Audiovox 2003 Annual Report Download - page 102

AUDIOVOX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
November 30, 2001, 2002 and 2003
(Dollars in thousands, except share and per share data)
The Company has historically been the exclusive distributor for Toshiba in
the United States and Canada. In connection with the transaction, ACC and
Toshiba formalized this distribution arrangement whereby ACC is Toshiba's
exclusive distributor for the sale of Toshiba cellular products in the
United States, Canada, Mexico and all countries in the Caribbean and
Central and South America through May 29, 2007. The distribution agreement
provides for 30−day payment terms. The distribution agreement established
certain annual minimum purchase targets for ACC's purchase of Toshiba
products for each fiscal year during the entire term of the agreement. In
the event that ACC fails to meet the minimum purchase target, Toshiba shall
have the right to convert ACC's exclusive distributorship to a
non−exclusive distributorship for the remaining term of the agreement.
Also, in accordance with the terms of the stockholders agreement, upon the
termination of the distribution agreement in accordance with certain terms
of the distribution agreement, Toshiba maintains a put right and the
Company a call right, to repurchase all of the shares held by the other
party for a price equal to the fair market value of the shares as
calculated in accordance with the agreement. Pursuant to the agreement, the
put right is only exercisable if ACC terminates the distribution agreement
or if another strategic investor acquires a direct or indirect equity
ownership interest in excess of 20% in Audiovox Corporation. The call right
is only exercisable if Toshiba elects to terminate the distribution
agreement after its initial five (5) year term.
In May 2002, the Company granted seven stock appreciation units in ACC to
its Chief Executive Officer of ACC and seven stock appreciation units in
ACC to the Chief Executive Officer of the Company. Each unit has a value of
approximately $774, which was based upon the then fair value per share of
ACC based upon the value of shares sold to Toshiba.
Each stock appreciation unit equals the value of one ACC share. All of
these units vested upon the date of grant, however, all of these units are
contingent upon the following future events (i) an initial public offering
of ACC or (ii) a change of control of ACC as defined where in its Chief
Executive Officer resigns within 90 days from the change of control date.
Further, as these specified events were not considered probable at the
grant date and since these units had no value at November 30, 2002 and
2003, no expense has been recorded with respect to these stock appreciation
units.
Additionally, ACC entered into an employment agreement with the President
and Chief Executive Officer (the Executive) of ACC through May 29, 2007
(Note 21). Under the agreement, ACC is required to pay the Executive an
annual base salary of $500 in addition to an annual bonus equal to 2% of
ACC's annual earnings before income taxes. The Company, under the
employment agreement, was required to establish and pay a bonus of $3,200
to key employees of ACC, including the Executive, to be allocated by the
Executive. The bonus was for services previously rendered and, accordingly,
the bonus has been included in general and administrative expenses in the
(Continued)
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