referred to as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"),
for the registration under the Securities Act of the
Warrants and Warrant Shares offered hereby. This Prospectus
does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted
in accordance with the rules and regulations of the SEC.
Reference is hereby made to the Registration Statement for
further information with respect to the Company and the
securities offered hereby. Statements contained herein
concerning the provisions of documents filed as exhibits to
the Registration Statement are necessarily summaries of such
documents, and each such statement is qualified in its
entirety by reference to the copy of the applicable document
filed with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this
Prospectus: (i) the Company's Annual Report on Form 10-K for
the fiscal year ended November 30, 1994; (ii) the Company's
Quarterly Reports on Form 10-Q for the quarters ended
February 28, 1995, May 31, 1995 and August 31, 1995; (iii)
the Company's Current Report on Form 8-K dated May 31, 1995;
(iv) the Company's Current Report on Form 8-K dated June 5,
1995; and (v) 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, all of which have
been filed with the SEC (File No. 1-9532).
The Company also incorporates herein by reference all
documents and reports subsequently filed by the Company with
the SEC pursuant to Section 13(a), 13(c), 14 or
<PAGE>
15(d) of the Exchange Act after the date of this Prospectus
and prior to termination of this offering. Such documents
and reports shall be deemed to be incorporated by reference
in this Prospectus 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 Prospectus 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 Prospectus.
The Company will provide without charge to each person
to whom a copy of this Prospectus 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.
<PAGE>
SUMMARY
The following summary is qualified in its entirety by,
and should be read in conjunction with, the more detailed
information appearing elsewhere in this Prospectus and in
the documents incorporated herein by reference.
The Company
Audiovox Corporation (together with its subsidiaries,
the "Company") 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 Offering
Securities Offered 1,668,875 warrants (the
"Warrants"), 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 after 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 (the
"Warrant Shares") has been filed
and declared effective by the
Securities and Exchange Commission
(the "SEC") and (ii) on or prior to
March 15, 2001 unless the Warrants
are terminated earlier in certain
circumstances (the "Expiration
Date"). The initial exercise price
of each Warrant (the "Warrant
Exercise Price") will be $7 1/8 per
share. 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. See Description of
the Warrants--General"
On February 6, 1996, the reported
closing sales price of the Class A
Common Stock, as reported on the
AMEX, was $5-7/16 per share.
<PAGE>
Warrant Exercise Period 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 Warrant Shares
has been filed and declared
effective by the SEC or (b) after
the Expiration Date. The Warrants
will expire on the Expiration Date;
provided that if less than 5% of
the Warrants initially issued
(i.e., 83,444 Warrants) remain
outstanding at any given time, the
Company may elect, by written
notice to each holder of Warrants,
that the Warrants will expire on
the 30th day after delivery of such
notice.
Registration Rights for
Class A Common Stock;
Reduction in Exercise Price
for Failure to Register
Class A Common Stock The Company has agreed to file with
the SEC by March 4, 1996 (300 days
of the closing of the offering (the
"Closing Date")) and use its
reasonable best efforts to cause to
become effective by (365 days of
the Closing Date), a shelf
registration statement or
statements with respect to the
issuance of the Warrant Shares.
This Registration Statement which
covers the issuance of the Warrant
Shares was filed on February 8,
1996. If the registration
statement with respect to the
Warrant Shares is not declared
effective by May 8, 1996, the
exercise price of the Warrants will
decrease 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 is not declared
effective. In addition, if such
registration statement is declared
effective, the Warrant Exercise
Price will also decrease by $1/8
per share of Class A Common Stock
if such registration statement
ceases 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
<PAGE>
decreases shall be 10 during the
term of the Warrants 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 "Registration
Default"). The reduction in the
Warrant Exercise Price upon a
Registration Default is subject to
adjustment in certain limited
circumstances. 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. The Company will not be
obligated to register the Warrant
Shares (a) which the holder does
not seek to register or (b) as to
which the Company determines that
it is not advisable or appropriate
to register (based on discussions
with the SEC, advise of counsel or
otherwise) such Warrant Shares. In
any such event (a) or (b), the
Warrant Exercise Price underlying
such Warrants will not decrease
upon the failure to register with
the SEC the Warrant Shares if the
SEC has declared effective a
registration statement with respect
to other shares of Class A Common
Stock. See "Description of the
Warrants -- Registration Rights."
Mandatory Redemption If a registration statement
relating to the Warrant Shares has
not been effective at any time on
or prior to the Expiration Date of
the Warrants, the Company will be
required to redeem all of the
outstanding Warrants for $1.60 per
Warrant (the "Redemption Price").
The Redemption Price is subject to
adjustment in certain limited
circumstances.
Listing of Warrants;
Registration of Warrants The Exchanges have each
informed the Company that the
number of holders of the Warrants
is insufficient to list such
Warrants. Among other listing
requirements, each such Exchange
requires at least 250 holders of an
equity security, such as the
Warrants, as a prerequisite for
approval of the listing of such
Warrants. Currently, there are
approximately 40 Warrantholders.
If and when a sufficient number of
holders exist and the Company
satisfies the other listing
requirements, the
<PAGE>
Company presently intends to seek
to list the Warrants on one of the
Exchanges. If any of the Exchanges
ultimately agree to list the
Warrants (a "Listing Approval"),
the Company is required, pursuant
to a Registration Rights Agreement
between the Company and the holders
of the Warrants, to file a shelf
registration statement relating to
the Warrants upon the later of (a)
March 4, 1996 (300 days after the
Closing Date) and (b) the date
approval of such listing is
obtained (the "Approval Date") and
will use its reasonable best
efforts to cause such registration
statement to become effective upon
the later of (a) May 8, 1996 (365
days after the Closing Date) and
(b) 60 days after the Listing
Approval Date. Although none of
the Exchanges has agreed to list
the Warrants, the Company is
registering the Warrants pursuant
to this Registration Statement.
Once effective, if a Listing
Approval occurs, the Company is
obligated to use reasonable best
efforts to cause the registration
statement relating to the Warrants
to remain effective for three years
following the Closing Date.
Shalam Option John J. Shalam, Chief Executive
Officer of the Company, granted the
Company an option (the "Shalam
Option") to purchase 1,668,875
shares of Class A Common Stock.
The purchase price per share of
Class A Common Stock (the "Shalam
Option Price") under the Shalam
Option 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
<PAGE>
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 the 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 operative
terms of the Shalam Option (other
than the exercise price in certain
circumstances) are similar to those
of the Warrants, however, the
Shalam Option Price per share for
the Shalam Option will not decrease
in the event of a Registration
Default. 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. The Shalam Option
may limit the dilutive effect of
the Warrants on the earnings per
share or the book value per share
of the Company, if the Company
elects to exercise the Shalam
Option. The Company has also
agreed to indemnify Mr. Shalam from
any liabilities arising from the
Offering, including liabilities
under any federal or state
securities laws. See "Description
of Capital Stock -- Shalam Option."
Use of Proceeds The Company will not receive any
cash proceeds from the sale of the
Warrants by the Selling
Securityholders. The proceeds
received by the Company upon
exercise of the Warrants will be
used toward the purchase of shares
of Class A Common Stock upon
exercise of the Shalam Option or,
if the Board of Directors
determines
<PAGE>
not to exercise the Shalam Option,
as, when and if received by the
Company, to purchase inventory and
for other working capital or
general corporate needs.
Original Issuance of Warrants The Warrants were
originally issued to the beneficial
holders (the "Debentureholders") of
the Debentures as of June 3, 1994
in consideration of the delivery by
such Debentureholder of a release
which released the Company, the
underwriters for the sale of the
Debentures and their respective
directors, officers, partners,
employees and agents, from
liability for any and all potential
claims, if any, such beneficial
holder may have had against such
persons in connection with such
purchaser's investment in the
Debentures and the offering of the
Debentures. Each Debentureholder
executing a release received 30
Warrants per $1,000 principal
amount of Debenture beneficially
held as of June 3, 1994 (except
Oppenheimer & Co., Inc., which
beneficially held $12,065,000 of
the Debentures as of June 3, 1994
and which received 25 Warrants per
$1,000 principal amount of its
Debentures).
Warrant Agent Continental Stock Transfer & Trust
Company
Two Broadway
New York, New York 10004
Attention: William Seegraber
Telephone (212) 509-4000.
Risk Factors For a discussion of certain factors
that should be carefully considered
in connection with an investment in
the securities offered hereby, see
"Risk Factors" beginning on page
13.
American Stock Exchange
Symbol of Class A Common
Stock VOX
<PAGE>
RISK FACTORS
The following factors should be carefully considered,
together with the other information in this Prospectus and
the documents incorporated by reference herein, in
evaluating an investment in the securities offered hereby.
History of Losses. The Company reported net losses of
approximately $1,554,000, $3,192,000, and $14,658,000 for
the fiscal years ended November 30, 1989, 1990 and 1991,
respectively. These losses were primarily attributable to
both operating losses and to charges incurred in connection
with the restructuring of the Company's operations and the
cessation of operations of two unsuccessful ventures, Hermes
Telecommunications, Inc. ("Hermes") (a majority-owned
subsidiary) and Park Plus Corp. ("Park Plus") (a 50% owned
joint venture). Such charges included costs incurred in the
closing of certain sales and distribution facilities,
write-downs of assets associated with the Hermes and Park
Plus product lines, employee termination expenses and
certain other charges. During the fiscal years ended
November 30, 1989, 1990 and 1991, earnings were insufficient
to cover fixed charges by approximately $2,642,000,
$4,792,000 and $15,098,000, respectively. Although the
Company was profitable for the fiscal years ended November
30, 1992, 1993 and 1994, for the nine months ended
August 31, 1995, the Company reported a net loss of $9.6
million which was primarily attributable to a charge of $2.9
million for the private placement of the Warrants and an
$11.8 million charge for inventory writedowns and other
costs associated with the downsizing of the Company's retail
operations. There can be no assurance that the Company will
return to 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 Form 10-Q for the quarter ended August
31, 1995.
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
<PAGE>
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 1992, 1993 and 1994 and the first nine months
of fiscal 1995, the Company purchased 94.6%, 89.7%, 91.8%
and 96.2, respectively, of its total dollar amount of
cellular product purchases from Japanese suppliers, and
revenues from cellular products from Japanese suppliers
comprised 46.6%, 46.3%, 47.8% and 49.2%, 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.
<PAGE>
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 June 25, 1996 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 February 6, 1996
was 105.15 yen; over the five years preceding that date the
value of the United States dollar ranged from 159.85 yen to
80.15 yen.
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
<PAGE>
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.
Dependence on Toshiba. Since 1984, Toshiba has been
the principal supplier of cellular telephone products to the
Company, accounting for approximately 86.4%, 83.7%, 83.7%
and 71.9% of the total dollar amount of the Company's
cellular product purchases and approximately 48.0%, 46.9%,
45.5% and 46.8% of the total dollar amount of all product
purchases by the Company in fiscal 1992, fiscal 1993, fiscal
1994 and the first nine months of fiscal 1995, 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 but, in November, 1995, Toshiba
announced that its U.S. distribution subsidiary was
withdrawing from the United States cellular telephone
market. Toshiba will continue to sell products to the
Company as an original equipment customer; however, there is
no agreement in effect that requires Toshiba to supply the
Company with products. 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.
<PAGE>
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 the nine
months ended August 31, 1995 by approximately $3,393,000 and
$2,046,000, 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 Form 10-Q for the quarter ended August 31, 1995.
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
<PAGE>
telephones supplied by Motorola, Inc., Nokia Mobile Phones,
Inc., Fujitsu Network Transmission Systems, Inc., Oki
Electric Industry Co., Nippon Electric Corp. 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 Form
10-Q for the quarter ended August 31, 1995.
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. 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
<PAGE>
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, 1992, 1993 and 1994 and the nine
months ended August 31, 1995, approximately 12.4%, 12.6%,
13.8% and 17.8%, respectively, of the Company's net sales
were generated from sales in Canada, Europe, Latin America,
Asia, the Middle East and Australia. 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, 1995, the
Company had outstanding total interest bearing indebtedness
of approximately $140.9 million and a total debt-to-total
capital ratio of .53 to 1. Although a portion of the net
proceeds from the sale of the 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 Company's Series AA
10.80% Convertible Debentures due February 9, 1996 (the
"Series AA Convertible Debentures") and Series BB 11.00%
Convertible Debentures due February 9, 1996 (the "Series BB
Convertible Debentures"), the Debentures and the Company's
Credit Agreement, as amended in May, 1995 (the "Second
Amended and Restated 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."
<PAGE>
Restrictive Covenants. The Second Amended and Restated
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, and require that the
Company satisfy certain financial tests and maintain certain
financial ratios. Failure to comply with such covenants
could result in a default under the Second Amended and
Restated Credit Agreement which could have a material
adverse effect on the financial condition and results of
operations of the Company.
Absence of Existing Market for the Warrants; Listing of
Warrants. Prior to this Offering, there has not been any
public market for the Warrants. Although the Warrants have
been eligible for trading through PORTAL, no active trading
market for the Warrants has developed. There can be no
assurance that an active trading market for the Warrants
will develop or, if such market develops, as to the
liquidity or sustainability of such a market. Moreover,
once the Warrants are registered under this Registration
Statement, the Warrants which are registered under this
Registration Statement will no longer be eligible for
trading on PORTAL. The Exchanges have each informed the
Company that the number of holders of the Warrants is
insufficient to list such Warrants. Among other listing
requirements, each such Exchange requires at least 250
holders of an equity security, such as the Warrants, as a
prerequisite for the approval of the listing of such
Warrants. Currently, there are approximately 40
Warrantholders. If and when a sufficient number of holders
exist and the Company satisfies any other applicable
requirements, the Company presently intends to seek to list
the Warrants on one of the Exchanges. Even if the Warrants
are listed or approved for quotation, because of the small
number of holders of Warrants and the limited number of
Warrants outstanding, there can be no assurance that the
Warrants will not be subject to delisting or in such event,
an investor may find it difficult to dispose of, or to
obtain accurate quotations as to the value of, the Warrants.
Josepthal, Lyon & Ross Incorporated has informed the
Company that it intends to make a market in the Warrants;
however, Josepthal, Lyon & Ross Incorporated is not
obligated to do so and any such market-making activity may
be terminated at any time without notice to the holders of
the Warrants. In addition, such market-making activity will
be subject to the limits of the Securities Act. Accordingly,
no assurance can be given that a holder of the Warrants will
be able to sell such Warrants in the future or as to the
price at which any sale may occur.
<PAGE>
Possible Volatility of Stock Price. Since 1991, the
market price of the Class A Common Stock has experienced a
high degree of volatility. Due to the volatility of the
Class A Common Stock as well as the low volume of Warrants
traded, it can be expected that the Warrants will also
experience significant volatility. 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
adversely affect the market price of the Class A Common
Stock and the Warrants without regard to the operating
performance of the Company. The Company believes that
factors such as 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 and the Warrants to fluctuate substantially.
Shares Eligible for Future Sale; Dilution. The Company
has approximately 3,413,721 shares of Class A Common Stock
held by members of the public that are able to trade without
restriction. Sales of a substantial number of additional
shares of Class A Common Stock in the public market could
adversely affect the market price of the Class A Common
Stock. As of February 1, 1996, 3,672,317 shares of Class A
Common Stock were issuable upon conversion of the
Debentures, 1,023,028 shares of Class A Common Stock were
issuable upon conversion of the Series AA Convertible
Debentures and Series BB Convertible Debentures, 100,000
shares of Class A Common Stock were issuable upon exercise
of the Blau Warrant, 50,000 shares of Class A Common Stock
were issuable upon exercise of the warrant issued to James
Maxim (the "Maxim Warrant") and 1,668,875 shares of Class A
Common Stock were issuable upon exercise of the Warrants.
Exercise or conversion, as the case may be, of a substantial
amount of the Company's presently outstanding warrants, the
Debentures, the Series AA Convertible Debentures or the
Series BB Convertible Debentures or sale of the Class A
Common Stock underlying such debentures 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 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. The Company has granted the
holders of the Series AA Convertible Debentures, the Series
BB Convertible Debentures and the warrants described above
certain registration rights relating to the Class A Common
Stock issuable upon conversion or exercise of such
debentures or warrants, as the case may be. In addition, as
of February 1, 1996, (i) John J. Shalam, President and Chief
Executive Officer of the Company, owned 3,359,367 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
<PAGE>
and (ii) other affiliates (as such term is defined in the
Exchange Act) of the Company owned 4,700 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. 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.
John J. Shalam, Chief Executive Officer of the Company,
granted the Company the Shalam Option to purchase 1,668,875
Option Shares at a purchase price equal to the sum of
(a) the Warrant Exercise Price plus (b) an additional amount
(the "Tax Amount") intended to reimburse Mr. Shalam or his
Successors for any additional taxes per share which may be
required to be paid by Mr. Shalam or his Successors as a
result of the payment of the Warrant Exercise Price being
treated for federal income tax purposes as the distribution
to Mr. Shalam or his Successors of a dividend (taxed at
ordinary income rates without consideration of Mr. Shalam's
or his Successors', as the case may be, basis), rather than
as a payment to Mr. Shalam or his Successors, 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
Successors) pursuant to the Shalam Option. If Mr. Shalam or
his Successors, as a result of the receipt of the payment of
the Warrant Exercise Price, are taxed at a capital gains
rate (with consideration given to their stepped up basis),
no Tax Amount will be included in the purchase price to be
paid. 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. The terms
of the Shalam Option (other than the initial exercise price)
are similar to those of the Warrants, however, the exercise
price per share for the Shalam Option will not decrease in
the event of a Registration Default. Such additional amount
per share shall be calculated in accordance with the tax
rates applicable to the date of exercise in accordance with
the following formula:
(A-B) x C + (B+D)
_________________
1-A
where A equals Mr. Shalam's combined marginal U.S. federal,
state and local ordinary income tax rates after reduction of
the federal rate for the benefit of the deductions for state
and local taxes; B equals Mr. Shalam's combined marginal
U.S. federal, state and local capital gains tax rates after
reduction of the federal rate for the benefit of the
deductions for state and local taxes; C equals the per share
Warrant Exercise Price without giving effect to any
adjustment thereof resulting from a Registration Default;
and D equals Shalam's per share adjusted tax basis in the
Class A Common Stock purchasable by the Company pursuant to
the Shalam Option and includes any stepped-up basis of Mr.
<PAGE>
Shalam's Successors. Any payment owing to Mr. Shalam's
Successors will be based on the same formula as it relates
to such Successors.
The Shalam Option will be exercisable, in whole or in
part, for 1,668,875 shares of Common Stock. The basic terms
of the Shalam Option are similar to the basic terms of the
Warrants except that the exercise price of the Shalam Option
will not be reduced in the event of a Registration Default.
The Company is not required to exercise the Shalam Option
upon exercise of the Warrants and intends to do so only if
the Board of Directors of the Company (other than Mr.
Shalam) at the time of exercise of the Warrants, determines
that it is in the best interests of the stockholders of the
Company to exercise such Shalam Option. The Company will be
able to exercise the Shalam Option only if the Warrants are
exercised and then only for the same number of shares as are
purchased under the Warrants. The Shalam Option may limit
the dilutive effect of the Warrants on the earnings per
share or the book value per share if the Company elects to
execute the Shalam Option. The obligations of the Company
under the Warrants are not subject to compliance by Mr.
Shalam with the terms of the Shalam Option. The Tax Amount
will be immediately due and payable upon receipt of a
satisfactory notice from the holder of the Option Shares
stating that a Tax Amount is required to reimburse such
person for additional taxes in accordance with the Shalam
Option, setting forth the calculation of the Tax Amount and
confirming that such person will file its tax return with
respect to this period in accordance with the facts
underlying this calculation, but such Tax Amount is subject
to readjustment in the event the actual tax paid is
different than the amount set forth in the notice. Upon
consummation of the Offering, a legend was placed on share
certificates representing 1,668,875 shares of Class A Common
Stock owned by Mr. Shalam which provided that such shares
are subject to the terms of the Shalam Option. Such legend
on the Option Shares will be removed with respect to the
number of Option Shares equal to the number of shares of
Class A Common Stock underlying the Warrants which have been
exercised and with respect to which the independent members
of the Board of Directors of the Company have determined not
to exercise the Shalam Option as well as upon the expiration
of the Shalam Option.
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, and
Charles M. Stoehr, Senior Vice President and Chief Financial
Officer. 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.
<PAGE>
Risk of Amendment to Warrants. Under the terms of a
Warrant Agreement, the Warrants may be amended or modified
by holders of a majority of the Warrants in a manner which
materially adversely affects holders of the Warrants unless
such amendment or modification would increase the exercise
price or reduce the shares of Class A Common Stock
purchasable upon exercise of the Warrants (other than
pursuant to adjustments provided in the Warrant Agreement),
which amendments require the approval of each holder of
Warrants. Accordingly, the Warrants could be amended in a
manner materially adverse to the holder of a Warrant without
such holder's consent.
Voting Rights of Class A Common Stock and Voting
Control by Principal Stockholder. The voting rights of
holders of Class A Common Stock into which the Debentures
are convertible and for which all of the Company's
outstanding warrants are exercisable are limited by the
Company's Certificate of Incorporation. Each share of Class
A Common Stock is 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. The rights of holders of Class A Common Stock
and Class B Common Stock with respect to the election of
directors will be subject to certain adjustments under
specified circumstances. 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 3,359,367 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 85.5% 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. The holders of the Warrants will 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--Effects of
Disproportionate Voting Rights."
Certain Prospectus and State Blue Sky Registration
Required to Sell or Exercise Warrants. Holders of the
Warrants will have the right to sell or exercise the
<PAGE>
Warrants only if a current prospectus relating to the
Warrants and/or the shares of Class A Common Stock
underlying the Warrants are Warrants are qualified for sale
or exempt under applicable state securities laws of the
states in which the various holders of the Warrants or Class
A Common Stock reside. There can be no assurance that the
Company will be able to keep this Prospectus or any
Prospectus covering such securities current. The Warrants
and/or the underlying shares of Class A Common Stock may be
deprived of any value if a current prospectus covering the
Warrants and/or the shares of Class A Common Stock issuable
upon exercise thereof is not kept effective or if such
securities are not registered or exempt in the state in
which holders of such securities reside.
THE COMPANY
Audiovox Corporation (together with its subsidiaries,
the "Company") 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.
USE OF PROCEEDS
The Warrants offered by the Selling Securityholders are
not being sold by the Company, and the Company will not
receive any proceeds from the sale thereof. The Company
will receive proceeds in the event the Warrants are
exercised prior to expiration. These proceeds will be used,
as and if received by the Company, to purchase the Option
Shares underlying the Shalam Option, inventory and for other
working capital or general corporate needs. The Company
will not receive any proceeds from the resale of the Warrant
Shares.
SELLING SECURITYHOLDERS
The Warrants were originally issued on May 9, 1995 to
the beneficial holders (the "Debentureholders") of the
Debentures as of June 3, 1994 in consideration for the
delivery by such Debentureholder of a release which released
the Company and their respective directors, officers,
partners, employees and agents, from liability for any and
all potential claims, if any, such beneficial holder may
have had against such persons in connection with such
purchaser's investment in the debentures and the offering of
the Debentures. Each Debentureholder executing a release
received 30 Warrants per $1,000 principal amount of
Debentures beneficially held as of June 3, 1994 (except
Oppenheimer & Co., Inc., which held $12,065,000 of the
Debentures as of June 3, 1994, and which received 25
Warrants per $1,000 principal amount of the Debentures).
The following
<PAGE>
table sets forth information concerning the number of
Warrants beneficially owned by each Selling Securityholder
which may be offered from time to time pursuant to this
Prospectus. Other than as a result of the ownership of
Warrants or Class A Common Stock, none of the Selling
Securityholders has had any material relationship with the
Company within the past three years except that Oppenheimer
& Co., Inc. acted as an underwriter in the sale of the
Debentures for which it received a customary fee and
reimbursement of expenses. The table has been prepared
based upon information furnished to the Company by the
Warrant Agent, by The Depository Trust Company and by or on
behalf of the Selling Securityholders.
<TABLE>
<CAPTION>
Percent of
Name Number of Outstanding
Warrants Owned Warrants
<S> <C> <C>
* * *
Total 1,668,875 100.0
<FN>
* List of Selling Securityholders to be inserted by amendment
</TABLE>
Information concerning the Selling Securityholders may
change from time to time and will be set forth in
Supplements to this Prospectus. As of the date of this
Prospectus, 1,668,875 Warrants are outstanding which may be
converted into the same number of shares of Class A Common
Stock.
Because the Selling Securityholders may offer all or
some of the Warrants and shares of Class A Common Stock
issued upon conversion thereof pursuant to the offering
contemplated by this Prospectus, and because there are
currently no agreements, arrangements or understandings with
respect to the sale of any of the Warrants or shares of
Class A Common Stock underlying the Warrants that will be
held by the Selling Securityholders after completion of this
offering, no estimate can be given as to the number of
Warrants or shares of Class A Common Stock that will be held
by the Selling Securityholders after completion of this
offering. See "Plan of Distribution."
<PAGE>
DESCRIPTION OF THE WARRANTS
The Warrants were issued under the Warrant Agreement.
The following summaries of certain provisions of the Warrant
Agreement do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all the
provisions of the Warrants and the Warrant Agreement,
including the definitions therein of certain terms.
Wherever particular sections or defined terms of the Warrant
Agreement are referred to, such sections or defined terms
are incorporated by reference.
Copies of the form of Warrant and the Warrant Agreement
been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. See "Available
Information."
General
Each Warrant entitles the registered holder thereof
(the "holder"), subject to and upon compliance with the
provisions thereof and of the Warrant Agreement, at such
holder's option, to purchase one share of Class A Common
Stock. The Warrant Exercise Price of each Warrant is $7 1/8
per share, subject to adjustment in certain circumstances.
The Warrants are not be exercisable until the later of May
9, 1996 (one year after the Closing Date) and the date a
registration statement with respect to the issuance of Class
A Common Stock upon exercise of the Warrants shall be
effective under the Securities Act, and will expire, unless
exercised, at 5:00 p.m., New York City time, on March 15,
2001 or such earlier date as set forth in the next sentence
(the "Expiration Date"). If less than 83,444 Warrants
(i.e., 5% of the Warrants initially issued) remain
outstanding at any given time, the Company may elect, by
notice to each holder of Warrants, that the Warrants will
expire on the 30th day after delivery of such notice. See
"Registration Rights" below. The Warrant Exercise Price and
the number of shares of Class A Common Stock for which
Warrants may be exercised is subject to adjustment as set
forth below. See "Adjustments" below.
Warrants may be exercised by surrendering the
certificate evidencing such Warrants (the "Warrant
Certificate") with the form of election to purchase shares
set forth on the reverse side thereof duly completed and
executed by the holder thereof and paying in full the
Warrant Exercise Price for each such Warrant at the office
or agency designated for such purpose, which will initially
be the corporate trust office of the Warrant Agent in New
York, New York. Warrants evidenced by the Global Warrant
Certificate (as defined) may be exercised by a holder by
either obtaining a definitive Warrant Certificate and
following the procedure set forth above or by following
certain procedures set forth in the Warrant Agreement. Each
Warrant may only be exercised in whole, and the Warrant
Exercise Price may be paid only by certified or official
bank
<PAGE>
check payable in accordance with the Warrant Agreement or as
otherwise agreed to by the Company.
No fractional shares of Class A Common Stock will be
issued upon exercise of the Warrants. In lieu thereof, the
Company will pay a cash adjustment based upon the market
price of the Class A Common Stock.
The Warrants are eligible for trading on PORTAL.
However, no active public trading market for the Warrant has
developed and no assurance can be given as to the liquidity
of the trading market for the Warrants. Moreover, once the
Warrants are registered under this Registration Statement,
the Warrants which are registered under this Registration
Statement will no longer be eligible for trading on PORTAL.
The Exchanges have each informed the Company that the number
of holders of the Warrants is insufficient to list such
Warrants. Among other listing requirements, each such
Exchange requires at least 250 holders of an equity
security, such as the Warrants, as a prerequisite for the
approval of the listing of such Warrants. Currently, there
are approximately 40 Warrantholders. If and when a
sufficient number of holders exist and the Company satisfies
the other listing requirements, the Company presently
intends to seek to list the Warrants on one of the
Exchanges. Even if the Warrants are listed or approved for
quotation, there can be no assurance that the Warrants will
not become delisted. If the Warrants have not been approved
for listing (or quotation), the Company is not required to
register the Warrants under the Securities Act pursuant to
the Registration Rights Agreement; however, even though the
Exchanges have not agreed to list the Warrants, the Company
is registering the Warrants, pursuant to this Registration
Statement. As described above, if the Warrants are not
registered under the Securities Act, they may not be offered
or be sold except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of
the Securities Act and applicable state securities laws.
See "Risk Factors--Absence of Existing Market for Warrants;
Restrictions on Resale."
Mandatory Redemption
If a registration statement relating to the Warrant
Shares is not effective at any time on or prior to the
Expiration Date, the Company is required to redeem all of
the outstanding Warrants for $1.60 per Warrant. The
Redemption Price is subject to adjustment in certain limited
circumstances. See "Description of Warrants --
Adjustments."
<PAGE>
Adjustments
The Warrant Exercise Price and the number of shares of
Class A Common Stock issuable upon exercise of the Warrants
are subject to adjustment in accordance with formulas set
forth in the Warrant Agreement in the event of: (i) the
issuance of any shares of Common Stock to holders of any
class of Common Stock as a dividend or distribution; or (ii)
subdivisions, combinations and reclassifications of any
class of Common Stock. The Shalam Option will also contain
the adjustments set forth in (i) and (ii) above.
Except as stated in the preceding provisions, the
initial Warrant Exercise Price and the number of shares
issuable upon exercise of the Warrants will not be adjusted
for any other events including issuances of shares of Class
A Common Stock, or options to acquire shares of Class A
Common Stock, at less than the then current market price of
the Class A Common Stock or the then current Warrant
Exercise Price of the Warrants. Moreover, no adjustment
will be made unless such adjustment would require a change
of at least 1% in the Warrant Exercise 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 reserves the right to
make such reductions in the Warrant Exercise 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.
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, a "Transaction"), the Person formed by such
Transaction or which acquires such assets, as the case may
be (the "Acquiror"), shall execute and deliver to the
Warrant Agent prior to the consummation of the Transaction a
warrant agreement (or supplement to the Warrant Agreement)
providing that the Holder of each Warrant then outstanding
shall have the right thereafter, during the period such
Warrant shall be exercisable in accordance with the Warrant
Agreement, to exercise such Warrant only into the kind and
amount of securities, cash or other property (collectively,
the "Consideration") receivable upon such Transaction by a
holder of the number of shares of Class A Common Stock into
which such Warrant might have been converted immediately
prior to such Transaction (assuming such holder of shares of
Class A Common Stock (i) 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, as the case may be (a "constituent
person") (or an affiliate of a constituent person), and
(ii) failed to exercise his or her rights of election, if
any, and received per share of Class A
<PAGE>
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).
Modification of the Warrant Agreement
The Warrant Agreement permits, with certain exceptions,
the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the holders of
Warrant Certificates under the Warrant Agreement at any time
by the Company and the Warrant Agent with the consent of the
holders of Warrant Certificates representing a majority in
number of the then outstanding Warrants; provided that no
such modification or amendment may, without the consent of
the holder of each outstanding Warrant affected thereby: (i)
change the Expiration Date (except to extend the Expiration
Date to a later date) or increase the Warrant Exercise
Price; (ii) reduce the reduction in the Warrant Exercise
Price of a Warrant upon a Registration Default or (iii)
reduce the percentage of Holders of Warrants the consent of
who is required for modification or amendment of the Warrant
Agreement. See "Risk Factors--Amendment to the Warrants."
The Warrant Agreement (including the terms and
conditions of the Warrants) may be modified or amended by
the Company and the Warrant Agent without the consent of the
holder of any Warrant, for certain specified purposes not
materially adversely affecting the rights of the holders of
the Warrants.
No Rights as Stockholder
Holders of Warrants are not entitled, by virtue of
being such holders, to receive dividends, vote, receive
notice of any meetings of stockholders, share in the assets
of the Company in the event of liquidation, dissolution or
the winding up of the Company's affairs, or otherwise have
any right of stockholders of the Company.
Rule 144A Information Requirement; Financial Information
The Company agreed to furnish to the holders, the
beneficial holders of the Warrants designated by the Holders
of the Warrants, or the prospective purchasers of any such
securities, the information required to be delivered
pursuant to Rule 144A(d)(4) promulgated under the Securities
Act, if applicable, until such time as such securities are
no longer "restricted securities" within the meaning of Rule
144 promulgated under the Securities Act. Accordingly, such
requirements will terminate upon the effectiveness of this
Registration Statement. Upon request, the Company will also
furnish to the holders of the Warrants all quarterly and
annual financial information furnished to the holders of the
Class A Common Stock.
<PAGE>
Transfer and Exchange
A holder may transfer or exchange the Warrants in
accordance with the Warrant Agreement. The Warrant
Certificates evidencing the Warrants may be surrendered for
exercise or exchange, and the transfer of Warrant
Certificates will be registrable, at the office or agency of
the Company maintained for such purpose, which initially
will be the corporate trust office of the Warrant Agent in
New York, New York. The Warrant Certificates will be issued
only in fully registered form in denominations of whole
numbers of Warrants. No service charge will be made for any
exercise, exchange or registration of transfer of Warrant
Certificates, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge
payable in connection therewith. The Company may also
require a holder, among other things, to furnish appropriate
endorsements and transfer documents.
The registered holder of a Warrant may be treated as
the owner of it for all purposes.
Book Entry; Delivery and Form
Upon registration of the Warrants, the interests in the
global warrants issued in the initial private placement of
the Warrants (the "Restricted Global Warrants"), will be
cancelled upon the transfer of all of the interests in such
Restricted Global Warrants to one or more permanent global
certificates in fully registered form (the "Global
Warrant"), such Global Warrant to be deposited with the
Warrant Agent as custodian for the Depository Trust Company,
New York, New York ("DTC") and registered in the name of a
nominee of DTC, Cede & Co. Warrants not registered will
remain represented by the Restricted Global Warrants.
Pursuant to the procedures set forth in the Warrant
Agreement, interests in the Global Warrant is exchangeable,
at the option of the holder, for a physical certificate in
fully registered form (a "Certificated Warrant").
Upon the issuance of the Global Warrant, DTC or its
custodian will credit, on its internal system, the
respective number of Warrants of the individual beneficial
interests represented by such Global Warrant to the accounts
of persons who have accounts with DTC (and make
corresponding debits to the accounts of persons who have
interests in the Restricted Global Warrants). Ownership of
beneficial interests in a Global Warrant will be limited to
persons who had, or will have, accounts with DTC
("participants") or persons who will hold interests through
participants. Ownership of beneficial interests in a Global
Warrant 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) for
such Global Warrant, or by participants or persons that hold
interests through participants (with respect to interests of
persons other than participants).
<PAGE>
So long as DTC, or its nominee, is the registered owner
or holder of a Global Warrant, DTC or such nominee, as the
case may be, will be considered the sole owner or holder of
the Warrants represented by such Global Warrant for all
purposes under the Warrant Agreement and the Warrants. No
beneficial owner of an interest in the Global Warrant will
be able to transfer that interest except in accordance with
DTC's applicable procedures, in addition to those provided
for under the Warrant Agreement.
Neither the Company, the Warrant Agent nor any agent of
the Warrant Agent 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 Warrant 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 upon redemption in respect of the
Global Warrant will credit participants' accounts with
payments in amounts proportionate to their respective
beneficial interests in the amounts of such Global Warrant
as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of
beneficial interests in such Global Warrant 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 a Global Warrant requires physical delivery of a
Certificated Warrant for any reason, including to sell
Warrants to persons in states which require physical
delivery of a Certificated Warrant or to pledge such
Warrants, such holder must transfer its interest in the
Global Warrant in accordance with the normal procedures of
DTC and the procedures set forth in the Warrant Agreement.
DTC has advised the Company that it will take any
action permitted to be taken by a holder of Warrants only at
the direction of one or more participants to whose account
the DTC interests in Global Warrant is credited and only in
respect of such portion of the aggregate number of Warrants
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
<PAGE>
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 and CEDEL have agreed to the foregoing
procedures in order to facilitate transfers of interests in
the Global Warrants among participants of DTC and CEDEL they
are under no obligation to perform such procedures, and such
procedures may be discontinued at any time. Neither the
Company nor the Warrant Agent will have any responsibility
for the performance by DTC or CEDEL or their respective
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 Warrants and a successor
depositary is not appointed by the Company within 90 days,
the Company will issue Certificated Warrants in exchange for
the Global Warrant.
Registration Rights
Pursuant to the Warrant Agreement, the Company agreed
to file with the SEC by March 4, 1996 a shelf registration
statement or statements under the Securities Act on Form
S-1, Form S-2 or Form S-3, as determined by the Company, if
the use of such form is then available, to cover the
issuance of Class A Common Stock by the Company upon
exercise of the Warrants (the "Shelf Registration
Statement"). The Registration Statement (of which this
Prospectus is a part) was filed within such time period.
The Warrant Agreement also provides that the Company will
use reasonable best efforts to cause the Shelf Registration
Statement to be declared effective by the SEC on or prior to
one year after the Closing Date. If: (i) the Shelf
Registration Statement is not filed with the SEC on or prior
to March 4, 1996 (this Registration Statement was filed by
March 4, 1996); (ii) the Shelf Registration Statement has
not been declared effective by the SEC by May 8, 1996; or
(iii) the Shelf Registration Statement is filed and declared
effective but shall thereafter cease to be effective
(without being succeeded immediately by an additional
Registration Statement filed and declared effective) for a
period of time which shall exceed 90 days (180 days in the
event of a Disadvantageous Condition (as defined below)) in
the aggregate per year (defined as a period of 365 days
beginning on the date such Registration Statement is
declared effective) (each such event referred to in clauses
(i) through (iii) above, a "Registration Default"), the
Warrant Exercise Price of the
<PAGE>
Warrants will be reduced by $1/8 per share of Class A Common
Stock. The Warrant Exercise Price of the Warrants will be
reduced by an additional $1/8 per share of Class A Common
Stock, as applicable, with respect to each subsequent
six-month period until the applicable Registration Statement
is filed, is declared effective, or again becomes effective,
as the case may be. Notwithstanding the foregoing, the
maximum number of $1/8 per share decreases shall be 10
during the term of the Warrants and there shall be no more
than one such decrease in any six-month period. The
reduction in the Warrant Exercise Price upon a Registration
Default is subject to adjustment in certain limited
circumstances. The Company is not obligated to register
Warrant Shares (a) which the holder does not seek to
register or (b) if the Company determines (based on
discussions with the SEC, advice of counsel or otherwise)
that it is not advisable or appropriate to register such
Warrant Shares if the SEC has declared effective a
registration statement with respect to other shares of Class
A Common Stock underlying the Warrants. In any such event
(a) or (b), the exercise price underlying such Warrants will
not decrease upon the failure to register with the SEC such
underlying shares of Class A Common Stock if the SEC has
declared effective a registration statement with respect to
other shares of Class A Common Stock. The Shalam Option
does not contain a similar reduction in the Warrant Exercise
Price upon a Registration Default.
The Exchanges have each informed the Company that the
number of holders of the Warrants is insufficient to list
such Warrants. Among other listing requirements, each such
Exchange requires at least 250 holders of an equity
security, such as the Warrants, as a prerequisite for the
approval of the listing of such Warrants. Currently, there
are approximately 40 Warrantholders. If and when a
sufficient number of holders exist, the Company presently
intends to seek to list the Warrants on one of the
Exchanges. If an Exchange does list or quote the Warrants
(a "Listing Approval"), the Company is required, pursuant to
the Registration Rights Agreement, to file a shelf
registration statement (the "Resale Registration Statement")
relating to the Warrants upon the later of (a) 300 days
after the Closing Date and (b) the date approval of such
listing or quotation is obtained (the "Approval Date") and
will use its reasonable best efforts to cause such
Registration Statement to become effective upon the later of
(a) 365 days after the Closing Date and (b) 60 days after
the Listing Approval Date. Although none of the Exchanges
has agreed to list the Warrants, the Company is registering
the Warrants, pursuant to this Registration Statement. Once
effective, and a Listing Approval has occurred, the Company
will be obligated to use reasonable best efforts to cause
the Resale Registration Statement to remain effective until
the date three years following the Closing Date.
Notwithstanding the foregoing, if the Company furnishes
to the holders of Warrants notice stating that in the Board
of Directors' good faith judgment it would be
disadvantageous (a "Disadvantageous Condition") to the
Company or its stockholders for
<PAGE>
such a registration statement to be maintained effective, or
to be filed and become effective, the Company shall be
entitled to cause any such registration statement to be
withdrawn and the effectiveness of such registration
statement terminated, or, in the event no such registration
statement has yet been filed, shall be entitled not to file
any such registration statement, until such Disadvantageous
Condition no longer exists (notice of which the Company
shall promptly deliver to the Holders of Warrants), such
period not to extend beyond one hundred and eighty (180)
days. In the event that the Company shall give any notice
of a Disadvantageous Condition, the Company shall at such
time as it in good faith deems appropriate file a new
registration statement covering the securities that were
covered by such withdrawn Registration Statement, and such
Registration Statement shall be maintained effective for
such time as may be necessary so that the period of
effectiveness of such new Registration Statement, when
aggregated with the period during which such initial
Registration Statement was effective, shall be such time as
may be otherwise required by this Agreement.
Once effective, the Company is obligated to cause the
Resale Registration Statement to remain effective for three
years following the Closing Date, and to cause the Shelf
Registration Statement to remain effective until the
Expiration Date.
Holders of the securities being sold under this
Registration Statement are required to indemnify the Company
against certain liabilities, including liabilities under the
Securities Act, incurred as a result of information provided
by such Holders in connection with this Registration
Statement, and to contribute to payments the Company may be
required to make in respect of such liabilities.
Concerning the Warrant Agent
Continental Stock Transfer & Trust Company will act as
Warrant Agent under the Warrant Agreement. The address of
the Warrant Agent's corporate trust office is Two Broadway,
New York, New York 10004, Attention: William Seegraber.
Continental Stock Transfer & Trust Company also acts as
trustee under the Indenture governing the Debentures, and as
registrar and transfer agent for the 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, 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 February 1,
1996, there were 6,777,788 shares of Class A Common Stock
outstanding. As of February 1, 1996, 2,260,954 shares of
Class B
<PAGE>
Common Stock and 50,000 shares of Preferred Stock were
issued and outstanding. There are no shares of Series
Preferred Stock outstanding.
The following summary description relating to the Class
A Common Stock, the Class B Common Stock, the Preferred
Stock, Series Preferred Stock, the Blau Warrant and the
Maxim Warrant (all as herein defined) 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 and the Maxim Warrant are contained in
their respective warrant agreements. Reference is made to
such Certificate of Incorporation (a copy of which has been
filed as an exhibit to this Registration Statement (of which
this Prospectus is a part).
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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, Two Broadway, New York, New
York 10004.
Preferred Stock
Preferred Stock
The Company is authorized to issue up to 50,000 shares
of 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,
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
<PAGE>
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 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 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
<PAGE>
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.
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."
Shalam Option
John J. Shalam, Chief Executive Officer of the Company,
granted the Company the Shalam Option to purchase 1,668,875
Option Shares at a purchase price equal to the sum of
(a) the Warrant Exercise Price plus (b) an additional amount
(the "Tax Amount") intended to reimburse Mr. Shalam or his
Successors for any additional taxes per share which may be
required to be paid by Mr. Shalam or his Successors as a
result of the payment of the Warrant Exercise Price being
treated for federal income tax purposes as the distribution
to Mr. Shalam or his Successors of a dividend (taxed at
ordinary income
<PAGE>
rates without consideration of Mr. Shalam's or his
Successors', as the case may be, basis), rather than as a
payment to Mr. Shalam or his Successors, 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 Successors)
pursuant to the Shalam Option. If Mr. Shalam or his
Successors, as a result of the receipt of the payment of the
Warrant Exercise Price, are taxed at a capital gains rate
(with consideration given to their stepped up basis), no Tax
Amount will be included in the purchase price to be paid.
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. The terms of the Shalam
Option (other than the initial exercise price) are similar
to those of the Warrants, however, the exercise price per
share for the Shalam Option will not decrease in the event
of a Registration Default. Such additional amount per share
shall be calculated in accordance with the tax rates
applicable to the date of exercise in accordance with the
following formula:
(A-B) x C + (B+D)
___________________
1-A
where A equals Mr. Shalam's combined marginal U.S. federal,
state and local ordinary income tax rates after reduction of
the federal rate for the benefit of the deductions for state
and local taxes; B equals Mr. Shalam's combined marginal
U.S. federal, state and local capital gains tax rates after
reduction of the federal rate for the benefit of the
deductions for state and local taxes; C equals the per share
Warrant Exercise Price without giving effect to any
adjustment thereof resulting from a Registration Default;
and D equals Shalam's per share adjusted tax basis in the
Class A Common Stock purchasable by the Company pursuant to
the Shalam Option and includes any stepped-up basis of Mr.
Shalam's Successors. Any payment owing to Mr. Shalam's
Successors will be based on the same formula as it relates
to such Successors.
The Shalam Option is exercisable, in whole or in part,
for 1,668,875 shares of Common Stock. The basic terms of
the Shalam Option are similar to the basic terms of the
Warrants; except that the exercise price of the Shalam
Option will not be reduced in the event of a Registration
Default. The Company is not required to exercise the Shalam
Option upon exercise of the Warrants and intends to do so
only if the Board of Directors of the Company (other than
Mr. Shalam) at the time of exercise of the Warrants,
determines that it is in the best interests of the
stockholders of the Company to exercise such Shalam Option.
The Company will be able to exercise the Shalam Option only
if the Warrants are exercised and then only for the same
number of shares as are purchased under the Warrants. The
Shalam Option may limit the dilutive effect of the Warrants
on the earnings per share or the book value per share if the
Company elects to execute the
<PAGE>
Shalam Option. The obligations of the Company under the
Warrants are not subject to compliance by Mr. Shalam with
the terms of the Shalam Option. The Tax Amount will be
immediately due and payable upon receipt of a satisfactory
notice from the holder of the Option Shares stating that a
Tax Amount is required to reimburse such person for
additional taxes in accordance with the Shalam Option,
setting forth the calculation of the Tax Amount and
confirming that such person will file its tax return with
respect to this period in accordance with the facts
underlying this calculation, but such Tax Amount is subject
to readjustment in the event the actual tax paid is
different than the amount set forth in the notice. Upon
consummation of the Offering, a legend was placed on share
certificates representing 1,668,875 shares of Class A Common
Stock which provided that such shares are subject to the
terms of the Shalam Option. Such legend on the Option
Shares will be removed with respect to the number of Option
Shares equal to the number of shares of Class A Common Stock
underlying the Warrants which have been exercised and with
respect to which the independent members of the Board of
Directors of the Company have determined not to exercise the
Shalam Option as well as upon the expiration of the Shalam
Option.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have
outstanding 6,777,788 shares of Class A Common Stock
(assuming no exercise of options or warrants or conversion
of other securities after December 31, 1995). Of these
shares, the Company has approximately 3,413,721 shares of
Class A Common Stock held by members of the public that are
able to trade without restriction or further registration
under the Securities Act except for any shares purchased by
any affiliates of the Company, which will be subject to the
resale limitations of Rule 144 promulgated under the
Securities Act. Sales of a substantial number of additional
shares of Class A Common Stock in the public market could
adversely affect the market price of the Class A Common
Stock. As of February 1, 1996, 3,672,316 shares of Class A
Common Stock were issuable upon conversion of the
Debentures, 1,023,028 shares of Class A Common Stock were
issuable upon conversion of the Series AA Convertible
Debentures and Series BB Convertible Debentures, 100,000
shares of Class A Common Stock were issuable upon exercise
of the Blau Warrant, 50,000 shares of Class A Common Stock
were issuable upon exercise of the Maxim Warrant and
1,668,875 shares of Class A Common Stock were issuable upon
exercise of the Warrants. Exercise or conversion, as the
case may be, of a substantial amount of the presently
outstanding warrants, the Debentures, the Series AA
Convertible Debentures or the Series BB Convertible
Debentures or sale of the Class A Common Stock underlying
such debentures or warrants also could adversely affect the
market price of the Class A Common Stock, due to the large
number of shares issuable upon conversion or exercise of
such debentures or warrants in comparison to the relatively
<PAGE>
small number of shares held by members of the public that
are able to trade without restriction. The Company has
granted the holders of the Series AA Convertible Debentures,
the Series BB Convertible Debentures and the warrants
certain registration rights relating to the Class A Common
Stock issuable upon conversion or exercise of such
debentures or warrants, as the case may be. In addition, as
of February 1, 1996, (i) John J. Shalam, President and Chief
Executive Officer of the Company, owned 3,359,367 shares of
Class A Common Stock (including for this purpose all of the
shares subject to the Shalam Option) 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 the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of the Company owned 4,700 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. Sales by such persons of a substantial number of
shares of Class A Common Stock or Class B Common Stock
(collectively, "Common Stock") could adversely affect the
market price of the Class A Common Stock.
John J. Shalam, Chief Executive Officer of the Company,
granted the Company the Shalam Option to purchase 1,668,875
Option Shares at a purchase price equal to the sum of
(a) the Warrant Exercise Price plus (b) an additional amount
(the "Tax Amount") intended to reimburse Mr. Shalam or his
Successors for any additional taxes per share which may be
required to be paid by Mr. Shalam or his Successors as a
result of the payment of the Warrant Exercise Price being
treated for federal income tax purposes as the distribution
to Mr. Shalam or his Successors of a dividend (taxed at
ordinary income rates without consideration of Mr. Shalam's
or his Successors', as the case may be, basis), rather than
as a payment to Mr. Shalam or his Successors, 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
Successors) pursuant to the Shalam Option. If Mr. Shalam or
his Successors, as a result of the receipt of the payment of
the Warrant Exercise Price, are taxed at a capital gains
rate (with consideration given to their stepped up basis),
no Tax Amount will be included in the purchase price to be
paid. 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. The terms
of the Shalam Option (other than the initial exercise price)
are similar to those of the Warrants, however, the exercise
price per share for the Shalam Option will not decrease in
the event of a Registration Default. Such additional amount
per share shall be calculated in accordance with the tax
rates applicable to the date of exercise in accordance with
the following formula:
<PAGE>
(A-B) x C + (B+D)
__________________
1-A
where A equals Mr. Shalam's combined marginal U.S. federal,
state and local ordinary income tax rates after reduction of
the federal rate for the benefit of the deductions for state
and local taxes; B equals Mr. Shalam's combined marginal
U.S. federal, state and local capital gains tax rates after
reduction of the federal rate for the benefit of the
deductions for state and local taxes; C equals the per share
Warrant Exercise Price without giving effect to any
adjustment thereof resulting from a Registration Default;
and D equals Shalam's per share adjusted tax basis in the
Class A Common Stock purchasable by the Company pursuant to
the Shalam Option and includes any stepped-up basis of Mr.
Shalam's Successors. Any payment owing to Mr. Shalam's
Successors will be based on the same formula as it relates
to such Successors.
The Shalam Option is exercisable, in whole or in part,
for 1,668,875 shares of Common Stock. The basic terms of
the Shalam Option are similar to the basic terms of the
Warrants; except that the exercise price of the Shalam
Option will not be reduced in the event of a Registration
Default. The Company is not required to exercise the Shalam
Option upon exercise of the Warrants and intends to do so
only if the Board of Directors of the Company (other than
Mr. Shalam) at the time of exercise of the Warrants,
determines that it is in the best interests of the
stockholders of the Company to exercise such Shalam Option.
The Company will be able to exercise the Shalam Option only
if the Warrants are exercised and then only for the same
number of shares as are purchased under the Warrants. The
Shalam Option may limit the dilutive effect of the Warrants
on the earnings per share or the book value per share if the
Company elects to execute the Shalam Option. The
obligations of the Company under the Warrants are not
subject to compliance by Mr. Shalam with the terms of the
Shalam Option. The Tax Amount will be immediately due and
payable upon receipt of a satisfactory notice from the
holder of the Option Shares stating that a Tax Amount is
required to reimburse such person for additional taxes in
accordance with the Shalam Option, setting forth the
calculation of the Tax Amount and confirming that such
person will file its tax return with respect to this period
in accordance with the facts underlying this calculation,
but such Tax Amount is subject to readjustment in the event
the actual tax paid is different than the amount set forth
in the notice. Upon consummation of the Offering, a legend
was placed on share certificates representing 1,668,875
shares of Class A Common Stock which provided that such
shares are subject to the terms of the Shalam Option. Such
legend on the Option Shares will be removed with respect to
the number of Option Shares equal to the number of shares of
Class A Common Stock underlying the Warrants which have been
exercised and with respect to which the independent members
of the Board of Directors of the Company have determined not
to exercise the Shalam Option as well as upon the expiration
of the Shalam Option.
<PAGE>
In general, under Rule 144 as currently in effect,
affiliates of the Company would be entitled to sell within
any three-month period a number of shares that does not
exceed the greater of one percent of the number of shares of
Class A Common Stock then outstanding or the average weekly
trading volume of the Class A Common Stock during the four
calendar weeks preceding the filing of a Form 144 with
respect to such sale. Sales under Rule 144 are also subject
to certain manner of sale provisions and notice requirements
and to the availability of current public information about
the Company.
The Company is unable to estimate accurately the number
of shares that may be sold under Rule 144 since this will
depend in part on the market price for the Class A Common
Stock, the personal circumstances of the sellers and other
factors.
The Company has registered Class A Common Stock under
the Securities Act for issuance to certain of its directors,
officers and employees pursuant to the Company's stock
option plans. Shares issued pursuant to such stock option
plans after the effective date of any registration statement
covering such shares generally will be available for sale in
the open market (except that such shares held by affiliates
will be subject to compliance with the volume restrictions
of Rule 144 under the Securities Act).
PLAN OF DISTRIBUTION
This Prospectus relates to the registration of
(i) 1,668,875 Warrants and (ii) the Warrant Shares issuable
upon the exercise of the Warrants. The Warrants were issued
by the Company in a private placement effected on May 9,
1995 (the "Closing Date"). All of the Warrants and Warrant
Shares are being registered for resale from time to time by
the Selling Securityholders and the Warrant Shares are also
being registered for their issuance by the Company to the
Selling Securityholders upon their exercise of the Warrants.
The Company will not receive any of the proceeds from
the offering of Warrants and the Warrant Shares by the
Selling Securityholders. The Company has been advised by
the Selling Securityholders that the Selling Securityholders
may sell all or a portion of the Warrants or Warrant Shares
beneficially owned by them and which may be offered hereby
from time to time on any exchange on which the securities
are then listed, if any, on terms to be determined at the
times of such sales. The Selling Securityholders may also
make private sales directly or through a broker or brokers.
Alternatively, any of the Selling Securityholders may from
time to time offer the Warrants or the Warrant Shares which
may be offered hereby and beneficially owned by them through
underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts,
commissions or concessions from the Selling Securityholders
and the purchasers of the Warrants or the Warrant Shares for
whom they may act as agent. There can be no assurance that
any of the Warrants or Warrant Shares will be sold by the
Selling
<PAGE>
Securityholders. To the extent required, the Warrants and
the Warrant Shares to be sold hereby, the names of the
Selling Securityholders, the purchase price, the name of any
such agent, dealer or underwriter and any applicable
commissions, discounts or other terms constituting
compensation with respect to a particular offer will be set
forth in an accompanying Prospectus Supplement. The
aggregate proceeds to the Selling Securityholders from the
sale of the Warrants or the Warrant Shares offered by them
hereby will be the purchase price of such Warrants or
Warrant Shares less discounts and commissions, if any. A
Selling Securityholder that sells such Warrants or Warrant
Shares pursuant to this Registration Statement of which this
Prospectus is a part will be required to deliver such
Prospectus to purchasers and will be subject to certain
civil liability provisions under the Securities Act in
connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are
applicable to such Selling Securityholder (including certain
indemnification obligations).
The Warrants and the Warrant Shares which may be
offered hereby may be sold from time to time in one or more
transactions at fixed offering prices, which may be changed,
or at varying prices determined at the time of sale or at
negotiated prices. Such prices will be determined by the
holders of such securities or by agreement between such
holders and underwriters or dealers who may receive fees or
commissions in connection therewith.
The outstanding Class A Common Stock is listed for
trading on the AMEX (Symbol: "VOX"). On February 6, 1996,
the last reported sales price of the Class A Common Stock on
the AMEX was $5-7/16 per share. The Exchanges have each
informed the Company that the number of holders of the
Warrants is insufficient to list such Warrants. Among other
listing requirements, each such Exchange requires at least
250 holders of an equity security, such as the Warrants, as
a prerequisite for the approval of the listing of such
Warrants. Currently, there are approximately 40
Warrantholders. If and when a sufficient number of holders
exist and the Company satisfies the other listing
requirements, the Company presently intends to seek to list
the Warrants on one of the Exchanges. The Warrants have
been approved for trading on PORTAL since the Closing Date.
However, no public trading market for the Warrants exists
and no active trading market in PORTAL has developed.
Josephthal, Lyon & Ross, Incorporated has advised the
Company that it presently intends to make a market in the
Warrants after the effectiveness of this Registration
Statement. Josephthal, Lyon & Ross, Incorporated, however,
is not obligated to do so and any such market-making may be
discontinued at any time without notice, in the sole
discretion of Josephthal, Lyon & Ross, Incorporated. No
assurance can be given that any market for the Warrants will
develop or be maintained. Moreover, once the Warrants are
registered under this Registration Statement, the Warrants
which are registered under this Registration Statement will
no longer be eligible for trading on PORTAL.
<PAGE>
In order to comply with the securities laws of certain
states, if applicable, the Warrants and the Warrant Shares
offered hereby will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In
addition, in certain states, the Warrants and the Warrant
Shares offered hereby may not be sold unless they have been
registered or qualified for sale in the applicable state or
an exemption from the registration or qualification
requirement is available and is complied with.
The Selling Securityholders and any broker-dealers,
agents or underwriters that participate with the Selling
Securityholders in the distribution of the Warrants or the
Warrant Shares offered hereby may be deemed to be
"underwriters" within the meaning of the Securities Act, in
which event any commissions or discounts received by such
broker-dealers, agents or underwriters and any profit on the
resale of the Warrants or the Warrant Shares offered hereby
and purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
The Company and the Selling Securityholders have agreed
to indemnify each other against certain liabilities arising
under the Securities Act. The Company has agreed to pay all
expenses incident to the offer and sale of the Warrants and
the Warrant Shares offered hereby by the Selling
Securityholders to the public, other than broker's
commissions and underwriting discounts and commissions.
LEGAL MATTERS
The validity of the securities offered hereby will be
passed upon by Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations), New York,
New York.
EXPERTS
The consolidated financial statements and schedules of
the Company have been incorporated by reference herein and
in the Registration Statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP covering the
November 30, 1994, financial statements refers to a change
in the method of accounting for income taxes.
<PAGE>
No dealer, salesman or any other person has been
authorized to give any information or to make any
representation in connection with this Prospectus, and, if
given or made, such information or representations must not
be relied upon as having been authorized by the Company.
This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction in which such offer to
sell or solicitation is not authorized, or in which the
person making such offer or solicitation is not qualified to
do so, or to any person to whom it is unlawful to make such
offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information
herein is correct as of any time subsequent to the date
hereof or that there has been no change in the affairs of
the Company since such date.
TABLE OF CONTENTS
Page
-----
Summary.............................................. 7
Risk Factors......................................... 13
The Company.......................................... 25
Use Of Proceeds...................................... 25
Selling Securityholders.............................. 25
Description Of The Warrants.......................... 26
Description Of Capital Stock......................... 35
Shares Eligible For Future Sale...................... 43
Plan Of Distribution................................. 46
Legal Matters........................................ 48
Experts.............................................. 48
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses, other than
underwriting discounts and commissions, payable by the
Company in connection with the sale of the Warrants and the
Warrant Shares being registered. All amounts are estimates
except the registration fee and the AMEX listing fee.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee.................................... $4,101
AMEX Listing Fee .................................... $17,500
Printing and engraving expenses......................... *
Legal fees and expenses................................. *
Warrant Agent's fees.................................... *
Accounting fees and expenses............................ *
Blue Sky fees and expenses (including counsel fees)..... *
Miscellaneous........................................... *
Total......................................... _______
$
<FN>
* To be inserted by amendment
</TABLE>
Item 15. Indemnification of Directors and Officers.
Subsection (a) of Section 145 of the General
Corporation Law of the State of Delaware (the "DGCL")
empowers a corporation to indemnify any person who was or is
a party or is threatened to be made a party to any
threatened, pending or completed action, suit or
proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
<PAGE>
Subsection (b) of the Section 145 empowers a
corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending
or completed action, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of
the fact that such person acted in any of the capacities set
forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted
in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation,
except that no indemnification may be made in respect of any
claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery or the court
in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for
such expenses which the Court of Chancery or such other
court shall deem proper.
Section 145 further provides that to the extent a
director or officer of a corporation has been successful on
the merits or otherwise in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) of
Section 145, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other
rights to which the indemnified party may be entitled; that
indemnification provided for by Section 145 shall, unless
otherwise provided when authorized or ratified, continue as
to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of such
persons' heirs, executors and administrators; and empowers
the corporation to purchase and maintain insurance on behalf
of a director or officer of the corporation against any
liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether
or not the corporation would have the power to indemnify him
against such liability under Section 145.
Article Eighth of the Company's Certificate of
Incorporation and Article VIII of the Company's By-laws
provide that the Company shall indemnify its directors and
officers to the fullest extent authorized by the DGCL.
Section 102(b)(7) of DGCL provides that a certificate
of incorporation may contain a provision eliminating or
limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director provided that such
provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, or (iv) for any transaction
from which the director derived an improper personal
benefit. Article Fifth of the
<PAGE>
Company's Certificate of Incorporation limits the liability
of directors to the fullest extent permitted by Section
102(b)(7).
Item 16. Exhibits.
The following exhibits are filed herewith or
incorporated by reference.
Exhibit No. Description
**4(a) Certificate of Incorporation of Audiovox
Corporation (incorporated by reference to Exhibit
3.1 to Company's Registration Statement on Form S-
1 (Registration No. 33-10726)).
**4(b) Amendment to the Certificate of Incorporation
(incorporated by reference to Exhibit 3.1a to the
Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1993, File No. 1-
9532).
**4(c) Registration Rights Agreement, dated as of May 9,
1995, among Audiovox Corporation and the holders
of the Warrants (incorporated by reference to
Exhibit 4 of the Company's Current Report on Form
8-K dated May 31, 1995, File No. 1-9532).
**4(d) Warrant Agreement, dated as of May 9, 1995,
between Audiovox Corporation and Continental
Stock Transfer & Trust Company, in respect of the
Warrants (incorporated by reference to Exhibit 3
of the Company's Current Report on Form 8-K dated
May 31, 1995, File No. 1-9532).
4(e) The form of Warrant is contained in the Warrant
Agreement filed as Exhihit 4(d) above.
*5 Opinion of Fried, Frank, Harris, Shriver &
Jacobson.
23(a) Consent of KPMG Peat Marwick LLP.
23(b) The consent of Fried, Frank, Harris, Shriver &
Jacobson is contained in their opinion filed as
Exhibit (5) to this Registration Statement.
(24) Power of Attorney is included on the signature
pages.
<PAGE>
**99(a) Second Amended and Restated Credit Agreement,
dated as of May 5, 1995, among Audiovox
Corporation and Chemical Bank, National
Westminster Bank USA, The Chase Manhattan Bank,
N.A., European American Bank and Bank of Boston
as lenders, and Chemical Bank, as Administrative
and Collateral Agent (incorporated by reference
to Exhibit 1 of the Company's Current Report on
Form 8-K dated May 31, 1995 File No. 1-9532).
**99(b) Indenture, dated as of March 15, 1994, between
Audiovox Corporation and Continental Stock
Transfer & Trust Company, in respect of the 6 1/4%
Convertible Subordinated Debentures due 2001
(incorporated by reference to Exhibit C of the
Company's Current Report on Form 8-K dated March
15, 1994, File No. 1-9532).
99(c) Option Agreement, dated as of May 9, 1995,
between Audiovox Corporation and John J. Shalam.
* To be filed by amendment.
** Incorporated by reference.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) ( 230.424(b) of this
chapter) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement;
<PAGE>
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs 1(i) and 1(ii) do not
apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section
13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration
statement.
(2) That, for purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in
the registration statement shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
The undersigned registrant hereby undertakes to
supplement the prospectus, after the expiration of the
subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters
during the subscription period, the amount of unsubscribed
securities to be purchased by the underwriters, and the
terms of any subsequent reoffering thereof. If any public
offering by the underwriters is to be made on terms
differing from those set forth on the cover page of the
prospectus, a post-effective amendment will be filed to set
forth the terms of such offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by
<PAGE>
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable
grounds to believe that it meets all the requirements of
filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Hauppauge, State
of New York, on this 8th day of February, 1996.
AUDIOVOX CORPORATION
(Registrant)
By: /s/ John J. Shalam
---------------------
John J. Shalam,
President and
Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints each
of John J. Shalam and C. Michael Stoehr, his true and lawful
attorneys-in-fact and agents with full power of substitution
and resubstitution and to act without the other, for him and
in his name, place and stead, in any and all capacities, to
sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents
full power and authority to do and perform each and every
act and thing requisite or necessary to be done in and about
the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of their,
his or her substitute or substitutes may lawfully do or
cause to be done by virtue hereof and the Company hereby
confers like authority on its behalf.
Pursuant to the requirements of the Securities Act of
1933, the Registration Statement has been signed below by
the following persons in the capacities and on the dates
indicated.
<PAGE>
Name Title Date
/s/ John J. Shalam President and Chief February 8, 1996
- ------------------------ Executive Officer,
John J. Shalam Director
/s/ Charles M. Stoehr Senior Vice President February 8, 1996
- ------------------------ and Chief Financial
Charles M. Stoehr Officer (Principal
Accounting Officer),
Director
/s/ Ann Boutcher Director February 8, 1996
- ------------------------
Ann Boutcher
/s/ Philip Christopher Director February 8, 1996
- ------------------------
Philip Christopher
Director
- ------------------------
Irving Halevy
/s/ Patrick Lavelle Director February 8, 1996
- ------------------------
Patrick Lavelle
Director
- ------------------------
Martin Novick
Director
- ------------------------
Gordon Tucker
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
**4(a) Certificate of Incorporation of Audiovox
Corporation (incorporated by reference to Exhibit
3.1 to Company's Registration Statement on Form S-
1 (Registration No. 33-10726)).
**4(b) Amendment to the Certificate of Incorporation
(incorporated by reference to Exhibit 3.1a to the
Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1993, File No. 1-
9532).
**4(c) Registration Rights Agreement, dated as of May 9,
1995, among Audiovox Corporation and the holders
of the Warrants (incorporated by reference to
Exhibit 4 of the Company's Current Report on Form
8-K dated May 31, 1995, File No. 1-9532).
**4(d) Warrant Agreement, dated as of May 9, 1995,
between Audiovox Corporation and Continental
Stock Transfer & Trust Company, in respect of the
Warrants (incorporated by reference to Exhibit 3
of the Company's Current Report on Form 8-K dated
May 31, 1995, File No. 1-9532).
4(e) The form of Warrant is contained in the Warrant
Agreement filed as Exhihit 4(d) above.
*5 Opinion of Fried, Frank, Harris, Shriver &
Jacobson.
23(a) Consent of KPMG Peat Marwick LLP.
23(b) The consent of Fried, Frank, Harris, Shriver &
Jacobson is contained in their opinion filed as
Exhibit (5) to this Registration Statement.
(24) Power of Attorney is included on the signature
pages.
<PAGE>
**99(a)
Second Amended and Restated Credit Agreement,
dated as of May 5, 1995, among Audiovox
Corporation and Chemical Bank, National
Westminster Bank USA, The Chase Manhattan Bank,
N.A., European American Bank and Bank of Boston
as lenders, and Chemical Bank, as Administrative
and Collateral Agent (incorporated by reference
to Exhibit 1 of the Company's Current Report on
Form 8-K dated May 31, 1995 File No. 1-9532).
**99(b) Indenture, dated as of March 15, 1994, between
Audiovox Corporation and Continental Stock
Transfer & Trust Company, in respect of the 6 1/4%
Convertible Subordinated Debentures due 2001
(incorporated by reference to Exhibit C of the
Company's Current Report on Form 8-K dated March
15, 1994, File No. 1-9532).
99(c) Option Agreement, dated as of May 9, 1995,
between Audiovox Corporation and John J. Shalam.
* To be filed by amendment.
** Incorporated by reference.
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Audiovox Corporation:
We consent to the use of our reports incorporated herein by
reference and to the reference to our firm under the heading
"Experts" in the prospectus.
Our report refers to a change in the method of accounting
for income taxes.
/s/ KPMG Peat Marwick LLP
Jericho, New York
February 8, 1996
Exhibit 99(c)
OPTION AGREEMENT
dated as of May 9, 1995
between
AUDIOVOX CORPORATION
and
MR. JOHN J. SHALAM
<PAGE>
OPTION AGREEMENT
Agreement, dated as of this 9th day of May, 1995, by
and between Audiovox Corporation, a Delaware corporation with an
office at 150 Marcus Boulevard, Hauppauge, New York 11788 (the
"Company") and Mr. John J. Shalam ("Shalam"). All capitalized
terms used herein and not otherwise defined shall have the
meaning set forth in the Warrant Agreement, dated as the date
hereof (the "Warrant Agreement"), between the Company and
Continental Stock Transfer & Trust Company as Warrant Agent.
W I T N E S S E T H :
WHEREAS, Shalam has agreed to grant the Company options
to purchase up to 1,668,875 shares of Class A Common Stock of the
Company;
WHEREAS, the Company and Shalam wish to define the
terms and provisions of the Options;
NOW, THEREFORE, in consideration of the premises and
the mutual agreements set forth herein, the parties hereto hereby
agree as follows:
Section 1. GRANT OF OPTION.
Shalam hereby grants to the Company or its lawful
assigns, options (the "Options") to purchase, in whole or in
part, up to 1,668,875 shares of Class A Common Stock of the
Company which shares are in certificate number AVC 2956 and is
legended as in accordance with Section 3 (the "Option Shares");
provided, that the Company may, from time to time, only exercise
Options to acquire that number of Option Shares as are purchased
under the Company's warrants (the "Warrants") issued pursuant to
the Warrant Agreement and that the Company must execute such
Option or Options within 60 business days of the receipt of the
Certificate (as defined in Section 3 below). For purposes of
this Agreement, the term Class A Common Stock means the
Company's Class A Common Stock, par value $.01 per share or any
class of securities into which all of such Class A Common Stock
has been converted or combined. Each Option entitles the
Company, at any time on any Business Day during the period
commencing May 10, 1995 and ending 5:00 p.m., New York City time,
on March 15, 2001 (the "Expiration Date") to purchase from Shalam
one share of the Option Shares, upon notice to Shalam, at the
Option Exercise Price (as defined in Section 3 below).
Section 2. Exercise.
<PAGE>
In order to exercise any or all of the Options, the Company
shall deliver a option exercise form to Shalam on or prior to the
Expiration Date in substantially the following form:
OPTION EXERCISE FORM
Audiovox Corporation hereby irrevocably elects to exercise
________ of its Options under the Option Agreement dated as
of ______, 1995, between Audiovox and Mr. John J. Shalam and
purchase the whole number of shares issuable and deliverable
upon exercise of such Options, and will, simultaneously with
delivery of such shares, tender payment for such shares by
certified check or wire transfer, as acceptable to Mr.
Shalam, in the lawful currency of the United States of
America in immediately available funds which as of the time
of payment is legal tender for payment of public or private
debts. Attached to this Notice of Election are copies of
notices of exercise of Warrants with respect to shares of
Class A Common Stock equal to the number of Options being
exercised pursuant to this Notice of Election.
Options shall be deemed to have been exercised immediately
prior to the close of business on the date of the delivery of the
Option exercise form for exercise in accordance with the
foregoing provisions, and at such time the Company shall be
deemed to be the owner of the Option Shares underlying the
Options at the close of business on the date of such exercise,
notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such
Option Shares shall not then be actually delivered to the
Company. Shalam agrees to deliver the Option Shares to the
Company at its principal executive offices, delivering the number
of Option Shares purchased by the Company, including delivering
the appropriate stock certificates with stock powers duly
endorsed in blank, upon exercise of the Option by the close of
business within ten days after such exercise. In determining
which share certificate for the Option Shares to be delivered,
Shalam shall deliver the share certificate or certificates with
the lowest share certificate number or numbers (as set forth in
Section 4(a)) until a sufficient number of Option Shares have
been delivered. Simultaneously therewith, the Company agrees to
deliver payment of the exercise price of the Options by certified
check or wire transfer, as acceptable to Shalam in the lawful
currency of the United States of America in immediately available
funds which as of the time of payment is legal tender for payment
of public or private debts.
No fractional Option Shares shall be sold upon exercise of
any Options. Accordingly, the Company may only exercise Options
in respect of a whole number of Option Shares.
<PAGE>
In the case of the exercise of less than all the Options
represented hereby or the release of any Option Shares, Exhibit A
to this Option Agreement shall be amended to specify the number
of Options exercised or number of Option Shares released and the
number of Option Shares remaining.
Prior to the exercise of any Option represented hereby,
Shalam shall be entitled to all rights of a stockholder of the
Company with respect to the Option Shares underlying the Option,
including, without limitation, the right to vote or to receive
dividends or other distributions.
Section 3. Option Exercise Price
The exercise price of each Option Share is (a) $7-1/8
per share plus, (b) in the event such amount is due and payable
hereunder, an amount equal to the Tax Amount Per Share. The Tax
Amount Per Share shall be calculated in accordance with the tax
rates existing on the date of exercise in accordance with the
following formula:
(A-B) x C + (BxD)
__________________
1-A
where A equals Mr. Shalam's combined marginal U.S. federal, state
and local ordinary income tax rates after reduction of the
federal rate for the benefit of the deductions for state and
local taxes; B equals Mr. Shalam's combined marginal U.S.
federal, state and local capital gains tax rates after reduction
of the federal rate for the benefit of the deductions for state
and local taxes; C equals the per share Warrant Exercise Price
without giving effect to any adjustment thereof resulting from a
Registration Default; and D equals Shalam's per share adjusted
tax basis in the Option Shares purchasable by the Company
pursuant to the Shalam Option and includes any stepped up basis
of Mr. Shalam's Successors (as defined in Section 6 below).
The Tax Amount Per Share will be payable upon receipt from
Shalam of a certificate (the "Certificate"), prepared in good
faith as promptly as reasonably practicable after receipt of the
option exercise form, stating that a Tax Amount Per Share is
required to reimburse Shalam for additional taxes in accordance
with the foregoing formula, setting forth the calculation of the
Tax Amount Per Share and confirming that Shalam will file his tax
return (the "Tax Return") with respect to the relevant period in
accordance with the facts set forth in the Certificate. The Tax
Amount Per Share will be due by certified check or wire transfer,
as acceptable to Shalam (in the lawful currency of the United
States of America in immediately available funds which as of the
time of payment is legal tender for payment of public or private
debts), five business days prior to the date
<PAGE>
the Tax Return is due to be filed as set forth in the
Certificate. Shalam shall also send a notice to the Company
promptly after filing the Tax Return confirming that the
information in the Certificate remains accurate. In the event
that, for any reason (including (i) the receipt of the Option
Exercise Price ultimately being treated for federal income tax
purposes as the distribution of a dividend rather than as payment
for the sale of the Option Shares (or vice-versa) and (ii) a
change in applicable tax rates), the actual tax paid by Shalam
with respect to receipt of the Option Exercise Price differs from
the amount set forth in the Certificate, the excess or shortfall
shall be paid by the Company to Shalam or by Shalam to the
Company, as the case may be, promptly upon determination of such
excess or shortfall.
Section 4. Legends on Stock Certificates
(a) Shalam agrees to cause 1,668,875 of the Option Shares
represented by Share Certificate No. AVC 2956 (1,668,875 shares)
to be legended at all times until the expiration of the Options
with the following legend:
THE SHARES OF CLASS A COMMON STOCK REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE RIGHTS OF AUDIOVOX
CORPORATION (THE "COMPANY") UNDER AN OPTION AGREEMENT
DATED AS OF May 9, 1995 (THE "OPTION AGREEMENT"), BETWEEN
THE COMPANY AND MR. JOHN J. SHALAM. ANY PERSON ACQUIRING
THESE SHARES SHALL BE ACQUIRING SUCH SHARES SUBJECT TO
THE RIGHTS OF THE COMPANY UNDER THE OPTION AGREEMENT AND
BY ACCEPTANCE OF THIS CERTIFICATE ACKNOWLEDGES THAT SUCH
PERSON IS AWARE OF SUCH RIGHTS AND CONFIRMS THAT IT HAS
ACQUIRED SUCH SHARES SUBJECT TO THE OBLIGATIONS AND
BENEFITS OF MR. SHALAM UNDER THE OPTION AGREEMENT WITH
RESPECT TO THESE SHARES. A COPY OF THE OPTION AGREEMENT
IS ON FILE WITH THE COMPANY.
(b) Upon expiration of the Options or, with respect to that
number of Option Shares equal to the number of shares of Class A
Common Stock underlying the Warrants which have been exercised
and with respect to which the Board of Directors of the Company
has determined not to exercise the Options, at the request of
Shalam, the Company shall remove such legend and issue new shares
of Class A Common Stock representing shares of Class A Common
Stock underlying the unexercised portion of the Options. The
Company hereby agrees to notify Shalam if it elects not to
exercise the Shalam Option upon the exercise of a Warrant or
Warrants. In determining which share certificate shall have its
legend removed, the Company shall cause the Transfer Agent for
the Class A Common Stock to remove such legend from the share
certificate or
<PAGE>
certificates with the lowest share certificate number or numbers
(as set forth in Section 4(a)) until a sufficient number of
Option Shares have had their legends removed. The Company shall
cause the Transfer Agent for the Class A Common Stock to issue
new share certificates with respect to any Option Shares which
must be legended if a portion of the share certificate underlying
such Option Shares may have its legend removed in accordance with
the prior sentences. For purposes of this Section and Section 2,
if a new share certificate is issued in respect for any Option
Shares for any reason such share certificate shall be deemed to
have the share certificate number which the Option Shares had on
the date of this Option Agreement as set forth in Section 4(a)
whether or not such new share certificate has the same number.
If a certificate representing Option Shares is divided into more
than one certificate, each such certificate shall be deemed to
have the share certificate number which the Option Shares had on
the date of this Option Agreement and the Company shall exercise
its Option, or remove the legend from such certificate, pro rata
with respect to such Option Shares as if such certificate were
still one certificate.
Section 5. Adjustment of Exercise Price.
The Exercise Price and the number of Option Shares shall be
subject to adjustment and modification as follows in the
circumstances provided:
(a) In case the Company shall pay or make a dividend or
other distribution on the Option Shares in shares of Class A
Common Stock, the Exercise Price in effect at the opening of
business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend
or other distribution shall be reduced by multiplying such
Exercise Price by a fraction of which the numerator shall be the
number of Option Shares outstanding at the close of business on
the date fixed for such determination and the denominator shall
be the sum of such number of Option Shares and the total number
of shares of Class A Common Stock constituting a stock dividend
or other distribution on such Option Shares, such reduction to
become effective immediately after the opening of business on the
day following the date fixed for such determination.
(b) In case the outstanding Option Shares shall be
subdivided into a greater number of shares of Class A Common
Stock, the Exercise Price in effect at the opening of business on
the day following the day upon which such subdivision becomes
effective shall be proportionately reduced, and, conversely, in
case the outstanding Option Shares shall be combined into a
smaller number of shares of Class A Common Stock, the exercise
price in effect at the opening of business on the day following
the day upon which such combination becomes effective shall be
proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of
business on the day following the day upon which such subdivision
or combination becomes effective.
<PAGE>
(c) The reclassification of the Option Shares into
securities other than Common Stock (other than any
reclassification upon a consolidation or merger to which Section
8 applies) shall be deemed to involve (i) a distribution of such
securities other than Class A Common Stock to the holders of the
Option Shares (and the effective date of such reclassification
shall be deemed to be "the date fixed for the determination of
stockholders entitled to receive such distribution" and "the date
fixed for such determination" within the meaning of paragraph (a)
of this Section), and (ii) if the number of Option Shares
outstanding is changed as a result of such reclassification, then
a subdivision or combination, as the case may be, of the number
of Option Shares outstanding immediately prior to such
reclassification into the number of Option Shares outstanding
immediately thereafter (and the effective date of such
reclassification shall be deemed to be "the day upon which such
subdivision becomes effective" or "the day upon which such
combination becomes effective," as the case may be, and "the day
upon which such subdivision or combination becomes effective"
within the meaning of paragraph (b) of this Section).
(d) Shalam may, in his sole discretion, reduce the Exercise
Price for the Options, in addition to any reductions required by
paragraphs (a) or (b) of this Section 5.
(e) No adjustment will be made in the Exercise Price as
required by paragraphs (a) or (b) of this Section unless such
adjustment would require a change of at least 1% in the Exercise
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.
(f) If any adjustment in the Exercise Price is made
pursuant to a provision of this Section 5, no further adjustment
in the Exercise Price shall be made on account of the same event.
(g) In the event of an adjustment in the Exercise Price
pursuant to this Section 5 (an "Exercise Price Adjustment"), the
number of Option Shares issuable upon exercise of the Options
shall also be adjusted so that the same shall equal (i) the
number of shares of Option Shares exercisable immediately prior
to the Exercise Price Adjustment, multiplied by (ii) a fraction,
of which the numerator shall be the Exercise Price in effect
immediately prior to the Exercise Price Adjustment, and the
denominator shall be the Exercise Price immediately following
such Exercise Price Adjustment. Any adjustment to the number of
shares of Option Shares pursuant to this paragraph (g) shall
become effective at the same time as such Exercise Price
Adjustment.
Section 6. Transfer of Class A Common Stock.
During the Exercise Period, Shalam may sell, transfer,
pledge, encumber or subject to any lien or restriction, or assign
or otherwise dispose of, or enter into any contract,
<PAGE>
option or other arrangement or understanding with respect to the
disposition of any Option Shares (collectively, a "Transfer") to
any Person (a "Successor") by contract, gift, through his estate
upon his death or in any other manner; provided, that Shalam
notifies the Company of such Transfer and the number or numbers
of the Option Shares certificate or certificates transferred and
the Option Shares transferred to such Successor contain the
legend set forth in Section 4(a). Any Successor will acquire
such Option Shares subject to the terms of this Option Agreement
and, by receipt of the Option Shares, such Successor shall be
deemed to have acknowledged that it is subject to the obligations
of Shalam with respect to the Option Shares acquired by such
Successor and shall be entitled to the benefits of Shalam for
purposes of the Agreement hereunder and shall be deemed a party
hereto. The name of such Successor shall be substituted for
Shalam with respect to the Option Shares acquired by the
Successor was as if such Successor an initial party hereto.
A Successor may Transfer to any Person (a "Subsequent
Successor") by contract, gift, through his estate upon his death
or in any other manner; provided, that such Successor notifies
the Company of such Transfer and the number or numbers of the
Option Shares certificate or certificates transferred and the
Option Shares transferred to such Subsequent Successor contain
the legend set forth in Section 4(a). Any Subsequent Successor
will acquire such Option Shares subject to the terms of this
Option Agreement and, by receipt of the Option Shares, such
Subsequent Successor shall be deemed to have acknowledged that it
is subject to the obligations of the Successor with respect to
the Option Shares acquired by such Subsequent Successor and shall
be entitled to the benefits of the Successor hereunder and shall
be deemed a party hereto. The name of such Subsequent Successor
shall be substituted for the Successor for purposes of the
Agreement with respect to the Option Shares acquired by the
Subsequent Successor as if such Subsequent Successor was an
initial party hereto.
Section 7. Taxes on Exercises.
The Company shall pay any and all taxes that may be payable
in respect of the issue or delivery of Option Shares of Class A
Common Stock on exercise of the Options pursuant hereto, except
that Shalam shall be required to pay any tax which may be payable
in respect of the income of Shalam.
Section 8. Provisions in Case of Consolidation, Merger or Sale
of Assets
In case of any consolidation of the Company with, or merger
of the Company into, any other Person, any merger of another
Person into the Company (other than a merger which does not
result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Class A Common Stock of the
Company) or any sale or transfer of all or substantially all of
the assets of the Company (each, a "Transaction"), the Company
<PAGE>
and Shalam shall and each shall cause the Person formed by such
Transaction or which acquires such assets, as the case may be
(the "Acquiror"), to execute and deliver to, prior to the
consummation of the Transaction, an agreement (the "Acquiror
Agreement") providing that the Company (or its successor) shall
have the right, during the period the Options shall be
exercisable as specified in Section 1, to exercise such Options
only into the kind and amount of securities, cash and other
property (collectively, the "Consideration") receivable upon such
Transaction by a holder of the number of Option Shares into which
such Option might have been exercised immediately prior to such
Transaction, assuming such holder of Class A Common Stock of the
Company (i) 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, as the case may be (a
"constituent person"), or an affiliate of a constituent person
and (ii) failed to exercise his or her rights of election, if
any, as to the kind or amount of Consideration receivable upon
such Transaction (provided that if the kind or amount of
Consideration receivable upon such Transaction is not the same
for each share of Class A Common Stock held immediately prior to
such Transaction by Persons other than a constituent Person or an
affiliate thereof and in respect of which such rights of election
shall not have been exercised ("non-electing share"), then for
the purpose of this Section the kind and amount of consideration
receivable upon such Transaction by each non-electing share shall
be deemed to be the kind and amount so receivable per share by a
plurality of the non-electing shares). Shalam shall not exchange
the Option Shares for securities of the Acquiror pursuant to the
transaction without the consent of the Company. Such agreement
shall provide for adjustments upon the occurrence of events with
respect to the Acquiror similar to the events described in
Section 5(a) and (b) hereof which, for events subsequent to the
effective date of such Agreement, shall be as nearly equivalent
as may be practicable to the adjustments provided for in this
Article. The above provisions of this Section shall similarly
apply to successive Transactions. The Company shall also cause
the Acquiror Agreement to contain provisions that would enable
Shalam to be able to comply with the provisions of this
Section 8.
Section 9. No Change of Agreement Necessary.
Irrespective of any adjustment in the Exercise Price or in
the number or kind of shares or other property issuable upon
exercise of the Options, this Agreement need not be amended but
may continue to express the same Exercise Price and number and
kind of shares issuable upon exercise per Warrant as are stated
in the Warrant Certificates initially issued pursuant to this
Agreement.
Section 10. Amendment of Agreement.
This agreement may only be amended with the written consent
of the Company and Shalam or their successors or assigns.
<PAGE>
Section 11. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed and original, and all of which
together shall constitute the same instrument.
SECTION 12. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW PROVISIONS THEREOF.
Section 13. Descriptive Headings.
The descriptive headings of this Agreement are for
convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
Section 14. Notices.
Any notice, request or other document permitted or required
hereunder to be given to any party shall be sufficiently given if
in writing and mailed first-class postage prepaid, to such party,
at its principal address. Any notice required hereunder to be
given to any other party may be waived in writing by the party
entitled to receive such notice, either before or after the
event, and such waiver shall be the equivalent of such notice.
Section 15. Successors and Assigns.
All covenants and agreements in this Agreement by Shalam
shall survive the death or incapacity of Shalam and shall bind
his successors whether so expressed or not. All covenants and
agreements in this Agreement of the Company shall bind its
successors and assigns, whether expressed or not. This agreement
may not be assigned by the Company, except to an Acquiror in
connection with a transaction if the Options are then exercisable
for securities of the Acquiror. This agreement may be assigned
by Shalam or any Successors pursuant to the provisions of
Section 6 hereto.
Section 16. Separability.
In case any provision in this Option Agreement shall be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
Section 17. Persons Having Rights under Agreement.
Nothing in this Option Agreement, expressed or implied, is
intended, or shall be construed, to give any person, other than
the parties hereto and their successors
<PAGE>
hereunder, any benefit, right, remedy or claim under or by reason
of this Option Agreement.
Section 18. Specific Performance.
Shalam acknowledges that this Agreement and the Option
Shares are unique and that the Company will not have an adequate
remedy at law if Shalam breaches any covenant herein or fails to
perform any of his obligations hereunder. Accordingly, the
parties agree that the Company shall have the right, in addition
to any other rights and remedies which such party may have, to
specific performance and equitable injunctive relief if Shalam
shall fail, or threaten to fail, to perform any of his
obligations under this Agreement.
The Company acknowledges that this Agreement and the Option
Shares are unique and that Shalam will not have an adequate
remedy at law if the Company breaches any covenant herein or
fails to perform any of his obligations hereunder. Accordingly,
the parties agree that Shalam shall have the right, in addition
to any other rights and remedies which such party may have, to
specific performance and equitable injunctive relief if the
Company shall fail, or threaten to fail, to perform any of his
obligations under this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company and Shalam
have caused this Agreement to be executed as of the date first
set forth above.
AUDIOVOX CORPORATION
By /s/ C. Michael Stoehr
_________________________
Name:
Title:
JOHN J. SHALAM
/s/ John J. Shalam
_________________________
<PAGE>
Exhibit A
<TABLE>
<CAPTION>
Number of Options Number of Options Company Shalam
Date of Action Prior to Exercise Exercised or Option Remaining Options Signature Signature
Shares Released
<S> <C> <C> <C> <C> <C>
1,668,875
</TABLE>
