UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-25226
EMERSON RADIO CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3285224
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 Entin Road Parsippany, New Jersey 07054
(Address of principal executive offices) (Zip code)
(201)884-5800
(Registrant's telephone number, including area code)
(Former name, former address, and former fiscal year, if changed since
last report)
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 requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of common stock as of
December 31, 1994: 39,483,326.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
Nine Months Ended Three Months Ended
December 31, December 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales . . . . . . . . $ 529,111 $384,275 $194,333 $141,213
Costs and expenses:
Cost of sales . . . . 490,803 383,166 179,052 141,332
Other operating costs and
expenses . . . . . . . . . . 6,777 10,361 1,910 2,220
Selling, general & administrative
expenses . . . . . . . . . . 23,858 27,820 7,681 7,813
521,438 421,347 188,643 151,365
Operating profit (loss) . . . . 7,673 (37,072) 5,690 (10,152)
Interest expense . . . . . . . . . 2,124 10,194 950 167
Earnings (loss) before reorganization
costs and income taxes . . . . 5,549 (47,266) 4,740 (10,319)
Reorganization costs . . . . . . . - 1,958 - 1,958
Earnings (loss) before income taxes 5,549 (49,224) 4,740 (12,277)
Provision for income taxes . . . . 196 198 82 35
NET EARNINGS (LOSS) . . . . $ 5,353 $(49,422) $ 4,658 $ (12,312)
Net earnings (loss) per common
share . $ .12 $ (1.29) $ .10 $ (.32)
Weighted average number of
Common Shares outstanding . 46,537 38,191 48,879 38,191
Pro forma:
Loss per Common Share . . . . $ (1.22) $ (.34)
Weighted average number of
Common Shares outstanding . . . 33,333 33,333
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
December 31, March 31,
1994 1994
(Unaudited)
<S>
ASSETS
<C> <C>
Current Assets:
Cash and cash equivalents . $ 17,918 $ 21,623
Accounts receivable (less
allowances of $9,398 and
$6,442, respectively) . . . . . 30,952 20,131
Inventories . . . . . . . . . . 44,150 45,980
Prepaid expenses and other current
assets . . . . . . . . . . . 18,821 20,597
Total current assets . . . . . 111,841 108,331
Property and equipment - (at cost less
accumulated depreciation and
amortization of $7,821 and $6,680,
respectively). . . . . . . . . . 5,577 5,256
Other assets . . . . . . . . . . . . . 7,308 5,434
TOTAL . . . . . . . . . . . . . $124,726 $119,021
LIABILITIES
Current Liabilities:
Notes payable . . . . . . . . .$ 34,311 $ 20,040
Current portion of long-term debt . 853 1,498
Accounts payable and other current
liabilities . . . . . . . . . . 17,237 37,378
Accrued sales returns . . . . . . 19,493 16,634
Income taxes payable . . . . . . . 471 533
Total current liabilities . . . 72,365 76,083
Long-term debt . . . . . . . . . 180 227
Other non-current liabilities . . . . 324 94
Total liabilities . . . . . . . . 72,869 76,404
SHAREHOLDERS' EQUITY
Preferred Shares - $.01 par value,
1,000,000 shares authorized,
10,000 shares issued and
outstanding . . . . . . . 9,000 9,000
Common Shares - $.01 par value,
75,000,000 shares authorized,
39,483,326 and 33,333,333 shares
issued and outstanding, respectively 395 333
Capital in excess of par value 107,974 103,427
Accumulated deficit . . . . . (65,933) (70,761)
Cumulative translation adjustment 421 618
Total shareholders' equity . 51,857 42,617
TOTAL . . . . . . . . . . . . $124,726 $119,021
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
<TABLE>
Nine Months Ended
December 31,
1994 1993
<S>
Cash Flows from Operating Activities:
<C> <C>
Net cash provided (used) by operating
activities . . . . . . . . . . . . . . . $(28,287) $ 14,509
Cash Flows from Investing Activities:
Redemption of certificates of deposit . . 8,469 -
Additions to property and equipment . . . . (2,733) (3,435)
Other . . . . . . . . . . . . . . . . . . . 29 152
Net cash provided (used) by investing
activities . . . . . . . . . . . . . . . 5,765 (3,283)
Cash Flows from Financing Activities:
Net borrowings under line of credit facility 14,271 -
Net borrowings under DIP financing loan. . . - 14,900
Net proceeds from public offering of
common stock . . . . . . . . . . . . . . . 5,701 -
Other . . . . . . . . . . . . . . . . . . . (1,155) (75)
Net cash provided by financing
activities . . . . . . . . . . . . . . . . 18,817 14,825
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . (3,705) 26,051
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . . . . 21,623 25,183
Cash and cash equivalents at end of period . . $17,918(a) $51,234(b)
Supplemental disclosure of cash flow information:
Interest paid . . . . . . . . . . . . . . . $ 2,198 $ 7,882
Income taxes paid . . . . . . . . . . . . . $ 298 $ 695
</TABLE>
(a) The balance at December 31, 1994, includes $6 million of cash and
cash equivalents pledged to assure the availability of certain letter
of credit facilities.
(b) The balance at December 31, 1993 includes $23.1 million of cash and cash
equivalents that were collateralizing letters of credit for the purchase
of inventory.
The accompanying notes are an integral part of the interim consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
The unaudited interim consolidated financial statements reflect all
adjustments that management believes necessary to present fairly the
results of operations for the periods being reported. The unaudited
interim consolidated financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission and
accordingly do not include all of the disclosures normally made in the
Emerson Radio Corp. (the "Company") annual financial statements. It
is suggested that these unaudited interim consolidated financial
statements be read in conjunction with the financial statements and
notes thereto for the year ended March 31, 1994, included in the
Company's Form S-1 (SEC Registration No. 33-53621).
Due to the seasonal nature of the Company's consumer electronics
business, the results of operations for the three and nine month periods
ended December 31, 1994 are not necessarily indicative of the results of
operations for the full year ending March 31, 1995.
NOTE 2
Net earnings per common share for the three and nine month periods
ended December 31, 1994 are based on the weighted average number of
shares of common stock and common stock equivalents outstanding during
each period. Common stock equivalents include shares issuable upon
conversion of the Company's Series A Preferred Stock, exercise of
stock options and warrants, and shares issued in February 1995 to former
creditors primarily to satisfy an anti-dilution provision. Net loss per
common share for the similar periods ended December 31, 1993 do not include
common stock equivalents assumed outstanding since they are anti-dilutive.
Pro forma loss per common share for the three and nine month periods
ended December 31, 1993 gives effect to the bankruptcy restructuring
and is based on the number of shares of common stock issued and
outstanding at March 31, 1994. The pro forma loss per common share
does not include common stock equivalents assumed outstanding since
they are anti-dilutive. The pro forma loss per common share also
gives effect to the following adjustments:
(i) Increase of $755,000 and reduction of $7,489,000 in
interest expense for the three and nine month periods
ended December 31, 1993, respectively, to give effect to
the reorganized debt structure. The pro forma interest
expense is based on the maximum amount of borrowings
($45 million) permitted under the new credit facility
at the interest rate that would have been in effect for
the three and nine months ended December 31, 1993 (8.25%).
Additionally, the amortization of closing fees on
the credit facility is included in the pro forma
interest expense above.
(ii) Assumed dividends on the Series A Preferred Stock
aggregating $175,000 and $525,000 for the three and
nine month periods ended December 31, 1993, respectively.
(iii) Elimination of reorganization expenses of $1,958,000.
NOTE 3
The provision for income taxes for the three and nine month periods
ended December 31, 1994 and 1993 consists of taxes related to
international operations. The income of the international operations is
subject to foreign tax rates lower than the U.S. statutory rate. The
company did not recognize tax benefits for losses incurred by its
domestic operations during the same periods.
NOTE 4
Spare parts inventories, net of reserves, aggregating $3,215,000 and
$4,140,000 at December 31, 1994 and March 31, 1994, respectively, are
included in "Prepaid expenses and other current assets".
NOTE 5
Long-term debt consists of the following:
(In thousands of dollars)
<TABLE>
December 31, March 31,
1994 1994
<S> <C> <C>
Notes payable to unsecured
creditors . . . . . . . . . . $ 730 $ 842
Equipment notes and other . . . 303 383
11-1/2% convertible subordinated
note . . . . . . . . . . . . - 500
1,033 1,725
Less current obligations. . . . 853 1,498
$ 180 $ 227
</TABLE>
NOTE 6
The 30 million shares of common stock ("Common Stock") issued to
GSE Multimedia Technologies Corporation, Fidenas International Limited
in its own name and as nominee for another party, and Elision International,
Inc. on March 31, 1994, pursuant to the Company's bankruptcy
restructuring plan, are the subject of certain legal proceedings. Transfer
of certain shares of Fidenas International Limited has been enjoined
by court orders issued in the United States Bankruptcy Court for the
Southern District of New York and the Commonwealth of Bahamas. It is
possible that a court of competent jurisdiction may order the turnover
of all or a portion of the shares of Common Stock owned by such persons
to a third party. A turnover of a substantial portion of the Common
Stock could result in a "change of controlling ownership" prohibited
pursuant to the terms of the Company's loan and security agreement with
its primary lender. Additionally, such a change in control could result
in a second "ownership change" under Internal Revenue Code Section
382, which could affect the Company's ability to use its net operating
loss and tax credit carryforwards. The Company does not believe the
litigation or the results thereof will have a material adverse effect
on the Company or on the Company's financial position.
The Company is presently engaged in litigation regarding several
bankruptcy claims which have not been resolved since the restructuring
of the Company's debt. The largest claim was filed July 25, 1994 in
connection with the rejection of certain executory contracts with two
Brazilian entities, Cineral Electronica de Amazonia Ltda. and Cineral
Magazine Ltda. (collectively, "Cineral"). The contracts were executed
in August 1993, shortly before the Company's filing for bankruptcy
protection. The amount claimed was $93,563,457, of which $86,785,000
represents a claim for loss of profits and $6,400,000 for plant
installation and establishment of offices, which were installed and
established prior to execution of the contracts. The claim was filed as an
unsecured claim and, therefore, will be satisfied, to the extent the claim
is allowed by the Bankruptcy Court, in the manner other allowed unsecured
claims are satisfied. The Company has objected to the claim and intends
to vigorously contest such claim and believes it has meritorious defenses
to the highly speculative portion of the claim for lost profits and the
portion of the claim for actual damages for expenses incurred prior to
the execution of the contracts. Additionally, the Company has instituted
an adversary proceeding in the Bankruptcy Court asserting damages
caused by Cineral. A motion filed by Cineral to dismiss the adversary
proceeding has been denied. The adversary proceeding and claim objection
have been consolidated into one proceeding. An adverse final ruling on
the Cineral claim, though liability of the Company would be limited to
18.3% of the final claim determined by a court of competent jurisdiction
to be payable, and with respect to the claim for lost profits, could
have a material adverse effect on the Company though, in light of the
foregoing, the Company believes the chances for recovery on the Cineral
claim for lost profits are remote.
NOTE 7
On February 22, 1995, the Company and Otake Trading Co. Ltd. and
certain affiliates ("Otake"), the Company's largest supplier, entered
into two mutually contingent agreements (the "Agreements"). Effective
March 31, 1995, the Company will grant a license of certain
trademarks to Otake for a three-year term. The license permits Otake to
manufacture and sell certain video products under the Emerson brand to
Wal-Mart Stores, Inc. ("Wal-Mart"), the Company's largest customer, in
the U.S. and Canada, and precludes Otake from supplying product
to Wal-Mart other than under the Emerson or Orion trademarks. The
Company will continue to supply other products to Wal-Mart directly.
Further, the Agreements provide that Otake will supply the Company
with certain video products for sale to other customers at
preferred prices for a three-year term. Under the terms of the
Agreements, the Company will receive non-refundable minimum annual
royalties from Otake to be credited against royalties earned from
sales of video cassette recorders and players, television/video
cassette recorder and player combinations, and color
televisions to Wal-Mart. In addition, effective August 1, 1995,
Otake will assume responsibility for returns and after-sale and
warranty services on all video products manufactured by Otake and
sold to Wal-Mart, including video products sold by the Company prior
to April 1, 1995.
Additionally, the Company agreed on a series of purchase
discounts, consistent with agreements and past practices between
Otake and the Company. Otake will pay the Company $10.2 million
of purchase discounts for product purchased from January 1, 1993
to March 31, 1995. The Company recognized $3.9 million of
discounts attributable to calendar 1993 purchases in the quarter
ended September 30, 1994. As a result of entering into the
Agreements, the Company recognized $3.8 million of discounts
attributable to calendar 1994 purchases in the quarter ended
December 31, 1994.
NOTE 8
In October 1994, the Company entered into a license agreement with
Jasco Products Co. ("Jasco") whereby the Company granted a license of
certain trademarks to Jasco for use on non-competing consumer
electronic accessories. Under the terms of the agreement, the
Company will receive minimum annual royalties through the life of
the agreement which expires on December 31, 1997, and the agreement
is automatically renewable for three successive three-year periods
based upon Jasco's compliance with the agreement. The Company
recognized license fee income of approximately $1,125,000 in the
three month period ended December 31, 1994.
NOTE 9
At December 31, 1994, accounts receivable includes approximately
$10,034,000 due from a partnership owned 50% by the Company. The
partnership purchases, refurbishes and sells all of the Company's product
returns. Trade receivables from this partnership are not collateralized.
NOTE 10
In accordance with the Company's plan of reorganization (the
"Plan"), the Company completed a public offering of its Common Stock
in September 1994 to shareholders of record (in those states in
which the offering could be made) as of March 31, 1994, excluding
Fidenas Investment Limited. The Company sold 6,149,993 shares of
Common Stock for $1.00 per share resulting in proceeds to the
Company, net of issuance costs, of approximately $5,701,000. Pursuant
to the terms of the Plan, in January 1995, the Company paid approximately
$922,000 to satisfy certain obligations owed to former creditors and in
February 1995 issued 769,445 shares of Common Stock to former creditors,
primarily to satisfy an anti-dilution provision.
EMERSON RADIO CORP. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
General
On March 31, 1994, the Company emerged from bankruptcy pursuant to
a plan of reorganization which resulted in, among other things, a net
reduction of approximately $203 million in institutional debt,
cancellation of the Company's old common stock and other equity, the
issuance of 30 million shares of new common stock for $30 million and the
issuance of certain equity securities to certain of the Company's
former creditors. The restructuring substantially reduced the
Company's debt service costs and significantly improved the
Company's financial condition. The Company has experienced an
improvement in its United States sales in the first three
quarters of fiscal year 1995 over the prior year's comparable
quarters. However, the Company expects sales for the fourth
quarter of fiscal year 1995 to remain comparable with or to only
slightly exceed the fourth quarter of fiscal year 1994. The slower
growth expected in the quarter ending March 31, 1995 is due primarily
to lower promotional activity than in the first three quarters of
the fiscal year and an expected decline in sales of color televisions
because of price competition.
Effective March 31, 1995, the Company will enter into two mutually
contingent agreements with its largest supplier which provide, among other
things, the right to sell certain video products under the Emerson brand
to its largest customer (see below). As a result, the Company will receive
royalties attributable to such sales over the three-year term of the
agreements in lieu of reporting the full dollar value of such sales and
associated costs. Net sales of these products to this customer accounted for
approximately 48% of consolidated net sales for the first nine months of
fiscal year 1995. The Company expects to report lower sales in fiscal
year 1996 as a result of these agreements, but no material impact is
expected on its net operating results for such year.
Results of Operations
Consolidated net sales for the three and nine month periods
ended December 31, 1994 increased $53,120,000 (38%) and
$144,836,000 (38%) over the same periods last year,
respectively. The increase in sales resulted primarily from an
increase in unit sales of video cassette recorders and
television/video cassette recorder and player combination units, partially
offset by a decline in sales prices for such products. The sales increase
was attributable to significantly higher sales to the Company's two
largest customers, resulting from an improved retail climate, low
retail stock levels after a good 1993 holiday season, and an improved
perception of the Company by retailers since its emergence from
bankruptcy. Net sales to the Company's largest customer approximated
53% of consolidated net sales for the nine month period ended December
31, 1994. The increase in sales in the three month period ended
December 31, 1994 was also attributable to higher unit sales of
microwave ovens, but was offset by a decline in sales of audio
products, primarily relating to a decline in unit volume. In the
nine month period ended December 31, 1994, sales of audio products
declined due to lower unit volume and sales prices. The Company's
Canadian operations experienced a decline in net sales in the nine
month period ended December 31, 1994 due to declines in unit volume
and sales prices and unfavorable foreign currency exchange rates.
Cost of sales, as a percentage of consolidated sales, was 92% and 93%
for the three and nine month periods ended December 31, 1994,
respectively, as compared to 100% for the same periods last year.
Gross profit margins in the three and nine month periods ended
December 31, 1994 were favorably impacted by the allocation of
fixed overhead costs over a significantly higher sales base, a decline
in fixed overhead costs, reduced losses associated with products returns,
the accrual of approximately $3.8 million and $7.7 million, respectively,
of purchase discounts from a supplier and $1.1 million of licensing income.
Comparatively, gross profit margins in the third quarter of fiscal
year 1994 were negatively impacted by $3.8 million in additional
reserves for sales returns. The improvement was partially offset
by a 1% decrease in gross profit margins attributable to sales price
decreases which were in excess of price reductions received from
suppliers, and a change in product mix.
Other operating costs and expenses declined $310,000 and
$3,584,000 in the three and nine month periods ended December
31, 1994, respectively, as compared to the same periods in the prior
year, primarily as a result of a decrease in compensation and other
expenses incurred to process product returns, due to the Company's
downsizing program and changes in the resale arrangement for product
returns.
Selling, general and administrative expenses ("S,G & A"),
as a percentage of sales, were 4% and 5% for the three and nine month
periods ended December 31, 1994, respectively, as compared to 6% and
7% for the same periods last year. In absolute terms, S,G & A decreased
by $132,000 and $3,962,000 in the three and nine month periods ended
December 31, 1994, respectively. The decreases were primarily
attributable to lower compensation expense relating to the Company's
downsizing program, lower selling expenses and lower reserves provided on
trade receivables. The Company's exposure to foreign currency
fluctuations, primarily in Canada and Spain, resulted in the recognition
of net foreign currency exchange losses aggregating $753,000 in the
three month period ended December 31, 1994, as compared to net foreign
currency gains of $143,000 in the same period last year. In contrast, the
Company recognized net foreign currency exchange gains aggregating
$72,000 in the first nine months of fiscal year 1995 as compared to net
foreign currency losses of $925,000 in the same period last year.
Interest expense increased by $783,000 and decreased by $8,070,000
in the three and nine month periods ended December 31, 1994,
respectively, as compared to the same periods in the prior year.
The increase in interest expense in the current quarter was
attributable to the moratorium on interest accrued on pre-petition
indebtedness during the pendency of the Company's bankruptcy proceeding
in the quarter ended December 31, 1993. Interest expense was only
paid and accrued on the Company's debtor-in-possession financing during
this period. The decrease in interest expense for the first nine months
of fiscal 1995 was attributable to the extinguishment of approximately
$203 million of institutional debt in connection with the Company's
bankruptcy restructuring, effective March 31, 1994.
In the three month period ended December 31, 1993, the Company
recorded reorganization costs of $1,958,000 relating primarily to
professional fees incurred in the bankruptcy proceedings.
As a result of the foregoing factors, the Company generated net
earnings of $4,658,000 and $5,353,000 for the three and nine month
periods ended December 31, 1994, compared to net losses of
$12,312,000 and $49,422,000 for the same periods in the prior year,
respectively.
Liquidity and Capital Resources
Net cash utilized by operating activities was $28,287,000 for
the nine months ended December 31, 1994. Cash was utilized to produce
inventory for sale which resulted in increased sales and accounts
receivable. Further, a reduction in accounts payable to the Company's
largest supplier (see below), and the elimination of a large customer's
credit balance, negatively impacted cash.
Net cash provided by investing activities was $5,765,000 for the
nine months ended December 31, 1994. Investing activities consisted
primarily of a redemption of pledged certificates of deposit, net of
capital expenditures for new product molds. The redemption of the
pledged certificates of deposit relates primarily to a draw down of
an $8 million standby letter of credit by the Company's largest
supplier against a certificate of deposit for the same amount,
fulfilling commitments made during the Company's bankruptcy reorganization.
In the nine months ended December 31, 1994, the Company's financing
activities provided $18,817,000 of cash. The Company increased its
borrowings under its U.S. line of credit facility by $14,271,000
to finance the higher accounts receivable levels and reduce accounts
payable. Additionally, the Company generated net proceeds of
$5,701,000 from a public offering of the Company's Common Stock
(see below).
The Company maintains an asset-based revolving line of credit
facility with a U.S. financial institution (the "Lender"). The
facility provides for revolving loans and letters of credit, subject to
individual maximums which in the aggregate cannot exceed the lesser of
$60 million or a "Borrowing Base" amount based on specified percentages
of eligible accounts receivable and inventories. Credit extended
under the line is secured by all U.S. and Canadian assets of the
Company. The interest rate on all borrowings is 2.25% above the
prime rate. At December 31, 1994, there was approximately $34.3
million outstanding under the Company's revolving loan facility, and
approximately $5.9 million of outstanding letters of credit issued
for inventory purchases. Pursuant to the terms of the credit
facility, effective November 1, 1994, the Company is required to
maintain a minimum net worth of $42,000,000, excluding the net
proceeds received by the Company from the sale of equity securities.
The Company also maintains $11.5 million and $100 million
credit facilities with a bank in Hong Kong. The facilities were
recently increased to these amounts from $6.4 million and $50
million, respectively. The $11.5 million credit facility is
generally used for letters of credit for the Company's direct
import business and a foreign subsidiary's purchases. The $100
million credit facility is for the establishment of back-to-back
letters of credit with the Company's largest customer. The Company
has pledged $4 million in certificates of deposit to this bank to
assure the availability of these credit facilities. At December
31, 1994, there were approximately $10.1 million and $43.0
million of letters of credit outstanding under these credit facilities.
The Company has also pledged a $1 million certificate of deposit with
another Hong Kong bank against a standby letter of credit for the same
amount for a U.S. Customs bond. The $1 million deposit is included
in "Prepaid expenses and other current assets" at December 31, 1994.
The Company recently secured an additional credit facility
with another bank in Hong Kong. The facility provides for a
$10 million letter of credit line collateralized by cash equal to sixty
percent of the outstanding letters of credit, and an unsecured $10 million
back-to-back letter of credit line. At December 31, 1994, the
Company has pledged $2 million in certificates of deposit to assure
the availability of the letter of credit line. The back-to-back letter of
credit line was fully utilized at December 31, 1994.
In accordance with the Company's plan of reorganization (the
"Plan"), the Company completed a public offering of its Common
Stock in September 1994 to shareholders of record (in those states in
which the offering could be made) as of March 31, 1994, excluding
Fidenas Investment Limited. The Company sold 6,149,993 shares of
Common Stock for $1.00 per share resulting in proceeds to the Company,
net of issuance costs, of approximately $5,701,000. Pursuant to the
terms of the Plan, in January 1995, the Company paid approximately
$922,000 to satisfy certain obligations owed to former creditors and in
February 1995 issued 769,445 shares of Common Stock to former creditors,
primarily to satisfy an anti-dilution provision.
On February 22, 1995, the Company and Otake Trading Co. Ltd. and
certain affiliates ("Otake"), the Company's largest supplier, entered
into two mutually contingent agreements (the "Agreements"). Effective
March 31, 1995, the Company will grant a license of certain trademarks
to Otake for a three-year term. The license permits Otake to
manufacture and sell certain video products under the Emerson brand
to Wal-Mart, the Company's largest customer, in the U.S. and Canada,
and precludes Otake from supplying product to Wal-Mart other than
under the Emerson or Orion trademarks. The Company will continue to
supply other products to Wal-Mart directly. Further, the Agreements
provide that Otake will supply the Company with certain video products
for sale to other customers at preferred prices for a three-year
term. Under the terms of the Agreements, the Company will receive
non-refundable minimum annual royalties from Otake to be credited against
royalties earned from sales of video cassette recorders and players,
television/video cassette recorder and player combinations, and color
televisions to Wal-Mart. In addition, effective August 1, 1995,
Otake will assume responsibility for returns and after-sale and
warranty services on all video products manufactured by Otake and
sold to Wal-Mart, including video products sold by the Company
prior to April 1, 1995.
Additionally, the Company agreed on a series of purchase discounts,
consistent with agreements and past practices between Otake and the Company.
Otake will pay the Company $10.2 million of purchase discounts for
product purchased from Januar 1, 1993 to March 31, 1995. The Company
recognized $3.9 million of discounts attributable to calendar 1993
purchases in the quarter ended September 30, 1994. As a result of
entering into the Agreements, the Company recognized $3.8 million
of discounts attributable to calendar 1994 purchases in the quarter
ended December 31, 1994.
As a result of the Agreements, the Company's gross margins are expected
to improve based on a change in mix to higher margin products and from a
reduction in costs for product returns which have historically been higher
for video products. Additionally, the Company expects to realize a more
stable cash flow, and to reduce short-term borrowings to finance accounts
receivable and inventory, thereby reducing interest costs on its existing
core business.
Since the emergence of the Company from bankruptcy, management
believes that it has been able to compete more effectively in the highly
competitive consumer electronics and microwave oven industries in
the United States and Canada, by combining innovative approaches to
the Company's current product line and augmenting its product line
with complementary products. The Company also intends to undertake
efforts to expand the international distribution of its products
into areas where management believes low to moderately priced, dependable
consumer electronics and microwave oven products will have a broad
appeal. The Company has in the past and intends in the future to
pursue such plans either on its own or by forging new relationships,
including license arrangements, partnerships or joint ventures.
Although cash flow from operations was adversely impacted by
accounts receivable growth in the 1994 holiday season and the
reduction of accounts payable, management believes that post-
holiday cash flow from operations and the institutional financing
described above will be sufficient to fund all of the Company's
cash requirements for at least the next year. Cash flow from operations
will be negatively impacted by any rise in the prime rate of
interest and by a decrease in the proportion of the Company's
direct import sales to consolidated sales. A lower percentage
of direct import sales will require increased use of the
Company's credit facility with the Lender and may restrict
growth of the Company's sales.
EMERSON RADIO CORP. AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings.
The information required by this item is included
in Note 6 of Notes to Interim Consolidated
Financial Statements filed in Part I of Form 10-Q
for the quarter ended December 31, 1994, and is
incorporated herein by reference.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) (1) License Agreement between the Company
and Orion Sales, Inc.
(2) Supply Agreement between the Company and
Orion Sales, Inc., Technos Development
Limited and Otake Trading Co. Ltd.
(b) Reports on Form 8-K:
(1) Current Report on Form 8-K dated
December 16, 1994, reporting matters
under Item 5.
EMERSON RADIO CORP. AND SUBSIDIARIES
PART II
OTHER INFORMATION - CONTINUED
SIGNATURES
Pursuant to the requirements 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.
EMERSON RADIO CORP.
(Registrant)
Date: February 23, 1995 /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chief Executive Officer
Date: February 23, 1995 /s/ Eugene I. Davis
Eugene I. Davis
President
Interim Chief Financial Officer
LICENSE AGREEMENT
This Agreement, dated as of February , 1995, is
between EMERSON RADIO CORP., a Delaware corporation, having a place
of business at Nine Entin Road, Parsippany, New Jersey 07054
(hereinafter "Licensor") and ORION SALES, INC. an Illinois
corporation, having a place of business at 11 Union Drive, P.O. Box
10, Olney, Illinios, 62450 (hereinafter "Licensee").
Licensor directly and through affiliates distributes a
variety of consumer electronics products and microwave ovens in
various countries throughout the world. Licensor is the owner of
certain valuable and well-known trademarks throughout the world and
the goodwill associated therewith;
Licensee desires to obtain a license of certain of
Licensor's trademarks described on Exhibit A to be used in
connection with the marketing, manufacturing, sale, distribution
and certain after sale service activities of video cassette
recorders ("VCRs"), video cassette players ("VCPs"), color
televisions ("TVs") and color television/video cassette players and
color television/video cassette recorder combinations ("TV/VCR
combos") (VCRs, VCPs, TVs, and TV/VCR combos, together with such
replacement parts for each of the foregoing which may bear the
Trademarks (defined herein), shall be collectively referred to
herein as the "Goods");
Licensee desires to sell Goods bearing the Trademarks in
the geographic regions set forth in Exhibit B ("Territory") and use
certain of Licensor's trademarks, service marks, logo and other
intellectual property rights in conjunction therewith;
Licensor is agreeable to license certain of its
trademarks, service marks, logo and other intellectual property
rights to be used with respect to the marketing, manufacturing,
sale and distribution of the Goods by Licensee in the Territory,
subject to the terms and conditions of this Agreement.
In consideration of the foregoing premises and the mutual
agreements contained herein, the following is agreed to:
1. DEFINITIONS
1.1 "Affiliate" will mean a person or entity who directly, or
indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a specified entity.
1.2 "Confidential Information" will mean any and all
information, data, specifications, customer lists, products and
services information, sales and marketing information, key vendor
data, and proprietary information regarding either Licensor,
Licensee or their respective Affiliates (collectively, the
"Information") except:
(a) Information which at the time of disclosure is in
the public domain;
(b) Information which, through no fault of the party
receiving same, is published or otherwise becomes
part of the public domain;
(c) Information which the receiving party can document
as having been in its possession prior to the time
of disclosure to it by the other party;
(d) Information which the receiving party can document
as having been received by it on a non-confidential
basis from a third party; or
(e) Data, specifications, customer lists, products and
services information and key vendor data which the
receiving party created on its own or through
independent third parties without use of the
Information.
1.3 "Contract Year" will mean each 12 month period following
each of the Effective Date (as defined in Section 3.1) and each
anniversary of the Effective Date thereafter so long as this
Agreement is in effect. Each Contract Year shall be comprised of
four 3 month quarters ("Contract Quarter").
1.4 "Control" will mean possession of the power to direct, or
cause the direction of, the management and policies of an entity
whether through the ownership of voting securities, by contract or
otherwise.
1.5 "Copyrights" will mean the artwork, text and designs
referred to in Section 4.7.
1.6 "Customer" will mean (i) the central buying offices and
distribution centers of Wal-Mart Stores, Inc. located in the
Territory and (ii) all retail stores presently located and which
may be opened in the Territory which are owned or operated by Wal-
Mart Stores, Inc. under the Wal-Mart tradename or trademark; the
term "Customer" shall specifically exclude Sam's Clubs, Bud's,
other operations of Customer which are opened after the date hereof
which bear a trademark or tradename other than Wal-Mart, and all
retail outlets which bear the trademark or tradename of Sam's Club,
Bud's or any subtenant or concessionaire engaged in the
distribution of consumer electronics products.
1.7 "Licensed Marks" will mean the (i) Trademarks, (ii)
service marks and logos associated with the Trademarks, and (iii)
Copyrights and other intellectual property rights (including
designs) embodied in the Written Materials directly used in
connection therewith now or hereafter owned by Licensor.
1.8 "Licensee" will mean ORION Sales, Inc.
1.9 "Licensor" will mean Emerson Radio Corp.
1.10 "Sale" will mean sale, lease, rental, transfer, exchange
or other disposition of the Goods by Licensee. A Sale will be
deemed to have occurred when the Goods are shipped to Customer or
are invoiced, whichever occurs first.
1.11 "Trademarks" will mean the Emerson and G-Clef designs in
the forms set forth on Exhibit A and such other forms using the
"Emerson" name and logo as may be registered subsequent to the date
hereof by Licensor from time to time with the United States Patent
and Trademark Office.
1.12 "Written Material" will mean cartons, manuals, packages,
labels, advertisements, instructional or promotional literature, or
any written materials which bear any of the Licensed Marks or
accompany Goods which bear the Licensed Marks.
2. GRANT
2.1 Subject to the terms and conditions of this Agreement,
Licensor grants to Licensee an exclusive (to the extent
specifically provided herein) non-transferable license to utilize
and exploit the Licensed Marks solely upon and in connection with
the manufacturing, sale, marketing, distribution and after sales
service of the Goods in the Territory to Customer. The rights
granted by Licensor to Licensee hereunder shall include the right
of Licensee to, directly or indirectly (to the extent provided in
Section 21), manufacture or cause to be manufactured the Goods
bearing the Licensed Marks outside of the Territory for Licensee or
its permitted Affiliates pursuant to Section 21, provided, however,
that Goods bearing the Licensed Marks are not marketed or sold by
Licensee (or as permitted pursuant to Section 21) except to
Customer for delivery into and resale within the Territory.
2.2 Licensee shall not use the Licensed Marks or purport to
give consent to the use of the Licensed Marks, in any manner or on
any products or items, except as specifically set forth in this
Agreement.
2.3 The Goods bearing the Licensed Marks shall not be
distributed, sold, or otherwise disposed of outside of the
Territory by, directly or indirectly, Licensee other than for sales
by Licensee to the Customer for delivery into and resale in the
Territory. Licensee shall not knowingly distribute, sell or
otherwise dispose of the Goods outside of the Territory.
2.4 Nothing in this Agreement shall be construed to prevent
Licensor from using or granting any other licenses for the use of
the Licensed Marks or from utilizing the Licensed Marks in any
manner whatsoever; provided, however, Licensor and its Affiliates
shall not sell or license a third party to sell to Customer Goods
which bear the Trademarks for delivery into and resale within the
Territory. Goods sold, marketed or distributed by Licensee to
Customer bearing the Licensed Marks shall not bear any other
trademark or service mark and the packaging for such Goods shall
not include products bearing any trademark or service mark other
than the Licensed Marks; provided however, the Goods and packaging
for same may bear the trademarks or service marks set forth on
Exhibit C (and such other marks as may be agreed to in writing by
the parties hereto) for the purpose of identifying features of the
Goods.
3. TERM
3.1 Subject to earlier expiration or termination as provided
in Section 10, or otherwise herein, the license granted herein will
be in force from March 31, 1995 (the "Effective Date") until March
31, 1998 (the "Initial Term") and may, subject to mutual written
agreement as permitted pursuant to Section 3.2, be extended for a
period of time to be mutually agreed upon in writing. Each
extension period, if any, shall hereinafter be referred to as an
"Extension Term." "Initial Term" and any "Extension Term" shall
collectively be referred to as the "Term."
3.2 Licensor and Licensee may agree to negotiate the terms of
an extension to the Initial Term provided that the terms of any
such extension are set forth in a written agreement executed by
both parties at least 12 months prior to the expiration of the
Initial Term. In the event this Agreement is not extended pursuant
to the terms hereof, Licensor and Licensee shall each have the
right to present to the Customer on or after April 1, 1997 lines of
Goods to be made available for sale to the Customer following
expiration of the Term.
4. GOODS
4.1 Goods bearing the Trademarks which are sold and
distributed by Licensee shall be designed and manufactured in a
manner consistent with the quality standards of video products
historically purchased from Licensee's Affiliates by Licensor. The
Goods shall in no event be sold or distributed unless manufactured
in compliance with the minimum technical and other applicable
specifications applicable to video products sold from time to time
by Licensee's Affiliates to Licensor.
4.2 In order that Licensor may be assured that the provisions
of this Agreement are being observed, Licensee shall allow Licensor
either itself or, if Licensor elects in its sole discretion,
through a reputable, independent third party which is not a
competitor (or affiliated with a competitor) of Licensee to inspect
Goods bearing the Trademarks and facilities utilized for the
manufacture and distribution of such Goods for the purpose of
ensuring the quality of such Goods. Licensee shall permit such
inspection to take place as soon as practicable after Licensor's
written request for an inspection. In the event that the requisite
quality standards are not being maintained at any time during the
Term of this Agreement or Goods bearing the Trademarks are
manufactured or distributed that do not meet the requisite quality
standards, then upon written notice from Licensor, Licensee shall
immediately (i) discontinue the sale and distribution of the Goods
bearing the Trademarks that do not meet said quality standards or
(ii) cure, to the satisfaction of Licensor, such deficiency. Any
Goods bearing the Trademarks that are defective or dangerous shall
be immediately removed from sale and, if already sold, recalled or
repaired in the field to eliminate such defect or danger. Goods
bearing the Trademarks in inventory or elsewhere not meeting the
requisite quality standards shall not be distributed or sold.
Licensee shall report to the Licensor in writing within 24 hours of
receiving information concerning any serious quality or defect
problems or product liability claims. Licensee agrees that any of
the above actions shall be taken at its own expense. Licensee
acknowledges that monetary damages may not be sufficient to remedy
a breach of the covenant set forth in this Section; accordingly,
Licensee agrees that Licensor may be entitled to an immediate
temporary restraining order and/or preliminary injunction to
prevent Licensee from violating the terms hereof.
4.3 Licensee shall take all action necessary or desirable to ensure
that the manner of sale and distribution of the Goods bearing the
Trademarks and/or exploitation of the Licensed Marks by Licensee
shall in no manner reflect adversely upon the good name or goodwill
of Licensor or the Licensed Marks.
4.4 Licensee shall comply with all laws and regulations
applicable to the manufacture, use, sale and distribution of the
Goods bearing the Trademarks throughout the Territory and the
location where the Goods are manufactured, whether foreign,
federal, state or local, including but not limited to those of the
Federal Communications Commission, Industry Canada, Underwriters
Laboratory and CSA, as required; provided, however, that such
applicable laws and regulations are only to be applied within the
jurisdiction of the enactment of such law or promulgation of such
regulation. Such requirements shall include, but not be limited to,
obtaining all necessary regulatory and/or governmental approvals,
as well as any registrations, licenses or permits that may be
required. Licensee shall provide Licensor with copies of all such
approvals, registrations, licenses or permits promptly upon receipt
of same. In any license, permit, registration or request for
government or regulatory approval, Licensor shall be identified as
the owner of the Licensed Marks.
4.5 Prior to the initial manufacturing of a model of Goods
bearing the Trademarks, Licensee shall deliver (without cost to
Licensor) to Licensor at its facilities in Parsippany, New Jersey
U.S.A. and/or such other location designated in writing by Licensor
(collectively, "Place of Inspection") engineering and design
samples (together with data specifications related thereto) of the
Goods. Licensor shall deliver to Licensee comments to such samples
and specifications within seven days following receipt of same.
Prior to or from the initial commercial production run of each
model of Goods bearing the Trademarks, Licensee shall deliver to
Licensor in accordance with historical practice at the Place of
Inspection at least three (3) samples of each of the Goods bearing
the Licensed Marks as well as the Written Material intended to be
used in conjunction with the sale or distribution of such Goods.
Licensee shall certify in writing to Licensor that each sample is
representative of the design, characteristics, specification and
quality of materials and workmanship of future production of Goods
and that use of the Licensed Marks on the samples is representative
of the use of the Licensed Marks on the Goods as they will be sold
or distributed. Licensor, at its sole discretion, may disapprove
of the use of any of the Goods bearing the Trademarks or
accompanying Written Material, the quality of which is not
consistent with the quality standards set forth in this Section 4
or fails to comply with proper usage of the Licensed Marks as
defined herein. Licensee may not sell any of the Goods bearing the
Trademarks without approval of Licensor which shall be deemed given
if Licensor does not notify Licensee of Licensor's disapproval of
any Goods and the Written Material to be used in conjunction with
the sale of such Goods within ten (10) days after receipt of same;
provided, however, that Licensor shall be provided with ten (10)
additional days to approve of the Goods and Written Materials if
Licensor requests in writing such additional time. Licensor's
approval shall be required for Goods bearing the Licensed Marks or
Written Materials previously approved in the event such Goods or
Written Materials have been re-designed, re-configured or otherwise
modified or altered; provided, however, that minor parts changes
may be effected upon delivery to Licensor of an engineering change
notice and the failure of Licensor to object to same within twenty
four (24) hours following receipt of such notice. Licensee shall
deliver to Licensor samples of redesigned, reconfigured, modified
or altered Goods bearing the Licensed Marks or Written Materials in
accordance with the terms hereof; provided, however, that such
obligation shall not apply to minor parts changes to which Licensor
has not objected promptly following receipt of notice of same.
4.6 All of the Goods bearing the Trademarks and all Written
Material distributed by or through Licensee will, unless otherwise
specifically agreed to in advance in writing by Licensor, bear the
following legend:
"EMERSON AND THE G-CLEF LOGO ARE REGISTERED
TRADEMARKS OF EMERSON RADIO CORP., PARSIPPANY,
NEW JERSEY, U.S.A."
4.7 In all cases where Licensee desires artwork involving
Goods to be prepared by Licensor, the cost of such artwork and the
time for the production thereof shall be borne solely by Licensee.
All artwork and designs involving the Licensed Marks, or any
reproduction thereof, is subject to Licensor's prior written
approval and shall be and remain the property of Licensor;
provided, however, that Licensee may retain ownership of
photographs and reproductions of video products manufactured by
Licensee or its Affiliates.
5. ROYALTIES TO LICENSOR
5.1 Licensee shall pay to Licensor an annual minimum royalty
payment ("Annual Minimum Payment") in the amount set forth on
Exhibit D. The Annual Minimum Payment for the first Contract Year
is non-refundable, shall be paid on the Effective Date and Licensee
shall receive a credit for such payment against all Royalties (as
hereinafter defined) payable by Licensee with respect to the first
Contract Year. Annual Minimum Payments payable thereafter shall be
non-refundable and, subject to the adjustments prescribed in the
following sentence, paid in four equal installments, with each
installment payable on the 30th day following the last day of
each Contract Quarter. With respect to each Contract Year
subsequent to the first Contract Year, the amount of a given
quarterly installment of the Annual Minimum Payment to be paid to
Licensor shall (provided that Licensee has timely paid and then
pays all sums due hereunder for that Contract Year) be reduced, but
not below zero, by the amount (if any) by which (i) the aggregate
Royalties and installments of Annual Minimum Payments for the Contract
Year previously paid and then payable with respect to the
portion of the Contract Year through and including the Contract
Quarter with respect to which this potential adjustment is being
calculated, exceeds (ii) the aggregate quarterly installments of
the Annual Minimum Payment which were payable with respect to the
portion (if any) of the Contract Year ending prior to, i.e. not
including, the Contract Quarter in respect of which this potential
adjustment is being calculated.
5.2 For all Goods bearing the Trademarks sold hereunder,
Licensee shall pay to Licensor as a royalty ("Royalties") a sum
equal to the royalty percentage for the particular category of
Goods bearing the Trademarks described on Exhibit D hereto
multiplied by the "Net Sales" of all of the Goods bearing the
Trademarks sold and/or shipped by Licensee or its permitted
Affiliates pursuant to Section 21 for each particular category of
Goods specified on Exhibit D. The term "Net Sales" shall mean the
net invoice price to Customer, less any documented credits issued
to Customer in the ordinary course of business for (i) actual
returns from Customer of the Goods sold hereunder received by
Licensee relating to Goods sold by Licensee, (ii) discounts or
(iii) allowances (collectively, "Permitted Deductions"). In all
instances where Net Sales are denominated in a foreign currency,
Licensee will calculate and report pursuant to the terms hereof the
associated royalty by translating Net Sales based on an average
monthly exchange rate. All other costs and expenses incurred in the
manufacture, sale, distribution or exploitation of the Goods, or
otherwise incurred by Licensee, shall be paid by Licensee, and no
such costs or expenses shall be charged to Licensor or shall be
deducted from any Royalty payable to Licensor. If Licensee does
not pay any Royalty or any portion thereof when due, Licensor shall
have the right to terminate this Agreement pursuant to Section
10.2. in accordance with the notice and cure provisions thereof.
5.3 Licensee shall pay all taxes (except taxes attributable
to the income of Licensor from any royalties paid hereunder)
duties, levies, handling charges and other fees imposed or levied
against or incurred by either Licensee or Licensor under any law,
regulation or administrative order now or hereafter in effect,
levied or based upon the license, delivery, shipment, import,
export, manufacture and Licensee's possession or use of all
products marked with the Trademarks or upon the grant of this
license or the exercise thereof or based upon or measured by the
license fees or payment thereof or any part of same. Should any
governmental authority in the Territory require, impose or levy a
value added tax based on the Royalty, or any portion thereof,
Licensee shall be solely responsible for satisfaction of same to
the extent required by applicable law.
5.4 Royalties are based on sales during a Contract Year and
are calculated quarterly, with quarterly payments due and payable
on the thirtieth day of the month immediately following the
last day of each Contract Quarter during the term of this
Agreement. Royalties payable for a Contract Quarter shall be
computed on the basis of the sales and shipments during the
Contract Quarter with a credit only for the Permitted Deductions
issued during such Contract Quarter. Payment of Royalties shall
accompany the quarterly statements required to be delivered
pursuant to Section 5.5 below. The acceptance by Licensor of any
of the statements furnished pursuant to this Agreement or of any
Royalties paid hereunder shall not preclude Licensor from
questioning the accuracy thereof at any time within two (2) years
after the receipt of such report.
5.5 Within thirty (30) days after the last day of each
Contract Quarter, Licensee shall furnish to Licensor (i) complete
and accurate statements, certified to be accurate by Licensee,
describing the Goods bearing the Trademarks sold pursuant to the
terms hereof, the number of each model sold, the gross invoice
price (aggregate and per unit), documented credits issued to
Customer in the ordinary course of business for actual product
returns received, discounts and allowances, and the Net Sales of
the Goods bearing the Trademarks distributed and/or sold by
Licensee during the preceding Contract Quarter and (ii) a completed
royalty statement summary in the form attached as Schedule 5.5. All
of the foregoing statements shall be furnished to Licensor whether
or not any of such Goods have been sold during the Contract Quarter
in question. On an annual basis, within sixty (60) days after the
close of Licensee's fiscal year, Licensee will provide Licensor
with a final report of Licensee's sales of Goods bearing the
Trademarks for the fiscal year and the Permitted Deductions for
each category of the Goods.
5.6 Licensee shall keep, maintain and preserve accurate books
of account and records covering all transactions relating to the
license hereby granted. Licensor (either itself or through a
certified public accounting firm retained on a non-contingency
basis) shall have the right during each Contract Year to conduct
two (2) examinations of such books and records of Licensee; an
examination may be conducted on reasonable written notice at all
reasonable hours of the day, to examine, copy and extract said
books of account and records and of all other documents and
materials in the possession or under the control of Licensee
relating directly to the subject matter and terms of this
Agreement. The books of account and records reflecting sales of
Goods sold bearing the Trademarks, Permitted Deductions and
Royalties payable for a Contract Year shall be kept available for
inspection by Licensor for two years following the delivery to
Licensor of the last report required hereunder for such year. In
the event that Licensor shall discover a discrepancy of 5% or more
in Royalties due to Licensor pursuant to any such examination and
the calculated amount of such discrepancy is not reduced after
consideration by the Mediator provided for in Section 22, Licensee
shall pay to Licensor the cost of such examination or audit. The
rights and obligations of this Section 5.6 and of Section 5.7 shall
apply to each permitted Affiliate authorized by Licensor pursuant
to Section 21.
5.7 Past due Royalties found to be due as a result of
Licensor's examination of (a) any statement provided pursuant to
this Section 5 above or (b) Licensee's books of accounts and
records, shall be paid immediately upon demand. Any and all late
payments of Royalties shall bear interest commencing on the date
the Royalty payment was originally due and payable pursuant to the
terms hereof at an annual interest rate equal to the prime rate of
the Chase Manhattan Bank, plus three percent (3%).
6. LIMITATION OF USE AND AUTHORITY
6.1 This Agreement does not grant Licensee any right of
ownership, title or interest in the Licensed Marks, nor does this
Agreement authorize Licensee to use the Licensed Marks except for
the purpose of manufacturing, marketing, selling, distributing and
providing certain after sales services with respect to the Goods in
the Territory to the Customer and for advertising and promotional
purposes as described herein. The Licensed Marks, all rights
therein and the goodwill pertaining thereto, whether developed by
the Licensor or the Licensee, shall inure to the benefit of and be
the exclusive property of Licensor. Licensee shall not register or
attempt to register the Licensed Marks in its own name or the name
of any third party. If applicable, Licensee shall assign to
Licensor all the Licensed marks and incidental rights created by
their use, together with the goodwill relating to that part of the
business in connection with which the Licensed Marks are used.
Licensee shall execute and deliver to Licensor such documents as
Licensor requires or requests in furtherance of its rights pursuant
to this Section 6.
6.2 Neither Licensee nor any Affiliate will directly or
indirectly sell, manufacture or distribute any goods whatsoever
under a mark similar to any of the Licensed Marks.
6.3 Licensee shall provide Licensor with the date of the
first use of the Trademarks on the Goods in interstate and
intrastate commerce and provide Licensor with all necessary
documents or information which Licensor may reasonably request for
the purpose of maintaining or securing Licensor's title to the
Trademark registrations.
7. TRADEMARK INFRINGEMENT
7.1 Licensee will notify Licensor promptly in writing of any
of the following that may come to Licensee's knowledge:
(a) Any alleged infringement by Licensor or
Licensee of the rights of any third parties arising out
of the activities undertaken in connection with this
Agreement;
(b) Any alleged infringement of the Licensed Marks
by third parties; or
(c) Any other factors or events which reasonably
may be expected to have a material adverse effect on the
promotion of the Goods under the Licensed Marks or on
Licensor's rights and interests in the Licensed Marks.
7.2 If any third party files a lawsuit, claim or any other
type of proceeding against Licensee claiming that the use by
Licensee of the Licensed Marks infringes upon a valid intellectual
property right belonging to such third party, Licensor shall defend
Licensee at Licensor's own expense, hold Licensee harmless against
the claims of any such third party and fully reimburse Licensee for
any and all reasonable costs and actual expenses associated with
such lawsuit, claim or other proceeding. Licensee, at its sole
expense, may appear in any such proceeding. Licensor may choose in
its sole discretion to settle such lawsuit, claim or other
proceeding relating to the Licensed Marks provided that such
settlement does not materially adversely affect Licensee's rights
hereunder or to make, use and sell Goods bearing the Trademarks or
require Licensee to contribute to such settlement (provided that
Licensee has not breached any of the terms hereof) and Licensee
shall cooperate to effect any such settlement. Notwithstanding the
foregoing, Licensee shall be responsible for costs and expenses
associated with any such lawsuit, claim or proceeding and Licensor
shall not be required to indemnify Licensee for any claim
contemplated by this Section 7.2 if a court of competent
jurisdiction determines the cause of such lawsuit, claim or
proceeding is the result of the action of Licensee or its
Affiliates not in compliance with this Agreement.
7.3 If, in the opinion of Licensee, it becomes desirable to
enforce any of the rights of the Licensee to use the Licensed Marks
granted herein, against a third party, Licensor shall use
reasonable efforts to do so. If Licensor fails to enforce such
rights, Licensee may bring an action against such third party in
its own name or in the name of Licensor; Licensor shall furnish all
reasonable assistance, at Licensee's request, to enable Licensee to
prosecute such action. Any such action or other proceedings shall
be at Licensee's expense and any monetary relief or monetary award
obtained as a result thereof shall inure to the benefit of Licensor
and Licensee as determined by a court of competent jurisdiction.
Licensor, however, shall at any time have the right to take over
the prosecution of any such action at its own expense and, in such
event, any monetary relief or monetary award shall inure to the
benefit of Licensor. In the event Licensor takes over the
prosecution of such action initiated by Licensee, Licensor shall
reimburse Licensee for reasonable expenses incurred by Licensee in
prosecution of such action.
7.4 Licensee shall furnish all reasonable assistance, at
Licensor's request or direction, to enable Licensor to assert and
prosecute any claims or defend against any action arising in
connection with or related to the matters described in Sections 7.1
through 7.3 above. Such assistance shall include, but is not
limited to: monitoring and reporting to Licensor any improper or
unauthorized use of the Licensed Marks, signing documents, giving
testimony, joining such action and asserting the licensed
Trademarks against third parties. Licensor shall reimburse
Licensee for reasonable expenses incurred by Licensee pursuant to
this Section 7.4, upon presentment by Licensee of documentation
thereof reasonably acceptable to Licensor. Any expenses in excess
of $2,500.00 must be approved in writing by Licensor in advance.
7.5 Licensee shall not use the name or credit of Licensor in
any manner whatsoever, nor incur any obligation in Licensor's name.
Nothing herein contained shall be construed to constitute the
parties joint venturers, nor shall any similar relationship be
deemed to exist between them. Nothing herein contained shall be
construed as constituting Licensee as Licensor's agent or as
authorizing Licensee to incur financial or other obligations in
Licensor's name without Licensor's specific authorization in
writing; and it is specifically understood and agreed that under no
circumstances shall any power granted, or which may be deemed to be
granted to Licensee, be deemed to be coupled with an interest. It
is specifically understood that the rights and powers retained by
Licensor herein are retained because of the necessity of protecting
Licensor's copyrights, trademarks, properties and intellectual
property rights generally, and specifically to conserve the good
will and good name of Licensor and of the Trademarks.
8. EXCLUSIVITY
8.1 Neither the Licensee nor any Affiliate of Licensee will
manufacture for sale to Customer any Goods under any brand name
other than the Trademarks or the "Orion" trademark or brand for
delivery to Customer for resale within the Territory during the
Term.
9. GOODWILL
Licensee recognizes the great value of the goodwill associated
with the Licensed Marks. Licensee further recognizes and
acknowledges that a breach by Licensee of any of its covenants,
agreements or undertakings hereunder may cause Licensor irreparable
damage, which cannot be readily remedied in damages in an action at
law, and may, in addition thereto, constitute an infringement of
Licensor's copyrights, service marks or Trademarks, thereby
entitling Licensor to equitable remedies, costs and reasonable
attorney's fees.
10. TERMINATION
10.1 This Agreement shall terminate and the right of Licensee
to use the Licensed Marks shall immediately cease, except as
provided in Section 10.7, immediately by its own force without
notice from Licensor upon the occurrence of any one or more of the
following events: (i) a general assignment by Licensee for the
benefit of creditors; (ii) a public admission by Licensee of its
insolvency; (iii) dissolution of Licensee or loss of its charter by
forfeiture or otherwise (unless reinstated within thirty days of
forfeiture); (iv) adjudication of Licensee as bankrupt or
insolvent; (v) appointment of a trustee, liquidator or receiver for
the Licensee or a material or substantial portion of its assets,
subsidiaries or property; (vi) exercise by any court or
governmental agency of jurisdiction over all or substantially all
of the property or business of the Licensee; (vii) the commencement
of any proceedings for the reorganization, dissolution, liquidation
or winding up of the Licensee unless such proceedings are
immediately contested in good faith and dismissed within 60 days
after the commencement of same; (viii) the filing by Licensee of a
voluntary petition in bankruptcy under any bankruptcy or insolvency
law or any law providing for Licensee's reorganization,
dissolution, liquidation or winding up; or (ix) consent by Licensee
to the appointment of a receiver or trustee of itself or of all or
substantially all of its property.
10.2 In the event that Licensee or any Affiliate permitted
under Section 21: (i) without prior written consent of Licensor
sells Goods bearing the Licensed Marks other than to Customer
for delivery in or into and resale within the Territory;
(ii) has intentionally rendered or renders a materially incorrect
representation or report in connection with the rights granted to
Licensee hereunder; (iii) commits intentional or negligent material
damage or omits or fails to take steps within its power to prevent such
damage to the Licensed Marks or the value of the Licensed Marks or any of
Licensor's tradenames, trademarks, service marks, symbols, signs,
copyrights or other distinctive marks, or the goodwill associated
therewith; (iv) fails to provide insurance in accordance with the
terms of Section 17; (v) fails to pay the Royalties or any
installment of the Annual Minimum Payment set forth in Section 5 or
other sums payable to Licensor hereunder when due; (vi) registers
or attempts to register in its own name or the name of a third
party a Licensed Mark or any other trademark owned by the Licensor
or substantially similar to such a trademark; (vii) except as
contemplated by Section 21, assigns or transfers this Agreement or
any rights or obligations hereunder without the prior written
consent of Licensor; (viii) fails (without cause) to perform their
respective obligations under the terms of the Agreement of even
date herewith among Licensor, Licensee and certain of Licensee's
Affiliates; or (ix) materially breaches any of its other
obligations hereunder, then, in addition to the rights available
under law or in equity, Licensor may notify Licensee in writing
that Licensee is in default under the terms of the Agreement. If
such default is not remedied to the satisfaction of Licensor within
thirty (30) days after the delivery of such notice, Licensor shall
have the right to terminate this Agreement which termination shall
be effective upon delivery to Licensee of notice that the Agreement
is terminated.
10.3 Upon termination of this Agreement, Licensor shall have
the right to retain all monies paid hereunder to date and to avail
itself of any legal or other remedy or relief available to it,
including but not limited to equitable relief to enjoin the use of
the Licensed Marks and the manufacture, sale and distribution of
Goods utilizing the Licensed Marks. All remedies available to
Licensor hereunder are cumulative, and Licensor may exercise any
one or more remedies or rights available to it cumulatively. The
termination of this Agreement shall be without prejudice to the
rights and remedies of Licensor with respect to any obligation
incurred or breach committed prior to such termination, including
the right to recover for damages caused by Licensee's breach.
10.4 Upon termination of this Agreement, Licensee shall
promptly (i) deliver to Licensor any and all property belonging to
the Licensor, including all such promotional material, original
artwork, product manuals, and parts thereof (including samples),
and Written Material in the possession of Licensee and (ii) make
available for delivery to Licensor any product molds to the extent
such molds are property of Licensor. Following termination,
Licensee shall continue to be solely responsible for (i)
maintaining an inventory of spare parts as contemplated by Section
13 with respect to Goods sold by Licensee and (ii) accepting
returns from the Customer for all Goods sold by Licensee.
10.5 [INTENTIONALLY OMITTED]
10.6 Within ten (10) days of the termination of this
Agreement, a statement showing the number and description of Goods
on hand or in process shall be delivered by Licensee to Licensor.
Licensor shall have the right to take within a reasonable period of
time a physical inventory to ascertain or verify such statement,
and refusal by Licensee to submit to such physical inventory to
Licensor shall forfeit Licensee's right to dispose of such
inventory as provided in Section 10.7 hereof.
10.7 In the event of termination by Licensor of this
Agreement, Licensee, its receivers, representatives, trustees,
agents, administrators and successors shall have no further right
to manufacture, cause to manufacture, distribute, sell, exploit or
in any way deal in or with any advertising, Written Materials or
other documentation relating thereto bearing the Licensed Marks,
without the express prior written consent of Licensor; however,
following expiration of the Term, Licensee may deliver to Customer
in the Territory, for resale within the Territory, for a period of
sixty (60) days, Goods which were ordered by Customer in bona fide
sales transactions and originally scheduled for delivery prior to
the expiration of the Term, provided, that (i) the original
delivery date was changed at the request of Customer, (ii) Licensee
has timely paid all Royalties due hereunder and (iii) Licensee pays
to Licensor all Royalties due with respect to such delivery.
11. DISTRIBUTION OF GOODS
11.1 Licensee shall during the term of this Agreement, and
any extension thereof, manufacture (or cause to be manufactured),
distribute and sell the Goods and shall make and maintain adequate
arrangements for their distribution to Customer throughout the
Territory.
11.2 Licensee acknowledges that its failure to cease (or
cause to cease) the manufacture, assembly and packaging, sale or
distribution of Goods bearing or using any of the Licensed Marks at
the termination of this Agreement, other than as set forth in
Section 10.7, will result in immediate and irreparable damage to
Licensor and to the rights of any subsequent licensee. Licensee
acknowledges and admits that there is no adequate remedy at law for
such failure and that, in the event of such failure, Licensor shall
be entitled to equitable relief by way of temporary and permanent
injunctions and such other further relief as any court with
jurisdiction may deem just and proper.
12. SUBCONTRACTORS
Licensee shall obtain the satisfactory written agreement in
the form set forth on Schedule 12.1 of any subcontractor that is
retained by Licensee that such subcontractor will not use the
Licensed Marks in any manner not permitted under this Agreement,
in those instances where the subcontractor furnishes Goods bearing
the Trademarks or packaging for such Goods bearing the Licensed
Marks. Such subcontractors shall acknowledge that Licensor (and
its successors and assigns) is a third party beneficiary of such
agreement. Licensee shall, at its own expense, assist and cooperate
with Licensor with respect to any action by Licensor to enforce its
rights to the Trademarks against any one or more of Licensee's
subcontractors.
13. SERVICE AND SPARE PARTS
Licensor shall provide Licensee with written designation of
independent service centers in the Territory and Licensee shall
utilize same or such other service centers having comparable skill
and expertise provided that Licensee shall deliver to Licensor
prior written notice of the intent to use such service centers.
Licensor shall continue until July 31, 1995 to (i) accept all
returns of product from its customers and (ii) be solely
responsible for all warranty and after-sale services, each such
obligation to be honored in accordance with Licensor's policies.
Commencing August 1, 1995, Licensee shall be solely responsible, at
its own expense, for all video products returned (and expenses
associated or assessed by Customer in connection therewith except
Licensor's own overhead expenses or allocations) by the Customer
(under any return program of the Customer presently or hereafter in
effect) and all after-sales service and warranty service for Goods
manufactured by or for the benefit of Licensee or its Affiliates
and sold or distributed to Customer, in each instance regardless of
when such video product was sold or shipped to the Customer.
Notwithstanding the obligation of Licensee pursuant to the
preceding sentence, Licensor shall continue subsequent to July 31,
1995 to (i) accept returns of product from its customers other than
returns from the Customer of Goods bearing the Trademarks
manufactured or assembled by Licensee's Affiliates and (ii) be
solely responsible for all warranty and after-sale services, except
with respect to Goods bearing the Trademarks sold to the Customer
which were manufactured by Licensee's Affiliates, each such
obligation to be honored in accordance with Licensor's policies.
For the purpose of this Agreement, after-sales service shall
include without limitation customer service, technical service,
consumer affairs and service manual services. Licensor and
Licensee shall cooperate to establish mutually satisfactory
procedures for after-sales services. Licensee shall maintain a
sufficient inventory of spare parts for the Goods bearing the
Trademarks which are sold to the Customer during the term of this
Agreement and, subsequent to the expiration or termination of this
Agreement, Licensee shall maintain a sufficient inventory of spare
parts for the Goods bearing the Trademarks which are sold to the
Customer for the respective periods required by applicable federal
or local law in the particular countries or regions throughout the
Territory and, in any event, such inventory shall be maintained for
at least six (6) years unless commercially impracticable.
14. REPRESENTATIONS AND WARRANTIES OF LICENSOR
Licensor hereby represents and warrants to Licensee that:
(a) Licensor is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation.
(b) Licensor has the full power and authority to execute
and deliver this Agreement and to perform all of its
obligations hereunder, subject to the consent of Congress
Financial Corporation to the granting of the license by
Licensor to Licensee of the Licensed Marks hereunder.
(c) The execution and delivery of this Agreement has
been duly authorized by all necessary corporate action of
Licensor and constitutes the valid and legally binding
obligation of Licensor enforceable against Licensor in
accordance with it terms.
(d) This Agreement shall be binding on the successors,
assigns and legal representatives of Licensor.
(e) Licensor owns the Trademarks free and clear of liens
and encumbrances except such liens and encumbrances granted to
Congress Financial Corp.
15. REPRESENTATIONS AND WARRANTIES OF LICENSEE
Licensee hereby represents and warrants to Licensor that:
(a) Licensee is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
organization.
(b) Licensee has the full power and authority to execute
and deliver this Agreement and to perform all of its
obligations hereunder.
(c) The execution and delivery of this Agreement has
been duly authorized by all necessary action of Licensee and
constitutes the valid and legally binding obligation of
Licensee enforceable against Licensee in accordance with its
terms.
16. DISCLAIMER AND INDEMNIFICATION
16.1 Licensee will make no statements or representations
whatsoever to any third parties which, expressly or impliedly,
states or suggests that Licensor is making any warranties, express
or implied, with respect to the Goods. Licensor expressly
disclaims any implied warranties of merchantability and fitness for
a particular purpose. Licensee shall not grant any warranty or
guaranty binding Licensor or creating any liability for Licensor.
16.2 Licensor shall have no liability or responsibility to
Licensee (except as specifically provided herein) or any other
person and/or entity arising out of or relating to the rights
granted to Licensee pursuant to this Agreement. Licensee shall
defend, indemnify and hold harmless Licensor, its Affiliates and
the employees, officers, directors, stockholders, agents,
representatives, successors and assigns of each of Licensor and its
Affiliates from and against any and all claims, demands, judgments,
liability, damages, losses, costs and expenses of any nature
(including reasonable attorneys' fees and expenses), including
without limitation, death, personal injury, property damage or
product liability arising from or related to any (i) action or
omission of Licensee, its agents, employees, representatives,
distributors or subcontractors arising under or in connection with
this Agreement, (ii) the manufacture, assembly, packaging,
transportation, distribution, sale or use of the Goods bearing the
Trademarks sold to Customer hereunder, (iii) Licensee's failure to
comply with its material obligations set forth herein, (iv)
Licensee's misrepresentation of any warranties or representations
herein, or (v) product liability claims relating to or arising in
connection with the sale of Goods bearing the Trademarks to
Customer hereunder.
17. INSURANCE
Prior to the distribution or sale of any Goods, Licensee shall
purchase and maintain or cause to be maintained in full force and
effect, at its own cost, insurance reasonably satisfactory to
Licensor of the kinds and in the amounts specified in Schedule 17
or in amounts required by law, whichever is greater, and furnish
Licensor with certificates of insurance evidencing the insurance
coverage required pursuant to this Agreement, as evidence thereof,
in the prescribed form prior to the commencement of distribution of
the Goods and annually thereafter not less than thirty (30) days
prior to the expiration dates of said policies. Each insurance
policy required to be maintained pursuant to this Section 17 shall
specifically name Licensor as additional insured except that
policies for Workers' Compensation and Employer's Liability may be
maintained without naming Licensor as an additional insured. No
reduction in coverage shall be made in the insurance coverage
required pursuant to this Agreement without Licensor's prior
written approval. The certificate of insurance evidencing the
insurance coverage required pursuant to this Agreement shall
provide that no changes shall be made in the certificate of
insurance without the prior written approval of Licensor. Licensee
shall cause to be promptly delivered to Licensor copies of all
insurance policies issued to or for the benefit of Licensee or for
the benefit of Licensor pursuant to this Agreement.
18. CONFIDENTIALITY
18.1 The parties recognize that by reason of this Agreement,
a party and its representatives (including the auditors of a party)
may acquire Confidential Information. Each party will use the
Confidential Information received by the other party solely for the
purpose of carrying out this Agreement. Each party recognizes that
all such Confidential Information acquired from the other party is
the property of such other party and that the recipient and its
representatives (including auditors) shall not, during the term of
this Agreement or thereafter, directly or indirectly, use, publish,
disseminate or otherwise disclose any Confidential Information
obtained in connection with this Agreement without the express
written consent of a duly authorized officer of the other party.
18.2 Each party shall cause each of their respective
officers, directors, agents, auditors or employees to whom a
disclosure of Confidential Information is made or any
subcontractor, including the manufacturer(s) of the Goods, to
adhere to the terms and conditions of this Section 18 as if, and to
the same extent as if, he or she were a party to this Agreement.
18.3 Upon expiration or termination of this Agreement, each
party shall return to the other party all copies of Confidential
Information provided by the other party in its possession or
control.
19. FORCE MAJEURE
19.1 Neither party will have any liability to the other by
reason of any failure or delay in performance of any provision of
this Agreement, if and to the extent that such failure or delay is
due to any occurrence (other than financial) beyond the reasonable
control of the party failing or delaying to perform. "Beyond
reasonable control" shall mean acts of God, civil disturbances,
fires, floods, explosions, riots, war, rebellion, earthquake, acts
of government, sabotage, and bona fide failure of third parties
(not an Affiliate of the party to be excused) to comply with its
obligations to that party by reason of the same type of force majeure.
The provisions of this Section 19 shall not apply to the payment
obligations of Licensee under this Agreement.
19.2 A party seeking relief pursuant to this Section 19
shall, as soon as practicable after the impediment and its effect
on such party's ability to perform become known, give written
notice to the other party. Written notice shall also be given when
the impediment ceases.
20. LICENSOR'S LINE OF BUSINESS
Licensee acknowledges that Licensor is presently in the
business of selling consumer electronic products and microwave
ovens and is seeking alliances, joint venture partners and/or
licensees with the goal of distributing additional kinds of
consumer products throughout the world. Licensee acknowledges
that marketing and distribution of the foregoing (as well as any
other products which Licensor may distribute) with the Licensed
Marks (except the sale of Goods bearing the Licensed Mark to
Customer for delivery into and resale within the Territory) shall
not constitute a breach of this Agreement. Licensor acknowledges
that Licensee is presently in the business of distributing consumer
electronics products and that the manufacturing, sale, marketing
and distribution by Licensee of consumer electronic products shall
not (except to the extent provided herein) constitute a breach of
this Agreement.
21. ASSIGNMENT AND SUBLICENSING
The license herein granted is personal to Licensee and may
not be assigned, transferred, sub-licensed, pledged, mortgaged or
otherwise encumbered by Licensee in whole or in part without
Licensor's prior written consent. For the purposes of this Section
21.1, the term "assigned" shall include without limitation,
transfers of (i) Control, whether by merger, consolidation,
reorganization or otherwise, and (ii) ownership of fifty-one
percent or more of the outstanding securities of Licensee to a
person or entity other than an Affiliate in existence as of the
date hereof or as of the date of any extension. Notwithstanding
the prohibitions set forth herein, Licensee shall be permitted to
effect sales of the Goods bearing the Licensed Marks to the
Customer for delivery into and resale within the Territory through
transfers of the Goods by or among such parties as may be agreed to
in writing by Licensor and Licensee, provided that all such sales
are made subject to the terms of this Agreement including without
limitation the obligation to pay Royalties with respect to such
sales. Additionally, Licensee may sell returned Goods bearing the
Licensed Marks to E & H Partners, a Delaware partnership composed
of Licensor and Hopper Radio of Florida, Inc. and, provided that E
& H Partners and Licensee do not reach mutually satisfactory terms
of such sales, Licensee may then and only then sell returned Goods
bearing the Licensed Marks to Bud's.
22. MISCELLANEOUS
22.1 No provision of this Agreement may be changed, amended
or waived, except in writing signed by both parties.
22.2 Any waiver on the part of any party of any right or
interest hereunder shall not imply the waiver of any subsequent
breach or the waiver of any other rights. No waiver by either
party of a breach hereof or a default hereunder shall be deemed a
waiver by such party of a subsequent breach or default of like or
similar nature.
22.3 Should any provision of this Agreement prove to be
invalid or unenforceable under existing or future law, the
remaining provisions of the Agreement will remain in force in all
other respects.
22.4 All notices will be in writing and in English and will
be served personally or by registered or certified mail, return
receipt requested, or by overnight courier or by facsimile
transmission to each other party at its address herein set forth,
or at such other address as each party may provide to the other in
writing from time to time:
(a) If to Licensor:
Emerson Radio Corp.
Nine Entin Road; P.O. Box 430
Parsippany, NJ 07054-0430 U.S.A.
Attention: Eugene I. Davis
President
(b) If to Licensee:
ORION Sales Inc.
11 Union Drive
P.O. Box 10
Olney, Illinois 62450
Attention: A. Oki
President
with copy to:
Barry J. Bendes, Esq.
Kane Kessler, P.C.
1350 Avenue of the Americans
26th Floor
New York, New York 10019
Any such notice will be effective upon actual receipt or three
(3) days after it is deposited in the mail, postage prepaid,
properly addressed and certified, whichever occurs first.
22.5 This Agreement is the entire and sole agreement and
understanding of both parties and supersedes all other agreements,
understandings and communications, whether oral or written,
regarding the subject matter hereof.
22.6 This Agreement may be executed in any number of
counterparts, but all counterparts hereof will together constitute
but one agreement. In proving this Agreement, it will not be
necessary to produce or account for more than one counterpart
executed by both parties.
22.7 The parties hereto recognize there may be various issues
from time to time arising from or relating to the performance of
the parties to this Agreement or the sale by both parties of
"Emerson" branded product in the Territory. To the extent that such
issues become the subject of a dispute between the parties, any
such dispute (which has not been resolved by negotiation after the
respective senior management of the parties is notified of the
dispute) shall be submitted for non-binding mediation to William
Weilbacher, or such other person agreed to by the parties hereto.
Such submission shall be made in writing, with copies delivered to
each of the parties. The mediator will hold as confidential all
information provided by the parties. The mediator shall either (i)
offer specific suggestions for resolution of the dispute or (ii)
assist the parties to generate mutually agreeable resolutions. All
mediation fees shall be shared equally by the parties; provided,
however, that, upon written finding of the mediator, a party which
does not present a meritorious position with respect to the matter
submitted for dispute shall reimburse the other party for the fees
paid by it to the mediator for such mediation.
22.8 Licensee shall strictly and fully comply with all export
and import controls imposed by the United States or any country or
organization of nations within whose jurisdiction Licensee operates
or does business.
22.9 The respective indemnities, agreements, represen-
tations, warranties and other statements of each of the parties
hereto and the undertakings set forth in or made pursuant to this
Agreement will remain in full force and effect, and will survive
the termination of this Agreement.
22.10 Licensee shall not disseminate any press release or
other announcement relating to the transaction contemplated by this
Agreement without Licensor's prior written consent as to the
contents thereof.
22.11 All payments from Licensee to Licensor hereunder shall
be in U.S. dollars.
22.12 In any action brought by a party to this Agreement
relating to the terms hereof, the prevailing party shall be
entitled to recover its reasonable attorneys' fees, costs and
expenses of suit.
IN WITNESS WHEREOF, this Agreement has been executed by the duly
authorized representative of each party as of the date set forth
above.
LICENSOR:
EMERSON RADIO CORP.
A Delaware Corporation
By: /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chief Executive Officer
LICENSEE:
ORION SALES INC.
An Illinois' Corporation
By: /s/ Mr. A. Oki
Mr. A. Oki
President
AGREEMENT
This Agreement, dated as of February , 1995, is between
EMERSON RADIO CORP., a Delaware corporation, having a place of
business at Nine Entin Road, Parsippany, New Jersey 07054 (hereinafter
"Emerson"), ORION SALES, INC., an Illinois corporation, having a place
of business at 11 Union Drive, P.O. Box 10, Olney, Illinois 62450
(hereinafter "Orion"), TECHNOS DEVELOPMENT LIMITED, a Hong
Kong company having a place of business in Hong Kong (hereinafter
"Technos"), and OTAKE TRADING CO. LTD., a Japan company having
a place of business at 1-18 7 Chome Kobe City, Japan (hereinafter
"Otake"). Orion, Technos and Otake may be collectively referred to
herein as the "Otake Parties."
Emerson, directly and through affiliates, distributes a variety of
consumer electronics products and microwave products in various
countries throughout the world. Emerson is the owner of certain valuable
and well-known trademarks throughout the world and the goodwill
associated therewith;
The Otake Parties, directly and through affiliates, manufacture and
distribute consumer electronics products in various countries throughout
the world;
Certain of the Otake Parties, directly and through affiliates, have
supplied consumer electronics products to Emerson and its affiliates for
several years;
Emerson and Orion have entered into a License Agreement of even
date herewith (the "License Agreement") providing for the specified use
by Orion of certain of Emerson's trademarks and other intellectual
property in connection with the distribution in the United States and
Canada to the Customer (as defined in the License Agreement) of video
cassette recorders, video cassette players, color televisions, color
television/video cassette player combinations and color television/video
cassette recorder combinations, (collectively "Video Products"); together
with replacement parts for each of the foregoing;
Emerson and the Otake Parties desire to set forth their respective
agreements to provide for, among other things, the continued supply of
Video Products by Otake to Emerson, the payment of certain monies to
the parties or their affiliates as set forth herein and the mutual release
of the parties to this Agreement to the extent provided herein;
In consideration of the foregoing premises and mutual agreements
set forth herein, the following is agreed to:
1. DEFINITIONS
1.1 "Affiliate" will mean a person or entity who directly, or
indirectly through one or more intermediaries, controls or is controlled by
or is under common control with a specified entity.
1.2 "Confidential Information" will mean any and all information,
data, specifications, customer lists, products and services information,
sales and marketing information, key vendor data, and proprietary
information regarding Emerson, each of the Otake Parties or their
respective Affiliates (collectively, the "Information") except:
(a) Information which at the time of disclosure is in the
public domain;
(b) Information which, through no fault of the party
receiving same, is published or otherwise becomes part
of the public domain;
(c) Information which the receiving party can document as
having been in its possession prior to the time of
disclosure to it by the other party;
(d) Information which the receiving party can document as
having been received by it on a non-confidential basis
from a third party; or
(e) Data, specifications, customer lists, products and
services information and key vendor data which the
receiving party created on its own or through
independent third parties without use of the Information.
1.3 "Subsidiaries" will mean all direct and indirect subsidiaries of
Emerson.
2. SUPPLY OF PRODUCTS TO EMERSON
2.1 Otake, directly or through its Affiliates, shall supply to
Emerson, its Subsidiaries, and their respective customers, on a timely
basis (subject to force majeure as defined at Section 8.10 and timely
payment pursuant to Section 2.3), Video Products ordered by Emerson
or its Subsidiaries from time to time and to be delivered from the date
hereof until March 31, 1998; provided, however, that if the License
Agreement is terminated other than in accordance with Sections 10.1 and
10.2 of such agreement, Otake's obligations hereunder shall expire. Video
Products ordered by Emerson or its Affiliates shall be supplied by Otake
pursuant to trade terms customary between Otake, Emerson and their
respective Affiliates including customary order and acceptance
procedures. Otake shall use all reasonable commercial efforts to deliver
Video Products ordered by Emerson or its Subsidiaries on or prior to the
delivery schedule specified in purchase orders accepted by Otake.
Emerson shall be under no obligation to accept late deliveries. Otake,
directly or through it Affiliates, may make partial deliveries in
commercially reasonable quantities, subject to and in accordance with
past practices.
2.2 The F.O.B.price net of discounts and allowances for Video
Products to be sold by Otake or its Affiliates pursuant to the terms
hereof shall be equal to the lowest price net of discounts and allowances
at which such Video Products are being sold by Otake or its Affiliates to
any third party or to any Affiliate of Otake for the purpose of distributing
such product in the United States or Canada. Such prices may reflect
adjustments for feature differentials based upon standard industry costs
of such features.
2.3 Payment to Otake for Video Products delivered pursuant to
Section 2.1 between the date hereof and March 31, 1998 shall be made
as follows:
A. Letters of credit in the amount of the purchase price
shall be opened in favor of and delivered to Otake by the last
day of the month which is two months prior to actual
shipment of the product manufactured outside of the United
States (such letters of credit shall provide for terms
customary between the parties and be confirmed by a major
New York City or Hong Kong financial institution);
B. For products manufactured by Otake or its Affiliates in
the United States, Emerson shall pay the manufacturer on the
30th day of each month for products delivered to Emerson or
its customers from the 26th of the previous month through
the 25th day of the month during which payment is made;
C. Provided that the payment terms set forth in A. and B.
are honored, Emerson shall have no obligation whatsoever to
provide or arrange for the benefit of the Otake Parties any
collateral or security.
2.4 The Otake Parties shall continue to maintain or cause to be
maintained in full force and effect, at its own cost, insurance of the kinds
and in the amounts historically maintained for the benefit of Emerson
(each policy to name Emerson as an additional insured) and furnish
Emerson with certificates of insurance evidencing the requisite insurance
coverage. The Otake Parties shall defend, indemnify and hold harmless
Emerson, its Affiliates and the employees, agents, officers and directors
of each of Emerson and its Affiliates from and against any and all claims,
demands, judgments, liability, damages, losses, costs and expenses of
any nature (including reasonable attorneys fees and expenses), including,
without limitation, death, personal injury, property damage or product
liability arising from or related to the manufacture, assembly, packaging
and transportation of the Video Products by the Otake Parties or their
Affiliates sold under the terms hereof.
2.5 In the event of a bona-fide shortage of Video Product or
components thereof, Otake may, after consideration of Emerson's
requirements, allocate in good faith available Video Products and
components among its various customers provided that firm Emerson
orders shall receive reasonable priority consideration after fulfillment by
Otake of orders of Video Products to be delivered by the Otake Parties
to Wal-Mart Stores, Inc. and its Affiliates for Video Products bearing the
"Emerson" or "Orion" brand names.
2.6 All products supplied to Emerson, its Subsidiaries and their
respective customers shall be designed and manufactured in a manner
consistent with the quality standards and AQL requirements of Video
Products historically purchased by Emerson and its Subsidiaries from
Otake. Otake shall manufacture and deliver all Video Products ordered
by Emerson, its Subsidiaries and their respective customers in compliance
with all applicable laws, rules, regulations and orders.
2.7 Following such date on which Otake may cease supplying
Emerson with Video Products, Otake shall continue to sell to Emerson,
its Subsidiaries and their respective customers spare parts on reasonable
commercial terms in order to permit Emerson to honor its warranty and
service obligations to customers of Emerson and its Subsidiaries who
have purchased product manufactured by the Otake Parties or their
Affiliates.
3. PAYMENTS
3.1 In full and final settlement for all claims relating to periods
ending on or prior to December 31, 1993, including but not limited to
claims for rebates and pricing issues relating to or for calendar year ended
December 31, 1993, the Otake Parties shall pay to Emerson $3,900,000
upon execution of this Agreement by Emerson.
3.2 In full and final settlement for all claims relating to periods
ending on or prior to December 31, 1994, including but not limited to
claims for rebates and pricing issues relating to or for calendar year ended
December 31, 1994, the Otake Parties shall pay to Emerson $3,900,000
in immediately available funds on or before September 30, 1995.
3.3 In full and final settlement for all claims relating to periods at
or prior to the date of the execution of this Agreement including but not
limited to claims for rebates and pricing issues relating to or for the
quarter ended March 31, 1995, the Otake Parties shall pay to Emerson
$2,400,000 in immediately available funds on or before March 31, 1995.
3.4 Upon execution of this Agreement, Emerson shall pay to Orion
Electric (America) $5,248,698, less amounts paid or credits owed,
asserted by Otake to be due and payable as of November 30, 1994.
4. EMERSON ACCRUALS
Emerson has continued and shall continue its existing polices
and programs providing for a 1% accrual, net of returns and other credits,
on all product (other than 19" televisions) delivered to Wal*Mart Stores,
Inc. for the fiscal year ended March 31, 1995. Such accruals are to be
applied to co-operative advertisements and shall in all instances be
utilized in compliance with Emerson's existing policies and programs for
the products which give rise to the accruals.
5. MOLDS AND TOOLS
Emerson and the Otake Parties have periodically caused to be
manufactured molds and tools for the manufacture and production of
Video Products. It is agreed and understood that each of Emerson and
each of the Otake Parties shall have the right to continue to use the
molds and tools at factories operated by Otake or its Affiliates without
payment to the other parties to this Agreement provided, however, that
the permitted use of the molds and tools shall confer upon none of the
Otake Parties any right, title or interest to Emerson's trademarks or other
intellectual property other than as specifically set forth in the License
Agreement. The respective rights to the use of the models and tools
shall survive termination or expiration of this Agreement.
6. MUTUAL RELEASES
6.1 Upon execution of this Agreement, Emerson shall execute and
deliver to the Otake Parties a release in the form attached as Exhibit "A."
6.2 Upon execution of this Agreement, the Otake Parties shall
execute and deliver to Emerson a release in the form attached as Exhibit
"B."
7. CONFIDENTIALITY
7.1 The parties recognize that by reason of this Agreement, a
party and its representatives (including the auditors of a party) may
acquire Confidential Information. Each party will use the Confidential
Information received from the other party solely for the purpose of
carrying out this Agreement. Each party recognizes that all such
Confidential Information acquired from the other party is the property of
such other party and that the recipient and its representatives (including
auditors) shall not, during the term of this Agreement or thereafter,
directly or indirectly, use, publish, disseminate or otherwise disclose any
Confidential Information obtained in connection with this Agreement
without the express written consent of a duly authorized officer of the
other party.
7.2 Each party shall cause each of their respective officers,
directors, agents, auditors or employees to whom a disclosure of
Confidential Information is made or any subcontractor, including the
manufacturer(s) of the Video Products to adhere to the terms and
conditions of this Section 7 as if, and to the same extent as if, he or she
were a party to this Agreement.
7.3 Upon expiration or termination of this Agreement, each party
shall return to the other party all copies of Confidential Information
provided by the other party then in its possession or control.
8. MISCELLANEOUS
8.1 No provision of this Agreement may be changed, amended or
waived, except in writing signed by all of the parties hereto.
8.2 Any waiver on the part of any party of any right or interest
hereunder shall not imply the waiver of any subsequent breach hereof or
a default of a like or similar nature.
8.3 Should any provision of this Agreement prove to be invalid or
unenforceable under existing or future law, the remaining provisions of
this Agreement shall remain in force in all other respects.
8.4 All notices will be in writing and in English and will be served
personally or by registered or certified mail, return receipt requested, or
by overnight courier or by facsimile transmission to each party at its
address herein set forth, or at such other address as each party may
provide to all parties hereto in writing from time to time:
(A) If to Emerson:
Emerson Radio Corp.
Nine Entin Road, P.O. Box 430
Parsippany, New Jersey 07054-0430 U.S.A.
Attn: Eugene I. Davis, President
(B) If to one or more of the Otake Parties:
c/o Orion Sales, Inc.
11 Union Drive
P.O. BOX 10
Olney, Illinois 62450
Attn: A. Oki, President
with copy to:
Barry J. Bendes, Esq.
Kane Kessler, P.C.
1350 Avenue of the Americas
26th Floor
New York, New York 10019
Any such notice will be effective upon actual receipt or three (3)
days after it is deposited with the United States Postal Service, postage
prepaid, properly addressed and certified, whichever occurs first.
8.5 Together with the License Agreement, all documents
referenced therein, and all documents to be delivered at the time of
execution of this Agreement (collectively referred to herein as "Ancillary
Agreements"), this Agreement and exhibits hereto shall constitute the
entire and sole agreement and understanding of all parties hereto and
supersede all other agreements, understandings, and communications,
whether oral or written, regarding the subject matter described herein and
in the Ancillary Agreements.
8.6 This Agreement may be executed in any number of counterparts,
but all counterparts hereof will together constitute but one
agreement. In proving this Agreement, it will not be necessary to
produce or account for more than one counterpart executed by all of the
parties.
8.7 The respective releases and agreements set forth in Sections
5, 6, and 7 hereof and the undertakings set forth in or made pursuant to
this Agreement will remain in full force and effect, and will survive the
termination of this Agreement.
8.8 No party hereto shall disseminate any press release or other
announcement relating to the transactions contemplated by this
Agreement without the prior written consent of all other parties as to the
contents thereof.
8.9 All payments to be made pursuant to the terms of this
Agreement shall be made in U.S. dollars.
8.10 No party shall incur any liability to another party to this
Agreement for delay in delivery or accepting delivery due to acts of God,
fire, earthquake, floods, strikes, riots, war, bona fide failure of third
parties (not an Affiliate of the party to be excused) to comply with its
obligations to that party by reason of the same type of force majeure
or governmental intervention that such party could not have been
reasonably expected to have anticipated or taken into account at the
time of tender and acceptance of a purchase order, or that it could
not have reasonably avoided or overcome. Any party seeking to invoke
the benefit of this "force majeure" provision shall promptly notify
the other parties in writing of the occurrence and continuance of
such event and the anticipated extent of the delay. Written notice shall
also be given when the impediment ceases.
8.11 This Agreement may not be assigned or transferred without
the prior written consent of each of the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed by the
duly authorized representative of each party as of the date set forth
above.
EMERSON RADIO CORP. ORION SALES, INC.
BY:/s/ Geoffrey P. Jurick By: /s/ Mr. A. Oki
Geoffrey P. Jurick Name: Mr. A. Oki
Chief Executive Officer Title: President
TECHNOS DEVELOPMENT LIMITED OTAKE TRADING CO., LTD.
By: /s/Mr. Fanaki By: /s/Mr. Uehara
Name: Mr. Funaki Name: Mr. Uehara
Title: Managing Director Title: Managing Director
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