____________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________________
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-25226
EMERSON RADIO CORP.
(Exact name of registrant as specified in its charter)
____________Delaware____________________ ____________22-3285224
(State or other jurisdiction of (I.R.S. Employer Identifcation
incorporation or organization) Number)
_______Nine Entin Road, Parsippany, NJ______ ___07054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:_______(201) 884-5800_______
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $.01 American Stock Exchange
per share
Securities registered pursuant to Section 12(g) of the Act: Series A Preferred
Stock and Warrants.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days. [X] YES [ ] NO.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
Aggregate market value of the voting stock of the registrant held by non-
affiliates of the registrant at June 27, 1996 (computed by reference to the last
reported sale price of the Common Stock on the American Stock Exchange on such
date): $30,278,133.
Indicate by check mark whether the registrant has filed all documents and
reports to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. [X] YES [ ] NO.
Number of Common Shares outstanding at June 27, 1996: 40,252,772
DOCUMENTS INCORPORATED BY REFERENCE: Proxy Statement for the 1996 Annual
Meeting of Stockholders: Part III
________________________________________________________________________________
PART I
Item 1. BUSINESS
General
Emerson Radio Corp. ("Emerson" or the "Company"), one of the nation's
largest volume consumer electronics distributors, directly and through
subsidiaries, designs, sources, imports and markets a variety of televisions and
other video products, microwave ovens, audio, car audio, home theater, home and
personal security products and clocks. The Company distributes its products
primarily through mass merchants and discount retailers leveraging on the
strength of its "EMERSON and 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 audio
products for sale under the "H.H. Scott" and "Electrophonic" brand names.
Approximately $18 billion of factory sales are generated by the industry in
the market segment in which the Company competes. In calendar year 1995,
Emerson was among the top brand names in unit sales volume of video cassette
recorders ("VCRs"), TV/VCR combinations and color televisions.
The Company believes it possesses an advantage over its competitors due to
the combination of (i) the "EMERSON and G-Clef" brand recognition, (ii) its
extensive distribution base and established relations with customers in the mass
merchant and discount retail channels of distribution, (iii) its sourcing
expertise and established vendor relations, and (iv) an infrastructure with
personnel experienced in servicing and providing logistical support to the
domestic mass merchant distribution channel. Emerson intends to continue 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 has in the past and intends in the future 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, car audio, home theater, home
and personal security products, clocks 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 - Competition."
The Company successfully restructured its financial position (the
"Restructuring") through a plan of reorganization, confirmed by the United
States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"),
pursuant to the provisions of Chapter 11 of the Bankruptcy Code on March 31,
1994 ("Plan of Reorganization"). Through the Restructuring, the Company reduced
its institutional debt by approximately $203 million. Additionally, in the
fiscal year ended March 31, 1996 ("Fiscal 1996"), the Company has reduced its
annual fixed operating costs by approximately 60% since the fiscal year ended
March 31, 1993.
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. References
to "Emerson" or the "Company" refers to Emerson Radio Corp. and its
subsidiaries, unless the context otherwise indicates. 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.
Company Products
The Company directly and through subsidiaries designs, sources, imports and
markets a variety of television and other video products, microwave ovens,
audio, car audio, home theater, home and personal security products and clocks,
primarily on the strength of its "EMERSON and G-Clef" trademark, a nationally
recognized symbol in the consumer electronics industry. The Company's current
product categories consist of the following:
Video Products Audio Products Other
Color televisions Shelf systems Home theater
Black and white CD stereo systems Car audio
specialty
televisions
Color specialty Portable audio, Microwave
televisions cassette and CD ovens
systems
Color TV/VCR AM/FM Bicycle Home and
combination units radios personal
security
Video cassette Personal audio, Clocks
recorders cassette and CD
systems
Specialty video Digital clock
cassette players radios
All of the Company's products offer various features. Color television
units range in screen size from 5 inches to 25 inches and specialty color
televisions are offered in 5 inch and 9 inch units. Combination units range in
screen size from 9 inches to 25 inches. Portable audio systems incorporate
AM/FM radios and/or cassette and/or CD players in a variety of models.
Microwave ovens range in size from 0.6 cubic feet to 1.2 cubic feet containing
features such as turntables, key pad touch controls, auto defrost and multi-
power levels. In Fiscal 1996, the Company introduced new product categories
which include home theater systems, car audio, home and personal security
products, and clocks. Industry sales of home theater audio components increased
45% in 1995, to $755 million. Emerson introduced two new products in this
market segment during Fiscal 1996. Car audio aftermarket sales are estimated to
have increased an average of 11% per year from 1990 to 1995. Declining prices
have made CD car audio products more affordable and more visible to the retail
discount consumer. The sale of home and personal security products and clocks
allows the Company to promote the "EMERSON and G-Clef" brand name in retail
stores' other departments.
Growth Strategy
The Company's strategic focus is to: (i) 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 home theater,
car audio and home and personal security products; (ii) capitalize on
opportunities to license the "EMERSON and G-Clef" trademark; (iii) leverage and
exploit its sourcing capabilities, buying power and logistics expertise in the
Far East either internally or on behalf of third parties; (iv) expand
international sales and distribution channels; and (v) expand through strategic
mergers and acquisitions of companies in similar or complimentary businesses.
As part of its efforts to expand through strategic mergers and
acquisitions, the Company has been pursuing the acquisition through merger of
International Jensen Incorporated ("Jensen"). Jensen manufactures and
distributes speakers for automobiles and the home-audio market. Initial
contacts were made through Emerson's current financial advisor on the Company's
behalf in 1995. On January 3, 1996, Jensen entered into and announced a merger
agreement with Recoton Corporation ("Recoton"), whereby Jensen stockholders
would be paid $8.90 per share in cash and Recoton stock. This merger agreement
with Recoton also contemplated the contemporaneous sale of Jensen's original
equipment manufacturing business ("OEM Business") to a group led by Mr. Robert
G. Shaw, Chairman of the Board, Chief Executive Officer and President of Jensen,
for a purchase price which the Company's management believes is far less than
the net book value of the OEM Business.
Emerson announced its initial merger proposal in April 1996, which
contemplated a purchase price of $9.90 per share to all of Jensen's
stockholders. Between April 1996 and the date hereof, Emerson has made a number
of acquisition proposals, which currently contemplate the purchase of Jensen
while retaining the OEM Business, none of which have been accepted by Jensen.
On June 24, 1996, Jensen announced, and its board approved, a revised merger
agreement with Recoton providing for the payment of $11.00 per share to Jensen's
outside stockholders and $8.90 per share to Mr. Shaw and William Blair Leveraged
Capital Fund, L.P. (the "Blair Fund"). Mr. Shaw and the Blair Fund own a
majority of the outstanding stock of Jensen. This merger transaction with
Recoton still contemplates the contemporaneous sale of the OEM Business to the
group led by Mr. Shaw. Emerson believes that such sale is still at a price well
below the value of the OEM Business. In response, Emerson announced a merger
proposal on June 25, 1996, whereby Emerson would pay Jensen's public
stockholders $12.00 per share and Mr. Shaw and the Blair Fund the same $8.90 per
share that they have agreed to accept under the Recoton merger transaction.
This proposal does not contemplate the separate sale of the OEM Business.
Jensen announced its rejection of Emerson's offer on June 26, 1996, and Emerson
announced on June 27, 1996, that its offer would remain open through Jensen's
proxy solicitation process on the Recoton transaction. Emerson also indicated
it planned to file proxy solicitation materials in opposition to the Recoton
transaction.
The Jensen/Recoton/Shaw transactions are the subject of certain litigation
in the Chancery Court in Delaware which challenge the validity of such
transaction and certain related transactions. The Company is not a party to
such litigation. The Company and Jensen are also parties to litigation in the
Federal District Court in Chicago, relating to alleged violations of the federal
proxy rules and breaches of a confidentiality agreement by Emerson and its
President, and a counterclaim brought by Emerson against Jensen and Mr. Shaw
alleging fraud and fraudulent inducement in the execution of the confidentiality
agreement. See "Legal Proceedings."
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 complimentary 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 (i) one of its
suppliers and certain of its affiliates (collectively, the "Supplier"), (ii) a
distributor of consumer electronics accessories, and (iii) the Franklin Mint.
See "Business-Licensing". Further, the Company is actively pursuing additional
similar transactions.
Sales and Distribution
The Company has an integrated system to coordinate the purchasing, sales
and distribution segments of its operations. The Company receives 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 and Mexico) are shipped by
ocean and/or inland freight and then stored in contracted public warehouse
facilities for shipment to 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 Fiscal 1996 and the fiscal year ended March 31, 1995
("Fiscal 1995"), products representing approximately 44% and 68% of net
revenues, respectively, were imported directly from manufacturers to the
Company's customers. If the Company experiences a decline in sales effected
through direct imports and a corresponding increase in domestic sales, its
working capital and inventory requirements will be incrementally affected. See
"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 Stores, Inc. ("Wal-Mart" or
the "Customer") accounted for approximately 18% and 53%, and Target Stores,
Inc., accounted for approximately 16% and 10% of the Company's net revenues in
Fiscal 1996 and Fiscal 1995, respectively. Net revenues from Wal-Mart in
Fiscal 1996 exclude sales of certain video products which are subject to a
license/supply arrangement, effective March 31, 1995. As a result, the Company
now reports royalty revenues attributable to such sales, in lieu of reporting
the full dollar value 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% of
consolidated net revenues in Fiscal 1995. See "Business-Licensing." No other
customer accounted for more than 10% of the Company's net revenues in either
period.
Approximately 58% and 34% of the Company's revenues in Fiscal 1996 and
Fiscal 1995, respectively, were made through sales representative organizations
which receive sales commissions and work closely with Company sales personnel.
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 two through which
approximately 19% and 14% of the Company's net revenues were made in Fiscal 1996
as compared to 10% each in Fiscal 1995. No other sales representative
organization accounted for more than 10% of the Company's net revenues in either
period. The remainder of the Company's sales are made to retail customers
serviced principally by Company sales personnel. The Company has seven 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 Oregon.
Foreign Marketing
While the major portion of the Company's marketing efforts are directed
toward the United States, approximately 5% and 7% of the Company's net revenues
in Fiscal 1996 and Fiscal 1995, respectively, were made to foreign customers in
Canada, Central and South America, Spain and the Middle East. See Note L of
Notes to Consolidated Financial Statements and "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
Licensing
In Fiscal 1995, the Company successfully concluded licensing agreements
with (i) the Supplier for the sale of certain video products bearing the
"EMERSON and G-Clef" trademark to the Customer's 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, and (iii) the Franklin Mint for
distribution of classic Emerson Radio reproductions. The Company intends to
pursue additional licensing opportunities and believes that such licensing
activities has had and will continue to have a positive impact on operating
results by generating royalty income with minimal costs, if any, and without
the necessity of utilizing working capital or accepting customer returns.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition." The Company is also considering strategic alternatives
for its North American video business not covered under the license agreement
with the Supplier.
Design and Manufacturing
The Company's design team is responsible for product development and works
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, China, Malaysia,
Thailand and Mexico. Certain of the Company's video products had been assembled
by the Supplier in Indiana.
During Fiscal 1996 and Fiscal 1995, approximately 93% and 89%,
respectively, of the cost value of the Company's purchases consisted of imported
finished goods. The Supplier, a manufacturer headquartered in Japan, supplied
approximately 16% and 73%, respectively, of the Company's total purchases in
Fiscal 1996 and Fiscal 1995. Approximately 52% of the cost value of the
Company's purchases in Fiscal 1995 were video products purchased from the
Supplier and sold to the Customer. As a result of the supply and license
agreements (the "Agreements") between the Company and the Supplier, the Company
expects that purchases of finished goods from the Supplier over the three-year
term of the Agreements will continue to be in lower proportions than in Fiscal
1995. See "Business-Licensing." The Agreements also provide that the Supplier
will supply the Company with certain video products for sale to other customers
at preferred prices for the three-year term. The Agreements are currently the
subject of certain lawsuits filed by the Company and the Supplier. See "Legal
Proceedings." Additionally, Daewoo Electronics Co. Ltd., Kong Wah, Imarflex,
Mfg. Co., Ltd. and Musical Electronics Limited supplied approximately 21%, 17%,
14% and 12%, respectively, of the Company's total purchases in Fiscal 1996. No
other supplier accounted for more than 10% of the Company's total purchases in
Fiscal 1996 or Fiscal 1995. Except for the litigation with the Supplier (see
"Legal Proceedings"), the Company considers its relationships with its suppliers
to be satisfactory and believes that, barring any unusual shortages or economic
conditions, it could develop, and has developed, alternative sources for the
products it currently purchases. Except with respect to the Agreements with the
Supplier, 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 a supplier or a reasonable
opportunity to seek alternate production facilities and component parts.
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.
Returned 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.
Effective April 1, 1994, the Company formed a partnership ("Partnership")
with Hopper Radio of Florida, Inc. ("Hopper"). The Company and Hopper each own
a 50% interest in the Partnership. The Partnership was formed to purchase (i)
all returned consumer electronics products in the United States 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 exclusively 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. The Partnership's profits and losses are allocated
evenly and 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."
Effective April 24, 1996, the Company and Hopper entered into an agreement
(the "Hopper Amendment") which, among other things, amended certain provisions
in the Partnership and Sales agreements and settled all outstanding litigation
between the Company, Hopper and the other named parties. See "Legal
Proceedings." Under the Hopper Amendment, Hopper advanced an additional $5
million to the Partnership, thereby increasing the liquidity of the Partnership
and equalizing the investment of the partners and the sharing of cash flows.
Additionally, the Hopper Amendment provides that the Partnership will continue
to buy all of the Company's product returns in the U.S. through December 31,
1996, excluding defective product returns subject to the return to vendor
agreements, as noted below. Subsequent to this date, either partner may give
notice to dissolve the Partnership, with a wind-down period to be completed no
later than six months from the date of such notice.
To further reduce the costs associated with product returns, the Company
has entered into "return to vendor" agreements with the majority of its
suppliers. For a fee, the agreements permit the Company to return defective-
product returns to the supplier and to receive in exchange an "A" quality unit.
The agreements cover certain microwave oven, audio and video products. The
Company expects to realize significant cost savings from such agreements
commencing in the fiscal year ending March 31, 1997 ("Fiscal 1997").
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 through 2008 and those registered in Canada must
be renewed at various times through 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 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 the Supplier, Jasco and the Franklin Mint
on a limited basis. See "Business - Licensing."
Competition
The market segment of the consumer electronics industry in which the
Company competes generates approximately $18 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 June 27, 1996, the Company had approximately 154 employees. The
Company considers its labor relations to be generally satisfactory.
Item 2. PROPERTIES
The Company, directly and through its subsidiaries, leases warehouse and
office space in New Jersey, Canada, Missouri and the Far East under leases
expiring at various times from calendar 1996 to 1998, at minimum aggregate
rentals as follows:
<TABLE>
Year Ending
March 31, (In Thousands)
<C> <C>
1997 1,608
1998 1,197
1999 329
$3,134
</TABLE>
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.
Such commitments are evidenced by contracts with terms of up to one year. The
cost for the public warehouse space is primarily based on a fixed percentage of
the Company's sales from each respective location. Such amounts are not
included in the above table.
Item 3. 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
Company's bank group and the holders of the senior notes 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
would bear interest at a rate based on the London Interbank Offered Rate
("LIBOR") for one year obligations and would be payable as follows: (i) 35% of
the outstanding principal is due 12 months from the date of issuance, and (ii)
the remaining balance would be due 18 months from the date of issuance. The
Company is presently contesting claims submitted by several creditors.
The largest claim was filed on or about 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, on or about September 30, 1994, the Company instituted
an adversary proceeding in the Bankruptcy Court asserting damages caused by
Cineral and seeking declaratory relief and replevin. 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 and discovery
commenced. This action has been stayed since June 1995 by order of the
Bankruptcy Court pending settlement negotiations. 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, in light of the foregoing, the Company believes
the chances for recovery 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. The case is presently dormant. This litigation was not affected
by the bankruptcy proceedings.
Otake Litigation
On December 20, 1995, the Company filed suit in the United States District
Court for the District of New Jersey against Orion Sales, Inc., Otake Trading
Co. Ltd., Technos Development Limited, Shigemasa Otake, and John Richard Bond,
Jr. (collectively, the "Otake Defendants") alleging breach of contract, breach
of covenant of good faith and fair dealing, unfair competition, interference
with prospective economic gain, and conspiracy in connection with certain
activities of the Otake Defendants under certain agreements between the Company
and the Otake Defendants. Mr. Bond is a former officer and sales representative
of the Company, having served in the latter capacity until he became involved
working for the other Otake Defendants. Certain of the other Otake Defendants
have supplied the majority of the Company's purchases until the Company's most
recent fiscal year.
On December 21, 1995, Orion Sales, Inc. and Orion Electric (America), Inc.
filed suit against the Company in the United States District Court, Southern
District of Indiana, Evansville Division, alleging various breaches of certain
agreements by the Company, including breaches of the confidentiality provisions,
certain payment breaches, breaches of provisions relating to product returns,
and other alleged breaches of those agreements, and seeking damages in the
amount of $2,452,656, together with interest thereon, attorneys' fees, and
certain others costs. While the outcome of the New Jersey and Indiana actions
are not certain at this time, the Company believes it has meritorious defenses
against the claims made by the plaintiffs in the Indiana action. In any event,
the Company believes the results of that litigation should not have a material
adverse effect on the financial condition of the Company or on its operations.
To date, all royalty payments due under the license agreement with the Supplier
have been made.
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. On July 26, 1994, the Franchise Tax Board moved to dismiss the
adversary proceeding for the purpose of litigating the deficiency with the
California State Board of Equalization 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. The District Court of New Jersey has affirmed the Order of
Abstention. The Company has appealed the District Court Order to the Third
Circuit Court of Appeal. The Third Circuit Court of Appeal heard oral arguments
on the merits on June 28, 1996, but has not yet rendered its decision.
However, as a result of the District Court's dismissal of the proceeding,
the Company was advised that the automatic stay under Section 362 of the
Bankruptcy Code was lifted and the Company must now continue the proceedings in
California's State Board of Equalization. Subsequent to entry of the District
Court order, the Company filed its reply brief with the California State Board
of Equalization on October 27, 1995.
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
possible additional adjustments for years not currently under examination.
Litigation Regarding Certain Outstanding Common Stock
Subsequent to confirmation of the Plan of Reorganization, litigation arose
among the principal shareholders of Fidenas Investment Limited ("FIL"), the
Company's largest shareholder prior to confirmation of the Plan of
Reorganization, with respect to various business relations and transactions
entered into among the shareholders, certain affiliates and their principals,
including Geoffrey Jurick, the Company's Chairman and Chief Executive Officer,
and Petra and Donald Stelling. Mr. Stelling was the former Chairman of the
Company; he resigned on December 2, 1993 as a director and as Chairman, creating
uncertainty about the ability of FIL to honor its commitment to the Company and
the Company's bank group to satisfy its obligations to infuse $75 million in
funds for the purpose of financing the Restructuring. A proceeding was commenced
in the Commonwealth of Bahamas by one of its shareholders, a Bahamian entity
controlled by Petra Stelling, wife of Donald Stelling, for the winding-up of
FIL. The liquidator appointed by the Bahamian Court for the winding-up of FIL
commenced litigation against the predecessor of Fidenas International Limited,
L.L.C. ("FIN"), presently the Company's largest stockholder, and Mr. Jurick with
respect to claims arising from the acquisition of the Company's Common Stock by
GSE Multimedia Technologies Corporation ("GSE") and FIN. On April 18, 1996,
the Official Liquidator of FIL filed a complaint in the United States District
Court in Newark, New Jersey (the "Court"), seeking damages and injunctive relief
with respect to certain shares of Emerson Common Stock held in the names of FIN,
GSE, and Elision International, Inc. ("Elision").
The Stelling interests have pursued Mr. Jurick and certain business
associates (including Mr. Peter Bunger and Jerome Farnum, directors of the
Company) and affiliates in actions in Switzerland for certain claims relating to
their business relationships and transactions. Based on certain charges raised
by the Stellings, the Swiss authorities commenced investigations and have
questioned Messrs. Jurick, Bunger and Farnum. While the investigation is still
pending, none of Messrs. Jurick, Bunger or Farnum have been charged or indicted
by the Swiss authorities, and, in connection with the settlement discussed
below, letters will be sent to the Swiss authorities requesting the
discontinuance of the criminal investigations of these individuals. 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 Company filed suit in the Court on July 14, 1994, naming Petra and
Donald Stelling 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, and seeking 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 filed a motion to
dismiss the suit.
An Official Liquidator was appointed in the Commonwealth of Bahamas for
Fidenas International Bank Limited ("FiBank") (which management believes to be a
holder of approximately 18% of the shares of Elision and approximately 11% of
the shares of GSE). The Official Liquidator filed an action in the Bahamas and
in the United States District Court on behalf of FiBank with respect to certain
shares of Common Stock issued to FIN in conjunction with the Restructuring. An
injunction on the transfer of such stock was issued by the Bahamian Court and
the transfer of such shares has been restrained and the subject shares deposited
into the registry of the Court pending further order.
Barclays Bank PLC ("Barclays"), a creditor of Elision, has requested and
obtained a preliminary injunction (still in effect) issued by a state court in
Massachusetts, which enjoins Elision from transferring any interest in Elision's
assets, other than in the usual course of business. In addition, Barclays
obtained a default judgment against GSE in the amount of $1,835,423.26 in a
state court in New York.
On June 11, 1996, Barclays, Petra Stelling, the Official Liquidator of
FiBank (collectively, the "Creditors"), Mr. Jurick, the Company (together with
the Creditors, the "Lead Parties"), FIN, Elision, GSE and the Official
Liquidator of FIL signed a Stipulation of Settlement and Order (the "Settlement
Agreement") providing for a settlement of all litigation among them on a global
basis. Under the Settlement Agreement, Mr. Jurick and FIN have agreed to pay
the Creditors the aggregate sum of $49.5 million (the "Settlement Amount") and
Mr. Jurick will be paid the sum of $3.5 million, contemplated to be solely
from the proceeds of the sale of shares of Emerson's Common Stock (the
"Settlement Shares") owned by FIN, GSE, and Elision (the "Jurick Payment"
and, together with the Settlement Amount, the "Aggregate Amount"). On the
effective date of the Settlement Agreement, all Settlement Shares owned by
GSE and Elision will be transferred to and registered in FIN's name, and all
Settlement Shares will be deposited with and remain in the custody of the
Court, to prevent defaults under the Company's borrowing facilities.
The Settlement Shares (consisting of 29,152,542 shares of Emerson's Common
Stock) will be divided into two pools. The "Pool A Shares" initially will
consist of 15,286,172 Settlement Shares. The "Pool B Shares" will consist
of the number of Settlement Shares with respect to which Mr. Jurick must
retain beneficial ownership of voting power to avoid an event of default
arising out of a Change of Control under the Company's Indenture relating to its
8-1/2% Senior Subordinated Convertible Debentures Due 2002 and its United States
secured credit facility. All Settlement Shares will be pledged to secure all
obligations under the Settlement Agreement, but the Pool B Shares generally will
not be available for sale or release from the custody of the Court or subject to
foreclosure, to prevent defaults under the Company's borrowing facilities.
FIN (which is controlled by Mr. Jurick) will retain title to and the
voting power over all Settlement Shares, but will provide notice to the
Creditors prior to certain stockholder votes. The Creditors may seek to have
the Court direct FIN to vote against any proposal of the Emerson Board, but
the Emerson Board may withdraw and not solicit any vote of its stockholders
with respect to such proposal.
The Settlement Agreement contemplates the employment of a marketing advisor
(the "Advisor"), based on a recommendation by the Company, which must be
approved by all of the other Lead Parties. If all Lead Parties do not approve
an Advisor, an alternative mechanism exists for the Court to appoint the
Advisor. The Advisor will formulate a marketing plan for the sale from time to
time of the Pool A Shares and will also appoint the Settlement Agent, who will
administer certain ministerial aspects of the settlement. On the date hereof,
based on the closing price of the Company's Common Stock on June 28, 1996, the
Pool A Shares have an aggregate market value of approximately $45.9 million. In
formulating the marketing plan, the Advisor will take into account the interests
of all of the Lead Parties, including the interests of the Company's minority
stockholders. Sales may be made of the Settlement Shares in accordance with the
marketing plan pursuant to a registered offering if the sales price is not less
than 90% of the average of the three most recent closing prices (the "Average
Closing Price"), or, other than in a registered offering, of up to 1% of the
Emerson Common Stock outstanding per quarter, if the sales price is not less
than 90% of the Average Closing Price. Any other attempted sale may be made
only after notice to all Lead Parties, any of which may request that the Court
conduct an expedited hearing contesting whether such sale should proceed.
No definite time has been provided for the sale of any shares or the full
payment of the Aggregate Amount. However, a Creditor may apply to the Court,
on notice to all other Lead Parties, to terminate the Settlement Agreement,
based on the totality of the circumstances, on the grounds that its goals and
purposes are not reasonably likely to be realized. The Creditors will be
able to resort to consent judgments against Mr. Jurick and his affiliates if
the Settlement Agreement is terminated.
The Settlement Agreement ends all litigation over ownership of the
Settlement Shares. The Company has executed the Settlement Agreement to
facilitate the settlement process. The Company's rights and obligations under
the Settlement Agreement include the following:
1. The Company will advance certain expenses of the Advisor and the Settlement
Agent and advance the reasonable fees and expenses for registration of the
Settlement Shares, in each instance to be reimbursed from the proceeds of the
first sales of the Settlement Shares.
2. If an offer to purchase Settlement Shares that would result in a Change of
Control of the Company (i.e., beneficial ownership of 25% of more of the
Company's Common Stock) were to occur, the offeror will be required to meet
with the Company's independent directors and President, or their successors
(the "Special Committee"), and the Special Committee will determine whether to
approve such offer in the exercise of their fiduciary duties under applicable
Delaware law. Any of the Creditors may apply to the Court to permit an
exception, subject to the legal standard set forth in the immediately
preceding sentence. The Company intends to seek stockholder approval of an
amendment to its Certificate of Incorporation to embody this provision
therein.
3. The Company has agreed to register the offer and sale of the Pool A Shares
as set forth in the marketing plan. The Company previously has filed a shelf
registration statement covering five million Settlement Shares owned by FIN to
finance a settlement, which is subject to certain contractual restrictions and
may be offered for sale or sold only by means of an effective registration
statement.
4. The Lead Parties have agreed that Mr. Jurick will limit his total cash
compensation not to exceed $750,000 until the Settlement Amount has been
paid. The Company has also agreed not to grant Mr. Jurick any additional
non-cash compensation. On the date hereof, Mr. Jurick owns options to
acquire 600,000 shares of Emerson Common stock at an exercise price of
$1.10 per share. Mr. Jurick will continue to receive reimbursement of
reasonable business expenses pursuant to the Company's policies.
For the Settlement Agreement to become effective, the certificates
representing certain of the Settlement Shares that are still held by the Swiss
authorities must be received by the Court, the Settlement Agreement must be
approved by the Court following a hearing on notice to interested parties,
outstanding injunctions must be dissolved, and certain other documents must be
received by the Court. The Lead Parties are currently working to resolve these
matters. The Settlement Agreement is to become effective by December 31, 1996,
or it may be withdrawn after that time if not yet effective. Requests are to be
made by Petra Stelling to the Swiss authorities to discontinue the
investigations involving Messrs. Jurick, Bunger, and Farnum, as described above.
Hopper Litigation
The Company filed a complaint on July 5, 1995 in the Superior Court of New
Jersey, Morris County, alleging that Hopper, Barry Smith and three former
employees of the Company (collectively, the "Hopper Defendants") formed a
business entity for the purpose of engaging in the distribution of consumer
electronics and that the action of the Hopper Defendants in connection therewith
violated certain duties owed to, and rights including contractual rights
from, two agreements with the Company. The Partnership continued to operate
after the filing of the lawsuit.
On January 25, 1996, the New Jersey Court dismissed the Company's complaint
as to certain of the Hopper Defendants based upon the Court's determination that
certain clauses contained in the agreements between the parties mandated
Delaware as the more proper forum for the Company's lawsuit. The Company also
filed suit on January 27, 1996, in the Delaware Chancery Court, New Castle
County, as to those Hopper Defendants who did not reside in New Jersey, which
contained similar allegations to those contained in the New Jersey suit. The
Delaware suit also sought a preliminary injunction against those Hopper
Defendants covered by the Delaware suit.
Effective April 24, 1996, the Company and Hopper entered into the Hopper
Amendment which, among other things, amended certain provisions in the
Partnership and Sales Agreements and settled all outstanding litigation between
the Company, Hopper and the other named parties. Under the Hopper Amendment,
Hopper advanced an additional $5 million to the Partnership, thereby increasing
the liquidity of the Partnership and equalizing the investment of the partners
and the sharing of cash flows. Additionally, the Hopper Amendment provides that
the Partnership will continue to buy all of the Company's product returns in the
United States through December 31, 1996 excluding defective product returns
subject to the return to vendor agreements. See "Business-Returned Products."
Subsequent to this date, either partner may give notice to dissolve the
Partnership, with a wind-down period to be completed no later than six months
from the date of such notice.
Jensen Litigation
On May 10, 1996, Jensen filed an action in the United States District Court
for the Northern District of Illinois, Eastern Division, against the Company and
its President, Eugene I. Davis, for violations of proxy solicitation rules and
for breach of a confidentiality agreement with Jensen. On May 14, 1996, the
Court entered a temporary restraining order against the Company and its
President, which has subsequently lapsed, enjoining them from (i) further
solicitation of Jensen's stockholders or their representatives until the Company
has filed a Proxy Statement with the Securities and Exchange Commission which
complies with the provisions of Regulation 14A of the Securities Exchange Act of
1934; (ii) making further solicitation containing false and misleading or
misleading statements of material fact or material omissions; and (iii)
disclosing confidential information in violation of the confidentiality
agreement. On May 20, 1996, the Company filed a counterclaim in this action
alleging that Jensen and Mr. Shaw fraudulently induced the Company to enter into
a confidentiality agreement and failed to negotiate with the Company in good
faith. In its counterclaim, the Company requests such other equitable or other
relief as the Court finds proper and an award of attorneys' fees and expenses.
The Company and its President intend to vigorously defend Jensen's claim against
the Company and to vigorously pursue its counterclaim against Jensen and Mr.
Shaw. The Company believes that Jensen's claims are without basis, that it has
meritorious defenses against Jensen's claim and that the litigation or results
thereof will not have a material adverse effect on the Company's
consolidated financial position. See "Business - Growth Strategy."
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 (including the actions noted above), or all of them
combined, will not have a material adverse effect on the Company's consolidated
financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1996.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock has traded on the American Stock Exchange 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 confirmation of the Plan of Reorganization on March 31, 1994,
there were approximately 4,500 stockholders of record of the common stock of the
Company's predecessor. The shares of such stockholders were terminated and
cancelled on the effective date of the 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 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
sales prices as reported by the American Stock Exchange from December 22, 1994.
<TABLE>
Fiscal 1995 High Low
<S> <C> <C>
Second Quarter $1-1/2 $1
Third Quarter 2-7/8 15/16
Fourth Quarter 3-3/8 2
Fiscal 1996 High Low
First Quarter $3-1/8 $2-1/4
Second Quarter 3-3/4 2-1/4
Third Quarter 3 1-3/8
Fourth Quarter 2-7/8 1-3/4
</TABLE>
The Series A Preferred Stock and Warrants outstanding are freely tradeable;
however, there is no established trading market for either security.
(b) Holders
At June 27, 1996, there were approximately 450 stockholders of record of
the Company's Common Stock, and 21 holders of record of the Series A Preferred
Stock and 14 holders of the Warrants.
(c) Dividends
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 United States credit facility and the Indenture contain certain
dividend payment restrictions on the Company's Common Stock. Additionally, the
Company's Certificate of Incorporation, defining the rights of the Series A
Preferred Stock, prohibits Common Stock dividends unless the Series A Preferred
Stock dividends are paid or put aside. The Series A Preferred Stock earns
dividends, payable on a quarterly basis, at a 7% dividend rate through March 31,
1997, then declining by a 1.4% dividend rate each succeeding year until March
31, 2001 when no further dividends are payable.
Item 6. 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. The following table sets forth
selected consolidated financial data of the Company for the years ended March
31, 1996, 1995, 1994 and 1993, the three months ended March 31, 1992 and the
year ended December 31, 1991. 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 Form
10-K.
<TABLE>
Three
Year Months Year Year Year Year
Ended Ended Ended Ended Ended Ended
Dec. Mar. Mar. Mar. Mar. Mar.
31, 31, 31, 31, 31, 31,
1991 1992 1993 1994 1995 1996
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Net Revenues:
Core Business (1) $716,651 $169,936 $741,357 $487,390 $654,671 $245,667
Personal Computers
and Other 73,555 1,562
$790,206 $171,498 $741,357 $487,390 $654,671 $245,667
Net Earnings (Loss) (2):
Before Extraordinary
Gain $(60,746) $ (6,976) $(56,000) $(73,654) $ 7,375 $(13,389)
Extraordinary Gain 129,155
$(60,746) $ (6,976) $(56,000) $ 55,501 $ 7,375 $(13,389)
Balance Sheet Data at
Period End:
Total Assets $226,131 $216,693 $194,510 $119,021 $113,969 $ 96,576
Current Liabilities
(3) 218,504 215,069 249,307 76,083 59,782 35,008
Long-Term Debt (3) 130 157 151 227 214 20,886
Shareholders' Equity
(Deficit) 4,550 (1,480) (57,895) 42,617 53,651 40,382
Working Capital
(Deficit) (29,503) (36,003) (89,949) 32,248 42,598 50,306
Current Ratio 0.9 to 0.8 to 0.6 to 1.4 to 1.7 to 2.4 to
1 1 1 1 1 1
Per Common Share:
Net Earnings (Loss) Per
Common Share (2) (4):
Before Extraordinary
Gain $( 1.60) $(0.18) $(1.47) $(1.93) $ 0.16 $(0.35)
Extraordinary Gain 3.38
$( 1.60) $(0.18) $(1.47) $ 1.45 $ 0.16 $(0.35)
Common Shareholders'
Equity
(Deficit) (5) Per
Common Share $ 0.12 $(0.04) $(1.52) $ 0.98 $ 1.08 $ 0.75
Weighted Average Number
of Common and Common
Equivalent Shares
Outstanding 37,897 37,968 38,179 38,191 46,571 40,253
</TABLE>
______________________________
(1) The decline in net direct revenues for Fiscal 1996 was due primarily to
the implementation of the Agreements signed with the Supplier, effective
March 31, 1995. Net Revenues for Fiscal 1996 excludes $254,840,000 of
Emerson branded gross sales pursuant to the Agreements during the year. Net
Revenues for Fiscal 1995 included $340,465,000 of sales of video products
now covered by the new arrangement with the Supplier. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
(2) Net earnings for the fiscal year ended March 31, 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. Accordingly,
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 the fiscal
year ended March 31, 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
the fiscal year ended March 31, 1993 also include costs related to the proxy
contest settled in June 1992. The year ended December 31, 1991 also includes
charges related to the discontinuance of the then existing 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. See Note B of Notes to Consolidated Financial Statements.
(4) Net earnings (loss) per common share for all periods prior to Fiscal 1995
are based on the weighted average number of old common shares outstanding
during each period. Net loss per common share for Fiscal 1996 is based on
the net loss and deduction of preferred stock dividend requirements
(resulting in a loss attributable to common stockholders) and the weighted
average of new Common Stock outstanding during the fiscal year. The net loss
per share does not include common stock equivalents assumed outstanding since
they are anti-dilutive. 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.
(5) Calculated based on common shareholders' equity (deficit) divided by
actual shares of Common Stock outstanding. Common shareholders' equity at
March 31, 1996, 1995 and 1994 is equal to total shareholders' equity less $10
million for the liquidation preference of the Series A Preferred Stock.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
General
On August 30, 1995, the Company completed a private placement of
$20,750,000 aggregate principal amount of 8-1/2% Senior Subordinated Convertible
Debentures Due 2002 (the "Debentures"), resulting in net proceeds to the Company
of approximately $19,208,000 after the payment of the expenses of such
offering. The proceeds of this offering were initially applied against the
Company's United States secured credit facility to reduce the then present
working capital costs. See Note F of Notes to Consolidated Financial Statements
included elsewhere in this Form 10-K. Management is currently utilizing the
benefits of such net proceeds to fund an intercompany obligation to a foreign
subsidiary, exploit new business opportunities via product line additions and
extensions and the expansion of its distribution base, and may use such proceeds
for acquisitions, including for the potential acquisition of Jensen. See
"Business - Growth Strategy" and "Legal Proceedings."
The Company also amended its United States secured credit facility with its
primary United States lender ("the Lender") 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. In addition, the Company recast its adjusted net worth
covenant on such facility effective June 30, 1996. See Notes E and N of Notes
to Consolidated Financial Statements included elsewhere in this Form 10-K. The
modifications to its United States secured credit facility, together with the
net proceeds from the sale of the Debentures, has enabled the Company to reduce
its effective cost of borrowing while permitting the Company to expand its
product lines and distribution base.
Effective March 31, 1995, the Company and the Supplier entered into the
Agreements. The Company granted a license of certain trademarks to the Supplier
for a three-year term. The license permits the Supplier to manufacture and sell
certain video products under the "EMERSON and G-Clef" trademark to the
Customer, in the United States and Canada. As a result, the Company is
receiving 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 the Customer accounted for
approximately 47% of consolidated net revenues for Fiscal 1995. The Company
will continue to supply other products to the Customer directly. Further,
the Agreements provide that the Supplier 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 the Supplier to be credited
against royalties earned from sales of VCRs, VCPs, TV/VCR combination units,
and color televisions to the Customer. In addition, effective August 1, 1995,
the Supplier assumed responsibility for returns and after-sale and warranty
services on all video products manufactured by the Supplier and sold to the
Customer, including video products sold by the Company prior to August 1,
1995. As a result, the impact of sales returns on the Company's operating
results have been significantly reduced, effective with the quarter ended
September 30, 1995. The Company has reported lower net direct revenues
in Fiscal 1996 as a result of the Agreements, but its net operating
results for such year have not been impacted negatively. The Company has
realized and expects to continue to realize a more stable cash flow over the
three-year term of the Agreements, as well as reduced short-term borrowings
necessary to finance accounts receivable and inventory thereby reducing interest
costs. Additionally, the Company's gross margins are expected to improve as the
change in mix to higher margin products and a reduction in costs for product
returns (which have historically been higher for video products) take hold. The
Company and the Supplier are currently involved in litigation over certain
matters concerning the terms of the Agreements.
The Company reported a significant decline in its net direct sales for
Fiscal 1996 as compared to Fiscal 1995 primarily due to the licensed video
sales. However, the Company's United States sales to other customers also
declined due to increased price competition, primarily in video product
categories, high retail stock levels, a slowdown in retail activity and the
extremely high level of sales achieved in Fiscal 1995. The Company expects its
United States sales for the first quarter of Fiscal 1997 to be lower than the
first quarter of Fiscal 1996 due to the continuing weak retail climate and the
increased level of price competition in video product categories.
Results of Operations - Fiscal 1996 compared with Fiscal 1995
Consolidated net revenues for Fiscal 1996 decreased $409,004,000 (or 62%)
as compared to Fiscal 1995. The effects of the Agreements described above
accounted for a substantial portion of the decrease in revenues and sales to the
Customer were reduced to 18% of consolidated net revenues in Fiscal 1996 as
compared to 53% in Fiscal 1995. Gross sales to the Customer of video products
bearing the" EMERSON and G-Clef" trademark were reported by the Supplier to the
Company to be $254,840,000 in Fiscal 1996 or 25% lower than recorded by the
Company in Fiscal 1995. Royalty income recognized by the Company from these
sales was $4,442,000 in Fiscal 1996. In addition, sales to other customers for
Fiscal 1996 decreased as a result of lower unit sales of televisions and
television/video cassette recorder combination units due to increased price
competition in these product categories. The Company's Canadian operations
reported a decline of $17.8 million in sales for Fiscal 1996 due to declines in
unit volume and sales prices due to a weak Canadian retail economy and the
bankruptcy of two key customers in Fiscal 1995. The Company's European sales
decreased $16.7 million in Fiscal 1996 due to the Company's discontinuance and
wind-down of its Spanish branch and subsequent assignment, to an independent
distributor, of the rights to sell Emerson Radio brand product in Spain.
Cost of sales, as a percentage of consolidated revenues, was 94% in Fiscal
1996 as compared to 92% in Fiscal 1995. Gross profit margins in Fiscal 1996
were lower on a comparative basis due primarily to the recognition of large
purchase discounts in Fiscal 1995 and the recognition of a loss experienced by
the Company's 50%-owned joint venture which sells product returns in Fiscal
1996. Additionally, the Company experienced lower sales prices and the
allocation of reduced fixed costs over a lower revenue base in Fiscal 1996 which
were substantially offset by a change in product mix, the recognition of
licensing income, reduced reserve requirements for sales returns and reduced
fixed costs associated with the downsizing of the Company's foreign offices.
The reduction in gross margins was unfavorably impacted by the accrual of
$9.9 million in Fiscal 1995 of purchase discounts received from one of the
Company's suppliers. Beginning in Fiscal 1996, the Company was not entitled to
a purchase discount from this supplier due to a reduction in purchase volume
associated with the Agreements. Due to the increase in the value of the
Japanese Yen in 1995, and its impact on the cost of certain raw materials and
subassemblies of the Company's suppliers, the Company absorbed certain price
increases from its suppliers. Additionally, the Company was not able to recover
such price increases from its customers due to increased price competition. As
the value of the Yen has decreased in 1996, the Company has been able to
negotiate lower prices from various sources of supply for certain audio and
video products.
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, acquisitions, joint
ventures or on its own.
Other operating costs and expenses declined $3,968,000 in Fiscal 1996 as
compared to Fiscal 1995, primarily as a result of a decrease in (i) handling and
freight charges associated with reduced customer returns and (ii) compensation
and other expenses incurred to perform after-sale services as a result of the
Company's downsizing program. See Note M to the Consolidated Financial
Statements included elsewhere in this Form 10-K.
Selling, general and administrative expenses ("S,G&A") as a percentage of
revenues were 8% in Fiscal 1996 as compared to 5% in Fiscal 1995. In absolute
terms, S,G&A decreased by $11,550,000 in Fiscal 1996 as compared to Fiscal 1995.
The decrease for Fiscal 1996 was primarily attributable to lower selling
expenses due to lower revenues, a reduction in compensation and fixed overhead
costs relating to the Company's downsizing program, lower provisions for
accounts receivable reserves and higher professional fees incurred in Fiscal
1995 due to bankruptcy costs. The increase in S,G&A as a percentage of
revenues is due primarily to the allocation of fixed S,G&A costs over a
significantly lower revenue base. 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 $508,000 in
Fiscal 1996 as compared to $354,000 in Fiscal 1995. In Fiscal 1997, the Company
will be conducting its business in Spain in U.S. dollars, thereby reducing its
exposure to foreign currency fluctuations.
Interest expense increased by $393,000 in Fiscal 1996 as compared to Fiscal
1995. The increase in interest expense was attributable to interest incurred on
the Debentures issued in August 1995, partially offset by lower average
borrowings on the Company's United States secured credit facility.
As a result of the foregoing factors, the Company incurred a net loss of
$13,389,000 in Fiscal 1996 as compared to net earnings of $7,375,000 in Fiscal
1995.
Results of Operations -- Fiscal 1995 Compared with Fiscal 1994
Consolidated net revenues 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 revenues for Fiscal 1995.
The Company's Canadian operations experienced a decline in net revenues 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 revenues, 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 revenue 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.
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 revenues, 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.
Interest expense decreased $7,361,000 in Fiscal 1995 as compared to Fiscal
1994. The decrease was attributable to the extinquishment 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.
Liquidity and Capital Resources
Net cash utilized by operating activities was $11,357,000 for Fiscal 1996.
Cash was used to fund the loss from operations and to reduce a large customer's
credit balance, partially offset by a decrease in accounts receivable and
receipt of funds for purchase discounts accrued in Fiscal 1995. The license
revenues earned from sales of video products by the Supplier to the Customer in
Fiscal 1996 did not generate any cash during this period because the royalty
earned in excess of the minimum annual royalty (received in Fiscal 1995) was not
received until May 1996.
Net cash utilized by investing activities was $1,198,000 for Fiscal 1996.
Investing activities consisted primarily of capital expenditures for the
purchase of new product molds partially offset by the redemption of pledged
certificates of deposit.
In Fiscal 1996, the Company's financing activities provided $11,668,000 of
cash. Cash was provided by the private placement of $20,750,000 aggregate
principal amount of Debentures. The proceeds of approximately $19,208,000, net
of issuance costs, was initially used to reduce borrowings under the U.S. line
of credit facility, and to fund costs for product line additions and extension
and expansion of the Company's distribution base.
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 case was
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 one of the Company's non-trade receivables.
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 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 non-trade
receivables discussed in I. above 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 its largest pre-bankruptcy shareholder.
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, as amended,
with 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. All credit
extended under the line is secured by the U.S. and Canadian assets of the
Company except for trademarks, which are subject to a negative pledge covenant.
The interest rate on these borrowings is 1.25% above the stated prime rate. At
March 31, 1996, the weighted average interest rate on the outstanding borrowings
was 9.5%. Based on the "Borrowing Base" amount at March 31, 1996, $5.5 million
of the credit facility was not utilized. The facility is also subject to an
unused line fee of 0.25% per annum. Pursuant to the terms of this credit
facility, as amended, 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 was required to
maintain a minimum adjusted net worth, as defined, of $38,000,000 at March 31,
1996. Effective June 30, 1996, such minimum adjusted net worth, as amended, is
$30,000,000. See Note N of Notes to Consolidated Financial Statements included
elsewhere in this Form 10-K. At March 31, 1996, there was $21,151,000
outstanding under the revolving loan facility, and $1,177,000 of outstanding
letters of credit issued for inventory purchases.
The Company's Hong Kong subsidiary currently maintains various credit
facilities, as amended, aggregating $62.1 million with a bank in Hong Kong
consisting of the following: (i) a $12.1 million credit facility which is
generally used for letters of credit for a foreign subsidiary's direct import
business and affiliates' inventory purchases and (ii) a $50 million credit
facility, for the benefit of a foreign subsidiary, which is for the
establishment of back-to-back letters of credit with the Customer. At March 31,
1996, 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, 1996, there were $5,644,000 and $3,056,000, respectively, of
letters of credit outstanding under these credit facilities.
The Company's Hong Kong subsidiary maintains an additional credit facility
with another bank in Hong Kong. The facility provides for (i) a $10 million
line of credit for documentary letters of credit, (ii) a $10 million back-to-
back letter of credit line and (iii) a $100,000 standby letter of credit
facility. At March 31, 1996, the Company's Hong Kong subsidiary had pledged
$5,000,000 in certificates of deposit to assure the availability of these
credit facilities. At March 31, 1996, $991,000 of the letter of credit line
was utilized.
In November 1995, the Company's Board of Directors approved a plan to
repurchase up to 2 million of its common shares, or about 20% of the Company's
current float of approximately 11 million shares, from time to time in the open
market. Although there are 40,252,772 shares outstanding, approximately 29.2
million shares are held directly or indirectly by affiliated entities of
Geoffrey Jurick, Chairman and Chief Executive Officer of the Company (which are
subject to a settlement agreement with his and his affiliated entities'
creditors - see "Legal Proceedings"). The Company has agreed with Mr. Jurick
that such shares will not be subject to repurchase. The stock repurchase
program is subject to consent of certain of the Company's lenders, certain court
imposed restrictions, price and availability of shares, compliance with
securities laws and alternative capital spending programs, including new
acquisitions. The repurchase of common shares is intended to be funded by
working capital, if and when available. It is uncertain at this time when, or
if, the Company might be able to so repurchase any of its shares of Common
Stock.
Since the emergence of the Company from bankruptcy, management believes
that it has been able to compete more effectively in the highly competitive
consumer electronics and microwave oven industries in the United States and
Canada by combining innovative approaches to the Company's current product line
such as value-added promotions, and augmenting its product line with higher
margin complimentary products. The Company also intends to engage in the
marketing of distribution, sourcing and other services to third parties. In
addition, the Company intends to undertake efforts to expand the international
distribution of its products into areas where management believes low to
moderately priced, dependable consumer electronics and microwave oven products
will have a broad appeal. The Company has in the past and intends in the
future to pursue such plans either on its own or by forging new relationships,
including license arrangements, partnerships, joint ventures or strategic
mergers and acquistions of companies in similar or complimentary businesses.
In Fiscal 1995, the Company successfully 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. The Company is also considering
strategic alternatives for its North American video business not covered under
the license agreement with the Supplier.
Short-Term Liquidity. At present, management believes that future cash
flow from operations and the institutional financing noted above will be
sufficient to fund all of the Company's cash requirements for the next year.
The Company's liquidity is 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 these periods. Additionally, the Company receives the largest
percentage of customer returns in the quarter ending March 31. The higher level
of returns during this period adversely impacts the Company's collection
activity during this period, and therefore its liquidity. The Company believes
that the Agreements with the Supplier (as noted above) and the "return-to-
vendor" agreements should favorably impact the Company's cash flow over their
respective terms.
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
anticipated cash flow from operations in Fiscal 1997 will provide sufficient
liquidity to meet the Company's operating and debt service cash requirements on
a long-term basis.
In November 1995, the Company's stockholders approved an amendment to the
Company's certificate of incorporation increasing the number of authorized
shares of preferred stock from one million shares to ten million shares. Such
additional shares provide management with the flexibility to take advantage of
any opportunities that may occur for which additional capital would need to be
raised or shares would be used to acquire a 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 Fiscal 1996,
Fiscal 1995 or Fiscal 1994. 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 had raised the costs of certain raw materials and
subassemblies of the Company's suppliers which were passed on to the Company in
the form of price increases in Fiscal 1996. The Company was not able to recover
such price increases from the selling price to its customers due to increased
price competition. However, the Company has been able to negotiate lower prices
from various sources of supply for certain audio products, commencing in the
second half of Fiscal 1996 and for certain video products commencing in Fiscal
1997. The weakening of the value of the Japanese Yen in 1996 should enable the
Company to obtain further cost reductions from its suppliers.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item 8 are
set forth at the pages indicated in Item 14(a) below.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1996 Annual Meeting of
Shareholders.
Item 11. EXECUTIVE COMPENSATION
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1996 Annual Meeting of
Shareholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1996 Annual Meeting of
Shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1996 Annual Meeting of
Shareholders.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, STATEMENT SCHEDULE AND REPORTS ON FORM
8-K
(a) Financial Statements and Schedule:
Report of Independent Auditors F-1
Consolidated Statements of Operations for the years ended
March 31, 1996, 1995 and 1994 F-2
Consolidated Balance Sheets at March 31, 1996 and 1995 F-3
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows for the years ended
March 31, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6
Schedule VIII -- Valuation and Qualifying Accounts and Reserves F-26
ALL OTHER SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE OR THE
REQUIRED INFORMATION IS SHOWN IN THE FINANCIAL STATEMENTS OR NOTES THERETO.
(b) No reports on Form 8-K were filed by the Company during the last quarter of
the fiscal year ended March 31, 1996.
(c) Exhibits
(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) Amendment dated February 14, 1996 to the Certificate of Incorporation
of Emerson (incorporated by reference to Exhibit (3) (a) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(3) (f) 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).
(3) (g) Amendment dated November 28, 1995 to the By-Laws of Emerson adopted
March 1994 (incorporated by reference to Exhibit (3) (b) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(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).
(4) (c) Common Stock Purchase Warrant Agreement to purchase 50,000 shares of
Common Stock, dated as of December 8, 1995 between Emerson and Michael
Metter (incorporated by reference to Exhibit (10) (e) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(4) (d) Common Stock Purchase Warrant Agreement to purchase 200,000 shares of
Common Stock, dated as of December 8, 1995 between Emerson and Kenneth
A. Orr (incorporated by reference to Exhibit (10) (f) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(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) 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).
(10) (h) Amendment No. 2 to Financing Agreements, dated as of February 13, 1996
(incorporated by reference to Exhibit (10) (c) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995).
(10) (i) 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) (j) 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) (k) 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) (l) Agreement dated as of January 1, 1996, between Emerson and Albert G.
McGrath, Jr. relating to termination of employment and agreement on
consulting services (incorporated by reference to Exhibit (10) (a) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended December
31, 1995).
(10) (m) 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) (n) 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) (o) 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) (p) 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) (q) 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) (r) Agreement dated as of January 31, 1996, between Emerson and Merle
Eakins relating to termination of employment and agreement on
consulting services (incorporated by reference to Exhibit (10) (b) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended December
31, 1995).
(10) (s) Employment Agreement, dated April 1, 1994, between Emerson and John
Walker (incorporated herein by reference to Exhibit (10)(ee) of
Emerson's Statement on Form S-1, Registration No. 33-53621, declared
effective by the SEC on August 9, 1994).
(10) (t) 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) (u) 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 year ended March 31,
1995).
(10) (v) 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 year ended March 31, 1995).
(10) (w) Agreement, dated as of April 24, 1996 by and among Emerson and E & H
Partners relating to amendments of the Partnership Agreement dated
April 1, 1994 and the Sales Agreement dated April 1, 1994 and the
settlement of certain outstanding litigation.*
(10) (x) 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 year ended March 31, 1995).
(10) (y) 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 of Form 10-K
for the year ended March 31, 1995).
(10) (z) 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 year ended March 31,
1995).
(10) (aa) License Agreement, dated February 22, 1995, between Emerson and Otake
Trading Co. Ltd. and certain affiliates ("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) (ab) 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) (ac) 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 year ended March 31, 1995).
(10) (ad) Consulting Agreement, dated as of December 8, 1995 between Emerson and
First Cambridge Securities Corporation (incorporated by reference to
Exhibit (10) (d) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
(10) (ae) Stipulation of Settlement and Order dated June 11, 1996 by and among
the Official Liquidator of Fidenas International Bank Limited, Petra
Stelling, Barclays Bank PLC, the Official Liquidator of Fidenas
Investment Limited, Geoffrey P. Jurick, Fidenas International Limited,
L.L.C., Elision International, Inc., GSE Multimedia Technologies
Corporation and Emerson.*
(11) Computation of Primary Earnings Per Share.*
(12) Computation of Ratio of Earnings (Loss) to Combined Fixed Charges and
Preferred Stock Dividends.*
(21) Subsidiaries of the Company as of March 31, 1996.*
(27) Financial Data Schedule for year ended March 31, 1996.*
___________________
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
EMERSON RADIO CORP.
By: /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chairman of the Board
Dated: July 1, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Geoffrey P. Jurick Chairman of the Board, July 1, 1996
Geoffrey P. Jurick Chief Executive Officer
/s/ Eugene I. Davis President and Director July 1, 1996
Eugene I. Davis
/s/ John P. Walker Executive Vice President, July 1, 1996
John P. Walker Chief Financial Officer
/s/ Eddie Rishty Senior Vice President- July 1, 1996
Eddie Rishty Controller & Logistics
(Chief Accounting Officer)
/s/ Robert H. Brown Jr., Director July 1, 1996
Robert H. Brown, Jr.
/s/ Peter G. Bunger Director July 1, 1996
Peter G. Bunger
/s/ Jerome H. Farnum Director July 1, 1996
Jerome H. Farnum
/s/ Raymond L. Steele Director July 1, 1996
Raymond L. Steele
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, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years ended March 31, 1996, 1995 and 1994. 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, 1996 and 1995 and the consolidated
results of its operations and cash flows for the years ended March 31, 1996,
1995 and 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
June 7, 1996, except for Note N,
as to which the date is June 28, 1996.
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended March 31,
1996 1995 1994
<S> <C> <C> <C>
Net revenues $245,667 $654,671 $487,390
Costs and expenses:
Cost of sales 231,455 604,329 486,536
Other operating costs and
expenses 4,803 8,771 12,001
Selling, general and
administrative expenses 19,497 31,047 34,552
255,755 644,147 533,089
Operating profit (loss) (10,088) 10,524 (45,699)
Interest expense 3,275 2,882 10,243
Earnings (loss) before
reorganization costs and taxes (13,363) 7,642 (55,942)
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 (13,363) 7,642 (73,327)
Provision for income taxes 26 267 327
Earnings (loss) before
extraordinary gain (13,389) 7,375 (73,654)
Extraordinary gain on
extinguishment of debt 129,155
Net earnings (loss) $(13,389) $7,375 $55,501
Net earnings (loss) per common
share:
Before extraordinary gain $(0.35) $0.16 $(1.93)
Extraordinary gain 3.38
Net earnings (loss) $(0.35) $0.16 $1.45
Weighted average number of common
and common equivalent shares
outstanding 40,253 46,571 38,191
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.
</TABLE>
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31,
1996 1995
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $16,133 $ 17,020
Accounts receivable (less allowances of $6,139
and $9,350, respectively) 23,583 34,309
Inventories 35,292 35,336
Prepaid expenses and other current assets 10,306 15,715
Total current assets 85,314 102,380
Property and equipment, net 3,501 4,676
Other assets 7,761 6,913
Total Assets $96,576 $113,969
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $21,151 $ 27,296
Current maturities of long-term debt 173 508
Accounts payable and other current liabilities 10,391 18,982
Accrued sales returns 3,091 12,713
Income taxes payable 202 283
Total current liabilities 35,008 59,782
Long-term debt, less current maturities 20,886 214
Other non-current liabilities 300 322
Shareholders' Equity:
Preferred shares -- 10,000,000 shares
authorized, 10,000 shares issued and
outstanding 9,000 9,000
Common shares -- $.01 par value, 75,000,000
shares authorized; 40,252,772 shares issued and
outstanding 403 403
Capital in excess of par value 108,991 107,969
Accumulated deficit (78,175) (64,086)
Cumulative translation adjustment 163 365
Total shareholders' equity 40,382 53,651
Total Liabilities and Shareholders' Equity $96,576 $113,969
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
Common Shares Issued
Capital
in Accumu- Cumulative
Preferred Number Par Excess of lated Translation
Stock of Shares Value Par Value Deficit Adjustment
<S> <C> <C> <C> <C> <C> <C>
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
Issuance of
common stock
warrants 1,065
Preferred
stock dividends (700)
Other (43) (202)
Net loss (13,389)
Balance -- March
31, 1996 $9,000 40,252,772 $403 $108,991 $(78,175) $163
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended March 31,
1996 1995 1994
<S> <C> <C> <C>
Cash Flows from Operating
Activities:
Net earnings (loss) $(13,389) $7,375 $55,501
Adjustments to reconcile net
earnings (loss) to net
cash provided (used) by
operating activities:
Depreciation and
amortization 3,664 3,876 7,327
Extraordinary gain (129,155)
Reorganization expenses 12,914
Asset valuation and loss
reserves (14,209) (2,268) (1,296)
Other 298 (969) 2,643
Changes in assets and
liabilities:
Accounts receivable 17,391 (14,805) 12,081
Inventories (437) 11,032 34,942
Prepaid expenses and
other current assets 5,071 (5,598) 6,181
Other assets (601) (605) 89
Accounts payable and
other current liabilities (9,092) (18,633) 27,287
Income taxes payable (53) (379) (924)
Net cash provided (used) by
operations (11,357) (20,974) 27,590
Cash Flows from Investing
Activities:
Additions to property and
equipment (1,666) (2,874) (3,552)
Redemption of (investment in)
certificates of deposit 945 8,455 (500)
Other (477) 110 114
Net cash provided (used) by
investing activities (1,198) 5,691 (3,938)
Cash Flows from Financing
Activities:
Net borrowings (repayments)
under line of credit
facility (6,145) 7,256 20,040
Proceeds from private
placement of senior
subordinated convertible
debentures 19,208
Proceeds from issuances of
common stock 5,692 30,000
Retirement of long-term debt (298) (500) (30)
Payment to former creditors (922)
Payment of preferred stock
dividends (700) (525)
Payment of pre-petition
obligations (75,000)
Payment of debt costs (237) (2,139)
Other (160) (321) (83)
Net cash provided (used) by
financing activities 11,668 10,680 (27,212)
Net decrease in cash and cash
equivalents (887) (4,603) (3,560)
Cash and cash equivalents at
beginning of year 17,020 21,623 25,183
Cash and cash equivalents at
end of year $16,133 $17,020 $21,623
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
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 M).
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.
(2) Use of Estimates:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
(3) 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.
(4) Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or
market.
(5) 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.
(6) Warranty Claims:
The Company provides an accrual for future warranty costs when the product
is sold.
(7) Net Earnings (Loss) per Share:
Net loss per common share for the year ended March 31, 1996 is based on the
net loss and deduction of preferred stock dividend requirements and the weighted
average number of shares of common stock outstanding during the period. This
calculation does not include common stock equivalents since they are anti-
dilutive.
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 number of
shares of common stock issuable upon conversion is dependent on the market value
of the common stock at the time of conversion (See Note I(3)). Net earnings
(loss) per common share for the year ended March 31, 1994 is 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 anti-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 were 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 gains of $475,000 and
$220,000 and a loss of $1,489,000 for the years ended March 31, 1996, 1995 and
1994, respectively.
The Company does not enter into foreign currency exchange contracts to
hedge its exposures related to foreign currency fluctuations. However, the
Company is reducing its foreign currency exposure by conducting its European
business in U.S. dollars commencing in the fiscal year ending March 31, 1997.
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 one of the Company's non-trade receivables.
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 I(5)) 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 non-trade
receivables discussed in I. above 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 Note F).
Pursuant to the provisions of the Plan of Reorganization, as of March 31,
1994, the equity of the Company's shareholders, 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,
initially held by the following parties:
<TABLE>
Number of Shares
<S> <C>
Fidenas International Limited L.L.C. ("FIN") 16,400,000
Elision International, Inc. ("Elision") 1,600,000
GSE Multimedia Technologies Corporation ("GSE") 12,000,000
</TABLE>
The Company's Chairman and Chief Executive Officer has a controlling
beneficial ownership interest in each of the three entities listed above and,
therefore holds an approximate 73% interest in the Company's outstanding common
stock at March 31, 1996. Included above are 847,458 shares of common stock held
by FIN, as nominee, as to which FIN and the Company's CEO, Mr. Geoffrey P.
Jurick, disclaim beneficial ownership. In accordance with a Stipulation of
Settlement and Order (the "Settlement Agreement") dated June 11, 1996, upon the
effective date of the Settlement Agreement, Elision and GSE will transfer all of
their Emerson shares to FIN, to be registered in the name of FIN. See Note K.
Note C -- Inventories:
Inventories are comprised primarily of finished goods. Spare parts
inventories, net of reserves, aggregating $2,042,000 and $2,763,000 at March 31,
1996 and 1995, respectively, are included in "Prepaid expenses and other current
assets."
Note D -- Property and Equipment:
Property and equipment is comprised of the following:
<TABLE>
March 31,
1996 1995
(In thousands)
<S> <C> <C>
Furniture and fixtures $ 4,528 $ 5,854
Molds and tooling 1,281 3,806
Machinery and equipment 1,372 1,847
Leasehold improvements 742 271
7,923 11,778
Less accumulated depreciation and
amortization 4,422 7,102
$ 3,501 $ 4,676
</TABLE>
Depreciation and amortization of property and equipment amounted to
$2,800,000, $3,267,000 and $6,679,000 for the years ended March 31, 1996, 1995
and 1994, 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 E -- Notes Payable:
Effective March 31, 1994, the Company entered into a three year Loan and
Security Agreement, as amended in August and December 1995, 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, except for trademarks which are subject to a negative pledge
covenant. The interest rate on these borrowings is 1.25% above the stated prime
rate. At March 31, 1996 and 1995, the interest rate on the outstanding
borrowings was 9.5% and 11.25%, respectively. The facility is also subject to
an unused line fee of 0.25% per annum. Pursuant to the Loan and Security
Agreement, as amended, 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, 1996,
there was $21,151,000 outstanding under the revolving loan facility and
approximately $1,177,000 of outstanding letters of credit issued for inventory
purchases. The fair market value of these notes payable is estimated to
approximate their carrying amount.
Cash paid for interest was $3,207,000, $3,371,000 and $11,251,000 for the
years ended March 31, 1996, 1995 and 1994, respectively.
In the six months ended March 31, 1994, interest expense was only accrued
and paid on the Company's debtor-in-possession financing. 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 F -- Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
March 31,
1996 1995
(In thousands)
<S> <C> <C>
8-1/2% Senior Subordinated Convertible
Debentures Due 2002 $20,750 $ --
Notes payable to unsecured creditors 79 465
Equipment notes and other 230 257
21,059 722
Less current obligations 173 508
$20,886 $ 214
</TABLE>
The 8-1/2% Senior Subordinated Convertible Debentures Due 2002 (the
"Debentures") were issued in August 1995. The Debentures bear interest at the
rate of 8-1/2% per annum, payable quarterly on the 15th of March, June,
September and December, in each year. The Debentures mature on August 15,
2002. The Debentures are convertible into shares of the Company's common
stock at any time prior to redemption or maturity at an initial conversion price
of $3.9875 per share, subject to adjustment under certain circumstances. The
Debentures are redeemable, at the option of the Company, three years from the
date of issuance, in whole or in part, at an initial redemption price of 104% of
principal, decreasing by 1% per year until maturity. The Debentures are
subordinated to all existing and future senior indebtedness (as defined in the
indenture governing the Debentures). The Debentures restrict, among other
things, the amount of senior indebtedness and other indebtedness that the
Company, and, in certain instances, its subsidiaries, may incur. Each holder of
Debentures has the right to cause the Company to redeem the Debentures if
certain designated events (as defined) should occur. The Debentures are subject
to certain restrictions on transfer, although the Company has registered the
offer and sale of the Debentures and the underlying common stock.
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 G -- Income Taxes:
The income tax provision consists of the following:
<TABLE>
Years Ended March
31,
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ (39) $ 40
Foreign, state and other 65 227 327
$ 26 $267 $327
</TABLE>
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:
<TABLE>
Years Ended March 31,
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Statutory provision (benefit) $(4,543) $2,598 $(24,931)
Utilization of net operating loss
carryforwards --- (632) ---
U.S. and foreign net operating
losses without tax benefit 4,493 1,675 24,975
Foreign income subject to foreign
tax, not subject to U.S. tax --- (785) ---
Tax recognition of prior year book
deductions --- (888) ---
Rate differential on foreign income 9 (1,959) 327
Nondeductible bankruptcy expenses 24 137 1,545
Nondeductible debt restructuring
expenses --- --- (1,540)
Other, net (44) 121 (49)
Total income tax provision $ 26 $267 $ 327
</TABLE>
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:
<TABLE>
March 31,
1996 1995
(In thousands)
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserves $ 2,995 $ 7,653
Inventory reserves 2,259 1,188
Net operating loss carryforwards 18,250 10,588
Other 445 1,014
Total deferred tax assets 23,949 20,443
Valuation allowance for deferred tax assets (23,287) (20,189)
Net deferred tax assets 662 254
Deferred tax liabilities (662) (254)
Net deferred taxes $ -- $ --
</TABLE>
Total deferred tax assets of the Company at March 31, 1996 represent the
tax-effected net operating loss carryforwards subject to annual limitations (as
discussed below), and tax-effected deductible temporary differences. The Company
has established a valuation reserve against any expected future benefits.
Cash paid for income taxes was $151,000, $725,000 and $946,000 for the
years ended March 31, 1996, 1995 and 1994, respectively.
Income before taxes of foreign subsidiaries was $3,786,000 for the year
ended March 31, 1995. Losses before taxes of foreign subsidiaries was
$6,233,000 and $16,042,000 for the years ended March 31, 1996 and 1994,
respectively. Provision is made for federal income taxes which may be payable on
earnings of foreign subsidiaries to the extent that the Company anticipates they
will be remitted. 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 $1,034,063, $3,396,000 and $1,086,000 at March
31, 1996, 1995 and 1994, respectively.
As of March 31, 1996, the Company has a net operating loss carryforward of
approximately $117,810,000, of which $33,074,000, $13,385,000, $50,193,000 and
$21,159,000 will expire in 2006, 2007, 2009 and 2010, respectively. The
utilization of these net operating losses 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, FIN, 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 foreign tax credit
carryforwards to the limitation provided for in Section's 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 H -- Commitments and Contingencies:
(1) Leases:
The Company leases warehouse and office space at minimum aggregate rentals
as follows:
<TABLE>
Year Ending
March 31, Amount
(In thousands)
<S> <C>
1997 $ 1,608
1998 1,197
1999 329
$3,134
</TABLE>
Rent expense aggregated $1,705,000, $2,731,000 and $2,663,000 for the years
ended March 31, 1996, 1995 and 1994, respectively. Rental income from the
sublease of warehouse and office space aggregated $278,000, $273,000 and $89,000
in the years ended March 31, 1996, 1995 and 1994, respectively.
(2) Letters of Credit:
Outstanding letters of credit for the purchase of inventory, not reflected
in the accompanying financial statements, aggregated $6,821,000 (including
$1,177,000 issued under the Loan and Security Agreement -- see Note E) at March
31, 1996.
The Company's Hong Kong subsidiary also currently maintains various credit
facilities aggregating $62.1 million with a bank in Hong Kong consisting of the
following: (i) a $12.1 million credit facility which is generally used for
letters of credit for a foreign subsidiary's direct import business and
affiliates' inventory purchases, and (ii) a $50 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, 1996, 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, 1996, there were $5,644,000 and $3,056,000 of letters of credit outstanding
under these credit facilities.
The Company's Hong Kong subsidiary maintains an additional credit facility
with another bank in Hong Kong. The facility provides for (i) a $10 million line
of credit for documentary letters of credit, (ii) a $10 million back-to-back
letter of credit line, and (iii) a $100,000 standby letter of credit facility.
At March 31, 1996, the Company's Hong Kong subsidiary has pledged $5,000,000 in
certificates of deposit to assure the availability of these credit
facilities. At March 31, 1996, $991,000 of the letter of credit line was
utilized.
Note I -- Shareholders' Equity:
(1) 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:
<TABLE>
Number of Price Aggregate
Shares Per Share Price
<S> <C> <C> <C>
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
Granted 125,000 $2.63 - $2.88 341,000
Cancelled (287,000) $1.00 (287,000)
Outstanding -- March 31,
1996 1,668,000 $1.00 - $2.88 $1,944,000
</TABLE>
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.
(2) In October 1994, the Company's Board of Directors adopted, and the
stockholders subsequently approved, the 1994 Non-Employee Director Stock Option
Plan. The maximum number of shares of common stock available under such plan is
300,000 shares. A summary of transactions since inception of the plan is as
follows:
<TABLE>
Number of Price Aggregate
Shares Per Share Price
<S> <C> <C> <C>
Granted 175,000 $1.00 $175,000
Outstanding--March 31,
1995 175,000 $1.00 175,000
Cancelled (25,000) $1.00 (25,000)
Outstanding--March 31,
1996 150,000 $1.00 $150,000
</TABLE>
The provisions for exercise price, term and vesting schedule are the same
as noted above for the Stock Compensation Program.
(3) Pursuant to the Plan of Reorganization, on March 31, 1994, the Company
issued Series A Preferred Stock, $.01 par value, 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:
<TABLE>
Dividend Rate
<S> <C>
Year 1 to 3 7.0%
Year 4 5.6%
Year 5 4.2%
Year 6 2.8%
Year 7 1.4%
Thereafter None
</TABLE>
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.
(4) 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 warrants.
(5) 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 the Company's former largest shareholder. 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 769,446 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.
(6) In connection with the Debentures offering in August 1995, the Company
issued, to the placement agent and its authorized dealers, warrants for the
purchase of 500,000 shares of common stock. The warrants are exercisable for a
period of four years from August 24, 1996 and provide for an exercise price of
$3.9875 per share, subject to adjustment under certain circumstances.
(7) In connection with a consulting agreement in December 1995, the
Company issued, to the consultant, warrants for the purchase of 250,000 shares
of common stock at an exercise price of $4.00 per share. The warrants vest and
may be exercised by the holder (i) 50% at any time after six months from the
date of issuance, and (ii) the balance at any time after one year from the date
of issuance, in either event until December 8, 2000, when such warrants shall
expire.
(8) In November 1995, the Company filed a shelf registration statement
covering 5,000,000 shares of common stock owned by FIN to finance a settlement
of the Litigation Regarding Certain Outstanding Common Stock (See Note K). The
shares covered by the shelf registration are subject to certain contractual
restrictions and may be offered for sale or sold only by means of an effective
prospectus following registration under the Securities Act of 1933, as amended.
(9) In November 1995, the Company's stockholders approved an amendment to
the Company's certificate of incorporation increasing the number of authorized
shares of preferred stock from one million shares to ten million shares.
(10) In November 1995, the Company's Board of Directors approved a plan to
repurchase up to two million of its common shares, or about 20% of the Company's
current float of approximately eleven million shares, from time to time in the
open market. Although there are 40,252,772 shares outstanding, approximately
29.2 million shares are held directly or indirectly by affiliated entities of
Geoffrey Jurick, Chairman and Chief Executive Officer of the Company. The
Company has agreed with Mr. Jurick that such shares will not be subject
to repurchase. The stock repurchase program is subject to consent of certain of
the Company's lenders, certain court imposed restrictions, price and
availability of shares, compliance with securities laws and alternative capital
spending programs, including new acquisitions. The repurchase of common shares
is intended to be funded by working capital, if and when available. It is
uncertain at this time when the Company might be able to so repurchase any of
its shares of Common Stock.
Note J -- License Agreements:
(1) In February 1995, the Company and a former large supplier and certain
affiliates (collectively, the "Supplier") entered into two mutually contingent
agreements (the "Agreements"). Effective March 31, 1995, the Company granted a
license of certain trademarks to the Supplier for a three-year term. The
license permits the Supplier to manufacture and sell certain video products
under the "EMERSON and G-Clef" trademark to one of the Company's significant
customers (the "Customer") in the U.S. and Canada, and precludes the Supplier
from supplying product to the Customer other than under the "Emerson and
G-Clef" or the Supplier trademarks. The Company will continue to supply other
products to the Customer directly. Further, the Agreements provide that the
Supplier 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 the Supplier 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 the Customer. In addition, effective
August 1, 1995, the Supplier assumed responsibility for returns and after-sale
and warranty services on all video products manufactured by the Supplier and
sold to the Customer, including video products sold by the Company prior to
April 1, 1995. Royalty income recognized by the Company pursuant to the
Agreements was $4,442,000 in Fiscal 1996.
Additionally, the Company and the Supplier agreed on a series of purchase
discounts, consistent with agreements and past practices between the Supplier
and the Company. Through March 31, 1995, the Supplier had 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 was paid 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"), which was amended during Fiscal 1996,
whereby the Company granted a license of certain trademarks to Jasco for use on
non-competing consumer electronics 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 minimum royalty was not exceeded in
the first contract year ended December 31, 1995. The Company recognized license
fee income of approximately $1,125,000 in the year ended March 31, 1995.
Note K -- Legal Proceedings:
Otake Litigation
On December 20, 1995, the Company filed suit in the United States District
Court for the District of New Jersey against Orion Sales, Inc., Otake Trading
Co. Ltd., Technos Development Limited, Shigemasa Otake, and John Richard Bond,
Jr. (collectively, the "Otake Defendants") alleging breach of contract, breach
of covenant of good faith and fair dealing, unfair competition, interference
with prospective economic gain, and conspiracy in connection with certain
activities of the Otake Defendants under certain agreements between the Company
and the Otake Defendants. Mr. Bond is a former officer and sales representative
of the Company, having served in the latter capacity until he became involved
working for the other Otake Defendants. Certain of the other Otake Defendants
have supplied the majority of the Company's purchases until the Company's most
recent fiscal year.
On December 21, 1995, Orion Sales, Inc. and Orion Electric (America), Inc.
filed suit against the Company in the United States District Court, Southern
District of Indiana, Evansville Division, alleging various breaches of certain
agreements by the Company, including breaches of the confidentiality provisions,
certain payment breaches, breaches of provisions relating to product returns,
and other alleged breaches of those agreements, and seeking damages in the
amount of $2,452,656, together with interest thereon, attorneys' fees, and
certain others costs. While the outcome of the New Jersey and Indiana actions
are not certain at this time, the Company believes it has meritorious defenses
against the claims made by the plaintiffs in the Indiana action. In any event,
the Company believes the results of that litigation should not have a material
adverse effect on the financial condition of the Company or on its operations.
Litigation Regarding Certain Outstanding Common Stock:
The 30 million shares of Common Stock issued to GSE, FIN and Elision on
March 31, 1994, pursuant to the Plan of Reorganization, were the subject of
certain legal proceedings. On June 11, 1996, the Settlement Agreement was
executed, which settles various legal proceedings in Switzerland, the Bahamas
and the United States. The Settlement Agreement provides for, among other
things, the payment by Mr. Jurick and his affiliated entities of $49.5 million
to various claimants of Mr. Jurick and affiliated entities (the "Creditors"), to
be paid from the proceeds of the sale of the 29,152,542 shares of Emerson common
stock (the "Settlement Shares") owned by affiliated entities of Mr. Jurick. In
addition, Mr. Jurick will be paid the sum of $3.5 million from the sale of such
stock. The Settlement Shares will be sold over an extended, but indeterminate,
period of time by a financial advisor (the "Advisor") to be selected by Emerson
in consultation with Mr. Jurick and the Creditors. Such Advisor will
formulate a marketing plan taking into consideration (i) the interests of
Emerson's minority stockholders, and (ii) the goal of generating sufficient
proceeds to pay the Creditors and Mr. Jurick as quickly as possible. The
Settlement Shares will be divided into two pools. The Pool A Shares will
initially consist of 15,286,172 Emerson shares. The Pool B Shares consist
of the number of Emerson shares with respect to which Mr. Jurick must retain
beneficial ownership of voting power to avoid an event of default arising out of
a change of control pursuant to the terms of the Company's Loan and Security
Agreement with the Lender and/or the indenture governing the Debentures. Sales
may be made of the Settlement Shares pursuant to a registered offering if the
sales price in not less than 90% of the average of the three most recent closing
prices (the "Average Closing Price"), or, other than in a registered offering,
of up to 1% of the Emerson common stock outstanding per quarter, if the sales
price is not less than 90% of the Average Closing Price. Any other attempted
sales are subject to the consent of Mr. Jurick, the Creditors and if necessary,
the Court. The Settlement Agreement will only become effective after, among
other things, receipt by the Court of certain share certificates currently held
in foreign jurisdictions and all documents required in the Settlement Agreement.
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 on or about 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, on or about September 30, 1994, the Company instituted
an adversary proceeding in the Bankruptcy Court asserting damages caused by
Cineral and seeking declaratory relief and replevin. 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 and discovery
commenced. This action has been stayed since June 1995 by order of the
Bankruptcy Court pending settlement negotiations. 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.
Hopper Litigation
Effective April 24, 1996, the Company and Hopper entered into the Hopper
Amendment which, among other things, amended certain provisions in the
Partnership and Sales Agreements and settled all outstanding litigation between
the Company, Hopper and the other named parties. Under the Hopper Amendment,
Hopper advanced an additional $5 million to the Partnership, thereby increasing
the liquidity of the Partnership and equalizing the investment of the partners
and the sharing of cash flows. Additionally, the Hopper Amendment provides that
the Partnership will continue to buy certain of the Company's product returns
through December 31, 1996. Subsequent to this date, either partner may give
notice to dissolve the Partnership, with a wind-down period to be completed no
later than six months from the date of notice.
International Jensen Incorporated ("Jensen") Litigation
On May 10, 1996, Jensen filed an action in the United States District Court
for the Northern District of Illinois, Eastern Division, against the Company and
its President, Eugene I. Davis, for violations of proxy solicitation rules and
for breach of a confidentiality agreement with Jensen. On May 14, 1996, the
Court entered a temporary restraining order against the Company and its
President, which subsequently lapsed, enjoining them from (i) further
solicitation of Jensen's stockholders or their representatives until the
Company has filed a Proxy Statement with the Securities and Exchange
Commission which complies with the provisions of Regulation 14A of the
Securities Exchange Act of 1934; (ii) making further solicitation containing
false and misleading or misleading statements of material fact or material
omissions; and (iii) disclosing confidential information in violation of the
confidentiality agreement. On May 20, 1996, the Company filed a counterclaim
in this action alleging that Jensen and its Chairman, Chief Executive Officer
and President, Robert G. Shaw, fraudulently induced the Company to enter into a
confidentiality agreement and failed to negotiate with the Company in good
faith. In its counterclaim, the Company requests such other equitable or
other relief as the Court finds proper and an award of attorneys' fees and
expenses. The Company and its President intend to vigorously defend Jensen's
claim against the Company and to vigorously pursue its counterclaim against
Jensen and Mr. Shaw. The Company believes that Jensen's claims are without
basis, that it has meritorious defenses againstJensen's claim and that the
litigation or results thereof will not have a material adverse effect on the
Company's consolidated financial position.
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 L -- 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>
Year Ended March 31, 1996 U.S. Foreign Eliminations Consolidated
(In thousands)
<S> <C> <C> <C> <C>
Sales to unaffiliated
customers $234,369 $11,298 $ $245,667
Transfers between
geographic areas 2,884 876 (3,760)
Total net revenues $237,253 $12,174 $ (3,760) $245,667
Earnings (loss) before
income taxes $(11,324) $(2,039) $ $(13,363)
Identifiable assets $ 90,350 $ 6,226 $ $ 96,576
Year Ended March 31,1995
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
</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, 1996 and 1995, total assets include $27,779,000 and
$37,492,000, respectively, of assets located in foreign countries.
The Company's net sales to one customer aggregated approximately 18%, 53%
and 34% of consolidated net revenues for the years ended March 31, 1996, 1995
and 1994, respectively. At March 31, 1996 and 1995, the Company had a liability
balance to this customer for product returns. The Company's net sales to
another customer aggregated 16%, 10% and 12% for the years ended March 31, 1996,
1995 and 1994, respectively. Trade receivables from this customer approximated
5% and 10% of accounts receivable at March 31, 1996 and 1995, respectively, and
were not collateralized.
Note M -- Investment in Joint Venture
The Company has a 50% investment in E & H Partners, a joint venture that
purchases, refurbishes and sells certain 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 (loss) of the joint venture is reflected as an
increase or reduction of cost of sales in the Company's Consolidated Statements
of Operations. Summarized financial information relating to the joint venture
is as follows:
<TABLE>
March 31,
1996 1995
(In thousands)
<S> <C> <C>
Activity between Company and E & H Partners
Accounts receivable from joint venture (a) $13,270 $15,283
Investment in joint venture 1,265 1,565
Sales to joint venture 17,629 32,500
E & H Partners Summarized Financial Information
Condensed balance sheet:
Current assets $19,326 $26,749
Noncurrent assets 162 161
Total $19,488 $26,910
Current liabilities $16,958 $23,780
Partnership equity 2,530 3,130
Total $19,488 $26,910
Condensed income statement:
Net sales (b) $27,712 $24,760
Net earnings (loss) (600) 2,130
</TABLE>
___________________
(a) Accounts receivable were secured by a full lien on all of the partnership's
inventory at these dates, and such lien had been assigned to the Lender as
collateral for the U.S. line of credit facility. In April 1996, the Company
agreed to equally share the lien on the partnership's inventory with the other
partner in the joint venture, in exchange for, among other things, a $5 million
loan by such partner to the joint venture and a subsequent paydown of E&H
Partners' obligation to the Company of the same amount.
(b) Includes sales to the Company of $5,964,000 and $3,796,000, respectively.
Note N -- Subsequent Events:
In June 1996, the Company amended its adjusted net worth covenant with the
Lender, effective June 30, 1996. The adjusted net worth covenant, as amended,
requires the Company to maintain an adjusted net worth, as defined, of not less
than the sum of (i) the base amount of $30,000,000 plus (ii) any proceeds
received by the Company after December 31, 1995 from the sale of any equity or
debt securities.
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
Column A Column B Column C ColumnD Column E
Balance Charged Balance
at to at
beginning costs end of
of and year
Description year expenses Deductions (C)
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts/chargebacks:
Year ended:
March 31, 1996 $4,150 $1,111 $2,430 $2,831
March 31, 1995 3,349 1,306 505(A) 4,150
March 31, 1994 3,267 3,023 2,941(A) 3,349
Inventory reserves:
Year ended:
March 31, 1996 $ 470 $1,087 $ 335 $1,222
March 31, 1995 644 251 425(B) 470
March 31, 1994 1,559 6,619 7,534(B) 644
</TABLE>
(A) Accounts written off, net of recoveries.
(B) Net realizable value reserve removed from account when inventory is sold.
(C) Amounts do not include certain accounts receivable reserves that are
disclosed as "allowances" on the Consolidated Balance Sheets since they are not
valuation reserves.
INDEX TO EXHIBITS
PAGE NUMBER
IN
SEQUENTIAL
NUMBERING
EXHIBIT DESCRIPTION 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) Amendment dated February 14, 1996 to the Certificate
of Incorporation of Emerson (incorporated by
reference to Exhibit (3) (a) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December
31, 1995).
(3) (f) 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).
(3) (g) Amendment dated November 28, 1995 to the By-Laws of
Emerson adopted March 1994 (incorporated by reference
to Exhibit (3) (b) of Emerson's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995).
(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).
(4) (c) Common Stock Purchase Warrant Agreement to purchase
50,000 shares of Common Stock, dated as of December
8, 1995 between Emerson and Michael Metter
(incorporated by reference to Exhibit (10) (e) of
Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
(4) (d) Common Stock Purchase Warrant Agreement to purchase
200,000 shares of Common Stock, dated as of December
8, 1995 between Emerson and Kenneth A. Orr
(incorporated by reference to Exhibit (10) (f) of
Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
(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) 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).
(10) (h) Amendment No. 2 to Financing Agreements, dated as of
February 13, 1996 (incorporated by reference to Exhibit
(10) (c) of Emerson's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1995).
(10) (i) 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) (j) 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) (k) 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) (l) Agreement dated as of January 1, 1996, between Emerson
and Albert G. McGrath, Jr. relating to termination of
employment and agreement on consulting services
(incorporated by reference to Exhibit (10) (a) of
Emerson's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995).
(10) (m) 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) (n) 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) (o) 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) (p) 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) (q) 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) (r) Agreement dated as of January 31, 1996, between Emerson
and Merle Eakins relating to termination of employment
and agreement on consulting services (incorporated by
reference to Exhibit (10) (b) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31,
1995).
(10) (s) 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) (t) 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) (u) 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 year ended March 31, 1995).
(10) (v) 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 year ended March 31, 1995).
(10) (w) Agreement, dated as of April 24, 1996 by and among
Emerson and E & H Partners relating to amendments of
the Partnership Agreement dated April 1, 1994 and the
Sales Agreement dated April 1, 1994 and the settlement
of certain outstanding litigation.*
(10) (x) Independent Consultants 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 year ended March 31, 1995).
(10) (y) 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 year
ended March 31, 1995).
(10) (z) 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 year ended March 31, 1995).
(10) (aa) License Agreement, dated February 22, 1995, between
Emerson and Otake Trading Co. Ltd. and certain affilates ("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) (ab) 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) (ac) 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 year ended
March 31, 1995).
(10) (ad) Consulting Agreement, dated as of December 8, 1995
between Emerson and First Cambridge Securities
Corporation (incorporated by reference to Exhibit (10)
(d) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
(10) (ae) Stipulation of Settlement and Order dated June 11, 1996
by and among the Official Liquidator of Fidenas
International Bank Limited, Petra Stelling, Barclays
Bank PLC, the Official Liquidator of Fidenas Investment
Limited, Geoffrey P. Jurick, Fidenas International
Limited, L.L.C., Elision International, Inc., GSE
Multimedia Technologies Corporation and Emerson.*
(11) Computation of Primary Earnings Per Share.*
(12) Computation of Ratio of Earnings (Loss) to Combined
Fixed Charges and Preferred Stock Dividends.*
(21) Subsidiaries of the Registrant as of March 31, 1996.*
(27) Financial Data Schedule for year ended March 31, 1996.*
___________________
* Filed herewith.
<TABLE>
EXHIBIT 11
Emerson Radio Corp. and Subsidiaries
Exhibit to Form 10-K
Computation of Primary Earnings Per Share
(in thousands, except per share data)
Years Ended March 31,
1996 1995 1994
<S> <C> <C> <C>
Net earnings (loss) $(13,389) $ 7,375 $55,501
Preferred stock dividends (700) N/A N/A
Net earnings (loss)
attributable to $(14,089) $7,375 $55,501
common shareholders
Weighted average number of
actual shares outstanding 40,253 36,530 38,191
Additional shares assuming
conversion or exercise of:
Preferred stock (a) 9,081
Stock options and warrants 960
Weighted average number of
common and common equivalent
shares outstanding 40,253 46,571 38,191
Primary earnings (loss) per
share $(0.35) $0.16 $1.45
</TABLE>
___________________________
(a) Based on the assumed conversion of $10 million of Series A Preferred Stock
into Common Stock at a price per share 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 than noted above.
<TABLE>
EXHIBIT 12
EMERSON RADIO CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-K
COMPUTATION OF RATIO OF EARNINGS (LOSS) TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
(In thousands, except ratio data)
Historical
Three
Year Months Year Year Year Year
Ended Ended Ended Ended Ended Ended
Dec. Mar. Mar. Mar. Mar. Mar.
31, 31, 31, 31, 31, 31,
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Pretax earnings
(loss) $(59,571) $(6,743) $(55,291) $(73,327) $7,642 $(13,363)
Fixed charges:
Interest 18,546 4,217 18,257 10,243 2,582 2,788
Amortization of
debt expenses 300 487
18,546 4,217 18,257 10,243 2,882 3,275
Pretax earnings
(loss) before
fixed charges $(41,025) $(2,526) $(37,034) $(63,084) $10,524 $(10,088)
Fixed charges:
Interest $ 18,546 $ 4,217 $ 8,257 $ 10,243 $ 2,582 $ 2,788
Amortization of
debt expenses 300 487
Preferred stock
dividend
requirements 725(a) 700
$ 18,546 $ 4,217 $ 8,257 $ 10,243 $ 3,607 $ 3,975
Ratio of
earnings (loss)
to combined
fixed charges
and preferred
stock
dividends (2.21) (0.60) (2.03) (6.16) 2.92 (2.54)
Coverage
deficiency $ 18,546 $ 4,217 $ 8,257 $ 10,243 $ 3,975
</TABLE>
________________________
(a) The preferred stock dividend requirements have been adjusted to reflect the
pretax earnings which would be required to cover such dividend requirements.
<TABLE>
EXHIBIT 21
Emerson Radio Corp. and Subsidiaries
Exhibit to Form 10-K
Subsidiaries of the Registrant
Jurisdiction of Percentage of
Name of Subsidiary Incorporation Ownership
<S> <C> <C>
Emerson Radio (Hong Hong Kong 100%*
Kong) Limited
Emerson Radio British 100%
International Ltd. Virgin Islands
* One share is owned by a resident director pursuant to local law.
</TABLE>
AGREEMENT
THIS AGREEMENT made this 24th day of April, 1996 by and
among E&H Partners and between Emerson Radio Corp. ("Emerson" or
the "Company") on the one hand and Hopper Radio of Florida, Inc.
("Hopper"), Barry Smith ("Smith"), Kunio Takei ("Takei") and
Memcorp., Inc. ("Memcorp") (collectively, the "Hopper Parties")
and Donald Dvorkin ("Dvorkin") and Craig Roth ("Roth") on the
other. Emerson and the Hopper Parties and Dvorkin and Roth,
together with E&H Partners, may collectively be referred to as
the "Parties."
WITNESSETH:
WHEREAS, effective as of April 1, 1994, Emerson and
Hopper entered into a written agreement entitled "Partnership
Agreement of E&H Partners" (the "Partnership Agreement") for the
purpose of forming a partnership known as E&H Partners (sometimes
referred to as the "Partnership"); and
WHEREAS, effective as of April 1, 1994, Emerson and E&H
Partners entered into a written agreement entitled "Sales
Agreement" (the "Sales Agreement"), under which E&H Partners
agreed to purchase from Emerson and Emerson agreed to sell
exclusively to E&H Partners all "Emerson" branded or "H.H. Scott"
branded consumer electronics and microwave products returned by
Emerson's customers in the United States, except for any such
product which is returned by Emerson's customers for which
Emerson, with E&H Partners' and Hopper's consent, has entered
into a "Return to Vendor" program with a manufacturer (the
"Merchandise"); and
WHEREAS, on or about July 3, 1995, as amended on August
23, 1995, Emerson commenced an action against the Hopper Parties,
Dvorkin and Roth in the Superior Court of New Jersey, Morris
County, Law Division, entitled Emerson Radio Corp. v. Hopper
Radio of Florida, Inc., et al., Docket No. L-2062-95 (the "New
Jersey Action"); on or about January 26, 1996, Emerson commenced
an action against the Hopper Parties in the Court of Chancery for
the State of Delaware in and for New Castle County entitled
Emerson Radio Corp. v. Hopper Radio of Florida, Inc., et al.,
C.A. No. 14802 (the "Delaware Action"); and on or about March 7,
1996, the Hopper Parties filed a counterclaim against Emerson in
the Delaware Action (collectively, the "Litigation"); and
WHEREAS, Emerson agrees that Hopper and Smith shall be
permitted under this Agreement to continue selling new and
refurbished goods from other manufacturers and companies; and
WHEREAS, Memcorp has sold consumer electronic products
and, for purposes of this Agreement, will continue to sell
consumer electronic products, except as set forth in paragraph
13, below; and
WHEREAS, the parties have agreed to settle and dismiss
the Litigation on the terms and conditions set forth herein.
NOW, THEREFORE, the Parties hereto, in consideration of
the mutual covenants and agreements to be performed as set forth
below, hereby stipulate and agree as follows:
1. Payment By Hopper. On or before 1:00 p.m. Eastern
Standard Time on Friday, April 26, 1996 Hopper will loan to E&H
Partners, which will immediately pay to Emerson by single lump
sum bank wire transfer to Emerson's account no. 610-3760133 at
the Bank of New York, 1 Harmon Plaza, Secaucus, New Jersey 07099,
the amount of $5 million, representing approximately one-half
(1/2) of the difference between Hopper's present loan balance to
E&H Partners and Emerson's present loan balance to E&H Partners
as of that date (the "Hopper Loan"). Upon Emerson's receipt of
the Hopper Loan, E&H Partners will immediately grant to Emerson
and Hopper the Security Interest as set forth in paragraph 2
below, as evidenced by the exhibits attached hereto. The purpose
of the Hopper Loan is to allow E&H Partners to pay Emerson
for Merchandise sold by Emerson to the Partnership in an attempt to
bring Emerson's loan balance to E&H Partners equal to the amount
of Hopper's loan balance.
2. Security Interest In Partnership Inventory
2.1 E&H Partners hereby grants a security
interest to Hopper in the following property of the Partnership:
All goods (as defined by the Uniform
Commercial Code) of the Partnership wherever
located, whether now owned or leased or
hereafter acquired, including but not limited
to all inventory, Merchandise, raw materials,
supplies, parts, assemblies, subassemblies,
returned goods, packaging, cartons, goods in
transit, whether or not held by the
Partnership for processing, inspection,
remanufacturing, refurbishment, sale or
lease, or furnished or to be furnished under
contracts of service or to be used or
consumed in the Partnership's business, and
whether or not on consignment to the Partnership
or sold by the Partnership on consignment, on
a sale or return, sale on approval or sale or
use basis, all whether now existing, or owned
or hereafter arising, manufactured or
acquired, and in and to all substitutions and
replacements therefor, wherever the same may
be now or hereafter located;
All proceeds and products thereof,
All proceeds of insurance policies issued in
connection with or relating to the foregoing.
(collectively, the "Collateral"), to secure all liabilities to
Hopper outstanding from time to time, now or in the future, and
the Hopper Loan (including renewals, extensions, and
substitutions of any of the foregoing) arising out of or relating
to any and all loans or advances, services rendered and material
supplied to the Partnership by Hopper or its affiliates
(collectively, the "Hopper Secured Indebtedness").
2.2 E&H Partners has previously granted a
security interest to Emerson in goods (including inventory) which
Emerson has assigned to Congress Financial Corporation
("Congress"). E&H Partners hereby grants a new security interest
to Emerson in the following property of the Partnership:
All goods (as defined by the Uniform
Commercial Code) of the Partnership wherever
located, whether now owned or leased or
hereafter acquired, including but not limited
to all inventory, Merchandise, raw materials,
supplies, parts, assemblies, subassemblies,
returned goods, packaging, cartons, goods in
transit, whether or not held by the
Partnership for processing, inspection,
remanufacturing, refurbishment, sale or
lease, or furnished or to be furnished under
contracts of service or to be used or
consumed in the Partnership's business, and
whether or not on consignment to Partnership
or sold by the Partnership on consignment, on
a sale or return, sale on approval or sale or
use basis, all whether now existing, or owned
or hereafter arising, manufactured or
acquired, and in and to all substitutions and
replacements therefor, whether the same may
be now or hereafter located;
All proceeds and products thereof,
All proceeds of insurance policies issued in
connection with or relating to the foregoing.
(collectively, the "Collateral"), to secure all liabilities to
Emerson outstanding, from time to time, now or in the future,
including payment of accounts payable to Emerson for goods sold
and delivered by Emerson to the Partnership (the "Emerson Secured
Indebtedness").
2.3 The seniority and priority of the liens
granted to Hopper and to Emerson individually and collectively
(the "Emerson/Hopper Lien") shall be first priority, security
interests, equal in right and dignity to each other. So long as
Hopper and Emerson maintain perfected security interests in the
Collateral, the security interests of Hopper and of Emerson shall
be of equal rank with equal right to payment, regardless of when
the UCC-1 Financing Statements thereon were filed or indexed, or
the lien was first perfected. However, if either of them permits
its lien to become unperfected or junior to the lien of any other
person or entity such Party's lien shall be junior in right of
payment and in priority of lien of and to the rights of the
other.
2.4 The Partnership shall not permit any liens,
encumbrances, title retention rights or security interests in or
on the Collateral or on the assets of the Partnership other than
the security interest granted to Emerson and Hopper herein and
the lien granted to Emerson and assigned to Congress as set forth
in Congress' Consent Agreement, a true copy of which is attached
hereto as Exhibit A.
2.5 The bankruptcy of the Partnership or any
other insolvency involving the Partnership, or the commencement
of any proceeding under any federal or other bankruptcy,
insolvency, receivership, compromise of debt or other law for the
liquidation, reorganization or arrangement or compromise of debt,
prioritizing of creditors rights, or other restructuring shall
not affect the relative priorities of the Parties hereto or their
rights in any property of the Partnership or in which it has an
interest, including, without limitation, the Collateral. To the
extent that Emerson or Hopper receives payment or property
against the Hopper Loan or the Emerson Secured Indebtedness,
whether out of the Collateral, or the proceeds of any sale, lease
or transfer thereof, or in lieu of its interest therein, if any,
the recipient shall pay or deliver one-half of all such payments
or receipts to the other so that, as far as reasonably
practicable, the Hopper Loan balance and the Emerson Secured
Indebtedness shall be brought into balance and remain equal.
2.6 Neither Emerson nor Hopper may subordinate
any of the rights granted herein, the security interest in the
Partnership's property of any portion of the Hopper Loan or the
Emerson Secured Indebtedness to any third party, except for
Congress. Neither Emerson nor Hopper may lease, assign,
terminate or amend the rights of the other as the secured party.
In the event that continuation statements are filed by Emerson or
Hopper, such continuation statements shall serve as a
continuation statement for both Parties without the signature of
the corresponding Party.
2.7 (a) Each Party shall give prompt notice to
the other of the occurrence of any of the following events: (i)
such Party learns of or receives any notice of any material
default (including, without limitation, any non-payment of
amounts due or of amounts required to be paid to preserve,
maintain and protect any Collateral) by the Partnership with
respect to any indebtedness of the Partnership to Emerson or to
Hopper, or (ii) such Party gives any notice to the Partnership of
a default, or of an acceleration, under the terms of the
instruments relating to such indebtedness.
(b) Each such notice shall specify the
nature and extent of any such default and what actions, if any,
the Party giving such notice proposes to take under the operative
agreements, or any of them.
(c) Without limiting the rights of either
Hopper or Emerson to collect the full amount due and owing to it
from the Partnership, each of them agrees that it will at all
times cooperate in the enforcement of the security interests in,
pledges on, and liens and other encumbrances upon the Collateral
of the other.
2.8 Emerson and Hopper shall have the right, without
liability to the other, to repossess and/or to foreclose upon the
Collateral with or without notice or demand to the other and to
avail itself of any other legal or equitable remedy, except that
the Parties agree that neither Hopper nor Emerson may exercise
any such repossession or foreclosure or levy rights unless and
until the Partnership: (i) becomes insolvent as such term is
given meaning under the United States Bankruptcy Code (Title 11
United States Code) (the "Bankruptcy Code"); (ii) makes an
assignment for the benefit of its creditors generally; (iii)
filed for or is the subject of an order for relief under the
Bankruptcy Code relating to the Partnership; (iv) seeks
appointment of a receiver, trustee or custodian for the
Partnership or its assets; (v) the foreclosure, turnover
(voluntary, by operation of law or by court order) of all or a
portion of the Collateral to a creditor, sale or scheduling for
sale of any portion of the Collateral by another creditor under a
power of sale or court process; or (vi) the granting by the
Partnership of any liens upon the Collateral or the sufferance by
the Partnership of any lien or charge upon the Collateral other
than to secure the payment of the Hopper Loan or the Emerson
Secured Indebtedness ("Events of Default"), except for Congress.
2.9 Subject to the provisions of this Agreement which
may restrict the unfettered right of Hopper or of Emerson to
exercise its rights as a secured creditor under the UCC, upon the
occurrence of any such Event of Default, and at any time
thereafter, in addition to any right given by law or any other
instrument or document executed by the Partnership and without
notice or demand, Hopper and Emerson, as secured creditors: (a)
shall have all rights and remedies afforded to secured creditors
under the Uniform Commercial Code; (b) may and are authorized to
enter upon and use the Partnership's premises for a reasonable
period of time and use any and all equipment and property used or
useful in the preservation and maintenance of the Collateral,
without rental or other compensation; (c) may take immediate
possession of all or any portion of the Collateral, with or
without legal process, and timely take such measures as it may
deem necessary for the proper care and protection thereof; (d)
may haul, deliver, store (for a reasonable period of time) and
sell the Collateral, or any part thereof, at such time or times
for such sum or sums of money as it may deem proper, which sale
may be public or private, and at any such sale, either of such
creditors may be the purchaser of the Collateral. Whenever
notification with respect to the sale or other disposition of
Collateral is required by law, such notification of the time and
place of any public sale, or of the date after which a private
sale or other intended disposition is to be made, shall be deemed
reasonable if given at least five (5) days before the time of
such public sale, or the date after which any such private sale
or other intended disposition is to be made, as the case may be.
All of the rights of Emerson and of Hopper as creditors, and all
of their respective remedies, whether by statute, rule, common
law or evidenced hereby or by any other agreement, instrument or
paper, shall be cumulative and may be exercised separately or
concurrently. The Partnership agrees to pay on demand all costs
and expenses (including reasonable attorneys' fees) incurred or
paid by Emerson and Hopper as secured creditors in enforcing the
obligations secured by this Agreement and the same shall be
additional obligations hereunder and secured hereby. After
deducting all costs and expenses of collection, storage, custody,
sale or other disposition and delivery (including legal costs and
reasonable attorneys' fees) and all other charges against the
Collateral, the residue of the proceeds of any such sale or other
disposition shall be applied to the payment of any and all
obligations of the Partnership secured hereby and any and all
other liabilities hereby secured, due or to become due, in such
order of preference as Hopper and Emerson may reasonably
determine as provided in this Agreement, proper allowance for
interest on liabilities not then due being made, and, unless
otherwise provided by law, any excess shall be returned to the
Partnership. Either Hopper or Emerson may proceed against the
Collateral, any other security, any guaranty, suit on the debt,
or take such other action as it deems necessary or appropriate,
in such order as it may elect, and need not marshal Collateral
and may proceed against any obligor, asset or surety regardless
or the interest of other therein.
2.10 Emerson represents to the Partnership and to
Hopper that upon sale of any Merchandise to the Partnership there
shall be no liens, encumbrances or title retention rights in
favor of third parties in such Merchandise and that upon such
sale or transfer, the Partnership shall acquire the same free of
any liens, encumbrances or title retention rights of Emerson or
of third parties other than Congress.
2.11 The Partnership will join with Emerson and
with Hopper in the appropriate financing statements under the
Uniform Commercial Code, and at all times, the Partnership will
do, execute, acknowledge and deliver, and will cause to be done,
executed, acknowledged and delivered, by any corporation or
person obligated to the Partnership so to do, all and every such
further acts, deeds, and assurances as Emerson or Hopper shall
reasonably require for the better assuring and confirming unto
them, as secured creditors, the security interest in the
Collateral and the rights, privileges and remedies hereby or in
any other agreement created, granted or assigned, or intended so
to be, or which it may hereafter become bound to create, grant or
assign to Emerson or to Hopper. If the Partnership shall fail or
refuse to execute or deliver the same, any officer of Emerson or
of Hopper is authorized and appointed the Partnership's agent and
attorney in fact to execute and deliver the same in the
Partnership's name as the act, and deed of the Partnership.
2.12 Copies of all relevant financing statements
are attached hereto as Exhibit B.
3. E&H Partners' Billings. E&H Partners will continue to
accept all of the Merchandise, that is actually received by
Emerson or its agents through and including December 31, 1996 and
the billings related thereto. The Parties specifically agree and
acknowledge that the billings shall be paid only when there is
sufficient cash flow as set forth in paragraphs 6 and 7 below,
from the offset of the amount equal to the value of the
Designated Stock as set forth in paragraph 4 below and from the
value of the warehousing services set forth in paragraph 8 below.
4. Purchase of Designated Stock. Emerson agrees to
purchase certain designated stock in accordance with its currently
existing practice with the Partnership (the "Designated Stock")
that E&H Partners can make available in reasonable quantities,
with minimum lots of 100 units for each model for each weekly
billing period and in accordance with the pricing structure
currently used (i.e., E&H Partners' normal selling price of the
same models at similar quantities) and/or as otherwise mutually
agreed to by and between Emerson and Hopper. The pricing
structure currently used for the Designated Stock does not
necessarily reflect the price at which E&H Partners sells its RB
(refurbished) product. Hopper agrees and acknowledges that upon
the earliest of (i) movement of the Designated Stock to the
storage area maintained by the Partnership for Emerson-owned
inventory or shipment to or for Emerson, or (ii) any other
segregation of such Designated Stock (physically or in the
Partnership's records) from the inventory owned by and to be sold
by the Partnership to customers other than Emerson, or (iii) the
invoicing of such Designated Stock to Emerson, such Designated
Stock is no longer subject to the Emerson/Hopper Lien and title
thereto shall be deemed to have passed to Emerson. E&H Partners
shall have no responsibility for any warranty claims on or
returns of the Designated Stock and Emerson shall provide all
warranty service and products liability insurance for the
Designated Stock (which insurance shall cover E&H Partners as an
additional insured.)
5. Payment of Fees. E&H Partners will continue to pay
the following service fees which Hopper presently charges to E&H
Partners in accordance with paragraph 4.5 of the Partnership
Agreement: (i) a 1.5% management fee based upon net sales of E&H
Partners; and (ii) reimbursement for certain of Hopper's
warehouse and office overhead expenses that is allocable to E&H
Partners based upon services actually rendered to E&H Partners,
so long as Barry Smith, President of Hopper, is the General
Manager of E&H Partners.
6. Cash Flow Sharing. Emerson and Hopper agree to share
evenly the cash flow of E&H Partners after paying normal operating
expenses and any purchases from the Otake Companies as set forth
in paragraph 9 below. The Partner with the higher loan balance
at each month's end shall receive the first cash distributed by
E&H Partners to the extent necessary to make the loan balances
equal.
7. Repayment Of Loan Balance. Any monies due on the
Partners' respective loan balances (which includes both current and
future billings and/or loans made by the respective Partners' to the
Partnership in accordance with this Agreement) following the
reconciliation set forth in paragraph 6 above may only be paid
from the cash flow of the Partnership as set forth in paragraph 6
above and from the proceeds of a foreclosure set forth in
paragraph 2 above, and with respect to Emerson only, from the
offset of the amount equal to the value of the Designated Stock
as set forth in paragraph 4 above and, also, the value of the
warehousing services as set forth in paragraph 8 below. In the
event of foreclosure as set forth in paragraph 2 above, the
Partner whose loan balance is greater than the other at such time
of foreclosure shall be entitled to first payment out of the
proceeds of the foreclosure Collateral in that amount necessary
to make the loan balances equal. For purposes of this Agreement,
references to Emerson's loan balance and the Emerson Secured
Indebtedness refer to all unpaid amounts for (1) Emerson's
billing of the Merchandise to E&H Partners; (2) expenses paid by
Emerson on behalf of E&H Partners; and (3) services rendered to
or on behalf of E&H Partners by Emerson. For purposes of this
Agreement, references to Hopper's loan balance and the Hopper
Secured Indebtedness refer to all unpaid amounts for (1) Hopper's
cash advances to E&H Partners; (2) expenses paid by Hopper on
behalf of E&H Partners; and (3) services rendered to or on behalf
of E&H Partners by Hopper.
8. Warehousing Services. E&H Partners will continue to
provide warehousing services (distribution and receiving) to Emerson
for Emerson-owned inventory in accordance with the terms and
conditions established between Emerson and Hopper, until such
time as Emerson provides thirty (30) days prior written notice to
E&H Partners for discontinuance of such services. Emerson
understands that E&H Partners' obligation to perform these
warehousing services exists only so long as E&H Partners is using
the "Potter Building" located in Princeton, Indiana. E&H
Partners hereby represents that it has in the past segregated and
will continue to segregate Emerson-owned inventory in its
warehouse facilities and its books and records. E&H Partners
also hereby acknowledges that Congress holds a first lien on all
such Emerson-owned inventory. In the event Congress forecloses
its lien upon such Emerson-owned inventory, both E&H Partners and
Emerson will cooperate with Congress' instructions regarding the
disposition of such Emerson-owned inventory. Emerson shall pay
for any reasonable costs of the obligations or services provided
by the Partnership under this paragraph 8.
9. Purchase And Sale Of Returned Goods And Merchandise.
Any and all purchases and sales of "Emerson" branded refurbished
goods from Orion Sales, Inc., Orion Electric (America), Inc.,
Otake Trading Co., Ltd., Technos Development Limited and their
respective affiliates (the "Otake Companies") will be made by any
of the Parties hereto for the benefit of E&H Partners.
10. Realization Of Payments. All payables and receivables
between Emerson, Hopper and E&H Partners, including the
Designated Stock described in paragraph 4 above, are to be netted
weekly beginning with the first week following execution of this
Agreement.
11. Repayment Of Past Interest Claims To Emerson.
Notwithstanding any other provisions to the contrary in the
Partnership Agreement, the Partnership Agreement is hereby
amended to provide that E&H Partners shall remit payment to
Emerson in the amount of $800,000 in satisfaction of all past
interest claims due and owing to Emerson from the Partnership as
of the date hereof ("past interest claims due") solely as
follows:
11.1 If there is a sale of a Partner's interest in
accordance with the terms of the Partnership Agreement and the
purchase price is in excess of the respective Partner's Capital
Account (Partner's equity in Partnership), such excess shall be
paid to Emerson, up to the then balance of past interest claims
due at such time, any remaining amounts thereafter shall be
applied and/or distributed in accordance with Article VII of the
Partnership Agreement;
11.2 If there is a sale of all or substantially
all of the Partnership's assets with the purchase price(s)
received in excess of all Partners' Capital Accounts (Partners'
equity in the Partnership), such excess shall be paid to Emerson,
up to the then balance of past interest claims due at such time,
any remaining amounts thereafter shall be applied and/or
distributed in accordance with Article VII of the Partnership
Agreement; and
11.3 If profits are realized by the Partnership on
sales of "Emerson" branded refurbished products purchased from
the Otake Companies, or any of them, during such time as Emerson
maintains an exclusive relationship with the Otake Companies, or
any of them, for the purchase of "Emerson" branded refurbished
product, such profits, including any profit realized from the
sale of any such "Emerson" branded refurbished product purchased
during the time in which Emerson maintained an exclusive
relationship with the Otake Companies, or any of them, for the
purchase of "Emerson" branded refurbished product, shall be
allocated two-thirds (2/3) to Emerson and one-third (1/3) to
Hopper with the difference between the two-thirds (2/3) received
by Emerson and one-third (1/3) of such profit to be allocated to
payment towards and reduction of the past interest claims due
until such time as the past interest claims due is paid in full.
If profits are realized by the Partnership on sales of "Emerson"
branded refurbished products purchased from the Otake Companies,
or any of them, during such time as Emerson does not maintain an
exclusive relationship with the Otake Companies, or any of them,
for the purchase of "Emerson" branded refurbished product, such
profits shall be allocated one-half (1/2) to Emerson and one-half
(1/2) to Hopper. If profits are realized by the Partnership on
sales of products resulting from any transaction Emerson may
bring to E&H Partners from any supplier other than the Otake
Companies, or any of them, the profits will be allocated two-
thirds (2/3) to Emerson and one-third (1/3) to Hopper until such
time as the past interest claims due is paid in full.
11.4 For the purposes of this Article, "profits"
is defined as the gross sales price to third party customers less
the purchase price paid to third party vendors and less any other
incremental expenses directly attributable to such sale.
11.5 Payment of the interest contemplated by this
paragraph 11 shall be in full and complete satisfaction of all
interest claims of Emerson and Hopper. Emerson and Hopper agree
not to charge interest, late fees or any other charges related
thereto, after March 31, 1996 on their respective loans and/or
advances outstanding from time to time, now or in the future.
12. No Transfers. Nothing herein shall be interpreted as
amending any of the provisions of the Partnership Agreement
regarding transfer of interests in Article X of the Partnership.
13. Sourcing Of Video Product By Memcorp. Emerson and the
Hopper Parties hereby agree that Memcorp shall not source any
video product from Kong Wah Video Company Limited and its
affiliates for its 1996 product line, except for the nine inch
(9") color television already on order as of the date hereof, and
from the Otake Companies for its 1996 product line, except for
the TV/VCR combination units already on order as of the date
hereof and any other video products not in Emerson's current
product line-up. This provision shall immediately be waived in
the event of and upon Emerson's sale, licensing or discontinuance
of its entire existing television and video business.
14. Press Release. Emerson has prepared a joint press
release in the form and substance attached hereto as Exhibit C,
which Memcorp has approved, concerning the agreements and covenants
contained herein, immediately prior to execution hereof and which
may be issued immediately thereafter. This provision recognizes
that Emerson as a publicly traded company is required to issue
press releases regarding its material transactions in a timely
manner.
15. Dissolution Of E&H Partners. Article XII of the
Partnership Agreement is hereby amended to provide that the
Partnership shall be dissolved and its affairs wound-up upon the
first to occur of the following:
15.1 A mutual determination in writing by the
Partners to dissolve the Partnership other than as provided
herein;
15.2 The occurrence of the dissolution, insolvency
or bankruptcy of a Partner if such event leaves only one other
Partner remaining as a Partner;
15.3 The entry of a judgment of dissolution by a
court of competent jurisdiction or appointment of a receiver for
all or substantially all of the Partnership's assets;
15.4 A change of the largest common shareholder of
Emerson from Emerson's current Chairman and Chief Executive
Officer, Geoffrey P. Jurick, as held individually and/or with
affiliates, successors or assigns;
15.5 If prior to December 31, 1996, upon thirty
(30) days' written notice by either Partner that it wishes to
dissolve the Partnership, but only if the loan balances of each
and every Partner is paid in full on the date such written notice
is dated or given, whichever is earlier;
15.6 If after December 31, 1996, upon written
notice by either Partner to the other partner that it wishes to
dissolve the Partnership, the dissolution shall occur in an
orderly manner and as expeditiously as possible, supervised by
Barry Smith as the Managing Partner, and which dissolution shall
honor all outstanding agreements and obligations but in no event
shall the dissolution be completed and operations cease later
than six (6) months after the date of such notice. The Managing
Partner may continue to operate the Partnership in the normal
course of business during any such dissolution and may continue
to make any and all decisions reasonably necessary to operate the
Partnership to the extent set forth in the Partnership Agreement.
15.7 Article 12.1 of the Partnership Agreement
shall be amended, effective upon execution of this Agreement,
specifically and solely as set forth in paragraph 15 herein.
16. Ratification And Incorporation By Reference Of
Partnership Agreement And Sales Agreement. All of the terms and
conditions of the Partnership Agreement (the terms of which are
incorporated by reference as if fully set forth herein), as hereby
amended, are ratified, confirmed and adopted. Similarly, all of the
terms and conditions of the Sales Agreement (the terms of which are
incorporated by reference as if fully set forth herein), as
hereby amended, are ratified, confirmed and adopted. Neither the
Partnership Agreement nor the Sales Agreement may be further
modified, amended or superseded except as provided specifically
herein, and no provision of either the Partnership Agreement or
the Sales Agreement may be waived, except in writing duly
executed by Emerson and Hopper and their respective affiliates,
successors or assigns.
17. Dismissal Of Litigation. The Parties agree to execute
appropriate stipulations to dismiss the Litigation with prejudice
and without costs or attorneys' fees to either party and will
cause to be filed any and all necessary stipulations of dismissal
in the appropriate courts no later than Friday, April 26, 1996.
18. Release By Emerson. In consideration of the Hopper
Loan and the other consideration provided by the Hopper Parties
hereunder, Emerson shall, upon receipt of the Hopper Loan and
execution of this Agreement, release and forever discharge the
Hopper Parties and E&H Partners and their respective officers,
directors, shareholders, agents, employees and affiliates individually
or collectively, from and against any and all claims asserted or
assertable that Emerson may have against each and every one of
the Hopper Parties and E&H Partners from the beginning of time to
the date of execution of this Agreement. Emerson shall provide
the Hopper Parties with separate general releases of all claims
consistent with this paragraph 18, except that neither the Hopper
Parties nor E&H Partners shall be released from their respective
obligations to perform under this Agreement. Emerson
specifically acknowledges and agrees that Dvorkin's, Roth's and
Takei's employment and all duties for and on behalf of Emerson
have expired and that there are no obligations of any nature due
and owing from Dvorkin, Roth and/or Takei to Emerson except for
the obligations provided in this Agreement. Emerson also agrees
to release Dvorkin and Roth under the same terms and conditions
as set forth in this paragraph 18.
19. Release By The Hopper Parties. In consideration of
the mutual agreements set forth herein and other good and valuable
consideration, the Hopper Parties hereby release and forever
discharge Emerson and E&H Partners and their respective officers,
directors, shareholders, agents, employees and affiliates,
individually and collectively, from and against any and all
claims, asserted or assertable, each and every one of the Hopper
Parties may have against Emerson and/or E&H Partners from the
beginning of time to the date of execution of this Agreement.
The Hopper Parties shall provide Emerson and E&H Partners with
separate general releases of all claims consistent with this
paragraph 19, except that neither Emerson nor E&H Partners shall
be released from their respective obligations to perform under
this Agreement.
20. Release By Dvorkin And Roth. In consideration of
the dismissal of the Litigation and other good and valuable
consideration, Dvorkin and Roth hereby release and forever
discharge Emerson and its officers, directors, shareholders,
agents, employees and affiliates, individually and collectively,
from and against any and all claims, asserted or assertable by
Dvorkin and/or Roth against Emerson, as evidenced by their
respective signatures below. Dvorkin, Roth and Takei
specifically do not release Emerson from any duty which Emerson
may owe to defend or indemnify them pursuant to the terms of
their previous employment by Emerson or its subsidiaries and
affiliates, or from its obligations to perform under this
Agreement.
21. Release By E&H Partners. In consideration of the
mutual agreements set forth herein and other good and valuable
consideration, E&H Partners hereby releases and forever
discharges Emerson, the Hopper Parties, Dvorkin and Roth and
their respective officers, directors, shareholders, agents,
employees and affiliates, individually and collectively, from and
against any and all claims, asserted or assertable, E&H Partners
may have against Emerson and/or the Hopper Parties, Dvorkin and
Roth. E&H Partners shall provide Emerson, the Hopper Parties,
Dvorkin and Roth with separate general releases of all claims
consistent with this paragraph 21, except that neither Emerson,
the Hopper Parties, Dvorkin nor Roth shall be released from their
respective obligations to perform under this Agreement.
22. Further Acts. The Parties shall execute and deliver
such instruments and take such other actions as may be necessary
or desirable in order to carry out the provisions of this Agreement,
without any further consideration therefor, except where
specifically provided.
23. Representations and Warranties. The Hopper Parties
jointly and severally represent and warrant that: (i) each of the
Hopper Parties has full power and authority, corporate and other, to
execute and deliver this Agreement, and to perform its
obligations hereunder; (ii) this Agreement has been duly
authorized, executed and delivered by each of the Hopper Parties,
and constitutes a valid and binding agreement of each of them,
enforceable against each of them in accordance with the terms;
(iii) each of the Hopper Parties has been represented by and has
consulted with an attorney concerning this Agreement and
understands and accepts the terms hereof. Emerson represents and
warrants that: (i) it has full power and authority to execute
and deliver this Agreement and to perform its obligations
hereunder; (ii) this Agreement has been duly executed and
delivered by Emerson and constitutes a valid and binding
agreement of Emerson enforceable against Emerson in accordance
with its terms, and (iii) Emerson has represented by and has
consulted with an attorney concerning this Agreement and
understands and accepts the terms hereof. The Partnership
represents and warrants that it has all rights to convey, to
Emerson and Hopper equally, a valid first security lien and
interest in all of E&H Partners' present and future inventory and
the proceeds thereof as referred to in paragraph 2 above.
24. Notices. All notices or other communications given
hereunder shall be in writing and shall be delivered personally,
by certified mail, return receipt requested, or overnight mail,
postage prepaid, and shall be deemed given when delivered if
delivered personally, or if mailed, such notice shall be deemed
given three (3) days after the date of mailing, excluding
Sundays. All notices provided hereunder shall be sent to the
parties at the following addresses:
If to Emerson: Eugene I. Davis, President
Emerson Radio Corp.
9 Entin Road
Parsippany, NJ 07054
Phone: (201) 428-2000
With a copy to: Jeffrey M. Davis, Esq.
Wolff & Samson, P.A.
5 Becker Farm Road
Roseland, NJ 07068
Phone: (201) 533-6561
Fax: (201) 740-1407
If to the Hopper
Parties: Barry Smith
Hopper Radio of Florida, Inc.
7145 W. 20th Avenue
Hialeah, FL 33014
With a copy to: Craig B. Sherman, Esq.
Sherman & Fischman, P.A.
3050 Biscayne Boulevard
Suite 600
Miami, FL 33137-4269
Phone: (305) 576-5522
Fax: (305) 576-7079
If to E&H Partners: Barry Smith
General Partner
E&H Partners
7145 W. 20th Avenue
Hialeah, FL 33014
If to
Donald Dvorkin: Donald Dvorkin
27 Denison Drive
Saddle River, NJ 07458
Fax: (201) 825-2085
If to Craig Roth: Craig Roth
14 Franklin Court
Bernardsville, NJ 07929
If to Memcorp: Memcorp. Inc.
7145 W. 20th Avenue
Hialeah, FL 33014
or at such other addresses as shall be furnished in writing by a
party hereto to the other parties hereto.
25. Complete Agreement. This Agreement, the Releases,
and the Partnership Agreement and Sales Agreement as amended by this
Agreement, constitute the entire agreement between the Parties
hereto pertaining to the subject matter hereof and supersedes all
prior written, oral or implied agreements or understanding as to
such subject matter, except as expressly provided herein.
26. Jurisdiction and Governing Law. This Agreement shall
be exclusively governed by and construed in accordance with the laws
of the State of Delaware without giving effect to and without
reference to the choice of law principles thereof. Jurisdiction
and venue for all purposes shall be in Delaware exclusively. No
party shall seek to transfer jurisdiction and venue to any
jurisdiction other than Delaware.
27. Amendment and Modifications. This Agreement may only
be amended or modified in writing signed by the party against whom
enforcement of such amendment or modification is sought.
28. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of, each of the Parties, and
each of their respective executors, administrators, successors,
assigns and legal representatives.
29. Titles and Headings. The titles and headings in this
Agreement are for reference purposes only, and shall not in any
way affect the meaning or interpretation of this Agreement.
30. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original
agreement, but all of which together shall constitute one and the
same instrument.
31. No Waiver. Neither any failure nor any delay on the
part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver hereof or thereof, nor shall a
single or partial exercise thereof preclude any other or further
exercise or any other right, power or privilege.
32. Severability. If any provision of this Agreement shall
be determined to be invalid or unenforceable to any extent, the
remainder of this Agreement shall not be affected thereby, and
each provision hereof shall be enforced to the fullest extent
permitted by law.
33. Taxes. Each Party to this Agreement shall bear its own
tax consequences, if any, that arise as a result of this Agreement.
34. Third Parties. Except as may be expressly set forth
herein, the parties hereto do not intend to confer any rights or
remedies upon any person other than the parties hereto.
35. Attorneys' Fees. Each of the Parties to this Agreement
shall bear all of his or its attorneys fees and all of his or its
expenses relating to all claims between the parties to date,
including but not limited to, the preparation and review of this
Agreement and all related matters. In the event of any
litigation related to, arising out of or concerning this
Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees and costs. The representation of a Party to this
Agreement shall not in and of itself preclude representation of
E&H Partners.
36. Controlling Agreement. To the extent that this
Agreement, or any section or portion of this Agreement, is
inconsistent with either the Partnership Agreement or the Sales
Agreement, then and in that event the terms of this Agreement shall
control over the Partnership Agreement and/or the Sales Agreement.
IN WITNESS WHEREOF, the Parties have caused this
Agreement to be executed by the undersigned, thereunto duly
authorized, as of the day and year first above written.
HOPPER RADIO OF FLORIDA, INC.
By:_/s/Barry Smith__________
Barry Smith, President
BARRY SMITH
__/s/Barry Smith ___________
KUNIO TAKEI
__/s/Kunio Takei__________
DONALD DVORKIN
__/s/ Donald Dvorkin______
CRAIG ROTH
__/s/ Craig Roth __________
MEMCORP., INC.
By:_/s/ Barry Smith _______
E&H PARTNERS
Emerson Radio Corp.
By:___/s/ Eddie Rishty______
Eddie Rishty, Senior Vice
President-Controller &
Logistics
-and-
Hopper Radio of Florida,
Inc.
By:__/s/ Barry Smith________
Barry Smith, President
EMERSON RADIO CORP.
By:__/s/ Eddie Rishty_______
Eddie Rishty, Senior Vice
President-Controller &
Logistics
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
- ----------------------------------------X
In re: : Case Nos.: 93-27874/NW
: through 93-27879
EMERSON RADIO CORP. et al., : inclusive
:
Debtors. :
- ----------------------------------------X
In re: : In a Case Ancillary
: to a Foreign
Petition of THOMAS HACKETT, : Proceeding under
Official Liquidator of : 11 U.S.C. Section 304
FIDENAS INTERNATIONAL BANK LIMITED, :
: No. 95-B-2263
Debtor in Foreign Proceeding. :
- ----------------------------------------X
THOMAS HACKETT, Official Liquidator of :
FIDENAS INTERNATIONAL BANK LIMITED, :
: CIVIL ACTION
Plaintiff, :
: No. 95-1179 (NHP)
- against - :
:
GEOFFREY P. JURICK, ERIC F. GEBAIDE, :
and FIDENAS INTERNATIONAL LIMITED, :
:
Defendants. :
:
- ----------------------------------------X
STIPULATION OF SETTLEMENT AND ORDER
WHEREAS, on September 29, 1993, Emerson Radio Corp.
("Emerson") and five of its subsidiaries filed voluntary
petitions for relief under Chapter 11, Title 11, United States
Code (the "Bankruptcy Code") in the United States Bankruptcy
Court for the District of New Jersey (the "New Jersey Bankruptcy
Court") and, on March 31, 1994, a plan of reorganization (the
"Emerson Plan") was confirmed.
WHEREAS, Geoffrey P. Jurick ("Jurick") is the Chairman
of the Board of Directors of Emerson (the "Emerson Board") and
the direct or indirect owner or controlling person of Fidenas
International Limited, L.L.C. ("FIN"), GSE Multimedia
Technologies, Inc., formerly known as GSE Electronic Systems,
Inc., ("GSE") and Elision International, Inc. ("Elision" and,
together with Jurick, FIN and GSE, the "Jurick Group").
WHEREAS, on October 26, 1993, the Supreme Court of the
Commonwealth of the Bahamas (the "Bahamas Court") appointed,
subject to its ongoing supervision, Provisional Liquidators of
Montcour Bank & Trust Company Limited ("MBT"); and, on July 29,
1994, the Bahamas Court ordered that MBT be wound up.
WHEREAS, on April 14, 1994, the Bahamas Court
appointed, subject to its ongoing supervision, Wayne J. Aranha
(the "FIL Liquidator") the Provisional Liquidator of Fidenas
Investment Limited ("FIL"); and, on January 10, 1995, the Bahamas
Court appointed the FIL Liquidator as the Official Liquidator of
FIL and ordered that FIL be wound up.
WHEREAS, by complaint, dated July 14, 1994 (as amended
August 3, 1994), Emerson commenced an action against Petra Jacobs
Stelling ("Stelling") and Donald K. Stelling in the United States
District Court for the District of New Jersey, Honorable Nicholas
H. Politan (the "Court"), entitled Emerson Radio Corp. v. Donald
K. Stelling and Petra Jacobs Stelling, Civil Action No. 94-3393
(NHP) (the "Stelling Proceedings"), seeking declaratory relief
and damages; and by motion, dated October 31, 1994, the
defendants therein moved to dismiss the action on several
grounds, including lack of personal jurisdiction over Stelling.
WHEREAS, Stelling is the direct or indirect owner of
MBT, the direct or indirect majority owner of FIL, the direct or
indirect owner of the principal creditors of MBT and FIL, and the
direct or indirect owner of Montcour Finance Limited, Jenvan
Limited, Cam-Pack Limited, and Montcour Holding Limited (all such
persons and entities, together with Donald K. Stelling and any
other person or entity directly or indirectly owned or controlled
by Stelling, the "Stelling Group").
WHEREAS, by complaint, dated August 23, 1994, Stelling
commenced an action for damages against Jurick in the district
court of Zurich, Switzerland (the "Zurich Civil Proceedings").
WHEREAS, the District Attorney for the Canton of
Zurich, Switzerland (the "Zurich District Attorney") is
conducting a criminal investigation regarding alleged violations
of law by Jurick, Peter G. Bunger ("Bunger") and Jerome H. Farnum
("Farnum").
WHEREAS, on September 15, 1994, on motion by Jurick and
others, the Court ordered the transfer of a proceeding that had
been commenced by the FIL Liquidator pursuant to Section 304 of the
Bankruptcy Code in the Bankruptcy Court for the Southern District
of New York, seeking the turnover of certain shares of Emerson
common stock held in the names of FIN and GSE, to the New Jersey
Bankruptcy Court on the ground, among others, that disputes
concerning ownership of common stock issued pursuant to the
Emerson Plan fell within the retained jurisdiction of the New
Jersey Bankruptcy Court, as provided in the Emerson Plan (see In
re Emerson Radio Corp., 173 B.R. 490, 495 (D.N.J. 1994), aff'd,
52 F.3d 50 (3d Cir. 1995)).
WHEREAS, on July 14, 1994, the Swiss Federal Banking
Commission issued a decree appointing a provisional liquidator to
liquidate the assets in Switzerland of Fidenas International Bank
Limited ("FIBANK") and Fidenas AG.
WHEREAS, on October 4, 1994, the Bahamas Court ordered
that FIBANK be wound up compulsorily under the supervision of the
Bahamas Court; on January 27, 1995, Thomas Hackett (the "FIBANK
Liquidator" and, together with the FIL Liquidator, the "Bahamian
Liquidators") was appointed, subject to the ongoing supervision
of the Bahamas Court, to liquidate FIBANK's assets; and, on
February 1, 1996, the FIBANK Liquidator was recognized by the
Swiss authorities as FIBANK's foreign liquidator in the territory
of the Swiss Confederation.
WHEREAS, the Bahamian Liquidators have separately
sought and obtained certain orders in the Bahamas Court
restricting the transfer of certain shares of Emerson common
stock and other assets of Jurick and related entities (the
"Mareva Injunctions").
WHEREAS, MBT is a member of the creditors' committee of
FIBANK having filed a proof of claim in FIBANK's compulsory
liquidation proceedings in the Bahamas Court on or about March
21, 1995.
WHEREAS, on March 23, 1995, FIL filed a proof of claim
in FIBANK's compulsory liquidation proceedings in the Bahamas
Court.
WHEREAS, on March 10, 1995, the FIBANK Liquidator
commenced a proceeding in this Court under Section 304 of the Bankruptcy
Code, entitled In re Petition of Thomas Hackett, Official
Liquidator of Fidenas International Bank Limited, No. 95-B-2263,
and a related civil action, entitled Thomas Hackett v. Geoffrey
P. Jurick, Eric F. Gebaide and Fidenas International Limited, No.
95-1179 (NHP) (together, the "New Jersey Proceedings"), seeking
the turnover of all FIBANK property owned or controlled by the
defendants in that action and, specifically, certain shares of
Emerson common stock held in the name of FIN.
WHEREAS, on March 10, 1995, with the consent of Emerson
and the parties to the New Jersey Proceedings, the Court issued
an order withdrawing the reference of such proceedings to the New
Jersey Bankruptcy Court.
WHEREAS, on March 27, 1995, the FIL Liquidator filed in
the New Jersey Proceedings a pleading containing a counterclaim
against FIBANK and cross-claims against Jurick and FIN seeking
the turnover of certain shares of Emerson common stock.
WHEREAS, on April 18, 1996, the FIL Liquidator filed a
complaint in this Court entitled Wayne J. Aranha v. Geoffrey P.
Jurick, GSE Multimedia Technologies Corporation, Fidenas
International Limited, L.L.C., and Elision International, Inc.,
No. 96-1645 (NHP) (the "FIL Action"), seeking damages and
injunctive and declaratory relief with respect to certain shares
of Emerson common stock held in the names of FIN, Elision or GSE.
WHEREAS, Barclays Bank PLC ("Barclays") is a member of
the creditors' committee of FIBANK having filed a proof of claim
on or about May 9, 1995 in FIBANK's compulsory liquidation
proceedings in the Bahamas Court.
WHEREAS, by complaint, dated August 10, 1995, Barclays
commenced an action in the Supreme Court of the State of New
York, New York County, entitled Barclays Bank PLC v. GSE
Multimedia Technologies, Inc., f/k/a GSE Electronic Systems,
Inc., Index No. 120083/95 (the "New York Proceedings"), seeking a
monetary judgment against GSE, and, on November 2, 1995, Barclays
obtained a default judgment against GSE in the amount of
US$1,835,423.26 (the "New York Judgment") (which was also
recorded in Delaware).
WHEREAS, by complaint, dated September 1, 1995 (as
amended on October 17, 1995) Barclays commenced an action against
Elision and MaxCom Corporation ("MaxCom") in the Commonwealth of
Massachusetts, Middlesex Superior Court (the "Massachusetts
Court"), entitled Barclays Bank PLC v. Elision International,
Inc. and MaxCom Corporation, No. 95-5132A (the "Massachusetts
Proceedings"), seeking, inter alia, injunctive relief as well as
monetary judgments against Elision and MaxCom.
WHEREAS, on September 7, 1995, the Massachusetts Court
issued a preliminary injunction, which has continued in effect to
date, enjoining Elision from conveying any assets of the
corporation.
WHEREAS, Emerson is a reporting company under the
Securities Exchange Act of 1934, as amended, whose common stock
is listed on the American Stock Exchange and which has 40,252,772
shares of such stock issued and outstanding as of the date
hereof.
WHEREAS, pursuant to a Stipulation and Order among
Emerson and the parties to the New Jersey Proceedings so ordered
by the Court on March 10, 1995, FIN deposited with the Clerk of
the Court certificates for 15,030,000 shares of Emerson common
stock that had been issued in the name of FIN pursuant to the
Emerson Plan (together with any shares issued in respect of, in
substitution or in exchange for any such shares, the "New Jersey
Shares").
WHEREAS, the New Jersey Shares remain in the custody of
the Court and 14,122,542 shares of Emerson common stock are being
held in Zurich, Switzerland, in connection with pending bank
regulatory and other investigations (together with any shares
issued in respect of, in substitution or in exchange for any such
shares, the "Zurich Shares" and, together with the New Jersey
Shares, the "Emerson Shares").
WHEREAS, the Bahamian Liquidators, Barclays and the
Jurick Group have filed claims with the Zurich Bankruptcy Office
concerning their rights with respect to the Zurich Shares and
have requested that the Zurich Shares be delivered to the Court.
WHEREAS, Barclays, Stelling, the FIL Liquidator, the
FIBANK Liquidator, Jurick, FIN, Elision, GSE and Emerson have
agreed to enter into a global settlement upon the terms and
conditions set forth herein in order to resolve all claims
described above, and, except as specifically provided herein, all
other pending litigation and all potential claims by, between and
among the parties described in the recitals hereof and the
parties listed on Exhibit B hereto.
NOW, THEREFORE, IT IS HEREBY STIPULATED, CONSENTED,
AGREED AND ORDERED, that:
1. Payment.
(a) The Settlement Amount. In full satisfaction of
all claims described above (including, without limitation, those
which are the subject of pending litigation) and all potential
claims by, between and among the parties described in the
recitals hereof and the parties listed on Exhibit B hereto,
except as specifically provided herein, Jurick, FIN,
Centralinvest S.A. ("Centralinvest") and Pentland Finance Limited
("Pentland") shall be jointly and severally liable to the FIBANK
Liquidator, Stelling and Barclays (together, the "Creditors") for
the payment of the aggregate sum of US$49.5 million (the
"Settlement Amount"), in accordance with Exhibit A hereto. In
addition, to the extent set forth in the Consent Judgments
described in paragraph 9(a) hereof, GSE shall be jointly and
severally liable with the foregoing entities to Barclays for the
payment of US$1,835,423.26. Subject to the other provisions of
this Stipulation and Order, Jurick shall be paid the sum of
US$3.5 million, in accordance with Exhibit A hereto, solely from
the proceeds of the sale of the Emerson Shares (the "Jurick
Payment" and, together with the Settlement Amount, the "Aggregate
Amount"). The Emerson Shares are comprised of 29,152,542 shares
of Emerson common stock. On the Effective Date (as defined in
paragraph 5(b) hereof), all Emerson Shares which are not on that
date registered in FIN's name on Emerson's books and records
shall be transferred to and registered on Emerson's books and
records in FIN's name by the registered owners of such shares;
provided, however, that all of the 29,152,542 Emerson Shares
shall remain in the custody of the Court or be transferred to the
Settlement Agent (as defined in paragraph 3(b) hereof) pursuant
to paragraph 1(b) hereof. Following receipt by the Court of the
Zurich Shares, any required transfer and registration of any of
the Emerson Shares into FIN's name on Emerson's books and records
and the delivery of certificates with respect to any of the
Emerson Shares to the Settlement Agent or the Court, as the case
may be, the Emerson Shares shall be divided into two pools.
(b) Pool A Shares. According to calculations performed by
Emerson on the date of execution hereof, the first pool shall
consist of (i) initially, 15,286,172 Emerson Shares, and (ii)
thereafter, shall also include such additional number of Emerson
Shares that the Settlement Agent or the Court shall determine,
from time to time, are not to be held in custody by the Court
pursuant to paragraph 1(c) hereof (the "Pool A Shares"). All New
Jersey Shares shall be Pool A Shares. Following the appointment
of the Settlement Agent, whether by agreement among the
Creditors, Jurick and Emerson (collectively, the "Lead Parties")
or by the Court, the Pool A Shares shall be delivered to the
Settlement Agent, together with stock powers in blank and
certificates in denominations requested by the Settlement Agent.
(c) Pool B Shares. The second pool shall consist solely of
the number of Emerson Shares with respect to which Jurick must
retain beneficial ownership of voting power in order to avoid an
event of default arising out of a Change of Control (as defined
in the Indenture referred to in this paragraph 1(c)) under that
certain Indenture, dated as of August 17, 1995, between Emerson
and Bank One, Columbus, N.A., as Trustee, as in effect on the
Effective Date (the "Indenture") and that certain Loan and
Security Agreement, dated March 31, 1994, as amended, among
Emerson, certain of its affiliates and Congress Financial
Corporation as in effect on the Effective Date (the "Senior
Credit Agreement") unless such event of default has been waived
in accordance with the terms of the applicable instrument as then
in effect (the "Pool B Shares"). The Pool B Shares shall be held
in custody by the Court and shall neither be subject to
foreclosure under the Pledge Agreement (as defined in paragraph
2(a) hereof) nor available for sale or release from the custody
of the Court absent further order of the Court; provided, however
that, if at any time it becomes unnecessary (whether as a result
of waiver, amendment, modification, payment, redemption or
otherwise) for the Court to hold any or all of the Pool B Shares
in custody, then such shares will (i) immediately be delivered to
the Settlement Agent, together with stock powers in blank and
certificates in denominations requested by the Settlement Agent,
and (ii) become part of the Pool A Shares. The Settlement Agent
shall provide the Lead Parties with at least five (5) Business
Days (as defined below) prior written notice of any such transfer
of Pool B Shares to Pool A Shares, which notice shall set forth
the calculations with respect to such transfer, and any of the
Lead Parties may apply to the Court for appropriate relief in
connection therewith. The term "Business Day" shall mean any day
(other than a day which is a Saturday, Sunday or legal holiday in
the State of New York) on which banks are open for business in
New York City.
(2) Security for Payment
(a) The parties hereto agree that all of the Emerson Shares
(including, without limitation, any dividends paid thereon, in
cash or in kind, any additional shares by virtue of stock splits
or stock distributions and any proceeds of any of the foregoing
(collectively, "Proceeds")) shall secure the payment of the
Settlement Amount to the Creditors on a first priority basis and,
on a subordinated basis and subject to the other provisions of
this Stipulation and Order, shall secure the payment of the
Jurick Payment to Jurick. Accordingly, effective on the
Effective Date (as defined in paragraph 5(b) hereof), FIN hereby
(x) pledges to the Settlement Agent, as collateral agent for the
Creditors and Jurick (in such capacity, the "Collateral Agent"),
all of its right, title and interest in and to the Emerson Shares
(including, without limitation, any Proceeds) to secure the
payment of the Settlement Amount and the Jurick Payment; and (y)
agrees to take all steps necessary to effect the pledge of the
Emerson Shares, including, but not limited to, the execution and
delivery to the Collateral Agent (with an original counterpart
for each Creditor and Emerson), in accordance with paragraph 9
hereof, of a pledge agreement in form and substance consistent
with the provisions of this Stipulation and Order and containing
such other customary or appropriate provisions not inconsistent
with the provisions of this Stipulation and Order as the
Creditors may require and as Jurick may require with respect to
his subordinated interest (the "Pledge Agreement"). A copy of
the Pledge Agreement will be attached hereto as Exhibit C. The
Collateral Agent shall have an enforceable perfected, first
priority security interest in and lien upon all of the Emerson
Shares, including, without limitation, the Pool A Shares to be
held by the Collateral Agent, the Pool B Shares to be held in
custody by the Court and any Proceeds securing (i) the payment of
the Settlement Amount for the benefit of the Creditors and (ii)
the Jurick Payment. Each of Jurick, Elision and GSE acknowledges
and consents to the pledge granted by FIN hereunder and to the
terms of the Pledge Agreement.
(b) Each member of the Jurick Group, for itself
and on behalf of each of its affiliates (whether present or future),
other than Emerson, hereby represents, warrants and covenants
that, (i) as of the Effective Date, FIN will hold the Emerson
Shares free and clear of all mortgages, pledges, security
interests, liens, encumbrances or charges of any kind whatsoever
(except for (x) the security interest granted hereunder and the
claims of the Creditors, (y) the restrictions on the exercise of
voting power with respect to such shares set forth in the
Indenture and the Senior Credit Agreement, and (z) all other
similar restrictions, all of which are set forth on Schedule I
hereto); (ii) FIN will not assign, pledge, hypothecate or
transfer, or create any lien upon, the Emerson Shares, other than
pursuant hereto, and agrees to take all steps necessary to
prevent the same from occurring; and (iii) it will, from time to
time, do such further acts and things and promptly execute and
deliver all such additional conveyances, assignments,
instruments, agreements and documents, and take all further
action, that may be necessary or desirable or that the Collateral
Agent or the Creditors may reasonably request, in order to
perfect and protect the security interest and lien granted
pursuant to this Stipulation and Order, the Pledge Agreement and
the Approval Order (as hereinafter defined) or to enable the
Collateral Agent or the Creditors to exercise and enforce any of
their rights under this Stipulation and Order or the documents
contemplated hereunder with respect to any of the Emerson Shares
(including, without limitation, any Proceeds).
(c) For purposes of perfecting the security interest and lien
granted hereunder and pursuant to the Pledge Agreement and the
Uniform Commercial Code, (i) the Collateral Agent shall
acknowledge, upon its retention, that it holds, and will continue
to hold, the Pool A Shares as Collateral Agent, (ii) the Office
of the Clerk of the Court shall acknowledge that it holds, and
will continue to hold, the Pool B Shares as the Collateral
Agent's bailee for such purposes, and (iii) the receipt by the
Collateral Agent and the Office of the Clerk of the Court of this
Stipulation and Order shall constitute written notification of
the security interest in and lien upon the Emerson Shares
(including, without limitation, any Proceeds) granted by FIN
hereunder and pursuant to the Pledge Agreement.
(d) The Emerson Shares shall automatically be released from
the security interest and lien granted hereunder and under the
Pledge Agreement, without the need for further action, upon (i)
the sale of all or any portion thereof to a third party in
accordance with the terms of this Stipulation and Order, the
Pledge Agreement or a subsequent order of the Court, or (ii) the
payment of the Aggregate Amount and the reimbursement of any
amounts paid by Emerson in accordance with paragraph 3(g) hereof.
3. Advisor and Settlement Agent
(a) Appointment/Selection of Advisor. By no later
than the execution of this Stipulation, Emerson shall submit to the
Creditors and Jurick a list of five (5) proposed institutional
financial advisors, which have no written or oral agreements or
understandings with Emerson or any member of the Jurick Group
concerning their proposed retention hereunder or the subject
matter thereof. Each of the Lead Parties shall consider
Emerson's nominees and shall use its best efforts to agree, by no
later than twenty-one (21) days after the execution of this
Stipulation, with respect to the selection of a financial advisor
(the "Advisor") to formulate the Marketing Plan described in
paragraph 3(c) hereof. If the Lead Parties reach agreement
within twenty-one (21) days after the execution of this
Stipulation, such Person (as defined in the Indenture), upon
approval of the Court, shall be the Advisor, shall perform the
functions set forth herein, and shall consult with and report to
the Lead Parties. If the Lead Parties are unable to so agree
within twenty-one (21) days after the execution of this
Stipulation, the Lead Parties shall submit to the Court a joint
list of proposed financial advisors, containing no more than one
nominee by each Creditor, Jurick, and Emerson, which list shall
be accompanied by full written disclosure of all previous
retentions of each such nominee by any of the Lead Parties or any
agreements between or among each nominee and any such party or
the parties identified on Exhibit B hereto relating to the
Emerson reorganization, the Emerson Shares or any of the
proceedings described in the recitals hereto, and the Court will,
after conferring with the Lead Parties, either select the Advisor
from the joint list or select a third party to serve as the
Advisor. Any successor Advisor shall be selected by agreement of
the Lead Parties or appointed by the Court, in accordance with
the procedures described in this paragraph 3(a).
(b) Appointment/Selection of Settlement Agent.
The Lead Parties shall use their best efforts to agree, with the advice
of the Advisor, within fourteen (14) days after the appointment of
the Advisor, with respect to the appointment of an administrator
(the "Settlement Agent"), which may be a division or affiliate of
the Advisor and which will hold the Pool A Shares and administer
the distribution of proceeds of the sale of the Emerson Shares as
provided herein. If the Lead Parties reach agreement within
fourteen (14) days after the appointment of the Advisor, such
Person, upon approval of the Court, shall be the Settlement
Agent, shall perform the functions set forth herein, and shall
consult with and report to the Lead Parties. If the Lead Parties
are unable to so agree within fourteen (14) days after the
appointment of the Advisor, the Lead Parties and the Advisor
shall submit to the Court a joint list of proposed
administrators, containing no more than one nominee by each
Creditor, Jurick, Emerson, and the Advisor, which list shall be
accompanied by full written disclosure of all previous retentions
of each such nominee by any of the Lead Parties or any agreements
between or among each nominee and any such party or the parties
identified on Exhibit B hereto relating to the Emerson
reorganization, the Emerson Shares or any of the proceedings
described in the recitals hereto, and the Court will, after
conferring with the Lead Parties and the Advisor, either select
the Settlement Agent from the joint list or select a third party
to serve as the Settlement Agent. Any successor Settlement Agent
shall be selected by agreement of the Lead Parties or appointed
by the Court in accordance with the procedures described in this
paragraph 3(b).
(c) The Marketing Plan. The Advisor shall formulate and
from time to time amend, as necessary or appropriate, a plan or
plans (the "Marketing Plan") for marketing the Emerson Shares
designed to meet the goal of generating proceeds sufficient to
pay the Aggregate Amount as quickly as possible consistent with
the intent, interests and purposes of this Stipulation and Order.
The Advisor shall provide each of the Lead Parties and the
Settlement Agent with a written report setting forth the initial
Marketing Plan as soon as practicable after its appointment. In
formulating the Marketing Plan, the Advisor shall take into
account the interests of all of the Lead Parties, including the
interests of Emerson's minority shareholders. The Lead Parties
shall use their best efforts to resolve any objections to the
Marketing Plan within twenty-one (21) days of its delivery. If,
within twenty-one (21) days of the delivery of the Marketing
Plan, the Lead Parties agree on the Marketing Plan, upon approval
of the Court, the Advisor and the Settlement Agent shall
implement the Marketing Plan. If, however, within twenty-one
(21) days of the delivery thereof, the Lead Parties are unable to
agree with respect to any aspect of the Marketing Plan, a hearing
shall be held before the Court, on notice to all Lead Parties,
the Settlement Agent and the Advisor, to consider all objections
of any Lead Party thereto. Any amendment to any Marketing Plan
shall be approved by the Lead Parties or the Court in accordance
with the procedures described in this paragraph 3(c).
The Advisor shall, in formulating the Marketing
Plan, consider and, not less than semi-annually, report to the
Court and the Lead Parties with respect to (i) its progress in
making the payments required pursuant to Exhibit A, (ii) all of
its efforts under this Stipulation and Order, (iii) all available
options for disposing of the Emerson Shares, and (iv) its best
recommendations with respect to the disposition of the Emerson
Shares so as to generate proceeds to pay the Aggregate Amount as
quickly as possible and to accomplish the other purposes set
forth in this Stipulation and Order (each report, a "Payment
Progress Report"). The Advisor shall supplement the Payment
Progress Reports from time to time, as necessary or appropriate,
including, subject to approval of the Court after notice to all
Lead Parties, the Advisor and the Settlement Agent, by amending
the Marketing Plan or creating a new Marketing Plan.
(d) Objections After Implementation of Marketing
Plan. Following the approval of the Marketing Plan or any amendment
thereto, any Lead Party that becomes dissatisfied with the
progress of the Advisor in implementing, or the Settlement Agent
in administering, the Marketing Plan or with the provisions of
the Marketing Plan or with other matters related thereto may,
upon notice to each other Lead Party, the Settlement Agent and
the Advisor, apply to the Court for appropriate relief (based on
the totality of circumstances) with respect to such progress,
implementation, administration or other matters related thereto.
(e) Notice of Proposed Sales. Subject to paragraph 3(h)
hereof, the Settlement Agent, in accordance with a Court-approved
Marketing Plan or any Court-approved amendment thereto, may,
without further Court approval, (i) sell Emerson Shares pursuant
to a registered offering; provided, that the purchase price for
each share sold is not less than 90% of the average of the three
most recent Closing Prices (as defined in the Indenture), or (ii)
sell up to one percent (1%) of the issued and outstanding common
stock of Emerson per quarter as otherwise allowed under the
Securities Act of 1933 (including pursuant to SEC Rule 144);
provided that the purchase price for each share sold is not less
than 90% of the average of the three most recent Closing Prices.
With respect to all other proposed sales of
Emerson Shares, the Settlement Agent and the Advisor shall
promptly provide each of the Lead Parties with five (5) Business
Days prior written notice (the "Notice Period") of any such
proposed sale and the proposed terms thereof. If there is no
objection to the proposed sale prior to the expiration of the
Notice Period, the Settlement Agent may proceed with such sale.
If any Lead Party objects to the proposed sale, such Lead Party
shall, upon notice to each other Lead Party, the Advisor and the
Settlement Agent, request that the Court conduct an expedited
hearing prior to the closing of such sale and, in that event, no
sale may close prior to the hearing and the disposition of the
matter by the Court.
(f) Distribution of Sale Proceeds. Upon receipt,
the Settlement Agent shall place the proceeds of all sales of the
Emerson Shares, net of the reasonable and customary expenses
incurred in connection with such sales and the reimbursement of
any amounts payable to Emerson under paragraph 3(g) hereof ("Net
Proceeds"), in an interest bearing account and shall, on at least
a monthly basis (and, in the event that a sale of Emerson Shares
generates Net Proceeds in excess of US$1 million, as soon as
practicable following receipt thereof by the Settlement Agent),
account for all proceeds received from sales of the Emerson
Shares and distribute the Net Proceeds of all such sales, pro
rata to the Creditors and Jurick, in accordance with the
applicable percentages set forth on Exhibit A hereto and subject
to the other provisions of this Stipulation and Order, including
but not limited to paragraph 11 hereof, provided, however, that,
in accordance with Exhibit A hereto, (i) neither any Creditor nor
Jurick shall be paid any portion of any payment subsequent to the
First Payment (as used in Exhibit A hereto), unless and until
each Creditor and Jurick have been paid their respective portions
of the First Payment in full; (ii) neither any Creditor nor
Jurick shall be paid any portion of any payment subsequent to the
Second Payment (as used in Exhibit A hereto), unless and until
each Creditor and Jurick have been paid their respective portions
of the Second Payment in full; (iii) neither any Creditor nor
Jurick shall be paid any portion of any payment subsequent to the
Third Payment (as used in Exhibit A hereto), unless and until
each Creditor and Jurick have been paid their respective portions
of the Third Payment in full; and (iv) Barclays shall not be paid
any portion of the Final Payment (as used in Exhibit A hereto),
unless and until each Creditor and Jurick have been paid their
respective portions of the Balance (as used in Exhibit A hereto)
in full.
(g) Fees and Expenses.
(i) All reasonable fees and expenses of the
Settlement Agent (including reasonable fees and expenses incurred
in its capacity as the Collateral Agent) and the Advisor (including
reasonable attorneys' fees) incurred in connection with the retention
of the Settlement Agent and the Advisor and the formulation of the
Marketing Plan and any amendment(s) thereto shall be funded and
advanced as necessary by Emerson up to a maximum amount of
$250,000. Emerson shall be reimbursed for such amounts from the
proceeds, if any, of the first sale(s) of the Emerson Shares
prior to the payment of any portion of the Aggregate Amount.
(ii) In addition, from time to time, following the full
reimbursement to Emerson of its initial expense payments made
pursuant to paragraph 3(g)(i) hereof, Emerson shall pay, on a
revolving basis, additional expenses incurred by the Settlement
Agent (including reasonable fees and expenses incurred in its
capacity as the Collateral Agent) or the Advisor in connection
with the implementation of the Marketing Plan and any
amendment(s) thereto, which expenses shall in no event exceed, at
any one time outstanding, $75,000. Emerson shall be reimbursed
for such amounts from the proceeds, if any, of the first sale(s)
of Emerson Shares following the advance of any portion of the
$75,000 (after payment of the reasonable and customary expenses
incurred in connection with such sales).
(iii) To the extent not reimbursable pursuant to, and
following payment of all outstanding amounts required to be
reimbursed under, paragraph 3(g)(ii) hereof, customary and
reasonable fees and expenses incurred by Emerson in connection
with any registration of the Emerson Shares shall be reimbursed
from the first proceeds of the sale(s) of such shares (after
payment of the reasonable and customary expenses incurred in
connection with such sales).
(h) Special Committee. In the event of an
offer to purchase Emerson Shares that would result in a Change of
Control of Emerson, the offeror shall be required to meet with
Emerson directors Brown, Steele and Eugene Davis, or their
successors (the "Special Committee") and provide such information
as the Special Committee may reasonably request in order to
evaluate the offer. Within ten days of such meeting and
disclosure, the Special Committee shall determine whether to
approve such offer in the exercise of the directors' fiduciary
duties under applicable Delaware law. In the event that the
Special Committee shall not approve such offer within such
period, then any Lead Party other than Emerson may initiate
litigation pursuant to paragraph 8(a)(ii)(F) hereof.
4. Voting
FIN, or the member of the Jurick
Group that beneficially owns or controls the voting power with
respect to the Emerson Shares, shall retain the right to vote
with respect to all of the Emerson Shares remaining either with
the Settlement Agent or in the custody of the Court but shall
provide each of the Creditors with at least ten (10) Business
Days prior written notice of (i) the date and time of any vote;
(ii) each issue with respect to which a vote is required; and
(iii) the manner in which any of the Emerson Shares will be voted
with respect to each such issue. Each Creditor shall be free to
apply to the Court for an expedited hearing to compel FIN or the
applicable member(s) of the Jurick Group to vote such shares in
accordance with the Court's direction. In the event that Jurick
is directed by the Court to vote against any proposal of the
Emerson Board, the Emerson Board may withdraw and not solicit any
vote of its shareholders with respect to such proposal. Upon the
sale of any Emerson Shares to a third party in accordance with
this Stipulation and Order, the voting rights shall be
transferred to the purchaser of such shares without such
restriction.
In the event that the Emerson Board decides to
recommend to its shareholders that any actions be approved by the
shareholders, Emerson shall promptly provide each of the
Creditors with a courtesy copy of the notice to be provided to
its shareholders with respect to any such proposed action. Upon
receipt of such notice, each Creditor shall be free to apply to
the Court for appropriate relief (based on the totality of the
circumstances) and the Court shall hear and determine any such
application within three (3) Business Days of the filing thereof.
This provision shall not affect, in any way, the Emerson Board's
ability to manage the business and affairs of Emerson pursuant to
the business judgment rule.
5. Conditions to Effectiveness
(a) It is a condition to the effectiveness of this
Stipulation and Order that:
(i) the Zurich Shares shall have been received
by the Court;
(ii) after notice and a hearing, the Court shall have so ordered
this Stipulation and Order and shall have entered an order,
substantially in the form to be attached hereto as Exhibit D (the
"Approval Order");
(iii) the Bahamas Court shall have entered an order or
orders confirming, and authorizing the delivery of, this
Stipulation by the Bahamian Liquidators and all documents
delivered hereunder (the "Bahamas Orders") and dissolving the
Mareva Injunctions;
(iv) all of the documents listed in paragraphs 9 and 10 hereof
shall have been deposited with the Court and the other actions
described in paragraphs 9 and 10 shall have been taken; and
(v) (A) the representations and warranties contained herein or
otherwise made in writing in connection herewith shall be true
and correct as of the date hereof, (B) each party hereto shall
have received from each other party hereto, a certificate dated
as of the Effective Date (as defined in paragraph 5(b) hereof)
certifying that such representations and warranties are true and
correct as of the Effective Date, and (C) each Creditor shall
have received from Jurick a certificate dated as of the Effective
Date certifying that the initial Sworn Statement provided in
accordance with paragraph 12 hereof is true and correct as of the
Effective Date or setting forth any amendments thereto, provided
however, that the Creditors may waive the foregoing requirements
of this subparagraph (a)(v) with respect to Jurick or Emerson.
(b) The Bahamas Orders shall be filed with the
Court (or its designee) by the parties which obtained such orders,
on notice to all other parties hereto, within five (5) Business Days
after they are entered by the Bahamas Court. The Court (or its
designee) will notify each party hereto when the conditions to
effectiveness set forth in paragraphs 5(a)(i), (ii), (iii) and
(iv) hereof have been satisfied and, within three Business Days
of receipt of such notification, each party shall provide each
other party with the certificates described in paragraph 5(a)(v)
hereof. The term "Effective Date" shall mean the date on which
each of the conditions set forth in paragraph 5(a) hereof has
been satisfied and each of the parties hereto has received the
notice from the Court referred to in this paragraph 5(b) and the
certificates referred to in paragraph 5(a)(v) hereof.
(c) Notwithstanding anything to the contrary contained in
this Stipulation and Order, if by December 31, 1996 (x) the
Effective Date shall not have occurred, or (y) all of the Zurich
Shares have not been delivered to the Court, then any Lead Party
may apply to the Court, on notice to each other Lead Party, for
an order declaring that this Stipulation and Order is withdrawn
or granting other appropriate relief, based on the totality of
the circumstances, including permission to pursue some or all
available methods to cause the delivery of the Zurich Shares to
the Court or to otherwise satisfy the conditions to the
effectiveness of this Stipulation and Order.
6. Representations and Warranties
(a) All Parties. Each party hereto represents
and warrants to each other party hereto that:
(i) Due Authority. Such party has all the
requisite authority and capacity to enter into this Stipulation and the
documents delivered hereunder and all corporate authorizations
and approvals necessary or required (other than the Bahamas
Orders and the Approval Order) have been duly and effectively
obtained; and
(ii) Binding Obligation. This Stipulation and Order
constitutes a legal, valid and binding obligation of such party,
enforceable against such party and his, her or its estate, heirs,
successors and assigns in accordance with its terms.
(b) Emerson Representations and Warranties. Emerson
represents and warrants to each other party hereto that:
(i) Indenture and Senior Credit Agreement.
It has provided the Creditors with a single copy of each of the (and
there are no other) amendments or modifications to the Indenture and the
Senior Credit Agreement; and
(ii) Encumbrances on Emerson Shares. To its knowledge, after
reasonable inquiry, except for (v) the security interest granted
hereunder and the claims of the Creditors, (w) the Mareva
Injunctions, (x) the current restrictions on the transfer of the
Emerson Shares resulting from the pending Swiss bank regulatory
proceeding (or other investigation by the Zurich District
Attorney), (y) the restrictions on the exercise of voting power
with respect to such shares set forth in the Indenture and the
Senior Credit Agreement, and (z) all other similar restrictions,
all of which are set forth on Schedule I hereto, there exists no
mortgage, pledge, security interest, lien, encumbrance or charge
of any kind whatsoever on or affecting the Emerson Shares.
(c) Creditors Representations and Warranties.
Each of the Creditors represents and warrants to each other party
hereto that, except as referred to herein, it has not commenced any
action or proceeding and has not filed any complaint against any
member of the Jurick Group or Emerson.
7. Affirmative Covenants
(a) All Parties. Each party hereto covenants and
agrees with each other party hereto that, from and after the date hereof
to and including the date on which the Aggregate Amount has been
paid in full:
(i) Further Assurances. It will take all steps
reasonably necessary to effectuate the purposes of this Stipulation and
Order, including the execution of all documents contemplated
hereunder and any other documents reasonably necessary to
effectuate the purposes of this Stipulation and Order.
(ii) Assets and Releases. It will use its best efforts to
obtain Releases from other interested parties in accordance with
paragraph 9(c) hereof and to locate the assets listed in
paragraph 9(d) hereof, provided, however, that this provision
shall not apply to Emerson.
(b) Emerson Covenants. Emerson covenants and
agrees with each other party hereto that, from and after the date hereof
to and including the date on which the Aggregate Amount has been
paid in full, unless the Creditors unanimously agree and
otherwise consent in writing:
(i) Meetings With Court. The President of Emerson
(or, in the event that no one is acting as President of Emerson, then any
Chief Operating Officer of Emerson) will (A) meet in person with
the Court at least once each month, subject to the Court's
availability, and provide the Court with an update as to
Emerson's business and operations; (B) provide the Court, at
least five (5) Business Days in advance (or such shorter period
as may be practicable and which shall be acceptable to the Court)
with the agenda for each meeting (whether to be held in person or
telephonically) of the Emerson Board or any committee thereof
(each a "Committee"); (C) provide the Court with telephonic
notice of any modifications to any such agenda; (D) provide the
Court with copies of the minutes of all meetings of the Emerson
Board and its Committees and such other information as the Court
may require; and (E) keep the Court fully apprised of the
discussions, deliberations and actions or other proceedings at
any meeting of the Emerson Board or any Committee not previously
reported to the Court. The Court may, in its discretion, direct
an appropriate person promptly to notify the Creditors of any
actions (including the actions described in paragraph 7(b)(viii))
to be taken by the Emerson Board or any Committee or may itself
notify the Creditors of any such proposed actions. Upon receipt
of such notice, each Creditor shall be free to apply to the Court for
an order prohibiting any such action, and the Court shall hear
and determine any such application within three (3) Business Days
of the filing thereof. In determining whether or not to grant
such an application, the Court shall: (I) apply the business
judgment rule; (II) make it clear that Emerson is not operating
under Court supervision; (III) permit Emerson to operate its
business in the ordinary course; and (IV) determine whether
Emerson's proposed action will have any adverse impact upon the
ability to achieve the objectives and purposes of this
Stipulation and Order. The Court will not issue any order
prohibiting any proposed action by the Emerson Board or any
Committee unless it determines that such action would materially
interfere with the objectives and purposes of this Stipulation
and Order.
(ii) Jurick Compensation. Jurick's total
compensation from Emerson and all of its Subsidiaries and affiliates
(including salary, bonuses, employee benefits (other than insurance policies
or benefits generally provided to Emerson's senior management)
and any other compensation in any form whatsoever) shall not
exceed the sum of $750,000 until the Settlement Amount has been
paid in full; and, until the Settlement Amount has been paid in
full, Jurick will not receive any stock options, warrants, stock
appreciation rights or other similar non-cash compensation.
Jurick shall continue to receive reasonable housing while located
in the Far East and reimbursement of reasonable and necessary
expenses in connection with the conduct of Emerson's business or
that of its Subsidiaries or affiliates.
(iii) Registration. The Advisor, in the Marketing Plan or
any Court-approved amendment thereto, shall determine if, when
and how many Pool A Shares shall be registered in accordance with
the Securities Act (as defined in the Indenture) and any
applicable "Blue Sky" laws and shall provide notice thereof to
each Lead Party. Emerson shall use its best efforts to register
the offer and sale of such Pool A Shares as set forth in the
Marketing Plan or any Court-approved amendment thereto. Any such
registration shall be subject to the provisions of a registration
rights agreement to be attached hereto as Exhibit E (the
"Registration Rights Agreement").
(iv) Compliance with Indenture. Emerson shall
comply with Sections 1005, 1006, 1011, 1012 and 1029 of the
Indenture. For purposes of this Stipulation and Order with
respect to Section 1012 of the Indenture, the term "Affiliate," as
defined in the Indenture, shall include, in addition, (x) any
entity directly or indirectly controlled by any member of the
Jurick Group; (y) any entity which is owned directly or
indirectly in whole or in part by any member of the Jurick Group,
other than an entity that is traded on the American Stock
Exchange, the New York Stock Exchange or the NASDAQ National
Market System; or (z) any entity that is traded on the American
Stock Exchange, the New York Stock Exchange or the NASDAQ
National Market System, more than 5% of which is owned, directly
or indirectly, by any member of the Jurick Group.
(v) SEC Rule 144 Information. Emerson shall
use its best efforts to make available adequate "current public
information" to the extent required by SEC Rule 144 (or any successor
rule), in order to enable the Settlement Agent to sell the Emerson
Shares in compliance with such rule and, in any event, to the
extent such information is made available, will deliver a
courtesy copy of all such "current public information" to the
Creditors, the Settlement Agent, the Advisor and the Court.
(vi) Financial Reports, Notices, etc. Emerson shall furnish
each Creditor and the Advisor with courtesy copies of all
documents, information, materials and other notices required to
be distributed pursuant to Sections 1025 and 1027 of the Indenture
(within the relevant time frames) to the extent not duplicative
of other information or materials required to be provided
hereunder.
(vii) Access to Books and Records. Emerson shall, at the
Advisor's request, provide the Advisor and its representatives
and such other Persons as the Advisor reasonably deems
appropriate in connection with the Marketing Plan or any Court-
approved amendment thereto (subject to appropriate
confidentiality agreements) access to all of its books and
records and to any of its properties or assets upon reasonable
notice and during regular business hours, at reasonable
intervals.
(viii) Reporting to the Court. The President of Emerson
(or, in the event that no one is acting as President of Emerson,
then any Chief Operating Officer of Emerson) shall give the Court
prior notice of Emerson's intention (or that of any Subsidiary)
to take any of the following actions:
(1) implementation of any further
restrictions on the transfer of the securities of Emerson beyond
those existing on the date hereof, as set forth on Schedule I hereto,
including, but not limited to, restrictions permitted by Sections 202 or
203 of the Delaware General Corporation Law, or the grant of any
provision in any employment, consulting or other similar contract or the
adoption of any policy pursuant to which an officer, director,
employee, agent or independent contractor will become entitled to
receive compensation as a result of a change in the ownership or
control of Emerson or any Subsidiary, a merger of Emerson or any
Subsidiary, or a sale of Emerson's or any Subsidiary's assets, a
recapitalization of Emerson or any Subsidiary or other similar or
dissimilar corporate combination or transaction of Emerson or any
Subsidiary (regardless of whether the employment or other
relationship between Emerson or its Subsidiary and such officer,
director, employee, agent or independent contractor must be
terminated as a condition to the receipt of such compensation) or
any other arrangement customarily referred to as a "golden
parachute";
(2) the grant of any rights or options to subscribe for or
to purchase any shares of Emerson's capital stock or securities
convertible into or exchangeable for any shares of Emerson's
capital stock or other securities;
(3) any assignment, pledge, hypothecation or creation of any
lien upon, the Emerson Shares;
(4) any recapitalization or reorganization;
(5) any amendment of its Certificate of Incorporation or
its By-Laws or any change to its State of Incorporation;
(6) any merger or consolidation with any other entities
(whether for cash, securities or other property); and
(7) any dissolution, liquidation or winding up, whether
voluntarily or involuntarily.
(ix) Emerson Further Assurances. Emerson shall,
from time to time, do such further acts and things and promptly execute
and deliver all such additional instruments, agreements and documents
and take all further action, that may be necessary or desirable
or that the Collateral Agent or the Creditors may reasonably
request in order to perfect and protect the security interest in
and lien upon the Emerson Shares granted hereunder and pursuant
to the Pledge Agreement.
8. Negative Covenants
(a) All Parties. Each party hereto covenants and
agrees with each other party hereto that, from and after the date hereof
to and including the date on which the Aggregate Amount has been
paid in full:
(i) Non-Interference. It will not take any
action that would prevent, preclude or materially interfere with the
consummation of the transactions contemplated by this Stip-
ulation and Order or the performance by any other party of its
obligations under this Stipulation and Order.
(ii) No Further Litigation. It (and in addition, in the case
of Stelling, each other member of the Stelling Group and, in the
case of Jurick, each other member of the Jurick Group) will not,
directly or indirectly, commence, continue, request or finance or
in any way participate in (except, on notice to the Court, such
participation as may be required pursuant to legal process with
notice, unless legally prohibited, to the Lead Parties) any
civil, criminal or administrative proceedings (x) against any
other party or any member of the Stelling Group or any member of
the Jurick Group, or (y) with respect to any dispute or
transaction arising out of or relating to this Stipulation and
Order, the Approval Order, the Emerson Shares, any Marketing Plan
or any amendment thereto or other action or advice of the
Advisor, other than (A) by application to the Court as provided
for in this Stipulation and Order to enforce or to facilitate the
transactions contemplated hereby or to avail itself of rights
provided for under this Stipulation and Order, the terms hereof
or any documents delivered hereunder or the Approval Order or
with respect to the Emerson Shares or with respect to any
provisions of the Marketing Plan or any amendment thereto or any
other action or advice by the Advisor; (B) in connection with
enforcement in any jurisdiction of any Consent Judgment or the
Swiss Judgment (as each is hereinafter defined); (C) in
connection with pursuit by Barclays, FIL and MBT of their claims
filed in FIBANK's compulsory liquidation proceedings in the
Bahamas Court in accordance with paragraph 13 hereof; (D) the
Malpractice Action (as defined in paragraph 15 hereof); (E)
actions reasonably required for the continuance of the Zurich
Civil Proceedings pending entry of the Swiss Judgment; and (F)
litigation by any Lead Party, other than Emerson, to review,
under applicable Delaware Law, any actions of the Special
Committee in connection with an offer described in paragraph 3(h)
hereof. This covenant and agreement (other than clause (F))
shall survive the termination of this Stipulation and Order.
(b) Jurick Options. Jurick covenants and agrees
with each other party hereto that, from and after the date hereof to and
including the date on which the Aggregate Amount has been paid in
full, unless the Creditors unanimously agree and otherwise
consent in writing, (i) Jurick will not exercise any options,
warrants or conversion rights which he now owns, directly or
indirectly, to purchase any capital stock or any other securities
of Emerson or any of its Subsidiaries or affiliates, provided,
however, that Jurick may retain and, upon prior written notice to
the Advisor, may exercise his existing vested options to purchase
200,000 shares of Emerson common stock unless the Advisor
determines that such exercise will have a material adverse effect
upon the Marketing Plan; (ii) Jurick will cancel or otherwise
terminate all other such options, warrants or conversion rights
as the Advisor may reasonably determine could have a material
adverse effect upon the value of the Emerson Shares or the
implementation of any Marketing Plan (and the Advisor shall
provide written notice of such determination to each of the Lead
Parties and any Lead Party may apply to the Court for appropriate
relief with respect to the Advisor's determinations); and (iii)
if the Advisor does not require the cancellation or termination
of such other options, warrants or conversion rights, Jurick will
hold and not exercise such other options, warrants or conversion
rights until the Settlement Amount has been paid in full.
9. Documents to Be Executed and Deposited With the
Court And Other Actions to Be Taken Following Execution of This
Stipulation and Order
Within ten (10) days of the
execution of this Stipulation, or as soon as
practicable thereafter, each of the Lead Parties,
Donald K. Stelling, Bunger and the Official
Liquidators of FIL and MBT will take the following
actions and execute and/or obtain, as appropriate,
the following documents and deposit them with the
Court (or its designee), on notice to all parties
to this Stipulation and Order, for disposition in
accordance with paragraph 11 hereof:
(a) Consent Judgments. Stipulations, Orders
and Judgments against Jurick, FIN, GSE, Centralinvest
and Pentland, substantially in the form to be annexed hereto as Exhibit
F (hereinafter the "Consent Judgments") shall be deposited with the
Court (or its designee); provided, however, that the Consent
Judgment against GSE in favor of Barclays shall be in the
aggregate amount of US$1,835,423.26.
(b) Swiss Judgment. Swiss counsel for Stelling and Swiss
counsel for Jurick will execute on or before July 10, 1996 a
settlement agreement providing that upon the Effective Date the
parties shall apply for the entry of a judgment for US$21 million
against Jurick in the Zurich Civil Proceedings (the "Swiss
Judgment"), provided that (i) pursuant to agreement between such
counsel the Swiss Judgment shall be duplicative, for all
purposes, of the Consent Judgment in favor of Stelling in this
action and such amount shall be subject to offset in respect of
payments to Stelling under this Stipulation and Order, and (ii)
Stelling shall take no action to enforce such judgment pending
termination of this Stipulation and Order.
(c) Releases. Five duplicate originals of each of the
appropriate releases, in substantially the form annexed hereto as
Exhibits G (the "Limited Releases") and H (the ("General
Releases" and, together with the Limited Releases, the
"Releases") shall be deposited with the Court (or its designee).
Each party hereto shall also use its best efforts to secure the
execution of the Releases required to be executed by Persons not
parties to this Stipulation and to obtain and deposit five
duplicate originals of such Releases with the Court. A list of
the parties hereto primarily responsible for obtaining the
Releases is annexed hereto as Exhibit B. No Person will be given
a Release by any party hereto who does not provide a reciprocal
Release in favor of such party. With respect to Gulf-American
Finance Limited ("Gulf-American"), each of the Stelling Group,
Jurick and the FIBANK Liquidator shall use its or their
reasonable efforts to execute such documents and take such other
actions to achieve the termination of the liquidation of Gulf-
American or to take such action to permit the delivery of
Releases consistent with this subparagraph.
(d) Other Assets. The assets listed below, to the extent that
they may be located through the parties' best efforts,
accompanied by executed stock powers or quitclaim deed each in a
form to be attached hereto (containing no representations or
warranties other than a representation that the depositing party
has not assigned, pledged, hypothecated, transferred, encumbered
or granted any security interest or lien with respect thereto)
shall be deposited with the Court (or its designee); provided,
however, that with respect to any listed asset held by a
liquidator on behalf of a bankrupt estate, the asset need not be
deposited with the Court until such time as the liquidator has
completed any necessary accounting and determined that the
estate, rather than any creditor of (or other party claiming
against) the estate, has title to the asset. Jurick undertakes
to use his best efforts to provide assistance reasonably
necessary to permit a liquidator to obtain from the issuers of
any of the listed assets new stock certificates in names and
denominations necessary and appropriate to accomplish the
purposes hereof. So long as the following assets are deposited
with the Court, the depositing party or Jurick, as the case may
be, will retain any power to vote with respect to such assets
which it has on the date hereof, but the depositing parties will,
at Jurick's request, consult with him before voting the shares.
(i) All common
and preferred shares of GSE (or its
predecessor entity).
(ii) All common
shares and warrants of Elision.
(iii) All common
shares of MaxCom.
(iv) All common
shares and warrants of Draco
Corporation.
(v) All common
shares and warrants of
International Sensor Technologies
Inc.
(vi) All common
shares of Ficap Investments
Limited.
(vii) All common
shares of Rainbow Fund Inc.
(viii) All common
shares of Crandall Finance
Corporation (formerly Calix
Corporation).
(ix) All rights
of FIBANK arising under or in
respect of loans to, and
obligations and indebtedness of,
Thalos Treuhand AG.
(x) All rights
of FIBANK arising under or in
respect of loans to, and
obligations and indebtedness of,
Marnlac Limited.
(xi) All rights
of FIBANK arising under or in
respect of loans to, and
obligations and indebtedness of,
Elision International Limited.
(xii) All rights
of FIBANK arising under or in
respect of loans to, and
obligations and indebtedness of,
MaxCom.
(xiii) All rights
of FIBANK arising under or in
respect of loans to, and
obligations and indebtedness of,
Gulf-American.
(xiv) All rights
of FIBANK arising under or in
respect of loans to, and
obligations and indebtedness of,
Mercedes Limited.
(xv) All rights
of FIBANK arising under or in
respect of loans to, and
obligations and indebtedness of,
Rainbow Fund Inc.
(xvi) All rights
of FIBANK arising under or in
respect of loans to, and
obligations and indebtedness of, ST
Sensor Technik AG.
(xvii) All rights
of FIBANK arising under or in
respect of loans to, and
obligations and indebtedness of,
Cubix AG.
(a) Pledge Agreement. Six duplicate originals of the
Pledge Agreement shall be deposited with the Court (or its
designee).
(b) District Attorney Letter. An original, executed
letter to the Zurich District Attorney, in the form attached hereto as
Exhibit I (the "District Attorney Letter") shall be deposited
with the Court (or its designee). The District Attorney Letter
will be forwarded by the Court (or its designee) only upon the
Effective Date pursuant to paragraph 10(j) hereof).
(c) Acknowledgement. Four duplicate originals of the
acknowledgement executed by the Official Liquidators of MBT in
the form attached as Exhibit J hereto (the "Acknowledgement")
shall be deposited with the Court (or its designee).
(d) GSE Preferred Shares. The GSE preferred shares
issued to FIL in connection with Emerson Plan shall be deposited with
the Court (or its designee).
(e) FIL Shares. All shares of FIL in the custody or
control of Jurick (20%) and the FIBANK Liquidator (20%), together
with executed stock powers and other documents acceptable in form
to counsel for Stelling (the "FIL Shares") shall be deposited
with the Court (or its designee).
(f) Approval Order. The Lead Parties shall use their
best efforts to agree upon the terms of the Approval Order. In the
event that the Lead Parties are unable to so agree, the Court
shall resolve all disputes concerning the Approval Order at the
hearing with respect to the application for an order approving
this Stipulation and Order.
(g) Board Resolutions. Each of GSE, Elision and FIN
shall deposit with the Court (or its designee) corporate resolutions of
each of their respective boards of directors, certified by their
respective corporate secretaries, duly authorizing such entity to
enter into and perform all of its obligations thereunder.
(h) Registration Rights Agreement. The form of the
Registration Rights Agreement shall be deposited with the Court
(or its designee).
In the event that the Effective
Date does not occur and this Stipulation and Order is withdrawn
in accordance with paragraph 5(c) hereof, each of the items
listed in this paragraph 9 shall be returned to the depositing
party.
2. Actions to Be Taken on or After the Effective Date
(a) The FIBANK Liquidator and Jurick shall file an
executed Stipulation and Order, to be so ordered by the Court, dismissing
Eric F. Gebaide from the New Jersey Proceedings.
(b) The FIBANK Liquidator shall deposit with the Court a
Stipulation and Order dismissing the New Jersey Proceedings with
prejudice and without costs (the "Dismissal Order").
(c) FIL shall file an executed Stipulation, to be so
ordered by the Court, dismissing the FIL Action with prejudice
and without costs.
(d) Emerson shall file an executed Stipulation, to be so
ordered by the Court, dismissing the Stelling Proceedings with
prejudice and without costs.
(e) Barclays shall file an executed Stipulation, to be
so ordered by the Massachusetts Court, dismissing the Massachusetts
Proceedings with prejudice and without costs and vacating the
preliminary injunction issued therein.
(f) Barclays shall deliver to Jurick executed
satisfactions of the New York Judgment.
(g) FIL shall file an executed Stipulation and Order
dismissing the civil suit against Jurick commenced by FIL in the
Bahamas with prejudice and without costs.
(h) The FIL Shares shall be delivered to Stelling, and
Bunger shall have performed his obligation to deliver his shares
of FIL to Stelling as provided in the agreement between Swiss
counsel for Stelling and Swiss counsel for Bunger, dated June 10,
1996, to be filed in the Swiss litigation pending between Bunger
and Stelling.
(i) In the event that Jurick or Farnum receive from the
law enforcement authorities in Zurich, Switzerland the return of any
of the funds previously deposited by FIBANK to secure the
appearance of Jurick and Farnum, such funds shall be returned
immediately to FIBANK.
(j) The original District Attorney Letter shall be
forwarded to the Zurich District Attorney.
(k) All Emerson Shares which are not on that date
registered in FIN's name on Emerson's books and records shall be
transferred and registered on Emerson's books and records in
FIN's name by the registered owners of such shares in accordance
with paragraph 1(a) hereof and delivered to the Settlement Agent
or the Court, as the case may be.
(l) The GSE preferred shares issued to FIL in connection
with the Emerson Plan shall be cancelled.
(m) The parties thereto shall execute the Pledge
Agreement and an original shall be forwarded to each of the Creditors and
the parties thereto.
(n) One original Acknowledgment shall be forwarded to
each of the Creditors and Jurick.
(o) One original of each Limited Release deposited with
the Court pursuant to paragraph 9(c) hereof shall be forwarded to
each Lead Party.
(p) The parties thereto shall execute the Registration
Rights Agreement and one original shall be forwarded to each of
the Lead Parties, FIL, FIN, the Advisor and the Settlement Agent.
(q) Emerson shall pay or cause to be paid the sum of
US$100,000 to Donald K. Stelling.
On or after the Effective Date, if
required by Jurick or Emerson, U.S. counsel for Stelling shall
send a letter to the Division of Enforcement of the Securities
and Exchange Commission indicating that Stelling no longer has
any interest in pursuing the allegations set forth in the report
delivered to the Division of Enforcement by Stelling on June 21,
1995. Such letter shall be satisfactory to each of the Lead
Parties.
3. Termination Upon Payment In Full or Upon Order of
the Court After the Effective Date
(a) Termination Upon Payment of Aggregate Amount.
Upon the payment in full of the Aggregate Amount and reimbursement of
amounts paid pursuant to paragraph 3(g) hereof, the Lead Parties
shall jointly request that the Court (or its designee) dispose of
the documents remaining in its custody or in the custody of the
Collateral Agent in the following manner:
(i) Consent Judgments, Swiss Judgment and
Dismissal Order. The Court (or its designee) shall deliver the
original Consent Judgments to Jurick and shall at that time enter
the Dismissal Order. The status of the Swiss Judgment shall be
resolved as provided for in the agreement to be entered into
pursuant to paragraph 9(b).
(ii) Releases. One original of each and
every General Release shall be delivered to each Lead Party.
(iii) Other Assets. All assets referred to
in paragraph 9(d) above shall be delivered to Jurick or his
designee.
(iv) Emerson Shares. Any remaining Emerson
Shares, together with any remaining proceeds of Emerson Shares
shall be delivered to FIN by the Collateral Agent and/or the
Office of the Clerk of the Court, as the case may be, and the
security interest in and lien upon such shares granted pursuant
to paragraph 2 hereof and the Pledge Agreement shall be deemed
released.
(a) Termination Upon Order of the Court. In the
event (i) of a bankruptcy, insolvency or similar proceeding as specified
in Sections 501(8) and 501(9) of the Indenture, (ii) of a default under
the Indenture, the Senior Credit Agreement or other similar material
financing agreement or any refinancing or replacement thereof,
which has not been cured or waived, (iii) that there is a
delisting of the Emerson Shares from the American Stock Exchange,
unless the Emerson Shares are listed on the New York Stock
Exchange or the NASDAQ National Market System within seven (7)
days of such delisting, (iv) of a material breach hereof by
Jurick or Emerson, or (v) that there is no reasonable prospect
that the goals contemplated by this Stipulation and Order can be
achieved, then any Creditor may apply to the Court, on notice to
all other Lead Parties, for an order from the Court declaring
that the Stipulation and Order is terminated. After a hearing,
at which any Lead Party may participate, the Court, in its
discretion, based on the totality of the circumstances,
including, without limitation, evidence with respect to the then-
current Marketing Plan or other advice or opinions of the Advisor
and the value of the remaining Emerson Shares, if any, and the
available ways and means of realizing such value, shall determine
whether to order the termination of this Stipulation and Order on
the grounds that its goals and purposes are not reasonably likely
to be realized.
(b) Effect of Termination Prior to Payment in Full.
When, and if, (x) the Court terminates this Stipulation and Order, as
provided in subparagraph (b) above, or (y) all of the Emerson
Shares have been sold and the Net Proceeds of such sales have
been paid in accordance with the provisions hereof but the
Settlement Amount has not been paid in full, then the parties
shall take the following actions and shall request that the Court
(or its designee) dispose of the documents deposited with it in
the following manner:
(i) Consent Judgments
and Swiss Judgment. Within five (5) Business Days of either (x)
the entry of an order terminating this Stipulation and Order or
(y) the date on which all of the Emerson Shares have been sold
and the Net Proceeds of such sales have been paid in accordance
with the provisions hereof and any portion of the Settlement
Amount remains unpaid, the Creditors shall consult with Jurick
with respect to the amount of the Consent Judgments to be entered
and the amount of the Swiss Judgment, after giving appropriate
credit to the Jurick Group for any payments previously made
pursuant to paragraph 1 hereof, provided, however, the Consent
Judgment against GSE shall be reduced by an amount equal to
twenty-seven percent (27%) of the amounts paid to Barclays
pursuant to Exhibit A hereof. Following a determination by the
Creditors, which determination shall be made in their sole
discretion, of the appropriate reduced amount of the Consent
Judgments and the Swiss Judgment, the Creditors shall request
that, within ten (10) Business Days, Jurick cause each judgment
debtor to deliver to them executed Consent Judgments, in form
acceptable to counsel for the Creditors, in the reduced amounts
(collectively, the "Restated Consent Judgments"). If the
Restated Consent Judgments are delivered, the Creditors will then
request, on notice to each of the other Lead Parties, that the
Court enter the Restated Consent Judgments. Upon the entry by the
Court of the Restated Consent Judgments, the original Consent
Judgments shall be returned to the judgment debtors. If all of
the Restated Consent Judgments are not delivered or any proposed
judgment debtor seeks to be heard in any respect concerning the
amount or form of any Restated Consent Judgment, then the Court
will enter the original Consent Judgments (in the amount of
US$1,835,423.26 against GSE and $49.5 million against Jurick and
each other judgment debtor). Following the entry of the original
Consent Judgments or the Restated Consent Judgments, the
Creditors may take any action permitted by law to execute upon
their Consent Judgments to collect the unpaid balance, and
Stelling may take such actions with respect to the Swiss
Judgment.
(ii) Other Assets. All assets referred
to in paragraph 9(d) above shall be returned to the party which
deposited the asset with the Court (or its designee).
2. Jurick Sworn Statements.
(a) Within twenty-one (21) days of the execution of this
Stipulation, and thereafter, subject to paragraph 5(a)(v)(B)
hereof, annually within forty-five (45) days of the end of each
calendar year until the Jurick Group has discharged all of its
obligations under this Stipulation and Order, Jurick shall file
with the Court under seal, a statement, sworn to under penalty of
perjury, including a balance sheet (the "Sworn Statements"), sub
stantially in the form annexed hereto as Exhibit K, which shall
be acceptable to counsel for each of the Creditors, in their
judgment reasonably exercised. Simultaneously with the filing of
the initial and each subsequent Sworn Statement, Jurick shall
provide each of the Creditors with an unsigned, uncertified
document containing all of the information set forth in such
Sworn Statement but which shall not contain any references to
Jurick's name. The initial Sworn Statement shall contain a full
and complete list of all assets (other than assets having an
aggregate fair market value which is less than US$100,000) held
by Jurick directly or indirectly as of the date thereof and shall
be accompanied by a quitclaim deed, in form acceptable to counsel
for the Creditors, executed by Jurick in favor of the Collateral
Agent conveying all property owned by Jurick which is not listed
but is required to be listed on such Sworn Statement (a "Deed").
Each subsequent annual Sworn Statement shall contain a full and
complete list of all assets (other than assets having an
aggregate fair market value which is less than US$100,000) held
by Jurick directly or indirectly as of the end of the year to
which it relates and shall be accompanied by a Deed dated as of
the date of such sworn statement. By delivery of a Deed, Jurick
shall not be deemed to have conceded the existence of any such
property.
(b) In the event that, following the delivery of any Sworn
Statement but prior to the payment in full of the Settlement
Amount, it is discovered that Jurick held, as of the date
thereof, assets of any kind whatsoever not disclosed in such
Sworn Statement but which were required to be listed in such
Sworn Statement (the "Undisclosed Assets"), the Creditors shall
request, on notice to all Lead Parties, that the Court release
the applicable Deed(s) so that such assets may be quitclaimed to
the Settlement Agent and liquidated by the Settlement Agent for
the benefit of the Creditors. The proceeds of any Undisclosed
Assets shall be distributed to the Creditors in addition to the
Settlement Amount in accordance with the following percentages:
Creditor Percentage
Barclays 13.13%
Stelling 42.43%
FIBANK 44.43%
The Court and the other parties hereto shall rely upon the
initial Sworn Statement in approving and entering into this
Stipulation and Order.
(a) Following the Effective Date but prior to the
payment in full of the Settlement Amount, if Jurick holds liquid assets
of any kind whatsoever having an aggregate value which exceeds
US$2,000,000 from any source whatsoever (other than the Jurick
Payment, the compensation permitted to be paid to Jurick in
accordance with paragraph 7(b)(ii) hereof and the stock options
to be retained by Jurick in accordance with paragraph 8(b)
hereof), such amounts in excess of US$2,000,000 (the "Excess
Assets") shall be offset against any unpaid portion of the Jurick
Payment and, with respect to any portion of the Jurick Payment
that has been paid, the Excess Assets shall be transferred to the
Settlement Agent for distribution in accordance with paragraph
3(f), excluding any payments to Jurick. To the extent that,
following the Effective Date, Jurick's net worth (exclusive of
the value of the Emerson Shares, the Jurick Payment, the
compensation permitted to be paid to Jurick in accordance with
paragraph 7(b)(ii) hereof and the stock options to be retained by
Jurick in accordance with paragraph 8(b) hereof) exceeds
US$5,000,000, any Creditor may apply to the Court, on notice to
each other Lead Party, for appropriate relief.
2. Compromise of Claims Between and Among Certain
Parties Related to the FIBANK Liquidation.
(a) In exchange for the agreements by the FIL Liquidator
and the Official Liquidators of MBT that are set forth in
paragraphs 13(b) and 13(c) below and to be acknowledged in
Exhibit J hereto, and in consideration of this entire Stipulation
and Order, the FIBANK Liquidator shall not assert any claim on
behalf of FIBANK against the estate of either FIL or MBT.
(b) In exchange for the agreement by the FIBANK
Liquidator that is set forth in paragraph 13(a) above, and in consideration
of this entire Stipulation and Order, the FIL Liquidator shall
waive all claims exceeding US$1,240,303.62 previously asserted on
behalf of FIL in the liquidation proceedings of FIBANK and shall
not assert (i) any priority with respect to such amount, or (ii)
any additional claims.
(c) In exchange for the agreement by Hackett that is set
forth in paragraph 13(a) above, and in consideration of this
entire Stipulation and Order, the Official Liquidators of MBT
shall waive all claims exceeding US$3,510,058.24 previously
asserted on behalf of MBT in the liquidation proceedings of
FIBANK and shall not assert (i) any priority with respect to such
amount, or (ii) any additional claims.
(d) In consideration of this entire Stipulation and
Order, Barclays shall waive all claims exceeding US$7,711,331.83
previously asserted in the liquidation proceedings of FIBANK and
shall not assert (i) any priority with respect to such amount, or
(ii) any additional claims.
(e) Each member of the Jurick Group, for itself and on
behalf of each of its affiliates (whether present or future)
agrees to waive all claims in the liquidation proceedings of
FIBANK except for net deposits reflected on the books and records
of FIBANK not to exceed US$200,000 in the aggregate.
3. Stelling Personal Jurisdiction.
By entering into and performing
under this Stipulation and Order, Stelling shall not be deemed to
have in any respect consented to her being or caused her to be
subject to personal jurisdiction in New Jersey or any other part
of the United States, except solely with respect to the
implementation and enforcement of this Stipulation and Order and
the transactions contemplated hereby.
4. The Malpractice Action.
(a) The Court has been duly notified of the action
brought in this Court by FIL against FIL's former U.S. counsel (the
"Malpractice Action"), arising out of alleged legal malpractice
in connection with the Emerson Plan and other matters.
Notwithstanding the provisions of this Stipulation and Order, FIL
may proceed with the Malpractice Action, provided, however, that
the Malpractice Action shall be dismissed in the event of a
determination by the Court upon a motion by defendants therein
that Emerson or Jurick must participate therein as a third party
defendant.
(b) The proceeds of the Malpractice Action, if any,
whether by way of settlement, judgment or otherwise, net of legal fees
(contingent or otherwise) and expenses incurred in the
Malpractice Action to obtain such proceeds plus an additional
$300,000 of other fees incurred in connection therewith, shall be
paid to Stelling and credited against the last payment(s) owing
to Stelling pursuant to Exhibit A hereof.
5. Confidentiality.
The parties hereto agree (which
agreement shall survive the termination of this Stipulation and
Order) that (a) all documents filed with the Court under seal in
connection with this Stipulation and Order, including but not
limited to the Sworn Statements, (b) any documents which at the
time of receipt are clearly labeled as confidential, and (c) all
documents designated by the Court as confidential, shall be treated
as confidential by the receiving party and each party agrees to
use its best efforts to ensure that such information is not
published, disclosed or otherwise divulged to anyone other than
employees or officers of such party, its counsel and agents, the
Settlement Agent and any potential nominees for such position,
the Advisor and any potential nominees for such position and the
Court and the Bahamas Court, provided, however, that it is
understood that the foregoing shall not apply to:
(i) disclosure made with the prior written
authorization of the party from whom the material was received;
(ii) disclosure of (A) information (other than
information received on a confidential basis prior to the Effective Date
of this Stipulation and Order) already known by, or in the
possession of the receiving party without restrictions on the
disclosure thereof at the time such information is supplied or
(B) information also furnished by a third party not having any
similar duty of confidentiality;
(iii) disclosure of information which is required
by or appropriate pursuant to applicable law or to any Federal, state,
local or foreign court or governmental agency, authority,
instrumentality or regulatory body having supervisory authority
over any party hereto;
(iv) disclosure of information in connection with
the execution of this Stipulation or any suit, action or proceeding
in connection with the implementation of this Stipulation and
Order or enforcement of rights hereunder or under any document
delivered hereunder; or
(v) disclosure of information that prior to such
disclosure is or has become publicly available through no violation of this
Stipulation and Order.
6. Notices.
Notices and other communications provided for
herein shall be in writing and shall be delivered, if to the
Court, by hand or overnight courier service and, if to any other
party, by telex, facsimile transmission or other telegraphic
communication equipment of the sending party and by First Class
mail, as follows:
If to the Court:
The Honorable Nicholas H. Politan
United States District Court Judge
United States District Court for
the District of New Jersey
The Martin Luther King, Jr. Federal Building
50 Walnut Street
Newark, New Jersey 07102
If to Barclays:
Mr. Michael B. Nash
Senior Vice President
Mr. Ronald Spitzer
Vice President
Barclays Bank PLC
75 Wall Street
New York, New York 10265
FAX: (212) 412-5661
with a copy to:
Margot B. Schonholtz, Esq.
Zalkin, Rodin & Goodman LLP
750 Third Avenue
New York, New York 10017
FAX: (212) 682-6331
If to the FIBANK Liquidator:
Mr. Thomas Hackett
Price Waterhouse
Providence House
East Hill Street
P.O. Box N-3910
Nassau, Bahamas
FAX: (809) 326-7308
with a copy to:
James Tolan, Esq.
Nancy Prahofer, Esq.
Dechert, Price & Rhoads
477 Madison Avenue
New York, New York 10022
FAX: (212) 308-2041
If to Stelling:
Mrs. Petra Stelling
IM Berghof 5
8700 Kusnacht
Switzerland
FAX: 011-411-910-7861
with copies to:
Dr. Peter Hafter
Lenz & Staehelin
Bleigherweg 58
CH-8027
Zurich, Switzerland
FAX: 011-411-204-1200
and
Thomas P. Ogden, Esq.
Davis, Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
FAX: (212) 450-5986
and
David H. Wollmuth, Esq.
Crummy, DelDeo, Dolan, Griffinger & Vechione
One Riverfront Plaza
Newark, New Jersey 07102-5497
FAX: (201) 639-6236
If to the Jurick Group:
Mr. Geoffrey P. Jurick
c/o Emerson Radio Corp.
9 Entin Road
Parsippany, New Jersey 07054
FAX: 011-85-22-956-1322
with a copy to:
Herbert S. Edelman, Esq.
Kaye, Scholer, Fierman, Hays & Handler
425 Park Avenue
New York, New York 10022
FAX: (212) 836-8689
If to Emerson:
Emerson Radio Corp.
9 Entin Road
Parsippany, New Jersey 07054
Att: Chief Operating Officer
FAX: (201) 428-2022
with copies to:
Jeffrey M. Davis, Esq.
Wolff & Samson
5 Becker Farm Road
Roseland, New Jersey 07068
FAX: (201) 740-1407
and
William S. Katchen, Esq.
Lowenstein, Sandler, Kohl, Fisher & Boylan
65 Livingston Avenue
Roseland, New Jersey 07068
FAX: (201) 992-5820
If to the FIL Liquidator:
Mr. Wayne J. Aranha
Coopers & Lybrand
P.O. Box N 596
2nd Floor Charlotte
Charlotte Street
Nassau, Bahamas
FAX:
with a copy to:
Thomas P. Ogden, Esq.
Davis, Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
FAX: (212) 450-4800
All notices and other communications given to any party hereto in
accordance with the provisions of this Stipulation and Order
shall be deemed to have been given on the date of receipt if
delivered by hand or overnight courier service or sent by telex,
facsimile transmission or other telegraphic communication
equipment of the sender, in each case delivered or sent and
mailed (properly addressed) to such party as provided in this
paragraph 17 or in accordance with the latest unrevoked direction
from such party given in accordance with this paragraph 17.
2. Withdrawal of the Reference.
The reference of the Emerson
bankruptcy proceedings is hereby withdrawn pursuant to 18 U.S.C.
Section 157(d) solely with respect to and to the extent necessary to
resolve issues relating to (a) the pending or threatened
litigation, proceedings and disputes described above concerning
ownership of Emerson common stock issued pursuant to the Emerson
Plan, which litigation, proceedings and disputes fall within the
retained jurisdiction of the New Jersey Bankruptcy Court, as
provided in the Emerson Plan, and (b) the enforcement of this
Stipulation and Order and the documents delivered hereunder, the
Approval Order and the administration of the transactions
contemplated hereby or made necessary hereunder.
3. Continuing Jurisdiction.
(a) The Court shall retain
continuing jurisdiction over these proceedings for the purposes
of enforcing this Stipulation and Order and the documents
delivered hereunder and administering the transactions
contemplated hereby or made necessary hereunder, including
without limitation any litigation, proceedings or disputes
arising out of or relating to this Stipulation and Order, the
Approval Order, the Emerson Shares, any Marketing Plan or any
amendment thereto or other action or advice of the Advisor.
(b) Except as otherwise specifically provided
herein, the administration and implementation of this Stipulation
and Order shall be within the sound discretion of the Court.
4. Transfer of Obligations; Parties in Interest. Whenever
in this Stipulation and Order any of the parties hereto is
referred to, such reference shall be deemed to include the
successors, assigns, heirs and legatees of such party; provided,
however, that neither Emerson nor Jurick may assign its rights
hereunder without the prior written consent of the other Lead
Parties. No party hereto will transfer any of its rights or
obligations under this Stipulation and Order unless the
transferee agrees in writing to be bound by the terms of this
Stipulation and Order to the same extent as its transferor.
5. Admissability.
If this Stipulation and Order does not by its
terms become, or is not declared, effective, then the provisions
of this Stipulation and Order shall be given no probative value
in any action or proceeding before any court by any party hereto
or any of the parties listed on Exhibit B hereto, and any
evidence of any conduct or statements made in connection with the
negotiations of this Stipulation and Order shall not be
admissible for any purpose in any such action or proceeding.
Dated: June 11, 1996
STIPULATED AND AGREED,
_/s/ Thomas Hackett___________
THOMAS HACKETT, OFFICIAL
LIQUIDATOR OF FIDENAS
INTERNATIONAL BANK LIMITED
_/s/ Petra Stelling_________
PETRA STELLING
BARCLAYS BANK PLC
_/s/ Ronald E. Spitzer________
By: RONALD E. SPITZER
Title: VICE PRESIDENT
__/s/ Wayne J. Aranha_________
WAYNE J. ARANHA, OFFICIAL
LIQUIDATOR OF FIDENAS
INVESTMENT LIMITED
_/s/ Geoffrey P. Jurick_______
GEOFFREY P. JURICK
FIDENAS INTERNATIONAL LIMITED
L.L.C
__/s/ Geoffrey P. Jurick______
By: GEOFFREY P. JURICK
Title: MANAGER
ELISION INTERNATIONAL, INC.
__/s/ Geoffrey P. Jurick______
By: GEOFFREY P. JURICK
Title: CHAIRMAN
GSE MULTIMEDIA TECHNOLOGIES,
INC., F/K/A GSE ELECTRONIC
SYSTEMS, INC.
_/s/ Geoffrey P. Jurick_______
By: GEOFFREY P. JURICK
Title: CHAIRMAN
EMERSON RADIO CORP.
__/s/ Eugene I. Davis_________
By: EUGENE I. DAVIS
Title: PRESIDENT
<TABLE> <S> <C>
<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 16,133
<SECURITIES> 1,872
<RECEIVABLES> 25,107
<ALLOWANCES> 1,524
<INVENTORY> 35,292
<CURRENT-ASSETS> 85,314
<PP&E> 7,923
<DEPRECIATION> 4,422
<TOTAL-ASSETS> 96,576
<CURRENT-LIABILITIES> 35,008
<BONDS> 20,750
0
9,000
<COMMON> 403
<OTHER-SE> 30,979
<TOTAL-LIABILITY-AND-EQUITY> 96,576
<SALES> 241,258
<TOTAL-REVENUES> 245,667
<CGS> 231,455
<TOTAL-COSTS> 231,455
<OTHER-EXPENSES> 23,556
<LOSS-PROVISION> 744
<INTEREST-EXPENSE> 3,275
<INCOME-PRETAX> (13,363)
<INCOME-TAX> 26
<INCOME-CONTINUING> (13,389)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,389)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
