Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EMERSON RADIO CORP.
(Exact name of Registrant as specified in its charter)
Delaware 5064 22-3285224
(State of (Primary Standard (I.R.S.
Incorporation) Industrial Employer
Classification Code Identification
Number) No.)
Nine Entin Road
Parsippany, NJ 07054
(201) 884-5800
(Address including zip code and telephone number including
area code, of registrant's principal executive offices)
______________
Eugene I. Davis
President
Emerson Radio Corp.
Nine Entin Road
Parsippany, NJ 07054
(201) 884-5800
(Name address including zip code and
telephone number
including area code, of agent for service)
____________
With copies to:
Albert G. McGrath, Jr., Esq. Jeffrey M. Davis,Esq.
Senior Vice President and Lowenstein, Sandler, Kohl,
General Counsel Fisher & Boylan, P.A.
Emerson Radio Corp. 65 Livingston Avenue
Nine Entin Road Roseland, NJ 07068
Parsippany, NJ 07054 (201) 992-8700
Approximate date of commencement of proposed sale to the public. As
soon as practicable after the Securities and Exchange Commission declares
the Registration Statement effective.
If any of the securities being registered on this Form are to be offered
on a continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box
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maximum maximum
Amount offering aggregate Amount of
Title of each class of to be price per offering registration
securities to be registered registered security price fee
Common Stock 5,000,000 $2.125 $10,625,000 $3,663.79
$.01 par value Shares
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
EMERSON RADIO CORP.
Cross Reference Sheet Pursuant to Item 501 of Regulation S-K showing
the location in the Prospectus of the response to items of Part I of
Form S-1.
Form S-1 Item Location in Prospectus
1. Forepart of Registration Cover Page
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Cover Page; Available Information;
Back Cover Pages of Prospectus Back Cover Page
3. Summary Information, Risk Factors Summary; Risk Factors
and Ratio of Earnings to Fixed
Charges
4. Use of Proceeds Summary; Use of Proceeds; Management's
Discussion and Analysis of Results of
Operations and Financial Condition
5. Determination of Offering Price Cover Page; Summary; Risk Factors; Plan
of Distribution
6. Dilution *
7. Selling Securityholders Cover Page; Summary; Selling
Securityholders; Plan of
Distribution
8. Plan of Distribution Cover Page; Summary; Plan of Distribution
9. Description of Securities to be Cover Page; Summary; Description of Other
Registered Securities
10. Interests of Named Experts and Certain Relationships and Related
Counsel Transactions
11. Information with Respect to the Summary; Risk Factors; The Company;
Registrant Capitalization; Selected Consolidated
Financial Data; Management's
Discussion and Analysis of Results of
Operations and Financial Condition;
Business; Legal Proceedings;
Management; Executive Compensation
and Other Information; Certain
Relationships and Related Transactions;
Principal Stockholders; Description of
Debentures; Description of Other
Securities; Consolidated Financial
Statements.
12. Disclosure of Commission's *
position on indemnification for
Securities Act liabilities
_____________
* Not Applicable
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 6, 1995
PROSPECTUS
5,000,000 SHARES
EMERSON & G-CLEF
EMERSON RADIO CORP.
Common Stock
This Prospectus relates to the offer and sale of up to 5,000,000 shares
of the common stock, $.01 per value per share (the "Common Stock"), of
Emerson Radio Corp. ("Emerson" or the "Company") by the Selling
Securityholders (as hereinafter defined), which comprise the largest
holders of the Company's Common Stock. The Company has been advised by the
Selling Securityholders that the proceeds of the sale of such shares will
be used primarily in connection with a contemplated settlement of
litigation involving the ownership of such shares by the Selling
Securityholders and related matters. See "Legal Proceedings - Litigation
Relating to Common Stock" and "Plan of Distribution-Certain Restrictions on
Officers, Directors and Certain Stockholders." To date, no settlement
agreement exists and no assurance can be given that a settlement will be
reached among the parties to such litigation. See "Selling
Securityholders." On November 2, 1995, the last reported sales price of
the Common Stock, which is traded on the American Stock Exchange ("AMEX")
under the symbol "MSN," was $2.125 per share. The Company has listed the
Common Stock to which this Prospectus relates on the AMEX. See
"Description of Securities" and "Plan of Distribution."
The Selling Securityholders have advised the Company that they
have not made any arrangement with any broker-dealer for the sale of the
shares of Common Stock, except as described herein. The Selling
Securityholders and any broker-dealer acting in connection with the sale of
the shares of Common Stock hereunder may be deemed to be underwriters
within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), in which case any commissions received by a broker-
dealer and any profit realized by them on the resale of the shares of
Common Stock as principal may be deemed to be underwriting compensation
under the Securities Act. See "Plan of Distribution."
This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any of the securities offered hereby in any jurisdiction
to any person to whom it is unlawful to make such an offer or solicitation
in such jurisdiction to any person to whom it is unlawful to make such an
offer or solicitation in such jurisdiction. No person has been authorized
to give any information or to make any representations other than those
contained in this Prospectus in connection with the offering made hereby,
and, if given or made, such information or representations must not be
relied upon as having been authorized by the Company or the Selling
Securityholder. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since such date.
AN INVESTMENT IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED BY
PURCHASERS OF THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION"), NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
__________________________
The date of this Prospectus is November 6, 1995.
SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements (including the notes thereto)
appearing elsewhere in this Prospectus or incorporated by reference herein.
References to "Emerson" or the "Company" in this Prospectus refer to
Emerson Radio Corp. and its subsidiaries, unless the context otherwise
indicates.
The Company
Emerson, one of the nation's largest volume consumer electronics
distributors, directly and through subsidiaries, designs, sources, imports
and markets a variety of video and audio consumer electronics and microwave
oven products. The Company distributes its products primarily through mass
merchants and discount retailers, leveraging on the strength of its
Emerson & G-clef trademark, a nationally recognized trade name in the
consumer electronics industry. The trade name "Emerson Radio" dates back
to 1912 and is one of the oldest and most well respected names in the
consumer products industry. In addition, the Company offers a line of audio
products for sale under the "H.H. Scott" brand name. Approximately $15
billion of factory sales are generated by the industry in the market segment
in which the Company competes. In calendar year 1994, Emerson believes it
was among the top three brand names in unit sales volume of video cassette
recorders ("VCRs") and TV/VCR combinations and among the top five brand
names in unit sales volume of color televisions.
The Company believes it possesses an advantage over its competitors
due to the combination of the Emerson brand recognition, its extensive
distribution base and established relations with customers in the mass
merchant and discount retail channels of distribution, its sourcing
expertise and established vendor relations, and an infrastructure boasting
personnel experienced in servicing and providing logistical support to the
domestic mass merchant distribution channel. Emerson intends to leverage
its core competencies to offer a broad variety of current and new consumer
products to retail customers in developing markets worldwide. The Company
intends to form joint ventures and enter into licensing agreements which
will take advantage of the Company's trademarks and utilize the Company's
logistical and sourcing advantages.
The Company's core business consists of the distribution and sale of
various low to moderately priced product categories, including black and
white and color televisions, VCRs, video cassette players ("VCPs"), TV/VCR
combination units, home stereo and portable audio products and microwave
ovens. The majority of the Company's marketing and sales of these products
is concentrated in the United States and, to a lesser extent, Canada and
certain other international regions. Emerson's major competition in these
markets are foreign-based manufacturers and distributors. See "Business."
The Company successfully restructured its financial position (the
"Restructuring") through a plan of reorganization confirmed under Chapter
11 of the United States Bankruptcy Code ("Plan of Reorganization") on March
31, 1994. Through the Restructuring, the Company reduced its institutional
debt by approximately $203 million. Additionally, the Company increased
its net sales by 34% in the fiscal year ended March 31, 1995 ("Fiscal
1995"), the fiscal year immediately following emergence from bankruptcy, as
compared to the prior fiscal year. See "The Company - Restructuring of the
Company."
The Offering
Securities Offered Up to 5,000,000 shares of Common
Stock by any or all of the Selling
Securityholders. See "Selling
Securityholders."
Use of Proceeds The Company will not receive any of
the proceeds from the sale of Common
Stock offered and sold by the Selling
Securityholders.
See "Use of Proceeds."
Certain Restrictions Except upon the written consent of
the Company and Dresdner Securities
(USA) Inc. (the "Placement Agent"),
the placement agent of the Company's
8-1/2% Senior Subordinated Convertible
Debentures Due 2002 (the
"Debentures"), the Selling
Securityholders have agreed not to
sell, offer to sell or otherwise
transfer or dispose of, directly or
indirectly, any shares of Common
Stock or any securities convertible
into or exercisable or exchangeable
for Common Stock owned by them for a
period of 12 months from October 25,
1995; provided, however, that the
Selling Securityholders may sell,
transfer, pledge or otherwise dispose
of Common Stock under certain
conditions primarily in connection
with the settlement of the litigation
described at "Legal Proceedings --
Litigation Relating to Outstanding
Common Stock." See "Plan of
Distribution - Certain Restrictions
on Officers, Directors and Certain
Stockholders."
Trading Market The Common Stock is listed on the
AMEX under the symbol "MSN." See
"Description of Other Securities."
Shares of Common Stock 40,252,772
Outstanding Before Offering1
Risk Factors The Common Stock offered hereby
involves a high degree of risk.
Prospective purchasers of the Common
Stock should carefully consider all
the information set forth in this
Prospectus and, in particular, should
evaluate the specific risk factors
set forth under "Risk Factors,"
including, but not limited to, a
discussion of operating losses and
recent reorganization, the Company's
secured indebtedness and financing,
and certain outstanding litigation
relating to the Common Stock owned by
the Selling Securityholders.
1Does not include an aggregate of 3,550,000 shares of Common Stock issuable
upon exercise of (i) 1,890,000 outstanding options exercisable at a
weighted average exercise price of $1.03 per share; (ii) 750,000
outstanding seven-year warrants exercisable at an exercise price of $1.00
per share until March 31, 1997 and escalating $0.10 per share per annum
thereafter until expiration (March 31, 2001); (iii) 410,000 options
available for issuance under the Company's stock option plans; and (iv)
500,000 outstanding five-year warrants exercisable at an exercise price of
$3.9875 per share granted to the Placement Agent and its authorized dealers
in connection with the private placement of Debentures. Also does not
include shares of Common Stock issuable (i) from and after March 31, 1997,
upon conversion of $10 million of Series A Preferred Stock at a price equal
to 80% of the average market value of a share of Common Stock at the time
of conversion and (ii) upon conversion of up to $20,750,000 aggregate
principal amount of Debentures, initially at a conversion price of $3.9875
per share, subject to certain anti-dilution provisions. See "Risk Factors-
Potential Future Sales of Stock," "Executive Compensation and Other
Information" and "Description of Other Securities."Summary of Consolidated
Financial and Operating Data
The following table sets forth for the periods and dates
indicated, selected consolidated financial data of the Company and its
subsidiaries. The Company changed its fiscal year-end from December 31 to
March 31, beginning with the period ended March 31, 1992. Previously, the
Company had changed its fiscal year-end from March 31 to December 31,
beginning with the period ended December 31, 1990. The Summary Financial
Data should be read in conjunction with the Consolidated Financial
Statements, including the notes thereto set forth elsewhere in this
Prospectus. All unaudited financial information reflects all adjustments
that management believes necessary to present fairly the results of
operations for the periods being reported.
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Historical
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Nine Three Three Three
Months Year Months Year Year Year Months Months
Ended Ended Ended Ended Ended Ended Ended Ended
Dec.31, Dec.31 Mar. 31, Mar.31 Mar. 31 Mar.31 June 30, June 30,
1990 1991 1992 1993 1994 1995 1994 1995
(In thousands, except per share and ratio data)
Statement of Operations Data:
Net Sales:
Core Business(1) $528,809 $716,651 $169,936 $741,357 $487,390 $654,671 $137,140 $57,058
Personal Computers
and Other 96,609 73,555 1,562 -- -- -- -- --
$625,418 $790,206 $171,498 $741,357 $487,390 $654,671 $137,140 $57,058
Net Earnings (Loss)(2) $(37,463) $(60,746) $ (6,976) $(56,000) $ 55,501 $ 7,375 $ (2,894) (1,401)
Per Common Share:
Net Earnings (Loss) Per
Common Share (2)(3) $ (1.03) $ (1.60) $ (0.18) $ (1,47) $ 1.45 $ 0.16 $ (0.09) $ (0.03)
Weighted Average
Number of Common and Common
Equivalent Shares Outstanding 36,519 37,897 37,968 38,179 38,191 46,571 33,333 40,253
Common Shareholders' Equity
(Deficit)(4) $ 1.78 $ 0.12 $ (0.04) $ (1.52) $ 0.98 $ 1.08 $ 0.88 $ 1.04
Ratio of Earnings (Loss) to
Combined Fixed Charges and
Preferred Stock Dividends (1.85) (2.21) (0.60) ( 2.03) (6.16) 2.92 (3.74) (0.86)
Coverage Deficiency $ 13,978 $ 18,546 $ 4,217 $ 18,257 $ 10,243 -- $ 635 $ 803
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As of June 30, 1995
Balance Sheet Data: Actual As Adjusted(5)
Working Capital $ 39,871 $ 59,244
Total Assets 103,422 104,799
Total Debt 25,870 27,247
Common Shareholders' Equity 42,944 42,944
Shareholders' Equity 51,944 51,944
__________________
(1)The decline in net sales for the three months ended June 30,
1995 was primarily attributable to the licensing of certain video
sales. See "Management's Discussion and Analysis of Results of
Operation and Financial Condition."
(2)The net earnings for the fiscal year ended March 31, 1994
("Fiscal 1994"), include an extraordinary gain of $129,155,000, or
$3.38 per share, on the extinguishment of debt settled in the Plan of
Reorganization. Additionally, the Company recorded reorganization
expenses of $17,385,000 relating primarily to the writedown of assets
transferred to creditors under the Plan of Reorganization and
professional fees and other related expenses incurred during the
bankruptcy proceedings. The results of operations for Fiscal 1993, the
three months ended March 31, 1992 and the year ended December 31, 1991
include restructuring and other nonrecurring charges aggregating
$35,002,000, $3,698,000 and $36,964,000, respectively. These charges
represent the cost of discontinuing the personal computer business,
professional fees and other expenses related to the Company's financial
restructuring, and the up-front costs and writedowns of certain assets
associated with implementing long-term cost reduction programs.
Charges for Fiscal 1993 also include costs related to the Company's
proxy contest settled in June 1992. The year ended December 31, 1991
also includes charges related to the discontinuance of the H.H. Scott
domestic business.
(3)Net earnings (loss) per common share for all periods, except
Fiscal 1995 and the three months ended June 30, 1994 and 1995, are based
on the weighted average number of old common shares outstanding during
each period. Net earnings per common share for Fiscal 1995 is based on
the weighted average number of shares of new Common Stock and related
common stock equivalents outstanding during the year. Common Stock
equivalents include 9,081,000 shares assuming conversion of $10 million
of Series A Preferred Stock at a price equal to 80% of the weighted
average market value of a share of Common Stock, determined on a
quarterly basis. Since the Series A Preferred Stock is not convertible
into Common Stock until March 31, 1997, the number of shares issuable
upon conversion may be significantly different. Net loss per common
share for the three months ended June 30, 1994 and 1995 is based on the
weighted average number of shares of new Common Stock outstanding during
each period. The net loss per share for both periods does not include
common stock equivalents assumed outstanding since they are anti-
dilutive.
(4)Calculated based on common shareholders equity (deficit) divided by
actual shares of Common Stock outstanding. Common shareholders' equity
at March 31, 1994 and 1995 and June 30, 1994 and 1995 are equal to
total shareholders' equity less $10 million for the liquidation
preference of the Series A Preferred Stock.
(5)Balance sheet data is adjusted to give effect to the initial
application of the estimated net proceeds of $19,373,000 from the
issuance of $20,750,000 of Debentures issued on August 30, 1995.
Supplemental Results of Operations
The following table presents consolidated sales and net earnings
(loss) for the past five years on the basis of a March 31 fiscal year-end.
This information is provided for comparative purposes only and should be
read in conjunction with the Consolidated Financial Statements, including
the notes thereto, and "Management's Discussion and Analysis of Results of
Operations and Financial Condition" set forth elsewhere in the Prospectus.
The financial information for the years ended March 31, 1992 and March 31,
1991 is unaudited and was derived by adjusting the audited results of
operations of the Company for the years ended December 31, 1990 and
December 31, 1991 to include the results of operations for the three month
periods ended March 31, 1991 (unaudited) and March 31, 1992, respectively,
and to omit the unaudited results of operations for the three months ended
March 31, 1991 for the latter. All unaudited financial information
reflects all adjustments that management believes necessary to present
fairly the results of operations for the periods being reported.
Year Ended March 31,
1991 1992 1993 1994 1995
(In thousands, except per share data)
Net Sales:
Core Business $662,421 $752,975 $741,357 $487,390 $654,671
Personal Computers
and Other 123,385 48,341 -- -- --
and Other
$785,806 $801,316 $741,357 $487,390 $654,671
Net Earnings (Loss)(1) $(52,435) (52,750) $(56,000) $ 55,501 $ 7,375
Net Earnings (Loss) Per
Common Share(1)((2) $ (1.42) (1.39) ( 1.47) 1.45 0.16
Weighted Average Number
of Common and Common
Equivalent Shares
Outstanding 36,854 37,925 38,179 38,191 46,571
_______________
(1) The net earnings for Fiscal 1994 include an extraordinary gain of
$129,155,000, or $3.38 per share, on the extinguishment of debt settled
in the Plan of Reorganization. Additionally, the Company recorded
reorganization expenses of $17,385,000 relating primarily to the write
down of assets transferred to creditors in the Plan of Reorganization
and professional fees and other related expenses incurred during the
bankruptcy proceedings. The results of operations for the fiscal years
ended March 31, 1993, 1992 and 1991 include restructuring and
nonrecurring charges aggregating $35,002,000, $40,012,000 and $650,000,
respectively. These charges represent the cost of discontinuing the
personal computer business, professional fees and other expenses
related to the Company's financial restructuring, and the up-front
costs and write downs of certain assets associated with implementing
long-term cost reduction programs. Charges for Fiscal 1993 also
include costs related to the Company's proxy contest settled in June
1992. The year ended March 31, 1992 also includes charges related to
the discontinuance of the H.H. Scott domestic business.
(2) Net earnings (loss) per common share for all periods, except Fiscal
1995, are based on the weighted average number of shares of Common
Stock outstanding during each fiscal year. Net earnings per common
share for Fiscal 1995 is based on the weighted average number of shares
of new Common Stock and related common stock equivalents outstanding
during the year. Common stock equivalents include 9,081,000 shares
assuming conversion of $10 million of Series A Preferred Stock at a
price equal to 80% of the weighted average market value of a share of
Common Stock, determined on a quarterly basis. Since the Series A
Preferred Stock is not convertible into Common Stock until March 31,
1997, the number of shares issuable upon conversion may be
significantly different.
RISK FACTORS
An investment in the Common Stock involves a high degree of risk.
Prospective investors should carefully consider the following risk factors,
as well as other information contained in this Prospectus:
Operating Losses
Although the Company reported a net profit of $7,375,000 in Fiscal
1995, the Company subsequently reported a net loss of $1,401,000 for the
first quarter of its fiscal year ending March 31, 1996 ("Fiscal 1996") as
compared with a loss of $2,894,000 during the comparable quarter of Fiscal
1995. See "Risk Factors - Seasonality." Prior thereto, the Company, on a
consolidated basis, operated at a loss in the aggregate from the nine month
period ended December 31, 1990 through Fiscal 1994 and had an accumulated
deficit of $199.9 million as of March 31, 1994, prior to the extraordinary
gain recognized on the extinguishment of debt as a result of the
Restructuring. See "The Company - Restructuring of the Company." For
Fiscal 1994, the Company experienced a significant decline in sales from
the prior year, which decline commenced in the latter part of Fiscal 1993.
Additionally, for Fiscal 1994, the Company generated a gross profit of $0.9
million on consolidated net sales of $487.4 million and recorded a
consolidated net loss of $73.7 million prior to the extraordinary gain
recognized on the extinguishment of debt. During Fiscal 1993, the Company
reported a consolidated net loss of $56 million attributable to reduced
sales to key customers and recorded substantial restructuring and other
nonrecurring charges aggregating $35 million. While the Company reported a
profit for Fiscal 1995, and decreased losses by approximately 52% for the
three months ended June 30, 1995 as compared to the same period in the
prior Fiscal Year, no assurance can be given that the Company will be able
to continue to generate sufficient revenues to meet its operating expenses,
make its interest payments under the Debentures or otherwise continue to
operate profitably in the future. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
Risks Associated With the Company's Secured Indebtedness and Financing
As of November 3, 1995, the Company had approximately $30.8 million
of Senior Indebtedness outstanding with its United States secured credit
lender pursuant to the terms of a $60 million credit facility.
Substantially all of the assets of Emerson and certain of its subsidiaries,
except for their trademarks, are encumbered to secure repayment of such
indebtedness. The trademarks are subject to a negative pledge covenant.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition - Subsequent Events." The Company's ability to meet
its ongoing debt service obligations and operate its business will depend
on a number of factors, including its ability to operate its business as
presently projected, the success of future operations, the availability of
working capital and compliance with the requirements of the Indenture
governing the Debentures (the "Indenture"). See "Management's Discussion
and Analysis of Results of Operations and Financial Condition." As market
conditions permit, the Company plans to secure additional financing
(subject to restrictions imposed on it by its credit facilities and the
Indenture), as necessary, in the form of debt or equity, to finance the
growth of its core business, product line extensions and any new business
ventures.
Dependence on Key Customers
During the three months ended June 30, 1995 and Fiscal 1995, 1994,
and 1993, approximately 16%, 53%, 34%, and 39%, respectively, of
consolidated net sales were made by the Company to Wal-Mart Stores, Inc.
("Wal-Mart"). Similarly, during such periods, 10%, 10%, 12% and 11%,
respectively, of consolidated net sales were made by the Company to Target
Stores, Inc. While management believes that the Company presently has and
historically has had good relationships with these two customers, the
Company has no long-term contracts with such customers, as they purchase on
individually placed purchase orders submitted to the Company. The Company
has entered into agreements with Otake Trading Co., Ltd. and certain
related entities ("Otake") its largest supplier, which provide, among other
things, for the limited license of certain Emerson & G-Clef trademarks to
that supplier to manufacture and sell video products under the trademark
directly to Wal-Mart. The decrease in sales to Wal-Mart for the three months
ended June 30, 1995, as compared to the other periods presented was the direct
result of these agreements. It is anticipated that the net operating results
of the Company will not be adversely impacted by this decline in volume since
the Company will receive royalty payments under this arrangement and
expects a corresponding reduction in the Company's operating expenses. No
assurance can be given that the Company will obtain such operating results
or that the licensing arrangement will not adversely impact its operations
or the reputation of its trade names or products. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
There can be no assurances that other key customers will continue to
account for comparable percentages of the Company's sales and the loss of a
significant volume of purchases could have a material adverse impact on the
Company in certain circumstances.
Dependence on Key Vendors
The Company is dependent upon certain unaffiliated foreign
manufacturers for various components, parts and finished products; some of
those manufacturers also produce products for the Company's competitors.
In particular, Otake accounted for approximately 18%, 73%, 59%, and 71%,
respectively, of the Company's purchases during the three months ended June
30, 1995 and Fiscal 1995, 1994, and 1993. The Company has recently entered
into agreements with Otake, including a supply agreement which provides the
Company the option to purchase video products from Otake for a period of
three years. See "Risk Factors - Dependence on Key Customers" and
"Business - Licensing." Kong Wah Video Company Limited and related
entities ("Kong Wah") accounted for approximately 10% of the Company's
purchases during the three months ended June 30, 1995 and Fiscal 1994.
Additionally, Daewoo Electronics Co., Ltd., Imarflex, Mfg. Co., Ltd. and
Musical Electronics Limited accounted for approximately 22%, 21% and 14%,
respectively, of the Company's purchases during the three months ended June
30, 1995. Disruption or cessation in purchases from, any delay or
disruption in regular and timely deliveries by, or any deterioration in the
quality of products of, such vendors could have a material adverse effect
on the Company's results of operations. Management, however, believes
alternative sources of supply are available in the marketplace. From time
to time, the Company has been required to allocate product among its
customer base. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Business - Design and
Manufacturing."
Licensing Risks
The Company has licensed the Emerson & G-Clef trademark to certain
parties on a limited basis and intends to pursue additional licensing
opportunities. While the Company believes that its quality control system and
contractual provisions are adequate to protect the integrity and reputation of
its trademarks, there can be no assurance that the actions of the Company's
licensees in manufacturing or distributing products under the Emerson & G-Clef
trademark will not adversely, even if temporarily, impact the value of
the Company's trademarks. The Company has registered the Emerson & G-Clef
"H.H. Scott" and "Scott" trademarks for certain of its consumer products in the
United States, Canada, Mexico and various other countries. Despite the legal
protection afforded by such registration, there can be no assurance that there
will not be infringements of the Company's trademarks or that the Company would
be able to successfully prosecute any such infringements. Any damage to
the Company's trademarks by a licensee or any trademark infringement could
have a material adverse effect on the Company's business. Further, the
Company has agreed not to pledge its trademarks under its United States
secured credit facility and under the Indenture. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition -
Subsequent Events," "Business - Licensing" and "Business - Trademarks."
Seasonality
The Company generally experiences stronger demand for its products in
the quarters of each year ending September 30 and December 31.
Accordingly, to accommodate such increased demand, the Company is generally
required to place seasonally higher orders with its vendors during the
quarters ending June 30 and September 30, thereby affecting the Company's
need for working capital during such periods. On a corresponding basis,
the Company also is subject to increased returns during the quarters ending
on March 31 and June 30, which adversely affects the Company's collection
activities during such periods, also affecting its liquidity. Operating
results may fluctuate due to other factors such as the timing of the
introduction of new products, price reductions by the Company and its
competitors, demand for the Company's products, product mix, delay,
available inventory levels, fluctuation in foreign currency exchange rates
relative to the United States dollar, seasonal cost increases and general
economic conditions. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition."
Competition and Dependence on Market Acceptance
The market segment in which the Company operates is highly
competitive. The mass merchandise and discount retail market is divided
among a large number of foreign-based manufacturers and distributors. Many
of the Company's competitors have or may obtain significantly greater
financial and marketing strength and resources than the Company, enabling
them to compete more effectively than the Company. Further, the Company's
business is dependent upon consumer awareness and acceptance of existing
and new products. The Company's products compete at the retail store level
for shelf space and promotional displays, all of which have an impact on
the Company's established and proposed distribution channels. Competition,
or failure of consumers to accept existing or new products, may result in
reduced sales, reduced profit margins, or both, for the Company. There can
be no assurance that the Company will not encounter increased competition
in the future, which could have a material adverse effect on the ability of
the Company to successfully market existing products, develop new products
or expand its business. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and "Business -
Competition."
Potential Product Liability and Insurance Limits
A failure of any of the products marketed by the Company may subject
the Company to the risk of product liability claims and litigation arising
from injuries allegedly caused by the improper functioning or design of its
products. The Company currently maintains product liability insurance in
amounts which the Company considers adequate. No product liability claims
have been asserted or, to the knowledge of the Company's management,
threatened against the Company to date, which management believes would
have a material adverse effect on the Company's consolidated financial
position. To the extent product liability losses are beyond the limits or
scope of the Company's insurance coverage, any such losses could have a
material adverse effect upon the Company's business, operations,
profitability and assets.
Government Regulation
Pursuant to the Tariff Act of 1930, as amended, the Trade Act of
1974, and regulations promulgated thereunder, the United States Government
charges tariff duties, excess charges, assessments and penalties on many
imports. These regulations are subject to constant change and revision by
governmental agencies and by action of the United States Trade
Representative and may have the effect of increasing the cost of goods
purchased by the Company or limiting quantities of goods available to the
Company from its overseas suppliers. Additionally, a number of states have
adopted statutes regulating the manner of determining the amount of
payments to independent service centers performing warranty service on
products such as those sold by the Company. Such statutes may have the
effect of increasing the costs of the Company's operations. Additional
Federal legislation and regulations regarding the importation of consumer
electronics products, including the products marketed by the Company, have
been proposed from time-to-time and, if enacted into law, could adversely
affect the Company's results of operations. See "Business - Government
Regulation."
Tax Risks
The Company realized a substantial amount of cancellation of
indebtedness ("COD") as a result of the Restructuring. However, the
Company did not include such COD in its gross income because the
Restructuring was consummated as part of the Plan of Reorganization. See
"The Company - Restructuring of the Company." Ordinarily, the Company
would be required to reduce certain Federal income tax attributes (e.g., a
net operating loss for the taxable year of the debt discharge, net
operating loss or tax credit carry forwards, tax basis of assets) by the
amount of COD so excluded from its gross income. The Company's management
believes that the exchanges of debt-for-stock by certain of the Company's
institutional creditors should qualify for an exception from those
requirements applicable to certain stock-for-debt exchanges. Further,
management believes that the Restructuring should qualify as a tax free
reorganization under the Internal Revenue Code of 1986, as amended (the
"Code"). It is possible that the Internal Revenue Service could contend
that the stock-for-debt exception is not applicable to the Restructuring,
or that the Restructuring does not constitute a tax-free reorganization.
In either such event, the Company's net operating loss carry forwards and
tax credit carry forwards and other tax attributes would be reduced by a
significant amount, and the reorganized Company's taxable income would be
greater than it would be if the Restructuring constitutes a tax-free
reorganization.
Assuming the stock-for-debt exception applies and the Restructuring
qualifies under the tax-free reorganization provisions of the Code, the
ability to carry forward the Company's net operating loss and tax credit
carry forwards from taxable years (or portions thereof) ending on or prior
to the consummation of the Plan of Reorganization is subject to an annual
limitation under Sections 382 and 383 of the Code. The annual limitation
is approximately $2,200,000. This limitation could be reduced or
eliminated if the Company becomes subject to a second, later, annual
limitation under Sections 382 and 383 of the Code because of future equity
changes, including the issuance of the Common Stock on conversion of the
Debentures described in this Prospectus or the litigation described in
"Risk Factors - Litigation Relating to Common Stock." Finally, under
certain circumstances, the Company could become subject to a personal
holding company tax in the future. See "Certain Federal Income Tax
Considerations."
Controlling Stockholders
As a result of the Restructuring, the Selling Securityholders
(Fidenas International Limited, now known as Fidenas International Limited,
L.L.C. ("Fidenas International"), Elision International, Inc. ("Elision")
and GSE Multimedia Technologies Corporation ("GSE")), own, in the
aggregate, 29,152,542 shares of Common Stock, representing approximately
72.4% of the Company's outstanding shares of Common Stock, and upon the
sale of the 5,000,000 shares of Common Stock covered by this Prospectus
would own, in the aggregate, 24,152,542 shares of Common Stock,
representing approximately 60.00% of the Company's outstanding shares of
Common Stock. Geoffrey P. Jurick, Chairman of the Board of Directors and
Chief Executive Officer of the Company may be deemed to control each of
Fidenas International, GSE and Elision, through stock ownership, direct or
indirect, position of officer or director, or otherwise. Consequently, Mr.
Jurick and these entities on a combined basis will have the power to elect
the Company's Board of Directors and, consistent with their respective
fiduciary responsibilities, to approve any action requiring stockholder
approval. Because of the existence of such interrelationships noted
above, it is possible that conflicts of interest may arise between certain
of the Company's officers and directors, Fidenas International, GSE,
Elision and/or any of their respective affiliates. If conflicts of
interest arise, the Company's Board of Directors is obligated to resolve
any such conflicts in a manner consistent with its fiduciary duties. All
future transactions between the Company and its affiliates will be on terms
no less favorable than could be obtained from unaffiliated third parties
and must be approved by a majority of the independent outside members of
the Company's Board of Directors who do not have an interest in the
transactions. Further, certain restrictions have been imposed on
transactions between the Company and its affiliates in the Indenture for
the Debentures. See "Principal Stockholders," "Certain Relationships and
Related Transactions," "Description of Debentures" and "Description of
Other Securities."
Litigation Relating to Common Stock
The shares of Common Stock issued to the Selling Securityholders
(GSE, Fidenas International and Elision) in connection with the
Restructuring are the subject of certain legal proceedings in the
Commonwealth of Bahamas, the United States and Switzerland. 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 control" prohibited pursuant to the terms of the
Company's credit facility and pursuant to the terms of the Debentures.
Additionally, such a change in control could result in a second ownership
change further limiting the Company's ability to use its net operating loss
carryforwards ("NOLs") and tax credit carryovers ("TCCOs"). See "Certain
Federal Income Tax Considerations," "Principal Stockholders" and "Legal
Proceedings." If a turnover of a substantial portion of the Common Stock
results from such legal proceedings, the holders of such Common Stock may
have different investment objectives than the current holders of the Common
Stock. Sales of such Common Stock by such holders, or the perception that
such sales may occur, could adversely affect prevailing market prices for
the Common Stock or the Company's ability to raise capital in the future.
See "Description of Debentures" for a description of certain adjustments in
the Conversion Price of the Debentures upon certain decreases in the
weighted average closing price of the Common Stock attributable to certain
events resulting from the litigation described in this paragraph.
Such securities, however, would constitute "restricted securities" as
defined in paragraph (a)(3) of Rule 144 promulgated under the Securities
Act. Resales of such securities may only be made in compliance with Rule
144, another applicable exemption under the Securities Act, or pursuant to
an effective registration statement under the Securities Act. The
Placement Agent has agreed, subject to the granting of registration rights
in accordance with the requirements of the Indenture and applicable law, to
permit the registration of up to 5,000,000 shares of Common Stock owned by
GSE, Fidenas International and Elision pursuant to this Prospectus, which
registration rights were subsequently approved by the Board of Directors of
the Company. No assurance can be given that any settlement of such legal
proceedings will occur or that the terms of any such settlement will be
beneficial to the Company, its stockholders or the market value of the
Debentures or the Common Stock. See "Legal Proceedings" and "Description
of Other Securities - Common Stock Eligible for Future Sale."
Bankruptcy Claims Resolution Process
During and subsequent to the Restructuring, the Company has analyzed
the various claims filed by creditors in the United States Bankruptcy Court
for the District of New Jersey (the "Bankruptcy Court") in the Company's
bankruptcy proceedings and, where appropriate, contested certain claims.
The Company is presently engaged in litigation regarding such claims and no
assurance can be given as to whether an unfavorable judicial determination
could have a material adverse effect on the Company. See "Legal
Proceedings."
Risks Inherent in International Operations and Foreign Trade
The Company plans on increasing international distribution and sales
of its products. There can be no assurance that the Company's trademarks
will be as widely recognized or accepted internationally as in the United
States. In addition, there are certain risks, varying in degrees, inherent
in doing business internationally and with respect to foreign trade. Such
risks include the possibility of quotas, anti-dumping laws and regulations,
unfavorable changes in tax or other laws; partial or total expropriation;
currency exchange rate fluctuations and restrictions on currency
repatriation; the disruption of operations, production and shipping from
labor and political disturbances, insurrection or war; and the requirements
of partial local ownership of operations in certain countries. See
"Business."
Potential Future Sales of Stock
No prediction can be made as to the effect, if any, that future sales
of securities by the Company, or the availability of shares for future
sale, will have on the market price of the Common Stock prevailing from
time-to-time. Sales of Common Stock or the perception that such sales may
occur, could adversely affect prevailing market prices for the Common Stock
or the Company's ability to raise capital in the future. In connection
with its Restructuring, the Company issued 33,333,333 shares of Common
Stock ("Issued Common Stock") and 10,000 shares of Series A Preferred Stock
("Series A Preferred Stock"), the latter of which were issued to the
Company's group of bank lenders (collectively, with any successors in
interest, the "Bank Lenders") and insurance company creditors
("Noteholders"), convertible upon certain terms and conditions into Common
Stock and warrants ("Creditor's Warrants") to purchase an aggregate of
750,000 shares of Common Stock. 3,333,333 shares of the Issued Common
Stock, the Creditor's Warrants, the Common Stock underlying the Creditor's
Warrants, the Series A Preferred Stock, and the Common Stock underlying the
Series A Preferred Stock, were issued to certain of the Company's creditors
in connection with the Restructuring pursuant to Section 1145 of the
Bankruptcy Code, and are therefore freely tradeable, to the extent such
creditors are not affiliates of the Company. Additionally, 769,446 shares
of Common Stock were issued in February 1995 to such creditors and
6,149,993 shares were sold in the public offering authorized by the Plan of
Reorganization confirmed in connection with the Restructuring. All such
shares are freely tradeable. The remaining 30 million shares of Common
Stock are "restricted securities" as that term is defined in paragraph
(a)(3) of Rule 144 promulgated under the Securities Act, although the offer
and sale of 5,000,000 of such shares are covered by this Prospectus. Also,
the Company has outstanding options to acquire 1,890,000 shares of Common
Stock, granted in accordance with Rule 701 of the Securities Act, which may
be sold under certain conditions, and has granted warrants to purchase
500,000 shares of Common Stock to the Placement Agent and its authorized
dealers. See "Description of Other Securities." Future sales of shares of
the Common Stock, including those made under Rule 144 or in accordance with
the resale provisions of Rule 701, depending on the timing thereof, may (i)
have an adverse effect on the then prevailing market price, if any, of the
Common Stock, (ii) adversely affect the Company's ability to obtain future
financing in the capital markets, and (iii) also create a potential large
block of Common Stock coming into the market at substantially the same
time. However, Fidenas International, Elision and GSE and officers and
directors of the Company, with certain significant exceptions, have agreed
to additional restrictions on the transfer of their shares for a period of
12 months. See "Description of Debentures" and "Description of Other
Securities - Common Stock Eligible for Future Sale."
Anti-Takeover Provisions
Certain provisions of the Company's Certificate of Incorporation and
By-Laws, including provisions (i) authorizing the Board of Directors to
create new series of preferred stock, including series of preferred stock
that affect the voting rights of Common Stock and may provide for
conversion into Common Stock, (ii) providing that any action requiring
stockholder consent must be effected at a meeting as opposed to by consent
in writing and (iii) setting forth that directors may only be removed for
cause, upon the affirmative vote of at least 80% of the voting securities
then outstanding, voting together as a single class, may make it more
difficult for a third party to make, or may discourage a third party from
making, an acquisition proposal for the Company or initiating a proxy
contest and may thereby inhibit a change in control of the Company or the
removal of incumbent management or directors. There can be no assurance
that the issuance of one or more series of preferred stock will not be
authorized in the future. See "Description of Other Securities."
Certain Covenants
The Indenture pursuant to which the Debentures were issued restricts,
with certain exceptions and among other items, the ability of the Company
and, in certain cases, its subsidiaries to: incur additional indebtedness,
pay dividends or make distributions or other restricted payments;
consolidate, merge or sell all or substantially all of their assets; create
liens; sell certain assets; sell or issue capital stock of the Company's
subsidiaries; make certain investments, loans and advances; enter into
transactions with affiliates; and make prepayments on outstanding
indebtedness other than Senior Indebtedness. These covenants are subject
to important exceptions and qualifications. See "Description of
Debentures."
THE COMPANY
General
Emerson, one of the nation's largest volume consumer electronics
distributors, directly and through subsidiaries, designs, sources, imports
and markets a variety of video and audio consumer electronics and microwave
oven products. The Company distributes its products primarily through mass
merchants and discount retailers, leveraging on the strength of its *
trademark, a nationally recognized trade name in the consumer electronics
industry. The trade name "Emerson Radio" dates back to 1912 and is one of
the oldest and most well respected names in the consumer products industry.
In addition, the Company offers a line of audio products for sale under the
"H.H. Scott" brand name. Approximately $15 billion of factory sales are
generated by the industry in the market segment in which the Company
competes. In calendar year 1994, Emerson believes it was among the top
three brand names in unit sales volume of VCRs and TV/VCR combinations and
among the top five brand names in unit sales volume of color televisions.
The Company believes it possesses an advantage over its competitors
due to the combination of the Emerson brand recognition, its extensive
distribution base and established relations with customers in the mass
merchant and discount retail channels of distribution, its sourcing
expertise and established vendor relations, and an infrastructure boasting
personnel experienced in servicing and providing logistical support to the
domestic mass merchant distribution channel. Emerson intends to leverage
its core competencies to offer a broad variety of current and new consumer
products to retail customers in developing markets worldwide. The Company
intends to form joint ventures and enter into licensing agreements which
will take advantage of the Company's trademarks and utilize the Company's
logistical and sourcing advantages.
The Company's core business consists of the distribution and sale of
various low to moderately priced product categories, including black and
white and color televisions, VCRs, VCPs, TV/VCR combination units, home
stereo and portable audio products and microwave ovens. The majority of
the Company's marketing and sales of these products is concentrated in the
United States and, to a lesser extent, Canada and certain other
international regions. Emerson's major competition in these markets are
foreign-based manufacturers and distributors. See "Business."
The Company successfully restructured its financial position through
the Plan of Reorganization. Through the Restructuring, the Company reduced
its institutional debt by approximately $203 million. Additionally, the
Company increased its net sales by 34% in Fiscal 1995, the fiscal year
immediately following its emergence from bankruptcy, as compared to the
prior fiscal year.
The Company was originally formed in the State of New York in 1956
under the name Major Electronics Corp. In 1977 the Company reincorporated
in the State of New Jersey and changed its name to Emerson Radio Corp. On
April 4, 1994, the Company was reincorporated in Delaware by merger of its
predecessor into its wholly-owned Delaware subsidiary formed for such
purpose. The Company's principal executive offices are located at Nine
Entin Road, Parsippany, New Jersey 07054-0430. The Company's telephone
number in Parsippany, New Jersey is (201) 884-5800. See "Business -
Properties."
Restructuring of the Company
In 1990, the Company defaulted on certain covenants in the loan
documents evidencing significant payment obligations to the Noteholders.
The Company subsequently, through several different management teams,
attempted for approximately three and a half years to restructure such
debt, as well as its lines of credit with the Bank Lenders. No agreement
could be reached with such creditors. New management of the Company,
consisting largely of the current management of the Company, took control
of the Company's operations in July 1992. On September 29, 1993, the
Company and five of its domestic subsidiaries filed voluntary petitions for
relief under the Bankruptcy Code based upon an agreement reached by the new
management with the Bank Lenders. On March 31, 1994, the Court entered an
order confirming the Plan of Reorganization implementing such agreement,
which became effective on such date. During the pendency of the
proceedings, the Company continued its operations in the ordinary course of
business. The Company was able to retain most of its senior management and
believes it maintained customer and supplier goodwill and the confidence of
its employees.
The principal components of the Plan of Reorganization included the
following:
The payment of $75 million to the Bank Lenders and the
Noteholders.
The issuance of (i) Common Stock of the reorganized Company,
such that the Bank Lenders and Noteholders possess 10% of the
Company's outstanding Common Stock upon the effective date of
the Plan of Reorganization and subsequent to the completion of
the offering (described below) contemplated by the Plan of
Reorganization, (ii) 10,000 shares of Series A Preferred Stock
to the Bank Lenders and Noteholders, having a face value of $10
million, and (iii) Creditor's Warrants to the Noteholders to
purchase 750,000 shares of Common Stock. See "Description of
Other Securities."
The issuance to Fidenas International, Elision and GSE, upon the
payment to the Company of $30 million, of an aggregate of 90%
of the Company's then outstanding shares of Common Stock.
The transfer by the Company to a liquidating trust established
for the benefit of the Bank Lenders and Noteholders of certain
assets consisting of real estate in Princeton, Indiana, and the
Company's rights with respect to certain anti-dumping duty
receivables.
On the effective date of the Plan of Reorganization, all then
existing shares of common stock, stock options and warrants
were terminated and canceled. Stockholders of the debtor
company and third parties (to the extent that the existing
stockholders of the debtor company did not purchase all of the
offered stock) were given the opportunity to purchase, at $1.00
per share, up to 15 million shares of Common Stock,
constituting approximately 30% of the outstanding Common Stock
of the Company, assuming a fully-subscribed offering (6,149,993
shares of Common Stock were sold in such offering).
The Company reincorporated under the laws of Delaware.
The payment of up to an aggregate of $1,850,000 of the net
proceeds of the offering to certain of the Company's creditors.
The Plan of Reorganization effected a recapitalization of the
Company. After giving effect to the Plan of Reorganization:
The Company's total consolidated institutional debt owed to its
secured bank lenders and insurance company noteholders was
reduced by approximately $203 million, from approximately $223
million immediately prior to the effective date, to
approximately $20 million immediately subsequent to the
effective date, which consisted primarily of advances pursuant
to a secured revolving credit facility. The holders of the
prepetition institutional debt received 10% of the Common Stock
in connection with the Restructuring.
At the Plan of Reorganization's effective date, stockholders'
equity increased to approximately $42.6 million.
Commencing in early 1993 and continuing through the reorganization
proceedings, the Company successfully instituted a series of downsizing and
outsourcing measures to reduce the fixed costs of the core consumer
electronics business. As a result of the outsourcing of several functions
and the elimination of fixed costs associated with such functions, the
Company was able to achieve a reduction in annual fixed costs from
approximately $59.1 million in the fiscal year ended 1993 to an anticipated
$25.7 million for the fiscal year ending in 1996, although there can be no
assurances that such reductions will be realized.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the resale of
any shares of Common Stock by any of the Selling Securityholders. The
Company has been advised by the Selling Securityholders that the proceeds
of the sale of such shares will be used primarily in connection with a
contemplated settlement of litigation involving the ownership of such
shares by the Selling Securityholders and related matters. See "Legal
Proceedings - Litigation Relating to Common Stock" and "Plan of
Distribution - Certain Restrictions on Officers, Directors and Certain
Stockholders." To date, no settlement agreement exists and no assurance
can be given that a settlement will be reached among the parties to such
litigation.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1995, and as adjusted to give effect to the issuance by the Company
of $20,750,000 of Debentures on August 30, 1995 and the initial application
of $19,373,000 of estimated net proceeds therefrom. The Company will not
receive any of the proceeds from the resale of any shares of Common Stock
by any Selling Securityholder. This table should be read in conjunction
with the Consolidated Financial Statements, set forth elsewhere in this
Prospectus.
As of June 30, 1995
Actual As Adjusted
Short-term debt $ 25,677 $ 6,304
Long-term debt $ 193 $ 20,943
Shareholders' Equity (1):
Preferred stock, $0.01 par value,
1,000,000 shares authorized,
10,000 issued and outstanding 9,000 9,000
Common stock, $0.01 par value,
75,000,000 shares authorized,
40,252,772 shares issued and outstanding; 403 403
Capital in excess of par value 107,969 107,969
Accumulated deficit (65,662) (65,662)
Cumulative translation adjustment 234 234
Total shareholders' equity 51,944 51,944
Total capitalization $ 52,137 $ 72,887
________________
(1)Does not include an aggregate of 3,550,000 shares of Common
Stock issuable upon exercise of (i) 1,890,000 outstanding options
exercisable at a weighted average exercise price of $1.03 per share;
(ii) 750,000 outstanding seven-year warrants exercisable at an exercise
price of $1.00 per share until March 31, 1997 and escalating $0.10 per
share per annum thereafter until expiration (March 31, 2001); (iii)
410,000 options available for issuance under the Company's stock option
plans; and (iv) 500,000 outstanding five-year warrants at an exercise
price of $3.9875 per share granted to the Placement Agent and its
authorized dealers in connection with the private placement of
Debentures. Also does not include shares of Common Stock issuable (i)
from and after March 31, 1997, upon conversion of $10 million of Series
A Preferred Stock at a price equal to 80% of the average market value of
a share of Common Stock at the time of conversion; and (ii) upon
conversion of up to $20,750,000 aggregate principal amount of the
Debentures, initially at a conversion price of $3.9875 per share,
subject to certain anti-dilution provisions.
SELECTED CONSOLIDATED FINANCIAL DATA
The Company changed its fiscal year end from December 31 to March 31,
commencing with the period ended March 31, 1992. Previously, the Company
had changed its fiscal year-end from March 31 to December 31, beginning
with the period ended December 31, 1990. The following table sets forth
selected consolidated financial data of the Company for the years ended
March 31, 1995, 1994 and 1993, the three months ended March 31, 1992, the
year ended December 31, 1991 and the nine months ended December 31, 1990.
The selected consolidated financial data should be read in conjunction with
the Company's consolidated financial statements, including the notes
thereto, and "Management's Discussion and Analysis of Results of Operations
and Financial Condition" set forth elsewhere in this Prospectus.
<TABLE>
<C> <C> <C> <C> <C> <C> <C>
Nine Three Three Three
e e
Months Year Months Year Year Year Months Months
Ended Ended Ended Ended Ended Ended Ended Ended
Dec.31 Dec. 31 Mar. 31 Mar. 31 Mar.31 Mar. 31 June 30, June 30,
1990 1991 1992 1993 1994 1995 1994 1995
(In thousands, except per share and ratio data)
<S>
Summary of Operations:
Net Sales:
Core Business $528,809 $716,651 $169,936 $741,357 $487,390 $654,671 $137,140 $57,058
Personal Computers and Other 96,609 73,555 1,562 -- -- -- --
$625,418 $790,206 $171,498 $741,357 $487,390 $654,671 $137,140 $57,058
Net Earnings (Loss)(1):
Before Extraordinary Gain $(37,463) $(60,746) $(6,976) $(56,000) $(73,654) $ 7,375 (2,894) $(1,401)
Extraordinary Gain ______ ______ ______ ______ 129,155 _______ ______ _______
(37,463) $(60,746) $(6,976) $(56,000) $ 55,501 $ 7,375 (2 894) $(1,401)
Per Common Share:
Net Earnings (Loss) Per Common
Share (1) (3):
Before Extraordinary Gain $ (1.03) $ ( 1.60) $ (0.18) $ (1.47) $ 1.45 $ 0.16 $ (0.09) $ (0.03)
Extraordinary Gain ______ ______ ______ ______ ______ ______
$ (1.03) ( 1.60) $ (0.18) $ (1.47) $ 1.45 $ 0.16 $ (0.09) $ (0.03)
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding 36,519 37,897 37,968 38,179 38,191 $ 46,571 $33,333 $40,253
Common Shareholders' Equity
Deficit) (4) $ 1.78 $ 0.12 $(0.04) (1.52) $ 0.98 $ 1.08 $ 0.88 $ 1.04
Ratio of Earnings (Loss) to
Combined Fixed Charges and
Preferred Stock Dividends (1.85) (2.21) (0.60) (2.03) (6.16) 2.92 (3.74) $ (0.86)
Coverage Deficiency $ 13,978 $18,546 $4,217 $ 18,257 10,243 -- $ 635 $ 803
</TABLE>
<TABLE>
<S> December 31, March 31, June 30,1995
<C> <C> <C> <C> <C> <C> <C> <C>
As
1990 1991 1992 1993 1994 1995 Actual Adjusted
(5)
Balance Sheet Data:
Total Assets $300,366 $226,131 $216,693 $194,510 $119,021 $113,969 $103,422 $104,799
Current Liabilities(2) 232,220 218,504 215,069 249,307 76,083 59,782 50,961 31,588
9 7
Long-Term Debt (2) 60 130 157 151 227 214 193 20,943
Shareholders' Equity (Deficit) 65,139 4,550 (1,480) (57,895) 42,617 53,651 51,944 51,944
Working Capital (Deficit) 31,111 (29,503) (36,003) (89,949) 32,248 42,598 39,871 59,244
Current Ratio 1.1 to 1 0.9 to 1 0.8 to 1 0.6 to 1 1.4 to 1 1.7 to 1 1.8 to 1 2.9 to 1
</TABLE>
______________________________
(1) The decline in net sales for the three months ended June 30, 1995
was primarily attributable to the licensing of certain video sales.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition."
(2) The net earnings for Fiscal 1994 include an extraordinary gain of
$129,155,000, or $3.38 per common share, on the extinguishment of debt
settled in the Plan of Reorganization. Additionally, the Company
recorded reorganization expenses of $17,385,000 relating primarily to
the writedown of assets transferred to creditors under the Plan of
Reorganization and professional fees and other related expenses
incurred during the bankruptcy proceedings. The results of operations
for Fiscal 1993, the three months ended March 31, 1992 and the year
ended December 31, 1991 include restructuring and other nonrecurring
charges aggregating $35,002,000, $3,698,000 and $36,964,000,
respectively. These charges represent the cost of discontinuing the
personal computer business, professional fees and other expenses
related to the Company's financial restructuring, and the up-front
costs and writedowns of certain assets associated with implementing
long-term cost reduction programs. Charges for Fiscal 1993 also
include costs related to the Company's proxy contest settled in June
1992. The year ended December 31, 1991 also includes charges related
to the discontinuance of the H.H. Scott domestic business.
(3) The aggregate outstanding principal balance of the Company's senior
notes has been classified as current as of March 31, 1993 and 1992, and
December 31, 1991 and 1990.
(4) Net earnings (loss) per common share for all periods, except Fiscal
1995 and the three months ended June 30, 1994 and 1995, are based on
the weighted average number of old common shares outstanding during
each period. Net earnings per common share for Fiscal 1995 is based on
the weighted average number of shares of new Common Stock and related
common stock equivalents outstanding during the year. Common Stock
equivalents include 9,081,000 shares assuming conversion of $10 million
of Series A Preferred Stock at a price equal to 80% of the weighted
average market value of a share of Common Stock, determined on a
quarterly basis. Since the Series A Preferred Stock is not convertible
into Common Stock until March 31, 1997, the number of shares issuable
upon conversion may be significantly different. Net loss per common
share for the three months ended June 30, 1994 and 1995 is based on the
weighted average number of shares of new Common Stock outstanding
during each period. The net loss per share for both periods does not
include common stock equivalents assumed outstanding since they are
anti-dilutive.
(5) Calculated based on common shareholders' equity (deficit)
divided by actual shares of Common Stock outstanding. Common
shareholders' equity at March 31, 1994 and 1995 and June 30, 1994 and
1995 are equal to total shareholders' equity less $10 million for the
liquidation preference of the Series A Preferred Stock.
(6) Balance sheet data is adjusted to give effect to the initial
application of the estimated net proceeds of $19,373,000 from the
issuance of $20,750,000 of Debentures issued on August 30, 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
General
On March 31, 1994, the Company emerged from bankruptcy pursuant to
the Plan of Reorganization which resulted in 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 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 experienced a
significant improvement in its United States sales in Fiscal 1995 over
Fiscal 1994. However, the Company expects sales for Fiscal 1996 to decline
from Fiscal 1995 due to a license agreement entered into with the Company's
largest supplier (as described below).
On February 22, 1995, the Company and Otake, the Company's largest
supplier, entered into two mutually contingent agreements (the
"Agreements"). Effective March 31, 1995, the Company granted 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 &
G-clef trademark to Wal-Mart, the Company's largest customer, in the United
States and Canada. 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 Wal-Mart accounted for approximately 47% of
consolidated net sales for Fiscal 1995. 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
VCRs, VCPs, TV/VCR combination units, and color televisions to Wal-Mart.
In addition, effective August 1, 1995, Otake assumed 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 August 1, 1995. As a result, the impact of sales
returns on the Company's net sales and operating results are expected to be
significantly reduced commencing with the second quarter of Fiscal 1996.
The Company has reported lower direct sales in the quarter ended June 30,
1995 and expects to report lower direct sales in Fiscal 1996 as a result of
the Agreements, but no negative material impact is expected on its net
operating results for such year. The Company expects to realize a more
stable cash flow over the three-year term of the Agreements, and expects to
reduce short-term borrowings used to finance accounts receivable and
inventory, thereby reducing interest costs.
The Company reported a significant decline in its net direct
sales for the first quarter of Fiscal 1996 as compared to the same period
in Fiscal 1995 primarily due to the licensed video sales. However, the
Company's United States sales to other customers also declined in the
current quarter due to increased price competition, primarily in video
product categories, higher retail stock levels, a slowdown in retail
activity and the higher levels of sales achieved in the first quarter of
Fiscal 1995. The Company expects its United States sales for the second
quarter of Fiscal 1996 to remain comparable with the second quarter of
Fiscal 1995, exclusive of the licensed video sales. Net sales of video
product to Wal-Mart in the second quarter of Fiscal 1995 (quarter ended
September 30, 1994) were $104,357,000, or 53% of consolidated net sales.
The Company's operating results and liquidity are impacted by the
seasonality of its business. The Company records the majority of its
annual sales in the quarters ending September 30 and December 31 and
receives the largest percentages of customer returns in the quarters ending
March 31 and June 30. Therefore, the results of operations discussed below
are not necessarily indicative of the Company's prospective annual results
of operations.
Results of Operations --Three Months Ended June 30, 1995
Compared With Three Months Ended June 30, 1994
Consolidated net sales for the three month period ended June 30, 1995
decreased $80,082,000 (58%) as compared to the same period in Fiscal 1995.
The effects of the Agreements described above accounted for approximately
80% (or $64,452,000) of the decrease in sales, net of licensing revenues
received, and as a result, sales to Wal-Mart were reduced to 16% of
consolidated net sales for the first quarter of Fiscal 1996, as compared to
49% for the same period in Fiscal 1995. Net sales to Wal-Mart of video
products bearing the Emerson & G-Clef trademark was reported by Otake to the
Company to be $61,307,000 for the first quarter of Fiscal 1996. In addition,
the decrease resulted from lower unit sales of VCRs, televisions and TV/VCR
combination units due to higher retail stock levels and increased price
competition in these product categories. Furthermore, the Company's
European sales decreased $6.5 million relating to the Company's
discontinuance of its Spanish branch office, and plan to sell products in
Spain through a distributor. See "Certain Relationships and Related
Transactions."
Cost of sales, as a percentage of consolidated sales, was 89% for the
three month period ended June 30, 1995 as compared to 94% for the same
period in Fiscal 1995. Gross profit margins in the three month period
ended June 30, 1995 were favorably impacted by a change in product mix, the
recognition of licensing income, reduced reserve requirements for sales
returns due primarily to the Agreements with Otake, and reduced fixed costs
associated with the downsizing of the Company's foreign offices, partially
offset by lower sales prices.
Other operating costs and expenses declined $1,135,000 in the three
month period ended June 30, 1995 as compared to the same period in Fiscal
1995, primarily as a result of a decrease in compensation expense and other
expenses incurred to process product returns, both relating to the
Company's downsizing program and change in the resale arrangement for
product returns.
Selling, general and administrative expenses ("S, G & A") as a
percentage of sales, was 9% for the three month period ended June 30, 1995,
as compared to 6% for the same period in Fiscal 1995. In absolute terms,
S, G & A decreased by $2,613,000 in the three month period ended June 30,
1995 as compared to the same period in Fiscal 1995. The decrease was
primarily attributable to lower compensation expense relating to the
Company's downsizing program in both the United States and in its foreign
offices, and lower selling expenses attributable to the lower sales. The
increase in the S, G & A percentage of sales is due primarily to the
allocation of fixed S,G &A costs over a significantly lower sales base
resulting from the licensing of video sales. Additionally, the Company's
exposure to foreign currency fluctuations, primarily in Canada and Spain,
resulted in the recognition of net foreign currency exchange gains
aggregating $432,000 and $401,000 in the three month periods ended June 30,
1995 and 1994, respectively.
Interest expense increased by $168,000 in the three month period
ended June 30, 1995 as compared to the same period in Fiscal 1995. The
increase in interest expense in the current quarter was attributable to
higher average borrowings and higher interest rates. The average rate in
effect for the three month periods ended June 30, 1995 and 1994 was
approximately 11.3% and 9.1%, respectively.
As a result of the foregoing factors, the Company incurred a net loss
of $1,401,000 for the three month period ended June 30, 1995, compared to a
net loss of $2,894,000 for the same period in Fiscal 1995.
Results of Operations -- Fiscal 1995 Compared with Fiscal 1994
Consolidated net sales for Fiscal 1995 increased $167,281,000 as
compared to Fiscal 1994, resulting from a significant increase in unit
sales of VCRs, VCPs and TV/VCR combination units, partially offset by a
decline in unit sales of color televisions and audio products, as well as
lower sales prices for such products. The sales increase for the VCR, VCP
and TV/VCR product categories was attributable to significantly higher
sales to the Company's two largest customers, resulting from an improved
retail climate, low retail stock levels after the 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 Fiscal 1995. The Company's Canadian
operations experienced a decline in net sales for Fiscal 1995 due to
declines in unit volume and sales prices (relating to a weak retail
climate) and unfavorable foreign currency exchange rates.
Cost of sales, as a percentage of consolidated sales, was
approximately 92% for Fiscal 1995 as compared to approximately 100% for
Fiscal 1994. Gross profit margins 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 product
returns, the recognition of $9.9 million of purchase discounts from a
supplier, $1.2 million of licensing income and reduced reserve requirements
for sales returns due primarily to an agreement with the Company's largest
supplier. See "Liquidity and Capital Resources." This improvement was
partially offset by a 1% decline in gross profit margins attributable to
lower sales prices in most product categories resulting from increased
price competition, and a change in product mix.
The Company's margins continue to be impacted by the pricing category
of the consumer electronics market in which the Company competes. The
Company's products are generally placed in the low-to-medium priced
category of the market. These categories tend to be the most competitive
and generate the lowest profits. The Company intends to focus on its
higher margin products and is reviewing new product categories that can
generate higher margins than the current business, either through license
arrangements, joint ventures or on its own.
Other operating costs and expenses declined $3,230,000 in Fiscal 1995
as compared to Fiscal 1994, 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. See "Business - Refurbished Products."
S, G & A, as a percentage of sales, was 5% and 7% for Fiscal 1995 and
Fiscal 1994, respectively. In absolute terms, S, G & A decreased
$3,505,000 in Fiscal 1995. The decrease was primarily attributable to
lower compensation expense relating to the Company's downsizing program,
lower selling expenses, including decreases in promotional allowances
granted to customers, and improved foreign currency results. The Company's
exposure to foreign currency fluctuations, primarily in Canada and Spain,
resulted in net foreign currency exchange gains aggregating $354,000 in
Fiscal 1995 as compared to net foreign currency exchange losses of
$1,406,000 in Fiscal 1994. In Fiscal 1996, the Company intends to reduce
its foreign currency exposure by conducting its European business in U.S.
dollars.
The Company has implemented additional cost reductions in the first
quarter of Fiscal 1996 by reducing the infrastructure of its foreign
offices, which should improve the Company's operating results in Fiscal
1996.
Interest expense decreased $7,361,000 in Fiscal 1995 as compared to
Fiscal 1994. The decrease was attributable to the extinguishment of
approximately $203 million of institutional debt in connection with the
Restructuring, effective March 31, 1994, and a moratorium on interest
accrued on pre-petition indebtedness during the pendency of the Company's
bankruptcy proceedings in Fiscal 1994.
In Fiscal 1994, the Company recorded reorganization costs of
$17,385,000 relating to professional fees and related expenses incurred in
the bankruptcy proceedings, and the writedown of certain assets transferred
to a liquidating trust pursuant to the bankruptcy settlement.
The Company recorded an extraordinary gain on extinguishment of debt
of $129,155,000 in Fiscal 1994. This gain related to the settlement of the
Company's pre-petition liabilities, as a result of the Company's emergence
from bankruptcy.
As a result of the foregoing factors, the Company earned $7,375,000
and $55,501,000 for Fiscal 1995 and Fiscal 1994, respectively.
Results of Operations -- Fiscal 1994 Compared with Fiscal 1993
Consolidated net sales for Fiscal 1994 decreased $253,967,000 as
compared to Fiscal 1993, resulting from a significant decrease in unit
sales of VCR/VCP and television products, as well as lower sales prices for
the same product categories. The sales decline was attributable to the
effect of the Restructuring and the Company's financial condition on the
retailers' perception of the Company, a cautious outlook maintained by
retailers over inventory levels, excess stock at the retail level and
increased price competition in the Company's major product categories.
Cost of sales, as a percentage of consolidated sales, was
approximately 100% for Fiscal 1994 as compared to approximately 91% for
Fiscal 1993. Gross profit margins were negatively impacted by a $6.3
million increase in the reserve for sales returns and were impacted further
by the allocation of fixed overhead costs over a significantly lower sales
base, sales price decreases which were in excess of price reductions
received from suppliers, and significant costs and inventory writedowns
associated with product returns. Additionally, gross margins earned by the
Company's foreign operations were adversely impacted by a decline in the
Canadian dollar and Spanish peseta of 9% and 16%, respectively, from March
31, 1993 to March 31, 1994. Although the Company entered into foreign
currency contracts to minimize its exposure to foreign currency
fluctuations in Europe, it lacked the necessary working capital to hedge
all its foreign currency commitments.
Other operating costs and expenses declined $7,025,000 in Fiscal
1994, as compared to Fiscal 1993, primarily as a result of a reduction in
compensation costs relating to the Company's downsizing program and lower
warranty expenses associated with the decline in the Company's net sales.
S, G & A, as a percentage of sales, was 7% for Fiscal 1994 and Fiscal
1993. In absolute terms, S, G & A decreased by $14,956,000 in Fiscal 1994
as compared to Fiscal 1993. In terms of actual cost, the decrease in
Fiscal 1994 was primarily attributable to lower variable selling expenses,
including decreases in promotional allowances granted to customers, sales
commissions, facility and compensation costs relating to the Company's
downsizing program and a decrease in reserves against the Company's
accounts receivable.
Interest expense decreased by $8,014,000 in Fiscal 1994 as compared
to Fiscal 1993. The decrease was attributable to the moratorium on
interest accrued on pre-petition indebtedness for the six month period
ended March 31, 1994. Interest expense was only accrued and paid on the
Company's debtor-in-possession financing during the pendency of the
bankruptcy proceedings.
During Fiscal 1993, the Company recorded restructuring and other
nonrecurring charges aggregating $35,002,000. The provision included $31.9
million of charges related to the Company's core business operations of
consumer electronics products. These charges are primarily comprised of
certain costs associated with the consolidation of facilities, severance of
employees ($3,967,000 provision for termination of officers and other
employees), the writedown of certain assets, a provision relating to a
significant change in the resale arrangement for returned product, and
professional fees and other charges related to the Company's proposed
financial restructuring and to the proxy contest settled in June 1992. The
provision also included $3.1 million in charges relating to the final
wind-down of the Company's personal computer business.
In Fiscal 1994, the Company recorded reorganization costs of
$17,385,000 relating to professional fees and related expenses incurred in
the bankruptcy proceedings, and the writedown of certain assets transferred
to a liquidating trust pursuant to the bankruptcy settlement.
The Company recorded an extraordinary gain on extinguishment of debt
of $129,155,000 in Fiscal 1994. This gain related to the settlement of the
Company's pre-petition liabilities, as a result of the Restructuring.
As a result of the foregoing factors, the Company earned $55,501,000
for Fiscal 1994, compared to a net loss of $56,000,000 for Fiscal 1993.
Liquidity and Capital Resources
Net cash provided by operating activities was $1,428,000 for the
three months ended June 30, 1995. Cash was provided by a decrease in
accounts receivable partially offset by a loss from operations. The
decrease in accounts receivable was due to a decrease in sales and an
increase in cash collections in the current quarter.
Net cash utilized by investing activities was $1,177,000 for the
three months ended June 30, 1995. Investing activities consisted primarily
of capital expenditures for the purchase of new product molds.
In the three months ended June 30, 1995, the Company's financing
activities utilized $2,797,000 of cash. The Company reduced its borrowings
under its United States line of credit facility by $2,077,000 through the
collection of accounts receivable.
Net cash utilized by operating activities was $20,974,000 for Fiscal
1995. Cash was utilized to purchase inventory for sale which resulted in
increased sales and accounts receivable. The increase in accounts
receivable also reflects sales of returned product to a 50% owned joint
venture that has a net payable to the Company of $15,283,000 at March 31,
1995. See "Business - Refurbished Products." Further, a reduction in
accounts payable to the Company's largest supplier (as noted below) and a
reduction of a large customer's credit balance, negatively impacted cash.
Net cash provided by investing activities was $5,691,000 for Fiscal
1995. Investing activities consisted primarily of a redemption of pledged
certificates of deposit, net of capital expenditures, primarily 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 Restructuring.
In Fiscal 1995, the Company's financing activities provided
$10,680,000 of cash. The Company increased borrowings under its U.S. line
of credit facility by $7,256,000 to finance the higher accounts receivable
levels and reduce accounts payable. Additionally, the Company generated
net proceeds of $5,692,000 from an initial public offering of Common Stock,
as described below.
On September 29, 1993, the Company and five of its U.S. subsidiaries
filed voluntary petitions for relief under the reorganization provisions of
Chapter 11 of the United States Bankruptcy Code and operated as
debtors-in-possession under the supervision of the Bankruptcy Court while
their reorganization cases were pending. The precipitating factor for
these filings was the Company's severe liquidity problems relating to its
high level of indebtedness and a significant decline in sales from the
prior year.
Effective March 31, 1994, the Bankruptcy Court entered an order
confirming the Plan of Reorganization. The Plan of Reorganization provided
for the implementation of a recapitalization of the Company. In accordance
with the Plan of Reorganization, the Company's pre-petition liabilities (of
approximately $233 million) were settled with the creditors in the
aggregate, as follows:
I. The Bank Lenders received $70 million in cash and the right
to receive the initial $2 million of net proceeds from the Company's
anti-dumping duty receivable.
II. The Noteholders initially received $2,650,000 in cash and
warrants to purchase 750,000 shares of Common Stock for a period of
seven years at an exercise price of $1.00 per share, provided that
the exercise price shall increase by 10% per year commencing in year
four, and further received $1 million, payable $922,498 in cash from
the initial public offering of Common Stock and $77,502 in Common
Stock calculated on the basis of $1.00 per share.
III. The Bank Lenders and Noteholders received their pro rata
percentage of the following:
A. $2,350,000 in cash (however $350,000 of this
amount was distributable to the holders of allowed unsecured
claims);
B. 10,000 shares of Series A Preferred Stock with a face
value of $10 million (estimated fair market value of
approximately $9 million at March 31, 1994);
C. 4,025,277 shares of Common Stock, including 691,944
shares issued in February 1995 pursuant to an anti-dilution
provision;
D. The net proceeds from the sale of the Company's Indiana
land and building; and
E. The net proceeds to be received from the Company's
anti-dumping duty receivable in excess of $2 million.
IV. Holders of allowed unsecured claims received a pro-rata
portion of the $350,000 distribution and interest bearing promissory
notes equal to 18.3% of the allowed claim amount, payable in two
installments over 18 months. See "Legal Proceedings."
In accordance with the Plan of Reorganization, the Company completed
an initial public offering of its Common Stock in September 1994 to
shareholders of record as of March 31, 1994, excluding Fidenas Investment
Limited ("FIL"). 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 $5,692,000.
The Company maintains an asset-based revolving 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
the U.S. and Canadian assets of the Company. Until August 24, 1995, the
interest rate on these borrowings was 2.25% above the prime rate. See
"Management's Discussion and Analysis of Results of Operations and
Financial Condition - Subsequent Events." At June 30, 1995, the weighted
average interest rate on the outstanding borrowings was 11.25%. The
facility was also subject to an unused line fee of 0.5% per annum.
Pursuant to the terms of this credit facility, the Company is restricted
from, among other things, paying cash dividends (other than on the Series A
Preferred Stock), redeeming stock, and entering into certain transactions
and is required to maintain certain working capital and equity levels (as
defined). The Company is required to maintain a minimum net worth of
$42,000,000, excluding net proceeds received by the Company from the sale
of equity securities, which minimum will increase to $50,000,000, effective
January 1, 1996. At June 30, 1995, there was approximately $25.2 million
outstanding under the revolving loan facility, and approximately $2.1
million of outstanding letters of credit issued for inventory purchases.
Based on the "Borrowing Base" amount at June 30, 1995, $2,939,000 of the
credit facility was not utilized.
The Company's Hong Kong subsidiary maintains various credit
facilities aggregating $114.3 million with a bank in Hong Kong consisting
of the following: (i) a $12.3 million credit facility which is generally
used for letters of credit for a foreign subsidiary's direct import
business and affiliates' inventory purchases, (ii) a $2 million standby
letter of credit facility, and (iii) a $100 million credit facility, for
the benefit of a foreign subsidiary, which is for the establishment of back-
to-back letters of credit with the Company's largest customer. At June 30,
1995, the Company's Hong Kong subsidiary had pledged $4 million in
certificates of deposit to this bank to assure the availability of these
credit facilities. At June 30, 1995, there were $11.9 million and $9.9
million, respectively, of letters of credit outstanding under the $12.3
illion and $100 million credit facilities.
The Company's Hong Kong subsidiary maintains an additional credit
facility with another bank in Hong Kong. The facility provides for a $10
million line of credit for documentary letters of credit and a $10 million
back-to-back letter of credit line, collateralized by a $5 million
certificate of deposit. At June 30, 1995, the Company's Hong Kong
subsidiary had pledged $5.1 million in certificates of deposit to assure
the availability of these credit facilities. At June 30, 1995, these
credit facilities were not utilized.
Management's strategy to compete more effectively in the highly
competitive consumer products market in the United States and Canada, is to
combine innovative approaches to the Company's current product line, such
as value-added promotions, augment its product line with higher margin
complementary products, including personal and home security products, a
home theater system, ready-to-assemble furniture, clocks and watches, and
car audio products and engage in the sale of distribution, sourcing and
other services to third parties. Management believes that these new
products and services will contribute to the Company's sales and operating
results commencing in the second half of Fiscal 1996. 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 through license arrangements, partnerships or joint ventures.
In Fiscal 1995, the Company concluded licensing agreements for
existing core business products and new products. The Company intends to
pursue additional licensing opportunities and believes that such licensing
activities will have a positive impact on net operating results by
generating royalty income with minimal costs, if any, and without the
necessity of utilizing working capital or accepting customer returns.
Short-Term Liquidity. At present, management believes that cash flow
from operations, the institutional financing noted above and the sale of
Debentures described below will be sufficient to fund all of the Company's
cash requirements for the next year for its core business and to exploit
new business opportunities. The Company has also restructured its United
States secured credit facility as described below. Cash flow from
operations will be negatively impacted by any increase 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 United States secured credit
facility with the Lender and may restrict growth of the Company's sales.
The Company's liquidity is also impacted by the seasonality of its
business. The Company records the majority of its annual sales in the
quarters ending September 30 and December 31. This requires the Company to
open significantly higher amounts of letters of credit during the quarters
ending June 30 and September 30, therefore significantly increasing the
Company's working capital needs during this period. Additionally, the
Company receives the largest percentage of customer returns in the quarters
ending March 31 and June 30. The high level of returns during this period
adversely impacts the Company's collection activity during this period, and
therefore its liquidity. The Company believes that its recent Agreements
with Otake (as noted above) should favorably impact the Company's cash flow
over the three-year term of the Agreements.
Long-Term Liquidity. The revolving credit facility with the Lender
imposes financial covenants on the Company that could materially affect its
liquidity in the future. However, management believes that the financing
noted above and cash flow from operations will provide sufficient liquidity
to meet the Company's operating and debt service cash requirements on a
long-term basis for its current core business.
Inflation and Foreign Currency
Except as disclosed above, neither inflation nor currency
fluctuations had a significant effect on the Company's results of
operations during the three months ended June 30, 1995, Fiscal 1995, Fiscal
1994 or Fiscal 1993. The Company's exposure to currency fluctuations has
been minimized by the use of U.S. dollar denominated purchase orders, and
by sourcing production in more than one country. However, the strength of
the Japanese Yen in 1995 has raised the costs of certain raw materials and
subassemblies of the Company's suppliers which has been passed on to the
Company in the form of price increases in Fiscal 1996. There can be no
assurance that the Company will be able to recover such price increases
from the selling price to its customers. To mitigate the impact of the
Yen, the Company has been able to negotiate lower prices from new sources
of supply for certain audio products commencing primarily in the second
half of Fiscal 1996.
Subsequent Events
On August 30, 1995, the Company completed its private placement of
$20,750,000 aggregate principal amount of Debentures, resulting in net
proceeds to the Company of approximately $19,373,000 after the payment of
commissions and other expenses of such offering. The proceeds of this
offering initially were used to reduce the Company's United States secured
credit facility. As of November 3, 1995, there was approximately $30.8
million of such outstanding Senior Indebtedness.
The Company currently intends to utilize a portion of the net
proceeds of such offering or, alternatively, availability under such United
States secured credit facility, as follows: (i) repayment of an
intercompany balance with a foreign subsidiary; (ii) finance development of
a home theatre system; (iii) finance development of the "H.H. Scott"
product line; (iv) finance development of an Emerson car audio product
line; (v) working capital; and (vi) acquisitions. To date, the Company
does not have any signed contracts, letters of intent, or agreements in
principle with respect to any acquisitions and is not currently engaged in
any significant negotiations to make any such acquisition.
The allocation of net proceeds from the offering of the Debentures by
the Company represents the Company's current estimates based upon its
present plans and certain assumptions, including plans and assumptions
regarding the Company's business and assumptions regarding the industry and
general economic and other conditions. If any of those factors change, the
Company may find it necessary or advisable to reallocate some of the proceeds
for other purposes.
The Company has also amended its United States secured credit
facility effective as of August 24, 1995. The amendment includes, among
other things, a reduction of 1% in the interest rate charged on borrowings,
down to 1.25% above the stated prime rate, an extension on the term of the
facility for one additional year to March 1998, an increase in working
capital requirements, a reduction of other loan fees and charges under such
facility and the release of the Lender's security interests in the
trademarks of the Company. The trademarks are subject to a negative pledge
covenant. The modifications to its United States secured credit facility,
together with the net proceeds from the sale of the Debentures, should
enable the Company to significantly reduce its costs of borrowings while
permitting the Company to expand its product lines and distribution base as
described above.
BUSINESS
General
Emerson, one of the nation's largest volume consumer electronics
distributors, directly and through subsidiaries, designs, sources, imports
and markets a variety of video and audio consumer electronics and microwave
oven products. The Company distributes its products primarily through mass
merchants and discount retailers, leveraging on the strength of its
trademark, a nationally recognized trade name in the consumer electronics
industry. The trade name "Emerson Radio" dates back to 1912 and is one of
the oldest and most well respected names in the consumer products industry.
In addition, the Company offers a line of audio products for sale under the
"H.H. Scott" brand name. Approximately $15 billion of factory sales are
generated by the industry in the market segment in which the Company
competes. In calendar year 1994, Emerson believes it was among the top
three brand names in unit sales volume of VCRs and TV/VCR combinations and
among the top five brand names in unit sales volume of color televisions.
The Company believes it possesses an advantage over its competitors
due to the combination of the Emerson brand recognition, its extensive
distribution base and established relations with customers in the mass
merchant and discount retail channels of distribution, its sourcing
expertise and established vendor relations, and an infrastructure boasting
personnel experienced in servicing and providing logistical support to the
domestic mass merchant distribution channel. Emerson intends to leverage
its core competencies to offer a broad variety of current and new consumer
products to retail customers in developing markets worldwide. The Company
intends to form joint ventures and enter into licensing agreements which
will take advantage of the Company's trademarks and utilize the Company's
logistical and sourcing advantages.
The Company's core business consists of the distribution and sale of
arious low to moderately priced product categories, including black and
white and color televisions, VCRs, VCPs, TV/VCR combination units, home
stereo and portable audio products and microwave ovens. The majority of
the Company's marketing and sales of these products is concentrated in the
United States and, to a lesser extent, Canada and certain other
international regions. Emerson's major competition in these markets are
foreign-based manufacturers and distributors.
The Company successfully restructured its financial position through
the Plan of Reorganization. Through the Restructuring, the Company reduced
its institutional debt by approximately $203 million. Additionally, the
Company increased its net sales by 34% in Fiscal 1995, the fiscal year
immediately following its emergence from bankruptcy, as compared to Fiscal
1994. See "The Company - Restructuring of the Company."
Industry
Consumer electronics products play a major role in the entertainment,
information and education industries and provide consumers with affordable
options in these areas. Based on industry sources, sales of consumer
electronics products set all time sales records in 1994, with estimated
factory sales of approximately $55.9 billion.
The consumer electronics industry comprises over 30 different
categories of products. Of these, the largest categories are personal
computers, color televisions, auto sound, computer peripherals, electronic
software, VCRs, portable audio, batteries, computer software, camcorders,
audio systems and telephone products. These categories represent $38.3
billion of factory sales, or approximately 69% of the consumer electronics
industry. The specific product categories in which the Company competes
represent approximately $15 billion of factory sales, or approximately 25%
of the consumer electronics industry.
The consumer electronics industry factory sales data shown in the
table below are based on information provided by the Electronics Industries
Association:
Consumer Electronics Industry
Annual Factory Sales Dollars
Calendar 1991-1995
(Billions)
1991 1992 1993 1994 1995
Actual Actual Actual Estimated Projected
$42.08 $46.2 $51.03 $55.9 $59.8
Emerson sells a wide range of video, audio and microwave oven
products. The Company's significant sales volume is the result of offering
what management believes are well featured, value priced products primarily
to mass merchants, warehouse clubs and catalog showrooms.
Company Products
The Company directly and through subsidiaries designs, sources,
imports and markets a variety of video and audio consumer electronics and
microwave oven products, primarily on the strength of its r trademark, a
nationally recognized symbol in the consumer electronics industry. The
Company's core business currently consists of the following video and audio
product categories as well as microwave ovens:
Video Products Audio Products
Color Televisions Shelf systems
Black and White Specialty CD stereo systems
Televisions
Color Specialty Televisions Portable audio, cassette
and CD systems
Color TV/VCR Combination Units AM/FM Bicycle radios
Video Cassette Recorders Personal audio, cassette
and CD systems
Speciality Video Cassette Players Digital clock radios
Televisions:
Management believes that market saturation for color televisions is
extensive and that more than one-half of its television sales will be
replacement sets. Emerson intends to capitalize on its strength in the
small screen categories while moving into the growing and more profitable
larger screen sizes. Emerson will continue to offer innovative new
features and contemporary styling.
VCRs and Combination Units:
Approximately 85% of all U.S. households have at least one VCR.
Industry sales reporting practices appear to indicate modest growth rates
in VCRs, with consumers purchasing both stand-alone VCRs and the TV/VCR
combination product. Emerson was one of the first companies to sell VCRs
through the discount store channel of distribution. As the category began
to mature, the discount store channel experienced explosive sales growth,
resulting in a large market share for the Emerson and G-Clef brand. In
1988, Emerson introduced the industry's first TV/VCR combination product in
the United States market. Since that time, the Company has remained among the
industry leaders. The Company intends to maintain its leadership position
through the introduction of new, larger screen sizes and trendy fashion
colors in small screen models.
Audio:
Emerson competes in the following product categories within the audio
segment:
Clock Radios: In the clock radio category, Emerson maintains a
strong market share. The Company was one of the first to offer models with
large clock displays and continues to introduce new products.
Headphone Stereo: Portable headset audio sales have remained flat in
the 1990's and this trend is expected to continue. The Company is also
developing a line of "active series" products to tap into the fitness trend
in the United States.
Personal CD: With sales increases of 32% in 1994 and 18% projected
(based upon management's best estimate) in 1995, the personal compact disc
market continues to expand. Beginning in 1995, Emerson will introduce new
products and programs to attempt to gain a stronger position in this
market.
Non-CD Portable Stereo: While the total "Boombox" category is
growing due to the strong sales of CD units, non-CD sales have been
declining rapidly. While maintaining a dominant position in the entry
level product area, the Company will attempt to expand its presence in step-
up products.
Portable CD/Radio/Cassette: The Company will increase its emphasis
on CD's. Emerson will offer CD combination models with step-up features,
while attempting to price such products below its competition.
Shelf Systems: Shelf systems remain a growth area for the industry.
The category has dramatically shifted to digital with 93% of the unit sales
in CD based systems in 1994.
Microwave Ovens:
The microwave category allows Emerson to merchandise its products and
promote its brand name in other departments. As a result, Emerson and G-Clef
the brand name is known in housewares and appliance departments.
Emerson will maintain its focus in the under $150 price range. The
Company will attempt to gain market share by offering better styled
products with more features and greater dealer margin, in conjunction with
Emerson and G-Clef brand name recognition to enhance sales to entry level
purchasers. The Company is also introducing ready-to-assemble furniture and
home and personal security products to complement its current product line.
Growth Strategy
The Company's strategic focus is to develop and expand its
distribution of consumer electronics products in the domestic marketplace
to new customers and the development and sale of new products, such as
ready-to-assemble furniture and home and personal security products;
capitalize on opportunities to license the Emerson and G-Clef and "H.H.
Scott" trade names; leverage and exploit its sourcing capabilities, buying
power and logistics expertise in the Far East; and expand international
sales including not only core consumer electronic products but also other
consumer products such as ready-to-assemble furniture and home and personal
security products.
The Company believes that the Emerson and G-Clef trademark is widely
recognized on a world-wide basis. A principal component of the Company's
growth strategy is to utilize this brand name recognition together with the
Company's reputation for quality and cost competitive products to aggressively
promote its product lines within the United States and Canada and targeted
geographic areas on an international basis. The Company's management
believes that the Company will be able to compete more effectively in the
highly competitive consumer electronics and microwave oven industries
domestically and internationally, by combining innovative approaches to the
Company's current product line and augmenting its product line with
complementary products. The Company intends to pursue such plans either on
its own, or by forging new relationships, including through license
arrangements, partnerships or joint ventures. The Company has successfully
negotiated definitive licensing arrangements with its largest supplier, a
distributor of consumer electronics accessories, a manufacturer of clocks
and watches and the Franklin Mint. See "Business - Licensing." Further,
the Company is currently involved in negotiations with different parties
with respect to additional similar transactions.
Sales and Distribution
The Company has implemented an integrated system to coordinate the
purchasing, sales and distribution segments of its operations. The Company
is equipped to receive orders from its major accounts electronically or by
the conventional modes of facsimile, telephone or mail. The Company does
not have long-term contracts with any of its customers, but rather receives
orders on an ongoing basis. Products imported by the Company (generally
from the Far East) are shipped by ocean freight and then stored in
contracted public warehouse facilities, for shipment to customers.
Products manufactured by vendors in Indiana are stored in public warehouses
on an interim basis until shipped to the Company's customers. All
merchandise received by Emerson is automatically updated into the Company's
on-line inventory system. As a purchase order is received and filled,
warehoused product is labeled and prepared for outbound shipment to Company
customers by common, contract or small package carriers.
The Company also makes available to its customers (through
subsidiaries) a direct import program, pursuant to which products are
imported directly by the Company's customers. In the three months ended
June 30, 1995, Fiscal 1995 and Fiscal 1994, products representing
approximately 47%, 68% and 52% of net sales, respectively, were imported
directly from manufacturers to the Company's customers. If the Company
experiences a decline in the percentage of sales effected through direct
imports, its working capital and inventory requirements may be
incrementally affected. See "Risk Factors" and "Management's Discussion
and Analysis of Results of Operations and Financial Condition."
Domestic Marketing
In the United States, the Company markets its products primarily
through mass merchandisers and discount retailers. Wal-Mart accounted for
approximately 16%, 53% and 34%, and Target Stores, Inc., accounted for
approximately 10%, 10% and 12% of the Company's net sales in the three
months ended June 30, 1995, Fiscal 1995 and Fiscal 1994, respectively. Net
sales to Wal-Mart for Fiscal 1995 and Fiscal 1994 include sales of certain
video products which are subject to a license/supply arrangement with the
Company's largest supplier, effective March 31, 1995. As a result, the
Company now reports royalty revenues attributable to such sales, in lieu of
reporting the full dollar values of such sales and associated costs. See
"Management's Discussion and Analysis of Results of Operations and
Financial Condition." Net sales of these products to Wal-Mart accounted
for approximately 47% and 21% of consolidated net sales in Fiscal 1995 and
Fiscal 1994, respectively. See "Business-Licensing." No other customer
accounted for more than 10% of the Company's net sales during these
periods.
A portion of the Company's sales are made through sales
representative organizations which receive sales commissions and work
closely with Company sales personnel. The remainder of the Company's sales
are made to retail customers serviced principally by Company sales
personnel. The Company has six sales professionals based in the United
States. The domestic sales force is based in the Company's New Jersey
corporate headquarters, and in regional offices located in Missouri and
California. The sales representative organizations sell, in addition to
the Company's products, allied, but generally non-competitive, products.
In most instances, either party may terminate a sales representative
relationship on 30 days' prior notice in accordance with customary industry
practice. The Company utilizes approximately 30 sales representative
organizations, including one through which approximately 13% and 10% of the
Company's net sales were made in the three months ended June 30, 1995 and
Fiscal 1995, respectively. Additionally, one other sales representative
organization accounted for 14% of the Company's net sales made in the three
months ended June 30, 1995. No other sales representative organization
accounted for more than 10% of the Company's net sales in the three months
ended June 30, 1995 or Fiscal 1995.
Foreign Marketing
While the major portion of the Company's marketing efforts are
directed toward the United States, approximately 9% and 7% of the Company's
net sales in the three months ended June 30, 1995 and Fiscal 1995,
respectively, were made to foreign customers in Canada, Central and South
America, Spain and the Middle East. See Note M of Notes to Consolidated
Financial Statements for Fiscal 1995 and "Management's Discussion and
Analysis of Results of Operations and Financial Condition." The Company is
expanding its marketing and sales activities in certain international
geographic regions and has expanded such activities to cover other parts of
Europe, South America, the Far East and Mexico.
Licensing
The Company believes that licensing activities will have a positive
impact on net operating results by generating royalty income with minimal
costs, if any, and without the necessity of utilizing working capital or
accepting customer returns. The Company has successfully concluded
licensing agreements with (i) Otake for the sale of video products bearing
the Emerson and G-Clef trademark to Wal-Mart locations in the United States
and Canada, (ii) Jasco Products Co., Inc. ("Jasco"), one of the largest
domestic electronics accessory companies, for distribution of electronic
accessories in the United States, (iii) Herald Holding Limited ("Herald"), a
publicly-traded Hong Kong Company, for the distribution of clocks and watches
in the United States bearing the Emerson and G-Clef trademark and (iv) the
Franklin Mint for distribution of classic Emerson Radio reproductions. The
Company intends to pursue additional licensing opportunities. See "Risk
Factors" and "Management's Discussion and Analysis of Results of Operations
and Financial Condition."
Design and Manufacturing
The Company's design team is responsible for product development and
operates closely with the Company's manufacturers. The Company's engineers
determine the detailed cosmetic and option specifications for new products,
which typically incorporate commercially available electronic parts to be
assembled according to the Company's designs. Accordingly, the exterior
designs and operating features of the Company's products reflect the
Company's judgment of current styles and consumer preferences. The
Company's designs are tailored to meet the needs of the local market,
particularly in the case of international distribution, where products are
generally introduced on a country-by-country basis.
The majority of the Company's products are manufactured by original
equipment manufacturers in accordance with the Company's specifications.
The manufacturers are primarily located in Hong Kong, South Korea, Taiwan,
China, Malaysia and Thailand. Certain of the Company's products are also
assembled by a contract manufacturer in Indiana.
During the three months ended June 30, 1995, Fiscal 1995 and Fiscal
1994, approximately 95%, 89% and 84%, respectively, of the cost value of
the Company's purchases consisted of imported finished goods. Otake, a
manufacturer headquartered in Japan, supplied approximately 18%, 73% and
59%, respectively, of the Company's total purchases in the three months
ended June 30, 1995, Fiscal 1995 and Fiscal 1994. Approximately 52% and
30% of the cost value of the Company's purchases in Fiscal 1995 and Fiscal
1994, respectively, were video products purchased from Otake and sold to
Wal-Mart. As a result of the license/supply arrangement with Otake, the
Company expects to purchase a significantly lower proportion of its
finished goods from Otake over the three-year term of the agreements. See
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" and "Business-Licensing." The license/supply
arrangement also provides that Otake will supply the Company with certain
video products for sale to other customers at preferred prices for a three-
year term. Otake also sells a line of video products under its Orion
trademark. Kong Wah, a manufacturer headquartered in Hong Kong, supplied
approximately 10% of the Company's total purchases in each of the three
months ended June 30, 1995 and Fiscal 1994. Additionally, Daewoo
Electronics Co. Ltd., Imarflex, Mfg. Co., Ltd. and Musical Electronics
Limited accounted for approximately 22%, 21% and 14%, respectively, of the
Company's purchases during the three months ended June 30, 1995. No other
supplier accounted for more than 10% of the Company's total purchases
during these periods. The Company believes that, barring any unusual
shortages or economic conditions, it could develop alternative sources for
any of the products it currently purchases. Except with respect to the
Agreements with Otake, the Company does not have a contractual agreement
with any of its suppliers and no assurance can be given that certain
short-term shortages of product would not result if the Company were
required to seek alternative sources of supply without adequate notice by
the supplier or a reasonable opportunity to seek alternate production
facilities and component parts. See "Risk Factors."
Warranties
The Company offers its United States and Canadian consumers limited
warranties comparable to those offered to consumers by its competitors and
accepts returns from its customers in accordance with customary industry
practices. Warranties for products sold internationally are, in certain
cases, provided on a region-by-region basis through local entities retained
by the Company.
Refurbished Products
The Company's customers return product to the Company for a variety
of reasons, including liberal retailer return policies, damage to goods in
transit and occasional cosmetic imperfections and mechanical failure.
To improve profitability, effective April 1, 1994, the Company formed
a partnership ("Partnership") with Hopper Radio of Florida, Inc.
("Hopper"), a major independent reseller of consumer electronics products.
The Company and Hopper each own a 50% interest in the Partnership. The
Partnership was formed to purchase (i) all returned consumer electronics
products from the Company, refurbish them, if feasible, and sell them
refurbished or "As-Is", on a worldwide basis in all countries where the
Company has trademark rights and (ii) new consumer electronics products
from manufacturers sourced through a subsidiary of the Company or through
third parties, if such new products could be obtained on more favorable
prices and terms, for sale in Mexico and Central and South America.
The Partnership with Hopper has enabled the Company to control the
costs associated with product returns, by providing a stable selling price
for returned products and increased inventory turnover, by utilizing the
distribution network of Hopper to sell products, and by potentially
increasing the Company's sales of new products to Mexico and Central and
South America. The Partnership's profits and losses are allocated evenly.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition - Liquidity and Capital Resources." The general
managerial activities are under the control of Barry Smith, who is also the
President of Hopper. The Company previously refurbished certain products
which were either sold as refurbished or, if not refurbished, sold "As-Is".
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition."
In forming the Partnership, the Company contributed returned product
to the Partnership equal in value to the amount of Hopper's initial cash
contribution of $500,000. The Company also agreed to (i) sell additional
returned products to the Partnership, pursuant to the terms of a sales
agreement, (ii) license to the Partnership its Emerson and G-Clef trademark
for sale of refurbished product worldwide and for sale of new products in
Mexico, Central and South America, (iii) provide the Partnership with access
to its vendors, (iv) relinquish its territories for refurbished merchandise and
(v) lease to the Partnership the equipment to refurbish the returned
merchandise. The partnership agreement of the Partnership similarly
provides that Hopper is required to provide the Partnership with (i) the
set price list at which all merchandise shall be sold, to be approved in
advance by both partners, (ii) financing on terms to be agreed to by both
parties, and (iii) the physical location for refurbishing activities at a
rental rate of $2.00 per square foot, or as otherwise agreed to by the
parties.
The Company filed suit on July 5, 1995 in the State Court of New
Jersey alleging that Hopper, Barry Smith and three former employees of the
Company (collectively, the "Defendants") have formed a business entity for
the purpose of engaging in the distribution of consumer electronics and
that the action of the Defendants in connection therewith violated certain
duties owed to and rights of the Company. The Partnership has continued to
operate since the filing of the lawsuit. The Company cannot predict at
this time how this suit will, if at all, affect the Partnership or the
Company.
Backlog
From time-to-time, the Company has substantial orders from customers
on hand. Management believes, however, that backlog is not a significant
factor in its operations. The ability of management to correctly
anticipate and provide for inventory requirements is essential to the
successful operation of the Company's business.
Trademarks
The Company owns the Emerson and G-Clef "H.H. Scott" and "Scott"
trademarks for certain of its home entertainment and electronic products in
the United States, Canada, Mexico and various other countries. Of the
trademarks owned by the Company, those registered in the United States must be
renewed at various times from 1996 to 2008 and those registered in Canada must
be renewed at various times from 1995 to 2007. The Company's trademarks are
also registered on a worldwide basis, which registrations must be renewed at
various times. The Company intends to renew all such trademarks. The
Company considers the Emerson and G-Clef trademark to be of material
importance to its business. The Company also owns the "Electrophonic"
trademark and will be introducing this trademark on value priced audio
products in the second half of fiscal 1996. The Company owns several
other trademarks, none of which is currently considered by the Company to be
of material importance to its business. The Company has licensed certain
applications of the Emerson and G-Clef trademark to Otake, Jasco, Herald and
the Franklin Mint on a limited basis. See "Business - Licensing." The Company
may not pledge the Emerson and G-Clef trademark to secure indebtedness under
its United States secured credit facility or under the Indenture. See
"Description of Debentures."
Competition
The market segment of the consumer electronics industry in which the
Company competes generates approximately $15 billion of factory sales
annually and is highly fragmented, cyclical and very competitive,
supporting major American, Japanese and Korean companies, as well as
numerous small importers. The industry is characterized by the short life
cycle of products which requires continuous design and development efforts.
Market entry is comparatively easy because of low initial capital
requirements.
The Company primarily competes in the low to medium-priced sector of
the consumer electronics market. Management estimates that the Company has
several dozen competitors, many of which are much larger and have greater
financial resources than the Company. Emerson's major competitors are
foreign-based manufacturers and distributors. The Company competes
primarily on the basis of its products' reliability, quality, price and
design, the Emerson and G-Clef trademark and service to retailers and their
customers. The Company's products also compete at the retail level for shelf
space and promotional displays, all of which have an impact on the Company's
established and proposed distribution channels. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
Government Regulation
Pursuant to the Tariff Act of 1930, as amended, the Trade Act of 1974
and regulations promulgated thereunder, the United States government
charges tariff duties, excess charges, assessments and penalties on many
imports. These regulations are subject to constant change and revision by
government agencies and by action by the United States Trade Representative
and may have the effect of increasing the cost of goods purchased by the
Company or limiting quantities of goods available to the Company from its
overseas suppliers. A number of states have adopted statutes regulating
the manner of determining the amount of payments to independent service
centers performing warranty service on products such as those sold by the
Company. Additional Federal legislation and regulations regarding the
importation of consumer electronics products, including the products
marketed by the Company, have been proposed from time-to-time and, if
enacted into law, could adversely affect the Company's results of
operations.
Employees
As of November 3, 1995, the Company had 173 employees. The Company
considers its labor relations to be generally satisfactory.
Properties
The Company, directly and through its subsidiaries, leases warehouse
and office space in New Jersey, California, Canada, Missouri, the Far East
and Spain under leases expiring at various times from calendar 1995 to
1998, at minimum aggregate rentals as follows:
Year Ending
March 31, (In Thousands)
1996 $1,507
1997 1,484
1998 1,071
1999 271
$4,333
In the past several years, the Company has closed substantially all
of its leased or owned warehouse facilities in favor of utilizing public
warehouse space as part of the Company's effort to convert fixed costs to
variable costs. The cost for the public warehouse space is based on a
fixed percentage of the Company's sales from each respective location.
Such amounts are not included in the above table.
LEGAL PROCEEDINGS
Bankruptcy Claims
Pursuant to the Plan of Reorganization and the Bankruptcy Code, all
claims against the Company existing as of September 29, 1993, were
discharged, except as specifically set forth in the Plan of Reorganization.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition." The Plan of Reorganization provides that unsecured
creditors other than the Bank Lenders and the Noteholders holding
pre-petition claims which are allowed, will receive unsecured promissory
notes in the principal amount equal to 18.3% of the allowed amount of the
claim; the notes will bear interest at a rate based on the LIBOR rate for
one year obligations, and are due and payable as follows: (i) 35% of the
outstanding principal is due 12 months from the date of issuance, and (ii)
the remaining balance is due 18 months from the date of issuance. The
Company is presently contesting claims submitted by several creditors.
The largest claim was filed on 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 the 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 were satisfied. The Company
believes the Bankruptcy Court will separately review the portion of the
claim for lost profits from the substantially smaller claim for actual
damages. The Company has objected to the claim, 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 could have a material adverse effect on the Company, even though
liability of the Company would be limited to 18.3% of the final claim
determined by a court of competent jurisdiction; however, with respect to
the claim for lost profits, in light of the foregoing, the Company believes
the chances for recovery on the Cineral claim for lost profits are remote.
Teletech Litigation
In December 1990, an action entitled Emerson Radio (Hong Kong)
Limited (a wholly- owned subsidiary of the Company) and Teletech (Hong
Kong) Limited was commenced in the Supreme Court of Hong Kong High Court
(the "Teletech Action") by Emerson Radio (Hong Kong) Limited ("Emerson
(H.K.)") against Teletech (Hong Kong) Limited ("Teletech"). The Statement
of Claim (the "Claim"), filed and served in March 1991, alleges that
Teletech breached its agreements to sell cordless telephones and telephone
answering machines to Emerson (H.K.). The Claim seeks damages of
approximately $1,000,000.
In March 1991, Teletech filed a counterclaim that essentially denies
the allegations and alleges that Emerson (H.K.) breached its agreement to
purchase cordless telephones and telephone answering machines arising from
wrongful cancellation of placed orders. The counterclaim seeks damages of
approximately $1,700,000. In May 1991, Emerson (H.K.) filed a reply to the
counterclaim denying the allegations in the counterclaim. Discovery is
currently proceeding. This litigation was not affected by the bankruptcy
proceedings.
Tax Matters
In June and October 1988, the Franchise Tax Board of the State of
California issued Notices of Proposed Assessment to the Company proposing
additional state income tax of approximately $501,000 in the aggregate,
plus interest, for the fiscal years 1980, 1985 and 1986. In August and
November 1988, the Company filed protests with the Franchise Tax Board
taking exception to the Notices of Proposed Assessment. After disallowing
the Company's protest, on July 24, 1992, the Franchise Tax Board issued a
formal Notice of Action assessing a deficiency in the aggregate of
approximately $664,000, which includes interest through July 24, 1992. On
August 24, 1992, the Company filed an appeal with the California State
Board of Equalization. The Franchise Tax Board filed a response on April
29, 1993, and the Company filed its reply on July 16, 1993.
On March 9, 1994, the Company filed an adversary complaint with the
Bankruptcy Court, to obtain a declaratory judgment against the Franchise
Tax Board with regard to this matter. The Franchise Tax Board filed its
response on April 6, 1994. Discovery is proceeding. The Franchise Tax
Board moved to dismiss the adversary proceeding and requested the
Bankruptcy Court to abstain. On October 19, 1994, the Bankruptcy Court
entered an order of abstention which directed the parties to litigate in
California. The Company appealed to the District Court of New Jersey. The
District Court affirmed the order of the Bankruptcy Court and the Company
has filed a notice of appeal with the Third Circuit. Subsequent to entry
of the District Court order, the California State Board of Equalization
advised the Company and the Franchise Tax Board of the opportunity and
deadlines to file additional papers with respect to the Notice of Action.
On February 15, 1994, the Franchise Tax Board issued Notices of
Proposed Assessment to the Company proposing additional state income tax of
approximately $382,000 in the aggregate, plus interest, for the fiscal
years 1987, 1988 and 1989. The Company filed its protest with the
Franchise Tax Board on April 15, 1994, taking exception to the Notices of
Proposed Settlement.
Management believes that adequate amounts of tax reserves have been
provided for any adjustments which may result from the above assessments
and any additional adjustments for the remaining years under examination.
Litigation Regarding Certain Outstanding Common Stock
Subsequent to confirmation of the Plan of Reorganization, litigation
arose among the principal shareholders of FIL, the Company's largest
shareholder prior to confirmation of the Plan of Reorganization, with
respect to various business relations and transactions entered into between
the shareholders, certain affiliates and their principals, including
Geoffrey Jurick, the Company's Chairman and Chief Executive Officer, and
Donald Stelling, the former Chairman. Mr. Stelling resigned on December 2,
1993 from the Company's Board of Directors creating uncertainty about the
ability of FIL to honor its commitment to the Company and the Bank Lenders
to satisfy its obligations to infuse $75 million in funds for the purpose
of financing the Restructuring. The $75 million commitment was made
available by Mr. Jurick and related companies, which utilized approximately
$15.2 million in funds which had been deposited by FIL into an escrow
account for the purpose of securing the Company's Debtor-in-Possession
financing obtained in connection with the Restructuring. Management
believes that, at the date of this Prospectus, Messrs. Jurick and Peter
Bunger, directors of the Company, comprise the Board of Directors of FIL.
The utilization of the $15.2 million has been challenged by various
Stelling interests in three countries.
Proceedings were commenced in the Commonwealth of Bahamas for the
winding-up of FIL. The proceeding was brought by one of its shareholders,
a Bahamian entity controlled by Petra Stelling, wife of Donald Stelling.
The liquidator appointed by the Bahamian Court for the winding-up of FIL
commenced litigation against Fidenas International and Mr. Jurick with
respect to claims arising from the acquisition of the Company's Common
Stock by GSE and Fidenas International.
The liquidator commenced ancillary proceedings in the United States
Bankruptcy Court pursuant to authorization granted by the Bahamian Court
for the purposes of, among other things, (i) conducting discovery regarding
the issuance of the shares of Common Stock to Fidenas International, GSE
and Elision (the Selling Securityholders) and utilization of the $15.2
million in funds which secured the Company's Debtor-in-Possession Financing
and (ii) restraining the transfer, disposition or further encumbrance of
any shares of the Company owned by Fidenas International, GSE, and Elision
issued pursuant to the Plan of Reorganization. The ancillary proceeding
was dismissed by the Bankruptcy Court on February 16, 1995.
In addition to the litigation pending in the Bahamas and New York,
the Stelling interests have pursued Mr. Jurick and certain business
associates (including Mr. Bunger) and affiliates in civil and criminal
actions in Switzerland for various claims relating to their business
relationships and transactions. Based on certain charges raised by the
Stellings, the Swiss authorities have commenced investigations of Messrs.
Jurick, Bunger and Jerome Farnum (also a director of the Company). In
addition, the Swiss authorities have questioned Messrs. Jurick and Farnum
as part of an investigation of possible violations by them of certain Swiss
bank licensing laws. While the investigation is still pending, none of
Messrs. Jurick, Farnum or Bunger have been charged or indicted by the Swiss
authorities. The Federal Banking Commission of Switzerland has issued a
decree purporting to determine that certain entities affiliated with
Messrs. Jurick and Farnum are subject to Swiss banking laws and have
engaged in banking activities without a license; the Commission has ordered
(i) the liquidation of one affiliate and the assets of another, (ii) the
appointment of a Swiss accounting firm to conduct the decreed liquidation
and (iii) certain preliminary measures providing for the appointment of the
Swiss accounting firm to act as an observer with special supervisory
powers. The Company has been informed by counsel to those entities that an
appeal was filed with respect to the decree and that during the pendency of
the appeal, if timely filed, the provisions of the decree providing for the
liquidation shall not be implemented. The Company has been advised that
the appeal was withdrawn on September 21, 1995 and a permanent liquidator
appointed for one of the affiliated entities.
Though the Company is not a party to any of the proceedings in
Switzerland or in the Commonwealth of Bahamas, the Company intends to
monitor the litigation. An order of a court of competent jurisdiction
requiring the turnover of all or a substantial portion of the Common Stock
may result in a default under the terms of the Company's United States
secured credit facility and/or the Indenture. See "Risk Factors --
Litigation Relating to Common Stock." Additionally, such a change in
control could result in a second ownership change further limiting the
Company's ability to use its NOLs and TCCOs. See "Certain Federal Income
Tax Considerations."
The Official Liquidator appointed in the Commonwealth of Bahamas for
Fidenas International Bank Limited (which management believes to be a
holder of approximately 18% of the shares of Elision and approximately 11%
of the shares of GSE) has filed an action in the Bahamas concerning the
ownership by Fidenas International of certain shares of Common Stock.
Transfer of the stock has been enjoined by the Bahamian courts. The
Official Liquidator has also filed an action in the United States District
Court on behalf of Fidenas International Bank Limited with respect to
certain shares of Common Stock issued to Fidenas International in
conjunction with the Restructuring. As of the date hereof, the transfer of
such shares has been restrained, the subject shares deposited into the
registry of the Court pending further order, and discovery in the action
has been commenced.
A creditor of Elision has requested and obtained a preliminary
injunction issued by a state court in Massachusetts which enjoins Elision
from conveying, pledging, hypothecating or transferring any interest in
assets of the corporation, including securities registered in the name of
the corporation, other than in the usual course of business, until November
8, 1995. On that date, a hearing is scheduled for further consideration of
the relief sought by such creditor. The order has the effect of
prohibiting transfers of any shares of Common Stock of the Company owned by
Elision.
Stelling Litigation
The Company filed a suit in federal court in New Jersey on July 14,
1994, naming Mr. Stelling and his spouse as defendants alleging, among
other things, breaches by Mr. Stelling of fiduciary duties and breaches of
contract by Mr. Stelling, as agent, and Mrs. Stelling, as principal. The
suit sets forth requests for monetary damages as well as declaratory
judgments that the provisions of the Plan of Reorganization providing for
releases do not apply to the Stellings and that they are estopped from
claiming any interest in the Company. The Stellings have filed a motion to
dismiss the suit. As of the date hereof, no ruling has been made with
respect to such motion.
Other Litigation
The Company is involved in other legal proceedings and claims of
various types in the ordinary course of business. While any litigation to
which the Company is a party contains an element of uncertainty, management
presently believes that the outcome of each such proceeding or claim which
is pending or known to be threatened, or all of them combined, will not
have a material adverse effect on the Company's consolidated financial
position.
MANAGEMENT
Officers and Directors
The following table sets forth certain information regarding the
officers and directors of the Company as of the date hereof:
Name Age Position
Geoffrey P. Jurick(1) 54 Chairman of the Board and Chief Executive
Officer, Director
Eugene I. Davis(1) 40 President and Interim Chief Financial Officer,
Director
John P. Walker 32 Senior Vice President - Finance
Albert G. McGrath, Jr. 38 Senior Vice President, Secretary and General
Counsel
Eddie Rishty 35 Vice President - Controller
Merle W. Eakins 48 Vice President - Sales
Andrew Cohan 40 Vice President - Merchandising
John J. Raab 59 Senior Vice President - Operations
Frank L. Guerriero 51 Vice President - Logistics
Stuart D. Slugh 40 Vice President - Engineering/After Sales
Service
Elizabeth J. Calianese 37 Vice President - Human Resources
Robert H. Brown, Jr. (2)(3) 42 Director
Peter G. Bunger(2) 54 Director
Jerome H. Farnum 59 Director
Raymond L. Steele(2)(3) 60 Director
_____________________________
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation and Personnel Committee
Geoffrey P. Jurick has served as Director since September 1990, Chief
Executive Officer since July 7, 1992 and Chairman since December 22, 1993.
Mr. Jurick served as President from July 1993 to October 1994. Since March
1990, he has been President and Director of FIL. Since December 1993, Mr.
Jurick has served as a Director of Fidenas International, and since May
1994, as an officer and general manager of Fidenas International and as a
Director, Chairman and Chief Executive Officer of GSE, which is traded on
the pink sheets of the over-the-counter market. For more than the past
five years, Mr. Jurick has held a variety of senior executive positions
with several of the entities comprising the Fidenas group of companies
("Fidenas Group"), whose activities encompass merchant banking, investment
banking, investment management and corporate development.
Eugene I. Davis has served as President since October 1994, Interim Chief
Financial Officer since February 7, 1993 and a Director since September
1990. Mr. Davis served as Executive Vice President from July 7, 1992 to
October 1994. From June 1989 to July 1992, Mr. Davis was a shareholder and
director of the law firm of Holmes Millard & Duncan, P.C., in Dallas,
Texas. From February 1988 to June 1989, he was a partner in the law firm
of Arter & Hadden, P.C., in Dallas, Texas. Since August 1992, Mr. Davis
has served as a director of Tipperary Corporation, which is traded on the
American Stock Exchange, and, from October 1993 until January, 1995, he was
a director of Crandall Finance Corporation, which is traded on the pink
sheets of the over-the-counter market. From May 1995, Mr. Davis has also
served as Director of Beth Israel Health Care Services, a private
corporation.
John P. Walker has served as Senior Vice President since April 1994. Mr.
Walker was Vice President - Finance from February 1993 to April 1994,
Assistant Vice President - Finance from June 1991 to January 1993 and
Director of Financial Management from September 1990 to May 1991. Prior
thereto, Mr. Walker was Supervising Senior Accountant with KPMG - Peat
Marwick.
Albert G. McGrath, Jr. has served as Secretary and General Counsel since
August 1992 and Senior Vice President since July 1993. Prior thereto, Mr.
McGrath was a shareholder of Holmes Millard & Duncan, P.C., in Dallas,
Texas, from January 1990 through August 1992.
Eddie Rishty has served as Vice President - Controller since July 1993 and
was Corporate Controller from October 1991 to June 1993. Prior thereto,
Mr. Rishty was Assistant Controller from April 1989 to September 1991.
Merle W. Eakins joined the Company as Vice President - Sales in July 1993.
Since 1976, Mr. Eakins was with Philips Consumer Electronics Company in a
variety of positions, most recently as Vice President, National Accounts.
Andrew Cohan joined the Company in October 1994 as Vice President-
Merchandising. Prior thereto, he was an independent consultant from August
1993 until October 1994, and was employed as Senior Vice President - Retail
Stores for McCrory Stores Corporation from June 1992 to July 1993 and as
Vice President - Retail Stores for Ames Department Stores, Inc. from
February 1984 to June 1992. Prior thereto and for more than the past five
years, Mr. Cohan was employed by Ames Department Stores, Inc. in a variety
of positions. Each of McCrory Stores Corporation and Ames Department
Stores, Inc. filed for relief under the United States Bankruptcy Code.
John J. Raab joined the Company in March 1995 as Vice President - Far East
Operations and became Senior Vice President - Operations on October 1,
1995. Prior thereto, he was President and Chief Operating Officer of
Robeson Industries Corp. from March 1990 to March 1995. Robeson Industries
Corp. has filed for relief under the United States Bankruptcy Code.
Frank L. Guerriero has served as Vice President - Logistics since September
1994. Prior thereto, Mr. Guerriero was Assistant Vice President -
Operations and Logistics from April 1994 until September 1994, and was the
Director of Transportation and Distribution for the Company from July 1981
until April 1994.
Stuart D. Slugh has served as Vice President - Engineering and After Sales
Service since September 1994. Prior thereto, Mr. Slugh was Assistant Vice
President - Engineering and After Sales Service from April 1994 until
September 1994, and was Director of Technical Sales Services for the
Company from May 1993 until April 1994. Prior thereto and for more than
the past five years, Mr. Slugh was National Parts Manager for the Company.
Elizabeth J. Calianese has served as Vice President - Human Resources since
May 1995. Since April 1991, Ms. Calianese has served as Assistant General
Counsel. Prior thereto, from June 1989 until March 1991, Ms. Calianese was
a corporate attorney with the Company.
Robert H. Brown, Jr. has been a Director since July 7, 1992. Since
February 1994, he has been Executive Vice President of Capital Markets of
Rauscher Pierce Refsnes, Inc. ("Rauscher") in Dallas, Texas. From January
1990 until February 1994, Mr. Brown was Senior Vice President and Director
of the Corporate Finance Department of Rauscher. Since May 1993, Mr. Brown
has served as a director of Stevens Graphics Corp., which is traded on the
American Stock Exchange.
Peter G. Bunger has been a Director since July 7, 1992. Since October
1992, Mr. Bunger has served as Director of Savarina AG, engaged in the
business of portfolio management monitoring in Zurich, Switzerland and
since 1992, as director of ISCS, a computer software company. From
December 1991 until December 1993, he was Vice Chairman of Montcour Bank
and Trust Company Limited, a bank organized in the Bahamas and an affiliate
of Fidenas International. Montcour Bank and Trust Company Limited is the
subject of liquidation proceedings in Nassau, Bahamas. From 1981 until
1992, Mr. Bunger was owner and Managing Director of Peter G. Bunger
Investment Consulting, a firm which supervises, controls, and analyzes
investments for individuals.
Jerome H. Farnum has been a Director since July 7, 1992. Since July 1994,
Mr. Farnum has been an independent consultant. From 1979 until 1994, Mr.
Farnum served as a senior executive with several of the entities comprising
the Fidenas Group, in charge of legal and tax affairs, accounting, asset
and investment management, foreign exchange relations and financial
affairs.
Raymond L. Steele has been a Director since July 7, 1992. Mr. Steele has
been retired since September 1993. From August 1990 until September 1993,
Mr. Steele served as Executive Vice President of Pacholder Associates,
Inc., a company providing investment management and other financial
advisory services to institutional clients. Mr. Steele is a member of the
Board of Directors of Orion Pictures Corporation, whose common stock is
traded on NASDAQ, and Pharmhouse, Inc., a publicly-traded retail drug
chain.
The terms of the Debentures require that, for their term, the Company
shall cause one-third of the Board of Directors to be comprised of
independent directors. Certain actions in connection with the potential
settlement of the litigation described in "Legal Proceedings - Litigation
Regarding Certain Outstanding Common Stock" will require the approval of
three members of the Board of Directors, including the independent Board
members and Mr. Eugene I. Davis. See "Description of Debentures." The
terms of the Series A Preferred Stock provide that the holders shall have
the right to appoint two directors to the Company's Board of Directors if
dividends are in default for six quarters. See "Description of Other
Securities."
Director Compensation
Independent directors are entitled to an annual retainer of $20,000.
Committee chairmen who are independent directors receive an annual retainer
of $10,000. Each of the Company's current independent directors received
cash compensation of $20,000 (excluding the Committee Chairmen who each
received $27,500) in connection with serving on the Company's Board of
Directors during the fiscal year ended March 31, 1995. Directors who are
officers or employees of the Company are not compensated for serving as
directors or for attending meetings. The Company maintains directors and
officers liability insurance policies it deems satisfactory for such
purposes.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Compensation of Executive Officers
The discussion that follows has been prepared based on the actual
compensation paid and benefits provided by the Company and its subsidiaries
to those persons who were, at March 31, 1995, the Chief Executive Officer
("CEO") of the Company and the other four most highly compensated executive
officers of the Company ("Named Executives") for the periods indicated.
This historical data is not necessarily indicative of the compensation and
benefits that may be provided to such persons in the future.
Three Year Compensation Summary
The following table summarizes for the years indicated the
compensation awarded to, earned by or paid to the Named Executives for
services rendered in all capacities to the Company:
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Term
Awards Payouts
<C> <C> <C> <C> <C> <C> <C> <C>
OTHER ALL
ANNUAL SECURITIES OTHER
FISCAL COMPENS- RESTRICTED UNDERLYING LTIP COMPENS-
YEAR SALARY BONUS ATION STOCK AWARDS OPTIONS PAYOUTS ATION(4)
<S>
Name and PrincipalPosition(s)
GEOFFREY P. JURICK 1995 $378,333 $275,000 $78,702 - 600,000 - $ 311
CHAIRMAN OF THE 1994 250,000 195,000 - - - - -
BOARD AND CHIEF 1993 187,500 - 5,589 - - - -
EXECUTIVE OFFICER
(2) (5)
EUGENE I. DAVIS 1995 360,000 175,000 102,024 - - -
RESIDENT AND 1994 360,000 150,000 102,385 - - - 5,473
INTERIM CHIEF 1993 261,692 161,290 172,281 - - -
FINANCIAL OFFICER (2)(5)
ALBERT G. MCGRATH, JR. 1995 175,000 75,000 19,958 - 200,000 - 5,451
SENIOR VICE PRESIDENT 1994 175,000 100,000 18,462 - - - 4,671
SECRETARY AND 1993 107,693 29,166 21,273 - - - -
GENERAL COUNSEL (5)
MERLE W. EAKINS 1995 193,077 40,000 89,185 - 40,000 - 5,950
VICE PRESIDENT- 1994 130,577 40,000 45,870 - - - 621
SALES (5) 1993 - - - - - - -
JOHN P. WALKER 1995 110,000 75,000 20,420 - 200,000 - 3,841
SENIOR VICE 1994 110,000 100,000 9,483 - - - 1,918
PRESIDENT-FINANCE 1993 96,625 18,000 700 - - -
</TABLE>
(1) Consists of (i) car allowance and auto expenses afforded to the
listed Company executive officers, including $26,947 and $17,277 paid
to Messrs. Davis and Walker, respectively, in Fiscal 1995, (ii) tax
preparation services provided to Mr. Davis, (iii) expenses paid by
the Company on behalf of Mr. Davis, covering his club membership, and
(iv) relocation and temporary lodging expenses and associated tax
gross-ups in the amount of $73,394, $0 and $0 for Mr. Jurick,
$43,002, $64,643 and $132,270 for Mr. Davis, $0, $9,137 and $16,249
for Mr. McGrath, and $80,784 and $39,570 for Mr. Eakins paid by the
Company in Fiscal 1995 and 1994, respectively. See "Certain
Relationships and Related Transactions."
(2) Does not include Director's fees of $5,000 received by each of
Messrs. Jurick and Davis prior to becoming officers for Fiscal 1993.
(3) In the case of Messrs. Davis and McGrath consists of one-time bonus
payments upon joining the Company in Fiscal 1993.
(4) Consists of the Company's contribution to its 401(k) employee savings
plan, life insurance and, disability insurance.
(5) Messrs. Jurick and Davis became executive officers of the Company in
July 1992, Mr. McGrath became an executive officer of the Company in
August 1992 and Mr. Eakins became an executive officer of the Company
in July 1993.
(6) In July 1994, the Company granted stock options to purchase 600,000,
600,000, 200,000, 200,000 and 30,000 shares of Common Stock to each
of Messrs. Jurick, Davis, McGrath, Walker and Eakins respectively,
exercisable at an exercise price of $1 per share (except $1.10 in the
case of Mr. Jurick). In September 1994, Mr. Eakins was granted an
additional option to purchase 10,000 shares of common stock at an
exercise price of $1 per share. The options vest in annual
increments of one-third, commencing one year from the date of grant,
and their exercise is contingent on continued employment with the
Company.
Stock Options
The following table sets forth information regarding the grant of
stock options during Fiscal 1995 to the Named Executive Officers:
OPTION GRANTS IN FISCAL 1995
<TABLE>
<C>
Potential Realizable
Value at Assumed
Annual Rates
of Stock
Price Appreciation
Individual Grants % of Totals for Option Term(2)
<C> <C> <C> <C> <C> <C>
Number Options Granted
of to Employees Exercise
<S> Options in Fiscal Price Per Expiration
Name Granted 1995 Share Date(1) 5% 10%
GEOFFREY P. JURICK 600,000 32% $1.10 7/7/04 $317,337 $896,245
EUGENE I. DAVIS 600,000 32% $1.00 7/7/04 $377,337 $956,245
ALBERT G. MCGRATH 200,000 11% $1.00 7/7/04 $125,779 $318,748
JOHN P. WALKER 200,000 11% $1.00 7/7/04 $125,779 $318,748
MERLE W. EAKINS 30,000 2% $1.00 7/7/04 $ 18,867 47,812
10,000 1% $1.00 9/6/04 $ 6,289 15,937
</TABLE>
(1) The options were issued under the 1994 Stock Compensation Program,
and are exercisable commencing one year after the grant date in three
equal annual installments, with full vesting occurring on the third
anniversary of the date of the grant.
(2) The dollar amounts under these columns are the result of calculations
at the assumed compounded market appreciation rates of 5% and 10% as
required by the Securities and Exchange Commission over a ten-year
term and therefore, are not intended to forecast possible future
appreciation, if any, of the stock price.
Option Exercises And Holdings
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during Fiscal 1995
and unexercised options held at March 31, 1995:
<TABLE>
OPTION EXERCISES IN FISCAL 1995
AND MARCH 31, 1995 OPTION VALUES
<S> <C> <C> <C> <C>
Number of Value of Unexercised
Unexercised In-the-Money
Number of Options at Options at
Shares March 31, 1995 March 31, 1995
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable(1)
GEOFFREY P. JURICK 0 $- 0/600,000 $0/$1,215,000
EUGENE I. DAVIS 0 $- 0/600,000 $0/$1,275,000
ALBERT G. MCGRATH 0 $- 0/200,000 $0/$ 425,000
JOHN P. WALKER 0 $- 0/200,000 $0/$ 425,000
MERLE W. EAKINS 0 $- 0/ 40,000 $0/$ 85,000
</TABLE>
(1) Calculated based on the difference between the aggregate fair market
value of the shares subject to options at March 31, 1995 and the
aggregate option exercise price.
Certain Employment Contracts
On August 13, 1992, the Board of Directors of the Company approved
the Employment Agreements of certain of the Company's senior management,
including certain of the senior management included in the table set forth
above. A description of the material terms of such employment agreements,
each of which is effective as of July 7, 1992 (unless stated to the
contrary) follows.
Geoffrey P. Jurick, Chairman and Chief Executive Officer of the
Company, entered into five year employment agreements ("Jurick Employment
Agreements") with the Company and two of its wholly-owned subsidiaries,
Emerson Radio (Hong Kong), Limited and Emerson Radio International Ltd.
(formerly Emerson Radio (B.V.I.), Ltd.) (hereinafter, collectively the
"Companies"), providing for an aggregate annual compensation of $250,000,
which was increased to $390,000 in May 1994 and to $490,000 effective April
1, 1995. In addition to his base salary, Mr. Jurick is entitled to an
annual bonus upon recommendation by the Compensation and Personnel
Committee of the Company's Board of Directors, subject to the final
approval of the Company's Board of Directors.
Subject to certain conditions, each of the Jurick Employment
Agreements grants to Mr. Jurick severance benefits, through expiration of
the respective terms of each of such agreements, commensurate with Mr.
Jurick's base salary, in the event that his employment with the Companies
terminates due to permanent disability, without cause or as a result of
constructive discharge (as defined therein). In the event that Mr.
Jurick's employment with the Companies terminates due to termination for
"cause," because Mr. Jurick unilaterally terminates the agreements or for
reasons other than constructive discharge or permanent disability, Mr.
Jurick shall only be entitled to base salary earned through the applicable
date of termination. Similar provisions are set forth in each of the
contracts described below.
Eugene I. Davis, President and Interim Chief Financial Officer
entered into a five year Employment Agreement ("Davis Employment
Agreement") with the Company providing for an annual compensation of
$360,000, which was increased to $450,000 effective April 1, 1995. In
addition to his base salary, Mr. Davis is entitled to an annual bonus equal
to an amount up to 30% of Mr. Davis' base salary, based upon attainment of
objectives identified in the Company's five-year business plan ("Business
Plan"). Mr. Davis may also receive an additional annual performance bonus
to be recommended by the Compensation and Personnel Committee of the
Company's Board of Directors, subject to the final approval of the
Company's Board of Directors.
Pursuant to the Davis Employment Agreement, the Company granted to
Mr. Davis an option to purchase 500,000 shares of Common Stock. Such
option was cancelled pursuant to the Plan of Reorganization; however, the
Company subsequently granted Mr. Davis options to purchase 600,000 shares
of Common Stock. The Company has also agreed for the term of the Davis
Employment Agreement and three years thereafter, to pay for and maintain
legal malpractice insurance covering Mr. Davis for occurrences and actions
taken by him at any time prior to or during the term of such agreement on
behalf of the Company or its employees. The Company has also agreed to pay
all sums which may be deductible amounts not otherwise paid by such
insurer.
Upon execution of the Davis Employment Agreement, the Company
provided Mr. Davis with a one-time lump sum payment of $100,000, which
figure is net of applicable taxes and withholdings. In connection with Mr.
Davis' relocation to New Jersey, the Company assumed certain relocation
expenses and associated tax gross-ups on Mr. Davis' behalf aggregating
$239,915. See "Summary Compensation Table."
Albert G. McGrath, Jr., General Counsel, Senior Vice President and
Secretary, entered into a five-year Employment Agreement ("McGrath
Employment Agreement") with the Company providing for an annual
compensation of $175,000, which was increased to $210,000 effective April
1, 1995. In addition to his base salary, Mr. McGrath is entitled to an
annual performance bonus to be recommended by the Compensation and
Personnel Committee of the Company's Board of Directors, subject to the
final approval of the Company's Board of Directors.
Upon execution of the McGrath Employment Agreement, the Company
provided Mr. McGrath with a one-time lump sum payment of $29,166, which
figure is before applicable taxes and withholdings. In connection with Mr.
McGrath's relocation to New Jersey, the Company assumed relocation expenses
and associated tax gross-ups on Mr. McGrath's behalf aggregating $25,386.
See "Summary Compensation Table."
Merle W. Eakins, Vice President-Sales, entered into a three-year
employment agreement with the Company providing for an annual compensation
of $175,000; which was increased to $195,000 effective May 1, 1994. In
addition to his base salary, Mr. Eakins is entitled to an annual bonus
equal to an amount up to 30% of Mr. Eakins' base salary, upon attainment of
objectives identified by the Board of Directors. In connection with Mr.
Eakins' employment in New Jersey, the Company assumed relocation expenses
and associated tax gross-ups on Mr. Eakins' behalf aggregating $120,354.
See "Summary Compensation Table."
John P. Walker, Senior Vice President-Finance, entered into a three-
year employment agreement with the Company providing for an annual
compensation of $110,000, which was increased to $165,000 effective April
1, 1995. In additional to his base salary, Mr. Walker is entitled to an
annual bonus equal to an amount up to 30% of Mr. Walker's base salary; upon
attainment of objectives identified by the Executive Committee. Mr. Walker
may also receive an additional annual performance bonus to be recommended
by the Compensation and Personnel Committee of the Company's Board of
Directors, subject to the final approval of the Company's Board of
Directors.
In the event that Messrs. Jurick, Davis, McGrath, Eakins and Walker
were to be terminated due to permanent disability, without cause or as a
result of constructive discharge, the estimated dollar amount to be paid
after March 31, 1995 to each such individual, based on the terms of their
respective contracts, would be $1,112,000, $1,021,000, $501,000, $263,000
and $330,000, respectively.
Emerson Employee Savings Plan
The Emerson Radio Corp. Employee Savings Plan (the "Savings Plan") is
a defined contribution plan intended to qualify under Sections 401(a) and
401(k) of the Code. Generally, a full-time salaried employee who has
completed three months of service may elect to make basic contributions to
the Savings Plan of up to 6% of his or her compensation, commencing on the
first day of the Savings Plan year or the seventh month of such year
subsequent to satisfying such eligibility requirement. These contributions
are partially matched by the Company. In addition, the employee may elect
to contribute up to an additional 4% of his or her compensation (for a
total of 10%), which amount will not be matched by the Company. All
employee contributions (plus related earnings and increased value) are 100%
vested. Generally, Company contributions become 50% vested after an
employee has satisfied one year of service and 100% vested after two years
of service. If the employee's employment terminates for any reason, the
employee's total vested plan account will be distributed to him or her
within a reasonable period of time after termination of employment. If any
nonvested account balance is forfeited, the nonvested amount of any
forfeiture remains in the Savings Plan to be used as Company contributions.
The amounts credited to individual accounts are invested by the Savings
Plan trustee as directed by Savings Plan participants, and any gain or loss
from investments is credited to, or charged against, the individual account
of each participant.
Stock Plans
In July 1994, the Company's Board of Directors adopted, and the
stockholders subsequently ratified, a Stock Compensation Program
("Program") intended to secure for the Company and its stockholders the
benefits arising from ownership of the Company's Common Stock by those
selected directors, officers, other key employees, advisors and consultants
of the Company who are most responsible for the Company's success and
future growth. The maximum aggregate number of shares of Common Stock
available pursuant to the Program is 2,000,000 shares and the Program is
comprised of 4 parts -- the Incentive Stock Option Plan, the Supplemental
Stock Option Plan, the Stock Appreciation Rights Plan and the Stock Bonus
Plan. The Program is administered by the Company's Compensation and
Personnel Committee. Each of the Plans provides for vesting of grants or
awards in equal thirds on the first three anniversaries after grant, unless
the Compensation and Personnel Committee otherwise provides, and that the
term of options granted thereunder may not exceed ten (10) years. The
Program also provides that the purchase price of stock options granted
under the Program shall not be less than the fair market value of the
Common Stock on the date of grant, except that the purchase price with
respect to an option granted to a holder of at least 10% of the Company's
outstanding securities must be equal to at least 110% of the fair market
value of the Common Stock on the date of grant.
In July 1994 the Company's Compensation and Personnel Committee
granted options to purchase an aggregate of 1,630,000 shares of Common
Stock to Messrs. Jurick (600,000), Davis (600,000), McGrath (200,000),
Walker (200,000) and Eakins (30,000). The options granted to Messrs.
Davis, McGrath, Walker and Eakins are all exercisable at $1.00 a share and
the options granted to Mr. Jurick are exercisable at $1.10 a share. The
Compensation and Personnel Committee subsequently granted options to
purchase an aggregate of 170,000 shares of Common Stock to various
employees, each exercisable at $1.00 per share, in September 1994 and also
granted an aggregate of 60,000 options to various employees, each
exercisable at $1.00 per share, in October 1994, for an aggregate of
options on 230,000 shares (110,000 net of cancellations).
In October 1994, the Company's Board of Directors adopted, subject to
stockholder approval, the 1994 Non-Employee Director Stock Option Plan.
The Committee authorized and appointed pursuant to such plan, consisting of
Messrs. Jurick and Davis, has granted options to purchase an aggregate of
175,000 shares (150,000 net of cancellations) of Common Stock to certain
non-employee directors of the Company at an exercise price of $1.00 per
share. The maximum aggregate number of shares of Common Stock available
under such plan is 300,000. Each option granted provides for vesting in
equal thirds on the first three anniversaries after the date of grant and
has a term of ten (10) years.
PRINCIPAL STOCKHOLDERS
The table below sets forth as of October 18, 1995, certain
information regarding the beneficial ownership of Common Stock by each
person or entity known by the Company to be the beneficial owner of more
than five percent of the outstanding Common Stock, by each director of the
Company and by all officers and directors as a group:
Name and Address of Amount and Percent of
Beneficial Owner Nature of Percent of Class as
Beneficial Class Adjusted(6)
Ownership(3)
Geoffrey P. Jurick(1)(5) 29,352,642 72.6% 60.2%
Nine Entin Road
Parsippany, NJ 07054
Fidenas International 29,152,542 72.4% 60.0%
Limited, L.L.C. (2)
831 Route 10
Suite 38, #113
Whippany, NJ 07981
Elision International, Inc.(4) 1,600,000 4.0% 3.5%
275 Wyman Street
Waltham, MA 02154
GSE Multimedia 12,000,000 29.8% 26.4%
Technologies Corporation(4)
Kostheimer Landstrasse 36
Mainz-Kostheim
Germany D6502
Eugene I. Davis(5) 290,000 (7) (7)
Robert H. Brown, Jr.(8) 16,667 (7) (7)
Peter G. Bunger(9) 8,333 (7) (7)
Jerome Farnum(9) 8,333 (7) (7)
Raymond L. Steele(8) 16,667 (7) (7)
All Directors and Officers 29,872,642 73.1% 60.8%
as a Group (15 persons)(10)(11)
_______________
(1) Consists of 15,552,542, 1,600,000 and 12,000,000 shares of
Common Stock held by Fidenas International, Elision and
GSE, respectively. Fidenas International is record holder
of 847,458 shares of Common Stock and formerly held such
shares as nominee. The nominee relationship has been
terminated and Fidenas International and Mr. Jurick
disclaim beneficial ownership of such shares. All of such
shares, except those for which Fidenas International holds
as nominee, will be subject to certain lockup agreements.
See "Plan of Distribution - Certain Restrictions on
Officers, Directors and Certain Stockholders." Mr. Jurick
indirectly owns, through a controlled holding company,
approximately 95% of Fidenas International. In addition,
Mr. Jurick is the manager of Fidenas International.
Fidenas International owns approximately 14.3% of Elision.
Mr. Jurick indirectly owns, through certain holding
companies and beneficial interests in affiliates, a
controlling interest in each of GSE and Elision. The
shares of Common Stock issued to GSE, Fidenas
International and Elision in connection with the
Restructuring are the subject of certain legal proceedings
in the Commonwealth of the Bahamas, Switzerland, and the
United States. In connection with settlement negotiations
related thereto, the Company has been advised that the
parties to such negotiations may desire a portion of these
shares to be sold in furtherance of a settlement of such
litigation, which may be covered, to a certain extent, in
this Prospectus. See "Legal Proceedings - Litigation
Regarding Certain Outstanding Common Stock".
(2) Includes 12,000,000 shares of Common Stock owned by GSE and
1,600,000 shares of Common Stock owned by Elision.
Fidenas International, GSE and Elision may be deemed to be
under common control. Does not include 847,458 shares
held by Fidenas International, as record holder pursuant
to a subsequently terminated nominee relationship, as to
which Fidenas International disclaims beneficial
ownership.
(3) Based on 40,252,772 shares of Common Stock outstanding as
of November 3, 1995 plus shares of Common Stock under
option of any director or executive officer, exercisable
within 60 days. Does not include (i) shares of Common
Stock issuable upon conversion of 10,000 shares of Series
A Preferred Stock (ii) Common Stock issuable upon exercise
of the Creditor's Warrants (iii) Common Stock issuable
upon conversion of the Debentures; (iv) Common Stock
issuable upon exercise of outstanding options, which are
not currently exercisable within 60 days; or (v) shares of
Common Stock issuable upon exercise of warrants granted to
the Placement Agent and its authorized dealers in
connection with the private placement of the Debentures.
(4) A petition for the winding-up of Fidenas International Bank
Limited, a holder of 18% of the shares of Elision and 11%
of the shares of GSE, was filed by the majority of the
shareholders of the bank in the Commonwealth of Bahamas on
July 29, 1994.
(5) Includes options exercisable within 60 days to purchase
200,000 shares of Common Stock. Does not include options
to purchase an aggregate of 400,000 shares of Common Stock
not currently exercisable.
(6) Assumes conversion of all $20,750,000 aggregate principal
amount of Debentures at the initial conversion price of
$3.9875 per share into 5,203,761 shares of Common Stock.
(7) Represents less than 1% of the outstanding Common Stock.
(8) Includes options exercisable within 60 days to purchase
16,667 shares of Common Stock. Does not include options
to purchase an aggregate of 33,333 shares of Common Stock
not currently exercisable.
(9) Includes options exercisable within 60 days to purchase
8,333 shares of Common Stock. Does not include options to
purchase an aggregate of 16,667 shares of Common Stock not
currently exercisable.
(10)Includes 630,000 shares of Common Stock subject to
unexercised stock options which were exercisable within 60
days under the Company's Stock Compensation Program.
(11)Does not include options to purchase an aggregate of
1,260,000 shares of Common Stock not currently exercisable
within 60 days.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Plan of Reorganization
Debtor-in-Possession Financing
During the pendency of the Company's Restructuring, the Company
obtained Debtor-in-Possession financing ("DIP Financing") from its present
secured lender. Fidenas Investment Limited, of which Mr. Jurick is
President and a director, which is also an affiliate of Fidenas
International, guaranteed payment of the DIP Financing. In April 1994, in
connection with the DIP Financing, the Company paid (i) $187,000 as a
cumulative credit enhancement fee which accrued commencing October 1, 1993
and (ii) $208,000 for reimbursement of various legal, accounting and filing
fees at the direction of the President of Fidenas Investment Limited to its
designee.
Capital Infusion at Confirmation of the Plan
To fund the Plan of Reorganization, Fidenas International, Elision
and GSE provided to the Company an aggregate of approximately $30 million,
for which they collectively received 30 million shares of Common Stock.
See "Principal Stockholders." Certain of the officers and directors of the
Company are affiliated with Fidenas International, Elision and GSE. See
"Management." In connection with the capital infusion, reimbursements of
$568,000 for various legal, accounting and filing fees were paid at the
direction of the President of Fidenas International to its designee.
Other Transactions
The law firm of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A., was
retained as the Company's outside counsel following the settlement of a
proxy contest conducted in 1992. Payments aggregating approximately
$1,070,000 were made by the Company for Fiscal 1994. The firm was retained
by the Company as special corporate counsel during the Restructuring
proceedings and received payment for services rendered and expenses
incurred during such proceedings. In addition, the firm provides ongoing
services for the Company, including representing the Company in this
Offering. The firm received approximately $182,000 and $737,000 during the
three months ended June 30, 1995 and Fiscal 1995, respectively. A brother
of Mr. Davis joined such law firm subsequent to its retention by the
Company and serves of counsel to such law firm.
In connection with the execution of their respective employment
agreements with the Company, each of Messrs. Martin Holleran (a former
officer of the Company), Davis, and Alex Wijnen (a former officer of the
Company) agreed to relocate their respective residences to the general
locality of the Company's principal executive offices. To assist in such
relocation, in the fiscal year ended March 31, 1993, the Company provided
to Messrs. Holleran, Davis and Wijnen interest-free bridge loans of
$140,000, $120,000 and $130,000, respectively. In connection with the
resignations of Messrs. Holleran and Wijnen from the Company, and the
settlement of claims under their respective employment contracts, Mr.
Holleran's obligation to repay such loans was discharged and Mr. Wijnen's
loan will be repaid through consulting services to be rendered in calendar
year 1995. The maturity date of Mr. Davis' loan has been extended and is
due in the fiscal year ending March 31, 1996.
Mr. Pablo Bunger, the brother of Peter Bunger, a director of the
Company, was the Managing Director of the Company's Spanish branch.
Pursuant to a consulting arrangement, Mr. Bunger received compensation and
reimbursement of expenses aggregating $23,000 and $118,000 in the three
months ended June 30, 1995 and Fiscal 1995, respectively. The Company will
be closing the Spanish branch and has assigned the exclusive distribution
rights for Emerson brand products in Spain to a corporation controlled by
Mr. Pablo Bunger, though the Company has sent notice of its intention to
terminate the distribution relationship.
The Company is in the process of reorganizing its Canadian
operations. In connection with such reorganization, Emerson's Canadian
subsidiary has entered into a series of agreements with Tammy Venator,
doing business as Venator Electronics Sales and Service Ltd. ("Venator").
Ms. Venator is the daughter of Theo Heuthorst, former President of
Emerson's Canadian subsidiary, and she was formerly the National Service
Manager of such subsidiary. Effective April 1, 1995, Emerson's Canadian
subsidiary entered into several three-year agreements with Venator
providing for (i) Venator receiving returned products, (ii) Venator
purchasing returned products on an "as-is" basis for refurbishing and
resale by Venator, (iii) Venator processing warranty claims submitted by
service centers authorized to engage in warranty service of Emerson
products sold in Canada, (iv) Venator distributing parts to customers and
service centers for Emerson products, which it will purchase from the
Company's Canadian subsidiary at a premium over their costs, and (v)
Venator maintaining an effective service center network to accommodate all
customers of Emerson's Canadian subsidiary, maintaining a factory service
center, and maintaining a parts distribution center, and providing other
after sale services. The Company was billed $8,323 for services provided
with respect to the above-mentioned agreements during the three months
ended June 30, 1995. In addition, the Company billed Venator approximately
$24,000 for spare parts purchases over the same period. The Company was
owed approximately $24,000 for these purchases as of June 30, 1995.
Through these agreements, the Company believes it will be able to reduce
its costs of operations in Canada, while maintaining its market presence in
Canada. The Company believes that the terms on which it has entered into
the agreements with Venator described above are no less favorable than
could have been obtained from an unrelated third party.
In the three months ended June 30, 1995 and in Fiscal 1995, the
Company sold finished goods and spare parts to GSE for $114,000 and
$341,000, respectively, on terms no more favorable than those available to
third parties. The Company was owed $277,000 for these purchases as of
June 30, 1995.
Rauscher was retained by the Company, for a fee of $20,000, to make
offers in connection with the public offering of the Company's Common Stock
authorized by the Plan of Reorganization in those states requiring that all
sales in such states be made through broker/dealers. Robert H. Brown, Jr.,
a Director of the Company, is Executive Vice President of Capital Markets
of Rauscher. See "Management."
At March 31, 1994, Emerson Radio (Hong Kong) Ltd., a wholly owned
subsidiary of the Company, had $1 million on deposit with Fidenas
International Bank Limited. The deposit was returned shortly after March
31, 1994.
In October 1994 and February 1995, the Company employed two
professional advisers of Mr. Jurick and certain entities with which Mr.
Jurick is affiliated or associated. One individual was paid $29,615 and
$52,885 by the Company in the three months ended June 30, 1995 and Fiscal
1995, respectively, as well as receiving automobile benefits and related
expenses in the amount of $1,256 and $3,027, respectively. The other
individual was paid $20,865 and $6,856 by the Company for the three months
ended June 30, 1995 and Fiscal 1995, respectively, as well as receiving
automobile benefits in the amount of $897 and $1,295, respectively. The
services of one individual were terminated as of July 31, 1995 and the
services of the other individual were terminated as of September 22, 1995.
In addition to services rendered to the Company, each of the individuals,
while employed by the Company, devoted substantial amounts of time to
services for Mr. Jurick and his associated or affiliated entities, and
consequently, Mr. Jurick may be deemed to receive an indirect benefit from
the payment by the Company of the salary and other expenses of these two
individuals.
Peter G. Bunger, a Director of the Company, has been engaged as a
consultant to two foreign subsidiaries of the Company. The agreements,
effective as of October 1, 1994, provide for aggregate annual compensation
of $140,000, have terms of two years and authorize reimbursement for
reasonable travel and business expenses. The agreements were terminated
as of September 30, 1995.
Emerson Radio (Hong Kong) Ltd. retained Roger Vickery as a consultant
for a period of five months during Fiscal 1995. Mr. Vickery, formerly a
director of certain entities with which Mr. Jurick was affiliated or
associated, received $70,000 for services rendered and $75,841 was paid for
expenses incurred in connection with such services.
In Fiscal 1995, the Company paid Elision the sum of $34,275 for
consulting services with respect to management information services.
Elision owns 1,600,000 shares of Common Stock. Mr. Jurick indirectly owns
a controlling interest in Elision.
In May 1995, the Company and Elision organized Merchandising
Information Systems, L.L.C. ("MIS"), with equal ownership, for the purpose
of conducting a feasibility study to determine the marketability of certain
of Emerson's software applications and know-how associated therewith
through Elision's communications and marketing services, to provide an on-
line bureau administration service for sourcing and distribution in the
consumer electronics industry. Initially, each of Emerson and Elision has
contributed $22,500 to MIS for purposes of conducting such study. Further
financing from each of Emerson and Elision will be necessary if they
determine to pursue the marketing of such technology. The President of
Elision will initially serve as the President and Manager of MIS, and two
of Emerson's employees will also serve as officers of MIS.
The Company has adopted a policy that all future affiliated
transactions and loans will be made or entered into on terms no less
favorable to the Company than those that can be obtained from unaffiliated
third parties. In addition, all future affiliated transactions and loans,
and any forgiveness of loans, must be approved by a majority of the
independent outside members of the Company's Board of Directors who do not
have an interest in the transactions. Certain restrictions have also been
imposed on transactions between the Company and its affiliates in the
Indenture for the Debentures. See "Description of Debentures."
DESCRIPTION OF DEBENTURES
General
The Debentures were issued under the Indenture, dated as of
August 17, 1995, between the Company and Bank One, Columbus, NA, as trustee
(the "Trustee"). The following statements are summaries of certain
provisions of the Debentures and the Indenture and do not purport to be
complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Indenture, including the
definitions therein of certain terms (generally capitalized when used
herein), which provisions and definitions are incorporated herein by
reference.
The Company has issued $20,750,000 aggregate principal amount
of Debentures under the Indenture and has registered the resale of the
Debentures and the Common Stock underlying such Debentures. They are
unsecured obligations of the Company and do not have the benefit of a sinking
fund for the retirement of principal. The Debentures are subordinated in right
of payment to the prior payment in full of all Senior Indebtedness of the
Company. See "Description of Debentures - Subordination." At November 3,
1995, the Company had $30.8 million of Senior Indebtedness outstanding under
its United States secured credit facility. See "Risk Factors - Risks
associated with the Company's Secured Indebtedness and Financing". The
Debentures will mature on August 15, 2002. Each Debenture bears interest
from the closing date applicable to such Debenture in the Company's private
placement of such Debentures, at the rate of 8-1/2% per annum, payable
quarterly on March 15, June 15, September 15 and December 15 in each year
commencing September 15, 1995, to the person in whose name the Debenture is
registered at the close of business on the Regular Record Date for such
interest, which shall be the March 1, June 1, September 1 or December 1
(whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months. The interest payable on each
December 15, March 15, June 15 and September 15 after September 15, 1995
will amount to $21.25 per $1,000 aggregate principal amount of Debentures.
The interest rate payable on the Debentures shall be increased by 0.5% if the
Company fails to maintain an effective Registration Statement for the
required three-year period; provided, however, that such increased
interest rate shall only apply during the periods when such Registration
Statement is not effective in accordance with the terms of the Registration
Rights Agreement. Principal and interest will be payable at the office or
agency to be maintained by Emerson in New York, New York (initially the
office of the Trustee in New York).
The Company will issue the Debentures only in fully registered
form, without coupons, in denominations of $1,000. The Company will not
assess a service charge for any transfer or exchange of the Debentures, but
it may require payment of a sum sufficient to cover the tax or governmental
charge payable in connection therewith. Holders may transfer the
Debentures by surrendering them for transfer at the office of the Trustee.
The Company is not required to transfer or exchange any Debenture (i)
during a period beginning at the opening of business 15 days before the
date of the mailing of a notice of redemption and ending at the close of
business on the date of such mailing or (ii) selected for redemption, in
whole or in part, except the unredeemed portion of Debentures being
redeemed in part.
All moneys paid by the Company to the Trustee or any Paying
Agent for the payment of principal of and premium, if any, and interest on
any Debenture which remain unclaimed for two years after such principal,
premium or interest became due and payable may be repaid to the Company.
Thereafter, the Holder of such Debenture may, as an unsecured general
creditor, look only to the Company for payment thereof.
Conversion
Each $1,000 principal amount of Debentures is convertible at
any time and from time to time, prior to redemption or maturity, at the
option of the Holders, into approximately 251 shares of Common Stock of the
Company (a conversion price of $3.9875 per share). The right to convert
Debentures which have been called for redemption will terminate at the
close of business on the last business day prior to any Redemption Date.
Emerson has reserved a sufficient number of shares of Common Stock for
issuance upon conversion.
The Conversion Price (as defined in the Indenture) is subject
to adjustment in certain events as more fully described in the Indenture,
including: (i) issuances or distributions of Common Stock or the issuance
of rights, warrants or options entitling the holder to subscribe for or
purchase Common Stock at less than the Current Market Price (as defined in
the Indenture) (except that no adjustment of the Conversion Price shall be
made as a result of Permitted Transactions), (ii) dividends (and other
distributions) payable in Common Stock on any class of capital stock of the
Company or any Subsidiary; (iii) subdivisions, combinations or
reclassifications of Common Stock; (iv) dividends and distributions to
holders of Common Stock generally or to holders (other than the Company or
its Subsidiaries) of capital stock of any Subsidiary of evidences of
indebtedness of the Company or assets (including shares of capital stock or
other securities, but excluding those dividends, rights, warrants, options
and distributions for which adjustments are made as described above and
dividends and distributions on the Series A Preferred Stock in accordance
with the terms thereof paid exclusively in cash out of retained or current
earnings), (v) upon a decrease of 35% (a "Price Decrease") or more in the
weighted average Closing Price of the Common Stock in any forty-day period
commencing ten days prior to: (a) the disclosure (by press release or
otherwise) of a settlement, judgment, court order, disposition or other
event relating to the Litigation (relating to Geoffrey P. Jurick and
related entities and affiliates and described herein); or (b) whether
singly or in the aggregate and whether or not in the public markets, (x)
the offer, pledge, sale, contract to sell, sale of any option or contract
to purchase, purchase of any option or contract to sell, grant of any
option, right or warrant to purchase, assignment, hypothecation, transfer
or other encumbrance or disposition of, any securities of the Company, or
(y) the entry into any swap or similar arrangement that transfers, in whole
or in part, the economic risk of ownership of the Company's securities
whether any such transaction described in clause (x) or (y) above (any such
transaction being referred to herein as a "Transfer") is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise,
which Transfer is directly or indirectly related to, or for the benefit of,
the settlement or other disposition of the Litigation, provided, however,
no adjustment will be made with respect to those Debentures held by a
Holder who has engaged in open-market sales of Debentures or underlying
securities with the sole intent of manipulating the price of the Common
Stock in order to cause such Price Decrease. The adjustment resulting from
the occurrence of a Price Decrease shall only be in effect for a period of
90 days commencing upon the mailing of a notice of such Price Decrease in
accordance with the Debenture. For the purposes of adjustments to the
Conversion Price, "Permitted Transaction" means an issuance by the Company
of Capital Stock or the issuance of rights, warrants or options entitling
the holder thereof to subscribe for or purchase Common Stock, in a single
or series of arms'-length acquisition transactions, at a maximum discount
of 15% to the average Closing Price for 20 consecutive Trading Days
immediately prior to such issuance, provided (i) such issuance is not
otherwise prohibited by the terms of the Indenture, (ii) no Default or
Event of Default shall have occurred or be continuing, (iii) all such
transactions aggregate not more than ten percent (10%) of the Company's then
outstanding voting stock while any Debentures are Outstanding, (iv) such
transaction(s) is in furtherance of a bona fide business purpose of the
Company and is in exchange for valuable consideration, (v) such
transaction(s) does not involve an Affiliate Transaction, (vi) after giving
pro forma effect to the transaction(s), there will not exist a Default or
an Event of Default, and (vii) such transaction(s) will not have a Material
Adverse Effect.
In certain circumstances it may be unclear as to whether a
Price Decrease has occurred or the cause thereof. The determination of
whether a Price Decrease has occurred is a determination based on the facts
and circumstances of the subject transaction. No fractional shares will be
issued upon conversion, but the Company will pay cash in lieu thereof.
The Company from time to time may to the extent permitted by
law reduce the Conversion Price by any amount for any period of at least 20
days, in which case the Company shall give at least 15 days' notice of such
reduction to the registered Holders of the Debentures, if the Board of
Directors of the Company has made a determination that such reduction would
be in the best interests of the Company.
In addition, the Company will be permitted to make such
reductions in the Conversion Price as it considers to be advisable in order
that any event treated for federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the Holders of Common Stock.
Under certain circumstances, a decrease in the Conversion Price of the
Debentures may be considered as resulting in the distribution of a dividend
to Holders of the Debentures for federal income tax purposes.
Subject to any applicable right of the Holders of the
Debentures to cause the Company to purchase the Debentures upon a
Designated Event (as described below), in case of any consolidation or
merger to which the Company is a party, other than a transaction in which
the Company is the continuing corporation, or in case of any sale or
conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation or other entity (including
any exchange effected in connection with a merger of a third corporation or
other entity into the Company), there will be no adjustment of the
Conversion Price, but the Holder of each Debenture then outstanding will
have the right to convert such Debenture only into the kind and amount of
securities, cash or other property which the Holder would have owned or
have been entitled to receive immediately after such consolidation, merger,
statutory exchange, sale or conveyance had such Debenture been converted
immediately prior to the effective date of such consolidation, merger,
statutory exchange, sale or conveyance. In the case of a cash merger of
the Company with another corporation or other entity or any other cash
transaction of the type mentioned above, the effect of these provisions
would be that the conversion features of the Debentures would thereafter be
limited to converting the Debentures at the Conversion Price then in effect
into the same amount of cash that such holder would have received had such
holder converted the Debentures into Common Stock immediately prior to the
effective date of such cash merger or transaction. Depending upon the
terms of such cash merger or transaction, the aggregate amount of cash so
received on conversion could be more or less than the principal amount of
the Debentures.
Fractional shares of Common Stock will not be issued upon
conversion, but in lieu thereof, the Company will pay cash equal to the
market value of such fractional share computed with reference to the
Closing Price of the Common Stock on the last business day prior to
conversion. Debentures surrendered for conversion during the period from
the close of business on any Regular Record Date to the opening of business
on the next succeeding Interest Payment Date (except Debentures whose
maturity is prior to such Interest Payment Date and Debentures called for
redemption on a Redemption Date within such period) must be accompanied by
payment of an amount equal to the interest thereon to be paid on such
Interest Payment Date (provided, however, that if the Company shall default
in payment of such interest, such payment shall be returned to the payor
thereof). Except for Debentures surrendered for conversion which must be
accompanied by payment as described above, no interest on converted
Debentures will be payable by the Company on any Interest Payment Date
subsequent to the date of conversion.
The Company has covenanted under the Indenture to reserve and
keep available at all times out of its authorized but unissued Common
Stock, for the purpose of effecting conversions of Debentures, the full
number of shares of Common Stock deliverable upon the conversion of all
outstanding Debentures.
The Company will use its reasonable best efforts to cause all
registrations with, and to obtain any approvals by, any governmental
authority under any state law of the United States that may be required in
connection with conversion of the Debentures into Common Stock and the
resale thereof. If at any time during the three year period following the
effective date of the Registration Statement the Registration Statement is
not effective, shares of Common Stock issued upon conversion of Debentures
("Restricted Shares") may not be sold or otherwise transferred except in
accordance with Regulation S thereunder or pursuant to any other exemption
from, or otherwise in a transaction not subject to, the registration
requirements of the Securities Act and, if such Registration Statement
under the Securities Act is not effective at the time of a conversion, the
Restricted Shares will bear a legend to that effect. The Transfer Agent
for the Common Stock will not be required to accept for registration of
transfer any Restricted Shares, except upon presentation of satisfactory
evidence that these restrictions on transfer have been compiled with, all
in accordance with such reasonable regulations as the Company may from time
to time agree with the Transfer Agent.
Redemption at the Option of the Company
The Debentures are subject to redemption at the option of the
Company, in whole or in part, in cash, from time to time, commencing on
August 15, 1998 upon not less than 30 nor more than 45 days' notice mailed
to the Holders thereof, at the Redemption Prices established for the
Debentures, together, in each case with interest accrued and unpaid to the
date fixed for redemption (subject to the right of a Holder on the Regular
Record Date for an interest payment to receive such interest). The
Redemption Prices for the Debentures (expressed as a percentage of the
principal amount) shall be as follows for Debentures redeemed in the 12-
month period beginning August 15:
Year Percentage
1998 104%
1999 103%
2000 102%
2001 101%
and at maturity at 100% of principal, together in the case of any such
redemption with accrued interest to the redemption date.
The Company may elect to redeem less than all of the
Debentures. If the Company elects to redeem less than all of the
Debentures, the Trustee will select which Debentures to redeem, using such
method as it shall deem fair and appropriate, which may include the
selection for redemption of portions (equal to $1,000 or any integral
multiple thereof) of the principal amount of Debentures of a denomination
larger than $1,000.
Certain Rights to Require Repurchase of Debentures
Each Holder of a Debenture has the right, at such Holder's
option, to cause the Company to repurchase all or any part of such
Debenture, at a price equal to 100% of the principal amount, together with
accrued and unpaid interest to the repurchase date, if any Change of
Control (as defined below) which constitutes a Designated Event occurs or
has occurred after the date of issuance of the Debentures and on or prior to
maturity. Notice with respect to the occurrence of a Designated Event
will be given as described in the Indenture and not later than 15 days
after the date of the occurrence of such Designated Event. Such notice
shall include among other things the repurchase price; the date fixed for
repurchase; and the instructions which a Holder must follow in order to
exercise a repurchase right. The date fixed for such purchase will be the
date 30 days after notice of the occurrence of a Designated Event is given
(except as otherwise required by law). To be purchased, a Debenture must
be received with a duly executed written notice, substantially in the form
provided on the reverse side of such Debenture, at the office of the
Trustee not later than the fifth day prior to the date fixed for such
repurchase. All Debentures purchased by the Company will be canceled.
Such written notice shall be irrevocable following the close of business on
the fifth day prior to the repurchase date, except in the discretion of the
Company.
A "Change of Control" of the Company will be deemed to have
occurred at such time as (i) any Person (including a Person's Affiliates),
becomes the beneficial owner (as defined under Rule 13d-3 or any successor
rule or regulation promulgated under the Exchange Act) of 50% or more of
the total permitted voting power of the Company's Common Stock, (ii)
Permitted Holders shall cease to own beneficially at least 51% of the total
voting power of the Company's Common Stock, (iii) any Person (including a
Person's Affiliates and associates) becomes the beneficial owner of more
than 30% of the total voting power of the Company's Common Stock, and
Jurick beneficially owns, in the aggregate, a lesser percentage of the
total voting power of the Common Stock of the Company than such other
Person and does not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors of the Company, (iv) there shall be consummated any consolidation
or merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which the Common Stock of the Company
would be converted into cash, securities or other property, other than a
merger or consolidation of the Company in which the holders of the Common
Stock of the Company outstanding immediately prior to the consolidation or
merger hold, directly or indirectly, at least a majority of the Common
Stock of the surviving corporation immediately after such consolidation or
merger, or (v) beginning the date of the Indenture, during any period of
two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company has been approved by 66 2/3% of
the directors then still in office who either were directors at the
beginning of such period or whose election or recommendation for election
was previously so approved) cease to constitute a majority of the Board of
Directors of the Company; provided, however, in any such event, a Change of
Control shall not be deemed to have occurred if Mr. Jurick ceases to own
beneficially 51%, but not less than 25%, of the total voting power of the
Company's Common Stock as a direct result of an Approved Settlement and
there is no other Person which beneficially owns or controls a percentage
of total voting power of the Company's Common Stock equal to or greater
than Mr. Jurick. "Permitted Holders" means (i) Mr. Jurick, Fidenas
International, Elision or GSE, but, in the case of Fidenas International,
Elision or GSE, only if such entity is controlled (as defined in the
Indenture) by Mr. Jurick and (ii) the heirs, executors, administrators
testamentary, trustees, legatees or beneficiaries of Mr. Jurick.
The Change of Control provisions described above may deter
certain mergers, tender offers and other takeover attempts involving the
Company. The Change of Control provisions will not prevent a leveraged
buyout led by the Company's management or a recapitalization of the
Company. In certain circumstances it may be unclear as to whether a Change
of Control has occurred. The determination of whether a Change of Control
has occurred is a determination based on the facts and circumstances of the
subject transaction.
The Company will comply with the provisions of Rule 13e-4 and
any other tender offer rules under the Exchange Act which may then be
applicable and will file a Schedule 13E-4 or any other schedule required
thereunder in connection with any offer by the Company to purchase
Debentures at the option of Holders upon a Change in Control. The Change
in Control purchase feature is not, however, the result of management's
knowledge of any specific efforts to accumulate shares of Common Stock or
to obtain control of the Company by means of a merger, tender offer,
solicitation of proxies or consents or otherwise, or part of a plan to
implement a series of anti-takeover measures.
A "Designated Event" means the right to request the Company to
repurchase the Debentures and a Change of Control shall constitute a
Designated Event unless (i) the Closing Price of the Common Stock is at
least equal to 105% of the Conversion Price of the Debentures in effect
immediately preceding the time of such Change of Control; (ii) all of the
consideration (excluding cash payments for fractional shares) in the
transaction giving rise to such Change of Control to the holders of Common
Stock consists of shares of Common Stock that are, or immediately upon
issuance will be, listed on a national securities exchange or quoted on the
Nasdaq National Market, and as a result of such transaction the Debentures
become convertible solely into such Common Stock; or (iii) all of the
consideration in the transaction giving rise to such Change of Control to
the holders of Common Stock consists of cash, securities that are, or
immediately upon issuance will be, listed on a national securities exchange
or quoted on the Nasdaq National Market, or a combination of cash and such
securities, the aggregate fair market value of such consideration (which,
in the case of such securities, shall be equal to the average of the daily
Closing Price of such securities during the ten consecutive Trading Days
commencing with the sixth Trading Day following consummation of such
transaction) is at least 105% of the Conversion Price of the Debentures in
effect on the date immediately preceding the closing date of such
transaction.
The Company, could, in the future, enter into certain
transactions, including certain recapitalizations of the Company, that
would not constitute a Change in Control under the Debentures, but that
would increase the amount of Senior Indebtedness (or any other
indebtedness) outstanding at such time. The Company's ability to create
any additional Senior Indebtedness or additional Subordinated Indebtedness
is limited as described in the Debentures and the Indenture although, under
certain circumstances, the incurrence of significant amounts of additional
indebtedness could have an adverse effect on the Company's ability to
service its indebtedness, including the Debentures. If a Change in Control
were to occur, there can be no assurance that the Company would have
sufficient funds at the time of such event to pay the Change in Control
purchase price for all Debentures tendered by the Holders thereof. A
default by the Company on its obligation to pay the Change in Control
purchase price could, pursuant to cross-default provisions, result in
acceleration of the payment of other indebtedness of the Company
outstanding at that time.
Certain of the Company's existing and future agreements
relating to its indebtedness could prohibit the purchase by the Company of
the Debentures pursuant to the exercise by a Holder of the foregoing
option, depending on the financial circumstances of the Company at the time
any such purchase may occur, because such purchase could cause a breach of
certain covenants contained in such agreements. Such a breach may
constitute an event of default under such indebtedness and thereby restrict
the Company's ability to purchase the Debentures. See "Description of the
Debentures - Subordination."
Subordination
The payment of the principal of, premium, if any, and interest
on, the Debentures is, to the extent set forth in the Indenture,
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness. Upon any payment or distribution of assets to creditors upon
any liquidation, dissolution, winding up, reorganization, assignment for
the benefit of creditors, or marshalling of assets, whether voluntary,
involuntary or in receivership, bankruptcy, insolvency or similar
proceedings, the holders of all Senior Indebtedness will first be entitled
to receive payment in full of all amounts due or to become due thereon
before any payment is made on account of the principal of, any premium, if
any, or interest on the indebtedness evidenced by the Debentures or on
account of any other monetary claims, including such monetary claims as may
result from rights to repurchase or rescission, under or in respect of the
Debentures, before any payment is made to acquire any of the Debentures for
cash, property or securities. No payments on account of principal of
sinking fund requirements, if any, or premium, if any, or interest on the
Debentures shall be made, and no Debentures shall be redeemed or
repurchased, if at the time thereof; (i) there is a default in the payment
of all or any portion of the obligations under any Senior Indebtedness; or
(ii) there shall exist a default in any covenant with respect to the Senior
Indebtedness (other than as specified in clause (i) of this sentence), and,
in such event, such default shall not have been cured or waived or shall
not have ceased to exist, the Trustee and the Company shall have received
written notice from any holder of such Senior Indebtedness stating that no
payment shall be made with respect to the Debentures and such default would
permit the maturity of such Senior Indebtedness to be accelerated, provided
that no such default will prevent any payment on, or in respect of, the
Debentures for more than 120 days unless the maturity of such Senior
Indebtedness has been accelerated.
The Holders of the Debentures are subrogated to the rights of
the holders of the Senior Indebtedness to the extent of payments made on
Senior Indebtedness upon any distribution of assets in any such proceedings
out of the distributive share of the Debentures.
By reason of such subordination, in the event of insolvency,
creditors of the Company, who are not holders of Senior Indebtedness or of
the Debentures, may recover less, ratably, than holders of Senior
Indebtedness, but may recover more, ratably, than the Holders of the
Debentures.
Senior Indebtedness is defined in the Indenture as (i) the
principal of all Indebtedness, now existing or hereafter created, of the
Borrower under or evidenced by the Senior Credit Agreement (as defined in
the Indenture); (ii) all interest with respect to principal described in
the foregoing clause (i) and obligations described in clause (iii) of this
definition (including, without limitation, any interest accruing subsequent
to the commencement of any proceeding against or with respect to the
Company under federal bankruptcy law or any other proceedings in
insolvency, bankruptcy, receivership, reorganization, dissolution,
assignment for the benefit of creditors or other similar case or proceeding
whether or not such interest constitutes an allowed claim in any such
proceeding); and (iii) all other Obligations (as defined in the Senior
Credit Agreement) then due and payable, now existing or hereafter arising
under the Senior Credit Agreement other than amounts referred to in clause
(i) of this definition, including, without limitation, premiums,
commitment, agency and other fees, expenses (including reasonable and
documented attorney's fees and disbursements payable thereunder or in
connection therewith) and indemnities then due and payable thereunder;
provided, however, Senior Indebtedness shall not include (i) Indebtedness
of the Company to a Subsidiary or an Affiliate of the Company (including
but not limited to Jurick and his Affiliates), (ii) Indebtedness to, or
guaranteed on behalf of, any individual stockholder, director, officer,
employee or consultant of the Company (including, but not limited to,
Jurick and his Affiliates), or any of the Company's Subsidiaries, and (iii)
trade payables and other Indebtedness and other amounts incurred in
connection with obtaining goods, materials or services.
The Debentures are obligations exclusively of the Company.
Except as described hereinafter, the Subsidiaries are separate distinct
entities that have no obligation, contingent or otherwise, to pay any
amounts due pursuant to the Debentures. In addition, the payment of
dividends, interest and the repayment of certain loans and advances to the
Company by the Subsidiaries may be subject to certain statutory or
contractual restrictions and are contingent upon the earnings of such
Subsidiaries. Moreover, the right of the Company and, therefore, the right
of creditors of the Company (including Holders of Debentures) to receive
assets of any such Subsidiary upon the liquidation or reorganization of any
such Subsidiary or otherwise will be effectively subordinated to the claims
of the Subsidiaries' creditors, except to the extent that the Company is
itself recognized as a creditor of such Subsidiary, in which case the
claims of the Company would still be subordinate to any secured claim on
the assets of such Subsidiary and any indebtedness of such Subsidiary
senior to that held by the Company.
Certain Covenants
Limitations on Dividends and Redemptions
Under the terms of the Indenture, Emerson has agreed not to,
and not to permit any Subsidiary to (a) declare or pay any dividend, or
make any other distribution on any Capital Stock, except (i) dividends or
distributions payable in Capital Stock, (ii) dividends and distributions
payable by the Subsidiaries to the Company or its Wholly Owned Subsidiaries
(as defined in the Indenture), and (iii) that so long as no Default or
Event of Default shall have occurred and be continuing at the time or as a
consequence of the payment or distribution, the Company may declare and pay
during any fiscal year cash dividends to the holders of the Series A
Preferred Stock in accordance with the terms of its Certificate of
Designation, or (b) purchase, redeem or otherwise acquire or receive for
value any Capital Stock acquired upon conversion thereof into other Capital
Stock, if, upon giving effect to such dividend, distribution, purchase,
redemption, retirement or other acquisition, a Default or Event of Default
shall have occurred and be continuing.
Limitation on Consolidation, Merger and Sale or Acquisition of
Assets
Under the Indenture, the Company has agreed not to, and except
for Permitted Subsidiary Transactions, not to permit any of its
Subsidiaries, without the consent of the Holders of not less than 66 2/3%
in aggregate principal amount of the Outstanding Debentures to: (i)
consolidate with or merge into any other Person or (ii) sell, lease,
convey, or transfer, in a single transaction or through a series of
transactions, its properties and assets substantially as an entirety to any
Person or Persons, or (iii) adopt a Plan of Liquidation, unless: (a) either
(x) the Company or such Subsidiary, as the case may be, is the continuing
surviving corporation or transferee or (y) the corporation or other Person
formed by such consolidation or into which the Company or such Subsidiary,
as the case may be, is merged or the Person which acquires by sale, lease,
conveyance, transfer or other disposition, the properties and assets of the
Company or such Subsidiary shall be a corporation organized and existing
under the laws of the United States of America or any State thereof or the
District of Columbia, and shall expressly assume, by a supplemental
indenture executed and delivered to the Trustee, in form satisfactory to the
Trustee, the due and punctual payment of the principal of (and premium, if
any) and interest on all the Debentures and the performance of every
covenant of the Indenture on the part of the Company to be performed or
observed; (b) the Person (or, in the case of (ii), one Person to which
property and assets are transferred) formed by such consolidation or surviving
such merger or to which the properties and assets of the Company or such
Subsidiary, as the case may be, are sold, transferred, conveyed or leased as
an entirety or substantially as an entirety or pursuant to a Plan of Liquidation
shall have a Consolidated Net Worth immediately after such transaction, equal
to or greater than that of the Company or such Subsidiary, as the case may be,
immediately preceding, and without giving effect to, such transaction; (c)
immediately after giving effect to such transaction, no Default or Event of
Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be continuing; (d) such
transaction shall be on such terms as shall not impair the rights and
powers of the Trustee or the Holders of Debentures or have a Material
Adverse Effect; and (e) certain other conditions are met.
Limitations on Additional Indebtedness
The Company has agreed in the Indenture not to, and not to
permit any of its Subsidiaries to, directly or indirectly, Incur any
Indebtedness (other than Permitted Indebtedness) unless, after giving pro
forma effect to the Incurrence thereof, (i) no Default or Event of Default
shall have occurred and be continuing at the time or as a consequence (as
defined in the Indenture) of the Incurrence of such Indebtedness, (ii) the
Consolidated Interest Coverage Ratio (as defined in the Indenture) of the
Company and its consolidated Subsidiaries is greater than 1.75 to 1, and
(iii) such Indebtedness constitutes Subordinated Indebtedness.
Contingency for Sinking Fund Under Certain Circumstances
If the Company provides for one or more sinking funds for
securities representing indebtedness for money borrowed ranking equal or
junior to the Debentures, and such indebtedness has a maturity or weighted
average time to maturity which is on or prior to the maturity date of the
Debentures, the Company will provide a sinking fund for the Debentures
calculated to retire that amount of Debentures equal to the lesser of (i)
the same percentage of outstanding Debentures prior to maturity as the
percentage of the principal amount of such other indebtedness to be retired
prior to maturity on the same payment schedule as such other indebtedness
or (ii) such amount of Debentures necessary to result in the Debenture
having the same weighted average time to maturity as other indebtedness.
Except as set forth herein with respect to the credit against mandatory
sinking fund payments, the redemption price and other terms of the sinking
fund applicable to the Debentures shall be the same as those applicable to
the relevant indebtedness, except that the redemption price of the
Debentures in connection with the sinking fund shall be 100% of the
principal amount thereof plus accrued and unpaid interest to the date fixed
for redemption. The Company may, at its option, receive credit against
mandatory sinking fund payments for the principal amount of (i) Debentures
acquired by the Company and surrendered for cancellation, (ii) Debentures
previously converted into Common Stock and (iii) Debentures redeemed or
called for redemption otherwise than through the operation of the sinking
fund.
Limitations on Liens
The Company has agreed not to, and, except for Permitted
Subsidiary Transactions, not to permit any of its Subsidiaries to, directly
or indirectly, Incur (as defined in the Indenture) any Lien (as defined in
the Indenture) upon any of the property or assets (tangible or intangible)
of the Company or any of its Subsidiaries or any shares of stock or debt of
any Subsidiary which owns property or assets, now owned or hereafter
acquired (including Capital Stock (as defined in the Indenture)), other
than Permitted Liens (as defined in the Indenture). Permitted Liens is
defined in the Indenture to exclude any Lien of any nature whatsoever on
trademarks, service marks, copyrights, tradenames, or application for the
foregoing, of any of the Company or its Subsidiaries.
Limitations on Sales of Assets
The Company has agreed not to and not to permit any of its
Subsidiaries to, directly or indirectly, consummate any Asset Sale or
otherwise permit an Asset Sale to occur, as the case may be, (A) unless (i)
the Company or such Subsidiary, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the fair market value of
the property or other assets subject to such Asset Sale (as determined in
good faith by a majority of the Independent Directors of the Company, as
evidenced by a Board Resolution, or as determined based upon an opinion
letter from an Independent Appraiser, which opinion letter shall identify
such Independent Appraiser as such and shall be dated within 30 days of
such Asset Sale), (ii) the consideration therefor received by the Company
or such Subsidiary is in the form of cash or Cash Equivalents, (iii) the
fair market value of the property or other assets sold or otherwise
disposed of does not exceed $4,000,000 individually or in the aggregate,
during any consecutive 12 month period for all Asset Sales, and (iv) such
Asset Sale shall not have a Material Adverse Effect, or (B) except (i) for
sales of the Company's Common Stock (not exceeding, singly or in the
aggregate, 15% of the Company's then outstanding voting stock) pursuant to
an offering on behalf of the Company effected at a discount of not more
than seven percent (7%) from the then Closing Price, (ii) if after giving
pro forma effect to the such offering, no Default or Event of Default shall
have occurred and be continuing at the time or as a consequence of the
offering, and (ii) not involving an Affiliate Transaction.
Not later than 10 business days prior to the occurrence of any
Asset Sale by the Company or any of its Subsidiaries that will cause the
aggregate amount of all Net Proceeds of Asset Sales by the Company and/or
its Subsidiaries in any year to exceed $4,000,000, the Company shall notify
the Trustee in writing of the occurrence of such Asset Sale.
Limitation on Sale or Issuance of Capital Stock of Subsidiaries
Except for Permitted Subsidiary Transactions the Company has
agreed not to (a) sell or otherwise convey or dispose of any Capital Stock
of any of its Subsidiaries, except to a Wholly-Owned Subsidiary of the
Company, or (b) permit any Subsidiary to issue or sell to any Person,
except the Company or a Wholly-Owned Subsidiary, (A) any preferred stock of
such Subsidiary or (B) any other Capital Stock of Subsidiaries.
Limitations on Investments, Loans and Advances
Except for Permitted Subsidiary Transactions, the Company has
agreed not to make, and not to permit any of its Subsidiaries to make, any
capital contributions, advances or loans to (including any guarantees of
loans to), or investments or purchases of Capital Stock in, any Person
(collectively, "Investments"), except: (i) Investments represented by
accounts receivable created or acquired in the ordinary course of business;
(ii) advances to employees in the ordinary course of business not exceeding
$50,000 per employee in any 12-month period and not exceeding $250,000 in
aggregate advances for all employees in any 12-month period; (iii) certain
Investments arising in connection with Indebtedness permitted pursuant to
the Indenture; and (iv) cash and Cash Equivalents.
Limitation on Transactions with Affiliates
Under the terms of the Indenture, the Company may not, and may
not permit any of its Subsidiaries to, directly or indirectly, enter into
any transaction or series of related transactions (including, but not
limited to, the sale, purchase, exchange, lease, transfer or other
disposition of any properties, assets or services to, or the purchase of any
property, assets or services from, or the entry into any contract, agreement,
undertaking, loan, advance or guarantee) with, or for the benefit of, an
Affiliate (an "Affiliate Transaction"), or extend, renew, waive or otherwise
modify the terms of any Affiliate Transaction entered into prior to the date
of issuance of the Debentures unless (i) such Affiliate Transaction is between
or among the Company and its Wholly-Owned Subsidiaries, or (ii) the terms of
such Affiliate Transaction are fair and reasonable and at least as favorable
to the Company or such Subsidiary, as the case may be, than those that could
have been obtained in a comparable arm's length transaction by the Company
or such Subsidiary with an unrelated Person, and such Affiliate Transaction
is entered into in the ordinary course of business of the parties thereto;
provided, however, notwithstanding anything to the contrary contained in
this paragraph, the Company may issue securities pursuant to the exercise
of outstanding options and warrants on the terms in effect and described in
this Prospectus. All Affiliate Transactions must be approved in good faith
by the Board of Directors of the Company and majority of the Independent
Directors thereof, and such approval evidenced by a Board resolution that
such transaction meets the criterion set forth in (i) or (ii) above.
Limitation on Prepayments
Neither the Company nor any of its Subsidiaries shall
voluntarily prepay any outstanding Indebtedness (as defined in the
Indenture), whether or not permitted by the terms of such outstanding
Indebtedness or by the agreement, indenture or instrument creating or
evidencing such outstanding Indebtedness; provided, however, the Company
and the Subsidiaries may prepay any Senior Indebtedness to the extent
permitted thereunder.
Independent Directors
Under the terms of the Indenture, prior to the Closing Date,
the Company has agreed to use its best efforts to cause at least one-third
of the members constituting the Company's entire Board of Directors to be
Independent Directors (as defined in the Indenture) for the term of the
Debentures. Any settlement or other disposition of the litigation
involving Mr. Jurick and related entities and affiliates requires the
approval of a majority of three members of the Board of Directors
(including the Independent Directors and Mr. Eugene Davis) to the extent
such settlement or other disposition (i) includes the grant of registration
rights of any kind, and/or (ii) contemplates a Transfer (as defined in the
Indenture) of any securities which might adversely impact the market price
of the Common Stock. In the context of any such Board vote, the Indenture
requires the Company to expressly instruct the Independent Directors to
consider the interests of the Holders.
Payments for Consent
The Indenture provides that neither the Company nor any of its
Subsidiaries shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder
of any Debentures for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the
Debentures unless such consideration is offered to be paid or agreed to be
paid to all Holders of the Debentures which so consent, waive or agree to
amend in the time frame set forth in solicitation documents relating to
such consent, waiver or agreement.
The Company has also covenanted and agreed to be bound by
certain other restrictive covenants, as more fully described in the
Indenture.
Events of Default
The Indenture defines the following as "Events of Default":
(1) default for a period of 30 days in the payment of any interest on any
Debenture when it becomes due and payable, whether or not such payments are
prohibited by the subordination provisions of the Indenture; or (2) default
in the payment of the principal of (or premium, if any, on) any Debenture
at its Maturity, whether or not such payments are prohibited by the
subordination provisions of the Indenture; or (3) default in the payment of
the Repurchase Price or Redemption Price on any Debentures, whether or not
such payments are prohibited by the subordination provisions of the
Indenture; or (4) default in the performance, or breach, of any covenant or
warranty of the Company in the Debentures or the Indenture, and continuance
of such default or breach for a period of 60 days after the Trustee has
given the Company, or the Holders of at least 25% in principal amount of
Outstanding Debentures have given the Company and the Trustee, a written
notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" under the Indenture;
or (5) default on any Indebtedness of the Company or any Subsidiary of the
Company in excess of $1,000,000 which results in such Indebtedness being
declared due and payable after the expiration of any applicable grace
period or becoming due and payable; or (6) an "Event of Default" as defined
in the Senior Credit Agreement resulting in such Senior Indebtedness being
declared due and payable after the expiration of any applicable grace
period or becoming due and payable; or (7) the entry of one or more
judgments (not paid or fully covered by insurance) against the Company or
any of its Subsidiaries in an aggregate amount in excess of $1,000,000
(after deduction for the applicable insurance coverage), which judgments
are not vacated, discharge or stayed or bonded pending appeal within 30
days from the entry thereof; or (8) certain events of bankruptcy,
insolvency, or reorganization; or (9) the failure by the Company to have in
place for any consecutive seven day period an effective and enforceable
Senior Credit Facility.
If an Event of Default shall occur and be continuing (other
than an Event of Default resulting from certain events of bankruptcy,
insolvency, reorganization or the Company's failure to have in place an
effective and enforceable Senior Credit Facility as described in clause (8)
of the immediately preceding paragraph) either the Trustee or the Holders
of not less than 25% in aggregate principal amount of Outstanding
Debentures may accelerate the maturity of all such Outstanding Debentures.
Prior to acceleration of maturity of such Debentures, the Holders of at
least 66-2/3% in aggregate principal amount of Outstanding Debentures may
waive any past defaults under the Indenture, except for default in the
payment of principal (or premium, if any) or interest on any Debenture or
in the payment of any Repurchase Price or Redemption Price which may be due
and payable and except for certain covenants as provided in the Indenture.
The Holders of at least 66-2/3% in principal amount of Outstanding
Debentures may waive an Event of Default resulting in acceleration, and
annul the acceleration, of such Debentures, but only if all the Events of
Default have been remedied and all payments (other than those due as a
result of acceleration) have been made.
The Company must furnish the Trustee annually with a statement
of certain officers of the Company as to their knowledge of defaults.
Modification, Waiver and Satisfaction of Indenture
With certain exceptions that permit modifications of the
Indenture by Emerson and the Trustee only, the Indenture, the rights and
obligations of Emerson and the rights of Holders of Debentures may be
modified by the Company with the consent of Holders of not less than 66-
2/3% in aggregate principal amount of Outstanding Debentures affected
thereby; provided that Emerson may make no such modification without the
consent of the Holder of each Debenture affected thereby if such
modification would:
(1) change the Stated Maturity of the principal of, or
any installment of interest on, any Debenture or reduce the
principal amount thereof or the rate of interest thereon or any
premium payable upon the redemption thereof, or change the time
or place of payment where, or the coin or currency in which,
any Debenture or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement
of any such payment on or after the Stated Maturity thereof (or,
in the case of redemption, on or after the Redemption Date or,
in the case of a repurchase, on or after 10 days following the
Repurchase Date), or adversely affect the right to convert any
Debenture (except as permitted by subparagraph (4) hereof);
(2) reduce the percentage in principal amount of the
Outstanding Debentures, the consent of whose Holders is
required for any such supplemental indenture, or the consent of
whose Holders is required for any waiver (of compliance with
certain provisions of the Indenture or certain defaults
hereunder and their consequences) provided for in the
Indenture;
(3) modify any of the provisions of this covenant or
the provisions regarding waiver of past defaults, except to
increase the percentage of Holders required to waive a past
default under the Indenture or to provide that certain other
provisions of the Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Debenture
affected thereby;
(4) modify or impair the absolute and unconditional
right of the Holder of any Debenture to receive payment of the
principal of (and premium, if any) and interest on such
Debenture on the respective Stated Maturities expressed in such
Debenture (or, in the case of redemption, on the Redemption
Date) and to convert such Debenture pursuant to the Indenture
and to institute suit for the enforcement of any such payment
and right to convert without the consent of such Holder;
(5) waive a Default or Event of Default in the payment
of principal of (and premium, if any) or interest on, or
redemption payment with respect to, any Debenture (other than a
Default or Event of Default in the payment of an amount due as
a result of an acceleration if the Holders rescind such
acceleration); or
(6) adversely modify or affect (in any manner adverse
to the Holders) the terms and conditions of the obligations of
the Company under the Indenture to repurchase the Debentures.
No supplemental indenture shall affect adversely the rights of the holders
of Senior Indebtedness without the consent of such holders.
The Holders of at least 66-2/3% in aggregate principal amount
of Outstanding Debentures may waive Emerson's compliance with certain
restrictive provisions of the Indenture.
Upon cancellation of all of the Debentures or, with certain
limitations, upon Emerson's deposit with the Trustee of funds sufficient
therefor, Emerson may satisfy and discharge the Indenture.
The Trustee
Bank One, Columbus, NA, is the Trustee under the Indenture.
DESCRIPTION OF OTHER SECURITIES
The Company's authorized capital stock consists of 75,000,000 shares
of Common Stock, par value $.01 per share, and 1,000,000 shares of
Preferred Stock, par value $.01 per share. The Company intends to request
stockholder approval to increase the authorized number of shares of
Preferred Stock to 10,000,000.
Outstanding Common Stock
As of November 3, 1995, 40,252,772 shares of Common Stock are
outstanding. All of the issued and outstanding shares of Common Stock are
fully paid and non-assessable. Each share of Common Stock has one vote on
all matters to which stockholders are entitled or permitted to vote upon,
including the election of directors. There are no cumulative voting
rights. Shares of Common Stock would participate ratably in any
distribution of assets in a liquidation, dissolution or winding up of the
Company subject to prior distribution rights of any shares of Preferred
Stock then outstanding. The Common Stock has no preemptive rights or
conversion rights nor are there any redemption or sinking fund provisions
applicable to the Common Stock. Subject to the rights of the holders of
the Series A Preferred Stock, holders of Common Stock are entitled to
participate in dividends if and when declared by the Company's Board of
Directors out of funds legally available therefor. The Company's ability
to pay cash dividends is subject to certain restrictions. See "Description
of Debentures" and "Description of Other Securities - Dividend Policy
Regarding Common Stock."
The transfer agent and registrar for the Common Stock is the American
Stock Transfer & Trust Company.
Outstanding Preferred Stock
The Certificate of Incorporation provides that the Board of Directors
of the Company may authorize the issuance of one or more series of
preferred stock having such rights, including voting, conversion and
redemption rights and such preferences, including dividend and liquidation
preferences, as the Board may determine without any further action by the
stockholders of the Company which could adversely affect the voting rights
of the holders of Common Stock.
There are currently 10,000 shares of Series A Preferred Stock
outstanding, $10 million face value in the aggregate, which were issued
pursuant to the Plan of Reorganization and are held as of the date hereof
by 21 holders. Series A Preferred Stock is convertible into Common Stock
of the Company at any time during the period beginning on the third
anniversary of the issuance date of the Series A Preferred Stock, March 31,
1994 (the "Issuance Date"), and ending on the eighth anniversary thereof.
The Series A Preferred Stock will be convertible into Common Stock at a
price per share of Common Stock equal to 80% of the then market value of a
share of Common Stock (determined on a 60 day average prior to conversion).
The Series A Preferred Stock bears dividends as described below, prohibits
Common Stock dividends unless Series A Preferred Stock dividends are paid
or set aside, provides for the appointment of two directors if Series A
Preferred Stock dividends are in default for six consecutive quarters and
has other customary priorities. In the event of liquidation, dissolution
or winding-up of the Company, the Series A Preferred stockholders are
entitled to receive an amount equal to $1,000 per share, plus a sum equal
to cumulative dividends accrued and unpaid, prior to any payment or
distribution to any other class or series of stock ranking junior.
Dividend Policy Regarding Common Stock
The Company's policy has been to retain all available earnings, if
any, for the development and growth of its business. The Company has never
paid cash dividends on its common stock. In deciding whether to pay
dividends on the Common Stock in the future, the Company's Board of
Directors will consider factors it deems relevant, including the Company's
earnings and financial condition and its working capital and anticipated
capital expenditures. The Company's existing United States secured credit
facility contains and, if consummated, the terms of the contemplated
Facility will contain, and the Indenture relating to the Debentures will
contain, certain dividend payment restrictions on the Company's Common
Stock. Also, the Company's Certificate of Incorporation defining the
rights of the Series A Preferred Stock prohibits Common Stock dividends
unless Series A Preferred Stock dividends are paid or put aside.
Dividend Policy Regarding Series A Preferred Stock
The Company's Series A Preferred Stock earns dividends based on a
$1,000 per share stated value commencing June 30, 1994, payable on a
quarterly cumulative basis at (i) a 7% dividend rate during the period
beginning on the Issuance Date, and ending on the day before the third
anniversary thereof, (ii) a 5.6% dividend rate during the period beginning
on the third anniversary of the Issuance Date and ending on the day before
the fourth anniversary thereof, (iii) a 4.2% dividend rate during the
period beginning on the fourth anniversary of the Issuance Date and ending
on the day before the fifth anniversary thereof, (iv) a 2.8% dividend rate
during the period beginning on the fifth anniversary of the Issuance Date
and ending on the day before the sixth anniversary thereof, (v) a 1.4%
dividend rate during the period beginning on the sixth anniversary of the
Issuance Date and ending on the day before the seventh anniversary thereof,
and (vi) a 0% dividend rate thereafter.
Potential Anti-Takeover Implications
Under certain circumstances, an increase in the number of shares of
Common Stock or the authorization of a new series of preferred stock could
provide corporate management with a means to discourage a change of
control, such as through the issuance to stockholders of rights to purchase
shares of preferred stock or additional shares of Common Stock at prices
below the then current market price. Such intentions to prevent or to
discourage changes of control could be accomplished without further
stockholder approval. However, the Board of Directors has no present
intention of using the preferred stock or the additional shares of Common
Stock for such a purpose and is not aware that any takeover or similar
action is contemplated.
Certain Provisions of Governing Documents
The Company's Certificate of Incorporation contains an express
election not to be governed by Section 203 of the Delaware General
Corporation Law ("Delaware Law"). Section 203 provides generally that a
corporation may not engage in certain transactions with an "interested
stockholder" (as defined) within a period of three years after the
interested stockholder becomes such, unless certain conditions are met.
Because Fidenas International may be deemed to be an "interested
stockholder" within the meaning of Section 203, the effect of such election
is to permit certain transactions between the Company and Fidenas
International, including certain business combinations and issuances of
securities, which would not be permitted (unless certain conditions are
met) were Section 203 to apply. No transactions or business combinations
to which Section 203 would apply are currently contemplated by the Company,
but for the Company's election not to be governed by such section.
In addition, certain provisions of the Company's Certificate of
Incorporation and By-Laws, including provisions (i) authorizing the Board
of Directors to create new series of preferred stock, (ii) providing that
any action requiring stockholder consent must be effected at a meeting as
opposed to by consent in writing and (iii) setting forth that directors may
only be removed for cause, upon the affirmative vote of at least 80% of the
voting securities then outstanding, voting together as a single class, may
make it more difficult for a third party to make, or may discourage a third
party from making, an acquisition proposal for the Company or initiating a
proxy contest and may thereby inhibit a change in control of the Company or
the removal of incumbent management or directors.
The Company has included in its Certificate of Incorporation and By-
Laws provisions to (i) eliminate the personal liability of its directors
for monetary damages resulting from breaches of their fiduciary duty (other
than breaches of the duty of loyalty, acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law,
violations under Section 174 of the Delaware Law or for any transactions
from which the director derived an improper personal benefit) and (ii)
indemnify its directors and officers to the fullest extent permitted by
Section 145 of the Delaware Law, including circumstances in which
indemnification is otherwise discretionary. The Company believes that
these provisions are necessary to attract and retain qualified persons as
directors and officers.
Price Range of the Company's Common Stock
The Company's Common Stock has traded on the AMEX since December 22,
1994 under the symbol MSN. The Common Stock began trading publicly on
September 1, 1994 in the over-the-counter market. Prior thereto, there was
no established public trading market for the Common Stock.
Prior to the consummation of the Restructuring, there were
approximately 4,500 shareholders of record of the common stock of the
Company's predecessor. The shares of such shareholders were terminated and
canceled on the effective date of the confirmed Plan of Reorganization.
Such shares had been traded on the New York Stock Exchange until trading
was suspended on October 6, 1993 and the shares delisted on April 15, 1994.
The following table sets forth the range of high and low closing bid
prices for the Company's Common Stock as reported by the National
Quotations Bureau for the period September 1, 1994 through December 21,
1994 and the range of high and low last reported sales prices as reported
by the AMEX from December 22, 1994.
High Low
Fiscal 1995
Second Quarter $ 1-1/2 $ 1
Third Quarter 2-7/8 15/16
Fourth Quarter 3-3/8 2
Fiscal 1996
First Quarter $ 3-1/8 $ 2-1/4
Second Quarter 3-3/4 2-1/4
Third Quarter (through November 2, 1995) 3 2-1/8
On November 2, 1995, the last sale price of the Common Stock as
reported by the AMEX was $2.125 per share. As of November 2, 1995, there
were approximately 451 stockholders of record.
Common Stock Eligible for Future Sale
As of November 2, 1995 the Company has 40,252,772 shares of Common
Stock outstanding, in addition to the Creditor's Warrants and the Series A
Preferred Stock. Of the outstanding shares of Common Stock, an aggregate
of 3,333,333 shares initially issued to the Bank Lenders and the
Noteholders, in addition to the 769,446 Shares issued in February 1995, are
freely tradeable without restriction or further registration under the
Securities Act. In addition, the Creditor's Warrants, shares of Common
Stock underlying the Creditor's Warrants, Series A Preferred Stock, and
Common Stock underlying the Series A Preferred Stock and the 6,149,993
shares sold in the public offering authorized by the Plan of Reorganization
are freely tradeable. All of the securities issued pursuant to the Plan of
Reorganization described above are deemed to be freely tradeable by virtue
of Section 1145 of the Bankruptcy Code, provided the holders thereof are
not deemed affiliates of the Company. Also, the Company has outstanding
options to acquire 1,890,000 shares of Common Stock, granted in accordance
with Rule 701 of the Securities Act, which may be sold under certain
conditions. The 30 million shares issued pursuant to the Plan of
Reorganization to the Selling Securityholders, Fidenas International,
Elision and GSE, and currently outstanding, are "restricted securities"
within the meaning of Rule 144 and are eligible for sale in the public
market in reliance upon Rule 144 commencing April 1996, subject to
applicable volume restrictions, to the extent that Fidenas International,
Elision and GSE are deemed to be "affiliates" of the Company, as that term
is defined under the Securities Act. The Placement Agent has agreed,
subject to the granting of registration rights in accordance with the
requirements of the Indenture and applicable law, to permit the
registration of up to 5,000,000 shares of Common Stock owned by the Selling
Securityholders, GSE, Fidenas International and Elision, pursuant to this
Prospectus, which registration rights were subsequently approved by the
Board of Directors of the Company. Also, the holders of such shares of
Common Stock and the officers and directors of the Company, with certain
exceptions, have agreed to additional restrictions on the transfer of their
shares for a period of 12 months. See "Plan of Distribution - Certain
Restrictions on Officers, Directors and Certain Stockholders."
In addition, the Company has been advised by Mr. Jurick that current
settlement discussions regarding the litigation described under "Legal
Proceedings - Litigation Regarding Certain Outstanding Common Stock"
include discussions regarding the possible sale of a portion of the shares
of Common Stock beneficially owned by him, including those shares covered
by this Prospectus, to fund settlement payments. In this regard, it is
anticipated that the Company may be requested in the future, subject to the
restrictions described in the Indenture, to register the resale of certain
additional shares. The Placement Agent has, pursuant to an agreement with
Mr. Jurick and certain affiliated entities, an exclusive right to sell a
certain number of these shares in furtherance of the settlement. See also
"Plan of Distribution - Certain Restrictions on Officers, Directors and
Certain Stockholders." There can be no assurance that a settlement will be
reached or consummated or on favorable terms. Moreover, any settlement
and/or sales of Common Stock thereunder may have an adverse effect on the
market for the Company's securities. See "Risk Factors - Litigation
Relating to Common Stock."
In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated), including persons who may be deemed
to be "affiliates" of the Company, as that term is defined under the
Securities Act, is entitled to sell within any three-month period a number
of restricted shares beneficially owned for at least two years that does
not exceed the greater of (i) one percent of the then outstanding Common
Shares, or (ii) the average weekly trading volume in the Common Shares
during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain requirements as to the manner of sale, notice
and the availability of current public information about the Company.
However, a person who is not an affiliate and has beneficially owned such
shares for at least three years is entitled to sell such shares without
regard to the volume or other resale requirements.
Creditor's Warrants
The Company has issued 750,000 Creditor's Warrants to the Noteholders
in connection with the consummation of the Plan of Reorganization, which
are held as of the date hereof by 11 holders. Each Creditor's Warrant
entitles the holder thereof to acquire one share of Common Stock at an
exercise price of $1.00 per share until March 31, 1997, and escalating
$0.10 per share per annum thereafter until the expiration of the Creditor's
Warrants on March 31, 2001, subject in all events to standard anti-dilution
adjustments. All of these Creditor's Warrants are currently exercisable,
and the Company believes that the Creditor's Warrants and the shares of
Common Stock underlying them are freely tradeable by virtue of Section 1145
of the Bankruptcy Code, provided the holders thereof are not deemed
affiliates of the Company. See "Description of Other Securities - Common
Stock Eligible for Future Sale." In connection with the granting of the
Creditor's Warrants, the Company granted the holders thereof certain demand
and incidental registration rights, to the extent that the underlying
shares of Common Stock may not be freely tradeable by virtue of Section
1145 of the Bankruptcy Code.
Placement Agent's Warrants
The Company has issued to the Placement Agent and its authorized
dealers five year warrants (the "Warrants") to purchase 500,000 Shares of
Common Stock, subject to adjustment under certain circumstances. The
Warrants shall be exercisable at any time during a period of four years
commencing at the beginning of the second year after their issuance and
sale at a price equal to 100% of the initial Conversion Price subject to
adjustment under certain circumstances. The Company has granted certain
customary "piggyback" and "demand" registration rights with respect to the
Warrants.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary is a general discussion of certain of the
Federal income tax consequences of the Restructuring to the Company. The
summary is based upon relevant provisions of the Code, the applicable
Treasury Regulations promulgated thereunder (the "Treasury Regulations" or
"Regulations"), judicial authority and current administrative rulings and
practice, all of which are subject to change, possibly on a retroactive
basis. The Company has not requested a ruling from the Internal Revenue
Service (the "Service") with respect to these matters.
Tax Consequences of the Restructuring to the Company
Discharge of Indebtedness
Under the Code, a taxpayer generally must include in gross income the
amount of any discharged indebtedness realized during the taxable year. No
income is recognized, however, where a taxpayer has a discharge of
indebtedness while under Chapter 11 of the Bankruptcy Code, provided the
taxpayer is under the jurisdiction of the court and the cancellation of
indebtedness is granted by the court or is pursuant to a plan approved by
the court. However, the Code generally provides that the amount so
excluded from income reduces the tax attributes (see below) of the
taxpayer. The Code, as in effect on the date of the Restructuring,
contained an exception to the rule requiring reduction of tax attributes
(the "Stock-for-Debt Exception") for a debtor corporation that transfers
its own stock to a creditor in satisfaction of its indebtedness while such
corporation is under Chapter 11 of the Bankruptcy Code.
The Stock-for-Debt Exception does not apply when, among other tests,
"nominal or token" shares are issued in exchange for debt (the
"Nominal/Token Rule"). The Nominal/Token Rule has only been in the Code
since 1980 and the Code does not define the term "nominal or token" shares.
There were no reported cases interpreting the Nominal/Token Rule, nor were
Treasury Regulations or Revenue Rulings in effect at the time of the
Restructuring that governed the tax consequences of this aspect of the
Restructuring (although Regulations were promulgated by the Treasury
Department prior to the Restructuring, they are only effective with respect
to debt restructuring that occurred after the Restructuring was completed).
If the Stock-for-Debt exception does not apply to the Company's
issuance of stock to creditors in satisfaction of Company indebtedness (the
"Exchange"), the Company's NOLs and TCCOs would be eliminated. In
addition, the Company's tax basis in its assets would be reduced, but not
below the aggregate liabilities of the reorganized Company immediately
after the discharge of indebtedness.
The courts have not yet ruled on what factors should be considered in
determining whether stock issued to creditors is nominal or token. Over
the years the Service has proposed various methods of applying the
Nominal/Token Rule, and, in 1994, it adopted a safe harbor ("Rev. Proc.
94-26") agreeing not to treat the issuance of common stock as nominal or
token if the value of common stock issued to creditors for unsecured debt
is at least 15% of the value of all stock (including preferred stock)
outstanding after that exchange. The Exchange did not satisfy that safe
harbor. The Service also has issued Regulations that generally are
unfavorable to the Company, in part because they treat preferred stock less
favorably than common stock in applying the Nominal/Token Rule. Neither
Rev. Proc. 94-26 nor the Regulations govern the Exchange, since by their
terms they do not apply to a plan of reorganization confirmed by a
bankruptcy court before May 18, 1994 and, in any event, Rev. Proc. 94-26
only sets forth a safe harbor for taxpayers that meet its test. Although
no assurance can be given that a court would reject the Service's
interpretation of the Nominal/Token Rule and although there is no
definitive applicable precedent, counsel believes that the better view is
that the stock issued to creditors in satisfaction of Company indebtedness
was not nominal or token and thus the Exchange should qualify for the
Stock-for-Debt Exception. In rendering its opinion, counsel relied on
certain factual representations made by the Company about the value of
stock and other consideration received by creditors and others under the
Plan and about the amount of unsecured debt held by creditors at the time
of the Exchange. The balance of the description of Tax Consequences to the
Company assumes that the Stock-for-Debt Exception applies to the Exchange.
Tax Attributes
For Federal income tax purposes, the Company has substantial
consolidated NOLs and consolidated TCCOs. As of March 31, 1995, the
Company had approximately $95 million of NOLs. The Company's ability to
utilize the NOLs is materially limited under Section 382 of the Code, as
discussed below.
As of March 31, 1995, the Company had approximately $1.1 million of
TCCOs, which all expire in 1996. The Company's ability to utilize the
TCCOs is limited under Section 383 of the Code, which applies rules similar
to those limiting NOLs under Section 382, as discussed below.
Sections 382 and 383 of the Code provide rules governing the
utilization of a corporation's NOLs and TCCOs following an "ownership
change." An ownership change occurs, in general, if the percentage of stock
owned by one or more "5-percent stockholders" has increased, in the
aggregate, by more than 50 percentage points relative to the lowest
percentage of stock owned by such 5-percent stockholders during a specified
period. For this purpose, all stock owned by persons who own less than 5%
of a corporation's stock is generally treated as stock owned by a single
5-percent stockholder.
An ownership change occurred with respect to the Company on March 31,
1994 as a result of the Restructuring. Accordingly, the amount of the
Company's taxable income in any year ending after the ownership change that
may be offset by its prechange NOLs (or TCCOs), in general, is limited to
an amount (the "Section 382 Limitation") equal to the product of (i) the
value of the Company's outstanding stock immediately after the
Restructuring and (ii) 5.15%, the long-term tax exempt rate (as published
by the Treasury Department) for ownership changes occurring during March
1994. The Company estimates that the annual Section 382 Limitation will be
approximately $2,200,000. In addition, if the Company had either net
built-in gains or net built-in losses (as defined in the Code) above
certain threshold levels, and those gains or losses are actually recognized
within a five year period, the effect would be to either increase the
Section 382 Limitation by such gains recognized, or treat those losses
recognized as pre-change losses, respectively.
The Company is considering a number of other transactions, and there
are certain other possible transactions beyond the Company's control,
which, in the aggregate, may trigger a second, future, ownership change
within the meaning of Section 382. A second ownership change could cause
the amount of the Section 382 Limitation to be reduced below $2,200,000,
thereby reducing the value of the NOLs to the Company.
However, in the Company's opinion, if an ownership change were to
occur as of the date of this Prospectus, such a further reduction in the
annual Section 382 Limitation would not result. While the Section 382
Limitation must be re-calculated after each ownership change, in the case
of successive ownership changes, the smallest of the Section 382
Limitations will be applicable. The Company's market value and the long
term tax exempt rate have both increased since the initial ownership
change.
The Section 382 Limitation is reduced to zero if a corporation does
not continue its business enterprise (i.e., maintain a significant line of
business) for the two-year period following the ownership change. In
addition, a corporation's ability to utilize its NOLs and TCCOs will be
disallowed if the corporation is acquired for the principal purpose of tax
avoidance (see the discussion below relating to Section 269 of the Code).
Section 269 of the Code authorizes the Service to disallow any
deduction, credit, or other allowance of a corporation if control (i.e.,
ownership of stock having at least 50% of the voting power or value of all
of the corporation's outstanding stock) of the corporation is acquired
principally for the purpose of evading or avoiding Federal income taxes by
securing the benefit of such deduction, credit, or other allowance. While
the existence of a principal tax-avoidance purpose is purely a question of
fact, and thus not one on which counsel can opine, the Company believes
that Section 269 of the Code should not apply to the transactions provided
for under the Plan of Reorganization.
Tax-free Reorganization
Code section 368(a)(1)(G) classifies as a "reorganization" (a "(G)
reorganization") a transfer by a corporation (e.g., the predecessor
Company) of all or a part of its assets to another corporation (e.g., the
post-merger Company, sometimes referred to as "Emerson (Del)") in a Chapter
11 case, but only if, in pursuance of the plan, stock or securities of the
transferee (e.g., Emerson (Del)) are distributed in a transaction which
qualifies under Code sections 354, 355 or 356 (the "Distribution
Requirement"). In addition, a so-called "continuity of interest test" must
be satisfied. As a tax-free reorganization, the Company would not
recognize gain or loss as a result of the Restructuring and the Company
would succeed to the predecessor Company's tax attributes.
If a court were to find that the Restructuring did not constitute a
reorganization within the meaning of Section 368(a)(1) of the Code, the
principal tax consequence would be that the Company would not succeed to
the predecessor Company's tax attributes (so that, for example, the Company
could not use the predecessor Company's NOL carryforward or TCCO
carryforward); further, the Company's tax basis in certain of the assets it
acquired from the predecessor Company as part of the Restructuring would be
less than the predecessor Company's tax basis in those assets immediately
before the Restructuring was consummated, so that the Company's taxable
income could be greater than it would be if the Restructuring constituted a
tax-free reorganization.
To satisfy the aforementioned continuity of interest test, the equity
owners of a corporation generally must receive a substantial portion of
their total consideration in stock. It is not certain who is treated as an
equity owner in a (G) reorganization, or what percentage of the
consideration given to those equity owners must be in the form of stock, to
establish continuity of interest. Based on the Company's representation
that more than 38.5% of the consideration received by certain claimants
under the Plan of Reorganization was in the form of stock, and the fact
that no stock was issued to any creditor on account of claims in classes
more senior than such aforementioned claimants, counsel believed that it
was more likely than not that the continuity of interest test was met in
the Restructuring. That conclusion was based in part on the Bankruptcy
Court's determination that the Company's former shareholders received no
property for their Old Common Stock under the Plan of Reorganization.
To satisfy the Distribution Requirement of a (G) reorganization,
Company stock must have been distributed to a creditor in exchange for a
security. While there is no bright line test of what constitutes a
"security" for this purpose, counsel was of the opinion, based on
applicable case law, that it was more likely than not that the distribution
requirement was satisfied in the Restructuring by the distribution of
Company stock to certain of the creditors in exchange for notes they held
of the predecessor Company.
The Company believes that the Restructuring is a tax-free
reorganization and has obtained an opinion of counsel that it is more
likely than not that the Restructuring constituted a (G) reorganization.
That opinion relied on certain assumptions and representations of the
Company (as to valuation, business matters, and the intentions of certain
parties to the Restructuring).
Personal Holding Company Status
Under the Code, a corporation will be designated as a "Personal
Holding Company," and taxed at 39.6% of its "undistributed personal holding
company income," if (in general) at any time during the last half of the
taxable year more than 50% in value of its outstanding stock is owned by,
or on behalf of, five or fewer individuals, and at least 60% of the
corporation's adjusted ordinary gross income consists of "personal holding
company income." Personal holding company income is defined to include such
passive types of income as dividends, interest, royalties, annuities, and
certain rents, among others. Undistributed personal holding company income
is defined as the undistributed (i.e. dividend distributions) portion of
taxable income, with certain adjustments; the most notable is the allowance
of a deduction for Federal income tax, but there also is an elimination of
NOL carryforwards, other than the immediately preceding year's NOL (i.e.,
the excess of deductions over income). The tax imposed on the personal
holding company is in addition to the regular income tax and alternative
minimum tax.
The Company expects that the stock ownership test described above may
be met indirectly by reason of the ownership of Common Stock by Fidenas
International, Elision and GSE. However, it also is the Company's
expectation, based on the type and amount of income the Company expects to
generate, that the personal holding company tax described above will not be
applicable.
Alternative Minimum Tax
Under the corporate alternative minimum tax, a 20% tax is imposed on
a corporation's alternative minimum taxable income if such tax exceeds the
regular Federal income tax otherwise payable by the corporation. The
Company believes that the consummation of the Plan of Reorganization should
not have a material effect on the Company's alternative minimum tax
liability.
If the Company had a net unrealized built-in loss (as described
above) at the time of the ownership change, the basis of each of the
Company's assets will be written up or down to its fair market value in
computing the Company's alternative minimum tax liability. A write-down
may trigger additional alternative minimum tax as assets are depreciated or
sold.
State Taxes
The merger of the predecessor of the Company into a Delaware
subsidiary may cause the Company to lose certain of its state NOLs for
state income tax purposes.
SELLING SECURITYHOLDERS
The table below sets forth certain information with respect to the
ownership of the Common Stock by the listed Selling Securityholders.
<TABLE>
<S> <C> <C> <C>
BENEFICIAL PERCENTAGE OF SHARES OWNERSHIP CLASS AFTER
NAME OWNERSHIP PRIOR CLASS PRIOR TO BEING AFTER SALES SALES HEREUNDER
TO SALES HEREUNDER SALES HEREUNDER OFFERED MADE HEREUNDER
Fidenas International Limited L.L.C.(1)(3) 29,152,542 72.4% 5,000,000 24,152,542 62.1%
Elison International, Inc.(3) 1,600,000 4.0% 0 0 4.0%
SE Multimedia Technologies Corporation(3) 12,000,000 29.8% 0 0 29.8%
</TABLE>
_______________
(1) Consists of 15,552,542, 1,600,000 and 12,000,000 shares of Common Stock
held by Fidenas International, Elision and GSE, respectively.
Fidenas International is record holder of 847,458 shares of Common
Stock and formerly held such shares as nominee. The nominee
relationship has been terminated and Fidenas International and Mr.
Jurick disclaim beneficial ownership of such shares. All of such
shares, except those for which Fidenas International holds as nominee,
will be subject to certain lockup agreements. See "Plan of
Distribution - Certain Restrictions on Officers, Directors and Certain
Stockholders." Mr. Geoffrey P. Jurick, the Chairman of the Board and
Chief Executive Officer of the Company, indirectly owns, through a
controlled holding company, approximately 95% of Fidenas
International. In addition, Mr. Jurick is the manager of Fidenas
International. Fidenas International owns approximately 14.3% of
Elision. Mr. Jurick indirectly owns, through certain holding companies
and beneficial interests in affiliates, a controlling interest in each
of GSE and Elision. The shares of Common Stock issued to GSE, Fidenas
International and Elision in connection with the Restructuring are the
subject of certain legal proceedings in the Commonwealth of the
Bahamas, Switzerland, and the United States. In connection with
settlement negotiations related thereto, the Company has been advised
that the parties to such negotiations may desire a portion of these
shares to be sold in furtherance of a settlement of such litigation,
which may be covered, to a certain extent, in this Prospectus. See
"Legal Proceedings - Litigation Regarding Certain Outstanding Common
Stock."
(2) Based on 40,252,772 shares of Common Stock outstanding as of November
2, 1995 plus shares of Common Stock under option of any director or
executive officer, exercisable within 60 days. Does not include (i)
shares of Common Stock issuable upon conversion of 10,000 shares of
Series A Preferred Stock (ii) Common Stock issuable upon exercise of
the Creditor's Warrants (iii) Common Stock issuable upon conversion of
the Debentures; (iv) Common Stock issuable upon exercise of
outstanding options, which are not currently exercisable within 60
days; or (v) shares of Common Stock issuable upon exercise of warrants
granted to the Placement Agent and its authorized dealers in
connection with the private placement of the Debentures.
(3) The Company has been informed by Fidenas International that it may
assign the right to sell certain of the 5,000,000 shares of Common
Stock covered by this Prospectus to Elision and/or GSE in connection
with any settlement of the litigation described in "Legal Proceedings
- Litigation Regarding Certain Outstanding Common Stock." If such
right is assigned, no sales of Common Stock under this Prospectus
will be consummated until this Prospectus has been supplemented or
amended accordingly.
From time to time this Prospectus may be supplemented and amended as
required by the Securities Act, and during any time when a supplement or
amendment is so required, the Selling Securityholders will cease sales
until the Prospectus is so supplemented or amended.
PLAN OF DISTRIBUTION
The distribution of the shares of Common Stock by the Selling
Securityholders may be effected from time to time in one or more
transactions (which may involve block transactions) (i) on the American
Stock Exchange or such other national security exchanges on which the
Company's securities are listed, in transactions that may include special
offerings and exchange distributions pursuant to and in accordance with the
rules of such exchanges, (ii) in the over-the-counter market, or (iii) in
transactions otherwise than on such exchanges or in the over-the-counter
market, or in a combination of any such transactions. Such transactions
may be effected by the Selling Securityholders at market prices prevailing
at the time of sale, at prices related to such prevailing market prices, at
negotiated prices or at fixed prices. The Selling Securityholders may
effect such transactions by selling the shares of Common Stock to or
through broker-dealers and such broker-dealers will receive compensation in
the form of discounts or commissions from the Selling Securityholders and
may receive commissions from the purchasers of such securities for whom
they may act as agent (which discounts or commissions from the Selling
Securityholders or such purchasers will not exceed those customary in the
type of transactions involved).
Any broker-dealers that participate with the Selling Securityholders
in the distribution of such securities may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, and any commissions or
discounts received by such broker-dealers and any profit on the resale of
the such securities by such broker-dealers might be deemed to be
underwriting discounts and commissions under such act.
Certain Restrictions on Officers, Directors and Certain Stockholders
Except upon the prior written consent of the Company and the
Placement Agent, all officers, directors and stockholders beneficially
owing five percent or more of the Common Stock (including, but not limited
to Mr. Jurick and each of Fidenas International, Elision and GSE
(collectively, the "Affiliated Companies")), have agreed not to sell, offer
to sell, or otherwise transfer or dispose of, directly or indirectly
(either pursuant to Rule 144 under the Securities Act or otherwise) (the
"Lock-up") any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock owned by them for a period of
not less than twelve months following the effective date of the
Registration Statement (the "Lock-up Period"); provided, however, that (i)
Mr. Eugene I. Davis may sell up to an aggregate 90,000 shares of Common
Stock; (ii) Mr. Jurick or the Affiliated Companies may (a) sell, in
accordance with applicable law, up to an aggregate maximum of 2,000,000
shares of Common Stock to a Company-sponsored qualified Employee Stock
Ownership Plan, (b) transfer or pledge for the benefit of the plaintiffs in
the litigation described at "Legal Proceedings - Litigation Relating to
Outstanding Common Stock" up to an additional 3,000,000 shares of Common
Stock (the "Settlement Shares"); provided, however, that the Placement
Agent will act as the exclusive placement agent in connection with any such
transfer of Settlement Shares, with the Placement Agent receiving a cash
commission of $0.10 per Settlement Share sold, and further provided, that
the proceeds from the sale or transfer of the Settlement Shares shall be
used for the sole purpose of final settlement of the above-referenced
litigation and payment of legal fees in connection therewith; and (c) upon
prior written notice to the Placement Agent, enter into transactions during
such period which would otherwise be prohibited up to an aggregate maximum
of 1,000,000 shares of Common Stock provided that (A) with respect to a
sale, the purchaser agrees in writing with the Placement Agent to be bound
by the Lock-up or (B) with respect to any transfer other than an
unconditional sale, all shares not subject to such transfer not be finally
transferable to the transferee until the expiration of the Lock-up Period;
and (iii) the shares of Common Stock as to which Fidenas International
holds as nominee shall not be subject to the Lock-Up. The parties subject
to the Lock-up have consented to the placing of certain legends and stop
transfer instructions.
EXPERTS
The consolidated financial statements of Emerson Radio Corp. and
Subsidiaries at March 31, 1995 and 1994, and for the years ended March 31,
1995, 1994 and 1993, appearing in the Prospectus have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein and are included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with this Prospectus will be
passed upon for the Company by Lowenstein, Sandler, Kohl, Fisher & Boylan,
P.A., of Roseland, New Jersey.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith
files reports and other information with the Commission. Such reports and
other information can be inspected and copied (at prescribed rates) at the
public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, DC 20549 or at the regional offices,
located at 7 World Trade Center, Suite 1300, New York, NY 10007 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. The Common Stock is listed with the American Stock Exchange, and
certain reports and other information concerning the Company may be
inspected at the offices of the American Stock Exchange at 86 Trinity
Place, New York, New York 10006-1881.
Index to Consolidated Financial Statements:
Audited Consolidated Financial Statements:
Report of Ernst & Young LLP F-2
Consolidated Statements of Operations for the years ended
March 31, 1995, 1994 and 1993 F-3
Consolidated Balance Sheets at March 31, 1995 and 1994 F-4
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1995, 1994 and 1993 F-6
Notes to Consolidated Financial Statements F-7
Schedule VIII -- Valuation and Qualifying Accounts and Reserves F-27
Unaudited Consolidated Financial Statements:
Consolidated Statements of Operations for the
three months ended June 30, 1995 and 1994 F-28
Consolidated Balance Sheets at June 30, 1995
and March 31, 1995 F-29
Consolidated Statements of Cash Flows for the
three months ended June 30, 1995 and 1994 F-30
Notes to Consolidated Financial Statements F-31
ALL OTHER SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE OR
THE REQUIRED INFORMATION IS SHOWN IN THE FINANCIAL STATEMENTS OR NOTES
THERETO.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of Emerson Radio Corp.
We have audited the accompanying consolidated balance sheets of Emerson
Radio Corp. and Subsidiaries as of March 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for the years ended March 31, 1995, 1994 and 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Emerson Radio Corp. and Subsidiaries at March 31, 1995 and 1994
and the consolidated results of its operations and cash flows for the years
ended March 31, 1995, 1994 and 1993, in conformity with generally accepted
accounting principles.
As discussed in Note H to the financial statements, in the year ended March
31, 1994, the Company changed its method of accounting for income taxes.
ERNST & YOUNG LLP
New York, New York
May 24, 1995
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended March 31,
1995 1994 1993
Net sales $ 654,671 $ 487,390 $ 741,357
Costs and expenses:
Costs of sales 604,329 486,536 674,855
Other operating costs and expenses 8,771 12,001 19,026
Selling, general and administrative expenses 31,047 34,552 49,508
Restructuring and other nonrecurring charges - - 35,002
644,147 533,089 778,391
Operating profit (loss) 10,524 (45,699) (37,034)
Interest expense 2,882 10,243 18,257
Earnings (loss) before reorganization
costs and taxes 7,642 (55,942) (55,291)
Reorganization items:
Writedown of assets - 12,914 -
Professional fees and other related expenses 4,545
Interest earned on accumulated cash (74)
- 17,385 -
Earnings (loss) before income taxes and
extraordinary gain 7,642 (73,327) (55,291)
Provision for income taxes 267 327 709
Earnings (loss) before extraordinary gain 7,375 (73,654) (56,000)
Extraordinary gain on extinguishment of debt - 129,155 -
Net earnings (loss) $ 7,375 $ 55,501 $ (56,000)
Net earnings (loss) per common share:
Before extraordinary gain $0.16 ($1.93) ($1.47)
Extraordinary gain 3.38
Net earnings (loss) $0.16 $1.45 ($1.47)
Weighted average number of common and
common equivalent shares
outstanding 46,571 38,191 38,179
Pro Forma:
Loss per common share $ (1.51)
Weighted average number of common shares outstanding
33,333
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31,
ASSETS 1995 1994
Current Assets:
Cash and cash equivalents $ 17,020 $ 21,623
Accounts receivable (less allowances
of $9,350 and $6,442,
respectively) 34,309 20,131
Inventories 35,336 45,980
Prepaid expenses and other current assets 15,715 20,597
Total current assets 102,380 108,331
Property and equipment, net 4,676 5,256
Other assets 6,913 5,434
Total Assets $113,969 $ 119,021
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 27,296 $ 20,040
Current maturities of long-term debt 508 1,498
Accounts payable and other current liabilities 18,982 37,378
Accrued sales returns 12,713 16,634
Income taxes payable 283 533
Total current liabilities 59,782 76,083
Long-term debt 214 227
Other non-current liabilities 322 94
Shareholders' Equity:
Preferred stock -- $.01 par value,
1,000,000 shares authorized, 10,000
issued and outstanding 9,000 9,000
Common stock -- $.01 par value,
75,000,000 shares authorized;
40,252,772 and 33,333,333 shares
issued and outstanding, respectively 403 333
Capital in excess of par value 107,969 103,427
Accumulated deficit (64,086) (70,761)
Cumulative translation adjustment 365 618
Total shareholders' equity 53,651 42,617
Total Liabilities and
Shareholders' Equity $ 113,969 $ 119,021
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<C> <C> <C> <C> <C> <C>
Common Shares Issued Capital Cumulative
Preferred Number Par in Excess Accumulated Translation
Stock of Shares Value of Par Value Deficit Adjustment
<S>
Balance - March 31, 1992 37,978,119 $ 3,798 $ 63,881 $ (70,262) $ 1,103
Issuance of shares upon
exercise of stock options
and distribution of
stock grants 59,333 6 113
Issuance of stock and warrants to
Semi-Tech 153,847 15 (15)
Redemption of stock purchase rights (271)
Other 22 (285)
Net Loss _______ __________ _______ (56,000) _____
Balance - March 31, 1993 38,191,299 3,819 63,730 (126,262) 818
Cancellation of common stock (38,191,299) (3,819) 3,819
Issuance of common stock 30,000,000 300 29,700
Issuance of preferred and common
stock and warrants pursuant to
bankruptcy settlement $ 9,000 3,333,333 33 6,192
Other (14) (200)
Net earnings _______ _________ _______ ________ 55,501 _______
Balance - March 31, 1994 9,000 33,333,333 333 103,427 (70,761) 618
Issuance of common stock in
public offering, net of expenses 6,149,993 62 5,630
Issuance of common stock to
former creditors 769,446 8 (8)
Payment to former creditors (922)
Preferred stock dividends (700)
Other (158) (253)
Net earnings ________ _________ ________ _______ 7,375 _____
Balance - March 31, 1995 $ 9,000 40,252,772 $ 403 $ 107,969 $ (64,086) $ 365
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended March 31,
1995 1994 1993
Cash flows from Operating Activities:
Net earnings (loss) $ 7,375 $ 55,501 $ (56,000)
Adjustments to reconcile net
earnings (loss) to net cash
provided (used) by operating
activities:
Depreciation and amortization 3,876 7,327 6,419
Extraordinary gain (129,155)
Restructuring and other
nonrecurring charges (237) (9,711) 16,350
Reorganization expenses 12,914
Asset valuation and loss reserves (2,031) 8,415 6,495
Other (969) 2,643 1,570
Changes in assets and liabilities:
Accounts receivable (14,805) 12,081 26,769
Inventories 11,032 34,942 (28,884)
Prepaid expenses and other
current assets (5,598) 6,181 4,694
Other assets (605) 89 (498)
Accounts payable and other current
liabilities (18,633) 27,287 2,981
Income taxes payable (379) (924) (194)
Net cash provided (used) by operations (20,974) 27,590 (20,298)
Cash Flows from Investing Activities:
Additions to property and equipment (2,874) (3,552) (4,859)
Redemption of (investment in)
certificates of deposit 8,455 (500) (4,000)
Other 110 114 (134)
Net cash provided (used) by
investing activities 5,691 (3,938) (8,993)
Cash Flows from Financing Activities:
Net borrowings under line of
credit facility 7,256 20,040 25,366
Proceeds from issuances of common stock 5,692 30,000 125
Retirement of long-term debt (500) (30) (600)
Payment of former creditors (922)
Payment of preferred stock dividends (525)
Redemption of stock purchase rights (271)
Payment of pre-petition obligations (75,000)
Payment of debt costs ( 2,139)
Other (321) (83) (49)
Net cash provided (used) by
financing activities 10,680 (27,212) 24,571
Net decrease in cash and cash equivalents (4,603) (3,560) (4,720)
Cash and cash equivalents at
beginning of year 21,623 25,183 29,903
Cash and cash equivalents
at end of year $ 17,020 $ 21,623 $ 25,183
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
Note A -- Significant Accounting Policies:
(1) Basis of Presentation:
The consolidated financial statements include the accounts of Emerson
Radio Corp. and its majority-owned subsidiaries (the "Company"). All
significant intercompany transactions and balances have been eliminated. A
50% ownership of a domestic joint venture is accounted for by the equity
method (see Note N). Historical cost accounting was used to account for
the plan of reorganization (the "Plan of Reorganization") (see Note B)
since the transaction did not meet the criteria required for fresh-start
reporting.
Certain prior year information has been reclassified to conform with
the current year presentation.
(2) Cash and Cash Equivalents:
Short-term investments with original maturities of three months or
less at the time of purchase are considered to be cash equivalents. The
carrying amount reported in the balance sheet for cash and cash equivalents
approximates fair value.
(3) Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or
market.
(4) Property and Equipment:
Property and equipment, stated at cost, is being depreciated for
financial accounting purposes on the straight-line method over its
estimated useful life. Leasehold improvements are amortized on a
straight-line basis over the shorter of the useful life of the improvement
or the term of the lease. Upon the sale or retirement of property and
equipment, the costs and related accumulated depreciation are eliminated
from the accounts. Any resulting gains or losses are included in income.
The cost of repairs and maintenance is charged to expense as incurred.
(5) Warranty Claims:
The Company provides an accrual for future warranty costs when the
product is sold.
(6) Income Taxes:
Deferred income taxes are accounted for on the liability method in
accordance with Statement of Financial Accounting Standards No. 109.
Provision is made for federal income tax which may be payable on earnings
of foreign subsidiaries to the extent that the Company anticipates they
will be remitted.
(7) Earnings (Loss) per Share:
Net earnings per common share for the year ended March 31, 1995 is
based on the weighted average number of shares of Common Stock and common
stock equivalents outstanding during the year. 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 the
year ended March 31, 1995 primarily to satisfy an anti-dilution provision.
The Series A Preferred Stock is not convertible into Common Stock until
March 31, 1997, and the shares of Common Stock issuable upon conversion is
dependent on the market value of the Common Stock at the time of conversion
(See Note J(6)). Net earnings (loss) per common share for the years ended
March 31, 1994 and 1993 are based on the weighted average number of shares
of Common Stock outstanding prior to confirmation of the Plan of
Reorganization (See Note B) and cancelled as a part thereof, and do not
include common stock equivalents assumed outstanding since they were not
dilutive.
Pro forma loss per common share for the year ended March 31, 1994
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) Elimination of extraordinary gain of $129,155,000 and
reorganization expenses of $17,385,000;
(ii) Reduction of $6,666,000 in interest expense 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 year ended March 31, 1994 (8.25%).
Additionally, the amortization of closing fees on the credit facility
is included in the pro forma interest expense above;
(iii) Assumed dividends on the Series A Preferred Stock
aggregating $700,000 for the year ended March 31, 1994.
(8) Foreign Currency:
The assets and liabilities of foreign subsidiaries have been
translated at current exchange rates, and related revenues and expenses
have been translated at average rates of exchange in effect during the
year. Related translation adjustments are reported as a separate component
of shareholders' equity. Gains and losses resulting from foreign currency
transactions are included in the Consolidated Statements of Operations and
amounted to a gain of $220,000 and losses of $1,489,000 and $1,073,000 for
the years ended March 31, 1995, 1994 and 1993, respectively.
The Company entered into foreign currency exchange contracts to hedge
exposures related to foreign currency fluctuations for its European
operations. Gains and losses were recognized in the same period as the
transactions being hedged. At March 31, 1995, the Company has no forward
exchange contracts outstanding. In the fiscal year ending March 31, 1996,
the Company intends to reduce its foreign currency exposure by conducting
its Canadian and European businesses in U.S. dollars.
Note B -- Reorganization:
On September 29, 1993, the Company and five of its U.S. subsidiaries
filed voluntary petitions for relief under the reorganization provisions of
Chapter 11 of the United States Bankruptcy Code and operated as
debtors-in-possession under the supervision of the Bankruptcy Court while
their reorganization cases were pending. The precipitating factor for
these filings was the Company's severe liquidity problems relating to its
high level of indebtedness and a significant decline in sales from the
prior year.
Effective March 31, 1994, the Bankruptcy Court entered an order
confirming the Plan of Reorganization. The Plan of Reorganization provided
for the implementation of a recapitalization of the Company. In accordance
with the Plan of Reorganization, the Company's pre-petition liabilities (of
approximately $233 million) were settled with the creditors in the
aggregate, as follows:
I. The Company's bank group (the "Bank Lenders") received $70
million in cash and the right to receive the initial $2 million of
net proceeds from the Company's anti-dumping duty receivable (see
Note I (3)).
II. The institutional holders of the Company's senior notes
(the "Noteholders") initially received $2,650,000 in cash and
warrants to purchase 750,000 shares of Common Stock for a period of
seven years at an exercise price of $1.00 per share, provided that
the exercise price shall increase by 10% per year commencing in year
four, and further received $1 million, payable $922,498 in cash
from the initial public offering of Common Stock (see Note J(8))
and $77,502 in Common Stock calculated on the basis of $1.00 per share.
III. The Bank Lenders and Noteholders received their pro rata
percentage of the following:
A. $2,350,000 in cash (however $350,000 of this amount
was distributable to the holders of allowed unsecured
claims);
B. 10,000 shares of Series A Preferred Stock with a face
value of $10 million (estimated fair market value of
approximately $9 million at March 31, 1994);
C. 4,025,277 shares of Common Stock, including 691,944
shares issued in February 1995 pursuant to an
anti-dilution provision;
D. The net proceeds from the sale of the Company's
Indiana land and building; and
E. The net proceeds to be received from the Company's
anti-dumping duty receivable in excess of $2 million (see
Note I (3)).
IV. Holders of allowed unsecured claims received a pro-rata
portion of the $350,000 distribution and interest bearing promissory
notes equal to 18.3% of the allowed claim amount, payable in two
installments over 18 months (see Note G).
Pursuant to the provisions of the Plan of Reorganization, as of March
31, 1994, the equity of the Company's stockholders, and the equity interest
of holders of stock options and warrants were cancelled.
Based on the settlement of the Chapter 11 proceedings, the Company
recognized an extraordinary gain of $129.2 million from the extinguishment
of debt. Additionally, the Company recognized a writedown of $12.9 million
to estimated fair market value on the assets transferred for the benefit of
the Bank Lenders and Noteholders.
Pursuant to the Plan of Reorganization, and in consideration for $30
million, the reorganized Company issued 30 million shares of Common Stock,
currently held by the following parties:
Number of Shares
Fidenas International Limited L.L.C. ("Fidenas International") 16,400,000
Elision International, Inc. ("Elision") 1,600,000
GSE Multimedia Technologies Corporation ("GSE") 12,000,000
The Company's Chairman and Chief Executive Officer is an officer and
beneficial owner of 40% of Fidenas Investment Limited ("FIL"), the
Company's largest shareholder prior to confirmation of the Plan of
Reorganization with an approximate 20% ownership interest.
This officer has a controlling beneficial ownership interest in each
of the three entities listed above which purchased the Company's Common
Stock, and therefore holds an approximate 75% interest in the Company's
outstanding Common Stock at March 31, 1995.
Note C -- Restructuring and Other Nonrecurring Charges:
During the year ended March 31, 1993, the Company recorded
restructuring and other nonrecurring charges aggregating $35,002,000. The
provision included $31.9 million of charges related to the Company's core
business operations of consumer electronics products. These charges were
comprised primarily of certain costs associated with the consolidation of
facilities, severance of employees ($3,967,000 provision for termination of
officers and other employees), the writedown of certain assets, a provision
relating to a significant change in the resale arrangement for returned
product, and professional fees and other charges related to the Company's
proposed financial restructuring and to a proxy contest settled in June
1992. The provision also included $3.1 million in charges relating to the
final wind-down of the Company's personal computer business.
Note D -- Inventories:
Inventories are comprised primarily of finished goods. Spare parts
inventories, net of reserves, aggregating $2,763,000 and $4,140,000 at
March 31, 1995 and 1994, respectively, are included in "Prepaid expenses
and other current assets".
Note E -- Property and Equipment:
Property and equipment is comprised of the following:
March 31,
1995 1994
(In thousands)
Furniture and fixtures $ 5,854 $ 6,025
Molds and tooling 3,806 2,948
Machinery and equipment 1,847 2,509
Leasehold improvements 271 454
11,778 11,936
Less accumulated depreciation and amortization 7,102 6,680
$ 4,676 $ 5,256
Depreciation and amortization of property and equipment amounted to
$3,267,000, $6,679,000 and $5,062,000 for the years ended March
31, 1995, 1994 and 1993, respectively.
Pursuant to the Plan of Reorganization, the Company transferred its
land and building in Indiana to a liquidating trust established for the
benefit of the Bank Lenders and Noteholders. In connection with this
transfer, the Company recorded a writedown of approximately $2.3 million to
reduce the carrying value to estimated fair market value at March 31, 1994.
Note F -- Notes Payable:
Effective March 31, 1994, the Company entered into a three year Loan
and Security Agreement with a U.S. financial institution (the "Lender")
providing for an asset-based revolving credit facility. The facility
provides for revolving loans and letters of credit, subject to individual
maximums and, in the aggregate, not to exceed the lesser of $60 million or
a "Borrowing Base" amount based on specified percentages of eligible
accounts receivable and inventories. All credit extended under the line of
credit is secured by the U.S. and Canadian assets of the Company. The
interest rate on these borrowings is 2.25% above the prime rate. At March
31, 1995 and 1994, the weighted average interest rate on the outstanding
borrowings was 11.25% and 8.5%, respectively. The facility is also subject
to an unused line fee of 0.5% per annum. Pursuant to the Loan and Security
Agreement, the Company is restricted from, among other things, paying cash
dividends (other than on the Series A Preferred Stock), redeeming stock,
and entering into certain transactions and is required to maintain certain
working capital and equity levels (as defined). At March 31, 1995, there
was $27,296,000 outstanding under the revolving loan facility and
approximately $3,622,000 of outstanding letters of credit issued for
inventory purchases. The fair market value of the short-term notes payable
to the Lender at March 31, 1995 and 1994 is estimated to be $27,296,000 and
$20,040,000, respectively, which is the historical cost.
During the pendency of the bankruptcy proceedings, the Company
obtained debtor-in-possession financing ("DIP Financing") from the Lender.
The terms of the DIP Financing provided for a revolving credit facility in
an aggregate principal amount of $14.9 million and bore interest at the
prime rate plus 0.5% per annum. Repayment of the proceeds was guaranteed
by FIL. All principal and accrued interest on the DIP Financing was paid
and the DIP Financing was terminated as of March 31, 1994.
Cash paid for interest was $3,371,000, $11,251,000 and $20,108,000
for the years ended March 31, 1995, 1994 and 1993, respectively.
In the six months ended March 31, 1994, interest expense was only
accrued and paid on the Company's DIP Financing loan. No interest was
accrued during the pendency of the bankruptcy proceedings on the debt owed
to the Bank Lenders or the Noteholders. Had the contractual interest been
accrued during this period, interest expense would have been approximately
$10.2 million higher than the amount reported on the Consolidated Statement
of Operations for the year ended March 31, 1994.
Note G -- Long-Term Debt:
Long-term debt consists of the following:
March 31,
1995 1994
(In thousands)
Notes payable to unsecured creditors $ 465 $ 842
Equipment notes and other 257 383
11 1/2% convertible subordinated note 500
722 1,725
Less current obligations 508 1,498
$ 214 $ 227
Pursuant to the Plan of Reorganization, the holders of allowed
unsecured claims received interest bearing promissory notes equal to 18.3%
of the claim amount. The notes are due in two installments: 35% of the
outstanding principal is due 12 months from the date of issuance, and the
remaining balance is due 18 months from the date of issuance. The notes
bear interest at the London Interbank Offered Rate in effect at the date of
issuance for one year obligations.
Note H -- Income Taxes:
The income tax provision consists of the following:
Years Ended March 31,
1995 1994 1993
(In thousands)
Current:
Federal $ 40 $215
Foreign, State and Other 227 $327 494
$267 $327 $709
The difference between the effective rate reflected in the provision
for income taxes and the amounts determined by applying the statutory U.S.
rate of 34% to earnings (loss) before income taxes are analyzed below:
Years Ended March 31,
1995 1994 1993
(In thousands)
Statutory tax (benefit) $ 2,598 $(24,931) $(18,799)
Utilization of net operating loss
carryforwards (632)
U.S. and foreign net operating
losses without tax benefit 1,675 24,975 20,752
Foreign income subject to foreign
tax, not subject to U.S. tax (785) (1,431)
Tax recognition of prior year book
deductions (888)
Rate differential on foreign income (1,959) 327 (638)
Nondeductible bankruptcy expenses 137 1,545
Nondeductible debt restructuring
expenses (1,540) 521
Other, net 121 (49) 304
Total income tax provision $267 $ 327 $ 709
Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," under which
the liability method (rather than the deferred method) is used in
accounting for income taxes. Under the liability method, deferred tax
assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities, and are
measured using enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The change had no effect on the
results of operations for the year ended March 31, 1994.
Significant components of the Company's deferred tax assets and
liabilities are as follows:
March 31,
1995 1994
(In thousands)
Deferred tax assets:
Accounts receivable reserves $ 7,653 $ 8,287
Inventory reserves 1,188 1,394
Net operating loss carryforwards 10,588 11,550
Other 1,014 1,131
Total deferred tax assets 20,443 22,362
Valuation allowance for deferred tax assets (20,189) (22,011)
Net deferred tax assets 254 351
Deferred tax liabilities:
Other (254) (351)
Total deferred tax liabilities (254) (351)
Net deferred taxes $ -- $ --
Total deferred tax assets of the Company at March 31, 1995 represent
the tax-effected annual limitation multiplied by the net operating loss
carryforward period and tax-effected deductible temporary differences. The
Company has established a valuation reserve against any expected future
benefits.
Cash paid for income taxes was $725,000, $946,000 and $453,000 for
the years ended March 31, 1995, 1994 and 1993, respectively.
Income before taxes of foreign subsidiaries was $3,786,000 and
$5,334,000 for the years ended March 31, 1995 and 1993, respectively.
Losses before taxes of foreign subsidiaries was $16,042,000 for the year
ended March 31, 1994. Unremitted earnings of foreign subsidiaries which
have been, or are intended to be permanently reinvested (and for
which no Federal income tax has been provided) aggregated $3,396,000
and $1,086,000 at March 31, 1995 and 1994, respectively.
As of March 31, 1995, the Company has a net operating loss
carryforward of approximately $95,270,000, of which $31,692,000,
$13,385,000 and $50,193,000 will expire in 2006, 2007 and 2009,
respectively. This net operating loss carryforward reflects downward
adjustments made in 1995 pursuant to IRS examinations completed for the
years ended March 31, 1990 and 1989 totaling $20,346,000. As of March 31,
1995, foreign tax credit carryforwards of $929,000 are available and if
not utilized, will expire in 1996. In addition, as of March 31, 1995, the
Company has deductible temporary differences of approximately $26,003,000
principally attributable to accounts receivable reserves related to sales
returns and inventory reserves. The utilization of these net operating
losses and tax credits will be limited based on the effects of the Plan of
Reorganization consummated on March 31, 1994. Pursuant to the Plan of
Reorganization, the Bank Lenders, the Noteholders, Fidenas International,
Elision and GSE initially received 100% of the Common Stock. As a
result, an ownership change occurred with respect to the Company, and
subjected the Company's net operating losses and tax credits to the
limitation provided for in Section 382 and 383, respectively, of the
Internal Revenue Code. Subject to special rules regarding increases in the
annual limitation for the recognition of net unrealized built-in gains, the
Company's annual limitation will be approximately $2.2 million.
Note I -- Commitments, Contingencies and Related Party Transactions:
(1) Leases:
The Company leases warehouse and office space at minimum aggregate
rentals as follows:
Year Ending
March 31, Amount
(In thousands)
1996 $ 1,507
1997 1,484
1998 1,071
1999 271
2000 --
$4,333
Rent expense aggregated $2,731,000, $2,663,000 and $3,520,000 for the
years ended March 31, 1995, 1994 and 1993, respectively. Rental income
from the sublease of warehouse space aggregated $273,000, $89,000 and
$201,000 in the years ended March 31, 1995, 1994 and 1993, respectively.
The Company's previous headquarters was leased from a limited
partnership, 51% of which was indirectly owned by four former executive
officers of the Company. The lease, which was scheduled to expire in April
1995 (excluding renewal options), terminated in July 1993, as noted below.
Rent expense related to this lease amounted to $491,000 and $1,575,000 for
the years ended March 31, 1994 and 1993, respectively. In March 1993, the
Company entered into an agreement with the general partner of the limited
partnership under which the Company was released without penalty from
its lease obligations with respect to the above location, effective July
1993, in consideration for executing a five year lease (commencing on the
same date) for office space with an affiliate of the general partner. The
new lease provides for the annual payment of rent of approximately
$813,000, and that the Company pay for its proportionate share of increases
in real estate taxes.
(2) Letters of Credit:
Outstanding letters of credit for the purchase of inventory, not
reflected in the accompanying financial statements, aggregated $11,863,000
(including $3,622,000 issued under the Loan and Security Agreement -- see
Note F) at March 31, 1995.
The Company's Hong Kong subsidiary also maintains various credit
facilities aggregating $114.3 million with a bank in Hong Kong consisting
of the following: (i) a $12.3 million credit facility which is generally
used for letters of credit for a foreign subsidiary's direct import
business and affiliates' inventory purchases, (ii) a $2 million standby
letter of credit facility, and (iii) a $100 million credit facility, for
the benefit of a foreign subsidiary, which is for the establishment of back-
to-back letters of credit with the Company's largest customer. At March
31, 1995, the Company's Hong Kong subsidiary had pledged $4 million in
certificates of deposit to this bank to assure the availability of these
credit facilities. At March 31, 1995, there were $5,974,000 and $8,415,000
of letters of credit outstanding under the $12.3 million and $100 million
credit facilities, respectively.
The Company's Hong Kong subsidiary secured an additional credit
facility in the year ended March 31, 1995 with another bank in Hong Kong.
The facility provides for a $10 million line of credit for documentary
letters of credit and a $10 million back-to-back letter of credit line,
collateralized by a $5 million certificate of deposit. At March 31,
1995, the Company's Hong Kong subsidiary had pledged $5,041,000 in
certificates of deposit to assure the availability of these credit
facilities. At March 31, 1995, $3,871,000 of the letter of credit
line was utilized.
The Company has discounted unmatured notes received from its European
customers for payments of accounts receivable with various foreign banks.
At March 31, 1995, $1,282,000 of discounted notes have not matured.
(3) Anti-Dumping Duty Receivable:
The Company was a participant in matters pending before the United
States Customs Service and the United States Department of Commerce
pertaining to the assessment and deposit of anti-dumping duties on
importations of color televisions from both the Republic of Korea and
Taiwan. Such deposits were based on U.S. Commerce Department deposit
requirements in effect at the time and were deemed excessive based on the
U.S. Commerce Department's determinations of anti-dumping margins; however,
the deposits will not be refunded until litigation challenging the U.S.
Commerce Department determination of anti-dumping margins is completed.
Pursuant to the Plan of Reorganization, the Company transferred the
anti-dumping duty deposits and related interest, net of anti-dumping duty
liabilities, to a liquidating trust for the benefit of the Bank Lenders and
Noteholders in exchange for a reduction in outstanding indebtedness. In
preparation for the transfer, the Company reviewed the anti-dumping duty
deposit records of the U.S. Customs Service and noted significant
discrepancies between the Company's records and those of the U.S. Customs
Service on anti-dumping duties eligible for refund. The Company believes
that the U.S. Customs Service erroneously liquidated certain anti-dumping
duty entries that should be suspended in accordance with court orders and
misclassified certain anti-dumping duty deposits as regular duty payments.
The magnitude of these differences, including interest accruing thereon,
was estimated at $6.6 million. The net anti-dumping duty receivable was
transferred to the liquidating trust at a fair market value of $4 million
based on third-party analysis, resulting in a writedown of approximately
$10.6 million (based on a book value of $14.6 million).
(4) Other Matters:
A law firm of which two officers of the Company (one of whom is a
director) were members until July 1992 and August 1992, respectively,
received fees of $541,000 in the year ended March 31, 1993, primarily as
reimbursement of amounts incurred by FIL in a 1992 proxy contest. Another
law firm which represented FIL in the proxy contest was paid fees
aggregating $200,000 in the year ended March 31, 1993 by the Company in
reimbursement of amounts incurred by FIL in the proxy contest. Upon
settlement of the proxy contest, such law firm was retained as the
Company's outside counsel and provided legal services to the Company for
fees aggregating $737,000, $1,070,000 and $259,000 for the years ended
March 31, 1995, 1994 and 1993, respectively. A family member of an officer of
the Company joined such law firm, as of counsel, subsequent to its retention by
the Company.
Effective April 1, 1995, the Company's Canadian subsidiary entered
into a series of three-year agreements with a company owned by a former
employee of the Canadian subsidiary, and who is also the daughter of a
former officer of the Canadian subsidiary. The agreements provide for this
Canadian company to perform certain after sale services, act as the
exclusive parts distributor for the Company's Canadian subsidiary and
purchase all products returned by the Company's Canadian customers.
In the year ended March 31, 1994, the Company paid $208,000 to a
designee of FIL for expenses incurred relating to the DIP Financing and
$187,000 to guarantee the DIP Financing. Additionally, the Company
reimbursed Fidenas International $568,000 for various legal, accounting and
filing fees relating to the capital infusion and debt restructuring in the
year ended March 31, 1994.
At March 31, 1994, the Company's Hong Kong subsidiary had $1 million
on deposit with a bank that is an affiliate of Fidenas International.
These funds were withdrawn shortly thereafter.
The Company paid fees to a former executive officer of the Company,
in accordance with a three-year consulting agreement, aggregating $204,000
and $490,000 for the years ended March 31, 1994 and 1993, respectively.
In accordance with the employment contract of an officer of the
Company, the Company has provided a non-interest bearing relocation bridge
loan to the officer of $120,000, secured by the equity in the former
personal residence of the officer. The maturity date of the loan has been
extended and is due in the fiscal year ending March 31, 1996.
The Company has employment agreements with certain of its officers,
that expire at various dates through 1997, and provide for minimum payments
aggregating $3,601,000.
Note J -- Shareholders' Equity:
(1) In connection with the settlement of shareholder litigation in
1991, the Company was required to redeem the common stock purchase rights
(the "Rights") previously granted under the Company's 1989 Shareholder
Rights Agreement at a redemption price of $.01 per Right. In the year
ended March 31, 1993, the Company paid approximately $271,000 to holders
of record on March 13, 1992 to redeem the Rights and granted additional
rights which expired without exercise in July 1992.
(2) In June 1991, the Company entered into a Securities Purchase
Agreement (as amended, the "Securities Purchase Agreement") with a
subsidiary of Semi-Tech (Global) Limited ("Semi-Tech") providing for the
purchase of 10 million common shares and the issuance of stock purchase
warrants. In April 1992, the Securities Purchase Agreement was terminated
in exchange for payment by the Company of $500,000 in cash and the issuance
of 153,847 common shares (then equal in value to $500,000).
Concurrently, the Company and Semi-Tech entered into a three-year
Supply Agreement (the "Supply Agreement"). Pursuant to the Supply
Agreement, the Company issued to Semi-Tech a four-year warrant (valued at
$600,000) to purchase 1 million common shares at $4.00 per share and a
five-year warrant to purchase 500,000 common shares at $4.00 per share.
The Supply Agreement and the warrants were cancelled pursuant to the Plan
of Reorganization.
(3) All stock options outstanding at March 31, 1994 under the 1987
Stock Option Plan and the 1980 Employees' Stock Participation Plan were
cancelled pursuant to the Plan of Reorganization.
(4) In July 1994, the Company's Board of Directors adopted, and the
stockholders subsequently ratified, a Stock Compensation Program
("Program") intended to secure for the Company and its stockholders the
benefits arising from ownership of the Company's Common Stock by those
selected directors, officers, other key employees, advisors and consultants
of the Company who are most responsible for the Company's success and
future growth. The maximum aggregate number of shares of Common Stock
available pursuant to the Program is 2,000,000 shares and the Program is
comprised of 4 parts -- the Incentive Stock Option Plan, the Supplemental
Stock Option Plan, the Stock Appreciation Rights Plan and the Stock Bonus
Plan. A summary of transactions since the inception of the Program is as
follows:
Number of Price Aggregate
Shares Per Share Price
Granted 1,860,000 $1.00 - $1.10 $1,920,000
Cancelled (30,000) $1.00 (30,000)
Outstanding -- March 31, 1995 1,830,000 $1.00 - $1.10 $1,890,000
The term of each option is ten years, except for options issued to
any person who owns more than 10% of the voting power of all classes of
capital stock for which the term is five years. Options may not be
exercised during the first year after the date of the grant. Thereafter
each option becomes exercisable on a pro rata basis on
each of the first through third anniversaries of the date of the
grant. The exercise price of options granted must be at least equal to
the fair market value of the shares on the date of the grant, except that
the option price with respect to an option granted to any person who owns
more than 10% of the voting power of all classes of capital stock shall not
be less than 110% of the fair market value of the shares on the date of
the grant.
(5) In October 1994, the Company's Board of Directors adopted,
subject to stockholder approval, the 1994 Non-Employee Director Stock
Option Plan. The maximum number of shares of Common Stock available under
such plan is 300,000. A summary of transactions since inception of the plan
is as follows:
Number of Price Aggregate
Shares Per Share Price
Granted 175,000 $1.00 $175,000
Outstanding -- March 31, 1995 175,000 $1.00 $175,000
The provisions for exercise price, term and vesting schedule are the
same as noted above for the Stock Compensation Program.
(6) Pursuant to the Plan of Reorganization, on March 31, 1994, the
Company issued Series A Preferred Stock with a face value of $10 million
and an estimated fair market value of approximately $9 million. The
preferred stock is convertible into Common Stock at any time during the
period beginning on March 31, 1997 and ending on March 31, 2002; the
preferred stock is convertible into Common Stock at a price per share of
Common Stock equal to 80% of the market value of a share of Common Stock on
the date of conversion. The preferred stock bears dividends commencing
June 30, 1994 on a cumulative basis at the following rates:
Dividend Rate
Year 1 to 3 7.0%
Year 4 5.6%
Year 5 4.2%
Year 6 2.8%
Year 7 1.4%
Thereafter None
The preferred stock is non-voting. However, the terms of the
preferred stock provide that holders shall have the right to appoint two
directors to the Company's Board of Directors if the preferred stock
dividends are in default for six consecutive quarters.
(7) Pursuant to the Plan of Reorganization, the Noteholders received
warrants for the purchase of 750,000 shares of Common Stock. The warrants
are exercisable for a period of seven years from March 31, 1994 and provide
for an exercise price of $1.00 per share for the first three years,
escalating by $.10 per share per annum thereafter until expiration of the
warrant.
(8) In accordance with the Company's Plan of Reorganization, the
Company completed an initial 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 FIL. 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
$5,692,000. Pursuant to the terms of the Plan of Reorganization, in
January 1995, the Company paid approximately $922,000 to satisfy certain
obligations owed to former creditors, and in February 1995 issued 691,944
and 77,502 shares of Common Stock to former creditors, primarily to satisfy
an anti-dilution provision. The remainder of such funds were used for
working capital and other corporate purposes.
Note K -- License Agreements:
(1) In February 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 granted 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 trademark 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 and Otake agreed on a series of purchase
discounts, consistent with agreements and past practices between Otake and
the Company. Through March 31, 1995, Otake has paid the Company $6.3
million against an aggregate $10.2 million of purchase discounts for
product purchased from January 1, 1993 to March 31, 1995, and the balance
of $3.9 million is due in September 1995. The Company recognized $9.9
million of discounts in the year ended March 31, 1995, of which $4.3 million
of discounts were attributable to purchases prior to April 1, 1994.
(2) In October 1994, the Company entered into a license agreement
with Jasco Products Co., Inc., ("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 year ended March 31, 1995.
Note L -- Legal Proceedings:
FIL Litigation:
The 30 million shares of Common Stock issued to GSE, Fidenas
International and Elision on March 31, 1994, pursuant to the Plan of
Reorganization, are the subject of certain legal proceedings. Transfers of
certain shares owned by Fidenas International have been enjoined by court
orders issued in the United States Bankruptcy Court for the Southern
District of New York and in the Commonwealth of Bahamas. The Company is
not a party to any of the proceedings described herein; 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.
Bankruptcy Claims:
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 were
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 could have a material adverse effect on the Company, even though it
would be limited to 18.3% of the final claim determined by a court of
competent jurisdiction; however, with respect to the claim for lost
profits, in light of the foregoing, the Company believes the chances for
recovery for lost profits are remote.
Other Litigation:
The Company is involved in other legal proceedings and claims of
various types in the ordinary course of business. While any litigation
contains an element of uncertainty, management presently believes that the
outcome of each such proceeding or claim which is pending or known to be
threatened (including the actions noted above), or all of them combined,
will not have a material adverse effect on the Company's consolidated
financial position.
Note M -- Business Segment Information and Major Customers:
The consumer electronics business is the Company's only business
segment. Operations in this business segment are summarized below by
geographic area:
<TABLE>
<S> <C> <C> <C> <C>
Year Ended March 31, 1995 U.S. Foreign Eliminations Consolidated
(In thousands)
Sales to unaffiliated customers $ 608,717 $45,954 $ -- $ 654,671
Transfers between geographic areas 5,954 184 (6,138) --
Total net revenues $ 614,671 $46,138 $ (6,138) $ 654,671
Earnings (loss) before income
taxes $ 12,238 $(4,596) $ -- $ 7,642
Identifiable assets $ 98,604 $15,470 $ (105) $ 113,969
Year Ended March 31, 1994
Sales to unaffiliated customers $ 433,495 $53,895 $ -- $ 487,390
Transfers between geographic areas 2,587 -- (2,587) --
Total net revenues $ 436,082 $53,895 $ (2,587) $ 487,390
Loss before reorganization
costs and income taxes $ (50,718) $(5,224) $ -- $ (55,942)
Identifiable assets $ 99,726 $19,295 $ -- $ 119,021
Year Ended March 31, 1993
Sales to unaffiliated customers $ 693,997 $47,360 $ -- $ 741,357
Transfers between geographic areas 3,803 -- (3,803) --
Total net revenues $ 697,800 $47,360 $ (3,803) $ 741,357
Loss before income taxes $ (53,279) $(2,012) $ -- $ (55,291)
Identifiable assets $ 175,363 $19,147 $ -- $ 194,510
</TABLE>
Transfers between geographic areas are accounted for on a cost basis.
Identifiable assets are those assets used in operations in each geographic
area.
At March 31, 1995 and 1994, identifiable assets include $37,492,000
and $51,390,000, respectively, of assets located in foreign countries.
The Company's net sales to one customer aggregated approximately 53%,
34% and 39%, of consolidated net sales for the years ended March 31, 1995,
1994 and 1993, respectively. At March 31, 1995 and 1994, the Company had a
liability balance to this customer for product returns. The Company's net
sales to another customer aggregated 10%, 12% and 11% for the years ended
March 31, 1995, 1994 and 1993, respectively. Trade receivables from this
customer approximated 10% and 11% of accounts receivable at March 31, 1995
and 1994, respectively, and are not collateralized.
Note N -- Investment in Joint Venture
The Company has a 50% investment in E & H Partners, a joint venture
that purchases, refurbishes and sells all of the Company's product returns.
The results of this joint venture are accounted for by the equity method.
The Company's equity in the earnings of the joint venture is reflected as a
reduction of cost of sales in the Company's Consolidated Statements of
Operations. Summarized financial information relating to the joint venture
is as follows:
March 31, 1995
(In thousands)
Accounts receivable from joint venture $15,283(a)
Investment in joint venture 1,565
Condensed balance sheet:
Current assets $26,749
Noncurrent assets 161
Total $26,910
Current liabilities $23,780
Partnership equity 3,130
Total $26,910
Year Ended
March 31, 1995
(In thousands)
Sales to joint venture $32,500
Condensed income statement:
Net sales 24,760(b)
Net earnings 2,130
___________________
(a) Secured by a lien on the partnership's inventory. Such lien has been
assigned to the Lender as collateral for the U.S. line of credit facility.
(b) Includes sales to the Company of $3,796,000.
EMERSON RADIO CORP. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
<TABLE>
<C> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
Balance at Charged to Balance
beginning costs and at end of
Description of year expenses Deductions year
<S>
Allowance for doubtful accounts:
Year ended:
March 31, 1995 $ 1,639 $ 1,574 $ 280(A) $ 2,933
March 31, 1994 2,374 998 1,733(A) 1,639
March 31, 1993 2,390 2,043 2,059(A) 2,374
Inventory reserves:
Year ended:
March 31, 1995 $ 644 $ 251 $ 425(B) $ 470
March 31, 1994 1,559 6,619 7,534(B) 644
March 31, 1993 1,817 4,587 4,845(B) 1,559
</TABLE>
(A) Accounts written off, net of recoveries.
(B) Net realizable value reserve removed from account when inventory is sold.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended June 30,
1995 1994
Net sales $ 57,058 $137,140
Costs and Expenses:
Cost of sales 50,886 128,906
Other operating costs and expenses 1,617 2,752
Selling, general & administrative
expenses 5,242 7,855
57,745 139,513
Operating loss (687) (2,373)
Interest expense 622 454
Loss before income taxes (1,309) (2,827)
Provision for income taxes 92 67
Net loss $ (1,401) $ (2,894)
Net loss per common share $ (.03) $ (.09)
Weighted average number of
common shares outstanding 40,253 33,333
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)
June 30, March 31,
1995 1995
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 14,474 $ 17,020
Accounts receivable (less allowances of
$9,996 and $9,350, respectively) 25,151 34,309
Inventories 35,312 35,336
Prepaid expenses and other current
assets 15,895 15,715
Total current assets 90,832 102,380
Property and equipment - (at cost less
accumulated depreciation and amortization
of $5,676 and $7,102, respectively) 4,798 4,676
Other assets . 7,792 6,913
Total Assets $ 103,422 $ 113,969
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 25,219 $ 27,296
Current maturities of long-term debt 458 508
Accounts payable and other current
liabilities 19,929 18,982
Accrued sales returns 5,171 12,713
Income taxes payable 184 283
Total current liabilities 50,961 59,782
Long-term debt 193 214
Other non-current liabilities 324 322
Shareholders' Equity:
Preferred stock - $.01 par value, 1,000,000
shares authorized, 10,000 shares issued
and outstanding 9,000 9,000
Common stock - $.01 par value, 75,000,000
shares authorized, 40,252,772
shares issued and outstanding 403 403
Capital in excess of par value 107,969 107,969
Accumulated deficit (65,662) (64,086)
Cumulative translation adjustment 234 365
Total shareholders' equity 51,944 53,651
Total Liabilities and Shareholders' Equity $103,422 $113,969
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)
Three Months Ended
June 30,
1995 1994
Cash Flows from Operating Activities:
Net cash provided (used) by operating
activities $ 1,428 $ (20,879)
Cash Flows from Investing Activities:
Redemption of (investment in)
certificates of deposit. (16) 8,493
Additions to property and equipment (635) (1,443)
Other (526) ______
Net cash provided (used) by investing
activities (1,177) 7,050
Cash Flows from Financing Activities:
Net borrowings (repayments) under line of
credit facility. (2,077) 836
Other (720) (336)
Net cash provided (used) by financing
activities (2,797) 500
Net decrease in cash and cash
equivalents (2,546) (13,329)
Cash and cash equivalents at beginning
of year 17,020 21,623
Cash and cash equivalents at end of period $ 14,474(a) $ 8,294 (a)
Supplemental disclosure of cash flow information:
Interest paid $ 884 $ 481
Income taxes paid $ 114 $ 275
(a) The balances at June 30, 1995 and 1994, include $9.1 million and
$2.0 million of cash and cash equivalents, respectively, pledged to
assure the availability of certain letter of credit facilities.
The accompanying notes are an integral part of the interim consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
(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 consolidated financial
statements. It is suggested that these unaudited interim consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes thereto for the year ended March 31, 1995, included in
the Company's annual Form 10-K filing.
Due to the seasonal nature of the Company's consumer electronics
business, the results of operations for the three months ended June 30,
1995 are not necessarily indicative of the results of operations for the
full year ending March 31, 1996.
NOTE 2
Net loss per common share for the three month periods ended June 30,
1995 and 1994 are based on the weighted average number of shares of common
stock outstanding during each period. The net loss per share for both
periods does not include common stock equivalents assumed outstanding since
they are anti-dilutive.
NOTE 3
The provision for income taxes for the three months ended June 30,
1995 and 1994 consists primarily of taxes related to international
operations. The Company did not recognize tax benefits for losses incurred
by its domestic operations (after tax recognition of prior year book
deductions) during the three months ended June 30, 1995 and 1994.
NOTE 4
Spare parts inventories, net of reserves, aggregating $2,583,000 and
$2,763,000 at June 30, 1995 and March 31, 1995, respectively, are included
in "Prepaid expenses and other current assets".
NOTE 5
Long-term debt consists of the following:
(In thousands of dollars)
June 30, March 31,
1995 1995
Notes payable to unsecured
creditors $ 342 $ 465
Equipment notes and other 309 257
651 722
Less current obligations 458 508
$ 193 $ 214
NOTE 6
The 30 million shares of Common Stock issued to GSE Multimedia
Technologies Corp., Fidenas International Limited L.L.C. 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 owned by Fidenas International Limited L.L.C. have been
enjoined by court orders issued in the United States Bankruptcy Court for
the Southern District of New York and the Commonwealth of the Bahamas. The
Company is not a party to any of the proceedings described herein; 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 United
States lender. Additionally, such a change in controlling ownership 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 lost 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 could have a material adverse effect on
the Company, even though it would be limited to 18.3% of the final claim
determined by a court of competent jurisdiction; however, with respect to
the claim for lost profits, in light of the foregoing, the Company believes
the chances for recovery for lost profits are remote.
NOTE 7
The Company has a 50% investment in E & H Partners, a joint venture
that purchases, refurbishes and sells all of the Company's product returns.
The results of this joint venture are accounted for by the equity method.
The Company's equity in the earnings of the joint venture is reflected as a
reduction of cost of sales in the Company's unaudited interim Consolidated
Statements of Operations. Summarized financial information relating to the
joint venture is as follows (in thousands):
June 30, March 31.
1995 1995
Accounts receivable from joint venture (a) $17,495(a) $15,283
Three Months
Ended
June 30, 1995
(In thousands)
Condensed income statement (c):
Net sales $ 7,274(b)
Net earnings 919
____________________
(a) Secured by a lien on the partnership's inventory. Such lien has been
assigned to the Company's primary lender as collateral for the U.S. line
of credit facility.
(b) Includes sales to the Company of $1,425,000.
(c) E&H Partners was inactive for substantially all of the three month
period ended June 30, 1994.
The Company filed suit on July 5, 1995 in the State Court of New
Jersey alleging Hopper Radio of Florida, Inc. ("Hopper"), the Company's
partner in E&H Partners, Barry Smith, the President of Hopper, and three
former employees of the Company (collectively, the "Defendants") have
formed a business entity for the purpose of engaging in the distribution of
consumer electronics and that the action of the Defendants in connection
therewith violated certain duties owed to and rights of the Company. E & H
Partners has continued to operate since the filing of said lawsuit.
However, the Company cannot predict at this time how this suit will, if at
all, affect the joint venture or the Company.
No person has been authorized to
give any information or to make any 5,000,000 Shares
representation not contained in this
Prospectus in connection with the
offer made hereby. If given or made,
such information or representation EMERSON & G-CLEF
must not be relied upon as having
been authorized by the Company. This
Prospectus does not constitute an
offer of any securities other than the
securities to which it relates or
an offer to any person in any
jurisdiction where such an offer COMMON STOCK
would be unlawful. Neither delivery
of this Prospectus nor any sale made
hereunder shall under any circumstances
create an implication that information
contained herein is correct as of
any time subsequent to the date hereof.
PROSPECTUS
TABLE OF CONTENTS PAGE
Summary 1
Risk Factors 8
The Company 16
Use of Proceeds 19
Capitalization 20
Selected Consolidated Financial Data 21
Management's Discussion and
Analysis of Results of
Operations and
Financial Condition 23
Business 34
Legal Proceedings 45
Management 50 November 6, 1995
Executive Compensation and Other
Information 53
Principal Stockholders 61
Certain Relationships and Related
Transactions 64
Description of Debentures 68
Description of Other Securities 84
Certain Federal Income Tax
Considerations 90
Selling Securityholders 95
Plan of Distribution 97
Experts 98
Legal Matters 98
Available Information 98
Index to Consolidated
Financial Statements F-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution*
The following are the estimated expenses of the issuance and
distribution of the securities being registered, including fees and
expenses previously incurred by the Company, other than any underwriting
compensation. None of such expenses have been or will be borne by the
Selling Securityholders.
Item Amount
Securities and Exchange Commission
Registration Fees........................ $ 4,956.90
Legal Fees and Expenses.................... 10,000.00
Accountants' Fees and Expenses............. 25,000.00
Printing and Engraving Expenses 5,000.00
Miscellaneous Expenses..................... 1,443.10
Total $46,400.00
_______________
*All expenses are estimated, except the Securities and Exchange Commission
Registration Fee.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law ("Section 145") (a)
gives Delaware corporations broad powers to indemnify their present and
former directors and officers and those of affiliated corporations against
expenses incurred in the defense of any lawsuit to which they are made
parties by reason of being or having been such directors or officers,
subject to specified conditions and exclusions, (b) gives a director or
officer who successfully defends an action the right to be so indemnified
and (c) authorizes the corporation to buy directors' and officers'
liability insurance. Such indemnification is not exclusive of any other
right to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or otherwise.
The Company's Certificate of Incorporation provides that the Company (a)
shall indemnify every person who is or was a director or officer of the
Company or is or was serving at the Corporation's request as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise and (b) shall, if the board of directors so directs, indemnify
any person who is or was an employee or agent of the Company or is or was
serving at the Company's request as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, to the
extent, in the manner, and subject to compliance with the applicable
standards of conduct, provided by Section 145 as the same (or any
substitute provision therefor) may be in effect from time to time.
Any such indemnification shall continue as to a person who has ceased to be
a director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
The Plan of Reorganization provided that, among specified others, any and
all directors, officers and stockholders who at any time from after July 8,
1992, or as of the effective date of the Plan of Reorganization acted as
such, are released from all liability based upon any act or commission of
every kind related to past service with, for or on behalf of any of the
Restructuring companies, except where such liability is predicated on a
finding of gross negligence, willful misconduct or fraud.
The Company has procured insurance for the purpose of substantially
covering its future potential liability for indemnification under Section
145 as discussed above and certain future potential liability of individual
officers or directors incurred in their capacity as such which is not
subject to indemnification.
Item 15. Recent Sales of Unregistered Securities
During the past three years, the Company has not sold any
unregistered securities, except as follows:
(a) On March 31, 1994, the effective date of the Plan of Reorganization,
all shares of common stock and other equity securities then outstanding
were canceled in accordance with the Plan of Reorganization, and 33,333,333
shares of Common Stock, 10,000 shares of Series A Preferred Stock, and
Creditors' Warrants to acquire 750,000 shares of Common Stock were issued.
Of such securities, 3,333,333 shares of Common Stock, 10,000 shares of
Series A Preferred Stock, and the Creditors' Warrants were issued to
holders of claims (in exchange for such claims) in reliance upon the
exemption from registration provided by Section 1145 of the United States
Bankruptcy Code. No underwriters were involved in such transactions.
(b) In July, September, and October 1994, the Company granted options to
purchase an aggregate of 1,890,000 shares of Common Stock (net of
cancellations) at a purchase price of $1.00 per share (except for 600,000
of such options which have an exercise price of $1.10 per share) to certain
executive officers. The options were granted in reliance on the exemption
from registration provided by Rule 701 promulgated under the Securities
Act.
(c) In February 1995, 769,446 shares of Common Stock were issued without
additional consideration to satisfy certain anti-dilution provisions of the
Plan of Reorganization resulting from the sale of 6,149,993 shares of
Common Stock by the Company in a registered public offering during 1994.
Such shares were issued to holders of claims in the Company's bankruptcy
proceedings in reliance upon the exemption from registration provided by
Section 1145 of the United States Bankruptcy Code. No underwriters were
involved in the issuance of such shares to such holders of claims.
(d) In August 1995, the Company issued $20,750,000 aggregate principal
amount of Debentures through the Placement Agent and its authorized dealers
to the Selling Securityholders in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
(a) The following is a complete list of Exhibits filed as a part of this
Registration Statement:
EXHIBIT DESCRIPTION
(2) Confirmation Order and Fourth Amended Joint Plan
of Reorganization of Emerson Radio Corp. ("Old
Emerson") and certain subsidiaries under Chapter
11 of the United States Bankruptcy Code, dated
March 31, 1994 (incorporated by reference to Exhibit
(2) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by
the Securities and Exchange Commission ("SEC") on
August 9, 1994).
(3) (a) Certificate of Incorporation of Emerson (incorporated
by reference to Exhibit (3) (a) of Emerson's
Registration Statement on Form S-1, Registration
No. 33-53621, declared effective by the SEC on
August 9, 1994).
(3) (b) Certificate of Designation for Series A
Preferred Stock (incorporated by reference
to Exhibit (3) (b) of Emerson's
Registration Statement on Form S-1,
Registration No. 33-53621, declared
effective by the SEC on August 9, 1994).
(3) (c) Plan of Reorganization and Agreement of
Merger by and between Old Emerson and
Emerson Radio (Delaware) Corp.
(incorporated by reference to Exhibit (3)
(c) of Emerson's Registration Statement on
Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9,
1994).
(3) (d) Certificate of Merger of Old Emerson with
and into Emerson Radio (Delaware) Corp.
(incorporated by reference to Exhibit (3)
(d) of Emerson's Registration Statement on
Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9,
1994).
(3) (e) By-Laws of Emerson adopted March 1994
(incorporated by reference to Exhibit (3) (e)
of Emerson's Registration Statement on Form S-
1, Registration No. 33-53621, declared
effective by the SEC on August 9, 1994).
(4) (a) Warrant Agreement to Purchase 750,000 shares
of Common Stock, dated as of March 31, 1994
(incorporated by reference to Exhibit (4) (a)
of Emerson's Registration Statement on Form S-
1, Registration No. 33-53621, declared
effective by the SEC on August 9, 1994).
(4) (b) Indenture, dated as of August 17, 1995,
between Emerson and Bank One, Columbus, NA,
as Trustee (incorporated by reference to
Exhibit (1) of Emerson's Current Report on
Form 8-K filed with the SEC on September 8,
1995).
(5)(a) Opinion of Lowenstein, Sandler, Kohl, Fisher
& Boylan, P.A., with respect to the Common
Stock to be offered by then Selling
Securityholders.*
(10) (a) Agreement, dated as of November 14, 1973,
between National Union Electric Corporation
("NUE") and Emerson (incorporated by
reference to Exhibit (10) (a) of Emerson's
Registration Statement on Form S-1,
Registration No. 33-53621, declared effective
by the SEC on August 9, 1994).
(10) (b) Trademark User Agreement, dated as of
February 28, 1979, by and between NUE and
Emerson (incorporated by reference to Exhibit
(10) (b) of Emerson's Registration Statement
on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9,
1994).
(10) (c) Agreement, dated July 2, 1984, between NUE
and Emerson (incorporated by reference to
Exhibit (10) (c) of Emerson's Registration
Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on
August 9, 1994).
(10) (d) Agreement, dated September 15, 1988, between
NUE and Emerson (incorporated by reference to
Exhibit (10) (d) of Emerson's Registration
Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on
August 9, 1994).
(10) (e) Form of Promissory Note issued to certain Pre-
Petition Creditors (incorporated by reference
to Exhibit (10) (e) of Emerson's Registration
Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on
August 9, 1994).
(10) (f) Loan and Security Agreement, dated March 31,
1994, by and among Emerson, Majexco Imports,
Inc. and Congress Financial Corporation
("Congress") (incorporated by reference to
Exhibit (10) (f) of Emerson's Registration
Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on
August 9, 1994).
(10) (g) Emerson Radio Corp. Stock Compensation
Program (incorporated by reference to Exhibit
(10) (i) of Emerson's Registration Statement
on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9,
1994).
(10) (h) Employment Agreement between Emerson and
Eugene I. Davis (incorporated by reference to
Exhibit 6(a)(4) of Emerson's Quarterly Report
on Form 10-Q for quarter ended June 30,
1992).
(10) (i) Employment Agreement between Emerson and
Albert G. McGrath, Jr. (incorporated by
reference to Exhibit 6(a)(7) of Emerson's
Quarterly Report on Form 10-Q for quarter
ended June 30, 1992).
(10) (j) Employment Agreement between Emerson and
Geoffrey P. Jurick (incorporated by reference
to Exhibit 6(a)(6) of Emerson's Quarterly
Report on Form 10-Q for quarter ended June
30, 1992).
(10) (k) Employment Agreement between Emerson Radio
(Hong Kong) Ltd. and Geoffrey P. Jurick
(incorporated by reference to Exhibit 6(a)(6)
of Emerson's Quarterly Report on Form 10-Q
for quarter ended June 30, 1992).
(10) (l) Employment Agreement between Emerson Radio
International Ltd. (formerly Emerson Radio
(B.V.I), Ltd.) and Geoffrey P. Jurick
(incorporated by reference to Exhibit
6(a)(6) of Emerson's Quarterly Report on Form
10-Q for quarter ended June 30, 1992).
(10) (m) Lease Agreement dated as of March 26, 1993,
by and between Hartz Mountain Parsippany and
Emerson with respect to the premises located
at Nine Entin Road, Parsippany, NJ
(incorporated by reference to Exhibit (10)
(ww) of Emerson's Annual Report on Form 10-K
for the year ended December 31, 1992).
(10) (n) Employment Agreement, dated July 13, 1993,
between Emerson and Merle Eakins
(incorporated herein by reference to Exhibit
(10)(vv) to Emerson's Annual Report on Form
10-K for the year ended March 31, 1993).
(10) (o) Employment Agreement, dated April 1, 1994,
between Emerson and John Walker (incorporated
herein by reference to Exhibit (10)(ee) of
Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective
by the SEC on August 9, 1994).
(10) (p) Liquidating Trust Agreement, dated as of
March 31, 1994, by and among Emerson, Majexco
Imports, Inc., H.H. Scott, Inc., and Stuart
D. Gavsy, Esq., as Trustee (incorporated by
reference to Exhibit (10) (ff) of Emerson's
Registration Statement on Form S-1,
Registration No. 33-53621, declared effective
by the SEC on August 9, 1994).
(10) (q) Partnership Agreement, dated April 1, 1994,
between Emerson and Hopper Radio of Florida,
Inc. (incorporated by reference to Exhibit
10(q) of Emerson's Annual Report on Form 10-K
for the fiscal year ended March 31, 1995).
(10) (r) Sales Agreement, dated April 1, 1994, between
Emerson and E & H Partners. (incorporated by
reference to Exhibit 10(r) of Emerson's
Annual Report on Form 10-K for the fiscal
year ended March 31, 1995).
(10) (s) Agreement, dated July 1, 1994, between
Emerson and Alex Wijnen relating to
termination of employment and agreement on
consulting services. (incorporated by
reference to Exhibit 10(s) of Emerson's
Annual Report on Form 10-K for the fiscal
year ended March 31, 1995).
(10) (t) Independent Consultant's Agreement, dated
October 1, 1994, between Emerson Radio
International Ltd. and Peter G. Bunger.
(incorporated by reference to Exhibit 10(t)
of Emerson's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995).
(10) (u) Independent Consultant's Agreement, dated
October 1, 1994, between Emerson Radio Europe
B.V. and Peter G. Bunger (incorporated by
reference to Exhibit 10 (u) of Emerson's
Annual Report on Form 10-K for the fiscal
year ended March 31, 1995).
(10) (v) Employment Agreement, dated October 3, 1994,
between Emerson and Andrew Cohan
(incorporated by reference to Exhibit 10 (v)
of Emerson's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995).
(10) (w) License Agreement, dated February 22, 1995,
between Emerson and Otake (incorporated by
reference to Exhibit 6(a)(1) of Emerson's
quarterly report on Form 10-Q for quarter
ended December 31, 1994).
(10) (x) Supply Agreement, dated February 22, 1995,
between Emerson and Otake (incorporated by
reference to Exhibit 6(a)(2) of Emerson's
quarterly report on Form 10-Q for quarter
ended December 31, 1994).
(10) (y) 1994 Non-Employee Director Stock Option Plan
(incorporated by reference to Exhibit 10 (y)
of Emerson's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995).
(10) (z) Amendment No. 1 to Financing Agreements,
dated as of August 24, 1995, among Emerson,
Majexco Imports, Inc. and Congress
(incorporated by reference to Exhibit (2) of
Emerson's Current Report on Form 8-K filed
with the SEC on September 8, 1995).
(11) Computation of Primary Earnings Per Share
(incorporated by reference to Exhibit (11) of
Emerson's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995).
(12) Computation of Ratios*
(21) Subsidiaries of the Registrant as of March
31, 1995 (incorporated by reference to
Exhibit (21) of Emerson's Annual Report on
Form 10-K for the fiscal year ended March 31,
1995).
(23) Consent of Experts and Counsel *
(27) Financial Data Schedule for year ended March
31, 1995 (incorporated by reference to
Exhibit (27) of Emerson's Annual Report on
Form 10-K for the fiscal year ended March 31,
1995).
____________________
*Filed herewith
(b) The following is a complete list of Financial Statements,
financial statement Schedules and Report of Independent Auditors filed as a
part of this Registration Statement and included with the financial
statements filed as a part of this Registration Statement:
(1) Financial Statements are included in the Prospectus; see
"Index to Consolidated Financial Statements" in the Prospectus at page F-1.
(2) Schedule VIII Valuation and Qualifying Accounts and
Reserves
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or notes
thereto.
Item 17. Undertakings
A. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
B. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
C. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of the registration statement as of the time it was declared
effective.
(2) For the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
Township of Parsippany, State of New Jersey, on the 3rd day of November,
1995.
EMERSON RADIO CORP.
By:/s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Geoffrey P. Jurick Chairman of the Board, November 3, 1995
Geoffrey P. Jurick Chief Executive Officer,
and Director (Principal
Executive Officer)
/s/ Eugene I. Davis President, Interim Chief November 3, 1995
Eugene I. Davis Financial Officer, and
Director (Principal Financial
and Accounting Officer)
/s/ Robert H. Brown, Jr.
Robert H. Brown, Jr. Director November 3, 1995
/s/ Peter G. Bunger
Peter G. Bunger Director November 3, 1995
/s/ Jerome H. Farnum
Jerome H. Farnum Director November 3, 1995
/s/ Raymond L. Steele
Raymond L. Steele Director November 3, 1995
PAGE NUMBER
EXHIBIT DESCRIPTION IN SEQUENTIAL SYSTEM
(2) Confirmation Order and Fourth Amended
Joint Plan of Reorganization of Emerson
Radio Corp. ("Old Emerson") and certain
subsidiaries under Chapter 11 of the
United States Bankruptcy Code, dated March
31, 1994 (incorporated by reference to
Exhibit (2) of Emerson's Registration
Statement on Form S-1, Registration No. 33-
53621, declared effective by the
Securities and Exchange Commission ("SEC")
on August 9, 1994).
(3) (a) Certificate of Incorporation of Emerson
(incorporated by reference to Exhibit (3)
(a) of Emerson's Registration Statement on
Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(3) (b) Certificate of Designation for Series A
Preferred Stock (incorporated by reference
to Exhibit (3) (b) of Emerson's
Registration Statement on Form S-1,
Registration No. 33-53621, declared
effective by the SEC on August 9, 1994).
(3) (c) Plan of Reorganization and Agreement of
Merger by and between Old Emerson and
Emerson Radio (Delaware) Corp.
(incorporated by reference to Exhibit (3)
(c) of Emerson's Registration Statement on
Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9,
1994).
(3) (d) Certificate of Merger of Old Emerson with
and into Emerson Radio (Delaware) Corp.
(incorporated by reference to Exhibit (3)
(d) of Emerson's Registration Statement on
Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9,
1994).
(3) (e) By-Laws of Emerson adopted March 1994
(incorporated by reference to Exhibit (3) (e)
of Emerson's Registration Statement on Form S-
1, Registration No. 33-53621, declared
effective by the SEC on August 9, 1994).
(4) (a) Warrant Agreement to Purchase 750,000 shares
of Common Stock, dated as of March 31, 1994
(incorporated by reference to Exhibit (4) (a)
of Emerson's Registration Statement on Form S-
1, Registration No. 33-53621, declared
effective by the SEC on August 9, 1994).
(4) (b) Indenture, dated as of August 17, 1995,
between Emerson and Bank One, Columbus, NA,
as Trustee (incorporated by reference to
Exhibit (1) of Emerson's Current Report on
Form 8-K filed with the SEC on September 8,
1995).
(5)(a) Opinion of Lowenstein, Sandler, Kohl, Fisher
& Boylan, P.A., with respect to the Common
Stock to be offered by the Selling
Securityholders.** Filed herewith.
(10) (a) Agreement, dated as of November 14, 1973, between
National Union Electric Corporation ("NUE") and Emerson
(incorporated by reference to Exhibit (10) (a)
of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by
the SEC on August 9, 1994).
(10) (b) Trademark User Agreement, dated as of
February 28, 1979, by and between NUE and
Emerson (incorporated by reference to
Exhibit (10) (b) of Emerson's Registration
Statement on Form S-1, Registration
No. 33-53621, declared effective by
the SEC on August 9, 1994).
(10) (c) Agreement, dated July 2, 1984, between
NUE and Emerson (incorporated by reference
to Exhibit (10) (c) of Emerson's Registration
Statement on Form S-1, Registration
No. 33-53621, declared effective by the
SEC on August 9, 1994).
(10) (d) Agreement, dated September 15, 1988,
between NUE and Emerson (incorporated
by reference to Exhibit (10) (d) of
Emerson's Registration Statement on
Form S-1, Registration No. 33-53621,
declared effective by the SEC on
August 9, 1994).
(10) (e) Form of Promissory Note issued to
certain Pre-Petition Creditors
(incorporated by reference to Exhibit
(10) (e) of Emerson's Registration
Statement on Form S-1, Registration
No. 33-53621, declared effective by
the SEC on August 9, 1994).
(10) (f) Loan and Security Agreement, dated March 31,
1994, by and among Emerson, Majexco Imports,
Inc. and Congress Financial Corporation
("Congress") (incorporated by reference to
Exhibit (10) (f) of Emerson's Registration
Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on
August 9, 1994).
(10) (g) Emerson Radio Corp. Stock Compensation
Program (incorporated by reference to Exhibit
(10) (i) of Emerson's Registration Statement
on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9,
1994).
(10) (h) Employment Agreement between Emerson and
Eugene I. Davis (incorporated by reference to
Exhibit 6(a)(4) of Emerson's Quarterly Report
on Form 10-Q for quarter ended June 30,
1992).
(10) (i) Employment Agreement between Emerson and
Albert G. McGrath, Jr. (incorporated by
reference to Exhibit 6(a)(7) of Emerson's
Quarterly Report on Form 10-Q for quarter
ended June 30, 1992).
(10) (j) Employment Agreement between Emerson and
Geoffrey P. Jurick (incorporated by reference
to Exhibit 6(a)(6) of Emerson's Quarterly
Report on Form 10-Q for quarter ended June
30, 1992).
(10) (k) Employment Agreement between Emerson Radio
(Hong Kong) Ltd. and Geoffrey P. Jurick
(incorporated by reference to Exhibit 6(a)(6)
of Emerson's Quarterly Report on Form 10-Q
for quarter ended June 30, 1992).
(10) (l) Employment Agreement between Emerson Radio
International Ltd. (formerly Emerson Radio
(B.V.I), Ltd.) and Geoffrey P. Jurick
(incorporated by reference to Exhibit 6(a)(6)
of Emerson's Quarterly Report on Form 10-Q
for quarter ended June 30, 1992).
(10) (m) Lease Agreement dated as of March 26, 1993,
by and between Hartz Mountain Parsippany and
Emerson with respect to the premises located
at Nine Entin Road, Parsippany, NJ
(incorporated by reference to Exhibit (10)
(ww) of Emerson's Annual Report on Form 10-K
for the year ended December 31, 1992).
(10) (n) Employment Agreement, dated July 13, 1993,
between Emerson and Merle Eakins
(incorporated herein by reference to Exhibit
(10)(vv) to Emerson's Annual Report on Form
10-K for the year ended March 31, 1993).
(10) (o) Employment Agreement, dated April 1, 1994,
between Emerson and John Walker (incorporated
herein by reference to Exhibit (10)(ee) of
Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective
by the SEC on August 9, 1994).
(10) (p) Liquidating Trust Agreement, dated as of
March 31, 1994, by and among Emerson, Majexco
Imports, Inc., H.H. Scott, Inc., and Stuart
D. Gavsy, Esq., as Trustee (incorporated by
reference to Exhibit (10) (ff) of Emerson's
Registration Statement on Form S-1,
Registration No. 33-53621, declared effective
by the SEC on August 9, 1994).
(10) (q) Partnership Agreement, dated April 1, 1994,
between Emerson and Hopper Radio of Florida,
Inc. (incorporated by reference to Exhibit
10(q) of Emerson's Annual Report on Form 10-K
for the fiscal year ended March 31, 1995).
(10) (r) Sales Agreement, dated April 1, 1994, between
Emerson and E & H Partners. (incorporated by
reference to Exhibit 10(r) of Emerson's
Annual Report on Form 10-K for the fiscal
year ended March 31, 1995).
(10) (s) Agreement, dated July 1, 1994, between
Emerson and Alex Wijnen relating to
termination of employment and agreement on
consulting services. (incorporated by
reference to Exhibit 10(s) of Emerson's
Annual Report on Form 10-K for the fiscal
year ended March 31, 1995).
(10) (t) Independent Consultant's Agreement, dated
October 1, 1994, between Emerson Radio
International Ltd. and Peter G. Bunger.
(incorporated by reference to Exhibit 10(t)
of Emerson's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995).
(10) (u) Independent Consultant's Agreement, dated
October 1, 1994, between Emerson Radio Europe
B.V. and Peter G. Bunger (incorporated by
reference to Exhibit 10 (u) of Emerson's
Annual Report on Form 10-K for the fiscal
year ended March 31, 1995).
(10) (v) Employment Agreement, dated October 3, 1994,
between Emerson and Andrew Cohan
(incorporated by reference to Exhibit 10 (v)
of Emerson's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995).
(10) (w) License Agreement, dated February 22, 1995,
between Emerson and Otake (incorporated by
reference to Exhibit 6(a)(1) of Emerson's
quarterly report on Form 10-Q for quarter
ended December 31, 1994).
(10) (x) Supply Agreement, dated February 22, 1995,
between Emerson and Otake (incorporated by
reference to Exhibit 6(a)(2) of Emerson's
quarterly report on Form 10-Q for quarter
ended December 31, 1994).
(10) (y) 1994 Non-Employee Director Stock Option Plan
(incorporated by reference to Exhibit 10 (y)
of Emerson's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995).
(10) (z) Amendment No. 1 to Financing Agreements,
dated as of August 24, 1995, among Emerson,
Majexco Imports, Inc. and Congress
(incorporated by reference to Exhibit (2) of
Emerson's Current Report on Form 8-K filed
with the SEC on September 8, 1995).
(11) Computation of Primary Earnings Per Share
(incorporated by reference to Exhibit (11) of
Emerson's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995).
(12) Computation of Ratios*
(21) Subsidiaries of the Registrant as of March
31, 1995 (incorporated by reference to
Exhibit (21) of Emerson's Annual Report on
Form 10-K for the fiscal year ended March 31,
1995).
(23) Consent of Experts and Counsel*
(27) Financial Data Schedule for year ended March
31, 1995 (incorporated by reference to
Exhibit (27) of Emerson's Annual Report on
Form 10-K for the fiscal year ended March 31,
1995).
____________________
*Filed herewith
</page>
November 3, 1995
Emerson Radio Corp.
Nine Entin Road
Parsippany, NJ 07054
Gentlemen:
You have requested our opinion, as your securities counsel, in connection
with the registration with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act"), of a public offering by
certain selling securityholders on a registration statement on Form S-1
(the "Registration Statement") of an aggregate of 5,000,000 shares of
common stock, par value $.01 per share (the "Common Stock"), of Emerson
Radio Corp. (the "Company").
We have examined and relied upon originals or copies of all such corporate
records of the Company, communications or certifications of public
officials, certificates of officers, directors and representatives of the
Company, and such other documents as we have deemed relevant and necessary
as the basis of the opinions expressed herein. In making such examination,
we have assumed the genuineness of all signatures, the authenticity of all
documents tendered to us as originals, and the conformity to original
documents of all documents submitted to us as certified or photostatic
copies.
Based upon the foregoing and relying upon statements of fact contained in
the documents that we have examined, we are of the opinion that, when the
Registration Statement becomes effective under the Act, the Common Stock
offered by the selling securityholders named in, and covered by, the
Registration Statement, when issued and sold as contemplated in the
Registration Statement, will be legally issued, fully paid, and non-
assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and any amendment thereto and to all references to
this firm contained in the Registration Statement.
Very truly yours,
/s/ LOWENSTEIN, SANDLER, KOHL,
FISHER & BOYLAN, P.A.
LOWENSTEIN, SANDLER, KOHL,
FISHER & BOYLAN, P.A.
</PAGE>
EXHIBIT 12
EMERSON RADIO CORP. AND SUBSIDIARIES
EXHIBIT TO FORM S-1
COMPUTATION OF RATIO OF EARNINGS (LOSS) TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
(In thousands, except ratio data)
<TABLE>
Historical
<C> <C> <C> <C> <C> <C> <C> <C>
Nine Three Three Three
Months Year Months Year Year Year Months Months
Ended Ended Ended Ended Ended Ended Ended Ended
Dec. 31, Dec. 31 Mar. 31 Mar. 31 Mar. 31 Mar. 31 June 30, June 30,
1990 1991 1992 1993 1994 1995 1994 1995
<S>
Pretax Earnings(loss) $(39,851) $(59,571) $(6,743) $(55,291) $(73,327) $7,642 $(2,827) $(1,309)
Fixed Charges:
Interest 13,978 18,546 4,217 18,257 10,243 2,582 379 547
Amortization of debt expenses - - - - - 300 75 75
13,978 18,546 4,217 18,257 10,245 2,882 454 622
Earnings(loss) (25,873) (41,025) (2,526) (37,034) (63,084) 10,524 (2,373) (687)
Fixed Charges:
Interest 13,978 18,546 4,217 18,257 10,243 2,582 379 547
Amortization of debt expenses - - - - - 300 75 75
Preferred stock dividend
requirements(a) - - - - - 725 181 181
13,978 18,546 4,217 18,257 10,243 3,607 635 803
Ratio of Earnings (Loss) to
Combined Fixed Charges and
Preferred Stock Dividends (1.85) (2.21) (0.60) (2.03) (6.16) 2.92 (3.74) (0.86)
Coverage Deficiency $ 13,978 $ 18,546 $ 4,217 $ 18,257 $ 10,243 $ - $ 635 $ 803
</TABLE>
____________
(a) The preferred stock dividend requirements have been adjusted to
reflect the pretax earnings which would be required to cover such
dividend requirements.
</page>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts"
and to the inclusion in this Registration Statement of our report dated May
24, 1995, with respect to the consolidated financial statements of Emerson
Radio Corp.
Our audits also included the financial statement schedule of Emerson
Radio Corp. listed in Item 16(b) of this Registration Statement as at March
31, 1995, March 31, 1994 and March 31, 1993 and for the years ended March
31, 1995, 1994 and 1993. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
schedule based on our audits. In our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Ernst & Young LLP
New York, New York
November 6, 1995
CONSENT OF COUNSEL
The Consent of Lowenstein, Sandler, Kohl, Fisher & Boylan, P.A. is
contained in its opinion filed as Exhibit 5(a) to the Registration
Statement.
