UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 [fee required]
For the fiscal year ended November 30, 1996
Commission file number 1-9532
AUDIOVOX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1964841
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
150 Marcus Blvd., Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 231-7750
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of each class: Which Registered
Class A Common Stock $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (Sec 229.405 of this chapter)
is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information
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statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
(X)
The aggregate market value of the voting stock held by non-affiliates
of the registrant was $90,356,035 (based upon closing
price on the American Stock Exchange, Inc. on February 20, 1997).
The number of shares outstanding of each of the registrant's
classes of common stock, as of February 20, 1997 was:
Class Outstanding
Class A Common Stock $.01 par value 16,901,339
Class B Common Stock $.01 par value 2,260,954
PART I
Item 1 - Business
General
Audiovox Corporation, together with its operating subsidiaries
(collectively, the "Company"), markets and supplies, under
its own name or trade names, a diverse line of aftermarket
products which include cellular telephones, both hand held
portables and vehicle installed, cellular telephone accessories,
automotive sound equipment and automotive accessories, both of
which are designed primarily for installation in cars, trucks and
vans after they have left the factory and consumer electronic
products.
The Company's products are sold through a worldwide distribution
network covering the United States, Canada and overseas.
Sales are made directly and through independent distributors to
cellular telephone accounts, cellular service providers, regional
Bell Operating Companies ("BOCs"), new car dealers, mass merchandisers,
catalogue showrooms, original equipment manufacturers
("OEMs"), military Army and Air Force Exchange Systems ("AAFES"),
autosound specialists and retailers. The Company sells to
consumers from Company-owned retail sales and service locations
which generally operate under the name "Quintex", which also
receive activation commissions and residuals from certain cellular
service providers.
The Company's products may be broadly grouped into three
major categories: cellular, which includes telephone products,
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activation commissions and residual fees, automotive sound
equipment and automotive accessories. These categories represent
different product lines rather than separate reporting segments.
The Company was incorporated in Delaware on April 10, 1987,
as successor to the business of Audiovox Corp., a New York
corporation founded in 1960 (the "predecessor company") by John
J. Shalam, the Company's President, Chief Executive Officer and
controlling stockholder. Unless the context otherwise requires,
or as otherwise indicated, references herein to the "Company"
include the Company, its wholly-owned and majority-owned operating
subsidiaries.
Trademarks
The Company markets products under several trademarks,
including Audiovox(R), Custom SPS(R), Prestige(R), Pursuit(R),
Minivox(TM), Minivox Lite(R), The Protector(R) and Rampage(TM).
The Company believes that these trademarks are recognized by
customers and are therefore significant in marketing its products.
Trademarks are registered for a period of ten years and
such registration is renewable for subsequent ten-year periods.
Distribution and Marketing
Cellular and Non-Cellular Wholesale
The Company markets products on a wholesale basis to a
variety of customers through its direct sales force and independent
sales representatives. During the fiscal year ended November
30, 1996, the Company sold its products to approximately 2,500
wholesale accounts, including the BOCs, other cellular carriers
and their respective agents, mass merchandise chain stores,
specialty installers, distributors and car dealers, OEMs and
AAFES.
The Company's five largest wholesale customers (excluding
joint ventures), who, in the aggregate, accounted for 29.4% of
the Company's net sales for the fiscal year ended November 30,
1996, are Bell Atlantic Mobile Systems, Airtouch Cellular, US
Cellular, Proton Corporation Sdn. Bhd. (Proton) and Nynex Mobile
Communications Company. Proton is an automobile manufacturer in
Malaysia. The other four are cellular carriers. None of these
customers individually accounted for more than 12.4% of the
Company's net sales for such period. In addition, the Company
also sells its non-cellular products to mass merchants such as
Walmart Stores, Inc., warehouse clubs including Price/Costco,
Inc. and OEMs such as Chrysler of Canada, Navistar International
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Corporation, General Motors Corporation and BMW of North America.
The Company uses several techniques to promote its products
to wholesale customers, including trade and customer advertising,
attendance at trade shows and direct personal contact by Company
sales representatives. In addition, the Company typically
assists cellular carriers in the conduct of their marketing
campaigns (including the scripting of telemarketing presentations),
conducts cooperative advertising campaigns, develops and
prints custom sales literature and conducts in-house training
programs for cellular carriers and their agents.
The Company believes that the use of such techniques, along
with the provision of warranty services and other support programs,
enhances its strategy of providing value-added marketing
and, thus, permits the Company to increase Audiovox brand
awareness among wholesale customers while, at the same time,
promoting sales of the Company's products through to end users.
The Company's wholesale policy is to ship its products
within 24 hours of a requested shipment date from public warehouses
in Norfolk, Virginia, Sparks, Nevada and Canada and from
leased facilities located in Hauppauge, New York and Los Angeles,
California.
Retail
As of November 30, 1996, the Company operated approximately
29 retail outlets and licensed its trade name to 11 additional
retail outlets in selected markets in the United States through
which it markets cellular telephones and related products to
retail customers under the names Audiovox , American Radio ,
Quintex and H & H Eastern Distributors ("H&H"). In addition to
Audiovox products, these outlets sell competitive products such
as Motorola and Nokia.
The Company's retail outlets typically generate revenue from
three sources: (i) sale of cellular telephones and related
products, (ii) activation commissions paid to the Company by
cellular telephone carriers when a customer initially subscribes
for cellular service and (iii) monthly residual fees. The amount
of the activation commissions paid by a cellular telephone
carrier is based upon various service plans and promotional
marketing programs offered by the particular cellular telephone
carrier. The monthly residual payment is based upon a percentage
of the customer's usage and is calculated based on the amount of
the cellular phone billings generated by the base of the customers
activated by the Company on a particular cellular carrier's
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system. Under the Company's 11 licensee relationships, the
licensee receives the majority of the activation commissions, and
the Company retains the majority of the residual fees. The
Company's agreements with cellular carriers provide for a reduction in,
or elimination of, activation commissions in certain
circumstances if a cellular subscriber activated by the Company
deactivates service within a specified period. The Company
records an allowance to provide for the estimated liability for
return of activation commissions associated with such deactivations.
See Note 1(l) of Notes to Consolidated Financial Statements. As a
practical matter, the profitability of the Company's
retail operations is dependent on the Company maintaining agency
agreements with cellular carriers under which it receives activation
commissions and residual fees.
The Company's relationships with the cellular carriers are
governed by contracts that, in the aggregate, are material to the
continued generation of revenue and profit for the Company.
Pursuant to applicable contracts with cellular carriers, each of
the Company's retail outlets functions as a non-exclusive agent
engaged to solicit and sell cellular telephone service in certain
geographic areas and, while such contract is in effect and for a
specified period thereafter (which typically ranges from three
months to one year), may not act as a representative or agent for
any other carrier or reseller in those areas or solicit cellular
or wireless communication network services of the kind provided
by the cellular carrier in the areas where the Company acts as an
agent. The Company's retail operation is free, at any time after
the restricted period, to pursue an agreement with another
carrier who services a particular geographic area. At present,
each geographic area is serviced by two cellular carriers.
As of November 30, 1996, the Company had agency contracts
with the following carriers in selected areas: Bell Atlantic/
NYNEX Mobile Systems, Inc., BellSouth Mobility, Inc., GTE
Mobilnet of the Southeast, Inc., and Richmond Cellular Telephone
Company d/b/a Cellular One. Dependant upon the terms of the
specific carrier contracts, which typically range in duration
from one year to five years, the Company's retail operation may
receive a one-time activation commission and periodic residual
fees. These carrier contracts provide the carrier with the right
to unilaterally restructure or revise activation commissions and
residual fees payable to the Company, and certain carriers have
exercised such right from time-to-time. Dependent upon the terms
of the specific carrier contract, either party may terminate the
agreement, with cause, upon prior notice. Typically, the Company's
right to be paid residual fees ceases upon termination of
an agency contract.
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Equity Investments
The Company has from time-to-time, at both the wholesale and
retail levels, established joint ventures to market its products
to a specific market segment or geographic area. In entering
into a joint venture, the Company seeks to join forces with an
established distributor with an existing customer base and
knowledge of the Company's products. The Company seeks to blend
its financial and product resources with these local operations
to expand their collective distribution and marketing capabilities.
The Company believes that such joint ventures provide a
more cost effective method of focusing on specialized markets.
The Company does not participate in the day-to-day management of
these joint ventures.
As of November 30, 1996, the Company had a 31.6% ownership
interest in TALK Corporation (TALK) which holds world-wide
distribution rights for product manufactured by Shintom Co., Ltd.
(Shintom). These products include cellular telephones, video
recorders and players and automotive sound products. TALK has
granted Audiovox exclusive distribution rights on all wireless
personal communication products for all countries except Japan,
China, Thailand, and several mid-eastern countries. Additionally,
the Company had a 50% non-controlling ownership in five
other companies: Protector Corporation (Protector) which acts as
a distributor of chemical protection treatments, Audiovox Specialty
Markets Co., L.P. (ASMC), which acts as a distributor of
televisions and other automotive sound, security and accessory
products to specialized markets for RV's and van conversions,
Audiovox Pacific Pty., Limited (Audiovox Pacific) which distributes
cellular telephones and automotive sound and security
products in Australia and New Zealand, G.L.M. Wireless Communications,
Inc. (G.L.M.) which is in the cellular telephone, pager
and communications business and Quintex Communications West, LLC,
which is in the cellular telephone and communications business.
The Company's 80%-owned subsidiary, Audiovox Holdings (Malaysia)
Sdn. Bhd. (Audiovox Holdings), had a 30% ownership interest in
Avx Posse (Malaysia) Sdn. Bhd. (Posse) which monitors car security
commands through a satellite based system in Malaysia.
Customers
The Company had one customer, Bell Atlantic, that accounted
for more than 10% of the Company's net sales for fiscal 1996.
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Suppliers
The Company purchases its cellular and non-cellular products
from manufacturers located in several Pacific Rim countries,
including Japan, China, Korea, Taiwan and Singapore, Europe and
in the United States. In selecting its vendors, the Company
considers quality, price, service, market conditions and reputation.
The Company maintains buying offices or inspection offices
in Taiwan, Korea and China to provide local supervision of
supplier performance with regard to, among other things, price
negotiation, delivery and quality control. The majority of the
products sourced through these foreign buying offices are non-cellular.
Since 1984, the principal supplier of the Company's wholesale
cellular telephones has been Toshiba Corporation
("Toshiba"), accounting for approximately 28%, 44% and 45% of the
total dollar amount of all product purchases by the Company,
during the fiscal years ended November 30, 1996, 1995 and 1994,
respectively. In 1994, Toshiba competed directly with the
Company in the United States by marketing cellular telephone
products through Toshiba's United States distribution subsidiary.
As of November 30, 1995, Toshiba announced it will no longer
distribute cellular telephone products through its subsidiary in
the United States. Toshiba continues to sell products to the
Company as an original equipment customer. In order to expand
its supply channels and diversify its cellular product line, the
Company now sources cellular equipment from other manufacturers
including, Hagenuk Telecom Gmbh. ("Hagenuk"), Dancall Telecom A/S
("Dancall") and TALK. Purchases from TALK accounted for approxi-
mately 26%, 20% and 7% of total inventory purchases for the years
ended November 30, 1996, 1995 and 1994, respectively. Purchases
of non-cellular products are made primarily from other overseas
suppliers including Hyundai Electronics Inc. ("Hyundai"), Namsung
Corporation ("Namsung") and Nutek Corporation ("Nutek"). There
are no agreements in effect that require manufacturers to supply
product to the Company. The Company considers its relations with
its suppliers to be good. In addition, the Company believes that
alternative sources of supply are currently available.
Competition
The Company's wholesale business is highly competitive in
all its product lines, each competing with a number of well-
established companies that manufacture and sell products similar
to those of the Company. Specifically, the cellular market place
is driven by current selling prices, which also affects the
carrying value of inventory on hand. Additionally, the Custom
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SPS line competes against factory-supplied radios. Service and
price are the major competitive factors in all product lines.
The Company believes that it is a leading supplier to the cellular
market primarily as a result of the performance of its
products and the service provided by its distribution network.
The Company's retail business is also highly competitive on a
product basis. In addition, since the Company acts as an agent
for cellular service providers, these cellular service providers
must also compete in their own markets which are also highly
competitive. The Company's retail performance is, therefore,
also based on the carriers' ability to compete.
Employees
At November 30, 1996, the Company employed approximately
934 people.
Executive Officers of the Registrant
The executive officers of the registrant are listed below.
All officers of the Company are elected by the Board of Directors
to serve one-year terms. There are no family relationships among
officers, or any arrangement or understanding between any officer
and any other person pursuant to which the officer was selected.
Unless otherwise indicated, positions listed in the table have
been held for more than five years.
<TABLE>
Name Age Current Position
<S> <C> <S>
John J. Shalam 63 President and Chief Executive
Officer and Director
Philip Christopher 48 Executive Vice President and
Director
Charles M. Stoehr 50 Senior Vice President, Chief
Financial Officer and Director
Patrick M. Lavelle 45 Senior Vice President and
Director
Chris L. Johnson 45 Vice President, Secretary
Ann M. Boutcher 46 Vice President and Director
Richard Maddia 38 Vice President and Director
</TABLE>
John J. Shalam has served as President and Chief Executive
Officer and as a director of the Company since 1960. Mr. Shalam
also serves as president and is a director of most of the Company's
operating subsidiaries.
Philip Christopher, Executive Vice President of the Company,
has been with the Company since 1970 and has held his current
position since 1983. Prior thereto, he was Senior Vice President
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of the Company. Mr. Christopher also has been a director of the
Company since 1973 and, in addition, serves as an officer and a
director of most of the Company's operating subsidiaries.
Charles M. Stoehr has been Chief Financial Officer of the
Company since 1979 and was elected Senior Vice President in 1990.
Mr. Stoehr has been a director of the Company since 1987. From
1979 through 1990, Mr. Stoehr was a Vice President of the Company.
Patrick M. Lavelle has been a Vice President of the Company
since 1982. In 1991, Mr. Lavelle was elected Senior Vice President,
with responsibility for marketing and selling the Company's
automotive accessory and automotive sound line of products. Mr.
Lavelle was elected to the Board of Directors in 1993.
Chris L. Johnson has been a Vice President of the Company
since 1986 and Secretary since 1980. Ms. Johnson has been
employed by the Company in various positions since 1968 and was a
director of the Company from 1987 to 1993.
Ann M. Boutcher has been a Vice President of the Company
since 1984. Ms. Boutcher's responsibilities include the development
and implementation of the Company's advertising, sales
promotion and public relations programs. Ms. Boutcher was
elected to the Board of Directors in 1995.
Richard Maddia has been a Vice President of the Company
since 1991. Mr. Maddia is responsible for the Company's Manage-
ment Information Systems for both the Company's distribution
network and financial reporting. Mr. Maddia was elected to the
Board of Directors in 1996.
Item 2 - Properties
As of November 30, 1996, the Company leased a total of
forty-three operating facilities located in thirteen states and
two Canadian provinces. These facilities serve as offices,
warehouses, distribution centers or retail locations. Additionally,
the Company utilizes approximately 117,000 square feet of
public warehouse facilities. Management believes that it has
sufficient, suitable operating facilities to meet the Company's
requirements.
Item 3 - Legal Proceedings
On February 10, 1997, the Company and the other defendants
in the case entitled Robert Verb, et al. v. Motorola, Inc.,
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Audiovox Corporation, et al. filed their answer to Plaintiff's
Petition for Leave to Appeal. The Company believes that the
likelihood of the Court granting Plaintiff's motion is low. In
addition, the Company believes that its insurance coverage and
rights of recovery against manufacturers of its portable hand-held
cellular telephones relating to this case are sufficient to
cover any reasonably anticipated damages. The Company also
believes that there are meritorious defenses to the claims made
in this case.
On March 15, 1996 and April 4, 1996, Audiovox was served
with a complaint and an amended complaint, respectively, in an
action entitled Electronics Communications Corp. ("ECC") v.
Toshiba America Consumer Products, Inc. and Audiovox Corporation
in which plaintiff seeks injunctive relief and damages against
Toshiba and Audiovox in excess of $16,000 arising out of anti-
trust violations, tortious interference with contract and tortious
interference with prospective economic advantage or business
relations and monopoly, all arising out of the termination
of ECC's alleged distributorship arrangement with Toshiba.
Audiovox's motion to dismiss the complaint for failure to state a
federal cause of action and for lack of subject matter jurisdiction
was granted on August 12, 1996. Plaintiff has filed a
Notice of Appeal with the Second Circuit Court of Appeals.
In addition, the Company is currently, and has in the past
been, a party to other routine litigation incidental to its
business. The Company does not expect any pending litigation to
have a material adverse effect on its consolidated financial
position.
Item 4 - Submission of Matters to a Vote of Security Holders
A special meeting of the stockholders of Audiovox Corporation
(the "Company") was held on November 25, 1996 at the Company's offices,
150 Marcus Boulevard, Hauppauge, New York.
The matter presented to the meeting concerned the approval
of the issuance of up to 10,725,000 shares of Class A Common
Stock of the Company in exchange for its 6 1/4% Convertible
Subordinated Debentures due 2001. The Class A vote was as
follows: 4,340,254 for the proposal, 44,025 against and 22,365
abstentions. All of the Class B stockholders, representing
22,609,540 votes, voted in favor of the proposal.
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PART II
Item 5 - Market for the Registrant's Common Equity and Related
Stockholder Matters
Summary of Stock Prices and Dividend Data
Class A Common Shares of Audiovox are traded on the American
Stock Exchange under the symbol VOX. No dividends have been paid
on the Company's common stock. The Company is restricted by
agreements with its financial institutions from the payment of
common stock dividends while certain loans are outstanding (see
Liquidity and Capital Resources of Management's Discussion and
Analysis). There are approximately 5,485 beneficial holders of
Class A Common Stock and 5 holders of Class B Common Stock.
<TABLE>
Class A Common Stock
Average Daily
Fiscal Period High Low Trading Volume
1996
<S> <C> <C> <C>
First Quarter . . . . . . . . . . . . . . . $ 6 3/8 $ 4 3/4 15,924
Second Quarter. . . . . . . . . . . . . . . . 7 7/16 4 1/16 52,039
Third Quarter . . . . . . . . . . . . . . . . 6 5/16 4 16,309
Fourth Quarter. . . . . . . . . . . . . . . . 6 3/4 4 5/8 95,817
1995
First Quarter . . . . . . . . . . . . . . . . 8 1/2 6 3/8 25,300
Second Quarter. . . . . . . . . . . . . . . . 7 5 1/16 13,500
Third Quarter . . . . . . . . . . . . . . . . 7 3/8 4 7/16 30,100
Fourth Quarter. . . . . . . . . . . . . . . . 6 13/16 4 3/8 21,600
1994
First Quarter . . . . . . . . . . . . . . . .18 3/8 14 1/4 26,400
Second Quarter. . . . . . . . . . . . . . . 16 11 7/8 32,600
Third Quarter . . . . . . . . . . . . . . . .12 3/4 6 1/4 39,600
Fourth Quarter. . . . . . . . . . . . . . . . 9 3/8 6 3/4 19,600
</TABLE>
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Item 6 - Selected Financial Data
Years ended November 30, 1996, 1995, 1994, 1993 and 1992
<TABLE>
1996 1995 1994 1993 1992
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $597,915 $500,740 $486,448 $389,038 $343,905
Net income (loss) (26,469)(a) (9,256)(b) 26,028(d) 12,224(f) 7,670(h)
Net income (loss)
per common share,
primary (2.82)(a) (1.02)(b) 2.86(d) 1.35(f) 0.85(h)
Net income per
common share, fully
diluted - - 2.20(d) 1.25(f) -
Total assets 268,172 311,055 239,098 169,671 145,917
Long-term obligations,
less current
installments 70,413 142,802 110,698(e) 13,610(g) 55,335
Stockholders' equity 134,126 (c)117,222(c) 92,034 65,793 53,457
</TABLE>
(a) Includes a pre-tax charge of $26.3 million for costs associated
with the exchange of $41.3 million of subordinated
debentures into 6,806,580 shares of common stock in addition
to tax expense on the exchange of $2.9 million.
(b) Includes a pre-tax charge of $2.9 million associated with
the issuance of warrants, a pre-tax charge of $11.8 million
for inventory write-downs and the down-sizing of the retail
operations and a pre-tax gain on the sale of an equity
investment of $8.4 million.
(c) Includes a $10.3 million unrealized gain on marketable
securities, net, and a $34.4 million increase as a result of
the exchange of $41.3 million of subordinated debentures in
1996 and a $31.7 million unrealized gain on marketable
securities, net, for 1995.
(d) Includes a cumulative effect change of ($178,000) or ($0.02)
per share, primary, and ($0.01) per share, fully diluted.
Also includes a pre-tax gain on sale of an equity investment
of $27.8 million and a gain on public offering of equity
investment of $10.6 million.
(e) Long-term debt includes the addition of a $65 million bond
offering in 1994.
(f) Includes an extraordinary item of $2.2 million or $0.24 per
share, primary, and $0.22 per share, fully diluted.
(g) Long-term debt does not include $38.8 million of bank
obligations which were classified as current.
(h) Includes an extraordinary item of $1.9 million or $0.21 per
share.
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Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
(In thousands, except share and per share data)
The Company's operations are conducted in a single business
segment encompassing three principal product lines: cellular,
automotive sound equipment and automotive security and accessory
equipment.
The Company's wholesale cellular operations generate revenue
from the sale of cellular telephones and accessories. The
Company's retail outlets typically generate revenue from three
sources: (i) the sale of cellular telephones and related products,
(ii) activation commissions paid to the Company by cellular
telephone carriers when a customer initially subscribes for
cellular service and (iii) monthly residual fees. The price at
which the Company's retail outlets sell cellular telephones is
often affected by the amount of the activation commission the
Company will receive in connection with such sale. The amount of
the activation commission paid by a cellular telephone carrier is
based upon various service plans and promotional marketing
programs offered by the particular cellular telephone carrier.
The monthly residual payment is based upon a percentage of the
customer's usage and is calculated based on the amount of the
cellular phone billings generated by the base of customers
activated by the Company on a particular cellular carrier's
system.
The Company's automotive sound product line includes stereo
cassette radios, compact disc players and changers, speakers and
amplifiers. The automotive security and accessory line consists
of automotive security products, such as alarm systems, and power
accessories, including cruise controls and power door locks.
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Certain reclassifications have been made to the data for
periods prior to fiscal 1996 in order to conform to fiscal 1996
presentation. The net sales and percentage of net sales by
product line for the fiscal years ended November 30, 1996, 1995
and 1994 are reflected in the following table:
<TABLE>
Years Ended November 30,
1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Cellular product-
wholesale $349,655 58% $260,704 52% $237,566 49%
Cellular product-
retail 8,309 1 15,470 3 18,198 3
Activation
commissions 33,102 6 38,526 8 47,788 10
Residual fees 4,828 1 4,781 1 4,005 1
Total Cellular 395,894 66 319,481 64 307,557 63
Automotive sound
equipment 104,696 18 107,404 21 112,512 23
Automotive security
and accessory
equipment 93,625 16 73,207 15 64,040 13
Other 3,700 - 648 - 2,339 1
Total $597,915 100% $500,740 100% $486,448 100%
</TABLE>
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The following table sets forth for the periods indicated
certain statement of income (loss) data for the Company expressed
as a percentage of net sales:
<TABLE>
Percentage of Net Sales
Year Ended November 30,
1996 1995 1994
<S> <C> <C> <C>
Net sales:
Net product sales 93.7% 91.4% 89.4%
Cellular telephone activation
commissions 5.5 7.7 9.8
Cellular telephone residual fees 0.8 0.9 0.8
Net sales 100.0 100.0 100.0
Cost of sales (83.9) (85.9) (82.5)
Gross profit 16.1 14.1 17.5
Selling expense (6.7) (6.9) (6.7)
General and administrative expense (5.4) (7.2) (6.7)
Warehousing, assembly and repair
expense (1.8) (2.0) (1.9)
Total operating expenses (13.9) (16.1) (15.3)
Operating income (loss) 2.2 (2.0) 2.2
Interest expense (1.4) (1.9) (1.3)
Income of equity investments 0.1 0.6 0.8
Management fees - - 0.3
Gain on sale of equity investment 0.2 1.7 5.7
Gain on public offering equity
investment - - 2.2
Debt conversion expense (4.4) - -
Expenses related to issuance of
warrants - (0.6) -
Other expenses, net (0.1) (0.2) (0.3)
Income tax (expense) recovery (1.0) 0.6 (4.2)
Net income (loss) (4.4) (1.8) 5.4
</TABLE>
Results of Operations
Fiscal 1996 Compared to Fiscal 1995
Net sales increased by approximately $97,175, or 19.4% for
fiscal 1996, compared to fiscal 1995. This result was primarily
attributable to increases in net sales from the cellular division
of approximately $76,413, or 23.9%, automotive security and
accessory equipment of approximately $20,418, or 27.9% and other
products, primarily home stereo systems of $3,052. These increases
were partially offset by a decrease in automotive sound
equipment of approximately $2,708, or 2.5%.
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The improvement in net sales of cellular telephone products
was primarily attributable to an increase in unit sales. Net
sales of cellular products increased by approximately 857,000
units, or 70.9%, compared to fiscal 1995, primarily resulting
from an increase in sales of hand-held portable cellular tele-
phones and transportable cellular telephones, partially offset by
a decline in sales of installed mobile cellular telephones. The
average unit selling price declined approximately 23.7% vs. 1995
as production efficiencies and market competition continues to
reduce unit selling prices. The Company believes that the shift
from installed mobile cellular telephones to hand-held and
transportable cellular telephones is reflective of a desire by
consumers for increased flexibility in their use of cellular
telephones. Toward that end, the Company markets an accessory
package that permits its Minivox and Minivox Lite hand-held
cellular telephones to be used in an automobile on a hands-free
basis and to draw power from the automobile's electrical system
like an installed mobile cellular telephone.
Activation commissions decreased by approximately $5,424, or
14.1%, for fiscal 1996 compared to fiscal 1995. This decrease
was primarily attributable to fewer new cellular subscriber
activations and partially due to fewer retail outlets operated by
the Company. The number of activation commissions decreased
21.4% compared to fiscal 1995. This decrease in commission
revenue was offset by a 9.3% increase in average activation
commissions paid to the Company. Residual revenues on customer
usage increased by approximately $47, or 1.0%, for fiscal 1996,
compared to fiscal 1995, due primarily to the addition of new
subscribers to the Company's cumulative subscriber base, despite
a decrease in current year activations. A majority of the
residual income resides with the remaining operating retail
locations.
Net sales of automotive sound equipment decreased by approx-
imately $2,708, or 2.5%, for fiscal 1996, compared to fiscal
1995. This decrease was attributable primarily to a decrease in
sales of products sold to mass merchandise chains and auto sound
sales to new car dealers. This decrease was partially offset by
increases in sales of sound products to private label customers.
Net sales of automotive security and accessory products increased
approximately $20,418, or 27.9%, for fiscal 1996, compared to
fiscal 1995, principally due to increases in sales of vehicle
security products, Protector Hardgoods and cruise controls. This
increase was partially offset by a reduction in net sales of AA
security products.
16
<PAGE>
Gross margins increased to 16.1% in fiscal 1996 from 14.1%
in fiscal 1995. The 1995 gross margin included a $9,300 charge
for inventory written down to market at August 31, 1995. Cellular
gross margins were 13.2% compared to 9.8% in 1995. Despite a
23.7% decrease in average unit selling prices, the average gross
margin per unit increased 25.3%. The number of new subscriber
activations decreased 21.4% but was partially offset by a 9.3%
increase in average activation commissions earned by the Company.
Residuals increased 1.0% over last year. The Company believes
that the cellular market will continue to be a highly-competitive
and price-sensitive environment. Increased price competition
related to the Company's product could result in downward pressure
on the Company's gross margins if the Company is unable to
obtain competitively priced product from its suppliers or result
in adjustments to the carrying value of the Company's inventory.
Automotive sound margins were 19.9%, up from 17.5% in 1995.
Most product lines in the category experienced an increase and
there was a marked increase in the gross margin on international
sales. Automotive accessory margins decreased from 27.9% in 1995
to 24.5% in 1996. This decrease was primarily in the Prestige and
cruise control lines.
Total operating expenses increased approximately $2,837, or
3.5%, compared to last year. As a percentage to sales, total
operating expenses decreased to 13.9% during 1996 compared to
16.1% for 1995. Selling expenses increased approximately $5,544,
or 16.1%, over last year. Divisional marketing and advertising
increased approximately $8,256 compared to last year in addition
to travel and related expenses. These increases were partially
offset by decreases in salesmen's commissions, salesmen's salaries,
payroll taxes and employee benefits. General and administrative
expenses decreased approximately $3,708 during 1996. The
decreases were in occupancy costs, telephone and overseas buying
office expenses and were partially offset by increases in office
salaries, travel, payroll taxes, employee benefits and professional
fees. Warehousing, assembly and repair expenses increased
approximately $1,001 compared to last year, predominately in
warehousing expenses and direct labor.
17
<PAGE>
Management fees and related income and equity in income from
joint venture investments decreased by approximately $2,164 for
1996 compared to 1995 as detailed in the following table:
<TABLE>
1996 1995
Equity Equity
Management Income Management Income
Fees (Loss) Total Fees (Loss) Total
<S> <C> <C> <C> <C> <C> <C>
CellStar - - - - $2,151 $2,151
ASMC - $ 948 $ 948 - 819 819
G.L.M. $ 100 - 100 $ 14 - 14
Pacific 22 (334) (312) 186 21 207
TALK - - - - (210) (210)
Quintex West 18 - 18 - - -
Posse 46 17 63 - - -
$ 186 $ 631 $ 817 $ 200 $2,781 $2,981
</TABLE>
The decrease was primarily due to the Company's owning less
than 20% of CellStar for the entire fiscal year and, therefore,
not accounting for the investment on the equity method. During
1995, the Company owned more than 20% of CellStar until the third
quarter and, therefore, accounted for CellStar under the equity
method until then. Audiovox Pacific has experienced an overall
decline in gross margins, as the cellular market in Australia has
experienced the same competitive factors as those in the United
States.
Interest expense and bank charges decreased by $1,214, or
12.5%, compared to 1995 as a result of a decrease in interest
bearing debt. Other expenses decreased approximately $412 primar-
ily due to the write-off of fixed assets in the retail group
during 1995 which did not recur in 1996. Costs associated with the
issuance of stock warrants for no monetary consideration to
certain holders of the Company's convertible subordinated deben-
tures also did not recur in 1996.
During the fourth quarter of 1996, the Company exchanged
$41,252 of its 6 1/4% subordinated debentures for 6,806,580 shares
of Class A Common Stock. This exchange resulted in a charge to
earnings of approximately $26,318 before income taxes. This charge
includes the loss on the exchange and the write-off of the remaining
debt issuance costs associated with the original issue of the
debentures.
18
<PAGE>
Fiscal 1995 Compared to Fiscal 1994
Net sales increased by approximately $14,300, or 2.9%, for
fiscal 1995 compared to fiscal 1994. This result was primarily
attributable to increases in net sales from cellular telephone
products of approximately $11,900, or 3.9%, and automotive security
and accessory equipment of approximately $9,200, or 14.3%.
These increases were partially offset by a decline in net sales
attributable to automotive sound equipment of approximately
$5,100, or 4.5%.
The improvement in net sales of cellular telephone products
was primarily attributable to increased unit sales, partially
offset by a decrease in activation commissions. Net sales of
cellular telephones increased by approximately 382,000 units, or
46.3%, compared to fiscal 1994, primarily resulting from an
increase in sales of hand-held portable cellular telephones,
partially offset by a decline in sales of installed mobile and
transportable cellular telephones. The average unit selling price
declined approximately 23.4% vs. 1994 as production efficiencies
and market competition continues to reduce unit selling prices.
Activation commissions decreased by approximately $9,300, or
19.4%, for fiscal 1995 compared to fiscal 1994. This decrease was
primarily attributable to fewer new cellular subscriber activations
and partially due to the net reduction of 61 retail outlets
operated by the Company. The number of activation commissions
decreased 15.5% over fiscal 1994. This decrease in commission
revenue was further affected by a 4.7% decrease in average
activation commissions paid to the Company. Residual revenues on
customer usage increased by approximately $776, or 19.4%, for
fiscal 1995, compared to fiscal 1994, due primarily to the addition
of new subscribers to the Company's cumulative subscriber
base, despite a decrease in current year activations. A majority
of the residual income resides with the remaining 30 operating
retail locations.
During fiscal 1994, the Company experienced dramatic growth
in its Quintex type retail operations. This growth reflected the
large increases in cellular telephone sales experienced in the
domestic U.S.
During this period, the Company had favorable contracts with
several of the major cellular carriers. To capitalize on the
growth in the market during 1994, the Company embarked on an
expansion program to increase its retail presence in its designated
cellular markets. During fiscal 1995, beginning with the
first quarter, the market place in which the Quintex retail
19
<PAGE>
operations conducted their business was adversely affected by
several trends. These trends include a slow down in the growth of
the cellular market, a desire by the cellular carriers to lower
their acquisition costs with lower payments to its individual
agents, increased competition by mass merchandisers and the
cellular carriers direct sales force, and the overall economic
conditions in the U.S. domestic market. As a result of these
trends, the Company decided to reduce its retail presence by
closing or disposing of all unprofitable Quintex locations
throughout the U.S. The result of this plan was a reduction of outlets
from 91 to 30. The cost of this closing was approximately $4,000
during fiscal 1995. Of the $4,000 charge to income, approximately
$1,500 is related to inventory write-offs, $1,800 is associated
with the lease buy-outs, employee severance pay, the write-off of
leasehold improvements and other fixed assets and $700 of miscel-
laneous charges including co-op advertising, deactivation allowances,
and anticipated bad debts. The impact of this Quintex
reduction program and the overall erosion of the retail market was
a decrease in revenue of approximately $21,000 for fiscal 1995.
This decrease was due to a decrease in revenues of cellular
and non-cellular products of approximately $12,500 and a decrease
in activation commission revenues of approximately $9,300, which
was partially offset by an increase in residuals of $776. During
the earlier part of the 1995 fiscal year, prior to the retail
program, the Company continued to open and close various retail
outlets. During the third quarter of 1995, the Company felt that
the erosion of the retail business in certain carrier regions
would not allow a return to profitability. It was then decided to
close all those locations which had not attained profitability.
This further accelerated the reduction of operating revenues and
income in the fourth quarter of fiscal 1995. The performance of
the retail locations closed during fiscal 1995, which were a part
of the retail reduction program and included in the total $21,000
decrease in revenues for the entire retail group, is as follows:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Net sales $18,077 $25,663 $14,496
Operating income (loss) $(1,438) $ 1,159 $ 1,944
</TABLE>
The Company believes that these closures will reduce revenue,
as well as operating expenses, primarily in occupancy costs,
salaries and commissions, during fiscal 1996. The Company will
continue to review its remaining locations and will close them if
they do not remain profitable.
20
<PAGE>
Net sales of automotive sound equipment decreased by approximately
$5,100, or 4.5%, for fiscal 1995, compared to fiscal 1994.
This decrease was attributable primarily to a decrease in sales of
products sold to mass merchandise chains, coupled with decreases
in auto sound sales to private label customers, new car dealers,
products used in the truck and agricultural vehicle markets and
several OEM accounts. Net sales of automotive security and
accessory products increased approximately $9,200, or 14.3%, for
fiscal 1995, compared to fiscal 1994, principally due to increases
in sales of vehicle security products and Protector Hardgoods.
This increase was partially offset by a reduction in net sales by
the Company of recreational vehicle equipment and accessories.
Gross margins declined to 14.1% in fiscal 1995 from 17.5% for
fiscal 1994 as a result of lower selling prices and the write-down
of the carrying value of inventory of $9,300 during the third
quarter of 1995. This reflects the overall erosion of gross
margins experienced primarily in the cellular product category
which resulted in the decision to mark down the carrying value of
the Company's cellular inventory. Of the $9,300 inventory adjustment,
$8,800 was in the cellular product category and $500 was in
the automotive sound product category in wholesale operations.
Cellular gross margins were 9.8% for fiscal 1995 compared to
14.8% for fiscal 1994. As previously mentioned, the gross margins
reflect an $8,800 charge for inventory write-downs. In addition,
the decline in cellular margins is a result of the continuing
decline of unit selling prices due to increased competition and
the introduction of lower-priced units. The portable cellular
telephone line accounted for the majority of this decrease. The
average unit selling price declined 23.4% during the 1995 fiscal
year. Likewise, gross profits on unit sales declined 26.7% for
the same period. The number of new subscriber activations declined
15.5% to 126,000 for 1995 compared to last year. Average
commissions received by the Company from the cellular carriers per
activation also declined 4.7% to $305 for the twelve months ended
November 30, 1995 versus last year. These decreases were partially
offset by an increase of 19.4% in residual payments received by the
Company compared to the same period last year. The
Company believes that the cellular market will continue to be a
highly-competitive, price-sensitive environment. Increased price
competition related to the Company's product could result in
downward pressure to the Company's gross margins if the Company is
unable to obtain competitively-priced product from its suppliers
or result in additional adjustments to the carrying value of the
Company's inventory.
21
<PAGE>
Automotive sound margins decreased to 17.5% from 18.7% for
the fiscal year ended November 30, 1995 compared to last year.
The decrease in automotive sound margins was primarily in the AV
product line, partially offset by increases in the Heavy Duty
Sound product lines. Automotive accessory margins decreased to
27.9% for 1995 from 29.1% in 1994. These decreases were primarily
in the AA security product line, partially offset by an increase
in margins in Prestige security products and Protector Hardgoods.
Total operating expenses increased by approximately $6,100,
or 8.1%, for the twelve months ended November 30, 1995 compared to
last year. A major component of this increase was the third
quarter 1995 charge for the downsizing of the Company's retail
operations. Excluding this charge, operating overhead increased
$3,600 for fiscal 1995 compared to the same period last year.
Warehousing, assembly and repair expenses increased approxi-
mately $441, or 4.7 %, for 1995 compared to 1994. The increase
for the twelve months was primarily in field warehousing expenses
and travel. Selling expenses increased approximately $2,200, or
6.8%, compared to last year. Advertising and other promotional
marketing programs accounted for the majority of the increase in
fiscal 1995. General and administrative expenses increased
$3,400, or 10.5%, for 1995 compared to last year. A provision for
costs associated with the down-sizing of the retail group was the
primary component of this increase. This provision included costs
for the buy-out of leases, the write-off of leasehold improvements,
severance pay and other charges necessary to close and
consolidate the retail operations. Other increases were in
professional fees, bad debt and expenses associated with the
Company's overseas buying offices.
Management fees and related income and equity in income from
joint venture investments decreased by approximately $12,900 for
1995, as compared to 1994, principally due to CellStar Corporation
("CellStar") as detailed in the following table:
<TABLE>
1995 1994
Equity Equity
Management Income Management Income
Fees (Loss) Total Fees (Loss) Total
<S> <C> <C> <C> <C> <C> <C>
CellStar - $ 2,151 $ 2,151 - $13,958 $13,958
ASMC - 819 819 - 932 932
G.L.M. $ 14 - 14 - - -
Pacific 186 21 207 $ 435 242 677
Protector - - - 1,108 - 1,108
TALK - (210) (210) - (819) (819)
$ 200 $ 2,781 $ 2,981 $1,543 $14,313 $15,856
</TABLE>
22
<PAGE>
During 1994, the Company sold shares of CellStar, resulting
in a pre-tax gain on sale of $27,800. Also in 1994, the Company
recorded a $10,600 gain on the carrying value of the investment
in CellStar after their public offering. This event did not
repeat in 1995. In addition, in 1995, the Company sold 1,500,000
shares of CellStar Common Stock. The gain on the sale of these
securities, before income taxes, was approximately $8,400. Since
the Company's ownership in CellStar is less than 20%, the Company
can no longer account for CellStar under the equity method of
accounting. The decrease in Audiovox Pacific is due to an
overall decline in gross profits, as the cellular market in
Australia experienced the same competitive factors which exist in
the United States. As a result, Audiovox Pacific recorded an
inventory write-down of $800 during 1995, 50% of which resulted
in the Company recording lower income from equity investments.
Interest expense and bank charges increased by $3,200, or
48.3%, compared to 1994 as a result of an increase in interest
costs from increased borrowing to support higher levels of
inventory purchases and asset financing. Other expenses increased
approximately $3,000 primarily due to $2,900 in costs
associated with the issuance of stock warrants for no monetary
consideration to certain holders of the Company's convertible
subordinated debentures. This one-time, non-cash charge to
earnings is offset by a $2,900 increase in paid in capital.
Therefore, there is no effect on total shareholders' equity.
For fiscal 1995, the Company recorded an income tax recovery
of approximately $2,800, compared to a provision of approximately
$20,300 for fiscal 1994. The effective income tax recovery rate
for 1995 was negatively impacted primarily due to the non-
deductibility of losses in the Company's Canadian operations which can
no longer be carried-back, the non-deductibility of costs associated
with the issuance of the stock warrants and undistributed
earnings from equity investments.
Liquidity and Capital Resources
The Company's cash position at November 30, 1996 was approxi-
mately $5,274 above the November 30, 1995 level. Operating
activities provided approximately $24,011, primarily from a
decrease in inventory and increases in accounts payable, accrued
expenses and income taxes payable. These favorable events were
partially offset by increases in accounts receivable, prepaid
expenses and other currents assets. Investing activities used
approximately $1,488, composed primarily of $2,805 for the
purchase of property, plant and equipment, partially offset by
23
<PAGE>
$1,000 from the sale of an investment. Financing activities used
approximately $17,280, principally for the reduction of bor-
rowings under line of credit agreements and documentary acceptances.
On February 9, 1996, the Company's 10.8% Series AA and 11.0%
Series BB Convertible Debentures matured. The Company paid $4,362
to holders on that date. The remaining $1,100 was converted into
206,046 shares of Common Stock. On November 25, 1996, the Company
concluded an exchange of $41,252 of its 6 1/4% subordinated
debentures for 6,806,580 shares of the Company's Class A Common
Stock. Accounting charges to earnings for this transaction were
$29,206, including income taxes on the gain of the exchange of
the bonds. As a result of the exchange, stockholders' equity was
increased by $34,426.
On October 1, 1996, business formally conducted by the
Company's cellular division will be continued in a newly-formed,
wholly-owned subsidiary called Audiovox Communications Corp.
(ACC). Capitalization of this company was accomplished by
exchanging the assets of the former division, less their respective
liabilities, for all of the common stock.
On May 5, 1995, the Company entered into the Second Amended
and Restated Credit Agreement (the "Credit Agreement") which
superseded the first amendment in its entirety. During 1996, the
Credit Agreement was amended six times providing for various
changes to the terms. The terms as of November 30, 1996 are
summarized below.
Under the Credit Agreement, the Company may obtain credit
through direct borrowings and letters of credit. The obligations
of the Company under the Credit Agreement continue to be guaranteed
by certain of the Company's subsidiaries and is secured by
accounts receivable and inventory of the Company and those
subsidiaries. The obligations were secured at November 30, 1996
by a pledge agreement entered into by the Company for 2,125,000
shares of CellStar Common Stock and ten shares of ACC. Subsequent
to year end, the shares of CellStar common stock were released
from the Pledge Agreement. Availability of credit under the
Credit Agreement is a maximum aggregate amount of $85,000,
subject to certain conditions, and is based upon a formula taking
into account the amount and quality of its accounts receivable
and inventory. The Credit Agreement expires on February 28,
1998. As a result, bank obligations under the Credit Agreement
have been classified as long-term at November 30, 1996.
The Credit Agreement contains several covenants requiring,
24
<PAGE>
among other things, minimum levels of pre-tax income and minimum
levels of net worth and working capital as follows: pre-tax
income of $4,000 per annum; pre-tax income of $2,500 for any two
consecutive fiscal quarters; the Company cannot have pre-tax
losses of more than $500 in any quarter; and the Company cannot
have pre-tax losses in any two consecutive quarters. In addition,
the Company must maintain a minimum level of total net worth of
$88,500, adjusted for 50% of the aggregate gains realized on
sales of capital stock. The Company must maintain a minimum
working capital of $125,000. Additionally, the agreement includes
restrictions and limitations on payments of dividends,
stock repurchases, and capital expenditures. At November 30,
1996, the Company was not in compliance with several financial
covenants which were waived. As of the date of the issuance of
the financial statements, the Company's creditors waived their
right to call the bank obligations.
On May 9, 1995, the Company issued 1,668,875 warrants in a
private placement, with underlying shares which may be purchased
pursuant to an option on the Chief Executive Officer's personal
stock holdings. Each warrant is convertible into one share of
class A common stock at $7 1/8, subject to adjustment under
certain circumstances. On May 2, 1996 the Securities and Exchange
Commission declared effective a registration statement for
the warrants and the underlying common stock which the Company
had filed pursuant to a registration rights agreement dated as of
May 9, 1995, between the Company and the purchasers of the
warrants.
On March 15, 1994, the Company completed the sale of
$65,000, 6 1/4% convertible subordinated debentures due 2001.
The debentures are convertible into shares of the Company's Class
A Common Stock, par value $.01 per share at an initial conversion
price of $17.70 per share, subject to adjustment under certain
circumstances. A portion of the net proceeds of the offering was
used to repay existing indebtedness and a prepayment premium.
The Company granted to an investor in CellStar, in connec-
tion with the CellStar initial public offering, two options to
purchase up to an aggregate of 1,750,000 shares of CellStar
Common Stock owned by the Company, 1,500,000 of which was exercised
in full on June 1, 1995 at an exercise price of $11.50 per
share. As a result, the Company recorded a gain, before provision
for income taxes, of $8,435. This reduced the Company's
ownership in CellStar below 20% and, as such, the Company will no
longer account for CellStar under the equity method of accounting.
Subsequent to November 30, 1996, the remaining 250,000
shares under the remaining option expired. The remaining
25
<PAGE>
2,375,000 CellStar shares owned by the Company will be accounted
for as an investment in marketable equity securities. During the
first quarter of 1997, the Company sold 1,360,000 shares of its
CellStar shares for a gain of $14,743, net of income tax. The
Company continues to hold 1,015,000 shares of CellStar common
stock. As discussed in Note 6 to the consolidated financial
statements, Financial Accounting Standards Board (FASB) Statement
No. 115 (Statement 115) addresses the accounting and reporting
for investments in equity securities that have readily determinable
fair values and for all investments in debt securities.
Based upon the closing market price of CellStar on November 30,
1996, the decrease to equity as required by Statement 115 is
$21,444, net of deferred taxes.
The Company believes that it has sufficient liquidity to
satisfy its anticipated working capital and capital expenditure
needs through November 30, 1996 and for the reasonable foreseeable future.
Impact of Inflation and Currency Fluctuation
Inflation has not had and is not expected to have a significant
impact on the Company's financial position or operating
results. However, as the Company expands its operations into
Latin America and the Pacific Rim, the effects of inflation in
those areas, if any, could have growing significance to the
financial condition and results of the operations of the Company.
Currency Fluctuations
While 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
dependent upon, among other things, market, trade and political
factors.
Seasonality
The Company typically experiences some seasonality. The
Company believes such seasonality could be attributable to
increased demand for its products during the Christmas season,
commencing October, for both wholesale and retail operations.
26
<PAGE>
Recent Accounting Pronouncements
The FASB has issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of" (Statement 121), in March 1995. Under Statement
121, the Company is required to assess the recoverability and
carrying amount of long-lived assets, certain identifiable
intangible assets and goodwill related to those assets, whenever
events or changes in circumstances indicate impairment. Statement
121 provides the methodology for the measurement of such impairment
to be recognized in the financial statements. The provisions of
Statement 121 are effective for fiscal years beginning
after December 15, 1995 and earlier adoption is permitted. The
provisions of Statement 121 must be implemented no later than
fiscal year 1997. The effect of initially applying these provisions
shall be reported in the period in which the recognition
criteria are first applied and met or, in the case of long-lived
assets held for disposal, as the cumulative effect of a change in
accounting principle at the date of adoption. The Company
believes that the implementation will not have a material impact
on the Company's consolidated financial position.
The FASB has issued Statement No. 123, "Accounting for
Stock-Based Compensation" (Statement 123), in October 1995.
Under Statement 123, the Company is required to choose either the
new fair value method or the current intrinsic value method of
accounting for its stock-based compensation arrangements. Using
the fair value method, the Company would measure the compensation
cost recognized in the financial statements based upon the
estimated fair value of the stock-based compensation arrangements
as of the date they are granted. The intrinsic value method,
under APB Opinion No. 25, "Accounting for Stock issued to Employees",
requires the recognition of compensation cost only if such
value does not exceed the market value of the underlying stock on
the measurement date. The Company will continue to account for
all employee stock-based compensation plans under APB Opinion No.
25 and adopt the provisions of Statement 123, as required, for
all stock-based arrangements issued to non-employees. The
accounting requirements of Statement 123 are effective for
transactions entered into in fiscal years beginning after
December 15, 1995 and the disclosure, including pro forma,
requirements are effective for financial statements for fiscal years
beginning after December 15, 1995. Even though the Company has
opted not to change its method of accounting, Statement 123
requires pro forma disclosures of net income and earnings per
share computed as if the fair value method has been applied.
Statement 123 must be implemented no later than fiscal year 1997.
As of November 30, 1996, the Company does not have any such stock
compensation plans which would require the preparation of the pro
forma disclosure provisions of Statement 123.
27
<PAGE>
Item 8-Consolidated Financial Statements and Supplementary Data
The consolidated financial statements of the Company as of
November 30, 1996 and 1995 and for each of the years in the
three-year period ended November 30, 1996, together with the
independent auditors' report thereon of KPMG Peat Marwick LLP,
independent auditors, are filed under this Item 8.
Selected unaudited, quarterly financial data of the Registrant
for the years ended November 30, 1996 and 1995 appears below:
<TABLE>
QUARTER ENDED
Feb. 28 May 31 Aug. 31 Nov. 30
1996
<S> <C> <C> <C> <C>
Net sales $122,493 141,194 142,828 191,400
Gross profit 19,877 21,586 24,639 30,286
Operating expenses 17,519 19,347 20,911 25,536
Income (loss) before provision for
(recovery of) income taxes 1,091 426 1,575 (23,727)(a)
Provision for (recovery of) income
taxes 612 276 808 4,138 (b)
Net income (loss) 479 150 767 (27,865)
Net income (loss) per share (primary) 0.05 0.02 0.08 (2.83)
Net income per common share (fully
diluted) - - - -
1995
Net sales $131,391 105,811 112,177 151,361
Gross profit 22,586 19,270 7,406 (c) 21,480
Operating expenses 20,723 19,221 22,552 (d)17,980
Income (loss) before provision for
(recovery of) income taxes 1,083 (4,240) (9,729)(e) 827
Provision for (recovery of) income
taxes 547 (467) (3,344) 461
Net income (loss) 536 (3,773) (6,385) 366
Net income (loss) per share (primary) 0.06 (0.42) (0.71) 0.04
Net income per common share (fully
diluted) - - - -
</TABLE>
NOTE: The Company does not compute fully diluted earnings per
share when the addition of potentially dilutive securities would
result in anti-dilution.
(a) Includes a pre-tax charge of $26.3 million for costs associated with the
exchange of $41.3 million of subordinated
debentures into 6,806,580 shares of common stock.
(b) Includes tax expense of $2.9 million associated with the
exchange of debentures as per (a).
(c) Includes a $9.3 million inventory write-down to market.
(d) Includes a $2.5 million expense due to the down-sizing of
the retail operations.
(e) Includes a $2.9 million charge associated with the issuance
of warrants and a $8.4 million gain on the sale of an equity
investment.
28
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Audiovox Corporation:
We have audited the accompanying consolidated balance sheets of
Audiovox Corporation and subsidiaries as of November 30, 1996 and
1995, and the related consolidated statements of income (loss),
stockholders' equity and cash flows for each of the years in the
three-year period ended November 30, 1996. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Audiovox Corporation and subsidiaries as of November
30, 1996 and 1995, and the results of their operations and their
cash flows for each of the years in the three-year period ended
November 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1(g) to the consolidated financial statements,
the Company adopted the provisions of the Financial
Accounting Standards Board's (FASB) Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", in 1995. As also
discussed in Note 1(p), the Company adopted the provisions of the
FASB's SFAS No. 109, "Accounting for Income Taxes", in 1994.
s/KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Jericho, New York
January 23, 1997
29
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
November 30, 1996 and 1995
(In thousands, except share data)
<TABLE>
1996 1995
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 12,350 $ 7,076
Accounts receivable, net 118,408 96,930
Inventory, net 72,785 100,422
Receivable from vendor 4,565 5,097
Prepaid expenses and other current assets 7,324 5,443
Deferred income taxes 5,241 5,287
Restricted cash - 5,959
Total current assets 220,673 226,214
Investment securities 27,758 62,344
Equity investments 8,463 8,527
Property, plant, and equipment, net 6,756 6,055
Debt issuance costs, net 269 4,235
Excess cost over fair value of assets
acquired and other intangible assets, net 804 943
Other assets 3,449 2,737
$ 268,172 $ 311,055
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 28,192 $ 17,844
Accrued expenses and other current liabilities 18,961 16,800
Income taxes payable 7,818 2,455
Bank obligations 4,024 761
Documentary acceptances 3,501 7,120
Current installments of long-term debt - 5,688
Total current liabilities 62,496 50,668
Bank obligations 31,700 49,000
Deferred income taxes 10,548 23,268
Long-term debt, less current installments 28,165 70,534
Total liabilities 132,909 193,470
Minority interest 1,137 363
Stockholders' equity:
Preferred stock 2,500 2,500
Common Stock:
Class A; 30,000,000 authorized; 14,040,414
issued 141 68
Class B; 10,000,000 authorized; 2,260,954
issued 22 22
Paid-in capital 107,833 42,876
Retained earnings 14,529 40,998
Cumulative foreign currency translation
and adjustment (1,176) (963)
Unrealized gain on marketable securities, net 10,277 31,721
Total stockholders' equity 134,126 117,222
Commitments and contingencies
Total liabilities and stockholders' equity $ 268,172 $ 311,055
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Loss)
Years Ended November 30, 1996, 1995, and 1994
(In thousands, except per share data)
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Net sales $597,915 $500,740 $486,448
Cost of sales (including an inventory
write-down to market in 1995 of $9,300) 501,527 429,998 401,537
Gross profit 96,388 70,742 84,911
Operating expenses:
Selling 40,033 34,489 32,299
General and administrative 32,452 36,160 32,740
Warehousing, assembly, and repair 10,828 9,827 9,386
83,313 80,476 74,425
Operating income (loss) 13,075 (9,734) 10,486
Other income (expenses):
Debt conversion expense (26,318) - -
Interest and bank charges (8,480) (9,694) (6,535)
Equity in income of equity investments 631 2,781 3,748
Management fees and related income 186 200 1,543
Gain on sale of equity investment 985 8,435 27,783
Gain on public offering of equity
investment - - 10,565
Expense related to issuance of warrants - (2,921) -
Other, net (714) (1,126) (1,056)
(33,710) (2,325) 36,048
Income (loss) before provision for
(recovery of) income taxes and cumulative
effect of a change in an accounting
principle (20,635) (12,059) 46,534
Provision for (recovery of) income taxes 5,834 (2,803) 20,328
Income (loss) before cumulative effect of
a change in accounting for income taxes (26,469) (9,256) 26,206
Cumulative effect of change in accounting
for income taxes - - (178)
Net income (loss) $(26,469) $ (9,256) $ 26,028
Net income (loss)per common share
(primary):
Income (loss) before cumulative effect $ (2.82) $ (1.02) $ 2.88
Cumulative effect of change in
accounting for income taxes - - $ (.02)
Net income (loss) $ (2.82) $ (1.02) $ 2.86
Net income (loss) per common share
(fully diluted):
Income before cumulative effect - - $ 2.21
Cumulative effect of change in
accounting for income taxes - - $ (.01)
Net income (loss) - - $ 2.20
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended November 30, 1996, 1995, and 1994
(In thousands)
<TABLE>
Cumulative
Foreign Unrealized
currency Gain (Loss) Total
Preferred Common Paid-In Unearned Retained translation on Marketable Stockholders'
stock stock capital compensation earnings adjustment Securities equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
November 30,
1993 2,500 90 39,171 - 24,226 (194) - 65,793
Net income - - - - 26,028 - - 26,028
Equity adjustment
from foreign
currency
translation - - - - - (331) - (331)
Unearned compensation
relating to grant
of options and non-
performance restricted
stock - - 864 (864) - - - -
Compensation
expense - - 27 241 - - - 268
Stock issuance
upon exercise
of options - - 207 - - - - 207
Issuance of
warrants - - 69 - - - - 69
Balances at
November 30,
1994 2,500 90 40,338 (623) 50,254 (525) - 92,034
Net loss - - - - (9,256) - - (9,256)
Equity adjustment
from foreign
currency
translation - - - - - (438) - (438)
Unearned compen-
sation relating
to grant
of options and non-
performance
restricted
stock - - 62 (62) - - - -
Compensation
expense - - 46 194 - - - 240
Options and non-
performance
restricted stock
forfeitures due to
employee
terminations - - (81) 81 - - - -
Issuance of
warrants - - 2,921 - - - - 2,921
Implementation of
change in
accounting
for debt and
equity
securities,
net of
tax effect of
$24,517 - - - - - - 40,004 40,004
Unrealized loss on
marketable
securities, net of
tax effect of
$(5,076) - - - - - - ( 8,283) (8,283)
Balances at
November 30,
1995 2,500 90 43,286 (410) 40,998 (963) 31,721 117,222
</TABLE>
Continued
32
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (continued)
Years Ended November 30, 1996, 1995, and 1994
(In thousands)
<TABLE>
Cumulative
foreign Unrealized
currency Gain (Loss) Total
Preferred Common Paid-In Unearned Retained translation on Marketable Stockholders'
stock stock capital compensation earnings adjustment Securities equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
November 30,
1995 2,500 90 43,286 (410) 40,998 (963) 31,721 117,222
Net loss - - - - (26,469) - - (26,469)
Equity adjustment
from foreign
currency
translation - - - - - (213) - (213)
Compensation
expense - - 39 258 - - - 297
Options and non-per-
formance restricted
stock forfeitures
due to employee
terminations - - (27) 27 - - - -
Shares issued - 3 - - - - - 3
Conversion of
debentures into
common stock - 70 64,660 - - - - 64,730
Unrealized loss on
marketable
securities, net of
tax effect of
$13,143 - - - - - - (21,444) (21,444)
Balances at
November 30,
1996 $2,500 $163 $107,958 $(125) $14,529 $(1,176) $10,277 $134,126
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended November 30, 1996, 1995, and 1994
(In thousands)
<TABLE>
1996 1995 1994
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $(26,469) $ (9,256) $ 26,028
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Debt conversion expense 25,629 - -
Depreciation and amortization 3,298 4,100 4,299
Provision for bad debt expense 429 1,816 (21)
Equity in income of equity investments (614) (2,781) (3,748)
Minority interest 767 225 96
Gain on sale of equity investment (985) (8,435) (27,783)
Gain on public offering of equity investment - - (10,565)
Provision for (recovery of) deferred income taxes 468 (5,158) 6,140
Provision for unearned compensation 297 240 268
Expense relating to issuance of warrants - 2,921 -
(Gain) loss on disposal of property, plant, and
equipment, net (32) 246 -
Cumulative effect of change in accounting for income taxes - - 178
Changes in:
Accounts receivable (21,848) (4,468) (20,337)
Note receivable from equity investment 532 (5,097) -
Inventory 27,688 (16,950) (18,701)
Income taxes receivable - - 229
Accounts payable, accrued expenses, and other current
liabilities 12,445 488 3,675
Income taxes payable 5,360 1,623 (1,395)
Prepaid expenses and other, net (2,954) 250 (4,171)
Net cash provided by (used in) operating activities 24,011 (40,236) (45,808)
Cash flows from investing activities:
Purchase of equity investments - - (6,016)
Purchases of property, plant, and equipment, net (2,805) (2,722) (2,611)
Notes receivable from equity investment - - 7,973
Net proceeds from sale of equity investment 1,000 17,250 29,433
Purchase of business - - (148)
Proceeds from distribution from equity investment 317 267 -
Net cash provided by (used in) investing activities (1,488) 14,795 28,631
Cash flows from financing activities:
Net borrowings (repayments) under line of credit agreements (14,040) 19,577 (8,613)
Net borrowings (repayments) under documentary acceptances (3,620) 7,120 (10,833)
Principal payments on long-term debt (5,029) (11) (17,411)
Debt issuance costs (392) (714) (5,315)
Proceeds from exercise of stock options - - 170
Principal payments on capital lease obligation (158) (233) (175)
Proceeds from issuance of long-term debt - 675 65,000
Proceeds from issuance of notes payable - - 10,045
Payment of note payable - - (5,000)
Restricted cash - - (6,559)
Proceeds from release of restricted cash 5,959 600 -
Net cash provided by (used in) financing activities (17,280) 27,014 21,309
Effect of exchange rate changes on cash 31 8 (9)
Net increase in cash and cash equivalents 5,274 1,581 4,123
Cash and cash equivalents at beginning of period 7,076 5,495 1,372
Cash and cash equivalents at end of period $ 12,350 $ 7,076 $ 5,495
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1996, 1995, and 1994
(Dollars in thousands, except share and per share data)
(1) Summary of Significant Accounting Policies
(a) Description of Business
Audiovox Corporation and its subsidiaries (the Company)
design and market cellular telephones and accessories,
automotive aftermarket sound and security equipment,
other automotive aftermarket accessories, and certain
other products, principally in the United States,
Canada, and overseas. In addition to generating product
revenue from the sale of cellular telephone products, the
Company's retail outlets, as agents for
cellular carriers, are paid activation commissions and
residual fees from such carriers.
The Company's automotive sound, security, and accessory
products include stereo cassette radios, compact disc
players and changers, amplifiers and speakers; key
based remote control security systems; cruise controls
and door and trunk locks. These products are marketed
through mass merchandise chain stores, specialty automotive
accessory installers, distributors, and automobile dealers.
(b) Principles of Consolidation
The consolidated financial statements include the
financial statements of Audiovox Corporation and its
wholly-owned and majority-owned subsidiaries. All
significant intercompany balances and transactions have
been eliminated in consolidation.
(c) Cash Equivalents
Cash equivalents of $1,337 at November 30, 1995 consisted of short-
term investments with terms of less
than three months. For purposes of the statements of
cash flows, the Company considers investments with
original maturities of three months or less to be cash
35
<PAGE>
equivalents.
(d) Cash Discount and Co-operative Advertising Allowances
The Company accrues for estimated cash discounts and
trade and promotional co-operative advertising allowances
at the time of sale. These discounts and allowances are
reflected in the accompanying consolidated
financial statements as a reduction of accounts receivable
as they are utilized by customers to reduce their
trade indebtedness to the Company.
(e) Inventory
Inventory consists principally of finished goods and is
stated at the lower of cost (primarily on a weighted
moving average basis) or market. The markets in which
the Company competes are characterized by declining
prices, intense competition, rapid technological change
and frequent new product introductions. The Company
maintains a significant investment in inventory and,
therefore, is subject to the risk of losses on write-downs
to market and inventory obsolescence. During the
third quarter of 1995, the Company recorded a charge of
approximately $9,300 to accurately reflect the Company's
inventory at the lower of cost or market. No
estimate can be made of losses that are reasonably
possible should additional write-downs to market be
required in the future.
(f) Restricted Cash
Restricted cash represents collateral for an irrevocable
standby letter of credit in favor of the Series AA
and Series BB convertible debentures (Note 10).
(g) Investment Securities
The Company adopted the provisions of Statement of
Financial Accounting Standard's (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity
Securities" (Statement 115) at December 1, 1994. Under
Statement 115, the Company classifies its debt and
36
<PAGE>
equity securities in one of three categories: trading,
available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the
purpose of selling them in the near term. Held-to-maturity
securities are those securities in which the
Company has the ability and intent to hold the security
until maturity. All other securities not included in
trading or held-to-maturity are classified as
available-for-sale.
Trading and available-for-sale securities are recorded
at fair value. Held-to-maturity securities are recorded at
amortized cost, adjusted for the amortization
or accretion of premiums or discounts. Unrealized
holding gains and losses on trading securities are
included in earnings. Unrealized holding gains and
losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are
reported as a separate component of stockholders'
equity until realized. Realized gains and losses from
the sale of available-for-sale securities are determined on a
specific identification basis.
A decline in the market value of any available-for-sale
or held-to-maturity security below cost that is deemed
other than temporary results in a reduction in carrying
amount to fair value. The impairment is charged to
earnings and a new cost basis for the security is
established. Premiums and discounts are amortized or
accreted over the life of the related held-to-maturity
security as an adjustment to yield using the effective
interest method. Dividend and interest income are
recognized when earned.
(h) Debt Issuance Costs
Costs incurred in connection with the issuance of the
convertible subordinated debentures and restructuring
of the Series A and Series B convertible subordinated
notes (Note 10) and the restructuring of bank obligations
(Note 9) have been capitalized. These charges
are amortized over the lives of the respective agreements.
Amortization expense of these costs amounted to
37
<PAGE>
$1,109, $1,319, and $1,225 for the years ended November
30, 1996, 1995, and 1994, respectively. During 1996,
the Company wrote off $3,249 of debt issuance costs
(Note 10).
(i) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost.
Equipment under capital lease is stated at the present
value of minimum lease payments. Depreciation is
calculated on the straight-line method over the estimated
useful lives of the assets as follows:
Buildings 20 years
Furniture, fixtures, and displays 5-10 years
Machinery and equipment 5-10 years
Computer hardware and software 5 years
Automobiles 3 years
Leasehold improvements are amortized over the shorter
of the lease term or estimated useful life of the
asset. Assets acquired under capital lease are amortized over
the term of the lease.
The Company will adopt the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of", on December
1, 1996. Management of the Company does not expect
that adoption of SFAS No. 121 will have a material
impact on the Company's financial position, results of
operations or liquidity.
(j) Intangible Assets
Intangible assets consist of patents, trademarks,
non-competition agreements, and the excess cost over
fair value of assets acquired for certain subsidiary
companies and equity investments. Excess cost over
fair value of assets acquired is being amortized over
periods not exceeding twenty years. The costs of other
intangible assets are amortized on a straight-line
basis over their respective lives.
38
<PAGE>
Accumulated amortization approximated $1,413 and $1,280
at November 30, 1996 and 1995, respectively. Amortization
of the excess cost over fair value of assets
acquired and other intangible assets amounted to $133,
$127, and $271 for the years ended November 30, 1996,
1995, and 1994, respectively.
On an ongoing basis, the Company reviews the valuation
and amortization of its intangible assets. As a part
of its ongoing review, the Company estimates the fair
value of intangible assets taking into consideration
any events and circumstances which may diminish fair
value. The Company will adopt the provisions of SFAS
No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of", on
December 1, 1996.
(k) Equity Investments
The Company has common stock investments in seven
companies which are accounted for by the equity method
(Note 8).
(l) Cellular Telephone Commissions
Under various agreements, the Company typically receives
an initial activation commission for obtaining
subscribers for cellular telephone services. Additionally,
the agreements typically contain provisions for
commissions based upon usage and length of continued
subscription. The agreements also typically provide
for the reduction or elimination of initial activation
commissions if subscribers deactivate service within
stipulated periods. The Company has provided a liability for
estimated cellular deactivations which is
reflected in the accompanying consolidated financial
statements as a reduction of accounts receivable.
The Company recognizes sales revenue for the initial
activation, length of service commissions, and residual
commissions based upon usage on the accrual basis.
Such commissions approximated $37,930, $43,307, and
$51,793 for the years ended November 30, 1996, 1995,
39
<PAGE>
and 1994, respectively. Related commissions paid to
outside selling representatives for cellular activations are
reflected as cost of sales in the accompanying consolidated
statements of income (loss) and
amounted to $20,443, $15,374, and $17,848 for the years
ended November 30, 1996, 1995, and 1994, respectively.
(m) Advertising
The Company expenses the production costs of advertising as
incurred and expenses the costs of communicating
advertising when the service is received. During the
years ended November 30, 1996, 1995, and 1994, the
Company had no direct response advertising.
(n) Warranty Expenses
Warranty expenses are accrued at the time of sale based
on the Company's estimated cost to repair expected
returns for products. At November 30, 1996 and 1995,
the reserve for future warranty expense amounted to
$2,618 and $2,030, respectively.
(o) Foreign Currency
Assets and liabilities of those subsidiaries and equity
investments located outside the United States whose
cash flows are primarily in local currencies have been
translated at rates of exchange at the end of the
period. Revenues and expenses have been translated at
the weighted average rates of exchange in effect during
the period. Gains and losses resulting from translation are
accumulated in the cumulative foreign currency
translation account in stockholders' equity. Exchange
gains and losses on hedges of foreign net investments
and on intercompany balances of a long-term investment
nature are also recorded in the cumulative foreign
currency translation adjustment account. Other foreign
currency transaction gains and losses are included in
net income, none of which were material for the years
ended November 30, 1996, 1995, and 1994.
The Company will, at times, enter into forward exchange
40
<PAGE>
contracts to hedge foreign currency transactions and
not to engage in currency speculation. The Company's
forward exchange contracts do not subject the Company
to risk from exchange rate movements because gains and
losses on such contracts offset losses and gains,
respectively, on the assets, liabilities or transactions
being hedged.
During 1994, the Company entered into foreign exchange
contracts denominated in the currency of its major
suppliers. These contracts were purchased to hedge
identifiable foreign currency commitments, principally
purchases of inventory that are not denominated in U.S.
dollars. Accordingly, any gain or loss associated with
the contracts was included as a component of inventory
cost. Cash flows resulting from these contracts are
included in the net change in inventory for purposes of
the statements of cash flows.
(p) Income Taxes
Effective December 1, 1993, the Company adopted the
provisions of SFAS No. 109, "Accounting for Income
Taxes", (Statement 109) and has reported the cumulative
effect of that change in the method of accounting for
income taxes in the 1994 consolidated statement of
income (loss). Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable
to differences between the financial statement carrying
amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment
date.
41
<PAGE>
(q) Net Income (Loss) Per Common Share
Primary earnings per share are computed based on the
weighted average number of common shares outstanding
and common stock equivalents. For the year ended
November 30, 1994, stock options, stock grants, and
stock warrants (Note 13) are common stock equivalents.
The computation of fully diluted earnings per share for
the year ended November 30, 1994 assumes conversion of
all outstanding debentures (Note 10) and exercise of
common stock equivalents, stock options, performance
accelerated grants, and warrants. For purposes of this
computation, net income was adjusted for the after-tax
interest expense applicable to the convertible debentures.
The Company did not compute fully-diluted earnings per share
for the years ended November 30, 1996
and 1995 as the addition of potentially dilutive securities
would result in anti-dilution.
The following weighted average shares were used for the
computation of primary and fully-diluted earnings per
share:
<TABLE>
For the Years Ended November 30,
1996 1995 1994
<S> <C> <C> <C>
Primary 9,398,352 9,038,742 9,105,952
Fully diluted - - 12,769,221
</TABLE>
(r) Supplementary Financial Statement Information
Advertising expenses approximated $21,794, $13,538, and
$11,610 for the years ended November 30, 1996, 1995,
and 1994, respectively.
Interest income of approximately $1,097, $1,047, and
$540 for the years ended November 30, 1996, 1995, and
1994, respectively, is included in other in the accompany-
ing consolidated statements of income (loss).
Included in accrued expenses and other current liabilities
is $4,405 and $4,601 of accrued wages and commissions at
November 30, 1996 and 1995, respectively.
42
<PAGE>
(s) Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of the contingent assets and liabilities
at the date of the financial statements and the reported
amounts of revenues and expenses during the
reporting period. Actual results could differ from
those estimates.
(t) Reclassifications
Certain reclassifications have been made to the 1994
consolidated financial statements in order to conform
to the 1996 and 1995 presentation.
(2) Business Acquisitions/Dispositions
On December 1, 1993, the Company acquired all of the assets
and liabilities of H & H Eastern Distributors, Inc. (H&H)
for $148 in cash and a warrant to purchase 50,000 shares of
the Company's Class A Common Stock valued at approximately
$69. The Company acquired assets of approximately $1,854,
liabilities of approximately $1,922, and excess cost over
fair value of net assets acquired of $285 which is being
amortized on a straight-line basis over 20 years. Proforma
financial information has not been reflected for this
acquisition as the impact on the results of operations of
the Company would not have been material.
In April 1996, the Company formed Audiovox Holdings (Malaysia)
Sdn. Bhd. (Audiovox Holdings), an 80%-owned subsidiary
of Audiovox Asia, Inc. (Audiovox Asia), which, in turn, is a
wholly-owned subsidiary of the Company. In July 1994, the
Company formed Audiovox (Thailand) Co., Ltd., a 100%-owned
subsidiary of Audiovox Asia. In December, 1993, the Company
formed Audiovox Singapore Pte. Ltd., a wholly-owned subsidiary
of Audiovox Asia, as well as Audiovox Communications
(Malaysia) Sdn. Bhd.(Audiovox Malaysia), which is an 80%-owned
subsidiary of Audiovox Asia. In 1996, Audiovox
Malaysia formed Vintage Electronics Holdings (Malaysia) Sdn.
43
<PAGE>
Bhd., a wholly-owned subsidiary. The Company formed these
subsidiaries to assist in its planned expansion of its
international business.
In October 1996, the Company contributed the net assets of
its cellular division into a newly-formed, wholly-owned
subsidiary Audiovox Communications Corp. (ACC).
(3) Supplemental Cash Flow Information
The following is supplemental information relating to the
consolidated statements of cash flows:
<TABLE>
For the Years Ended November 30,
1996 1995 1994
Cash paid during the years
for:
<S> <C> <C> <C>
Interest $7,666 $9,224 $ 5,291
Income taxes $ 272 $ 818 $15,409
</TABLE>
On February 9, 1996, the Company's 10.8% Series AA and 11.0%
Series BB convertible debentures matured. As of February 9,
1996, $1,100 of the Series BB convertible debentures converted
into 206,046 shares of Common Stock (Note 10).
On November 25, 1996, the Company completed an exchange of
$41,252 of its $65,000 6 1/4% convertible subordinated
debentures into 6,806,580 shares of Common Stock (Note 10).
As of November 30, 1996 and 1995, the Company recorded an
unrealized holding gain relating to available-for-sale
marketable equity securities, net of deferred income taxes,
of $10,277 and $31,721, respectively, as a separate component
of stockholders' equity (Note 6).
During 1996, the Company contributed $97 of property, plant
and equipment in exchange for a 50% ownership interest in a
newly-formed joint venture (Note 8).
During 1995, the Company contributed $36 of property, plant,
and equipment in exchange for a 50% ownership interest in a
44
<PAGE>
newly-formed joint venture (Note 8).
During 1995, the Company entered into lease agreements to
acquire new computer equipment. As a result, a capital
lease obligation of $86, was incurred (Note 7).
During 1994, a reduction of $37 to income taxes payable was
made due to the exercise of stock options.
During 1994, the Company acquired the assets and liabilities
of H&H in exchange for cash and warrants to purchase the
Company's common stock (Note 8).
(4) Transactions With Major Suppliers
The Company engages in transactions with Shintom Co., Ltd.
(Shintom), a stockholder who owns approximately 1.7% and
3.5% at November 30, 1996 and 1995 of the outstanding Class
A Common Stock, respectively, and all of the outstanding
Preferred Stock of the Company. During 1994, the Company
formed TALK Corporation (TALK), a 31.6%-owned joint venture
in Japan (Note 8), with Shintom and other companies.
Transactions with Shintom and TALK include financing arrangements
and inventory purchases which approximated 26%,
20%, and 7% for the years ended November 30, 1996, 1995, and
1994, respectively, of total inventory purchases. At
November 30, 1996 and 1995, the Company had recorded $3,501
and $25, respectively, of liabilities due to Shintom and
TALK for inventory purchases included in accounts payable.
The Company also has documentary acceptance obligations
outstanding from TALK as of November 30, 1996 (Note 9). At
November 30, 1996 and 1995, the Company had recorded receivables
from TALK in the amount of $4,565 and $5,097, respectively, payable
with interest (Note 8).
Inventory purchases from a major supplier approximated 28%,
44%, and 45% of total inventory purchases for the years
ended November 30, 1996, 1995, and 1994, respectively.
Although there are a limited number of manufacturers of the
product, management believes that other suppliers could
provide similar products on comparable terms. A change in
suppliers, however, could cause a delay in product availability
45
<PAGE>
and a possible loss of sales, which would affect
operating results adversely.
(5) Accounts Receivable
Accounts receivable is comprised of the following:
<TABLE>
November 30,
1996 1995
<S> <C> <C>
Trade accounts receivable $127,854 $100,556
Receivables from equity investments
(Note 8) 2,626 4,196
130,480 104,752
Less:
Allowance for doubtful accounts 3,115 2,707
Allowance for cellular deactivations 1,666 1,725
Allowance for co-operative
advertising and cash discounts 7,291 3,390
$118,408 $ 96,930
</TABLE>
The provision for (recovery of) bad debt expense amounted to
$429, $1,816, and ($21) for the years ended November 30,
1996, 1995, and 1994, respectively. See Note 16 for concentra-
tions of credit risk.
(6) Investment Securities
The Company's investment securities consist primarily of
2,375,000 shares of CellStar Corporation (CellStar) Common
Stock, which were classified as available-for-sale marketable
equity securities at November 30, 1996. The aggregate
fair value of available-for-sale marketable equity securities
was $27,758 at November 30, 1996, which is comprised of
a cost basis of $11,181 and a gross unrealized holding gain
of $16,577 recorded as a separate component of stockholders'
equity. A related deferred tax liability of $6,300 was
recorded at November 30, 1996 as a reduction to the unrealized
holding gain included as a separate component of
stockholders' equity.
During 1994, the Company granted the majority owner of
CellStar (the Investor) an option (the Option) to purchase
250,000 shares of CellStar Common Stock which is exercisable
through December 3, 1996, in whole and not in part, at an
46
<PAGE>
exercise price of $13.80 per share. Subsequent to November
30, 1996, the Option expired. As of November 30, 1995, the
Investor has the right to vote up to 1,300,000 shares of
CellStar Common Stock owned by the Company pursuant to a
voting rights agreement entered into during 1994. The
number of shares of CellStar Common Stock the Investor is
entitled to vote is subject to reduction to the extent the
Investor sells his shares of CellStar Common Stock (with
certain exceptions) or exercises the Option. Subsequent to
November 30, 1995, the voting rights granted to the Investor
by the Company expired. During the term of the Option and
the voting rights agreement, the Company cannot transfer its
shares of CellStar Common Stock which are held subject to
those agreements.
On November 29, 1995 and February 9, 1996, the Company
entered into pledge agreements with its financial institutions
which provided that a total of 2,125,000 shares of
CellStar Common Stock be secured as collateral for the bank
obligations incurred by the Company (Note 9).
Subsequent to year end, the Company sold 1,360,000 shares of
CellStar Common Stock yielding net proceeds of approximately
$30,182 and a gain, net of taxes, of approximately $14,743.
(7) Property, Plant, and Equipment
A summary of property, plant, and equipment, net, is as
follows:
<TABLE>
November 30,
1996 1995
<S> <C> <C>
Land $ 363 $ 363
Buildings 1,782 1,491
Furniture, fixtures, and displays 3,277 3,581
Machinery and equipment 3,221 2,783
Computer hardware and software 12,658 11,422
Automobiles 954 723
Leasehold improvements 3,454 3,671
25,709 24,034
Less accumulated depreciation
and amortization (18,953) (17,979)
$ 6,756 $ 6,055
</TABLE>
47
<PAGE>
At November 30, 1995 included in computer hardware and
software is $937 pertaining to capital leases. Amortization
of such equipment is included in depreciation and amortization
of plant and equipment, and accumulated amortization
was $729 at November 30, 1995. At November 30, 1996, the
computer hardware and software pertaining to the capital
lease was fully amortized.
Computer software includes approximately $690 and $383 of
unamortized costs as of November 30, 1996 and 1995, respectively,
related to the acquisition and installation of
management information systems for internal use which are
being amortized over a five-year period.
Depreciation and amortization of plant and equipment
amounted to $2,044, $2,654, and $2,803 for the years ended
November 30, 1996, 1995, and 1994, respectively, which
includes amortization of computer software costs of $364,
$922, and $1,259 for the years ended November 30, 1996,
1995, and 1994, respectively.
(8) Equity Investments
As of November 30, 1996, the Company had a 31.6% ownership
interest in TALK. As of November 30, 1996, the Company's
80% owned subsidiary, Audiovox Holdings, had a 30% ownership
interest in Avx Posse (Malaysia) Sdn. Bhd. (Posse) which
monitors car security commands through a satellite based
system in Malaysia. Additionally, the Company had 50% non-
controlling ownership in five other entities: Protector
Corporation (Protector) which acts as a distributor of
chemical protection treatments; Audiovox Specialty Markets
Co., L.P. (ASMC) which acts as a distributor to specialized
markets for RV's and van conversions, of televisions and
other automotive sound, security, and accessory products;
Audiovox Pacific Pty., Limited (Audiovox Pacific) which
distributes cellular telephones and automotive sound and
security products in Australia and New Zealand; G.L.M.
Wireless Communications, Inc. (G.L.M.) which is in the
cellular telephone, pager, and communications business in
the New York metropolitan area; and Quintex Communications
West, LLC (Quintex West), which is in the cellular telephone
48
<PAGE>
and related communication products business, as well as the
automotive aftermarket products business on the West Coast
of the United States.
The Company has an agreement for product marketing with
Protector. Under the terms of this agreement, the Company
was to receive monthly payments as well as a fee based on a
percentage of the sales of certain products. In 1996, 1995,
and 1994, the Company waived its right to receive its
monthly payments pursuant to the agreement and fees based on
the percentage of the sales of certain products. However,
in 1994, the Company recorded management fees of $1,108 for
the Company's support to Protector through various marketing
programs.
In December 1993, CellStar, the successor to National Auto
Center, Inc. (National) and Audiomex Export Corp. (both 50%-
owned equity investments of the Company in 1993), completed
an initial public offering (the CellStar Offering) of
7,935,000 shares of CellStar Common Stock. Of the total
shares sold, the Company sold 2,875,000 shares of CellStar
Common Stock at the initial public offering price (net of
applicable underwriting discount) of $10.695 per share and
received aggregate net proceeds of $29,433 (after giving
effect to expenses paid by the Company in connection with
the offering). As a result, the Company recorded a gain,
before provision for income taxes, of $27,783. In addition,
the Company recorded a gain, before provision for income
taxes, of $10,565 on the increase in the carrying value of
its remaining shares of CellStar Common Stock due to the
CellStar Offering in 1994.
Of the proceeds received by CellStar from its initial public
offering, $13,656 was paid to the Company in satisfaction of
amounts owed to the Company by CellStar (as successor to
National) under certain promissory notes which evidenced
National's liability to the Company for the payment of
management fees and in satisfaction of past due trade
receivables from National to the Company. As a result of
the CellStar Offering, the Company will no longer receive
management fees from CellStar.
In connection with the CellStar Offering, the Company
49
<PAGE>
granted the Investor an option to purchase up to an aggregate
of 1,500,000 shares of CellStar Common Stock owned by
the Company, which was exercised in full on June 1, 1995, at
an exercise price of $11.50 per share. As a result, the
Company recorded a gain, before provision for income taxes,
of approximately $8,400. This reduced the Company's ownership
in CellStar below 20% and, as such, the Company will no
longer account for CellStar under the equity method of
accounting. The remaining 2,375,000 CellStar shares owned
by the Company are accounted for as an investment in marketable
equity securities (Note 6).
The following table presents financial information relating
to CellStar for the years ended November 30, 1995, and 1994:
<TABLE>
1995 1994
<S> <C> <C>
Current assets $271,156 $170,285
Non-current assets 43,765 16,069
Current liabilities 196,746 106,617
Non-current liabilitie 6,880 3,095
Net sales 811,915 518,422
Gross profit 109,841 69,642
Net income 22,896 16,248
</TABLE>
On August 29, 1994, the Company and Shintom each invested
six hundred million Japanese Yen (approximately $6,000) into
a newly-formed company, TALK. In exchange for their investments,
the Company and Shintom each received a 33% ownership
in TALK; the remaining 33% owned by others. During 1996, an
additional investment was made by an outside investor
reducing the Company's ownership to 31.6%.
TALK, which holds world-wide distribution rights for product
manufactured by Shintom, has given the Company exclusive
distribution rights on all wireless personal communication
products for all countries except Japan, China, Thailand,
and several mid-eastern countries. The Company granted
Shintom a license agreement permitting the use of the
Audiovox trademark to be used with TALK video cassette
recorders sold in Japan from August 29, 1994 to August 28,
1997, in exchange for royalty fees. For the years ended
November 30, 1996, 1995 and 1994, no such royalty fees were
50
<PAGE>
earned by the Company. The Company's investment in TALK and
its share of the underlying assets of TALK differ by $2,100
at November 30, 1996. This difference is due to the discon-
tinuance of the Company's recording of its share of losses
beyond $1,000, as a result of the repayment terms established
when financing the initial investment in TALK (Note
10).
On July 31, 1995, the Company purchased a 50% equity investment
in a newly-formed company, G.L.M., for approximately
$36 in contributed assets. The Company also established a
$100 loan receivable from G.L.M. at 1% above prime which was
8.25% at November 30, 1996. In addition, the Company has
guaranteed certain obligations of G.L.M. (Note 16).
On December 1, 1995, the Company purchased a 50% equity
investment in a newly-formed company, Quintex West, for
approximately $97 in contributed assets. The Company also
established a $100 loan receivable from Quintex West due in
March 1997 at 8.5% interest.
On March 19, 1996, Audiovox Holdings purchased a 30% interest
in a newly-formed company, Posse, for approximately $12.
The Company received the following management fees and
related income from its equity investments:
<TABLE>
November 30,
1996 1995 1994
<C> <C> <C>
Pacific $ 22 $ 186 $ 435
Protector - - 1,108
G.L.M. 100 14 -
Quintex West 18
Posse 46 - -
$ 186 $ 200 $1,543
</TABLE>
The Company's net sales to the equity investments amounted
to $6,483, $17,864, and $32,630 for the years ended November
30, 1996, 1995, and 1994, respectively. The Company's
purchases from the equity investments amounted to $115,109,
$83,858, and $5,715 for the years ended November 30, 1996,
1995, and 1994, respectively. The Company recorded $2,130
51
<PAGE>
of outside representative commission expenses for activations
and residuals generated by G.L.M. on the Company's
behalf during fiscal year 1996 (Note 1(l)).
Included in accounts receivable at November 30, 1996 and
November 30, 1995 are trade receivables due from its equity
investments aggregating $2,576 and $4,182 and management fee
receivables of $50 and $14, respectively. Receivable from
vendor is interest bearing and represents claims on late
deliveries, product modifications, and price protection from
TALK as well as prepayments on product shipments. Interest
is payable in monthly installments at rates which range from
6.5% to 8%. Amounts representing claims of $1,012 are due
in April and May 1997, and amounts representing prepayments
of $3,553 were repaid via receipt of product shipments in
December 1997. At November 30, 1996 and 1995, other long-
term assets include equity investment advances outstanding
and management fee receivables of $2,137 and $1,289, respectively.
At November 30, 1996 and 1995, included in accounts
payable and other accrued expenses were obligations to
equity investments aggregating $3,773 and $240, respectively.
Documentary acceptance obligations were outstanding
from TALK at November 30, 1996 (Note 9).
During 1996, the Company recorded interest income from TALK
relating to the receivable from vendor, reimbursement of
interest expense incurred under the subordinated loan to
hedge the TALK investment (Note 10), and other short-term
loans made to TALK during 1996 at market interest rates.
For the years ended November 30, 1996, 1995, and 1994,
interest income earned on equity investment notes and other
receivables approximated $725, $573, and $25, respectively.
Interest expense on equity investment documentary acceptances
approximated $198 in 1996.
(9) Financing Arrangements
(a) Bank Obligations
During 1993, the Company had established a revolving
credit agreement with several financial institutions
which was first amended on March 15, 1994. On May 5,
1995, the Company entered into the Second Amended and
52
<PAGE>
Restated Credit Agreement (the "Credit Agreement")
which superseded the first amendment in its entirety.
During 1996, the Credit Agreement was amended six times
providing for various changes to the terms. The terms
as of November 30, 1996 are summarized below.
Under the Credit Agreement, the Company may obtain
credit through direct borrowings and letters of credit.
The obligations of the Company under the Credit Agreement
continue to be guaranteed by certain of the Company's sub-
sidiaries and is secured by accounts receivable and inventory
of the Company and those subsidiaries. The obligations were
secured at November 30, 1996
by a pledge agreement entered into by the Company for
2,125,000 shares of CellStar Common Stock (Note 6) and
ten shares of ACC. Subsequent to year end, the shares
of CellStar common stock were released from the Pledge
Agreement. Availability of credit under the Credit
Agreement is a maximum aggregate amount of $85,000,
subject to certain conditions, and is based upon a
formula taking into account the amount and quality of
its accounts receivable and inventory. The Credit
Agreement expires on February 28, 1998. As a result,
bank obligations under the Credit Agreement have been
classified as long-term at November 30, 1996.
Outstanding obligations under the Credit Agreement at
November 30, 1996 and 1995 were as follows:
<TABLE>
November 30,
1996 1995
<S> <C> <C>
Bankers' Acceptances $ - $16,000
Revolving Credit Notes 11,700 3,000
Eurodollar Notes 20,000 30,000
$31,700 $49,000
</TABLE>
For the year ended November 30, 1995 through and including
February 8, 1996, interest on revolving credit
notes were .25% above the prime rate, which was 8.75%
at November 30, 1995. For the same period, interest on
Eurodollar Notes were 2% above the Libor rate which was
approximately 5.1% at November 30, 1995 and interest on
53
<PAGE>
bankers' acceptances were 2% above the bankers' accep-
tance rate which was approximately 6.25% at November
30, 1995. Pursuant to an amendment on February 9,
1996, the interest rates were increased to the following:
revolving credit notes at .50% above the prime
rate, which was approximately 8.25% at November 30,
1996 and Eurodollar Notes at 2.75% above the Libor rate
which was approximately 5.5% at November 30, 1996.
Interest on bankers' acceptances remained at 2% above
the bankers' acceptance rate which was approximately
5.75% at November 30, 1996.
The Credit Agreement contains several covenants requiring,
among other things, minimum levels of pre-tax
income and minimum levels of net worth and working
capital. Additionally, the agreement includes restrictions
and limitations on payments of dividends, stock
repurchases, and capital expenditures. At November 30,
1996, the Company was not in compliance with several
financial covenants which were waived. As of the date
of the issuance of the financial statements, the Company's
creditors waived their right to call the bank
obligations.
The Company also has a revolving credit facility with a
local Malaysian bank (Malaysian Credit Agreement) to
finance additional working capital needs. As of Novem-
ber 30, 1996 and 1995, the available line of credit for
direct borrowing, letters of credit, bankers' acceptances
and other forms of credit approximated $9,320 and
$2,200, respectively. The credit facility is partially
secured by two standby letters of credit totaling
$5,320, issued under the Credit Agreement by the Company
and is payable upon demand or upon expiration of
the standby letters of credit on August 31, 1997. The
obligations of the Company under the Malaysian Credit
Agreement are secured by the property and building
owned by Audiovox Malaysia. Outstanding obligations
under the Malaysian Credit Agreement at November 30,
1996 and 1995 were approximately $4,024 and $761,
respectively. Interest on the credit facility ranges
between 1.0% and 1.5% above the Malaysian base lending
rate which was 9.2% and 8.7% at November 30, 1996 and
54
<PAGE>
1995, respectively.
The maximum month-end amounts outstanding under the
Credit Agreement and the Malaysian Credit Agreement
borrowing facilities during the years ended November
30, 1996, 1995, and 1994 were $44,213, $59,315, and
$30,184, respectively. Average borrowings during the
years ended November 30, 1996, 1995, and 1994 were
$33,662, $43,470, and $16,929, respectively, and the
weighted average interest rates were 8.9%, 8.7%, and
7.9%, respectively.
(b) Documentary Acceptances
During 1996, the Company had various unsecured documen-
tary acceptance lines of credit available with suppliers
to finance inventory purchases. The Company does
not have written agreements specifying the terms and
amounts available under the lines of credit. At November
30, 1996, $3,501 of documentary acceptances were
outstanding of which all was due to TALK.
The maximum month-end documentary acceptances outstanding
during the years ended November 30, 1996, 1995, and
1994 were $9,792, $9,977, and $9,078, respectively.
Average borrowings during the years ended November 30,
1996, 1995, and 1994 were $5,845, $5,876, and $3,787,
respectively, and the weighted average interest rates,
including fees, were 5.1%, 4.4%, and 11.0%, respectively.
55
<PAGE>
(10) Long-Term Debt
A summary of long-term debt follows:
<TABLE>
November 30,
1996 1995
<S> <C> <C>
Convertible subordinated debentures:
6 1/4%, due 2001, convertible at
$17.70 per share $23,748 $ 65,000
Convertible debentures:
Series AA, 10.8%, due 1996,
convertible at $5.34 per share - 77
Series BB, 11.0%, due 1996,
convertible at $5.34 per share - 5,385
Subordinated note payable 4,417 4,938
Secured term loan - 664
Capital lease obligations - 158
28,165 76,222
Less current installments - 5,688
$28,165 $70,534
</TABLE>
On March 15, 1994, the Company completed the sale of
$65,000, 6 1/4% convertible subordinated debentures
("Subordinated Debentures") due 2001 and entered into an Indenture
Agreement. The Subordinated Debentures are convertible into
shares of the Company's Class A Common Stock, par value $.01
per share at an initial conversion price of $17.70 per
share, subject to adjustment under certain circumstances.
The Indenture Agreement contains various covenants. The
bonds are subject to redemption by the Company in whole, or
in part, at any time after March 15, 1997, at certain
specified amounts. On May 9, 1995, the Company issued
warrants to certain beneficial holders of these Subordinated
Debentures (Note 13(d)).
On November 25, 1996, the Company completed an exchange of
$41,252 of its $65,000 Subordinated Debentures for 6,806,580
shares of Class A Common Stock ("Exchange"). As a result of
the Exchange, a charge of $26,318 was recorded. The charge
to earnings represents (i) the difference in the fair market
value of the shares issued in the Exchange and the fair
market value of the shares that would have been issued under
the terms of the original conversion feature plus (ii) a
56
<PAGE>
write-off of the debt issuance costs associated with the
Subordinated Debentures (Note 1(h)) plus (iii) expenses
associated with the Exchange offer. The Exchange resulted in
taxable income due to the difference in the face value of
the bonds converted and the fair market value of the shares
issued and, as such, a current tax expense of $2,888 was
recorded. An increase to paid in capital was reflected for
the face value of the bonds converted, plus the difference
in the fair market value of the shares issued in the Exchange
and the fair market value of the shares that would
have been issued under the terms of the original conversion
feature for a total of $63,564.
During January 1997, the Company completed additional
exchanges of $21,479 of it $65,000 Subordinated Debentures
for 2,860,925 shares of Class A Common Stock ("Additional
Exchanges"). As a result of the Additional Exchanges,
similar to that of the Exchange described earlier, a charge
of $10,035, tax expense of $1,725 and an increase to paid in
capital of $31,335, will be reflected in the first quarter
of the Company's 1997 fiscal year. As a result of the
Exchange and Additional Exchanges, the remaining Subordinated
Debentures are $2,269.
On March 8, 1994, the Company entered into a Debenture
Exchange Agreement and exchanged certain debentures for
Series AA and Series BB Convertible Debentures (Debentures).
The Debentures were convertible at any time at $5.34 per
share, which is subject to adjustment in certain circums-
tances, and were secured by a standby letter of credit
(Note 16(a)). Although the Debenture Exchange Agreement
provides for optional prepayments under certain circumstances,
such prepayments are restricted by the Credit
Agreement (Note 9). On February 9, 1996, the holders of
$1,100 of the Series BB Convertible Debentures exercised
their right to convert into 206,046 shares of Class A Common
Stock. The remaining balance of the Debentures were repaid
during 1996; thereby extinguishing the remaining conversion
features of these Debentures.
On October 20, 1994, the Company issued a note payable for
500,000 Japanese Yen (approximately $4,417 and $4,938 on
November 30, 1996 and 1995, respectively) to finance its
57
<PAGE>
investment in TALK (Note 8). The note is scheduled to be
repaid on October 20, 2004 and bears interest at 4.1%. The
note can be repaid by cash payment or by giving 10,000
shares of its TALK investment to the lender. The lender has
an option to acquire 2,000 shares of TALK held by the
Company in exchange for releasing the Company from 20% of
the face value of the note at any time after October 20,
1995. This note and the investment in TALK are both denominated
in Japanese Yen, and, as such, the foreign currency
translation adjustments are accounted for as a hedge. Any
foreign currency translation adjustment resulting from the
note will be recorded in stockholders' equity to the extent
that the adjustment is less than or equal to the adjustment
from the translation of the investment in TALK. Any portion
of the adjustment from the translation of the note that
exceeds the adjustment from the translation of the investment
in TALK is a transaction gain or loss that will be
included in earnings.
During 1995, Audiovox Malaysia entered into a Secured Term
Loan for 1,700 Malaysian Ringgits (approximately $675) to
acquire a building. The loan was secured by the property
acquired and bears interest at 1.5% above the Malaysian base
lending rate which was 9.2% on November 30, 1996. The loan
was payable in 120 monthly equal installments commencing
October 1995, however, was fully repaid in November 1996.
Maturities on long-term debt for the next five fiscal years
are as follows:
1997 $ -
1998 -
1999 -
2000 -
2001 23,748
(11) Income Taxes
As discussed in Note 1(p), the Company adopted Statement 109
as of December 1, 1993. The cumulative effect of this
change in accounting for income taxes of $178, or $.02 per
share, is determined as of December 1, 1993 and is reported
separately as a reduction to the consolidated statement of
income (loss) for the year ended November 30, 1994.
58
<PAGE>
The components of income (loss) before the provision for
(recovery of) income taxes and cumulative effect are as
follows:
<TABLE>
November 30,
1996 1995 1994
<S> <C> <C> <C>
Domestic Operations $(21,899) $(12,424) $47,032
Foreign Operations 1,264 365 (498)
$(20,635) $(12,059) $46,534
</TABLE>
Total income tax expense (recovery) was allocated as follows:
<TABLE>
November 30,
1996 1995
<S> <C> <C>
Income (loss) from continuing
operations $ 5,834 $(2,803)
Stockholders' equity
Unrealized holding gain on
investment securities
recognized for financial
reporting purposes (13,143) 19,441
Total income tax expense
(recovery) $ (7,309) $16,638
</TABLE>
The provision for (recovery of) income taxes attributable to
income from continuing operations is comprised of:
<TABLE>
Federal Foreign State Total
<S> <C> <C> <C> <C>
1994:
Current $12,042 $ 68 $2,078 $14,188
Deferred 5,365 - 775 6,140
$17,407 $ 68 $2,853 $20,328
1995:
Current $ 1,455 $ 570 $ 330 $ 2,355
Deferred (4,189) - (969) (5,158)
$(2,734) $ 570 $ (639) $(2,803)
1996:
Current $ 3,711 $ 802 $ 853 $ 5,366
Deferred 330 - 138 468
$ 4,041 $ 802 $ 991 $ 5,834
</TABLE>
59
<PAGE>
A reconciliation of the provision for (recovery of) income
taxes attributable to income (loss) from continuing operations
computed at the Federal statutory rate to the reported
provision for income taxes attributable to income (loss)
from continuing operations is as follows:
<TABLE>
November 30,
1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Tax provision (recovery) at
Federal statutory rates $(7,222) (35.0)% $(4,221) 35.0% $16,287 35.0%
Expense relating to exchange
of subordinated debentures 11,421 55.3 - - - -
Undistributed earnings (loss)
from equity investments 128 0.6 411 (3.5) 1,558 3.4
State income taxes, net of
Federal benefit 275 1.3 (415) 3.4 1,854 4.0
Increase in beginning-of-the-
year balance of the valuation
allowance for deferred tax
assets 1,270 6.2 644 (5.3) 306 0.7
Foreign tax rate differential 30 0.1 (34) 0.3 (7) (0.1)
Expense relating to the
issuance of warrants - - 1,022 (8.5) - -
Other, net (68) (0.2) (210) 1.8 330 0.7
$ 5,834 28.3 % $(2,803) 23.2% $20,328 43.7%
</TABLE>
The significant components of deferred income tax expense
(recovery) for the years ended November 30, 1996 and 1995 are
as follows:
<TABLE>
November 30,
1996 1995
<S> <C> <C>
Deferred tax expense (recovery)
(exclusive of the effect of other
components listed below) $ (802) $(5,802)
Increase in beginning-of-the-year
balance of the valuation
allowance for deferred tax assets 1,270 644
$ 468 $(5,158)
</TABLE>
60
<PAGE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred
liabilities are presented below:
<TABLE>
November 30,
1996 1995
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due
to allowance for doubtful accounts
and cellular deactivations $ 1,593 $ 1,601
Inventory, principally due to
additional costs capitalized for
tax purposes pursuant to the Tax
Reform Act of 1986 306 455
Inventory, principally due to
valuation reserve 930 1,373
Accrual for future warranty costs 978 790
Plant, equipment, and certain
intangibles, principally due to
depreciation and amortization 714 588
Net operating loss carryforwards,
state and foreign 2,458 1,689
Accrued liabilities not currently
deductible 491 359
Other 664 477
Total gross deferred tax assets 8,134 7,332
Less: valuation allowance (2,893) (1,623)
Net deferred tax assets 5,241 5,709
Deferred tax liabilities:
Equity investments, principally due
to undistributed earnings (10,548) (23,690)
Total gross deferred tax
liabilities (10,548) (23,690)
Net deferred tax liability $ (5,307) $(17,981)
</TABLE>
The net change in the total valuation allowance for the year
ended November 30, 1996 was an increase of $1,270. A valuation
allowance is provided when it is more likely than not
that some portion, or all, of the deferred tax assets will
not be realized. The Company has established valuation
allowances primarily for net operating loss carryforwards in
61
<PAGE>
certain states and foreign countries as well as other
deferred tax assets in foreign countries. Based on the
Company's ability to carry back future reversals of deferred tax
assets to taxes paid in current and prior years and the
Company's historical taxable income record, adjusted for
extraordinary items, management believes it is likely that
the Company will realize the benefit of the net deferred tax
assets existing at November 30, 1996. Further, management
believes the existing net deductible temporary differences
will reverse during periods in which the Company generates
net taxable income. There can be no assurance, however, that
the Company will generate any earnings or any specific level
of continuing earnings in the future. The amount of the
deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable
income during the carryforward period are reduced.
At November 30, 1996, the Company had net operating loss
carryforwards for state and foreign income tax purposes of
approximately $19,108, which are available to offset future
state and foreign taxable income, if any, which will expire
through the year ended November 30, 2010.
The Company has not recognized a deferred tax liability of
approximately $140 and $268 at November 30, 1996 and 1995,
respectively, for the undistributed earnings of a foreign
corporate joint venture that arose in 1995 and prior years
because the Company currently does not expect those unremitted
earnings to reverse and become taxable to the Company in
the foreseeable future. A deferred tax liability will be
recognized when the Company expects that it will recover
those undistributed earnings in a taxable manner, such as
through receipt of dividends or sale of the investments.
62
<PAGE>
(12) Capital Structure
The Company's capital structure is as follows:
<TABLE>
Voting
Rights
Par Shares Issued Per Liquidation
Security Value Shares Authorized and Outstanding Share Rights
November 30, November 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <S> <S>
Class A $ 0.01 30,000,000 30,000,000 14,040,414 6,777,788 One Ratably with
Common Class B
Stock
Class B 0.01 10,000,000 10,000,000 2,260,954 2,260,954 Ten Ratably with
Common Class A
Stock
Preferred
Stock 50.00 50,000 50,000 50,000 50,000 - $50 per share
Series
Preferred
Stock 0.01 1,500,000 1,500,000 - - - -
</TABLE>
The holders of Class A and Class B Common Stock are entitled
to receive cash or property dividends declared by the Board
of Directors. The Board can declare cash dividends for Class
A Common Stock in amounts equal to or greater than the cash
dividends for Class B Common Stock. Dividends other than
cash must be declared equally for both classes. Each share
of Class B Common Stock may, at any time, be converted into
one share of Class A Common Stock.
The 50,000 shares of non-cumulative Preferred Stock outstanding are
owned by Shintom and have preference over both
classes of common stock in the event of liquidation or dissolution.
As of November 30, 1996 and 1995, 969,500 shares of the
Company's Class A Common Stock are reserved for issuance
under the Company's Stock Option and Restricted Stock Plans
and 5,491,192 and 4,845,345 for all convertible securities
and warrants outstanding at November 30, 1996 and 1995,
respectively, (Notes 10 and 13).
63
<PAGE>
Undistributed earnings from equity investments included in
retained earnings amounted to $3,728 and $3,431 at November
30, 1996 and 1995, respectively.
(13) Common Stock and Compensation Plans
(a) Stock Option Plans
In April 1987, the Board of Directors approved the adoption
of the 1987 Stock Option Plan for the granting of
options to directors and key employees of the Company.
Under the 1987 Stock Option Plan, the options can be
either incentive or non-qualified.
In April 1987, non-qualified options to purchase 200,000
shares of Class A Common Stock were granted at $11 per
share which represents the estimated fair market value
at the date of grant. Such options became exercisable
in full in October 1988 and expire in April 1997.
In May 1993, the stockholders approved the 1993 Stock
Option Plan which authorizes the granting of incentive
stock options to key employees and non-qualified stock
options to employees and/or directors of the Company.
The incentive stock options may be granted at a price
not less than the market value of the Company's common
stock on the date of grant and must be exercisable no
later than ten years after the date of grant. The exercise
price of non-qualified stock options may not be
less than 50% of the market value of the Company's Class
A Common Stock on the date of grant.
In December 1993, non-qualified options to purchase
113,500 shares of Class A Common Stock were granted at
$13 per share which was less than the market value of
$17 per share on the date of grant. Such options became
exercisable in full in December 1996 and expire in December 2003.
In November 1994, non-qualified options to purchase
75,000 shares of Class A Common Stock were granted at
$11 per share, which exceeded fair market value at the
64
<PAGE>
date of grant, to a director and officer of the Company.
Such options became exercisable in full on May 22, 1996
and expire on November 22, 2004.
In May 1994, the stockholders approved the 1994 Stock
Option Plan which authorizes the granting of incentive
stock options to key employees and non-qualified stock
options to employees and/or directors of the Company.
The incentive stock options may be granted at a price
not less than 110% of the market value of the Company's
common stock on the date of grant and must be exercisable
no later than ten years after the date of grant.
The exercise price of non-qualified stock options may
not be less than 50% of market value of the Company's
Class A Common Stock on the date of grant.
In August 1995, non-qualified options to purchase
279,000 shares of Class A Common Stock were granted
under the 1994 Stock Option Plan at an exercise price of
$5.88 per share, which represents the estimated fair
market value of the shares at the date of grant. No
options can be exercised until February 9, 1997 or
August 9, 1998, as the case may be, after which they can
be exercised in whole or in part, until expiration on
August 9, 2005.
Compensation expense is recorded with respect to the
options based upon the quoted market value of the shares
and the exercise provisions at the date of grant. Compen-
sation expense for the years ended November 30, 1996
and 1995 was $97 and $113, respectively.
The Company will adopt the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", on December
1, 1996.
65
<PAGE>
Information regarding the Company's stock option plans
is summarized below:
<TABLE>
1994 1993 1987
Stock Stock Stock
Option Option Option
Plan Plan Plan
<S> <C> <C> <C>
Shares under option:
Outstanding at
December 1, 1992 - - 157,500
Granted - - -
Exercised - - (16,000)
Canceled - - -
Outstanding at
November 30, 1993 - - 141,500
Granted - 188,500 -
Exercised - - (15,500)
Canceled - (500) (1,000)
Outstanding at
November 30, 1994 - 188,000 125,000
Granted 279,000 - -
Exercised - - -
Canceled - (12,750) (21,000)
Outstanding at
November 30, 1995 279,000 175,250 104,000
Granted - - -
Exercised - - -
Canceled (3,500) (5,000) (1,000)
Outstanding at
November 30, 1996 275,500 170,250 103,000
Options exercisable,
November 30, 1996 - 89,750 103,000
</TABLE>
(b) Restricted Stock Plan
In April 1987, the Board of Directors approved the adoption
of the 1987 Restricted Stock Plan for the granting
of restricted stock awards to directors and key employees
of the Company. In May 1993, the stockholders approved an
amendment to the 1987 Restricted Stock Plan
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<PAGE>
which provides that restrictions on stock awarded pursuant
to the Plan will lapse at the discretion of the
Compensation Committee of the Company. In addition, the
Plan's original expiration date of April 27, 1997 was
extended through April 27, 2007.
In December 1993, 38,300 shares of Class A Common Stock
were awarded under the 1987 Restricted Stock Plan, one
half of such shares to be performance accelerated restricted
stock and one half of such shares to be performance restricted
stock. The performance accelerated
shares will vest in five years or earlier depending upon
whether the Company meets certain earnings per share
goals. The performance restricted shares will only vest
in five years to the extent the Company achieves certain
earnings per share goals. To the extent the earnings
per share goals have not been achieved during the five
years after the date of grant, the award will lapse.
In November 1994, 25,000 shares of Class A Common Stock
were awarded under the 1987 Restricted Stock Plan to a
director and officer of the Company. One half of such
shares are to be performance accelerated restricted
stock and one half of such shares are to be performance
restricted stock. The terms of the grant are identical
to the December 1993 grant as previously discussed.
In August 1995, 21,000 shares of Class A Common Stock
were awarded under the 1987 Restricted Stock Plan, one
half of such shares to be performance accelerated restricted
stock and one half of such shares to be performance restricted
stock. The terms of the grant are
identical to the December 1993 grant as previously discussed.
In May 1994, the Board of Directors approved the adoption of
the 1994 Restricted Stock Plan for the granting
of restricted stock awards to directors and key employees of
the Company. No awards were granted under this
plan as of November 30, 1996.
67
<PAGE>
Subsequent to year end, non-qualified options to purchase
348,000 shares of Class A Common Stock were
granted at $5.50 per share, which represents the estimated
fair market value at the date of grant, to certain
directors and officers of the Company. The options
become exercisable in full on July 3, 1998 and expire on
January 3, 2007 or earlier under certain circumstances.
Compensation expense is recorded with respect to the
grants based upon the quoted market value of the shares
on the date of grant for the performance accelerated
shares and on the balance sheet date for the performance
restricted shares. Total restricted stock outstanding
at November 30, 1996 and 1995 was 79,500 and 80,800,
respectively. Compensation expense for these grants for
the years ended November 30, 1996 and 1995 were $200 and
$127, respectively.
(c) Employee Stock Purchase Plan
In May 1993, the stockholders approved the 1993 Employee
Stock Purchase Plan. The stock purchase plan provides
eligible employees an opportunity to purchase shares of
the Company's Class A Common Stock through payroll deduc-
tions up to 15% of base salary compensation. Amounts
withheld are used to purchase Class A Common Stock on or
about the last business day of each month at a price
equal to 85% of the fair market value. The total number
of shares available for purchase under this plan is
1,000,000.
(d) Stock Warrants
During the third quarter of fiscal 1993, pursuant to a
consulting agreement effective April 1993, the Company
granted warrants to purchase 100,000 shares of Class A
Common Stock, which have been reserved, at $7.50 per
share. The warrants, which are exercisable in whole or
in part at the discretion of the holder, expire on
December 31, 1998. There were no warrants exercised as of
November 30, 1996. The consulting agreement, valued at
$100, was expensed in 1994 when the services to be provided
68
<PAGE>
pursuant to the consulting agreement were completed.
In December 1993, the Company granted warrants to purchase
50,000 shares of Class A Common Stock at a purchase price
of $14.375 per share as part of the acquisition of H&H (Note 2).
The per share purchase price and
number of shares purchasable are each subject to adjustment upon
the occurrence of certain events described in
the warrant agreement. The warrants are exercisable, in
whole or in part, from time-to-time, until September 22,
2003. If the warrants are exercised in whole, the
holder thereof has the right to require the Company to
file with the Securities Exchange Commission a registra-
tion statement relating to the sale by the holder of the
Class A Common Stock purchasable pursuant to the warrant.
On May 9, 1995, the Company issued 1,668,875 warrants in
a private placement, each convertible into one share of
Class A Common Stock at $7 1/8, subject to adjustment
under certain circumstances. The warrants were issued
to the beneficial holders as of June 3, 1994, of approxi-
mately $57,600 of the Company's Subordinated Debentures
in exchange for a release of any claims such holders may
have against the Company, its agents, directors and
employees in connection with their investment in the
Subordinated Debentures. As a result, the Company in-
curred a warrant expense of $2,900 and recorded a corre-
sponding increase to paid in capital. The warrants are
not exercisable after March 15, 2001, unless sooner
terminated under certain circumstances. Subsequent to
November 30, 1995, the Company has filed a registration
statement for the warrants and the underlying common
stock pursuant to a registration rights agreement dated
as of May 9, 1995, between the Company and the holders
of the warrants. John J. Shalam, Chief Executive Officer
of the Company, has granted the Company an option to
purchase 1,668,875 shares of Class A Common Stock from
his personal holdings. The exercise price of this option
is $7 1/8, plus the tax impact, if any, should the
exercise of this option be treated as dividend income
69
<PAGE>
rather than capital gains to Mr. Shalam.
(e) Profit Sharing Plans
The Company has established two non-contributory employee
profit sharing plans for the benefit of its eligible
employees in the United States and Canada. The
plans are administered by trustees appointed by the
Company. In fiscal 1996 and 1994, contributions of $150
and $225, respectively, were made by the Company to the
United States plan. No contributions were made to the
plan for fiscal year 1995. Contributions required by law
to be made for eligible employees in Canada were not
material.
(14) Export Sales
Export sales of approximately $87,334 for the year ended
November 30, 1996 exceeded 10% of sales. Export sales for
the years ended November 30, 1995 and 1994 did not exceed 10%
of sales.
(15) Lease Obligations
At November 30, 1996, the Company was obligated under
non-cancelable leases for equipment and warehouse facilities
for minimum annual rental payments as follows:
Operating
Leases
1997 $1,673
1998 977
1999 511
2000 287
2001 and thereafter 123
Total $3,571
Rental expense for the above-mentioned operating lease agree-
ments and other leases on a month-to-month basis approximated
$2,292, $4,080 and $3,107 for the years ended November 30,
70
<PAGE>
1996, 1995 and 1994, respectively.
The Company leases certain facilities from its principal
stockholder and several officers. Rentals for such leases
are considered by management of the Company to approximate
prevailing market rates. At November 30, 1996, minimum
annual rental payments on these related party leases, which
are included in the above table, are as follows:
1997 $162
1998 162
1999 23
(16) Financial Instruments
(a) Off-Balance Sheet Risk
Commercial letters of credit are issued by the Company
during the ordinary course of business through major
domestic banks as requested by certain suppliers. The
Company also issues standby letters of credit principally
to secure certain bank obligations of Audiovox
Malaysia (Note 9) and its Debentures (Note 10). The
Company had open commercial letters of credit of approxi-
mately $23,785 and $22,000, of which $17,400 and
$10,800 were accrued for as of November 30, 1996 and
1995, respectively. The terms of these letters of
credit are all less than one year. No material loss is
anticipated due to nonperformance by the counterparties
to these agreements. The fair value of these open com-
mercial and standby letters of credit is estimated to be
the same as the contract values based on the nature of
the fee arrangements with the issuing banks.
The Company is a party to a joint and several guarantee
on behalf of G.L.M. up to the amount of $200. There is
no market for this guarantee and it was issued without
explicit cost. Therefore, it is not practicable to es-
tablish its fair value.
At November 30, 1996, the Company has a $5,451 forward
exchange contract outstanding relating to foreign currency
71
<PAGE>
denominated accounts receivable. The forward exchange contract
requires the Company to exchange Spanish
Pesetas for U.S. Dollars at maturity, at rates agreed to
at the inception of the contract. If the counterpart to
the forward exchange contract does not fulfill their
obligations to deliver the contracted currencies, the
Company could be at risk for any currency related fluctua-
tions. There were no open foreign exchange contracts
at November 30, 1995.
(b) Concentrations of Credit Risk
Financial instruments, which potentially subject the
Company to concentrations of credit risk, consist princi-
pally of trade receivables. The Company's customers
are located principally in the United States and Canada
and consist of, among others, cellular carriers and
service providers, distributors, agents, mass merchan-
disers, warehouse clubs and independent retailers.
At November 30, 1996, two customers, a Bell Operating
Company and a cellular carrier and service provider,
accounted for approximately 10% and 11%, respectively,
of accounts receivable. At November 30, 1995, three
customers, which included two cellular carriers and
service providers and a Bell Operating Company accounted
for approximately 6%, 7% and 5%, respectively, of accounts receivable.
During the year ended November 30, 1996, two customers,
a Bell Operating Company and a cellular carrier and
service provider, accounted for approximately 12% and
9%, respectively, of the Company's sales. During the
year ended November 30, 1995, two Bell Operating Companies
and a cellular carrier and service provider accounted for
approximately 6%, 7% and 7%, respectively,
of the Company's 1995 sales. A Bell Operating Company
accounted for approximately 7% of the Company's 1994
sales.
The Company generally grants credit based upon analyses
of its customers' financial position and previously
72
<PAGE>
established buying and payment patterns. The Company
establishes collateral rights in accounts receivable and
inventory and obtains personal guarantees from certain
customers based upon management's credit evaluation. At
November 30, 1996 and 1995, 44 and 36 customers, respectively,
representing approximately 70% and 63%, of outstanding accounts
receivable, had balances owed greater than $500.
A significant portion of the Company's customer base may
be susceptible to downturns in the retail economy, partic-
ularly in the consumer electronics industry. Additionally,
customers specializing in certain automotive
sound, security and accessory products may be impacted
by fluctuations in automotive sales. A relatively small
number of the Company's significant customers are deemed
to be highly leveraged.
(c) Fair Value
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for
which it is practicable to estimate that
value. The carrying value of all financial instruments
classified as a current asset or liability is deemed to
approximate fair value, with the exception of current
installments of long-term debt, because of the short
maturity of these instruments.
Investment Securities
The carrying amount represents fair value, which is
based upon quoted market prices at the reporting date
(Note 6).
Long-Term Debt Including Current Installments
The carrying amount of bank debt under the Company's
revolving Credit Agreement and Malaysian Credit Agree-
ment approximates fair value because of the short maturity
of the related obligations. With respect to the
Subordinated Debentures, fair values are based on pub-
73
<PAGE>
lished statistical data. The Debentures were valued at
the closing market price of the Company's Class A Common
Stock for the number of shares convertible at November
30, 1996 and 1995. Management believes that the carrying
value of the secured term loan approximates fair
value because it bears interest at rates currently offered
to the Company for similar debt instruments of
comparable maturities by the Company's bankers. Other
long-term borrowings are valued by the present value of
future cash flows at current market interest rates.
Forward Exchange Contract
The fair value of the forward exchange contract is based
upon exchange rates at November 30, 1996 as the contract
is short term.
The estimated fair value of the Company's financial
instruments are as follows:
<TABLE>
November 30, 1996 November 30, 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Long-term
obligations
including
current
installments $ 59,865 $56,046 $125,221 $103,699
Forward exchange
contract
obligation - 5,316 - -
</TABLE>
Limitations
Fair value estimates are made at a specific point in
time, based on relevant market information and infor-
mation about the financial instrument. These estimates
are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot
75
<PAGE>
be determined with precision. Changes in assumptions
could significantly affect the estimates.
(17) Contingencies
In 1993, the Company, along with other suppliers and
manufacturers of cellular telephones, were named as
defendants in a class action suit alleging negligence and breach
of contract arising from the sale of portable hand-held
cellular telephones. An order dismissing the Company as a
defendant was granted in 1993 and is currently being appealed.
The impact of the final resolution of this matter on
the Company's results of operations or liquidity in a
particular reporting period is not known. Management is of
the opinion, however, that there are meritorious defenses to
the claims made in this case and that the ultimate outcome of
this matter will not have a material adverse effect on the
Company's consolidated financial position.
In 1996, Toshiba America Consumer Products, Inc. (Toshiba)
and the Company have been named as a defendant in a complaint
seeking in excess of $16,000. The complaint contains several
allegations, including anti-trust violations and tortious
interference arising out of the termination of alleged distrib-
utorship arrangements with Toshiba. The Company was
granted a motion to dismiss the complaint on August 12, 1996
subsequent to which the plaintiff has filed an appeal. The
impact of the final resolution of this matter on the Company's
results of operations or liquidity in a particular
reporting period is not known. Management is of the opinion,
however, that there are meritorious defenses to the claims
made in this complaint and that the ultimate outcome of this
matter will not have a material adverse effect on the Company's
consolidated financial position.
The Company is also a defendant in litigation arising from
the normal conduct of its affairs. The impact of the final
resolution of these matters on the Company's results of
operations or liquidity in a particular reporting period is
not known. Management is of the opinion, however, that the
litigation in which the Company is a defendant is either
subject to product liability insurance coverage or, to the
75
<PAGE>
extent not covered by such insurance, will not have a material
adverse effect on the Company's consolidated financial
position.
76
<PAGE>
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10 - Directors and Executive Officers of the Registrant
Information regarding this item is set forth under the captions
"Election of Directors" of the Company's Proxy Statement to be
dated March 27, 1997, which will be filed pursuant to Regulation
14A under the Securities Exchange Act of 1934 (the "Proxy State-
ment") and is incorporated herein by reference. Information with
regard to Executive Officers is set forth in Item 1 of this Form
10-K.
Item 11 - Executive Compensation
The information regarding this item is set forth under the caption
"Executive Compensation" of the Proxy Statement and is incorporated
herein by reference.
Item 12 - Security Ownership of Certain Beneficial Owners and
Management
The information regarding this item is set forth under the
caption "Beneficial Ownership of Common Stock" of the Proxy State-
ment and is incorporated herein by reference. The Company knows
of no arrangements which may result at a subsequent date in a
change of control of the Company.
Item 13 - Certain Relationships and Related Transactions
Information regarding this item is set forth under the caption
"Beneficial Ownership of Common Stock", "Election of Directors"
and "Executive Compensation" of the Proxy Statement.
77
<PAGE>
PART IV
Item 14 - Exhibits, Consolidated Financial Statement Schedules,
and Reports on Form 8-K
(a) (1)
The following financial statements are included in Item 8 of this
Report:
Independent Auditors' Report
Consolidated Balance Sheets of Audiovox Corporation and Subsid-
iaries as of November 30, 1996 and 1995.
Consolidated Statements of Income (Loss) of Audiovox Corporation
and Subsidiaries for the Years Ended November 30, 1996, 1995 and
1994.
Consolidated Statements of Stockholders' Equity of Audiovox Corp-
oration and Subsidiaries for the Years Ended November 30, 1996,
1995 and 1994.
Consolidated Statements of Cash Flows of Audiovox Corporation and
Subsidiaries for the Years Ended November 30, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
(a) (2)
Financial Statement Schedules of the Registrant for the
Years Ended November 30, 1996, 1995 and 1994.
Independent Auditors' Report on Financial Statement Schedules
SCHEDULE PAGE
NUMBER DESCRIPTION NUMBER
II Valuation and Qualifying 84
Accounts
All other financial statement schedules not listed are
omitted because they are either not required or the
information is otherwise included.
78
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Audiovox Corporation:
Under the date of January 23, 1997 we reported on the consolidated
balance sheets of Audiovox Corporation and subsidiaries as of
November 30, 1996 and 1995, and the related consolidated state-
ments of income (loss), stockholders' equity, and cash flows for
each of the years in the three-year period ended November 30,
1996, which are included in the Company's 1996 annual report on
Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related
consolidated financial statement schedules in the 1996 annual
report on Form 10-K. These consolidated financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement
schedules based on our audits.
In our opinion, such financial statement schedules, when considered
in relation to the basic consolidated financial statements
taken as a whole, present fairly, in all material respects, the
information set forth therein.
Our report refers to changes in the methods of accounting for
certain investments in equity securities and income taxes.
s/KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Jericho, New York
January 23, 1997
79
<PAGE>
(3) Exhibits See Item 14(c) for Index of Exhibits.
(b) Reports on Form 8-K
During the fourth quarter, the Registrant filed one report on
Form 8-K:
On October 18, 1996, the Registrant filed its current report
on Form 8-K which reported the Registrant's authorization to
exchange its 6 1/4% convertible subordinated debentures for
its Class A Common Stock.
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION
3.1 Certificate of Incorporation of the Company (incor-
porated by reference to the Company's Registration
Statement on Form S-1; No. 33-107, filed May 4,
1987).
3.1a Amendment to Certificate of Incorporation (incorporated
by reference to the Company's Annual Report
on Form 10-K for the year ended November 30, 1993).
3.2 By-laws of the Company (incorporated by reference
to the Company's Registration Statement on Form S-1;
No. 33-10726, filed May 4, 1987).
10.1 Renewal, dated October 21, 1996, of Lease by and
between Registrant and John J. Shalam dated October
22, 1986 (filed via EDGAR herewith).
10.2 Fourth Amendment, dated as of July 29, 1996, to the
Second Amended and Restated Credit Agreement among
the Registrant and the several banks and financial
institutions (filed via EDGAR herewith).
10.3 Fifth Amendment, dated as of September 10, 1996, to
the Second Amended and Restated Credit Agreement
among the Registrant and the several banks and
financial institutions (filed via EDGAR herewith).
80
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
10.4 Sixth Amendment, dated as of November 27, 1996, to
the Second Amended and Restated Credit Agreement
among the Registrant and the several banks and
financial institutions (filed via EDGAR herewith).
11 Statement of Computation of Income (Loss) Per Common
Share (Page 149 herein).
21 Subsidiaries of the Registrant (Page 150 herein).
23 Independent Auditors' Consent (Page 151 herein).
27 Financial Data Schedule (filed via EDGAR herewith)
(d) All other schedules are omitted because the required information
is shown in the financial statements or notes thereto or
because they are not applicable.
81
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AUDIOVOX CORPORATION
February 28, 1997 BY:s/John J. Shalam
John J. Shalam, President
and Chief Executive Officer
82
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
s/John J. Shalam President; February 28, 1997
John J. Shalam Chief Executive Officer
(Principal Executive
Officer) and Director
s/Philip Christopher Executive Vice President February 28, 1997
Philip Christopher and Director
s/Charles M. Stoehr Senior Vice President, February 28, 1997
Charles M. Stoehr Chief Financial Officer
(Principal Financial and
Accounting Officer) and
Director
s/Patrick M. Lavelle Director February 28, 1997
Patrick M. Lavelle
s/Ann Boutcher Director February 28, 1997
Ann Boutcher
s/Gordon Tucker Director February 28, 1997
Gordon Tucker
s/Irving Halevy Director February 28, 1997
Irving Halevy
s/Richard Maddia Director February 28, 1997
Richard Maddia
s/Paul C. Kreuch, Jr. Director February 28, 1997
Paul C. Kreuch, Jr.
83
<PAGE>
Schedule II
AUDIOVOX CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years Ended November 30, 1996, 1995 and 1994
(In thousands)
<TABLE>
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged Balance
Beginning Costs and To Other At End
Description Of Year Expenses Accounts Deductions Of Year
<S> <C> <C> <C> <S> <C> <C> <C>
1996
Allowance for doubtful
accounts $ 2,707 $ 430 - $ 22 $ 3,115
Cash discount allowances 165 149 - - 314
Co-op advertising and
volume rebate allow-
ances 3,225 17,629 - 13,877 6,977
Allowance for cellular
deactivations 1,725 - - 59 1,666
Reserve for warranties
and product repair costs 3,948 3,784 - 2,757 4,975
$11,770 $21,992 - $16,715 $17,047
1995
Allowance for doubtful
accounts $ 1,623 $ 1,816 - $ 732 $ 2,707
Cash discount allowances 237 - - 72 165
Co-op advertising and
volume rebate allow-
ances 2,688 7,621 - 7,084 3,225
Allowance for cellular
deactivations 1,234 491 - - 1,725
Reserve for warranties
and product repair costs 3,207 3,834 - 3,093 3,948
$ 8,989 $13,762 - $10,981 $11,770
1994
Allowance for doubtful
accounts $ 2,063 $ (21) $ 419 $ 1,623
Cash discount allowances 302 - - 65 237
Co-op advertising and
volume rebate allow-
ances 1,429 5,898 - 4,639 2,688
Allowance for cellular
deactivations 1,739 - - 505 1,234
Reserve for warranties
and product repair costs 3,805 2,970 - 3,568 3,207
$ 9,338 $ 8,847 - $ 9,196 $ 8,989
</TABLE>
October 21, 1996
Mr. John J. Shalam
126 Wheatley Road
Old Westbury, NY 11568
Re: Lease dated October 26, 1986
Premises: 150 Marcus Boulevard,
Hauppauge, New York
Dear Mr. Shalam:
This will confirm our agreement to renew the above
referenced lease for an additional one (1) year for the term
November 1, 1996 through October 31, 1997 at a base rental of
$33,000 per month. All other terms and conditions of the lease
will remain in full force and effect.
AUDIOVOX CORPORATION, Tenant
BY:s/Charles M. Stoehr
Charles M. Stoehr
Senior Vice President
Agreed and accepted:
s/John J. Shalam
John J. Shalam, Landlord
FOURTH AMENDMENT AND CONSENT, dated as of July 29, 1996
(this "Amendment and Consent"), to the Second Amended and
Restated Credit Agreement, dated as of May 5, 1995 (as amended
pursuant to the First Amendment thereto dated as of December 22,
1995, the Second Amendment thereto dated as of February 9, 1996,
the Third Amendment thereto dated as of May 13, 1996 and this
Amendment and Consent, and as the same may be further amended,
supplemented or otherwise modified from time to time, the "Credit
Agreement"), among AUDIOVOX CORPORATION, a Delaware corporation
(the "Borrower"), the several banks and other financial
institutions from time to time parties thereto (collectively, the
"Lenders"; individually, a "Lender") and THE CHASE MANHATTAN
BANK, a New York banking corporation, as administrative and
collateral agent for the Lenders (in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Lenders and the Agent are
parties to the Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders
and the Agent agree to amend the Credit Agreement in the manner
provided for herein;
WHEREAS, the Borrower has also requested that the Agent
and the Lenders consent to the transfer by the Borrower of the
assets used in its cellular communications business (the
"Cellular Assets") to Audiovox Communications Corp., a Delaware
corporation and a wholly-owned Subsidiary of the Borrower
("Communications"); and
WHEREAS, the Agent and the Lenders are willing to agree
to the requested amendments and consents, but only on, and
subject to, the terms and conditions hereof;
NOW, THEREFORE, in consideration of the premises
contained herein, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein,
terms which are defined in the Credit Agreement and used herein
(and in the recitals hereto) as defined terms are so used as so
defined.
2. Consent. Notwithstanding the provisions of
subsections 9.5 and 9.6 of the Credit Agreement, the Agent and
the Lenders hereby consent to the transfer by the Borrower of the
Cellular Assets to Communications pursuant to agreements and
other documents in form and substance reasonably satisfactory to
the Agent.
3. Amendment of Subsection 1.1. Subsection 1.1 of
the Credit Agreement is hereby amended as follows:
(a) by deleting in its entirety the first sentence of
the definition of "Borrowing Base" and substituting in lieu
thereof the following new sentence:
on any date of determination thereof, the sum of (a)
75% of the aggregate amount of Eligible Accounts of the
Borrower and its consolidated Domestic and Canadian
Subsidiaries on such date of determination and (b) the
lesser of (i) 20% of the aggregate amount of Eligible
Inventory of the Borrower and its consolidated Domestic
and Canadian Subsidiaries on such date of determination
and (ii) $15,000,000.
(b) by adding a new definition in the proper
alphabetical order to read in its entirety as follows:
"Net Worth Adjustment Amount": at any time, an
amount equal to 50% of the aggregate gain (calculated
on a pre-tax basis) realized by the Borrower and its
Subsidiaries subsequent to July 29, 1996 in respect of
the sale of the Capital Stock of any Person (including,
but not limited to, CellStar, but excluding the
Borrower or any of its Subsidiaries).
(c) by deleting in its entirety the definition of
"Termination Date" contained therein and substituting in
lieu thereof the following new definition in the proper
alphabetical order:
"Termination Date": February 28, 1998.
4. Amendment of Subsection 9.1. Subsection 9.1 of
the Credit Agreement is hereby amended as follows:
(a) by deleting paragraph (a) thereof in its entirety
and substituting in lieu thereof the following new
paragraph:
(a) Maintenance of Pre-Tax Income. Permit (i)
Consolidated Pre-Tax Income for (A) the period of two
consecutive fiscal quarters ending May 31, 1996 or May
31, 1997 to be less than $1,500,000, (B) the period of
two consecutive fiscal quarters ending November 30,
1996 or November 30, 1997, to be less than $2,500,000
or (C) any fiscal year to be less than $4,000,000, (ii)
a Consolidated Pre-Tax Loss to occur in any two
consecutive fiscal quarters or (iii) a Consolidated
Pre-Tax Loss in excess of $500,000 to occur in any
fiscal quarter.
(b) by deleting paragraph (b) thereof in its entirety
and substituting in lieu thereof the following new
paragraph:
(b) Maintenance of Net Worth. Permit
Consolidated Adjusted Net Worth to be less than (i) at
any time prior to November 30, 1996, the sum of (A)
$86,000,000 and (B) the Net Worth Adjustment Amount at
such time, (ii) at any time on or after November 30,
1996 but prior to November 30, 1997, the sum of (A)
$88,500,000 and (B) the Net Worth Adjustment Amount at
such time or (iii) at any time thereafter, the sum of
(A) $91,000,000 and (B) the Net Worth Adjustment Amount
at such time.
5. Reduction in Commitments; Assignment and Transfer;
Amendment to Schedule I. (a) Effective upon receipt by the
Lenders of the amounts described in paragraph (b) below, (i) the
aggregate Commitments of the Lenders shall be reduced to
$75,000,000 and (ii) after giving effect to such reduction, each
Lender hereby irrevocably sells, assigns and transfers to each
other Lender such portion (if any) of such Lender's Commitment
and presently outstanding Loans and other amounts owing to such
Lender under the Credit Agreement and the Notes, together with
all instruments, documents and collateral security pertaining
thereto, such that after giving effect to such sale, assignment
and transfer, the Commitments and the Commitment Percentages of
the Lenders shall be as set forth on Schedule A hereto. In
connection with the foregoing assignments and transfers and
subject to the terms and conditions hereof, the Borrower, the
Lenders and the Agent hereby agree that Schedule I to the Credit
Agreement is hereby amended by deleting such Schedule in its
entirety and substituting in lieu thereof a new Schedule to read
in its entirety as set forth in Schedule A hereto.
(b) Each Lender agrees to advance to the Agent on the
Effective Date the amount set forth opposite its name under the
heading "Advanced Amount"
on Schedule B hereto and, to the extent the same is received, the
Agent shall forward to each Lender the amount set forth opposite
its name under the heading "Repaid Amount" on Schedule B hereto.
(c) All principal payments that would otherwise be
payable from and after the Effective Date to or for the account
of the Lenders pursuant to the Credit Agreement and the Notes
shall, instead, be payable to or for the account of the Lenders
in accordance with their respective interests as reflected in
Schedule A hereto.
(d) All interest, fees and other amounts that would
otherwise accrue for the account of the Lenders from and after
the Effective Date shall, instead, accrue for the account of, and
be payable to, the Lenders in accordance with their respective
interests as reflected in Schedule A hereto.
(e) Each Lender agrees that, at any time and from time
to time upon the written request of any other Lender, it will
execute and deliver such further documents and do such further
acts and things as such other party may reasonably request in
order to effect the sale, assignment and transfer set forth in
this Section 5.
6. Representations and Warranties. On and as of the
date hereof, the Borrower hereby confirms, reaffirms and restates
the representations and warranties set forth in Section 6 of the
Credit Agreement mutatis mutandis, except to the extent that such
representations and warranties expressly relate to a specific
earlier date in which case the Borrower hereby confirms,
reaffirms and restates such representations and warranties as of
such earlier date.
7. Effectiveness. (a) This Amendment and Consent
(other than Section 2) shall become effective as of the date (the
"Effective Date") first written above upon satisfaction of the
following conditions precedent:
(i) receipt by the Agent of counterparts of this
Amendment and Consent duly executed by the Borrower, the
Lenders and the Agent;
(ii) receipt by the Agent, with a copy for each
Lender, of a satisfactory legal opinion of counsel to the
Borrower and the Subsidiaries covering the applicable
matters set forth in Exhibit A to this Amendment and
Consent;
(iii) receipt by the Agent, for the account of each
Lender whose Commitments have changed as a result of this
Amendment and Consent, of duly executed Note(s) reflecting
such changed Commitments substantially in the form of
Exhibit A to the Credit Agreement; and
(iv) receipt by the Agent of the fees required to be
paid in connection with this Amendment and Consent pursuant
to the Fee Letter, dated July 29, 1996, from the Agent to
the Borrower.
(b) Section 2 of this Amendment and Consent shall
become effective upon receipt by the Agent of (i) counterparts of
this Amendment and Consent duly executed by the Borrower, the
Required Lenders and the Agent, (ii) a Guarantee Assumption
Agreement, substantially in the form of Exhibit B to this
Amendment and Consent, executed and delivered by a duly
authorized officer of Communications and pursuant to which
Communications shall guarantee the payment and performance of the
Obligations (as defined in the Subsidiaries Guarantee), (iii) a
Subsidiaries Security Agreement Supplement, substantially in the
form of Exhibit C to this Amendment and Consent, executed and
delivered by a duly authorized officer of Communications and
pursuant to which Communications shall grant a security interest
in certain of its assets as collateral security for the
Obligations (as defined in the Subsidiaries Guarantee), (iv) a
Stock Pledge Agreement, substantially in the form of Exhibit D to
this Amendment and Consent, executed and delivered by a duly
authorized officer of the Borrower pursuant to which the Borrower
shall pledge all of the Capital Stock of Communications as
collateral security for the Obligations (as defined in the
Borrower Security Agreement), (v) an acknowledgement from
Communications executed and delivered by a duly authorized
officer of Communications acknowledging the pledge described in
the immediately preceding clause (iv) and in form and substance
reasonably satisfactory to the Agent, (vi) stock certificates and
undated stock powers with respect to the stock certificates
representing all of the outstanding Capital Stock of
Communications, (vii) a satisfactory legal opinion of counsel to
the Borrower and the subsidiaries covering the applicable matters
set forth in Exhibit A to this Amendment and Consent, (viii) such
resolutions, incumbency certificates and legal opinions as are
reasonably requested by the Agent with respect to the transfer of
the Cellular Assets by the Borrower to Communications and the
delivery of the documents described in this paragraph and the
transactions contemplated thereby and (ix) evidence in form and
substance reasonably satisfactory to it that all filings,
recordings, registrations and other actions, including, without
limitation, the filing of duly executed financing statements on
Form UCC-1, necessary or, in the reasonable opinion of the Agent,
desirable to perfect the Liens created by the Security Documents
shall have been completed (or, to the extent that any such
filings, recordings, registrations and other actions shall not
have been completed, arrangements reasonably satisfactory to the
Agent for the completion thereof shall have been made).
8. Continuing Effect; No Other Amendments. Except as
expressly provided herein, all of the terms and provisions of the
Credit Agreement are and shall remain in full force and effect.
The amendments and the consent provided for herein are limited to
the specific subsections of the Credit Agreement specified herein
and shall not constitute a consent, waiver or amendment of, or an
indication of the Agent's or the Lenders' willingness to consent
to any action requiring consent under or to waive or amend, any
other provisions of the Credit Agreement or the same subsections
for any other date or time period (whether or not such other
provisions or compliance with such subsections for another date
or time period are affected by the circumstances addressed in
this Amendment and Consent).
9. Expenses. The Borrower agrees to pay and
reimburse the Agent for all its reasonable costs and out-of-
pocket expenses incurred in connection with the preparation and
delivery of this Amendment and Consent, including, without
limitation, the reasonable fees and disbursements of counsel to
the Agent.
10. Counterparts. This Amendment and Consent may be
executed in any number of counterparts by the parties hereto
(including by facsimile transmission), each of which counterparts
when so executed shall be an original, but all the counterparts
shall together constitute one and the same instrument.
11. GOVERNING LAW. THIS AMENDMENT AND CONSENT SHALL
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment and Consent to be executed and delivered by their
respective duly authorized officers as of the date first above
written.
AUDIOVOX CORPORATION
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Sr. Vice Pres. & CFO
THE CHASE MANHATTAN BANK,
as Agent and as a Lender
By:s/Roland Driscoll
Name: Roland Driscoll
Title: Vice President
FLEET BANK, N.A., as a Lender
By:s/William Ewing
Name: William Ewing
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON,
as a Lender
By:s/Brent E. Shay
Name: Brent E. Shay
Title: Director
EUROPEAN AMERICAN BANK,
as a Lender
By:s/Stuart N. Berman
Name: Stuart N. Berman
Title: Vice President
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned corporations (i) as a guarantor
under that certain Amended and Restated Subsidiaries Guarantee,
dated as of March 15, 1994 (the "Guarantee"), made by each of
such corporations in favor of the Collateral Agent and (ii) as a
grantor under that certain Amended and Restated Security
Agreement, dated as of March 15, 1994 (the "Security Agreement"),
made by each of such corporations in favor of the Collateral
Agent, confirms and agrees that the Guarantee and the Security
Agreement are, and shall continue to be, in full force and effect
and are hereby ratified and confirmed in all respects and the
Guarantee and the Security Agreement and all of the Subsidiaries
Collateral (as defined in the Security Agreement) do, and shall
continue to, secure the payment of all of the Obligations (as
defined in the Guarantee) and the Secured Obligations (as defined
in the Security Agreement), as the case may be, pursuant to the
terms of the Guarantee or the Security Agreement, as the case may
be. Capitalized terms not otherwise defined herein shall have
the meanings assigned to them in the Credit Agreement referred to
in the Amendment and Consent to which this Acknowledgement and
Consent is attached.
QUINTEX COMMUNICATIONS CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
QUINTEX MOBILE COMMUNICATIONS CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
HERMES TELECOMMUNICATIONS INC.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Secretary/Treasurer
LENEX CORPORATION
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Secretary/Treasurer
AMERICAN RADIO CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
AUDIOVOX INTERNATIONAL CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Sr. Vice President
AUDIOVOX HOLDING CORP.
By:s/Chris Lazarides
Name: Chris Lazarides
Title: President
AUDIOVOX CANADA LIMITED
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
AUDIOVOX ASIA INC.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
AUDIOVOX LATIN AMERICA LTD.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
Dated as of July 29, 1996SCHEDULE A
TO FOURTH AMENDMENT AND CONSENT
SCHEDULE I
<TABLE>
COMMITMENTS
Commitment
Lender Commitment Percentage
<S> <C> <C>
The Chase Manhattan Bank $30,000,000 40.00%
Fleet Bank, N.A. $20,000,000 26.67%
European American Bank $10,000,000 13.33%
The First National Bank of Boston $15,000,000 20.00%
Total $75,000,000 100.00%
</TABLE>
<PAGE>
SCHEDULE B
TO FOURTH AMENDMENT AND CONSENT
<TABLE>
Repaid Advanced
Lender Amount Amount
<S> <C>
The Chase Manhattan Bank $3,159,000
Fleet Bank, N.A. $2,106,264
European American Bank $1,052,736
The First National Bank of Boston $1,579,500
Total $7,897,500
</TABLE>
<PAGE>
EXHIBIT A
TO FOURTH AMENDMENT AND CONSENT
[FORM OF OPINION OF COUNSEL TO
THE BORROWER AND ITS SUBSIDIARIES]
1. The Borrower and each Domestic Subsidiary (a) is
duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and (b) has the
corporate power and authority to own and operate its property, to
lease the property it operates as lessee and to conduct the
business in which it is currently engaged.
2. The Borrower has the corporate power and authority
to execute and deliver the Fourth Amendment, the Notes and the
Stock Pledge Agreement and perform its obligations under the
Fourth Amendment, the Credit Agreement, the Notes, and the Stock
Pledge Agreement and to borrow under the Credit Agreement and has
taken all necessary corporate action to authorize the borrowings
on the terms and conditions of the Credit Agreement and the Notes
and to authorize the execution, delivery and performance of the
Fourth Amendment, the Credit Agreement, the Notes and the Stock
Pledge Agreement.
3. The Fourth Amendment, the Credit Agreement, the
Notes and the Stock Pledge Agreement (i) have been duly executed
and delivered on behalf of the Borrower, and (ii) constitute
legal, valid and binding obligations of Borrower enforceable
against the Borrower in accordance with their respective terms
except as affected by bankruptcy, insolvency, moratorium,
reorganization or other similar laws affecting creditors' rights
generally and by general principles of equity.
4. Each Domestic Subsidiary has the corporate power
and authority to execute, deliver and perform and has taken all
necessary corporate action to authorize the execution, delivery
and performance of the Acknowledgement and Consent attached to
the Fourth Amendment. Communications has the corporate power and
authority to execute, deliver and perform and has taken all
necessary corporate action to authorize the execution, delivery
and performance of the Guarantee Assumption Agreement, the
Subsidiaries Guarantee, the Subsidiaries Securities Agreement
Supplement and the Subsidiaries Security Agreement. The
Guarantee Assumption Agreement, the Subsidiaries Guarantee, the
Subsidiaries Security Agreement Supplement and the Subsidiaries
Security Agreement (i) have been duly executed and delivered on
behalf of Communications and (ii) constitute the legal, valid and
binding obligations of Communications enforceable against
Communications in accordance with their respective terms except
as affected by bankruptcy, insolvency, moratorium, reorganization
or other similar laws affecting creditors' rights generally and
by general principles of equity.
5. No consent or authorization of, or other act by or
in respect of any Federal, or New York or Delaware state,
governmental authority or any other Person is or will be required
in connection with the borrowings under the Credit Agreement or
with the execution, delivery, performance, validity or
enforceability of the Fourth Amendment, the Credit Agreement, the
Notes, the Stock Pledge Agreement, the Guarantee Assumption
Agreement or the Subsidiaries Security Agreement Supplement
except for filings necessary to perfect security interests
created by the Security Documents and consents and filings which
have been obtained or made, as the case may be, and which are in
full force and effect.
6. The execution, delivery and performance of the
Fourth Amendment, the Credit Agreement, the Notes, the Stock
Pledge Agreement, the Guarantee Assumption Agreement and the
Subsidiaries Security Agreement Supplement, the borrowings under
the Credit Agreement and the use of the proceeds thereof (a) do
not violate applicable Federal laws, New York laws or Delaware
corporate statutory laws or regulations or breach or result in a
default under or conflict with any existing Contractual
Obligation of the Borrower or any Domestic Subsidiary and (b) do
not result in, or require, the creation or imposition of any Lien
on any of its or their respective properties or revenues pursuant
to any such laws or any such obligations.
7. The Borrower is not an "investment company", or a
company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
<PAGE>
EXHIBIT B
TO FOURTH AMENDMENT AND CONSENT
[FORM OF
GUARANTEE ASSUMPTION AGREEMENT]
GUARANTEE ASSUMPTION AGREEMENT, dated as of July __,
1996, made by AUDIOVOX COMMUNICATIONS CORP., a Delaware
corporation (the "Additional Guarantor"), in favor of THE CHASE
MANHATTAN BANK, a New York banking corporation, as collateral
agent (in such capacity, the "Collateral Agent") for the several
banks and other financial institutions (collectively, the
"Lenders"; individually, a "Lender") from time to time parties to
the Second Amended and Restated Credit Agreement, dated as of May
5, 1995 (as amended, supplemented or otherwise modified from time
to time, the "Credit Agreement"), among Audiovox Corporation, a
Delaware corporation (the "Borrower"), the Lenders and The Chase
Manhattan Bank, a New York banking corporation, as administrative
and collateral agent for the Lenders (in such capacity, the
"Agent").
W I T N E S S E T H :
WHEREAS, in connection with the Credit Agreement,
certain Subsidiaries of the Borrower entered into a Second
Amended and Restated Subsidiaries Guarantee, dated as of March
15, 1994 (the "Subsidiaries Guarantee");
WHEREAS, the Borrower and the Additional Guarantor have
requested that the Lenders and the Agent agree to consent to the
transfer by the Borrower of the assets used in its cellular
communications business (the "Cellular Assets") to the Additional
Guarantor pursuant to the Fourth Amendment and Consent, dated as
of July 29, 1996 (the "Fourth Amendment and Consent"), to the
Credit Agreement; and
WHEREAS, it is a condition precedent to the
effectiveness of the consent to the transfer of the Cellular
Assets to the Additional Guarantor that the Additional Guarantor
shall have executed and delivered this Guarantee Assumption
Agreement;
NOW, THEREFORE, the Additional Guarantor hereby agrees
to become a "Guarantor" for all purposes of the Subsidiaries
Guarantee and, as such, shall be subject to and bound by the
terms and conditions thereof. Without limiting the generality of
the foregoing, the Additional Guarantor hereby jointly and
severally with the other Guarantors, guarantees to each Lender
and the Agent and their respective successors, indorsees,
transferees and assigns the prompt and complete payment and
performance by the Borrower when due (whether at stated maturity,
by acceleration or otherwise) of the Obligations in the same
manner and to the same extent as is provided in Section 2 of the
Subsidiaries Guarantee. The undersigned further agrees to be
bound by all of the provisions of the Subsidiaries Guarantee
applicable to a Guarantor thereunder and agrees that it shall
become a Guarantor for all purposes of the Subsidiaries Guarantee
to the same extent as if originally a party thereto with the
representations and warranties contained therein being deemed to
be made by the undersigned as of the date hereof. Terms defined
in the Subsidiaries Guarantee shall have their defined meanings
when used herein.
IN WITNESS WHEREOF, the Additional Guarantor has caused
this Guarantee Assumption Agreement to be duly executed and
delivered as of the day and year first above written.
AUDIOVOX COMMUNICATIONS CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Secretary
Address for Notices:
Attention:
Telecopier:
Accepted and agreed:
THE CHASE MANHATTAN BANK,
as Agent
By:s/Roland Driscoll
Name: Roland Driscoll
Title: Vice President
QUINTEX COMMUNICATIONS CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
QUINTEX MOBILE COMMUNICATIONS CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
HERMES TELECOMMUNICATIONS INC.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Secretary/Treasurer
LENEX CORPORATION
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Secretary/Treasurer
AMERICAN RADIO CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
AUDIOVOX INTERNATIONAL CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Senior Vice President
AUDIOVOX HOLDING CORP.
By:s/Chris Lazarides
Name: Chris Lazarides
Title: President
AUDIOVOX CANADA LIMITED
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
AUDIOVOX ASIA INC.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
AUDIOVOX LATIN AMERICA LTD.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
<PAGE>
EXHIBIT C
TO FOURTH AMENDMENT AND CONSENT
[FORM OF
SUBSIDIARIES SECURITY AGREEMENT SUPPLEMENT]
SUBSIDIARIES SECURITY AGREEMENT SUPPLEMENT, dated as of
July __, 1996, made by AUDIOVOX COMMUNICATIONS CORP., a Delaware
corporation (the "Additional Subsidiary"), in favor of THE CHASE
MANHATTAN BANK, a New York banking corporation, as collateral
agent (in such capacity, the "Collateral Agent") for the several
banks and other financial institutions (collectively, the
"Lenders"; individually, a "Lender") from time to time parties to
the Second Amended and Restated Credit Agreement, dated as of May
5, 1995 (as the same may be amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among
Audiovox Corporation, a Delaware corporation (the "Borrower"),
the Lenders, and The Chase Manhattan Bank, as administrative and
collateral agent for the Lenders (in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, in connection with the Credit Agreement,
certain Subsidiaries of the Borrower are parties to that certain
Amended and Restated Subsidiaries Security Agreement, dated as of
March 15, 1994 (the "Subsidiaries Security Agreement"), made by
such Subsidiaries in favor of the Collateral Agent, pursuant to
which the Subsidiaries granted a security interest in certain of
their respective assets as collateral security for, among other
things, their respective obligations to the Lenders under the
Guarantee (as defined in the Subsidiaries Security Agreement);
WHEREAS, the Borrower and the Additional Subsidiary
have requested that the Lenders and the Agent agree to consent to
the transfer by the Borrower of the assets used in its cellular
communications business (the "Cellular Assets") to the Additional
Subsidiary pursuant to the Fourth Amendment and Consent, dated as
of July 29, 1996 (the "Fourth Amendment and Consent"), to the
Credit Agreement;
WHEREAS, it is a condition precedent to the
effectiveness of the consent to the transfer of the Cellular
Assets to the Additional Subsidiary that the Additional
Subsidiary become a "Guarantor" under the Guarantee (as defined
in the Subsidiaries Security Agreement) and, in satisfaction of
such condition, the Additional Subsidiary is executing and
delivering a Guarantee Assumption Agreement, dated as of July __,
1996, in respect of such Guarantee; and
WHEREAS, it is also a condition precedent to the
effectiveness of the consent to the transfer of the Cellular
Assets to the Additional Subsidiary that the Additional
Subsidiary shall have executed and delivered this Subsidiaries
Security Agreement Supplement pursuant to which the Additional
Subsidiary shall grant a security interest in certain of its
assets as collateral security for its obligations under the
Guarantee (as defined in the Subsidiaries Security Agreement);
NOW, THEREFORE, in consideration of the premises
contained herein and to induce the Lenders to enter into the
Fourth Amendment and Consent and to make their loans and other
extensions of credit under the Credit Agreement, the Additional
Subsidiary hereby agrees with the Collateral Agent, for the
benefit of the Lenders, as follows:
1. The Additional Subsidiary agrees to become a
"Subsidiary" for all purposes of the Subsidiaries Security
Agreement and, as such, shall be subject to and bound by the
terms and conditions thereof. Without limiting the generality of
the foregoing, the Additional Subsidiary hereby grants to the
Collateral Agent, for the benefit of the Lenders, a security
interest in all of the property now owned or at any time
hereafter acquired by it or in which it now has or at any time in
the future may acquire any right, title or interest, in the same
manner and to the same extent as is provided in Section 2 of the
Subsidiaries Security Agreement.
2. Schedules 1, 2 and 3 to the Subsidiaries Security
Agreement are hereby amended by adding at the end of each
thereof, the information contained in Schedules 1, 2 and 3 to
this Subsidiaries Security Agreement Supplement, respectively.
3. The undersigned further agrees to be bound by all
of the provisions of the Subsidiaries Security Agreement
applicable to a Subsidiary thereunder and agrees that it shall
become a Subsidiary, for all purposes of the Subsidiaries
Security Agreement to the same extent as if originally a party
thereto with the representations and warranties contained therein
being deemed to be made by the undersigned as of the date hereof.
Without limiting the foregoing, the Additional Subsidiary hereby
represents and warrants that (a) the security interests granted
by the Additional Subsidiary pursuant to this Subsidiaries
Security Agreement Supplement and the Subsidiaries Security
Agreement, upon completion of the filings and other actions
specified on Schedule 1 attached hereto, will constitute
perfected security interests on the Subsidiaries Collateral of
the Additional Subsidiary in favor of the Collateral Agent, for
the ratable benefit of the Lenders, which are prior to all other
Liens on such Subsidiaries Collateral in existence on the date
hereof except for Liens permitted to exist pursuant to the Credit
Agreement and are enforceable as such against all creditors of
and purchasers from the Additional Subsidiary (except purchasers
of Inventory in the ordinary course of business), except in each
case as enforceability is affected by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good
faith and fair dealing, (b) such Additional Subsidiary's chief
executive office and chief place of business is located at the
address listed in Schedule 2 hereto and (c) all of its Inventory
is located at the locations listed in Schedule 3 hereto. Terms
defined in the Subsidiaries Security Agreement shall have their
defined meanings when used herein.
IN WITNESS WHEREOF, the Additional Subsidiary has
caused this Subsidiaries Security Agreement Supplement to be duly
executed and delivered as of the date first above written.
AUDIOVOX COMMUNICATIONS CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Secretary
Accepted and agreed:
THE CHASE MANHATTAN BANK,
as Agent
By:s/Roland F. Driscoll
Name: Roland F. Driscoll
Title: Vice President
QUINTEX COMMUNICATIONS CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
QUINTEX MOBILE COMMUNICATIONS CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
HERMES TELECOMMUNICATIONS INC.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Secretary/Treasurer
LENEX CORPORATION
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Secretary/Treasurer
AMERICAN RADIO CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
AUDIOVOX INTERNATIONAL CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Sr. Vice President
AUDIOVOX HOLDING CORP.
By:s/Chris Lazarides
Name: Chris Lazarides
Title: President
AUDIOVOX CANADA LIMITED
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
AUDIOVOX ASIA INC.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
AUDIOVOX LATIN AMERICA LTD.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
<PAGE>
Schedule 1 to
Subsidiaries Security Agreement Supplement
UCC FILING JURISDICTIONS
Audiovox Communications Corp.
<PAGE>
Schedule 2 to
Subsidiaries Security Agreement Supplement
CHIEF EXECUTIVE OFFICES OF
THE SUBSIDIARIES
NAME OF CHIEF EXECUTIVE CHIEF PLACE
SUBSIDIARY OFFICE OF BUSINESS
Audiovox
Communications
Corp.
<PAGE>
Schedule 3 to
Subsidiaries Security Agreement Supplement
LOCATIONS OF INVENTORY
NAME OF SUBSIDIARY LOCATION
Audiovox Communications Corp.
<PAGE>
EXHIBIT D
TO FOURTH AMENDMENT AND CONSENT
[FORM OF
STOCK PLEDGE AGREEMENT]
STOCK PLEDGE AGREEMENT, dated as of July __, 1996, made
by AUDIOVOX CORPORATION, a Delaware corporation (the "Borrower"),
in favor of THE CHASE MANHATTAN BANK, a New York banking
corporation, as collateral agent (in such capacity, the
"Collateral Agent") for the several banks and other financial
institutions (collectively, the "Lenders"; individually, a
"Lender") from time to time parties to the Second Amended and
Restated Credit Agreement, dated as of May 5, 1995 (as amended,
supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, the several banks and other
financial institutions from time to time parties thereto
(collectively, the "Lenders"; individually, a "Lender") and The
Chase Manhattan Bank, a New York banking corporation, as
administrative and collateral agent for the Lenders (in such
capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower owns all of the issued and
outstanding shares of Pledged Stock (as hereinafter defined)
issued by the Issuer (as hereinafter defined);
WHEREAS, the Borrower and the Issuer have requested
that the Lenders and the Agent agree to consent to the transfer
by the Borrower of the assets used in its cellular communications
business (the "Cellular Assets") to the Issuer pursuant to the
Fourth Amendment and Consent, dated as of July 29, 1996 (the
"Fourth Amendment and Consent"), to the Credit Agreement;
WHEREAS, it is a condition precedent to the
effectiveness of the Fourth Amendment and Consent that the
Borrower shall have executed and delivered this Stock Pledge
Agreement;
NOW, THEREFORE, in consideration of the premises and to
induce the Agent and the Lenders to enter into the Fourth
Amendment and Consent and to induce the Lenders to make their
respective extensions of credit to the Borrower under the Credit
Agreement, the Borrower hereby agrees with the Collateral Agent,
for the benefit of the Lenders, as follows:
1. Defined Terms. (a) Unless otherwise defined
herein, terms defined in the Credit Agreement (and in the
recitals hereto) and used herein shall have the meanings given to
them in the Credit Agreement.
(b) The following terms shall have the following
meanings:
"Agreement": this Stock Pledge Agreement, as the same
may be amended, modified or otherwise supplemented from time
to time.
"Code": the Uniform Commercial Code from time to time
in effect in the State of New York.
"Collateral": the Pledged Stock and all Proceeds
thereof.
"Collateral Account": any account established to hold
money Proceeds, maintained under the sole dominion and
control of the Collateral Agent, subject to withdrawal by
the Collateral Agent for the account of the Lenders only as
provided in Section 9(a).
"Issuer": Audiovox Communications Corp., a Delaware
corporation.
"Obligations": the collective reference to the unpaid
principal of and interest on the Loans and the Notes and all
other obligations and liabilities of the Borrower to the
Agent, the Collateral Agent and the Lenders (including,
without limitation, interest accruing at the then applicable
rate provided in the Credit Agreement after the maturity of
the Loans and interest accruing at the then applicable rate
provided in the Credit Agreement after the filing of any
petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to
the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding),
whether direct or indirect, absolute or contingent, due or
to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, the Credit
Agreement, the Notes, any Letter of Credit, any Acceptance,
this Agreement, the other Loan Documents, any Foreign
Exchange Contract or interest rate agreement entered into
with any Lender, or any other document made, delivered or
given in connection therewith, in each case whether on
account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses or otherwise (including,
without limitation, all fees and disbursements of counsel to
the Agent, the Collateral Agent or to the Lenders that are
required to be paid by the Borrower pursuant to the terms of
the Credit Agreement or this Agreement or any other Loan
Document).
"Pledged Stock": the shares of Capital Stock listed on
Schedule 1 hereto, together with all stock certificates,
options or rights of any nature whatsoever that may be
issued or granted by the Issuer to the Borrower in respect
of the Pledged Stock while this Agreement is in effect.
"Proceeds": all "proceeds" as such term is defined in
Section 9-306(1) of the Code in effect on the date hereof of
the Pledged Stock and, in any event, shall include, without
limitation, all dividends or other income from the Pledged
Stock, collections thereon or distributions with respect
thereto.
"Securities Act": the Securities Act of 1933, as
amended.
(c) The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision
of this Agreement, and section and paragraph references are to
this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall
be equally applicable to both the singular and plural forms of
such terms.
2. Pledge; Grant of Security Interest. The Borrower
hereby delivers to the Collateral Agent, for the benefit of the
Lenders, all the Pledged Stock and hereby grants to the
Collateral Agent, for the benefit of the Lenders, a first
security interest in the Collateral, as collateral security for
the prompt and complete payment and performance when due (whether
at the stated maturity, by acceleration or otherwise) of the
Obligations.
3. Stock Powers. Concurrently with the delivery to
the Collateral Agent of each certificate representing one or more
shares of Pledged Stock, the Borrower shall deliver an undated
stock power covering such certificate, duly executed in blank by
the Borrower with, if the Collateral Agent so requests, signature
guaranteed.
4. Representations and Warranties. The Borrower
represents and warrants that:
(a) The Borrower has the corporate power and authority
and the legal right to execute and deliver, to perform its
obligations under, and to grant the security interest in the
Collateral pursuant to, this Agreement and has taken all
necessary corporate action to authorize its execution,
delivery and performance of, and grant of the security
interest in the Collateral pursuant to, this Agreement.
(b) This Agreement constitutes a legal, valid and
binding obligation of the Borrower, enforceable in
accordance with its terms, and upon delivery to the
Collateral Agent of the stock certificates evidencing the
Pledged Stock, the security interest created pursuant to
this Agreement will constitute a valid, perfected first
priority security interest in the Collateral, enforceable in
accordance with its terms against all creditors of the
Borrower and any Persons purporting to purchase any
Collateral from the Borrower, except in each case as
enforceability may be affected by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered
in a proceeding in equity or at law) and an implied covenant
of good faith and fair dealing.
(c) The execution, delivery and performance of this
Agreement will not violate any provision of any Requirement
of Law or Contractual Obligation of the Borrower and will
not result in the creation or imposition of any Lien on any
of the properties or revenues of the Borrower pursuant to
any Requirement of Law or Contractual Obligation of the
Borrower, except the security interest created by this
Agreement.
(d) Except for such consents as have been obtained and
are in full force and effect, no consent or authorization
of, filing with, or other act by or in respect of, any
arbitrator or Governmental Authority and no consent of any
other Person (including, without limitation, any stockholder
or creditor of the Borrower), is required in connection with
the execution, delivery, performance, validity or
enforceability of this Agreement.
(e) No litigation, investigation or proceeding of or
before any arbitrator or Governmental Authority is pending
or, to the knowledge of the Borrower, threatened by or
against the Borrower or against any of its properties or
revenues with respect to this Agreement or any of the
transactions contemplated hereby.
(f) All the shares of the Pledged Stock have been duly
and validly issued and are fully paid and nonassessable.
(g) The Borrower is the record and beneficial owner
of, and has good and marketable title to, the Pledged Stock,
free of any and all Liens or options in favor of, or claims
of, any other Person, except the security interests created
by this Agreement.
5. Covenants. The Borrower covenants and agrees with
the Collateral Agent and the Lenders that, from and after the
date of this Agreement until this Agreement is terminated and the
security interests created hereby are released:
(a) If the Borrower shall, as a result of its
ownership of the Pledged Stock, become entitled to receive
or shall receive any stock certificate (including, without
limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification,
increase or reduction of capital or any certificate issued
in connection with any reorganization), option or rights,
whether in addition to, in substitution of, as a conversion
of, or in exchange for any shares of the Pledged Stock, or
otherwise in respect thereof, the Borrower shall accept the
same as the agent of the Collateral Agent and the Lenders,
hold the same in trust for the Collateral Agent and the
Lenders and deliver the same forthwith to the Collateral
Agent in the exact form received, duly indorsed by the
Borrower to the Collateral Agent, if required, together with
an undated stock power covering such certificate duly
executed in blank by the Borrower and with, if the
Collateral Agent so requests, signature guaranteed, to be
held by the Collateral Agent, subject to the terms hereof,
as additional collateral security for the Obligations. Any
sums paid upon or in respect of the Pledged Stock upon the
liquidation or dissolution of the Issuer shall be paid over
to the Collateral Agent to be held by it hereunder as
additional collateral security for the Obligations, and in
case any distribution of capital shall be made on or in
respect of the Pledged Stock or any property shall be
distributed upon or with respect to the Pledged Stock
pursuant to the recapitalization or reclassification of the
capital of the Issuer or pursuant to the reorganization
thereof, the property so distributed shall be delivered to
the Collateral Agent to be held by it hereunder as
additional collateral security for the Obligations. If any
sums of money or property so paid or distributed in respect
of the Pledged Stock shall be received by the Borrower, the
Borrower shall, until such money or property is paid or
delivered to the Collateral Agent, hold such money or
property in trust for the Lenders, segregated from other
funds of the Borrower, as additional collateral security for
the Obligations.
(b) Without the prior written consent of the
Collateral Agent, the Borrower will not (i) sell, assign,
transfer, exchange, or otherwise dispose of, or grant any
option with respect to, the Collateral, (ii) create, incur
or permit to exist any Lien or option in favor of, or any
claim of any Person with respect to, any of the Collateral,
or any interest therein, except for the security interests
created by this Agreement or (iii) enter into any agreement
or undertaking restricting the right or ability of the
Borrower or the Collateral Agent to sell, assign or transfer
any of the Collateral.
(c) The Borrower shall maintain the security interest
created by this Agreement as a first, perfected security
interest and shall defend such security interest against
claims and demands of all Persons whomsoever. At any time
and from time to time, upon the written request of the
Collateral Agent, and at the sole expense of the Borrower,
the Borrower will promptly and duly execute and deliver such
further instruments and documents and take such further
actions as the Collateral Agent may reasonably request for
the purposes of obtaining or preserving the full benefits of
this Agreement and of the rights and powers herein granted.
If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory
note, other instrument or chattel paper, such note,
instrument or chattel paper shall be immediately delivered
to the Collateral Agent, duly endorsed in a manner
satisfactory to the Collateral Agent, to be held as
Collateral pursuant to this Agreement.
(d) The Borrower shall pay, and save the Collateral
Agent and the Lenders harmless from, any and all liabilities
with respect to, or resulting from any delay in paying, any
and all stamp, excise, sales or other taxes which may be
payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions
contemplated by this Agreement.
6. Cash Dividends; Voting Rights. Unless an Event of
Default shall have occurred and be continuing and the Collateral
Agent shall have given notice to the Borrower of the Collateral
Agent's intent to exercise its corresponding rights pursuant to
Section 7 or 8 below, the Borrower shall be permitted to receive
all cash dividends paid in the normal course of business of the
Issuer and consistent with past practice in respect of the
Pledged Stock and to exercise all voting and corporate rights
with respect to the Pledged Stock; provided, however, that no
vote shall be cast or corporate right exercised or other action
taken which, in the Collateral Agent's reasonable judgment, would
impair the Collateral or which would be inconsistent with or
result in any violation of any provision of the Credit Agreement,
any Notes, this Agreement or any other Loan Document.
7. Rights of the Lenders and the Collateral Agent.
(a) All money Proceeds received by the Collateral Agent
hereunder shall be held by the Collateral Agent for the benefit
of the Lenders in a Collateral Account. All Proceeds while held
by the Collateral Agent in a Collateral Account (or by the
Borrower in trust for the Collateral Agent and the Lenders) shall
continue to be held as collateral security for all the
Obligations and shall not constitute payment thereof until
applied by the Collateral Agent to the payment thereof pursuant
to Section 8(a).
(b) If an Event of Default shall occur and be
continuing and the Collateral Agent shall give notice of its
intent to exercise such rights to the Borrower, (i) the
Collateral Agent shall have the right to receive any and all cash
dividends paid in respect of the Pledged Stock and make
application thereof to the Obligations in accordance with Section
8(a) and (ii) all shares of the Pledged Stock shall be registered
in the name of the Collateral Agent or its nominee, and the
Collateral Agent or its nominee may thereafter exercise, (A) all
voting, corporate and other rights pertaining to such shares of
the Pledged Stock at any meeting of shareholders of the Issuer or
otherwise and (B) any and all rights of conversion, exchange,
subscription and any other rights, privileges or options
pertaining to such shares of the Pledged Stock as if it were the
absolute owner thereof (including, without limitation, the right
to exchange at its discretion any and all of the Pledged Stock
upon the merger, consolidation, reorganization, recapitalization
or other fundamental change in the corporate structure of the
Issuer, or upon the exercise by the Borrower or the Collateral
Agent of any right, privilege or option pertaining to such shares
of the Pledged Stock, and in connection therewith, the right to
deposit and deliver any and all of the Pledged Stock with any
committee, depositary, transfer agent, registrar or other
designated agency upon such terms and conditions as the
Collateral Agent may determine), all without liability except to
account for property actually received by it, but the Collateral
Agent shall have no duty to the Borrower to exercise any such
right, privilege or option and shall not be responsible for any
failure to do so or delay in so doing.
8. Remedies. (a) If an Event of Default shall have
occurred and be continuing, at any time at the Collateral Agent's
election, the Collateral Agent may apply all or any part of
Proceeds held in any Collateral Account in payment of the
Obligations in such order as the Collateral Agent shall
determine.
(b) If an Event of Default shall occur and be
continuing, the Collateral Agent, on behalf of the Lenders, may
exercise, in addition to all other rights and remedies granted in
this Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and
remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Collateral Agent, without demand
of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required
by law referred to below) to or upon the Borrower or any other
Person (all and each of which demands, defenses, advertisements
and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase or otherwise dispose
of and deliver the Collateral or any part thereof (or contract to
do any of the foregoing), in one or more parcels at public or
private sale or sales, in the over-the-counter market, at any
exchange, broker's board or office of the Collateral Agent or any
Lender or elsewhere upon such terms and conditions as it may deem
advisable and at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit
risk. The Collateral Agent or any Lender shall have the right
upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the
whole or any part of the Collateral so sold, free of any right or
equity of redemption in the Borrower, which right or equity is
hereby waived or released. The Collateral Agent shall apply any
Proceeds from time to time held by it and the net proceeds of any
such collection, recovery, receipt, appropriation, realization or
sale, after deducting all reasonable costs and expenses of every
kind incurred in respect thereof or incidental to the care or
safekeeping of any of the Collateral or in any way relating to
the Collateral or the rights of the Collateral Agent and the
Lenders hereunder, including, without limitation, reasonable
attorneys' fees and disbursements of counsel to the Collateral
Agent, to the payment in whole or in part of the Obligations, in
such order as the Collateral Agent shall determine, and only
after such application and after the payment by the Collateral
Agent of any other amount required by any provision of law,
including, without limitation, Section 9-504(1)(c) of the Code,
need the Collateral Agent account for the surplus, if any, to the
Borrower. To the extent permitted by applicable law, the
Borrower waives all claims, damages and demands it may acquire
against the Collateral Agent or any Lender arising out of the
exercise by them of any rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be
required by law, such notice shall be deemed reasonable and
proper if given at least 10 days before such sale or other
disposition.
(c) The Borrower waives and agrees not to assert any
rights or privileges which it may acquire under Section 9-112 of
the Code. The Borrower shall remain liable for any deficiency if
the proceeds of any sale or other disposition of Collateral are
insufficient to pay the Obligations and the fees and
disbursements of any attorneys employed by the Collateral Agent
or any other Lender to collect such deficiency.
9. Registration Rights; Private Sales. (a) If the
Collateral Agent shall determine to exercise its right to sell
any or all of the Pledged Stock pursuant to Section 8(b) hereof,
and if in the opinion of the Collateral Agent it is necessary or
advisable to have the Pledged Stock, or that portion thereof to
be sold, registered under the provisions of the Securities Act,
the Borrower will use its best efforts to cause the Issuer to (i)
execute and deliver, and cause the directors and officers of the
Issuer to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts as may
be, in the opinion of the Collateral Agent, necessary or
advisable to register the Pledged Stock, or that portion thereof
to be sold, under the provisions of the Securities Act, (ii) to
use its best efforts to cause the registration statement relating
thereto to become effective and to remain effective for a period
of one year from the date of the first public offering of the
Pledged Stock, or that portion thereof to be sold, and (iii) to
make all amendments thereto and/or to the related prospectus
which, in the opinion of the Collateral Agent, are necessary or
advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities
and Exchange Commission applicable thereto. The Borrower agrees
to use its best efforts to cause the Issuer to comply with the
provisions of the securities or "Blue Sky" laws of any and all
jurisdictions which the Collateral Agent shall designate and to
make available to its security holders, as soon as practicable,
an earnings statement (which need not be audited) which will
satisfy the provisions of Section 11(a) of the Securities Act.
(b) The Borrower recognizes that the Collateral Agent
may be unable to effect a public sale of any or all the Pledged
Stock, by reason of certain prohibitions contained in the
Securities Act and applicable state securities laws or otherwise,
and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged
to agree, among other things, to acquire such securities for
their own account for investment and not with a view to the
distribution or resale thereof. The Borrower acknowledges and
agrees that any such private sale may result in prices and other
terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private
sale shall be deemed to have been made in a commercially
reasonable manner. The Collateral Agent shall be under no
obligation to delay a sale of any of the Pledged Stock for the
period of time necessary to permit the Issuer thereof to register
such securities for public sale under the Securities Act, or
under applicable state securities laws, even if the Issuer would
agree to do so.
(c) The Borrower further agrees to use its best
efforts to do or cause to be done all such other acts as may be
necessary to make such sale or sales of all or any portion of the
Pledged Stock pursuant to this Section valid and binding and in
compliance with any and all other applicable Requirements of Law.
The Borrower further agrees that a breach of any of the covenants
contained in this Section will cause irreparable injury to the
Collateral Agent and the Lenders, that the Collateral Agent and
the Lenders have no adequate remedy at law in respect of such
breach and, as a consequence, that each and every covenant
contained in this Section shall be specifically enforceable
against the Borrower, and the Borrower hereby waives and agrees
not to assert any defenses against an action for specific
performance of such covenants except for a defense that no Event
of Default has occurred.
10. Irrevocable Authorization and Instruction to
Issuer. The Borrower hereby authorizes and instructs the Issuer
to comply with any instruction received by it from the Collateral
Agent in writing that (a) states that an Event of Default has
occurred and (b) is otherwise in accordance with the terms of
this Agreement, without any other or further instructions from
the Borrower, and the Borrower agrees that the Issuer shall be
fully protected in so complying.
11. Collateral Agent's Appointment as Attorney-in-Fact.
(a) The Borrower hereby irrevocably constitutes and
appoints the Collateral Agent and any officer or agent of the
Collateral Agent, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of the Borrower and in the name
of the Borrower or in the Collateral Agent's own name, from time
to time in the Collateral Agent's discretion, for the purpose of
carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the
purposes of this Agreement, including, without limitation, any
financing statements, endorsements, assignments or other
instruments of transfer.
(b) The Borrower hereby ratifies all that said
attorneys shall lawfully do or cause to be done pursuant to the
power of attorney granted in Section 11(a). All powers,
authorizations and agencies contained in this Agreement are
coupled with an interest and are irrevocable until this Agreement
is terminated and the security interests created hereby are
released.
12. Duty of Collateral Agent. The Collateral Agent's
sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section
9-207 of the Code or otherwise, shall be to deal with it in the
same manner as the Collateral Agent deals with similar securities
and property for its own account, except that the Collateral
Agent shall have no obligation to invest funds held in any
Collateral Account and may hold the same as demand deposits.
Neither the Collateral Agent, any Lender nor any of their
respective directors, officers, employees or agents shall be
liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon
the request of the Borrower or any other Person or to take any
other action whatsoever with regard to the Collateral or any part
thereof.
13. Execution of Financing Statements. Pursuant to
Section 9-402 of the Code, the Borrower authorizes the Collateral
Agent to file financing statements with respect to the Collateral
without the signature of the Borrower in such form and in such
filing offices as the Collateral Agent reasonably determines
appropriate to perfect the security interests of the Collateral
Agent and the Lenders under this Agreement. A carbon,
photographic or other reproduction of this Agreement shall be
sufficient as a financing statement for filing in any
jurisdiction.
14. Authority of Collateral Agent. The Borrower
acknowledges that the rights and responsibilities of the
Collateral Agent under this Agreement with respect to any action
taken by the Collateral Agent or the exercise or non-exercise by
the Collateral Agent of any option, voting right, request,
judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the
Collateral Agent and the Lenders, be governed by such agreements
with respect thereto as may exist from time to time among them,
but, as between the Collateral Agent and the Borrower, the
Collateral Agent shall be conclusively presumed to be acting as
agent for the Lenders with full and valid authority so to act or
refrain from acting, and neither the Borrower nor the Issuer
shall be under any obligation, or entitlement, to make any
inquiry respecting such authority.
15. Notices. Notices may be given by hand, by
telecopy, or by nationally recognized overnight courier service,
addressed or transmitted to the Person to which it is being given
at such Person's address or transmission number set forth in the
Credit Agreement and shall be effective (a) when delivered by
hand, (b) in the case of a nationally recognized overnight
courier service, one Business Day after delivery to such courier
service, and (c) in the case of telecopy notice when received.
The Borrower may change its address and transmission number by
written notice to the Collateral Agent, and the Collateral Agent
or any Lender may change its address and transmission number by
written notice to the Borrower and, in the case of a Lender, to
the Collateral Agent.
16. Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
17. Amendments in Writing; No Waiver; Cumulative
Remedies. (a) None of the terms or provisions of this Agreement
may be waived, amended, supplemented or otherwise modified except
by a written instrument executed by the Borrower and the
Collateral Agent.
(b) Neither the Collateral Agent nor any Lender shall
by any act (except by a written instrument pursuant to Section
17(a) hereof), delay, indulgence, omission or otherwise be deemed
to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default or in any breach of
any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of the Collateral Agent
or any Lender, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other
or further exercise thereof or the exercise of any other right,
power or privilege. A waiver by the Collateral Agent or any
Lender of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which the
Collateral Agent or such Lender would otherwise have on any
future occasion.
(c) The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not
exclusive of any other rights or remedies provided by law.
18. Section Headings. The section headings used in
this Agreement are for convenience of reference only and are not
to affect the construction hereof or be taken into consideration
in the interpretation hereof.
19. Successors and Assigns. This Agreement shall be
binding upon the successors and assigns of the Borrower and shall
inure to the benefit of the Collateral Agent and the Lenders and
their successors and assigns.
20. Governing Law. This Agreement shall be governed
by, and construed and interpreted in accordance with, the law of
the State of New York.
IN WITNESS WHEREOF, the undersigned has caused this
Agreement to be duly executed and delivered as of the date first
above written.
AUDIOVOX CORPORATION
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Sr. Vice Pres.& CFO
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy
of the Stock Pledge Agreement, dated as of July __, 1996 (as the
same may be amended, supplemented, waived or otherwise modified
from time to time, the "Pledge Agreement"), made by Audiovox
Corporation, a Delaware corporation (the "Borrower"), in favor of
The Chase Manhattan Bank, a New York banking corporation, as
collateral agent (in such capacity, the "Collateral Agent") for
the several banks and other financial institutions (collectively,
the "Lenders"; individually, a "Lender") from time to time
parties to the Second Amended and Restated Credit Agreement,
dated as of May 5, 1995 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the
Borrower, the several banks and other financial institutions from
time to time parties thereto (collectively, the "Lenders";
individually, a "Lender") and The Chase Manhattan Bank, a New
York banking corporation, as administrative and collateral agent
for the Lenders (in such capacity, the "Agent"). The undersigned
agrees for the benefit of the Agent and the Lenders as follows:
1. The undersigned will be bound by the terms of the
Pledge Agreement and will comply with such terms insofar as
such terms are applicable to the undersigned.
2. The undersigned will notify the Agent promptly in
writing of the occurrence of any of the events described in
Section 5(a) of the Pledge Agreement.
3. The terms of Section 9(c) of the Pledge Agreement
shall apply to it, mutatis mutandis, with respect to all
actions that may be required of it under or pursuant to or
arising out of Section 9 of the Pledge Agreement.
AUDIOVOX COMMUNICATIONS CORP.
By:s/Charles M. Stoehr
Title:Sr. Vice Pres. & CFO
<PAGE>
SCHEDULE 1
TO PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
Stock
Class of Certificate No. of
Issuer Stock* No. Shares
Audiovox Communications
Corp. 1 10
*Stock is assumed to be common stock unless otherwise
indicated.
EXECUTION COPY
FIFTH AMENDMENT, dated as of September 10, 1996 (this
"Amendment"), to the Second Amended and Restated Credit
Agreement, dated as of May 5, 1995 (as amended pursuant to the
First Amendment thereto dated as of December 22, 1995, the Second
Amendment thereto dated as of February 9, 1996, the Third
Amendment thereto dated as of May 13, 1996, the Fourth Amendment
and Consent thereto, dated as of July 29, 1996 and this
Amendment, and as the same may be further amended, supplemented
or otherwise modified from time to time, the "Credit Agreement"),
among AUDIOVOX CORPORATION, a Delaware corporation (the
"Borrower"), the several banks and other financial institutions
from time to time parties thereto (collectively, the "Lenders";
individually, a "Lender") and THE CHASE MANHATTAN BANK, a New
York banking corporation, as administrative and collateral agent
for the Lenders (in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Lenders and the Agent are
parties to the Credit Agreement; and
WHEREAS, the Borrower, the Lenders and the Agent wish
to increase the Commitments under the Credit Agreement by
$10,000,000 and The CIT Group/Business Credit, Inc. (the "New
Lender") wishes to become a Lender to provide such increased
Commitments under and subject to the terms and conditions of the
Credit Agreement;
NOW, THEREFORE, in consideration of the premises
contained herein, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein,
terms which are defined in the Credit Agreement and used herein
(and in the recitals hereto) as defined terms are so used as so
defined.
2. New Lender. (a) From and after the Effective
Date, the New Lender shall be a party to the Credit Agreement
with a Commitment of $10,000,000 as set forth on Schedule I to
the Credit Agreement and, to the extent provided in this
Amendment, shall have the rights and obligations of a Lender
thereunder and under the other Loan Documents and shall be bound
by the provisions thereof. Without limiting the foregoing, the
New Lender shall advance to the Agent on the Effective Date an
amount equal to its Commitment Percentage (as set forth on
Schedule A hereto) of the aggregate principal amount of all Loans
outstanding on such Effective Date and, upon receipt thereof, the
Agent shall distribute to the other Lenders their ratable share
of such amount.
(b) The New Lender confirms that it has received a
copy of the Credit Agreement, together with copies of the
financial statements referred to in subsection 6.1, the financial
statements delivered pursuant to subsection 8.1, if any, and such
other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into this
Amendment.
(c) The New Lender appoints and authorizes the Agent
and the Collateral Agent to take such action as agent on its
behalf and to exercise such powers under the Credit Agreement and
each of the other Loan Documents as are delegated to the Agent
and the Collateral Agent by the terms thereof, together with such
powers as are reasonably incidental thereto, all in accordance
with Section 11 of the Credit Agreement.
(d) The New Lender agrees that it will perform in
accordance with its terms, all of the obligations which by the
terms of the Credit Agreement or any of the other Loan Documents
are required to be performed by it as a Lender.
3. Increase in Commitments; Amendment to Schedule I.
The aggregate Commitments of the Lenders shall be increased to
$85,000,000. To effect such increase, the Borrower, the Lenders
and the Agent hereby agree that Schedule I to the Credit
Agreement is hereby amended by deleting such Schedule in its
entirety and substituting in lieu thereof a new Schedule to read
in its entirety as set forth in Schedule A hereto.
4. Representations and Warranties. On and as of the
date hereof, the Borrower hereby confirms, reaffirms and restates
the representations and warranties set forth in Section 6 of the
Credit Agreement mutatis mutandis, except to the extent that such
representations and warranties expressly relate to a specific
earlier date in which case the Borrower hereby confirms,
reaffirms and restates such representations and warranties as of
such earlier date.
5. Effectiveness. This Amendment shall become
effective as of the date (the "Effective Date") first written
above upon satisfaction of the following conditions precedent:
(i) receipt by the Agent of counterparts of this
Amendment duly executed by the Borrower, the Required
Lenders, the New Lender and the Agent;
(ii) receipt by the Agent, for the account of the New
Lender, of a duly executed Note reflecting its Commitment
substantially in the form of Exhibit A to the Credit
Agreement; and
(iii) receipt by the New Lender of any fees required
to be paid in connection with this Amendment.
6. Continuing Effect; No Other Amendments. Except as
expressly provided herein, all of the terms and provisions of the
Credit Agreement are and shall remain in full force and effect.
The amendments provided for herein are limited to the specific
subsections of the Credit Agreement specified herein and shall
not constitute a consent, waiver or amendment of, or an
indication of the Agent's or the Lenders' willingness to consent
to any action requiring consent under or to waive or amend, any
other provisions of the Credit Agreement or the same subsections
for any other date or time period (whether or not such other
provisions or compliance with such subsections for another date
or time period are affected by the circumstances addressed in
this Amendment).
7. Expenses. The Borrower agrees to pay and
reimburse the Agent for all its reasonable costs and out-of-
pocket expenses incurred in connection with the preparation and
delivery of this Amendment, including, without limitation, the
reasonable fees and disbursements of counsel to the Agent.
8. Counterparts. This Amendment may be executed in
any number of counterparts by the parties hereto (including by
facsimile transmission), each of which counterparts when so
executed shall be an original, but all the counterparts shall
together constitute one and the same instrument.
9. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their respective duly
authorized officers as of the date first above written.
AUDIOVOX CORPORATION
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Sr. V.P. and CFO
THE CHASE MANHATTAN BANK,
as Agent and as a Lender
By:s/Roland Driscoll
Name: Roland Driscoll
Title: Vice President
FLEET BANK, N.A., as a Lender
By:s/Michael T. Keenan
Name: Michael T. Keenan
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON,
as a Lender
By:s/Brent E. Shay
Name: Brent E. Shay
Title: Director
EUROPEAN AMERICAN BANK,
as a Lender
By:s/Richard Romano
Name: Richard Romano
Title: Vice President
THE CIT GROUP/BUSINESS CREDIT, INC.
as a Lender
By:s/Edward A. Jesser
Name: Edward A. Jesser
Title: Vice President
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned corporations (i) as a guarantor
under that certain Amended and Restated Subsidiaries Guarantee,
dated as of March 15, 1994 (the "Guarantee"), made by each of
such corporations in favor of the Collateral Agent and (ii) as a
grantor under that certain Amended and Restated Security
Agreement, dated as of March 15, 1994 (the "Security Agreement"),
made by each of such corporations in favor of the Collateral
Agent, confirms and agrees that the Guarantee and the Security
Agreement are, and shall continue to be, in full force and effect
and are hereby ratified and confirmed in all respects and the
Guarantee and the Security Agreement and all of the Subsidiaries
Collateral (as defined in the Security Agreement) do, and shall
continue to, secure the payment of all of the Obligations (as
defined in the Guarantee) and the Secured Obligations (as defined
in the Security Agreement), as the case may be, pursuant to the
terms of the Guarantee or the Security Agreement, as the case may
be. Capitalized terms not otherwise defined herein shall have
the meanings assigned to them in the Credit Agreement referred to
in the Amendment to which this Acknowledgement and Consent is
attached.
QUINTEX COMMUNICATIONS CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
QUINTEX MOBILE COMMUNICATIONS CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
HERMES TELECOMMUNICATIONS INC.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Secretary/Treasurer
LENEX CORPORATION
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Secretary/Treasurer
AMERICAN RADIO CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Sr. Vice President
AUDIOVOX INTERNATIONAL CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Sr. Vice President
AUDIOVOX HOLDING CORP.
By:s/Chris Lazarides
Name: Chris Lazarides
Title: President
AUDIOVOX CANADA LIMITED
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
AUDIOVOX ASIA INC.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
AUDIOVOX LATIN AMERICA LTD.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
Dated as of September 10, 1996
<PAGE>
SCHEDULE A
TO FIFTH AMENDMENT
SCHEDULE I
COMMITMENTS
<TABLE>
Lender Commitment Percentage
<S> <C> <C>
The Chase Manhattan Bank $30,000,000 35.30%
Fleet Bank, N.A. $20,000,000 23.53%
The First National Bank of Boston $15,000,000 17.65%
European American Bank $10,000,000 11.76%
The CIT Group/Business Credit, Inc. $10,000,000 11.76%
Total $75,000,000 100.00%
</TABLE>
<PAGE>
SIXTH AMENDMENT, dated as of November 27, 1996 (this
"Amendment"), to the Second Amended and Restated Credit
Agreement, dated as of May 5, 1995 (as amended pursuant to the
First Amendment thereto dated as of December 22, 1995, the Second
Amendment thereto dated as of February 9, 1996, the Third
Amendment thereto dated as of May 13, 1996, the Fourth Amendment
and Consent thereto dated as of July 29, 1996, the Fifth
Amendment thereto dated as of September 10, 1996 and this
Amendment, and as the same may be further amended, supplemented
or otherwise modified from time to time, the "Credit Agreement"),
among AUDIOVOX CORPORATION, a Delaware corporation (the
"Borrower"), the several banks and other financial institutions
from time to time parties thereto (collectively, the "Lenders";
individually, a "Lender") and THE CHASE MANHATTAN BANK, a New
York banking corporation, as administrative and collateral agent
for the Lenders (in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Lenders and the Agent are
parties to the Credit Agreement; and
WHEREAS, the Borrower has requested that the Lenders
amend the Credit Agreement on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the premises
contained herein, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein,
terms which are defined in the Credit Agreement and used herein
(and in the recitals hereto) as defined terms are so used as so
defined.
2. Amendment to Subsection 9.4. Subsection 9.4 of
the Credit Agreement is hereby amended by deleting the word "and"
appearing therein and substituting in lieu thereof a comma and by
adding the following words at the end thereof "and (e) Guarantee
Obligations of the Borrower and Quintex Communications Corp. in
respect of the obligations of GLM Wireless Communications Inc. to
Fleet Bank with respect to a line of credit made available by
Fleet Bank to GLM Wireless Communications Inc., provided that (i)
the aggregate principal amount (including the face amount of
letters of credit and bankers' acceptances) of extensions of
credit under such line of credit shall not exceed $200,000 and
(ii) such line of credit is also guaranteed, on a joint and
several basis with the Borrower and Quintex Communications Corp.,
by G.L.M. Security & Sound, Inc. and G.L.M. Security & Sound of
St. James, Inc.".
3. Representations and Warranties. On and as of the
date hereof, the Borrower hereby confirms, reaffirms and restates
the representations and warranties set forth in Section 6 of the
Credit Agreement mutatis mutandis, except to the extent that such
representations and warranties expressly relate to a specific
earlier date in which case the Borrower hereby confirms,
reaffirms and restates such representations and warranties as of
such earlier date.
4. Effectiveness. This Amendment shall become
effective as of the date first written above upon receipt by the
Agent of counterparts of this Amendment duly executed by the
Borrower and the Required Lenders.
5. Continuing Effect; No Other Amendments. Except as
expressly provided herein, all of the terms and provisions of the
Credit Agreement are and shall remain in full force and effect.
The amendment provided for herein is limited to the specific
subsection of the Credit Agreement specified herein and shall not
constitute a consent, waiver or amendment of, or an indication of
the Agent's or the Lenders' willingness to consent to any action
requiring consent under or to waive or amend, any other
provisions of the Credit Agreement or the same subsection for any
other date or time period (whether or not such other provisions
or compliance with such subsections for another date or time
period are affected by the circumstances addressed in this
Amendment).
6. Expenses. The Borrower agrees to pay and
reimburse the Agent for all its reasonable costs and out-of-
pocket expenses incurred in connection with the preparation and
delivery of this Amendment, including, without limitation, the
reasonable fees and disbursements of counsel to the Agent.
7. Counterparts. This Amendment may be executed in
any number of counterparts by the parties hereto (including by
facsimile transmission), each of which counterparts when so
executed shall be an original, but all the counterparts shall
together constitute one and the same instrument.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their respective duly
authorized officers as of the date first above written.
AUDIOVOX CORPORATION
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Sr. V.P. and CFO
THE CHASE MANHATTAN BANK,
as Agent and as a Lender
By:s/Roland F. Driscoll
Name: Roland F. Driscoll
Title: Vice President
FLEET BANK, N.A., as a Lender
By:s/Steven J. Melicharek
Name: Steven J. Melicharek
Title: Sr. Vice President
THE FIRST NATIONAL BANK OF BOSTON,
as a Lender
By:s/Brent E. Shay
Name: Brent E. Shay
Title: Director
EUROPEAN AMERICAN BANK,
as a Lender
By:s/Stuart N. Berman
Name: Stuart N. Berman
Title: Vice President
THE CIT GROUP/BUSINESS CREDIT, INC.
as a Lender
By:s/Jon F. Oldham
Name: Jon F. Oldham
Title: Assistant Secretary
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned corporations (i) as a guarantor
under that certain Amended and Restated Subsidiaries Guarantee,
dated as of March 15, 1994 (the "Guarantee"), made by each of
such corporations in favor of the Collateral Agent and (ii) as a
grantor under that certain Amended and Restated Security
Agreement, dated as of March 15, 1994 (the "Security Agreement"),
made by each of such corporations in favor of the Collateral
Agent, confirms and agrees that the Guarantee and the Security
Agreement are, and shall continue to be, in full force and effect
and are hereby ratified and confirmed in all respects and the
Guarantee and the Security Agreement and all of the Subsidiaries
Collateral (as defined in the Security Agreement) do, and shall
continue to, secure the payment of all of the Obligations (as
defined in the Guarantee) and the Secured Obligations (as defined
in the Security Agreement), as the case may be, pursuant to the
terms of the Guarantee or the Security Agreement, as the case may
be. Capitalized terms not otherwise defined herein shall have
the meanings assigned to them in the Credit Agreement referred to
in the Amendment to which this Acknowledgement and Consent is
attached.
QUINTEX COMMUNICATIONS CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
QUINTEX MOBILE COMMUNICATIONS CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
HERMES TELECOMMUNICATIONS INC.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Secretary/Treasurer
LENEX CORPORATION
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Secretary/Treasurer
AMERICAN RADIO CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Sr. Vice President
AUDIOVOX INTERNATIONAL CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Sr. Vice President
AUDIOVOX HOLDING CORP.
By:s/Chris Lazarides
Name: Chris Lazarides
Title: President
AUDIOVOX CANADA LIMITED
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
AUDIOVOX ASIA INC.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
AUDIOVOX LATIN AMERICA LTD.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Vice President
AUDIOVOX COMMUNICATIONS CORP.
By:s/Charles M. Stoehr
Name: Charles M. Stoehr
Title: Secretary
Dated as of November 27, 1996
AUDIOVOX CORPORATION
Computation of Income (Loss) Per Common Share
Years Ended November 30, 1996, 1995 and 1994
(In thousands, except per share data)
<TABLE>
1996 1995 1994
Primary earnings:
<S> <C> <C> <C>
Income (loss) before cumulative effect of a change
in an accounting principle $(26,469) $(9,256) $26,206
Cumulative effect of change in accounting principle - - (178)
Net income (loss) $(26,469) $(9,256) $26,028
Shares
Weighted average number of common shares
outstanding 9,398 9,039 9,037
Additional shares assuming conversion of:
Stock options, performance share awards, and
warrants - - 69
Weighted average common shares outstanding, as
adjusted 9,398 9,039 9,106
Primary earnings per common share:
Before cumulative effect $ (2.82) $ (1.02) $ 2.88
Cumulative effect - - $ (0.02)
Net income (loss) $ (2.82) $ (1.02) $ 2.86
Fully diluted earnings*:
Income (loss) before cumulative effect of a change
in an accounting principle - - $26,206
Net interest expense related to convertible debt - - 2,074
Income before cumulative effect of a change in an
accounting principle - - 28,280
Cumulative effect of change in accounting principle - - (178)
Net income (loss) applicable to common stock - - $28,102
Shares
Weighted average number of common shares
outstanding - - 9,037
Additional shares assuming conversion of:
Stock options, performance share awards, and
warrants - - 88
Convertible debentures - - 3,644
Weighted average common shares outstanding, as
adjusted - - 12,769
Fully diluted earnings per common share:
Before cumulative effect - - $ 2.21
Cumulative effect - - $ (0.01)
Net income (loss) - - $ 2.20
</TABLE>
*The Company did not compute fully-diluted earnings per share as the addition
of potentially dilutive securities would result in anti-dilution.
SUBSIDIARIES OF REGISTRANT
Jurisdiction of
Subsidiaries Incorporation
Audiovox Communications Corp. Delaware
Quintex Communications Corp. New York
Quintex Mobile Communications Corp. Delaware
American Radio Corp. Georgia
Audiovox Holding Corp. New York
Audiovox Canada Limited Ontario
Audiovox Communications (Malaysia) Sdn. Bhd. Malaysia
Independent Auditor's Consent
The Board of Directors and Stockholders
Audiovox Corporation:
We consent to incorporation by reference in the registration
statements (No. 33-18119 and 33-65580) on Form S-8 and (No. 333-
00811) on Form S-3 of Audiovox Corporation and subsidiaries of our
report dated January 23, 1997, relating to the consolidated balance
sheets of Audiovox Corporation and subsidiaries as of November 30,
1996 and 1995, and the related consolidated statements of income
(loss), stockholders' equity and cash flows for each of the years
in the three-year period ended November 30, 1996, and all related
schedules, which report appears in the November 30, 1996 annual
report on Form 10-K of Audiovox Corporation and subsidiaries.
Our report refers to changes in the methods of accounting for
certain investments in equity securities and income taxes.
s/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Jericho, New York
February 26, 1997
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