UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-25226
EMERSON RADIO CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3285224
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 Entin Road Parsippany, New Jersey 07054
(Address of principal executive offices) (Zip code)
(201)884-5800
(Registrant's telephone number, including area code)
- -----------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of common stock as of September 30,
1996: 40,295,196.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net revenues .. . . . . . . . . . $101,656 $144,406 $60,509 $87,348
Costs and expenses:
Cost of sales . . . . . . . . . 96,536 130,692 57,752 79,807
Other operating costs and expenses 1,624 2,545 689 929
Selling, general & administrative
expenses. . . . . . . . . . . . 9,705 10,995 4,342 5,752
Restructuring and other nonrecurring
charges . . . . . . . . . . . . 2,734 2,734
110,599 144,232 65,517 86,488
Operating profit (loss). . . . . . (8,943) 174 (5,008) 860
Interest expense . . . . .. . . . . 1,657 1,294 845 671
Earnings (loss) before income taxes. . (10,600) (1,120) (5,853) 189
Provision for income taxes . . .. . 166 154 190 63
Net earnings (loss). . . . . . . . . $(10,766) $ (1,274) (6,043) $ 126
Net earnings (loss) per common share $ (.28) $ (.04) $ (.15) $ -
Weighted average number of common
shares outstanding. . . . . . . 40,274 40,253 40,295 40,253
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<CAPTION>
Sept. 30, March 31,
1996 1996
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . $ 15,002 $ 16,133
Short-term investments . . . . . . . . . . . 4,050 1,872
Accounts receivable (less allowances of
$4,813 and $6,139, respectively) . . . . . 18,232 23,583
Inventories . . . . . . . . . . . . . . . . 27,517 35,292
Prepaid expenses and other current assets . 7,898 8,434
Total current assets . . . . . . . . . . . 72,699 85,314
Property and equipment - (at cost less
accumulated depreciation and amortization
of $5,166 and $4,422, respectively) . . . . . 2,823 3,501
Other assets . . . . . . . . . . . . . . . . . 7,111 7,761
Total Assets . . . . . . . . . . . . . . . $ 82,633 $ 96,576
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable . . . . . . . . . . . . . . . $ 19,186 $ 21,151
Current maturities of long-term debt . . . . 120 173
Accounts payable and other current
liabilities . . . . . . . . . . . . . . . 9,806 10,391
Accrued sales returns . . . . . . . . . . . 3,016 3,091
Income taxes payable . . . . . . . . . . . . 148 202
Total current liabilities . . . . . . . . 32,276 35,008
Long-term debt . . . . . . . . . . . . . . . . 20,895 20,886
Other non-current liabilities . . . . . . . . 256 300
Shareholders' Equity:
Preferred stock - $.01 par value, 1,000,000
shares authorized, 10,000 shares issued
and outstanding . . . . .. . . . . . . . . 9,000 9,000
Common stock - $.01 par value, 75,000,000
shares authorized, 40,295,196 and 40,252,772
shares issued and outstanding, respectively. 403 403
Capital in excess of par value . . . . . . . . 109,243 108,991
Accumulated deficit . . . . . . . . . . . . . (89,291) (78,175)
Unrealized loss on short-term investments. . . (256)
Cumulative translation adjustment . . . . . . 107 163
Total shareholders' equity . . . . . . . 29,206 40,382
Total Liabilities and Shareholders' Equity $ 82,633 $ 96,576
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
<CAPTION>
Six Months Ended
September 30,
1996 1995
Cash Flows from Operating Activities:
<S> <C> <C>
Net cash provided (used) by operating
activities . . . . . . . . . . . . . . . . $ 3,322 $ (4,295)
Cash Flows from Investing Activities:
Purchases of investment securities. . . . . . (2,256)
Additions to property and equipment. . . . . (169) (1,145)
Other. . . . . . . . . . . . . . . . . . . . 113 (476)
Net cash used by investing
activities . . . . . . . . . . . . . . . . (2,312) (1,621)
Cash Flows from Financing Activities:
Net repayments under line of credit
facility . . . . . . . . . . . . . . . . . (1,965) (15,305)
Net proceeds from private placement of
Senior Subordinated Convertible
Debentures . . . . . . . . . . . . . . . . 19,233
Other . . . . . . . . . . . . . . . . . . . (176) (731)
Net cash provided (used) by financing
activities . . . . . . . . . . . . . . . . (2,141) 3,197
Net decrease in cash and cash
equivalents . . . . . . . . . . . . . . . . (1,131) (2,719)
Cash and cash equivalents at beginning
of year. . . . . . . . . . . . . . . . . . . 16,133 17,020
Cash and cash equivalents at end of period . . $ 15,002(a) $14,301(a)
Supplemental disclosure of cash flow information:
Interest paid . . . . . . . . . . . . . . . $ 1,661 $ 1,564
Income taxes paid . . . . . . . . . . . . . $ 15 $ 133
</TABLE>
(a) The balances at September 30, 1996 and 1995 include $4.0 million and $9.1
million, respectively, of cash and cash equivalents pledged to assure the
availability of certain letter of credit facilities.
The accompanying notes are an integral part of the interim consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
The unaudited interim consolidated financial statements reflect all
adjustments that management believes necessary to present fairly the results of
operations for the periods being reported. Certain prior year information has
been reclassified to conform with the current year presentation. The unaudited
interim consolidated financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission and accordingly
do not include all of the disclosures normally made in the Emerson Radio Corp.
(the "Company") annual consolidated financial statements. It is suggested that
these unaudited interim consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto for the year ended
March 31, 1996, included in the Company's annual Form 10-K filing.
The preparation of the unaudited interim consolidated financial statements
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.
Due to the seasonal nature of the Company's consumer electronics business,
the results of operations for the three and six month periods ended September
30, 1996 are not necessarily indicative of the results of operations for the
full year ending March 31, 1997.
NOTE 2
Net earnings (loss) per common share for the three and six month periods
ended September 30, 1996 and 1995 are based on the net earnings (loss) and
deduction of preferred stock dividend requirements (resulting in a loss
attributable to common shareholders) and the weighted average number of shares
of common stock outstanding during the periods. These per share amounts do not
include common stock equivalents assumed outstanding since they are anti-
dilutive.
NOTE 3
The provision for income taxes for the three and six month periods ended
September 30, 1996 and 1995 consists primarily of taxes related to international
operations. The Company did not recognize tax benefits for losses incurred by
its domestic operations during the same periods.
NOTE 4
The Company records short-term investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Investment securities consist of equity securities
which are classified as both trading securities and as available for sale
securities. Investments in trading securities are reported at fair value, with
unrealized gains and losses included in earnings. Unrealized holding losses on
trading securities as of September 30, 1996 were approximately $283,000 and are
included in the statement of operations. In the quarter ended September 30,
1996, the Company reclassified one of its short-term investments to available
for sale and accordingly, unrealized gains and losses are reported as a separate
component of shareholders' equity. The cost of investments sold and related
realized gains and losses are determined using the specific identification
method.
The amortized cost and estimated market value of investment securities
classified as available for sale at September 30, 1996 are as follows:
<TABLE>
<S> <C>
Amortized cost $3,938,659
Gross unrealized losses (256,409)
Estimated market value $3,682,250
</TABLE>
NOTE 5
Spare parts inventories, net of reserves, aggregating $1,823,000 and
$2,042,000 at September 30, 1996 and March 31, 1996, respectively, are included
in "Prepaid expenses and other current assets".
NOTE 6
NOTES PAYABLE:
The Company maintains a $30 million asset-based revolving line of credit
facility with a U.S. financial institution (the "Lender"). Pursuant to the terms
of the credit facility, as amended, effective September 30, 1996, the Company is
required to maintain a minimum adjusted net worth, as defined, of $30,000,000
excluding certain restructuring and nonrecurring charges. At September 30,
1996, the Company had an adjusted net worth, excluding such charges, of
$31,940,000 and, therefore was in compliance with this covenant.
LONG-TERM DEBT:
<TABLE>
Long-term debt consists of the following:
(In thousands of dollars)
<CAPTION>
Sept. 30, March 31,
1996 1996
<S> <C> <C>
8 1/2% Senior Subordinated
Convertible Debentures
Due 2002. . . . . . . . . . . . $20,750 $20,750
Other . . . . . . . . . . . . . . 265 309
21,015 21,059
Less current obligations. . . . . 120 173
$20,895 $20,886
</TABLE>
NOTE 7
SETTLEMENT OF LITIGATION REGARDING CERTAIN OUTSTANDING COMMON STOCK:
The 30 million shares of Common Stock issued to GSE Multimedia Technologies
Corporation ("GSE"), Fidenas International Limited, L.L.C. ("FIN") and Elision
International, Inc. ("Elision") on March 31, 1994, pursuant to the bankruptcy
restructuring plan, were the subject of certain legal proceedings. On June 11,
1996, a Stipulation of Settlement and Order (the "Settlement Agreement") was
executed, which settles various legal proceedings in Switzerland, the Bahamas
and the United States among Mr. Geoffrey P. Jurick, Emerson's Chairman and Chief
Executive Officer, certain of his affiliated entities (GSE, FIN and Elision) and
certain of their creditors (the "Creditors"). The Settlement Agreement
provides, among other things, for the payment by Mr. Jurick and such affiliated
entities of $49.5 million to the Creditors, to be paid from the proceeds of the
sale of certain 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 Settlement
Shares. The Settlement Shares will be sold over an indeterminate period of time
by a financial advisor (the "Advisor") to be proposed by Emerson and selected in
consultation with Mr. Jurick and the Creditors. TM Capital has initially been
selected as the Advisor. 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 initially will consist of 15,286,172 Emerson 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 pursuant to
the terms of the Company's Loan and Security Agreement with a U.S. financial
institution (the "Lender") and/or the indenture governing the Company's 8 1/2%
Senior Subordinated Convertible Debentures Due 2002 (the "Debentures"). Sales
may be made of the Settlement Shares 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 sales are subject to the consent of the
Company, Mr. Jurick, and the Creditors, or, 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. A hearing to approve the Settlement Agreement has been
scheduled for November 19, 1996 in the United States District Court in Newark,
New Jersey.
INTERNATIONAL JENSEN INCORPORATED LITIGATION:
On May 10, 1996, International Jensen Incorporated ("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 and third party complaint 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. On July 2, 1996, the
Company amended its third party complaint to include Recoton Corporation
("Recoton"), the competing bidder for Jensen, and William Blair
Leveraged Capital Fund, L.P. ("Blair") for conspiring in the
actions of Jensen and Mr. Shaw. The Company voluntarily dismissed Blair, without
prejudice, on August 2, 1996.
On August 8, 1996, the Company filed a Second Amended Counterclaim and
Third Party Complaint with the Chicago Federal Court alleging that disclosures
and omissions in Jensen's proxy materials constituted violations of the
antifraud provisions of the federal proxy rules and seeking a temporary
restraining order to enjoin Jensen from holding its August 28, 1996 Special
Meeting of Stockholders to approve the Recoton/Shaw transactions and from
utilizing any proxies solicited pursuant to such allegedly misleading proxy
materials. The Court determined to abstain from deciding on this matter on
August 26, 1996. On October 22, 1996, Emerson and Jensen further amended their
claims and Recoton filed a separate action alleging that Emerson tortuously
interfered with the Jensen/Recoton transaction which seeks damages of not less
than $5 million. The Company and its President intend to vigorously defend
Jensen's and Recoton's claims against the Company and its President and to
vigorously pursue its counterclaim against Jensen and its third party complaint
against Mr. Shaw and Recoton. The Company believes that Jensen's and
Recoton's claims are without basis, that it has meritorious defenses against
Jensen's and Recoton's claims and that the litigation or results thereof
will not have a material adverse effect on the Company's consolidated
financial position.
On July 30, 1996, the Company filed a complaint in the Court of Chancery of
the State of Delaware against Jensen, all of its directors, Blair, Recoton, and
certain affiliates of the foregoing alleging violations of Delaware law
involving Jensen's auction process, interference with prospective economic
advantage, and aiding and abetting breaches of fiduciary duties. In particular,
the complaint seeks an order enjoining the consummation of the Jensen/Recoton
merger and the sale of Jensen's Original Equipment Manufacturing business to Mr.
Shaw. The complaint also seeks to require Jensen and its Board of Directors to
provide relevant due diligence materials to the Company and to engage in good
faith negotiations with the Company by asking the Court to order Jensen and its
Board of Directors to conduct a fair auction on a level playing field. The
Company is also requesting the Court to award damages and further relief as
would be just and equitable. The Court ordered expedited discovery and held a
hearing on the matter and on a motion for preliminary injunction filed on behalf
of Jensen's stockholders on August 15, 1996. The Court denied the motions for
preliminary injunction, and the Recoton/Shaw transactions with Jensen were
consummated on or about August 28, 1996.
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 began 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 ended March 31, 1996.
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 other 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.
BANKRUPTCY CLAIMS:
The Company is presently engaged in litigation regarding several bankruptcy
claims which have not been resolved since the restructuring of the Company's
debt. The largest claim was filed July 25, 1994 in connection with the
rejection of certain executory contracts with two Brazilian entities, Cineral
Electronica de Amazonia Ltda. and Cineral Magazine Ltda. (collectively,
"Cineral"). The contracts were executed in August 1993, shortly before the
Company's filing for bankruptcy protection. The amount claimed was
$93,563,457, of which $86,785,000 represents a claim for lost
profits and $6,400,000 for plant installation and establishment of offices,
which were installed and established prior to execution of the contracts. The
claim was filed as an unsecured claim and, therefore, will be satisfied, to the
extent the claim is allowed by the Bankruptcy Court, in the manner other allowed
unsecured claims were satisfied. The Company has objected to, and has
vigorously contested, the 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 in early 1995 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.
NOTE 8
The Company recorded restructuring and other nonrecurring charges of
$2,734,000 for the three and six month periods ended September 30, 1996. The
Company recognized $917,000 of restructuring charges related to the closure of
the Company's local Canadian office and distribution operations in favor of an
independent distributor. The charges include costs for employee severance,
asset write-downs, and facility and equipment lease costs. Additionally, the
Company recognized $1,817,000 of nonrecurring charges relating to the proposed
but unsuccessful acquisition of International Jensen Incorporated. These costs
primarily include investment banking, commitment and professional fees,
including litigation costs, relating to the proposed acquisition.
NOTE 9
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 of the joint venture is reflected as a
reduction of cost of sales in the Company's unaudited interim Consolidated
Statements of Operations. Summarized financial information relating to the joint
venture is as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
Income Statement data:
<S> <C> <C> <C> <C>
Net sales (a) $18,466 $13,556 $8,061 $6,282
Net earnings (loss) (74) 1,394 (654) 475
Sales by the Company
to E&H Partners 4,693 11,688 1,874 3,709
___________________________
(a) Sales to the
Company by
E&H Partners 6,070 1,799 2,099 374
</TABLE>
<TABLE>
<CAPTION>
Sept. 30, March 31,
1996 1996
Balance Sheet Data:
<S> <C> <C>
Current assets (a) $16,478 $19,326
Noncurrent assets 151 162
Total Assets $16,629 $19,488
Accounts Payable to the
Company (a) $ 6,226 $13,270
Other Current liabilities 7,947 3,688
Total Liabilities 14,173 16,958
Partnership Equity 2,456 2,530
Total Liabilities and
Partnership Equity $16,629 $19,488
Equity of the Company in net
assets of E&H Partners $ 1,295 $ 1,265
</TABLE>
_______________
(a) Inventories of the Partnership 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 party in
the joint venture, in exchange for, among other things, a $5.0 million loan by
such partner to the joint venture and a subsequent partial paydown of E&H
Partners' obligation to the Company of the same amount.
EMERSON RADIO CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
This report contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). The Company's actual results
may differ from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in this report. See Other Information - Part II, Item 5.
RESULTS OF OPERATIONS
Consolidated net revenues for the three and six month periods ended
September 30, 1996 decreased $26,839,000 (31%) and $42,750,000 (30%) as compared
to the same periods in the fiscal year ended March 31, 1996 ("Fiscal 1996"),
respectively. The decrease resulted from decreases in unit sales of video
cassette recorders, televisions, television/video cassette recorder combination
units and audio products due to higher retail stock levels, increased price
competition in these product categories, weak consumer demand and a soft
retail market. This was partially offset by increased sales of microwave ovens
attributable to a broader product line, larger size units and increased SKU
selections by customers, and by sales of home theater and car audio products
which were not introduced until the second and third quarters of Fiscal 1996.
Revenues recorded from the licensing of the Emerson & G-Clef registered
trademark were $1,001,000 and $2,002,000 in the three and six month periods
ended September 30, 1996 as compared to $1,356,000 and $2,401,000 in the same
periods in Fiscal 1996, respectively. The decline in royalty income is
attributable to lower aggregate sales reported by the licensees of the Emerson &
G-Clef registered trademark brand products. However, the Company has not
received the royalty report from the Company's largest licensee for the second
quarter ended September 30, 1996, and therefore, recorded only the minimum
royalties due pursuant to the license agreement. Such royalties may be higher
upon receipt of the report of the actual results from the licensee. Furthermore,
the Company's Canadian sales decreased $3.3 million in the first half of the
fiscal year ending March 31, 1997 ("Fiscal 1997") relating to the continued weak
Canadian economy and the closure of the Company's local office and Company
operated distribution operations in favor of an independent distributor. This
was partially offset by an increase in European sales to the Company's new
distributor in Spain. The Company expects its United States sales for the third
quarter of Fiscal 1997 to be lower than the third quarter of Fiscal 1996 due to
continuing weak consumer demand, a soft retail market and the increased level of
price competition.
Cost of sales, as a percentage of consolidated revenues, was 95% for both
the three and six month periods ended September 30, 1996 as compared to 91% for
the same periods in Fiscal 1996. Gross profit margins in the three and six
month periods ended September 30, 1996 were unfavorably impacted by a change in
product mix, lower sales prices (primarily video products), a higher proportion
of close-out sales, the allocation of reduced fixed costs over a lower sales
base in the current fiscal year, and the recognition of income relating to
reduced reserve requirements for sales returns in the first half of the prior
fiscal year. However, gross profit margins were favorably impacted by the
introduction of higher margin products -- home theater and car audio products,
and by a reduction in the costs associated with product returns related to the
Company's agreements with a majority of its suppliers to return defective
products and receive in exchange an "A" quality unit.
Other operating costs and expenses declined $240,000 and $921,000 in the
three and six month periods ended September 30, 1996 as compared to the same
periods in Fiscal 1996, respectively, primarily as a result of a decrease in
after-sale service costs relating to the Company's licensing of its Emerson & G-
Clef registered trademark for sale of video products to its largest customer .
Selling, general and administrative expenses ("S,G&A") as a percentage of
revenues, was 7% and 10% for the three and six month periods ended September 30,
1996, as compared to 7% and 8% for the same periods in Fiscal 1996,
respectively. In absolute terms, S,G&A decreased by $1,410,000 and $1,290,000 in
the three and six month periods ended September 30, 1996 as compared to the same
periods in Fiscal 1996, respectively. The decrease was primarily attributable to
a reduction in fixed costs and compensation expense relating to the Company's
continuing cost reduction program in both the U.S. and in its foreign offices,
lower selling expenses attributable to the lower sales and a lower provision on
trade receivables. This was partially offset by a reduction in foreign currency
exchange gains. 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 lower sales 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 $12,000 and $26,000 in the three and six month
periods ended September 30, 1996 as compared to $239,000 and $671,000 in the
same periods in Fiscal 1996, respectively.
Interest expense increased by $174,000 and $363,000 in the three and six
month periods ended September 30, 1996 as compared to the same periods in
Fiscal 1996, respectively. The increase was attributable to the interest
expense associated with the debentures issued in August 1995,
partially offset by lower average borrowings at lower interest rates on the U.S.
revolving line of credit facility. The average rate in effect on the credit
facility for the three month periods ended September 30, 1996 and 1995 was
approximately 9.5% and 10.75%, respectively.
The Company recorded restructuring and other nonrecurring charges of
$2,734,000 for the three and six month periods ended September 30, 1996. The
Company recognized $917,000 of restructuring charges related to the closure of
the Company's local Canadian office and distribution operations in favor of an
independent distributor. The charges include costs for employee severance,
asset write-downs, and facility and equipment lease costs. Additionally, the
Company recognized $1,817,000 of nonrecurring charges relating to the proposed
but unsuccessful acquisition of International Jensen Incorporated. These costs
primarily include investment banking, commitment and professional fees,
including litigation costs, relating to the proposed acquisition.
As a result of the foregoing factors, the Company incurred a net loss of
$6,043,000 and $10,766,000 for the three and six month periods ended September
30, 1996, compared to net earnings of $126,000 for the quarter ended September
30, 1996 and a net loss of $1,274,000 for the first half of Fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $3,322,000 for the six months
ended September 30, 1996. Cash was provided by decreases in accounts receivables
and inventories partially offset by a loss from operations. The decrease in
accounts receivable was due primarily to a one-time receipt of $5.0 million from
the Company's 50% owned joint venture (E & H Partners) in the first quarter of
Fiscal 1997 as a partial paydown of the joint venture's obligation to the
Company. The decrease in inventory is primarily due to a more cautious
purchasing strategy focusing on reducing inventory levels and the associated
carrying costs.
Net cash used by investing activities was $2,312,000 for the six months
ended September 30, 1996. Cash was utilized primarily for the purchase of
investment securities.
In the six months ended September 30, 1996, the Company's financing
activities utilized $2,141,000 of cash. The Company reduced its
borrowings under its U.S. line of credit facility by $1,965,000
through the collection of accounts receivable.
The Company maintains an asset-based revolving line of credit facility, as
amended, with a U.S. financial institution (the "Lender"). The facility, as
amended through September 30, 1996, provides for revolving loans and letters of
credit, subject to individual maximums and, in the aggregate, not to exceed the
lesser of $30 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
September 30, 1996, there were approximately $19.2 million outstanding on the
Company's revolving loan facility and approximately $3.3 million of letters of
credit outstanding for inventory purchases. Based on the "Borrowing Base" amount
at September 30, 1996, approximately $2.2 million of the credit facility was not
utilized. Pursuant to the terms of the credit facility, as amended, effective
September 30, 1996, the Company is required to maintain a minimum adjusted net
worth, as defined, of $30,000,000 excluding certain restructuring and
nonrecurring charges. At September 30, 1996, the Company had an adjusted net
worth, excluding such charges, of $31,940,000, and therefore, was in compliance
with this covenant.
The Company's Hong Kong subsidiary maintains various credit facilities
aggregating $59.1 million with a bank in Hong Kong consisting of the following:
(i) a $9.1 million credit facility 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 September 30, 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 September 30, 1996, there were approximately $7.7
million and $8.9 million of letters of credit outstanding on the $9.1 million
and $50 million credit facilities, respectively.
In the third quarter of Fiscal 1997, the Company made proposals to Sport
Supply Group, Inc. ("SSG"), a New York Stock Exchange listed company and the
largest direct mail distributor of sporting goods equipment and supplies in the
United States, in which the Company seeks to acquire a significant interest in
SSG, though not a majority interest of SSG common stock, and control of SSG's
Board of Directors. Under the terms of its most recent proposal, the Company
would increase its investment in SSG (the Company currently owns 9.9%
of outstanding SSG common stock) through the purchase of 1,714,286 shares
of newly issued common stock (the "Stock") of SSG at a purchase price
of $7.00 per share, for aggregate consideration of approximately
$12 million. The Company would also purchase, for $600, warrants
to purchase 1,000,000 shares of Stock at an exercise price of $7.50 per share
(the "Warrants"), subject to adjustment and exercisable for a five year term.
In addition, the Company would arrange for foreign trade credit financing of $2
million for the benefit of SSG. As part of the proposal, SSG would cause a
majority of the members of its Board of Directors to consist of Emerson
designees. If the proposal is accepted, upon acquisition of the Stock, the
Company would beneficially own approximately 28% of the outstanding shares of
SSG common stock, and assuming exercise of all the Warrants, the Company would
beneficially own approximately 35% of SSG common stock. The Company is currently
negotiating with SSG on the price and terms of such a transaction. There can be
no assurance that such negotiations will be successful or that the transaction
will be completed on terms set forth in the Company's most recent proposal.
The proposed acquisition of a significant interest in SSG is part of
management's plan to grow the Company through diversification from the Company's
core business of consumer electronics. SSG sells its product at margins
significantly higher than Emerson's core business and to an institutional market
that does not require the significant after-market servicing costs typical of
Emerson's core business.
The Company's strategic goals include growth through acquisitions and through
additions of higher margin consumer product lines which complement the Company's
business. The Company also intends to market distribution, sourcing and other
services to third parties. In addition, the Company intends 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 acquisitions of companies in similar or complementary
businesses.
In prior years, the Company successfully concluded licensing agreements for
certain business products and 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.
Based on the operating losses reported for the first half of Fiscal 1997,
the continuing soft retail market and the trend in sales, management believes
that future cash flow from operations and the institutional financing described
above may not be sufficient to fund all of the Company's cash requirements for
the next twelve months. Management plans to take the necessary steps to
adequately finance the Company's operations which may include the following:
1. Reviewing strategic alternatives for its North American video business not
covered under the license agreement with the Supplier.
2. Reducing inventory levels and purchase higher margin products for inventory.
3. Shifting a higher proportion of sales to direct import.
4. Negotiating with the Lender to amend the U.S. revolving credit facility to
ensure continued compliance with all covenants.
5. Continuing cost reduction programs in both the U.S. and foreign offices.
6. Sale of non-operating or underperforming assets.
7. Private sale of equity and/or debt securities.
There can be no assurance that the Company will be able to successfully
implement any of these steps in a time frame or manner which will permit the
Company to fund current operations and other planned expenditures at current and
expected sales volumes, if at all.
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 received 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 licensing of the Emerson & G-Clef registered trademark and the "return-
to-vendor" agreements should favorably impact the Company's cash flow over their
respective terms.
EMERSON RADIO CORP. AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The information required by this item is included in Note
7 of Notes to Interim Consolidated Financial Statements
filed in Part I of Form 10-Q for the quarter ended September 30,
1996, and is incorporated herein by reference.
ITEM 5. OTHER INFORMATION.
Certain statements in this quarterly report on Form 10-Q
under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in
this quarterly report and in future filings by the Company with
the Securities and Exchange Commission, constitute "forward
looking statements" with the meaning of the Reform Act. Such
forward looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual
results, performance or achievements of the Company to be
materially different from any future results, performance or
achievements expressed or implied by such forward looking
statements. Such factors include, among others, the following:
product supply and demand; general economic and business
conditions and condition of the retail consumer electronics
market; price competition and competition from companies with
greater resources; success of operating initiatives and new
product introductions; operating costs including continuing the
Company's cost reduction program and Company's return to vendor
program; advertising and promotional efforts; brand awareness;
the existence or absence of adverse publicity; success of the
Company's acquisition strategy; changes in business strategy or
development plans; quality of management; availability, use and
terms of capital and compliance with debt covenants; business
abilities and judgment of personnel; availability of qualified
personnel; labor and employee benefit costs; changes in, or the
failure to comply with, government regulations and other factors
referenced in this quarterly report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(10)(a) Employment Agreement, dated as of January 29, 1996
between Emerson Radio Corp. ("Emerson") and Marino Andriani.
(10)(b) Amendment No. 3 to Financing Agreements, dated
as of August 20, 1996, amending the adjusted net worth covenant
of the Loan Agreement between Emerson and Congress Financial
Corp.
(10(c) Amendment No. 4 to Financing Agreements, dated
as of November 14, 1996, amending the adjusted net worth covenant
of the Loan Agreement between Emerson and Congress Financial
Corp.
(10)(d) License Agreement, dated as of August 23, 1996
between Emerson and REP Investment Limited Liability Company for
the exclusive license for proprietary technology for home
theater and stereo surround sound systems.
(10)(e) Distribution Agreement, dated as of September
11, 1996 between Emerson, Emerson Radio Canada Ltd. and AVS
Technologies Inc., appointing exclusive distributor for Canada.
(27) Financial Data Schedule for six months ended
September 30, 1996.
(b) Reports on Form 8-K:
(1) During the three month period ended September
30, 1996, no Form 8-K was filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMERSON RADIO CORP.
(Registrant)
Date: November 19,1996 /s/ Eugene I. Davis
Eugene I. Davis
President
Date: November 19, 1996 /s/ John P. Walker
John P. Walker
Executive Vice President,
Chief Financial Officer
EMERSON RADIO CORP.
9 Entin Road
P.O. Box 430
Parsippany, New Jersey 07054-0430
(201) 854-5800
January 29, 1996
PERSONAL AND CONFIDENTIAL
Via Telecopy (201) 825-8006
Mr. Marino Andriani
238 East Saddle River Road
Saddle River, New Jersey 07458
Re: Employment by Emerson Radio Corp. Subsidiary
Dear Marino:
Geoff and I are very pleased about your desire to rejoin our team at
Emerson Radio Corp. ("Emerson Radio"). You will join Emerson Radio, on or
before February 19, 1996, as the President of a subsidiary of Emerson Radio
Corp., Emerson Radio Consumer Products Corp., or a similarly-named Emerson Radio
Corp. subsidiary. Your duties will involve sales and marketing of all Emerson
Radio branded products, except for such products which Emerson Radio has
licensed to others. In furtherance of such duties, you will have the authority
to control and manage all sales and marketing personnel and activities of
Emerson Radio branded products as indicated in the immediately preceding
sentence, subject only to Emerson Radio corporate budget procedures and
restrictions. You shall report only to the Chairman of the Board, Chief
Executive Officer, and President of Emerson Radio.
Emerson Radio, through the newly-formed subsidiary, initially will
compensate you on the following basis: (i) an annual salary of $385,000; (ii) a
bonus, if any, based on the standard bonus formula utilized for the senior
executives of Emerson Radio; (iii) the standard automobile allowance for Emerson
Radio executives of $700 per month; (iv) subject to Emerson Radio's standard
corporate policies, the standard benefits and insurance made available to
executives of Emerson Radio; (v) four-weeks paid vacation per annum; and (vi)
the grant of options to purchase 75,000 shares of Emerson Radio Corp. Common
Stock at fair market value on the date of grant, with the standard three-year
vesting schedule, under and in accordance with the Emerson Radio Corp. Stock
Compensation Program.
Your employment as described in this letter is solely on an "at will"
basis, not subject to a specific employment agreement, and subject to standard
Emerson Radio corporate policies. However, if Emerson Radio terminates your
employment other than for Cause, you will be entitled to receive, as liquidated
damages and in lieu of any other damages you might otherwise be able to claim,
an amount to one-year's base salary as set forth above, payable over such one-
year period in accordance with standard Emerson Radio salary payment practices.
If terminated for Cause, you will not be entitled to any further compensation or
benefits (except as required by law) from Emerson Radio, but will remain subject
to Emerson Radio's Confidentiality and Non-Solicitation Policies.
Again, I want to stress how pleased Geoff and I are about your rejoining
Emerson Radio. Please indicate your understanding and acceptance of these
employment conditions by signing the space provided below and returning a signed
copy of this letter to my attention.
Very truly yours,
Emerson Radio Corp.
/s/ Eugene I. Davis
Eugene I. Davis
President
AGREED, UNDERSTOOD,
AND ACCEPTED
By: /s/ Marino Andriani
Marino Andriani
Date: 1/29/95
cc: Geoffrey P. Jurick
AMENDMENT NO. 3 TO FINANCING AGREEMENTS
August 20, 1996
Emerson Radio Corp.
Majexco Imports, Inc.
9 Entin Road
Parsippany, New Jersey 07054
Gentlemen:
Congress Financial Corporation ("Lender"), Emerson Radio Corp. ("Emerson")
and Majexco Imports, Inc. ("Majexco"; together with Emerson, individually and
collectively, the "Borrower") have entered into certain financing arrangements
pursuant to the Loan and Security Agreement, dated March 31, 1994, currently
between Lender and Borrower, as amended by Amendment No. 1 to Financing
Agreements, dated August 24, 1995 and Amendment No. 2 to Financing Agreements,
dated February 13, 1996 (the "Loan Agreement"), together with various other
agreements, documents and instruments at any time executed and/or delivered in
connection therewith or related thereto (as the same now exist or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced,
collectively, the "Financing Agreements"). All capitalized terms used herein
and not herein defined shall have the meanings given to them in the Financing
Agreements.
Borrower has requested that Lender agree to certain amendments to the
Financing Agreements, and Lender is willing to agree to such amendments, subject
to the terms and conditions set forth herein.
In consideration of the foregoing, the mutual agreements and covenants
contained herein and other good and valuable consideration, the parties hereto
agree as follows:
1. ADJUSTED NET WORTH COVENANT. Section 9.14 of the Loan Agreement shall
be deleted in its entirety and replaced with the following, effective as of June
30, 1996:
"9.14 ADJUSTED NET WORTH. As of the end of each fiscal
quarter of Emerson, Emerson shall maintain, on a consolidated
basis with its subsidiaries, Adjusted Net Worth of not less than
the sum of (i) the Base Amount, plus (ii) all proceeds received by
Emerson or its subsidiaries after June 30, 1996 from the sale of
any equity securities (including any equity securities issued
pursuant to the Rights Offering or the exercise of Warrants issued
pursuant to the Plan), plus (iii) subject to the provisions
hereof, all proceeds received by Emerson or its subsidiaries after
June 30, 1996 from the sale by Emerson or its subsidiaries of debt
securities subordinated to the extent required under Section
1.2(b), plus (iv) all extraordinary gains or non-operating gains
realized by Emerson or its subsidiaries after June 30, 1996. As
used herein, "Base Amount" shall mean the amount of $30,000,000."
2. FEE. In consideration of Lender's entering into this Amendment,
Borrower shall pay Lender a facility amendment fee in an amount equal to $25,000
payable simultaneously with the execution hereof, which fee is fully earned as
of the date hereof. Such fee may, at Lender's option, be charged directly to
any of Borrower's revolving loan accounts maintained by Lender under the
Financing Agreements.
3. CONDITIONS PRECEDENT. The effectiveness of this Amendment shall be
subject to the satisfaction of the following conditions:
(a) the receipt by Lender of an original of this Amendment, duly
authorized, executed and delivered by Borrower, consented and agreed to by
Obligors; and
(b) after giving effect to the amendments set forth in Section 1
hereof, no Event of Default shall exist or have occurred and be continuing and
no condition shall exist or event shall have occurred and be continuing which,
with notice or passage of time, or both, would constitute an Event of Default.
4. EFFECT OF THIS AMENDMENT.
(a) ENTIRE AGREEMENT; RATIFICATION AND CONFIRMATION OF THE FINANCING
AGREEMENTS. This Amendment contains the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior or contemporaneous
term sheets, proposals, discussions, negotiations, correspondence, commitments
and communications between or among the parties concerning the subject matter
hereof. This Amendment may not be modified or any provision waived, except in
writing signed by the party against whom such modification or waiver is sought
to be enforced. Except as specifically modified pursuant hereto, the Financing
Agreements are hereby ratified, restated and confirmed by the parties hereto as
of the effective date hereof. To the extent of conflict between the terms of
this Amendment and the Financing Agreements, the terms of this Amendment shall
control.
(b) GOVERNING LAW. This Amendment and the rights and obligations
hereunder of each of the parties hereto shall be governed by and interpreted and
determined in accordance with the laws of the State of New York.
(c) BINDING EFFECT. This Amendment shall be binding upon and inure
to the benefit of each of the parties hereto and their respective successors and
assigns.
(c) COUNTERPARTS. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment it shall not be necessary
to produce or account for more than one counterpart thereof signed by each of
the parties hereto.
By the signature hereto of each of the duly authorized officers, all of the
parties hereto mutually covenant and agree as set forth herein.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By: /s/ Kenneth G. Donahue
Title: Assistant Vice President
AGREED AND ACCEPTED:
EMERSON RADIO CORP.
By: /s/ John P. Walker
Title: EVP & CFO
MAJEXCO IMPORTS, INC.
By: /s/ John P. Walker
Title: EVP & CFO
CONSENTED TO AND AGREED:
H.H. SCOTT, INC.
EMERSON COMPUTER CORP.
EMERSON TECHNOLOGIES AND
DEVELOPMENT CORP.
By: /s/ John P. Walker
Title: EVP & CFO
EMERSON TECHNOLOGIES, L.P.
By: EMERSON TECHNOLOGIES AND
DEVELOPMENT CORP., its
general partner
By: /s/ John P. Walker
Title: EVP & CFO
EMERSON RADIO CANADA LTD.
By: /s/ John P. Walker
Title: EVP & CFO
EMERSON RADIO & TECHNOLOGIES N.V.
By: /s/ John P. Walker
Title: EVP & CFO
AMENDMENT NO. 4 TO FINANCING AGREEMENTS
November 14, 1996
Emerson Radio Corp.
Majexco Imports, Inc.
9 Entin Road
Parsippany, New Jersey 07054
Gentlemen:
Congress Financial Corporation ("Lender"), Emerson Radio Corp. ("Emerson")
and Majexco Imports, Inc. ("Majexco"; together with Emerson, individually and
collectively, the "Borrower") have entered into certain financing arrangements
pursuant to the Loan and Security Agreement, dated March 31, 1994, currently
between Lender and Borrower, as amended by Amendment No. 1 to Financing
Agreements, dated August 24, 1995 and Amendment No. 2 to Financing Agreements,
dated February 13, 1996, and Amendment No. 3 to Financing Agreements, dated
August 20, 1996 (the "Loan Agreement"), together with various other agreements,
documents and instruments at any time executed and/or delivered in connection
therewith or related thereto (as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced, collectively,
the "Financing Agreements"). All capitalized terms used herein and not herein
defined shall have the meanings given to them in the Financing Agreements.
Borrower has requested that Lender agree to certain amendments to the
Financing Agreements, and Lender is willing to agree to such amendments, subject
to the terms and conditions set forth herein.
In consideration of the foregoing, the mutual agreements and covenants
contained herein and other good and valuable consideration, the parties hereto
agree as follows:
1. MAXIMUM CREDIT. The reference to "60,000,000" in Section 1.34 of the
Loan Agreement shall be deleted and replaced with "30,000,000".
2. ADJUSTED NET WORTH COVENANT. Section 9.14 of the Loan Agreement shall
be deleted in its entirety and replaced with the following:
"9.14 ADJUSTED NET WORTH.
(a) Except as provided in Section 9. 14(b) below, as of the end
of each fiscal quarter of Emerson, Emerson shall maintain, on a
consolidated basis with its subsidiaries, Adjusted Net Worth of not
less than the sum of (i) the Base Amount, plus (ii) all proceeds
received by Emerson or its subsidiaries after June 30, 1996 from the
sale of any equity securities (including any equity securities issued
pursuant to the Rights Offering or the exercise of Warrants issued
pursuant to the Plan), plus (iii) subject to the provisions hereof,
all proceeds received by Emerson or its subsidiaries after June 30,
1996 from the sale by Emerson or its subsidiaries of debt securities
subordinated to the extent required under Section 1.2(b), plus (iv)
all extraordinary gains or non-operating gains realized by Emerson or
its subsidiaries after June 30, 1996. As used herein, the "Base
Amount" shall mean the amount of $30,000,000.
(b) Notwithstanding Section 9.14(a), the following amounts shall
be added to Adjusted Net Worth otherwise calculated as provided in
Section 1.2 of the Loan Agreement for purposes of the covenant set
forth in Section 9.14(a) with respect to fiscal quarters ending on or
after September 30, 1996: (i) non-recurring charges totaling not more
than $917,000 relating to reorganization of Emerson Radio Canada Ltd.
and (ii) non-recurring charges totaling not more than $2,118,000
relating to Emerson's unsuccessful efforts to acquire International
Jensen Incorporated."
3. CERTAIN SUBLIMITS.
(a) INVENTORY. The last sentence of Section 2.1(c) and the
accompanying table in Section 2.1(c) of the Loan Agreement shall be deleted and
replaced with the following:
"As used herein, `Maximum Inventory Exposure' shall mean
$20,000,000."
(b) LETTER OF CREDIT ACCOMMODATIONS. The reference to "$30,000,000"
in Section 2.2(d) of the Loan Agreement shall be deleted and replaced with
"$15,000,000".
4. UNUSED LINE FEE. Section 3.4 of the Loan Agreement shall be deleted
in its entirety and replaced with the following, effective December 1, 1996:
"3.4 UNUSED LINE FEE. Borrower shall pay to Lender monthly an
unused line fee calculated at the applicable rate per annum set forth
in the table below upon the amount (the "Unused Line Amount") by which
$30,000,000 exceeds the average daily principal balance of the
outstanding Loans and Letter of Credit Accommodations during the
immediately preceding month (or part thereof) while this Agreement is
in effect and for so long thereafter as any of the Obligations are
outstanding, which fee shall be payable on the first day of each month
in arrears.
<TABLE>
UNUSED LINE AMOUNT RATE PER ANNUM
<C> <C> <C>
$ -0- - $ 8,000,000 1.00%
$ 8,000,001 - $15,000,000 0.90%
$15,000,001 - $20,000,000 0.70%
$20,000,001 - $25,000,000 0.60%
$25,000,001 - $30,000,000 0.50%
</TABLE>
5. CERTAIN AVAILABILITY RESERVES. Section 2.3 of the Loan Agreement
shall be deleted in its entirety and replaced with the following:
"2.3 AVAILABILITY RESERVES.
(a) All Loans otherwise available to Borrower pursuant to the lending
formulas and subject to the Maximum Credit and other applicable limits hereunder
shall be subject to Lender's continuing right to establish and revise
Availability Reserves.
(b) Without limiting Lender's other rights to establish Availability
Reserves hereunder, Lender shall be entitled to establish and maintain (i) a
permanent Availability Reserve at all times in the amount of $500,000; and (ii)
a special seasonal Availability Reserve in the amount not less than $2,000,000,
as determined by Lender in good faith, to be maintained during the period
commencing November 1 of each year and ending on March 31 of the following year.
The seasonal Availability Reserve referred to in clause (ii) shall be the period
implemented in equal installments on each Friday occuring during the period
commencing November 1 of each year and ending on December 31 of such year (the
number of installments and the amounts thereof being determined by Lender based
on the number of Fridays in such period of November 1 through December 31)".
6. EARLY TERMINATION FEE.
(a) Section 12.1(c) of the Loan Agreement shall be amended by
changing to "2%", the reference to "1%" contained in clause (iii) (appearing
under the column heading entitled "AMOUNT").
(b) Notwithstanding anything to the contrary contained in Section
12.1(c) of the Loan Agreement, as amended, if Borrower elects to terminate the
Loan Agreement at any time during the period April 1, 1997 to but not including
March 31, 1998 and prepays all Obligations prior to an Event of Default, and
Borrower obtains, after the date hereof, from a non-Affiliate, from an equity
offering or unsecured debt placement, other than pursuant to the Debenture
Documents, net proceeds from such equity offering or debt placement in an amount
not less than $15,000,000, then the early termination fee shall be reduced to
one (1%) percent of the Maximum Credit.
7. FEE. In consideration of Lender's entering into this Amendment,
Borrower shall pay Lender a facility amendment fee in an amount equal to $10,000
payable simultaneously with the execution hereof, which fee is fully earned as
of the date hereof. Such fee may, at Lenders' option, be charged directly to
any of Borrower's Revolving Loan accounts maintained by Lender under the
Financing Agreements.
8. DISSOLUTION OF CERTAIN OBLIGORS.
Borrower represents and warrants to Lender that (i) Emerson
Technologies, L.P. and its general partner, Emerson Technologies and Development
Corp., no longer transact business and have been dissolved and (ii) Borrower has
delivered to Lender true copies of the Certificate of Dissolution of Emerson
Technologies and Development Corp. dated August 2, 1996 and filed August 2, 1996
by the Secretary of State of New Jersey and of a certified copy of the
Certificate of Cancellation of Emerson Technologies L.P., dated February 7, 1996
and filed February 9, 1996 by the Secretary of State of Delaware. To the extent
Lender's consent with respect to such dissolutions is required, Lender hereby
consents thereto. As a result of such dissolutions, Emerson Technologies L.P.
and Emerson Technologies and Development Corp. are no longer in existence as
Obligors for purposes of the Financing Agreements.
9. MISCELLANEOUS.
(a) ENTIRE AGREEMENT; RATIFICATION AND CONFIRMATION OF THE FINANCING
AGREEMENTS. This Amendment contains the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior or contemporaneous
term sheets, proposals, discussions, negotiations, correspondence, commitments
and communications between or among the parties concerning the subject matter
hereof. This Amendment may not be modified or any provision waived, except in
writing signed by the party against whom such modification or waiver is sought
to be enforced. Except as specifically modified pursuant hereto, the Financing
Agreements are hereby ratified, restated and confirmed by the parties hereto as
of the effective date hereof. To the extent of conflict between the terms of
this Amendment and the Financing Agreements, the terms of this Amendment shall
control.
(b) GOVERNING LAW. This Amendment and the rights and obligations
hereunder of each of the parties hereto shall be governed by and interpreted and
determined in accordance with the laws of the State of New York.
(c) BINDING EFFECT. This Amendment shall be binding upon and inure
to the benefit of each of the parties hereto and their respective successors and
assigns.
(d) COUNTERPARTS. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment it shall not be necessary
to produce or account for more than one counterpart thereof signed by each of
the parties hereto.
By the signature hereto of each of the duly authorized officers, all of the
parties hereto mutually covenant and agree as set forth herein.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By: /s/ Kenneth G. Donahue
Title: Assistant Vice President
AGREED AND ACCEPTED:
EMERSON RADIO CORP.
By: /s/ Eugene I. Davis
Title: President
MAJEXCO IMPORTS, INC.
By: /s/ Eugene I. Davis
Title: President
CONSENTED TO AND AGREED:
H.H. SCOTT, INC.
EMERSON COMPUTER CORP.
By: /s/ Eugene I. Davis
Title: President
EMERSON RADIO CANADA LTD.
By: /s/ Eugene I. Davis
Title: President
EMERSON RADIO & TECHNOLOGIES N.V.
By: /s/ Eugene I. Davis
Title: Director
LICENSE AGREEMENT
THIS AGREEMENT is made as of August 23, 1996 between REP INVESTMENT LIMITED
LIABILITY COMPANY, a Michigan limited liability company with its principal place
of business at 2757 44th Street, S.W., Suite 306, Grand Rapids, Michigan 49509
(the "Licensor") and EMERSON RADIO CORP., a Delaware corporation with its
principal place of business at 9 Entin Road, Parsippany, New Jersey 07054-0430
(the "Licensee").
W I T N E S S E T H:
WHEREAS, the Licensor is the owner, by assignment or otherwise, of all
right, title and interest in and to the "Invention" (which term shall have the
meaning set forth in subparagraph 1(d) hereof) regarding a sound reproduction
speaker system having application in electronics sound reproduction and
enhancement systems, including (but not limited to) "home-theater" and "stereo
surround sound" systems; and
WHEREAS, the Licensor desires to have such invention manufactured, sold,
distributed and marketed through the granting of an exclusive license; and
WHEREAS, the Licensee desires to acquire an exclusive license to use, make,
have made, sell, market and distribute such invention in accordance with the
terms and conditions hereinafter set forth in this Agreement.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereto do hereby agree as follows:
1. DEFINITIONS. As used herein, the following
capitalized terms shall have the following meanings:
(a) "Affiliate," shall mean any corporation, partnership or other
entity which is controlled by, under common control with, or in control of, the
applicable party to this Agreement.
(b) "Confidential Information" shall mean all information which in
any way is related to a party to this Agreement or its Affiliates, their
business or the Invention which is set forth in any material or devices
furnished to one party to this Agreement by the other or which is orally
disclosed to a party to this Agreement by or at the direction of the other (all
of which shall be deemed "furnished" by such other party). Information
pertaining to the Invention which is discovered, learned or compiled by the
Licensee, as a result of carrying out its obligations under this Agreement shall
be deemed Confidential Information furnished to Licensee by Licensor. By way of
example and not of limitation, Confidential Information includes financial
statements and information, cost and expense data, production data, trade
secrets, secret processes and formulas (whether or not patentable), patents and
other properties, technology, marketing and customer data, product samples,
manufacturing processes and other information not generally ascertainable from
public or published information or trade sources, and any analyses,
compilations, studies or other documents which may be prepared for internal use
by or on behalf of a party to this Agreement or its Affiliate or Representative.
Notwithstanding the foregoing, Confidential Information does not include
information which a party to this Agreement can demonstrate by written
documentation or other credible evidence: (a) prior to the date of this
Agreement, (i) was generally publicly available, or (ii) was in such party's
possession from a source other than the other party or its attorneys,
accountants, advisors, directors, officers, partners, members, agents or
Affiliates (collectively, the "Representatives"), provided that the source of
such information was not known by such party or any Representatives of such
party, after reasonable investigation, to be bound by a confidentiality
agreement with, or other contractual, legal or fiduciary obligation of
confidentiality to, the other party or any of its Affiliates with respect to
such information; or (b) after such party's receipt of such information,
(i) becomes generally publicly available without fault of such party, or (ii) is
acquired by such party from a third party on a non-confidential basis, provided
that the source of such information was not known by such party or any
Representatives of such party, after reasonable investigation, to be bound by
any confidentiality agreement with, or other contractual, legal or fiduciary
obligation of confidentiality to, the other party or any of its Affiliates with
respect to such information. Notwithstanding anything to the contrary set forth
in this Agreement, if any component of the Confidential Information shall be or
become publicly available, or otherwise within an exception set forth above to
Confidential Information, the manner in which such component is combined with
all, or any portion, of the components of such Confidential Information, and the
function performed by such component when combined with all, or any portion, of
the components of such Confidential Information, shall not be deemed to be
"generally publicly available" for purposes of this Agreement and shall not be
deemed to come within any other exception set forth above to Confidential
Information. All patent applications relating to the Invention constitute
Confidential Information furnished by Licensor and at this time shall not be
deemed (i) to be "generally publicly available", or (ii) not to constitute
Confidential Information hereunder, regardless of whether the Invention is
determined to be patentable.
(c) "Controlled" or "Control" means with respect to, (i) a
corporation, the ownership, directly or indirectly, of more than 10% of the
securities (as defined in Section 2(1) of the Securities Act of 1933, as
amended) of any class or classes, the holders of which are ordinarily, in the
absence of contingencies, entitled to elect a majority of such corporation's
directors (or persons performing similar functions); (ii) a partnership, being
the sole general partner or being in Control (as defined herein) of a majority
of the general partners if there is more than one; or (iii) any other entity,
having the power to direct the management of such entity.
(d) "Invention" shall mean the speaker system [redacted]
and all technology embodied therein, all modifications,
enhancements and improvements thereto conceived or reduced to practice by or for
Licensor or Licensee during the term of this Agreement and all embodiments of
the Invention as claimed in Licensor's Patent Rights. Embodiments of the
Invention include the following:
[redacted]
All patented embodiments of the Invention or any
modifications, enhancements, and improvements thereto conceived or
reduced to practice by or for Licensor or Licensee.
[redacted]
(e) "Patent Rights" shall mean all the subject matter rights claimed
in [redacted] (ii) all patent
applications, including any divisional, continuation, or continuation-in-part
patent applications [redacted]; (iii) all patent applications filed in
any countries other than the United States based on the aforesaid U.S.
patent applications filed by or on behalf of Licensor or Licensee
pursuant to Subparagraph 5(c) below; (iv) all patent
applications based on modifications, enhancements, and improvements of the
Invention and any divisional, continuation, continuation-in-part, or reissue or
foreign counterpart based on said modifications, enhancements, and improvements;
and (v) all patents and reissues resulting from the foregoing patent
applications.
(f) "Trademarks" shall mean the trademarks identified below for which
registration with the U.S. Patent and Trademark Office has been sought by
Licensor, as well as such other names, marks, insignias, symbols, and other
identifications for which Licensor may obtain appropriate registration, or other
legal protection or title.
[redacted]
(g) "Unit" means each assemblage of the Invention which is covered by
the Patent Rights or any subcomponent thereof which is sold for use in an
assemblage of the Invention which is covered by the Patent Rights. By way of
example, and not of limitation, each of the following shall constitute a Unit:
[redacted]
Where an element of the Invention may include, but is not limited to the
following:
[redacted]
It is expressly understood that nothing herein contained shall be
interpreted to mean that a Unit includes, for purposes of calculating royalties
under this Agreement, any of the products or models presently or traditionally
sold by Licensee which do not incorporate the Invention. It is also expressly
understood that nothing contained herein shall be construed to mean that
royalties shall be paid more than once on a single item sold which incorporates
the Invention.
2. INITIAL ADVANCE. In consideration of the initial grant of the license
set forth in Paragraph 3 below, concurrently with the execution of this
Agreement, Licensee has paid to Licensor the sum of [redacted] becoming
due under Paragraph 6 but shall otherwise be non-refundable, and to the extent
that the royalty payments aggregate less than such amount the Initial Advance
may be retained by Licensor. The Initial Advance shall not be credited against
any Maintenance Payment made pursuant to Paragraph 11.
3. GRANT OF LICENSE. In consideration of the Initial Advance and the
royalties pursuant to Paragraph 6 below, Licensor hereby grants to Licensee,
which the parties understand shall include any wholly-owned subsidiary of
Licensee (whether direct or indirect), effective on the date hereof (the
"Commencement Date"), the exclusive worldwide and non-transferable, except as
set forth in Paragraph 4, right and license to manufacture, have manufactured,
market, distribute, advertise, use, sell, offer to sell and import the Invention
and utilize Licensor's Patent Rights and any Confidential Information relating
thereto, for the term of this Agreement but subject to the terms and conditions
set forth in this Agreement.
4. SUBLICENSE. Licensee shall have the right to grant sublicenses
hereunder, provided that (i) the sublicensee agrees to be bound by all the
provisions of this Agreement and agrees that such obligation shall be
enforceable against such sublicensee by Licensor, and (ii) Licensee gives
Licensor written notice of such sublicensing and furnishes Licensor with a true
and complete copy of the sublicensing agreement. In calculating royalties due
to Licensor pursuant to Paragraph 6 below, any sales of Units made by
sublicensees shall be considered to be sales made by the Licensee whether or not
such sublicense was properly made. Any breach of any provision of this
Agreement by a sublicensee shall constitute a breach of this Agreement by
Licensee, and Licensee shall be liable to Licensor as if Licensee had committed
such breach.
5. APPLICATION FOR PATENTS AND OWNERSHIP OF PATENT RIGHTS.
(a) [redacted] Licensor filed at its own expense,
and, subject to the provisions of subparagraph 5(b) below, under its sole
control, in the name of Licensor, an application for United States Letters
Patent with the United States Patent and Trademark Office on the Invention,
[redacted] Licensor shall use diligent efforts to pursue, and to cause not to
be abandoned, such application and any subsequent applications required to
obtain Letters Patent on the Invention, at its sole expense. However, nothing
set forth herein, or in this Agreement, shall be deemed to be a representation
or warranty by Licensor that Letters Patent of the United States or any other
country will be issued on the Invention. Licensor shall promptly provide copies
to Licensee of all applications worldwide and all relevant documents, including
correspondence from any applicable Patent and Trademark Offices, pertaining to
all patent applications.
(b) Licensor shall file an International Patent Application under the
Patent Cooperation Treaty based on [redacted]
the Invention, at its expense, within the time required by law. Upon execution
of this Agreement, the parties shall consult with each other in good faith and
mutually determine those countries other than the United States from which it is
desirable to obtain Letters Patent. Licensor shall file for patent protection
within the time required by applicable law in those countries agreed upon in
writing by the parties and diligently pursue such applications and any
subsequent applications required to obtain Letters Patent pursuant thereto and
not cause same to be abandoned. Excluding the PCT patent application, Licensee
shall pay the reasonable expenses incurred in connection therewith within sixty
(60) days following receipt of written documentation of same from Licensor.
One-half (1/2) of each such payment shall be non-reimbursable. The other
one-half (1/2) of each such payment shall constitute a non-interest-bearing
nonrecourse advance to Licensor which shall be creditable against
royalties payable to Licensor pursuant to subparagraph 6(b) in respect of
Units sold outside the United States or Canada.
(c) In the event that after the Commencement Date the Licensee shall
believe that any component or element of the Invention is patentable and has not
been covered by an application or applications for Letters Patent of the United
States or any other country submitted by the Licensor, Licensee shall notify
Licensor of its belief and request that Licensor prepare for filing and
processing an application or applications for Letters Patent of the United
States on such component or element of the Invention. In the event that within
ninety (90) days of such request, Licensor has not filed such application or
applications, then Licensee shall have the right to cause to be prepared, filed
and prosecuted, in the name of Licensor, an application or applications for
Letters Patent of the United States or such other country on such component or
element of the Invention. In connection with such application or applications,
the Licensor shall, without further consideration therefor, at the request of
the Licensee, do all acts necessary for obtaining, sustaining, reissuing or
extending such Letters Patent on such patent application or applications.
Licensee shall pay the reasonable expenses incurred in connection with any such
applications, whether filed by Licensor or Licensee, and in the case of
applications filed by Licensor shall pay such expenses within sixty (60) days
after receipt of written documentation of same from Licensor. One-half (1/2) of
the reasonable expenses paid by Licensee pursuant to this subparagraph 5(c)
shall be reimbursable from royalties payable pursuant to subparagraph 6(b) in
the same manner as expenses paid by Licensee pursuant to subparagraph 5(b);
provided, that expenses relating to applications filed in the United States or
Canada shall be credited against royalties in respect of Units sold within the
United States or Canada, and expenses relating to applications filed in
countries other than the United States or Canada shall be credited against
royalties in respect of Units sold outside the United States or Canada.
(d) All Patent Rights shall be the sole and exclusive property of the
Licensor, subject to the exclusive license hereby granted.
6. ROYALTIES. Licensee shall pay to Licensor the following royalties:
(a) Subject to subparagraph 6(c), for Units sold by Licensee or a
sublicensee for ultimate sale to consumers in the United States or Canada, the
royalty shall be:
[redacted]
(b) Subject to subparagraph 6(c), for all other Units sold by
Licensee or a sublicensee, the royalty shall be [redacted].
Sales covered by this subparagraph 6(b) shall not be counted in calculating
either of the 500,000 Units referred to in subparagraph 6(a).
(c) The royalties provided for in subparagraphs 6(a) and 6(b) shall
be subject to reduction, as follows:
(1) For purposes of this subparagraph 6(c):
(A) Patent Rights shall be deemed "terminated" in a
given country if and when, after a patent application has been filed
in that country, (i) such patent application and all divisional patent
applications, continuation patent applications and continuation-in-
part patent applications, all of which shall have been filed in good
faith, are abandoned without further action on the part of Licensor
(or Licensee if the application was filed by Licensee pursuant to
subparagraph 5(c)), or (ii) Letters Patent expire after having been
issued pursuant to any such patent applications;
(B) Patent Rights shall be deemed to "exist" in a
country if a patent application has been filed in that country, until
patent protection has been terminated in that country within the
meaning of clause (A) above; and
(C) Sales shall be deemed to have been made "in" a
given country if the sold Unit is intended for ultimate sale to
consumers in that country.
(2) If and when Patent Rights are terminated in the United
States or any foreign country, the royalties in respect of sales in that
country shall be reduced as provided in subparagraph 6(c)(4), effective as
of the date of termination.
(3) If and when Patent Rights have been terminated in both the
United States and China, the royalties in respect of sales occurring in all
countries other than those in which Patent Rights continue to exist shall
be reduced as provided in subparagraph 6(c)(4), effective as of the date of
termination.
[redacted]
(d) Royalties shall accrue at the time of sale, which shall be deemed
to have occurred when the Unit is shipped to a customer, but Units returned by a
customer shall be deducted from sales, so that the royalties shall be calculated
with reference to sales net of returns. For the purpose of this Paragraph 6,
the term "Licensee" and "sublicensee" shall include any Affiliate of the
Licensee or a sublicensee, respectively.
(e) Royalties shall be paid on or before the thirtieth (30th) day
following the end of each calendar quarter based on sales of Units made during
the immediately preceding calendar quarter. Licensee may withhold royalties
payable in respect of sales of Units, to the extent necessary to repay the
portion of the expense of patent registration which was paid by Licensee and
which constitutes an advance as provided in subparagraphs 5(b) and 5(c).
(f) On or before the thirtieth (30th) day following the end of each
calendar quarter Licensee shall provide Licensor with a statement, in
substantially the form attached hereto as Exhibit A (the "Statement") detailing
the sales of Units made by Licensee and any sublicensee during the immediately
preceding calendar quarter. Licensor shall have the right from time to time for
a period ending two (2) years after the termination of this Agreement, not more
often than once each calendar year, upon reasonable advance written notice
during normal business hours, to have an independent certified public accountant
examine the books and records of Licensee to verify the Statements and the
royalties due Licensor pursuant to this Agreement. The cost of such examination
shall be borne by Licensor, unless such examination determines that the Licensee
has underpaid the royalties due hereunder by more than five (5%) percent in
which event Licensee shall pay the reasonable cost of such examination.
Licensee shall maintain adequate books and records so that the Statements may be
verified. The Statement shall be delivered to Licensor as set forth in
Paragraph 18.
(g) If, at the time this Agreement is terminated, Licensee has on-
hand, an inventory of manufactured Units, Licensee shall be permitted to sell
such Units after the termination, provided it pays Licensor the royalties due
hereunder and continues to comply with the provisions of this Agreement, as if
this Agreement were still in effect. Notwithstanding the foregoing, if Licensee
terminates this Agreement on account of the abandonment of Licensor's patent
application as provided in subparagraph 11(b), and if Licensee sells its on-hand
inventory of manufactured Units at a discount from the average price charged for
the same Units prior to such termination, the royalties payable upon the sale of
such Units shall be correspondingly reduced.
(h) Licensee acknowledges that this Agreement, and the royalties
provided for herein, will continue if a patent covering the Invention is not
issued, and will continue beyond the term of the patent if a patent is issued,
subject to the provisions of subparagraph 6(d), and that if this Agreement is
terminated Licensee has agreed to cease use of the Invention notwithstanding the
fact that Licensee might have had the right to continue use of the Invention
absent this Agreement. Licensee has agreed to such provisions in consideration
of its obtaining access to the Confidential Information and the know-how
subsumed in the Invention, which it believes will be of significant value to it
even if a patent does not issue and after the expiration of any applicable
patents.
7. TRADEMARKS.
(a) Licensor agrees that during the term of this Agreement Licensee
shall have the exclusive right to use those Trademarks which, after the date
hereof and at or prior to November 1, 1996 (the "Election Period"), Licensee
elects to use in connection with marketing the Invention (the "Designated
Trademarks"). By the end of the Election Period, Licensee shall give written
notice to Licensor as to which, if any, of the Trademarks shall be Designated
Trademarks, and thereafter Licensee shall have no right to use, or any rights
in, any of the Trademarks other than Designated Trademarks unless the parties
otherwise agree in writing. The Designated Trademarks may be used by Licensee
on and in connection with the sale of the Invention or products utilizing or
used in the Invention (but no other products manufactured by it) in accordance
with the grant clause of Article 3 of this Agreement as long as the Invention is
manufactured by or for Licensee or a sublicensee or an Affiliate of Licensee or
a sublicensee in accordance with this Agreement and in accordance with the
standards, specifications, and instructions approved by Licensor and is of a
quality, form, and nature that is acceptable to Licensor. Items manufactured to
the same standards of quality as currently employed by Licensee at the time this
Agreement is made shall be deemed acceptable to Licensor and shall not require
Licensor's approval, although Licensee shall advise Licensor of each application
of the Invention and each product and model proposed to be manufactured
utilizing the Invention, and shall furnish Licensor such information pertaining
thereto as Licensor may reasonably request in writing, in order that Licensor
can verify Licensee's compliance with this Paragraph 7. Licensor shall not
unreasonably withhold its approval of the matters set forth in this subparagraph
(a) and shall respond to any written request for approval within fourteen (14)
days after receipt of the same, either granting or denying such approval or
requesting additional information (in which event Licensor shall similarly
respond within fourteen (14) days after such information is provided.)
(b) Subject to subparagraph 7(a) it is expressly understood that
Licensor has the right to approve the products with which Licensee uses the
Designated Trademarks, the quality of Licensee's products with which the
Designated Trademarks are used and of any services associated therewith, as well
as the manner and form in which the Designated Trademarks are to be used.
Licensee agrees that it will use the Designated Trademarks only in a manner and
form approved by Licensor. To facilitate such approval, Licensee agrees at
Licensor's written request to send to Licensor a sample, specimen, photograph,
or finalized layout of any label, tag, package, container, and advertising
matter relating to each different use of each Designated Trademark, and shall
refrain from such use until written approval is given by Licensor. Unless
advised to the contrary by Licensor, any material suggested or furnished by
Licensor shall be considered approved for use. Licensee agrees to promptly and
fully follow all reasonable, written directions and instructions of Licensor as
to use of each of the Designated Trademarks. In addition, at the request of
Licensor, Licensee agrees to use appropriate marking, such as "Trademark",
"Reg." or "Reg.Mark", or "Reg." if appropriate, with the Designated
Trademarks. Licensor shall not unreasonably withhold or delay beyond fourteen
(14) days its approval of the matters set forth in this subparagraph (b).
(c) Licensee agrees that it is permitted to use the Designated
Trademarks, but not any of the other Trademarks, and the Designated Trademarks
shall be used only in connection with products or services complying with
standards and/or specifications prescribed or approved by Licensor, and that
designated representatives of Licensor shall have the right to inspect at any
reasonable time upon advance written notice during normal business hours on the
premises of Licensee all manufacturing processes, all finished products, all
printed materials and advertising, and all other matters relating to any of the
Designated Trademarks. Licensee also agrees upon written request to furnish
Licensor with a true sample of each product sold by it under any of the
Designated Trademarks. In addition, Licensee agrees to, as part of its record
keeping and reporting duties set forth in Paragraph 6, keep track of and report
to Licensor at least once each year what Designated Trademarks Licensee has used
during the reporting period as well as which products such Designated Trademarks
have been used upon and in what countries the Designated Trademarks have been
used. Licensor shall not unreasonably withhold or delay its approval of the
matters set forth in this subparagraph (c).
(d) Licensee acknowledges the validity of the Trademarks and the
prior rights and title of Licensor in and to the Trademarks, whether registered
or not, in the United States and elsewhere. Licensee agrees that all use by it
of any of the Trademarks, and the goodwill created thereby, shall without
further consideration at any time accrue and inure exclusively to the benefit
and remain the sole property of Licensor. Licensee agrees that it will not do
anything, directly or indirectly, or by omission, to diminish the value thereof
or to impair or injure Licensor's rights therein.
(e) It is understood that nothing contained in this Agreement or done
by Licensee during or prior to this Agreement shall confer or be construed to
confer upon Licensee any rights in or to use any of the Trademarks whether
registered or unregistered or, in any way that might be prejudicial to the
rights of Licensor therein except that Licensee shall have the right to use the
Designated Trademarks during the term of this Agreement provided such use is in
accordance with the provisions of this Article. Licensee agrees that it does
not have and shall not have as a result of its use of rights granted to it by
Licensor any right at any time to register any of the Trademarks either alone or
in combination with any other word, symbol, slogan, sign, device, or design or
to use or register any trademark, service mark, tradename, or business name that
is confusingly similar to or any of the Trademarks, and agrees that all use by
it and by those in privity with it of the Designated Trademarks shall be
discontinued upon expiration or termination of this Agreement for any reason
subject to the provisions of subparagraph 6(g). Licensee agrees that it will
not at any time do or acquiesce in anything, or aid or assist any other party to
do anything, or permit any distributor or other party in its marketing or
distribution system to do anything which might infringe upon, harm, dilute, or
challenge the rights of Licensor in the Trademarks or impair the validity,
value, integrity or scope thereof or create a likelihood of confusion therewith
or be prejudicial in any way to the rights of Licensor therein.
(f) Licensee agrees that it will promptly execute and deliver all
documents and do all things with respect to the Designated Trademarks that are
requested by Licensor in writing to facilitate compliance with the laws and
regulations of any country or regional organization or with any applicable
Convention or Treaty or to otherwise carry out the provisions and intent of this
Paragraph 7 in those countries in which Licensee, sublicensees or affiliates of
Licensee or sublicensees market, use, distribute or sell the Invention or any
Units. Licensee agrees to enter into any formal license or registered user
agreement and to execute any other document at any time and without any further
consideration from Licensor which Licensor may be advised is necessary to
preserve the validity of any of the Designated Trademarks, or registrations
thereof, or the rights of Licensor therein in those countries in which Licensee,
sublicensees or affiliates of Licensee or sublicensees market, use, distribute
or sell the Invention or any Units. All filings in respect of all Designated
Trademarks shall be made by Licensor at its expense.
(g) In the event of noncompliance by Licensee with any of the
provisions of this Paragraph 7 or use by Licensee of any of the Trademarks
outside the terms of this Agreement which is not cured within thirty (30) days
after receipt of written demand, Licensor shall have the right to terminate this
entire Agreement, or, at its option, subparagraph (a) of this Paragraph 7, upon
written notice to Licensee, such termination to be effective one (1) month after
the mailing of the notice.
(h) It is expressly understood that the provisions of this
Paragraph 7, and in particular subparagraphs 7(d), (e), (f), (g) and (i), shall
survive the termination of this Agreement without the payment of any
consideration to Licensee either during or upon termination of this Agreement or
thereafter, and are not a limitation on any other rights or remedies of
Licensor.
(i) Licensor acknowledges the validity and value of the Emerson Mark
as defined below to Licensee, and Licensee's prior right and title to same, and
nothing herein is meant to convey any rights to Licensor with respect to same,
or to infringe upon the rights of Licensee to same. It is also expressly
understood that Licensee may use its own mark as defined below, in conjunction
with the sale, marketing, use, manufacture and distribution of the products
which are the subject of this agreement. Accordingly, nothing contained in this
agreement shall be construed as a grant to Licensor of any right, title or
interest in the Emerson and G-Clef design as set forth on the attached Exhibit B
(the "Emerson mark"), or any future forms of same, nor does this agreement
authorize Licensor to use the Emerson mark for the purpose of using,
manufacturing, selling, marketing or distributing any products, and neither
Licensor nor any affiliate shall directly or indirectly sell, use, manufacture,
market or distribute any goods whatsoever with the Emerson Mark. Licensor
further represents that it shall not register or attempt to register the Emerson
mark either alone or in combination with any other word, symbol, slogan, sign,
device, or design or to use or register any trademark, service mark, tradename,
or business name that is confusingly similar to the Emerson mark in its name or
in the name of any third party. Licensor further agrees that it will not at any
time aid or assist any other party to do anything which would infringe upon or
challenge the rights of Licensee to the Emerson mark, or create a likelihood of
confusion therewith. Nothing herein contained shall prevent Licensee from using
marks other than the Designated Trademarks in conjunction with the sale,
marketing, use, manufacture and distribution of the Invention or Units sold
incorporating same.
8. Term. The term of this Agreement shall commence on the Commencement
Date and shall continue unless and until terminated pursuant to Paragraph 10 or
11 below.
9. Confidentiality. While this Agreement remains in effect and at all
times thereafter:
(a) Each party to this Agreement shall utilize Confidential
Information furnished by the other party only to fulfill its obligations under
this Agreement. Each party to this Agreement shall use the Confidential
Information furnished by the other party for no other purpose whatsoever,
whether or not in connection with such party's own business or the business of
any of its Affiliates, and each party to this Agreement shall institute such
safeguards so as to prevent non-authorized use of any Confidential Information
furnished by the other party, including without limitation, restricting access
to such Confidential Information within such party's own organization, as are
set forth in subparagraph (b) below of this Paragraph 9.
(b) Each party to this Agreement may disclose the Confidential
Information furnished by the other party only to such professional advisors,
potential manufacturers and suppliers, accountants, or employees of or retained
by such party for the purposes of carrying out such party's duties under this
Agreement or as may be required by law; provided, however, that (i) such
disclosure is limited only to those individuals whose duties to such party
justify their need to review such Confidential Information; (ii) such party
informs such persons of the confidentiality of the Confidential Information, and
they agree to maintain such confidentiality, limit disclosure as provided in
this Agreement, and to restrict their use thereof solely for the above purpose;
and (iii) such party remains liable for any breach of any such agreement by such
person;
(c) Upon the termination of this Agreement for any cause whatsoever,
each party to this Agreement, upon written demand, shall immediately return all
Confidential Information in its possession to the other, all materials or
devices in the possession of such party or its Affiliates or Representatives
embodying or setting forth any Confidential Information furnished by the other
party, and all copies, notes or extracts of any Confidential Information
furnished by such other party;
(d) Any analyses, compilations, studies or other documents which may
be prepared for internal use by or on behalf of a party to this Agreement or
third parties to which disclosure may be authorized, and which reflect any
Confidential Information furnished by the other party, will be used and kept
confidential by such party and such third parties in accordance with
subparagraphs (a) and (b) above of this Paragraph 9, shall not be used by such
party or third party in any way detrimental to the other party, and shall be
delivered to the other party pursuant to the provisions of subparagraph (c)
above of this Paragraph 9;
(e) Licensee agrees that neither it nor any of its Affiliates will,
without the prior written consent of Licensor, employ, or attempt to employ, or
contract for services, Hal Greenberg or William Clack, who have a relationship
with Licensor in connection with the development of the Invention;
(f) In the event either party to this Agreement shall breach any of
its obligations set forth in this Paragraph 9, the parties hereby agree that in
addition to any other legal and equitable remedies available to the other party,
including the right, if any, to seek damages and the right to seek
indemnification pursuant to the provisions of Paragraph 12 below, the other
party shall be entitled to injunctive relief to prevent any such breach by such
party.
(g) Disclosure of Confidential Information by Licensor in a patent
application or by Licensee in a patent application which Licensee is entitled to
file as provided in subparagraph 5(b) or 5(c) shall not constitute a violation
of this Paragraph 9.
10. TERMINATION UPON DEFAULT.
(a) Licensor shall be entitled to terminate this Agreement and the
license granted hereunder: (i) upon any failure of Licensee (A) to pay any
royalties or provide a Statement as and when due and (B) to cure such default
within fifteen (15) days after receipt of written notice thereof from Licensor;
(ii) upon any material breach by Licensee of the provisions of Paragraphs 7 and
9 above and the failure to cure such breach within thirty (30) days of receipt
of written notice; (iii) upon the failure by Licensee to perform any other
material term or condition of this Agreement and the failure by Licensee, after
having received written notice of such failure from Licensor, to cure such
default within thirty (30) days after receipt of such notice; or (iv) if
Licensee becomes insolvent, makes an assignment for the benefit of creditors, or
seeks the protection of any bankruptcy or similar statute governing creditors'
rights, or a supervisory agent, conservator, liquidator or receiver is appointed
for Licensee, or for any significant portion of the assets of Licensee.
(b) Licensee shall be entitled to terminate this Agreement and the
license granted hereunder upon the failure by Licensor to perform any material
term or condition of this Agreement and the failure by Licensor, after having
received written notice of such failure from Licensee, to cure such default
within thirty (30) days after receipt of such notice.
11. OTHER TERMINATION.
(a) Subject to the following provisions of this subparagraph (a),
Licensor may terminate this Agreement by written notice to Licensee within sixty
(60) days after receipt of the last quarterly statement due for the calendar
year in question, if the royalties timely paid to Licensor pursuant to Paragraph
6 for any of the calendar years 1997, 1998 and 1999 are less than a minimum
royalty amount of [redacted], or if the royalties
timely paid to Licensor pursuant to Paragraph 6 for any subsequent calendar year
are less than a minimum royalty amount of[redacted]. For
purposes of the preceding sentence, any royalties paid for 1996 shall be treated
as if paid in 1997. Such termination shall not be effective if Licensee pays to
Licensor the amount of the deficiency in royalties ("Maintenance Payment")
within fifteen (15) days after such notice of termination is given. The
Maintenance Payment shall constitute compensation to Licensor for continuation
of this Agreement and shall not be credited against any royalties subsequently
becoming due hereunder. The Initial Advance shall not be credited against any
Maintenance Payment.
(b) Licensee may terminate this Agreement by written notice to
Licensor within sixty (60) days after the occurrence of either of the following
events: (i) failure of Licensee to achieve a level of sales in any calendar
year sufficient to meet the minimum royalty amount for that year as set forth in
subparagraph 11(a), or (ii) the abandonment of the patent application referred
to in the first sentence of subparagraph 5(a) and all divisional patent
applications, continuation patent applications and continuation-in-part patent
applications, all of which shall have been filed in good faith, without further
action on the part of Licensor, or (iii) a material misrepresentation or willful
omission by Licensor which has a material adverse financial impact upon
Licensee.
(c) Termination pursuant to this Paragraph 11 shall be effective
sixty (60) days after notice of termination is given.
12. INDEMNIFICATION, INTEREST, TERMINATION AND SURVIVAL.
(a) INDEMNIFICATION. Each of the parties (the "Indemnitor") does
hereby agree to indemnify and hold harmless the other party (the "Indemnitee")
against all damages, costs and expenses (including without limitation reasonable
attorney fees) incurred by the Indemnitee as a result of the Indemnitor's breach
of any of its obligations under this Agreement.
(b) INTEREST. In the event that Licensee shall fail to make any
payment hereunder when due, or in the event that an audit conducted pursuant to
Paragraph 6 shows that royalties have been underpaid, Licensee shall pay
Licensor, in addition to the payments and royalties which are due, interest on
such amounts which are due hereunder, from the date such payment or royalties
came due hereunder, equal to the lesser of: the prime rate as announced in the
Wall Street Journal from time to time (or if such rate is no longer published,
at a corresponding index rate), plus four per cent (4%) per annum; or the
highest interest rate which may lawfully be charged.
(c) TERMINATION. Upon termination of this Agreement, Licensee shall
cease all use of any Designated Trademarks, the Invention, the Patent Rights and
all Confidential Information subsumed therein, except to the limited extent
provided in subparagraph 6(g).
(d) SURVIVAL. All obligations of the parties under this
Paragraph 12, and Paragraphs 6, 7 and 9 shall survive the termination of this
Agreement.
13. NEW PRODUCT NOTICE AND APPROVAL. Licensee shall notify Licensor of
each new product using the Invention, the Patent Rights and any Confidential
Information subsumed therein and provide the Licensor with a production sample
of each such product. Licensor reserves the right to evaluate and approve each
such product, which approval shall not be unreasonably withheld. The evaluation
shall be of function, design (other than cosmetic), durability, sonic
performance and other factors considered necessary to maintain product
differentiation and quality. Licensor agrees to complete its evaluation of each
new product and advise Licensee in writing of its conclusion relating to
acceptability for distribution within 14 days of receipt of each new product
sample.
14. WARRANTIES, REPRESENTATIONS AND COVENANTS.
(a) Licensor warrants and represents that: (i) it is a limited
liability company organized under the laws of the State of Michigan; (ii) it has
the requisite power and authority to enter into this Agreement and carry out the
transactions contemplated herein; (iii) this Agreement constitutes a valid and
binding obligation of the Licensor; and (iv) it believes that the Invention is
novel or contains novel elements, (v) to the best of its knowledge it is the
sole owner of the Invention, and (vi) it is the sole owner of all right, title
and interest in and to the patent application referred to in the first sentence
of subparagraph 5(a); provided, however, nothing set forth herein or in this
Agreement shall be deemed to constitute a warranty or representation by the
Licensor that the Invention is patentable or that the manufacture, use or sale
of the Invention or any device incorporating any Confidential Information does
not infringe upon the patent rights or other rights of any other party;
(b) Licensee warrants, represents and covenants: (i) that it is a
corporation duly organized under the laws of the State of Delaware, and is duly
qualified and in good standing in every jurisdiction in which its business so
requires and will continue to be so qualified during the term of this Agreement;
(ii) that the execution, delivery and performance of this Agreement are within
its corporate powers; (iii) that this Agreement constitutes a valid and binding
obligation of the Licensee; (iv) that while this Agreement remains in effect it
will use all reasonable efforts to advertise, promote and market the Invention,
although nothing contained herein shall prevent Licensee from dealing in
products competitive with the Invention; (v) and that it will assume full
responsibility for all expenses associated with claims, damages and recalls of
any and all kinds arising from any defect, or alleged defect, with respect to
the manufacturer of the Invention or any Unit or any defect, or alleged defect,
in materials or workmanship relating to the Invention or any Unit.
15. INFRINGEMENT. Either party shall have the right, but not the
obligation, while this Agreement remains in effect, to institute and prosecute
actions, at its sole cost and expense, for the infringement of Patent Rights, of
rights in the Designated Trademarks or of other Proprietorship rights with
respect to the Invention or any Confidential Information; provided, however, the
other party shall fully cooperate, at no cost to it, in the prosecution of any
such infringement action. If both parties wish to pursue an infringement claim
they will jointly prosecute such claim and each shall bear its own costs with
respect thereto. Any recovery from an infringement action, or settlement
thereof, shall be applied first to reimburse the parties for the costs they have
incurred in prosecuting such action, and then shall be allocated between the
parties in proportion to the losses suffered by them by reason of such
infringement.
16. PATENT MARKINGS. Upon the filing of one or more applications for
United States or foreign Letters Patents covering some aspect of the Invention
or the Confidential Information, and upon the issuance of any Letters Patents
therefrom, Licensee agrees to mark all Units manufactured or sold by it under
this Agreement with appropriate patent markings as permitted or required by the
countries in which such Units are sold, or as specified in writing by Licensor.
17. TECHNICAL SUPPORT. Until December 31, 1996, Licensor shall make
Jerome E. Ruzicka available to Licensee to consult with Licensee and answer
questions relating to the Invention. Such consultation shall be for reasonable
periods of time during regular business hours. Such consultation shall be
without charge to Licensee if performed through telephone and facsimile
communication. Such individual shall also be available for limited periods of
on-site consultation at locations within the United States designated by
Licensee. Licensee shall reimburse Licensor and such individual all their
reasonable out-of-pocket expenses incurred in connection with such services,
including (but not limited to) the reasonable cost of travel and lodging and
meals while traveling or providing on-site consultation. Such individual shall
not be required to consult for more than thirty (30) hours per month for August
and September, 1996, or for more than twenty (20) hours per month thereafter.
This Paragraph does not obligate Licensor to furnish the services of any
individual other than Jerome E. Ruzicka or to provide the services of any third
party.
18. NOTICE. Any notice or demand required or authorized to be given under
the terms of this Agreement shall be sent by facsimile transmission, courier or
certified mail, return receipt requested and postage prepaid, to the other party
at its address set forth below. Notice or demand shall be deemed received on
the date received in the case of a facsimile transmission, on the date delivered
in the case of a courier, or if by mail, on the date indicated on the return
receipt or, in the absence of any such date, on the date such notice was
actually received. Receipt by the sender of electronic confirmation of
transmission shall be conclusive evidence that a facsimile transmission was
received. Any notice or demand required in this Agreement shall be addressed as
follows:
(a) To the Licensor: REP Investment Limited Liability Company
2757 44th Street, S.W., Suite 306
Grand Rapids, Michigan 49509
Attn: Ronald L. Piasecki
Fax No. (616) 531-9141
With a copy to: Jaffe, Raitt, Heuer & Weiss Professional
Corporation
One Woodward Avenue
Suite 2400
Detroit,
Michigan 48226
Attn: Joel J. Morris
Fax No. (313) 961-8358
(b) To the Licensee: Emerson Radio Corp.
9 Entin Road
P.O. Box 430
Parsippany, New Jersey 07054-0430
Attn: Legal Department
Fax No. (201) 428-2022
With a copy to: Wolff & Samson
5 Becker Farm Road
Roseland, New Jersey 07068
Attn: Jeffrey M. Davis, Esq.
Fax No. (201) 740-1407
The foregoing addresses and telephone numbers may be changed by written
notice.
19. GOVERNING LAW AND ARBITRATION. This Agreement shall be governed by
the laws of the State of Delaware. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof shall be settled by binding
arbitration in Wilmington, Delaware in accordance with the commercial
arbitration rules of the American Arbitration Association, and a judgment upon
the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof.
20. MISCELLANEOUS.
(a) COUNTERPARTS. This Agreement may be executed simultaneously in
two (2) or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
(b) HEADINGS. The headings in the Paragraphs and subparagraphs of
this Agreement are inserted for convenience only and shall not constitute a part
hereof.
(c) INVALIDITY OF ANY PROVISION. If any provision of this Agreement
is declared illegal, invalid or unenforceable, the other provisions of this
Agreement shall not be affected but shall remain in full force and effect.
(d) AMENDMENT. No provision of this Agreement may be amended,
modified, supplemented, changed, waived, discharged or terminated unless each
party hereto consents in writing.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors and assigns. Licensor may assign any of its rights or obligations
hereunder without the consent or approval of Licensee. Licensee may not assign
any of its rights or obligations under this Agreement, whether by contract,
consolidation, sale of all or substantially all of its assets, or other
corporate reorganization of such party, without the prior written consent of
Licensor, which will not be unreasonably withheld, and any attempted assignment
without such consent shall be null and void and without any effect whatsoever.
(f) NO THIRD-PARTY BENEFICIARIES. This Agreement is for the sole and
exclusive benefit of the parties hereto. Nothing in this Agreement shall be
construed to grant to any person other than the parties hereto and their
respective permitted successors and permitted assigns any right, remedy or claim
hereunder.
(g) ENTIRE AGREEMENT. This Agreement embodies the entire agreement
between the parties, supersedes all prior agreements and understandings related
to the subject matter of this Agreement. There are no understandings,
agreements, representations or warranties, express or implied, oral or written,
other than those set forth in this Agreement.
(h) NO WAIVER. No failure or delay on the part of any party in
exercising any right, power or privilege under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. No course of dealing a party
shall prevent such party from exercising any of the rights provided for it under
this Agreement or by applicable law. The rights and remedies provided in this
Agreement are cumulative and not exclusive of any rights or remedies provided by
law.
(i) RELATIONSHIP OF PARTIES. The parties hereto are independent
contractors and neither party shall be deemed to act as agent, representative or
partner of the other party in any manner or for any purpose. The obligations of
the entities comprising Licensee shall be joint and several.
(j) FORCE MAJEURE. Neither party to this Agreement shall have any
liability to the other by reason of any failure or delay in performance of any
provision of this Agreement if and to the extent that such failure or delay is
due to acts of God or a public enemy, war, civil unrest sabotage, labor
disputes, natural disasters such as storms, cyclones, earthquakes, tidal waves
floods, destruction by lightning, explosions, fires, breakdowns in factories, or
the acts, rules regulations, orders or directives of any governmental body
(including any agency or subdivision thereof), or any similar occurrence (other
than financial) beyond the reasonable control of the party failing or delaying
to perform. A party seeking relief under this subparagraph shall, as soon as
practicable after the impediment and its effects upon its ability to perform
become known to it, give notice to the other party of such impediment and its
effects on its ability to perform. Notice shall also be given when the ground
for relief ceases. Upon the giving of such notice, and during the continuance
of such impediment and for a reasonable period thereafter, this subparagraph
shall relieve the failing party from damages, penalties and other contractual
sanctions (other than interest on delayed payments, if any). If the impediment
continues for a period in excess of one hundred twenty (120) days, either party
may terminate this Agreement in whole and not in part, by written notice to the
other.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
REP INVESTMENT LIMITED LIABILITY COMPANY
By: /s/ Ronald L. Piasecki
Ronald L. Piasecki
Its: Manager
EMERSON RADIO CORP.
By: /s/ Eugene I. Davis
Eugene I. Davis
Its: President
EXHIBIT A
Form of Statement
[To be mutually agreed upon]
EXHIBIT B
Emerson Mark
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, made as of the 11th day of September,
1996,("Commencement Date") between EMERSON RADIO CORP., a corporation having its
principal place of business at 9 Entin Road, Parsippany, New Jersey 07054
("Company"), EMERSON RADIO CANADA LTD., a corporation having its principal place
of business at 1450 Meyerside Drive, Mississauga, Ontario, Canada L5T 1J9,
("Emerson Canada") (hereinafter, collectively "the Company") and AVS
TECHNOLOGIES INC., a corporation having its principal place of business at 2100
Trans Canada Highway South, Dorval, Quebec H9P 2N4 ("Distributor").
The Company is in the business of designing, procuring, marketing, and
selling consumer electronics products.
Distributor has expressed an interest in becoming the exclusive
Distributor of the Company for consumer electronic products of the types
identified on Exhibit A (the "Products") bearing the trademark identified on
Exhibit B (the "Mark") in the territory identified on Exhibit C (the
"Territory").
Distributor has represented to the Company that it and its principals are
experienced in the marketing and selling of consumer electronic products and has
an adequate staff and facilities to fulfill its obligations as the Distributor
in the Territory with respect to the Products.
Distributor believes that the sales projections for the Products within the
Territory which it has presented to the Company are reasonable.
NOW THEREFORE, IT IS AGREED:
1. APPOINTMENT.
1.1 Company hereby appoints Distributor, subject to the terms of this
Agreement, as the Company's exclusive Distributor of Products in the Territory
to the customer classifications set forth on Exhibit D but specifically
excluding the customers set forth on Exhibit E. Distributor accepts such
appointment and agrees to act as the Distributor of the Company's products in
the Territory as provided in this Agreement.
1.2 (a) The Company agrees that it shall not sell Products to any
customers knowing that such customers intend to ship such Products into the
Territory to the customer classifications set forth on Exhibit D and that
Company will take all reasonable steps to ensure that its other distributors do
not breach this covenant, in each such case so long as the actions of the
Company are in compliance with applicable laws, treaties and international
agreements relating to free trade and commerce among nations.
2. PRODUCTS.
The Company's products to be sold to the Distributor under this Agreement
are those Products contained in Exhibit A and any "New Products" added to
Exhibit A on the terms set forth therein and in Section 6 hereof. The Company
shall also have the right from time to time to change, modify, discontinue
marketing or otherwise alter any or all of the Products without incurring
liability to Distributor. The Company agrees to advise Distributor in writing
thirty (30) days prior to discontinuing any Product from its current line of
Products.
3. DUTIES OF DISTRIBUTOR.
3.1 Distributor agrees to use its best efforts to promote to the
fullest extent possible, in conformity with sound business practices, the sale
of the Products in the Territory. Costs of all advertising, coop advertising and
other promotional efforts shall be borne by Distributor. Simultaneously
herewith, the Company is furnishing Distributor with a listing of all
outstanding customer advertising accruals as of September 11, l996. Distributor
shall use its best efforts to maintain account chargebacks at the level set
forth on such listing. In this event, the Company agrees to reimburse
Distributor for all accrual amounts held by the Company for accruals for which
Distributor provides proof to the Company that the accruals were applied. Such
reimbursement shall be paid by the Company to Distributor thirty (30) days after
Distributor presents satisfactory proof to the Company that the accruals were
applied.
3.2 Distributor shall purchase exclusively from the Company, or a
subsidiary of the Company as designated by the Company, any and all Products to
be sold by Distributor within the Territory.
3.3 Distributor agrees that it
(a) shall refrain from seeking customers, from establishing any branch,
and from maintaining any distribution depot outside the Territory, in each case
in respect of the Products;
(b) shall refrain from actively promoting the sale of the Products and/or
from seeking orders in respect of those accounts in the Territory where
controlling location, defined as buying office, is outside the Territory; and
(c) shall immediately notify the Company of any sale which Distributor
made and Distributor becomes aware that such Product sold was shipped outside
the Territory and/or to any customer within the category referred to in the
previous paragraph.
3.4 In order to perform its duties hereunder, the Distributor shall
utilize its existing sales, warehousing and delivery facilities (which
Distributor represents and warrants are adequate to perform its obligations
under this Agreement), employ adequate numbers of sales and service personnel,
maintain adequate inventories, and provide after sale consumer and end-user
service as set forth in this Agreement.
3.5 (a) The Company shall be fully responsible for all Product
returns that are actually received, at the Company's designated warehouse, by
the Company, Distributor or Venator Sales & Services, Ltd. ("Venator") prior to
February 15, l997, including returns of Product sold after the Commencement Date
and prior to February 15, l997, and agrees to accept and pay for warranty claims
received by the Company, Distributor or Venator prior to February 15, 1997. [All
returns that are the responsibility of the Company must have been preauthorized
by the Company in writing, which authorization shall not be unreasonably
withheld.] Commencing February 15, 1997, Distributor shall be solely responsible
for all Product returns, including Product sold any time prior to February 15,
l997, excluding those of discontinued video Product) and agrees to accept and
pay for all warranty claims received by the Company, Distributor or Venator.
(b) Commencing February 15, 1997, Distributor shall be fully responsible
for after sales support for all Products, including Product sold any time prior
to February 15, l997, (excluding discontinued video Products as set forth in
this Agreement) and shall provide, at its own cost and at no cost to the
Company, after sales service, warranty repairs or other coverage for all
Products for at least the period of time required by applicable local law
throughout the various regions of the Territory. Additionally, should a
warranty period exceed that statutorily set minimum, Distributor shall be
responsible for such expenses.
(c) The Company guarantees that the lifetime defective return rate by
Product category shall not exceed the percentages set forth on Exhibit F.
Should Distributor claim that the lifetime defective return rate exceeds the
percentages set forth on Exhibit F, Distributor must provide the Company with
detailed records showing: 1.) lifetime sales of each Product in the Product
category; 2.) lifetime A-Stock and non-A-Stock returns for each Product in the
Product category; and 3.) lifetime warranty claims paid for each Product in the
Product category with detail on the types of defects responsible for the claims.
In the event that during the term of this Agreement any lifetime defective
return rate for a Product category exceeds such percentages, the Company shall
remit to Distributor the actual costs deemed to be reasonable for such excess.
For purposes of this Agreement, "lifetime defective return rate" is defined as
[lifetime unit returns (excluding A Stock Returns) plus in warranty claims]
divided by lifetime unit sales. For purposes of this provision, "actual costs"
is defined as the actual direct costs incurred by Distributor to third parties,
acting at arm's length with the Distributor, or the Company for providing such
services to Distributor as agreed to by the parties, for administering and
disposing of sales returns and for administering and paying warranty claims but
shall not include any allocation of overheads or any indirect, consequential,
special or incidental damages.
(d) The provisions for returns and warranty expenses set forth in this
Agreement shall exclude, and not be applicable to, A Stock Returns.
(e) Repair and maintenance service provided by Distributor for the
Products shall be in accordance with the best commercial practices in the
Territory, and to this end, Distributor shall employ or contract for a
sufficient number of competent, technically trained personnel. Distributor shall
maintain, or ensure that a third party retained to perform such repair and
maintenance service, or the Company providing such services to Distributor as
agreed to by the parties, maintains, a sufficient inventory of spare parts. No
adjustment shall be made or payment due to Distributor for providing such
services.
3.6 Distributor shall promptly contact any existing or prospective
customers referred to Distributor by the Company and promptly report to the
Company the result of such meeting.
3.7 Distributor shall promptly, upon request, provide the Company
with evidence of sale of the Products in the Territory.
3.8 Distributor shall keep at its principal place of business full,
proper and up-to-date accounts and records showing clearly in respect of the
Territory (and each distinct part thereof) all transactions for each of the
Products and all written records of inquiries, transactions and other material
relating to its dealings in and marketing of the Products.
3.9 Distributor represents that it has been provided with a copy of
the Company's policy statement entitled "Emerson Radio Corp. Antiboycott Policy
Statement and Compliance Guide" and agrees on its own behalf, and on behalf of
its affiliates, to comply with the terms of such policy statement. However, it
is agreed that nothing in such Policy creates a relationship between the Company
and Distributor other than as independent contractors as set forth in this
Agreement.
3.10 With regard to the Products, Distributor shall be responsible for
all negotiations with, notification and submission of samples to and obtaining
the approval of any government agency or other body as required within any part
of the Territory. It is understood that, in accordance with the provisions of
Section 4.2 of this Agreement, the Company shall obtain the CSA/CUL/CETL
approvals on behalf of Distributor.
4. SUPPLY AND PRICING OF PRODUCTS.
4.1 Subject to the terms of this Agreement, Company agrees to sell
and Distributor agrees to buy and to pay for such quantities of Products as
Distributor may reasonably request. All Product purchased by Distributor from
the Company shall meet CSA/CUL/CETL standards, and all other Canadian regulatory
standards, and shall have bilingual packaging and manuals. Distributor shall
purchase Products exclusively from the Company, or a subsidiary of the Company
as designated by the Company, except as specifically approved in writing by the
Company. To fill short term Product needs and in the Company's sole discretion,
Distributor may purchase a.)Products directly from the Company's US inventory,
if available, which Products shall be converted to meet Canadian Standards or
b.) Product stored in Canada as set forth herein.
4.2 The following prices shall apply to purchases of the Products:
(a) Prices for Product purchased by Distributor from the Company shall be
FOB Factory at the Company's FOB cost plus 2% sourcing load plus 3.5% fee,
except prices for video Products which shall be FOB Factory at the Company's FOB
cost plus 2% sourcing load plus 2% fee. The Company's FOB cost shall include all
variable costs, not covered in Section 4.2(c) below, of producing CSA/CUL/CETL
approved Product with bilingual packaging including any applicable royalty
(payable to a third party acting at arm's length with the Company) for the
Product.
(b) Prices for Product purchased from the Company's US inventory are FOB
the Company's US warehouse and shall be at the Company's landed cost (including,
but not limited to, FOB cost, sourcing load, Ocean Freight, Inland Freight,
Brokerage and Duty) ("ELC"), less any duty drawback to which the Company is
entitled and receives, plus a fee of 6.5% of ELC, plus cost of converting
product to meet Canadian standards (including bilingual packaging and manuals,
if required), except that the fee for video product shall be 3.5%.
(c) Costs incurred by the Company to obtain the necessary CSA/CUL/CETL or
other required approvals, regulatory or otherwise, and costs incurred to
translate and typeset packaging, warranties and owners manuals shall be
reimbursed by Distributor. The Company will invoice these charges at regular
terms as set forth in Section 5.1 with invoices to be issued as of the date of
first shipment from the factory. The Company will initiate the approval,
translation and typesetting process when Distributor places its initial order
for a model. However, it is agreed by the parties that upon receipt of the
initial order for a model, the Company shall provide Distributor with a quote
for CSA/CUL/CETL and translation/typesetting charges for said model. The
Company shall proceed with such CSA/CUL/CETL and translation/typesetting only
upon receiving Distributor's written approval by model, based on the costs
involved. Should Distributor subsequently cancel such order, the Company will
invoice Distributor for all out-of-pocket costs incurred by the Company as a
result of the cancellation.
4.3 Pricing for Distributor's purchases of Product(s) from Emerson
Canada inventory shall be quoted and invoiced in Canadian Dollars. Pricing for
Distributor's purchases of all other Product(s) from the Company and for all
other costs pursuant to the terms of this Agreement shall be quoted and invoiced
in U.S. Dollars.
5. PAYMENTS.
5.1 Payment for purchase of Product, and any other invoices covered
by this Agreement, shall be net 60 days plus interest on the outstanding amount.
The interest charged shall be calculated equal to the Company's then current
cost of funds. The Company acknowledges that, as of the Commencement Date, its
cost of funds is calculated as New York, US prime plus 1.25%. [It is agreed
that interest shall not accrue on any current amounts outstanding, and not past
due (aged less than 61 days), for the purchase of Current Inventory,
Discontinued Inventory and Close-Out Inventory as defined in this Agreement but
shall apply to such past due amounts and to the assumption by Distributor of the
production commitments, as defined in this Agreement.]
5.2 It is agreed that if at any time Distributor exceeds the credit
limit authorized by the Company, any purchases which exceed such authorized line
of credit shall be paid by cash in advance, wire transfer or letter of credit
payable 60 days from the date of shipment. In the event payment is to be made
by letter of credit, the letter of credit shall include an amount equal to the
Company's then current cost of funds for the 60-day period and must be opened in
favor of the Company no later than 30 days prior to the ship date, issued by a
major international money bank that maintains a confirmation relationship with
the Company's bank and with terms as set forth herein.
5.3 With regard to sales of Product by Distributor to customers on a
direct import basis ("DI"), Distributor shall pay for such Product by either
transferable sight letter of credit or back-to-back sight letter of credit to be
opened in favor of the Company no later than 30 days prior to the ship date,
issued by a major international money bank that maintains a confirmation
relationship with the Company's bank and with terms as set forth herein.
5.4 Payment to be made by letter of credit, shall be drawn upon terms
established by the Company from time-to-time. The Letter of Credit representing
100% of the purchase price of the Order, plus interest as set forth in Section
5.2, shall be opened in favor of the Company by Distributor as set forth above.
Failure to open the required letter of credit in a timely fashion, or the
failure of Distributor to replace such letter of credit with another acceptable
letter of credit or to prepay or pay the purchase price prior to delivery if the
issuing bank fails or is prevented or refuses to pay thereon shall be a breach
of this Agreement entitling the Company to terminate this Agreement for cause
upon notice to Distributor, as provided in Section 18.
5.5 The letters of credit opened by Distributor in favor of the
Company shall be 1) issued in United States dollars; 2) irrevocable; 3)
transferable; 4) in the form of standby, and/or master and/or documentary; 5)
issued and confirmed by a major international money center bank with
correspondent bank offices in New York City, USA, Amsterdam, The Netherlands
and/or Hong Kong, which shall be satisfactory to the Company (Distributor agrees
to pay all charges relating to the confirmation of the letters of credit and
amendments to the letters of credit arising from Distributor's action(s) or
omission(s) to act); and 6) payable to the Company according to policies and
procedures set forth by the Company from time-to-time. Each letter of credit
shall provide for payment upon terms established by the Company from time-to-
time and shall:
(a) permit partial shipments and partial drawings;
(b) permit drawings either in Hong Kong, New York,
Amsterdam or the British Virgin Islands in United States
Dollars, as provided in the letter of credit, upon presentation
of drafts accompanied by copies of the invoices and original set
of transport documents relating to the order or orders to which
the letter of credit relates;
(c) have an expiration date at least 30 days later than the
last shipment date contemplated by such Order;
(d) be subject to the Uniform Customs and Practices for
Documentary Credits (1993 Revision, English Language Edition)
published by the International Chamber of Commerce (Publication
No.:500); and
(e) shall be in the form and substance reasonably acceptable by
the Company.
5.6 Payment for Distributor's purchases of Product(s) from Emerson
Canada inventory shall be made in Canadian Dollars. Payment for Distributor's
purchases of all other Product(s) from the Company and for all other costs
pursuant to the terms of this Agreement shall be made in U.S. Dollars.
6. NEW PRODUCTS.
Company may, from time to time, in its sole discretion, make available
to Distributor a notice containing a list of a new category of products not
previously offered ("New Product(s)") and their prices, and availability data.
Should it choose to offer a New Product, the Company shall furnish Distributor
with a description of the New Product and related specifications. Distributor
shall have 30 days after receipt of such notice to advise Company in writing
whether it is interested in acquiring the exclusive distribution rights for such
New Products for the Territory pursuant to such notice; if Distributor is
interested in acquiring such distribution rights, it shall include with the
written notice of its interest a.) reasonable and realistic monthly sales
projections for the 12 month period beginning with product availability; b.) a
market study; and c.) detailed assumptions supporting the projections, all of
which must be in a form acceptable to the Company. In the event the Company
accepts the market study, related sales projections and the assumptions
underlying same, the Company shall provide Distributor with written confirmation
that the New Product is added to the list of Products set forth on Exhibit A.
Should Distributor (i) refuse such offer or (ii) fail to exercise its rights
hereunder by providing Company with written notice and an acceptable market
study, sales projection or underlying assumptions within the prescribed time
period, then, in any such event, Distributor's rights hereunder with respect to
such New Product shall be waived and Company shall be free to sell or grant
distribution rights with respect to such New Product within the Territory. It
is agreed that this Section does not apply to the natural extension of the
Product categories set forth on Exhibit A.
7. COLLATERAL MATERIAL AND SAMPLES.
7.1 Company shall supply, as the Company deems necessary, to
Distributor reasonable quantities of instruction handbooks, catalogues and other
Product information literature. Distributor shall bear the cost for shipping
such material along with the variable cost charges for additional quantities
requested. The material will be available in the English language.
7.2 Distributor shall prepare and supply, at its sole cost which
shall be nonrefundable under any circumstances, a sufficient quantity to satisfy
the needs of customers and potential customers in the Territory of sales
promotional materials, including but not limited to all advertising material,
relating to the Products. All such sales promotional materials shall not be
prepared or distributed without the Company's prior review and written approval.
7.3 Distributor shall bear all the expenses for samples that are
made available to Distributor by the Company, as well as all the expenses that
will accrue because of the arrival of the Products in the Territory including
but not limited to freight, import duties, fees and expenses, insurance, and all
expenses relating to the distribution and handling and operation of the
Distributorship.
7.4 Distributor shall maintain in current condition all sales and
service publications, with updates as appropriate, which shall be supplied by
the Company in reasonable quantities, as may be appropriate for the Territory.
It shall circulate the same to appropriate service centers and dealers in the
Territory and shall obtain any necessary confidentiality agreements in favor of
the Company as the Company may reasonably request.
8. WARRANTY, SERVICE AND PRODUCTS LIABILITY INSURANCE.
8.1 As set forth in Section 3.5 of this Agreement, the Company
guarantees that the lifetime defective return rate by Product category shall not
exceed the percentages set forth on Exhibit F.
8.2 SUBJECT TO NORMAL MANUFACTURING TOLERANCES AND VARIANCES, COMPANY
WARRANTS THAT ITS PRODUCTS WILL COMPLY IN ALL MATERIAL RESPECTS WITH THE
SPECIFICATIONS FOR SUCH PRODUCTS AS DETERMINED BY THE VENDOR SUPPLYING THE
PRODUCT TO THE COMPANY. IF THE PRODUCT FAILS TO COMPLY WITH SUCH VENDOR
SPECIFICATIONS AND THE FAILURE RATE FOR SUCH NON-COMPLYING PRODUCTS EXCEEDS THE
EPIDEMIC RATE ASSIGNED TO THE PRODUCT (SEE EXHIBIT G ATTACHED HERETO FOR
DEFINITION OF THE CURRENT EPIDEMIC RATE WHICH MAY BE AMENDED FROM TIME TO TIME
UPON NOTICE BY THE COMPANY TO THE DISTRIBUTOR) AND IF DISTRIBUTOR NOTIFIES THE
COMPANY IN WRITING WITHIN TWELVE (12) MONTHS FOLLOWING THE DATE OF ARRIVAL OF
THE PRODUCTS IN THE TERRITORY OF SUCH DEFECT, THEN THE COMPANY, AT ITS OPTION,
SHALL EITHER REPAIR OR REPLACE SUCH NON-COMPLYING PRODUCTS. SUCH REPAIR OR
REPLACEMENT SHALL BE DISTRIBUTOR'S SOLE AND EXCLUSIVE REMEDY FOR SUCH FAILURE.
DISTRIBUTOR SHALL AFFORD THE COMPANY WITH A REASONABLE OPPORTUNITY TO EFFECT
REPAIR AND SHALL PROVIDE ADEQUATE POWER, TOOLS, FACILITIES AND CONDITIONS TO THE
COMPANY OR TO THE VENDOR TO THE COMPANY TO EFFECT SUCH REPAIR AT DISTRIBUTOR'S
FACILITY. FOR ANY COSTS IN EXCESS OF THE REPAIR OR REPLACEMENT OF NON-COMPLYING
PRODUCTS AS SET FORTH ABOVE, THE COMPANY AGREES TO USE BEST EFFORTS TO ASSIST
DISTRIBUTOR IN DISTRIBUTOR'S EFFORTS TO RECOVER SUCH ADDITIONAL COSTS FROM THE
MANUFACTURER.
THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS, OR IMPLIED,
INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE. EXCEPT AS STATED IN THIS PARAGRAPH, COMPANY SHALL NOT
BE LIABLE UNDER ANY THEORY INCLUDING, WITHOUT LIMITATION, CONTRACT, NEGLIGENCE,
STRICT LIABILITY IN TORT OR MISREPRESENTATION, FOR ANY DEFECT IN, BREACH OF ANY
OBLIGATION RELATED TO, THE QUALITY OF, OR FAILURE TO WARN CONCERNING, COMPANY'S
PRODUCTS OR INSTRUCTIONS, CATALOGUES OR LITERATURE RELATED TO SUCH PRODUCTS. IN
NO EVENT SHALL THE COMPANY BE LIABLE FOR ANY SPECIAL, INDIRECT OR INCIDENTAL OR
CONSEQUENTIAL DAMAGES. THE PURCHASE PRICE OF THE PRODUCTS REFLECTS THE
ALLOCATION OF THE WARRANTY RISK.
8.3 COMPANY MAKES NO WARRANTY WITH RESPECT TO PROTOTYPES, PRE-
PRODUCTION UNITS, UNITS SHIPPED AS OR LISTED AS "UNREPAIRED", "REBUILT",
"REFURBISHED", "/R", "/X", "X" OR "RB", OR UNITS SHIPPED AT CUSTOMER'S REQUEST
OR WITH NO TESTING.
8.4 Since the warranty provided by the Company hereunder is for the
sole benefit of Distributor, Distributor shall not extend the warranty and the
Company shall have no responsibility for after sale service, warranty repairs or
coverage for Products sold by Distributor except as set forth in Section 3.5.
Distributor shall provide after sale service, warranty repairs and all other
coverage, as set forth in Section 3.5, at its own cost and at no cost to the
Company. Pursuant to the terms of Section 3.5 of this Agreement, Distributor
shall be responsible for and shall indemnify, hold the Company harmless from and
against, and defend Company against, any claims for providing after sale
service, support and warranty coverage to consumers and end users in the
Territory, including any costs and expenses.
8.5 (a) Subject to the conditions in subparagraph (c) hereof and
except as hereinafter limited, Company shall defend and indemnify Distributor
from and against any liability, costs and expenses arising out of any claim that
the Product purchased hereunder infringes a patent, trademark or copyright or
other intellectual property right in Products or literature regarding the
Products which was designed and supplied by the Company provided that (i)
Distributor shall have promptly given Company timely written notice thereof and
reasonable cooperation, information, and assistance in connection therewith, and
(ii) Company shall have sole control and authority with respect to defense,
settlement, or compromise thereof. Should any Product delivered hereunder become
or in Company's opinion be likely to become the subject of such a claim, Company
may, at its option, either procure for Distributor the right to continue
selling or using such Product, or replace or modify the Product so that it
becomes non-infringing. Notwithstanding the foregoing, Company shall have no
right to admit any liability on behalf of Distributor or to create any kind of
duty, obligation or promise concerning the future sale of the Product on behalf
of Distributor without the Distributor's prior written consent, which shall
not be unreasonably withheld or delayed. However, to the extent that any
settlement, judgment or decree prohibits or restricts Company's right to sell
the goods covered hereby, it shall be released and discharged from any duty to
Distributor to supply the same.
(b) Company shall have no liability or obligation to Distributor
hereunder with respect to any patent or other intellectual property right
infringement or claim thereof based upon (i) compliance with designs, plans, or
specifications of Distributor, (ii) use of the Product in combination with
devices or products not purchased hereunder where the Product would not itself
be infringing, (iii) use of the Product in an application or environment for
which such Product was not designed or contemplated, (iv) modification of the
Product, or (v) any claims of an intellectual property right infringement in
which Distributor or any affiliate or customer of Distributor has an interest or
license.
(c) Company's liability under this Section 8.5 shall be to remit
any amounts owed to third parties pursuant to the provisions of Section 8.5 and
to reimburse Distributor for the purchase price paid by Distributor for Product
found to be infringing. Company shall not be liable to Distributor for any other
amounts including any special, incidental or consequential damages.
(d) The foregoing states the entire liability of Company with
respect to infringement of intellectual property rights by the Products,
literature or any part thereof.
8.6 Distributor shall obtain and continuously maintain, at its sole
cost and expense, product and completed operations liability insurance insuring
itself and the Company from and against any and all claims, losses, awards,
costs and other losses including, but not limited to, personal injury including
death and to property damage, including loss of use, arising out of the sale or
use of the Products. The insurance shall be in an amount of not less than the
equivalent of US $1,000,000. per occurrence or a combined single limit of US
$10,000,000. per contract year, and shall include appropriate provisions waiving
all subrogation as against the Company. All such insurance shall be written by
good and solvent insurance carriers acceptable to the Company. Distributor shall
furnish the Company with a certificate of insurance naming Company as a named
insured and pursuant to which the carrier shall agree to provide Company with 30
days' prior notification of cancellation or a change of such policy.
8.7 Except as otherwise provided in Section 8.5 of this Agreement,
Distributor agrees to indemnify, defend and hold the Company harmless from and
against any and all claims, costs, damages, expenses, judgments (including
reasonable attorneys' fees) suffered or incurred by the Company by reason of any
claim or action (whether or not groundless) arising out of Distributor's acts or
omissions or its negligence in performance of its obligations hereunder.
9. NAMES AND MARKS.
9.1 Distributor shall conduct its business in its own name and,
except as otherwise specifically provided, at its sole cost and expense.
Distributor acknowledges the validity of the Mark or any trademarks of the
Company (collectively, "Marks") and the exclusive title of the Company and its
affiliated companies therein and in the goodwill associated therewith.
Distributor agrees that it shall not contest, directly or indirectly, the
Company's or its affiliates' ownership, title, right or interest in the Marks or
in the names and marks appearing on the Products, trade secrets, methods,
procedures and techniques or to the right of the Company or its affiliated
companies to register, use and to license others to use the Marks or any
"Emerson" brand name, in all languages. Distributor agrees that it will not
register or attempt to register in its name or that of any person or entity
affiliated with it any name or mark, corporate name or any designation of any
kind, in any language, which is the same as, similar to or a derivative of, or
otherwise utilizing any portion of the Marks or trade names of the Company or of
any of its affiliates. Distributor acknowledges that it does not have and has
not acquired any rights in or to the Marks, product names, likenesses or any
derivations of the foregoing. Upon termination of this Agreement, Distributor
shall immediately cease all use of the Marks.
9.2 Distributor may indicate in its advertising that it is the
exclusive Distributor of Company's Products in the Territory, but the
Distributor shall not incorporate or form any corporation or use any name which
is the same as, or which is likely to cause confusion or mistake with, any
corporate name of Company or of any of its subsidiaries or affiliates.
9.3 The Marks designated by Company shall be displayed by the
Distributor, without alteration, on all products sold by Company for resale by
Distributor and all use of such Marks shall inure to Company's benefit.
Distributor shall not relabel Company's Products.
9.4 Any copyright which may be created in any article, design, label
or the like, bearing any trademark of Company shall be subject to the prior
approval before use, and be the property, of the Company.
9.5 Distributor shall not use any trademark, brand or trade dress
which is the same as, or which is likely to cause confusion or mistake with any
trademark, brand or trade dress of Company, except that the trademarks, brands
and/or trade dress designated by Company shall be used on products of Company.
10. DISTRIBUTOR AS INDEPENDENT CONTRACTOR.
Nothing herein contained shall authorize or empower Distributor to
act on behalf of or in the name of Company, or to bind Company in any manner or
to make any representation, warranty or commitment on Company's behalf nor is it
authorized to issue warranties on behalf of Company nor is it appointed
Company's agent in any dealings with customers, persons possessing Products,
governmental agencies or authorities, or in any other capacity. Distributor is
an independent contractor and this Agreement does not create a joint venture,
partnership or agency. Any act or omission by either party shall not bind or
obligate the other.
11. CONFIDENTIALITY.
11.1 Company may, from time to time, give Distributor valuable
technical and non-technical information not generally known to the trade or
public ("Confidential Information"). Distributor agrees that, during the term
of this Agreement and thereafter, neither it nor any of the employees or agents
of the Distributor, will disclose to anyone or use in any manner whatsoever
(except as authorized by Company) any such Confidential Information including,
without limitation, information relating to customers, products, processes and
services of Company, which becomes known to Distributor during the term of this
Agreement.
11.2 Distributor may, from time to time, give Company valuable
technical and non-technical information not generally known to the trade or
public ("Confidential Information"). Company agrees that, during the term of
this Agreement and thereafter, neither it nor any of the employees or agents of
the Company, will disclose to anyone or use in any manner whatsoever (except as
authorized by Distributor) any such Confidential Information, excluding
technical information regarding the Products, including, without limitation,
information relating to customers, products, processes and services of
Distributor, (except regarding availability of After Sales Services for the
Products to consumers therefore, as provided in this Agreement) which becomes
known to Company during the term of this Agreement.
11.3 The provisions of this Section shall not apply to any information
which either party is compelled to make by administrative or judicial process
or, in the opinion of counsel, by the requirements of law or applicable
regulations of any relevant stock exchange or other governmental authority. In
each such case, each party shall inform the other parties as far in advance as
possible prior to making any such disclosure.
12. EXCHANGE OF INFORMATION AND REPORTS.
12.1 Distributor will immediately notify the Company of, and provide
full details concerning, any condition affecting Products and/or the Mark or any
of the Company's trademarks (whether a general condition or a specific condition
involving a limited number of items). In the event Distributor learns of any
regulation, ordinance, law, treaty, international agreement or other
governmental act or edict, restricting, governing or controlling, in any manner,
Distributor's or Company's activities and responsibilities under this Agreement
or Company's obligations hereunder or under its guarantee, or in the event
Distributor learns of, or becomes aware of any of the foregoing which requires a
modification in any warranty, practice, procedure, document or Product,
Distributor shall, immediately, notify Company and provide Company with such
information and inform the Company of the possible infringements of the
copyright, patent or trademarks within the Territory.
12.2 The Company will immediately notify the Distributor of, and
provide full details concerning, any condition affecting Products and/or the
Mark or any of the Company's trademarks (whether a general condition or a
specific condition involving a limited number of items). In the event the
Company learns of any regulation, ordinance, law, treaty, international
agreement or other governmental act or edict, restricting, governing or
controlling, in any manner, Distributor's or Company's activities and
responsibilities under this Agreement or Distributor's obligations hereunder or
under its guarantee, or in the event the Company learns of, or becomes aware of
any of the foregoing which requires a modification in any warranty, practice,
procedure, document or Product, Company shall, immediately, notify the
Distributor and provide Distributor with such information and inform the
Distributor of the possible infringements of the copyright, patent or trademarks
within the Territory.
12.3 Distributor shall furnish to the Company at such intervals as
may be required by Company, reports and such other information as Company may
reasonably request, including information regarding sales of Product and return,
advertising allowance and collection data, and permit representatives of Company
to make occasional visits to Distributor's customers and facilities.
13. NON-COMPETITION.
During the term of this Agreement, and any renewals thereof, Distributor
shall not represent, sell, solicit orders for or otherwise deal in any products
directly competitive with the Products sold by Distributor in the Territory
without the prior written consent of the Company, to be given in the Company's
sole discretion.
However, it is acknowledged and agreed by the Company that Distributor
presently represents, imports, distributes, solicits orders for and sells,
certain products which may be competitive with the Products, and shall continue
to do so, which products are specifically set forth in Exhibit H of this
Agreement.
It is agreed that in the event a branded supplier of product currently
distributed by Distributor introduces new product(s) which directly compete(s)
with the Products sold by Distributor, Distributor shall be able to distribute
such new product(s).
It is further agreed that Distributor shall not distribute any new branded
product lines, from branded suppliers not currently distributed by Distributor,
which directly competes with the Products distributed by Distributor.
It is also agreed that Distributor shall not introduce, under a brand it
controls, new product(s)(other than replacements of current models) which
compete directly with the Products.
For purposes of this Agreement, products which are directly competitive
with the Products are defined as those products with similar pricing, customer
base, retailer base, quality and features.
14. ROLLING FORECASTS; MINIMUM SALES REQUIREMENTS; CURRENT/IN-TRANSIT
INVENTORY AND PRODUCTION COMMITMENTS; DISCONTINUED CLOSE-OUT
INVENTORY; EXCESSIVE INVENTORY.
14.1 ROLLING FORECASTS. On or before February 1, l997, Distributor
shall provide the Company with a forecast of the number of units of Product
which Distributor reasonably anticipates buying during the twelve (12) months
thereafter. Distributor shall regularly update the forecast and compare same to
on hand inventory to ensure a sufficient stock to meet expected demands in the
Territory and agrees to keep the forecast current on a monthly basis (which it
shall provide in writing to Company) so that at all times it represents a
rolling twelve (12) month forecast of the Distributor's needs. The parties
recognize that such forecasts are not commitments to sell or to purchase any
specific quantity of goods but are intended to represent the good faith
projection of Distributor so as to enable the Company to schedule and
anticipate its and its customer's needs.
14.2 MINIMUM SALES REQUIREMENTS. During the term of this Agreement,
Distributor shall make every good faith effort to promote and effectuate the
sales of the Products in the Territory to the greatest extent possible. There
shall be a minimum sales requirement in each year of the term for sales by
Distributor of Products as follows:
<TABLE>
<CAPTION>
YEAR GROSS DISTRIBUTOR SALES
<C> <C>
1/1/97 - 12/31/97 $3,000,000 Canadian
1/1/98 - 12/31/98 $5,000,000 Canadian
1/1/99 - 12/31/99 6% of the Company's Gross US sales for the
period 1/1/98-12/31/98, exchanged into
Canadian Dollars using an average exchange
rate, as defined herein.
</TABLE>
In the event that Distributor fulfills the minimum sales requirement as set
forth herein, except as otherwise provided herein, this Agreement shall be
automatically renewed for a three (3) year term ("First Renewal Term") with a
minimum sales requirement for each year of the First Renewal Term as follows:
(a) for the first year of the First Renewal Term - 7% of the
Company's Gross US sales, to be exchanged as set forth herein, for the
immediately preceding calendar year;
(b) for the second year of the First Renewal Term - 8% of the
Company's Gross US sales, to be exchanged as set forth herein, for the
immediately preceding calendar year; and,
(c) for the third year of the First Renewal Term - 8% of the
Company's Gross US sales, to be exchanged as set forth herein, for the
immediately preceding calendar year.
Thereafter, in the event that Distributor fulfills the minimum sales
requirement for the First Renewal Term as set forth herein, except as otherwise
provided herein, this Agreement shall be automatically renewed for successive
three (3) year terms so long as, during each year of the renewal term(s),
Distributor sells quantities equal to or in excess of 8% of the Company's Gross
US sales for the calendar year immediately preceding the year in question to be
exchanged as set forth herein.
In calculating "the Company's Gross US Sales", the Company shall exclude
from any such calculation 1.) US sales of products sold in the US which products
or product categories have not been offered to Distributor for sale in the
Territory and 2.) Products or Product categories which Distributor is prevented
from selling in Canada, due to regulatory restrictions.
The Company shall provide to the Distributor the amount of the Company's
Gross US Sales in respect of any given calendar year within ninety (90) days
following such year together with the details as to how same has been computed.
The Distributor shall provide to the Company the amount of the
Distributor's Gross Distributor Sales in respect of any given calendar year
within ninety (90) days following such year together with the details as to how
same has been computed.
For purposes of this Agreement, the "average exchange rate" shall be the
average exchange rate for the calendar year in question [i.e. (sum of 12 month-
end exchange rates) divided by 12].
14.3 CURRENT AND IN-TRANSIT INVENTORY AND PRODUCTION COMMITMENTS.
(A) CURRENT INVENTORY AND IN TRANSIT INVENTORY - Emerson Canada
shall continue to own and hold title to its current inventory owned on
the Commencement Date. Title and risk of loss for any such current
inventory shall pass to Distributor on date of shipment to a customer
of Distributor and Distributor shall hold the receivable thereof.
Pricing for such current inventory shall be on standard terms at
prices calculated as set forth herein (landed cost with sourcing load
and fee). Payment for such current inventory shall be as set forth in
this Agreement.
(B) PRODUCTION COMMITMENTS - Within 30 days of the Commencement
Date, Distributor shall advise the Company which production
commitments, outstanding as of the Commencement Date, Distributor
shall assume. Pricing for any production commitments so assumed shall
be on standard terms at prices calculated as set forth herein (FOB or
landed cost, as appropriate, with sourcing load and fee). Payment for
such assumed production commitments shall be as set forth in this
Agreement.
(C) UNASSUMED PRODUCTION COMMITMENTS - The provisions set forth
in Section 14.4 of this Agreement regarding disposition of
Discontinued/Close-Out Inventory not sold by Distributor shall apply
to all production commitments not assumed by Distributor.
(D) FUTURE ORDERS FOR PRODUCTION - Distributor shall not ship any
Product model purchased from the Company until all existing Current
and In Transit Inventory owned by Emerson Canada of a given model is
sold.
14.4 DISCONTINUED/CLOSE-OUT INVENTORY. On the Commencement Date, the
Company shall provide Distributor with a list of all of Emerson Canada's
available discontinued/close-out inventory. Distributor shall have the exclusive
right to sell the discontinued/close-out inventory for 45 days from the
Commencement Date after which the Company may sell or otherwise dispose of such
inventory as it sees fit except the Company shall not sell or otherwise dispose
of such inventory in the Territory. Emerson Canada shall retain ownership and
possession of all discontinued/close-out inventory presently owned by Emerson
Canada. Title and risk of loss of such inventory shall pass to Distributor on
date of shipment to Distributor or a customer of Distributor, and Distributor
shall hold the receivable thereof. Distributor shall bear all freight costs to
the customers and sales representative commissions for such purchases and shall
be responsible for all coop advertising claims, terms discounts and all other
chargebacks or deductions taken by customers. Pricing for the discontinued/
close-out inventory shall be as follows:
Account pricing for the discontinued/close-out inventory, defined as
pricing to be offered to Distributor's customers, as has been determined by
the parties. Distributor may later propose deviations from this initial
price list which the Company may or may not, in its sole discretion,
approve. The account pricing shall be net of all co-op advertising, terms
discounts and other discounts to the accounts. Distributor shall be
responsible for building such discounts into the invoice price and for
remitting such discounts to the accounts. The Company's pricing to
Distributor shall be calculated as the account price, as defined above,
less 1% freight allowance, less 1% commission allowance, less a provision
for warranty costs for audio only, less 5% Distributor profit margin for
video product and 8% Distributor profit margin for all other product. The
provision for warranty and return costs shall be calculated as agreed to by
the parties, based on the warranty caps in Exhibit F.
Upon receiving a valid purchase order from a customer, Distributor shall
approve same and forward a copy to the Company for approval and who shall
ship the customer and bill Distributor, at the Distributor's price
calculated above.
14.5 EXCESSIVE INVENTORY. A-Stock inventory owned by Distributor and
purchased from the Company may be returned to and accepted by the Company should
such inventory be determined by Distributor to be excessive. Such returned
inventory shall be priced at the most recent FOB price, plus sourcing load plus
fee, less a 9.5% restocking fee to the Company and shall be delivered FOB US
warehouse designated by the Company. Return of excessive inventory shall be
limited to 5% of annual inventory purchases and with a minimum purchase volume
of 200 units per model. Such inventory must be A Stock, never have been sold by
Distributor and returned in unopened cartons. Pricing for discontinued models
returned after the model year shall be subject to an additional discount of 10%.
For purposes of this agreement, "discontinued" models and inventory shall mean
models and inventory no longer carried in the Company's current line of Products
and not purchased by Distributor for the prior six (6) months. The Company
agrees to advise Distributor in writing 30 days prior to discontinuing any
Product from its current line of Products.
Distributor agrees to provide the Company with timely monthly data on sales and
inventories by model so that the Company can track its potential exposure under
this provision.
15. ORDERS, LETTERS OF CREDIT, DELIVERY.
15.1 At periodic intervals during this Agreement, Distributor
shall submit to Company written purchase orders ("Orders") for the Products.
Such Orders shall not be deemed to be accepted by the Company until it delivers
to Distributor a Notice of Confirmation. The issuance of a Notice of
Confirmation shall be in the sole discretion of the Company. The Company may
grant partial orders. In the event Distributor cancels a purchase order after
the Company has issued a Notice of Confirmation, Distributor shall, upon
cancellation of the purchase order, immediately reimburse the Company for all
actual costs, non-recoverable from third parties, incurred as a result of such
cancellation.
15.2 If applicable, as set forth in Section 5 of this Agreement, upon
receipt of Notice of Confirmation, and 30 days prior to ship date, Distributor
shall issue a letter of credit for the full purchase price of the goods covered
by the order in form and substance, and issued by an institution, acceptable to
Company. Each Order shall specify a delivery date at least 60 days from the
date of such order.
15.3 The cost of insurance, shipping and freight shall be paid
directly by Distributor. All shipments shall be made in Company's standard
shipping packages to Distributor at the address in the Territory designated by
Distributor. Unless otherwise instructed in writing by Distributor, Company
shall select a method of conveyance conforming to the standard commercial
practices of Company for shipments. Any additional packing, handling, shipping,
consolidating and freight costs shall be borne by the Distributor.
15.4 Title to Products sold to Distributor and risk of loss shall
pass to Distributor upon delivery of the Product to the common carrier or its
designated agent. In the event of any loss of the Product following delivery to
the carrier, Company shall, upon request, cooperate with Distributor in
connection with the proof of loss claims presented by Distributor to the
carrier and/or insurer.
15.5 Distributor shall be responsible for the payment of all taxes,
duties, levies and assessments, including GST and PST, pertaining to the sale of
the Product, except taxes based upon Company's net income from the transactions.
Distributor shall be responsible for completing in a timely manner all
documentation necessary to (i) permit Company to refrain from collecting taxes
or assessments it would otherwise be obligated to collect or (ii) to assist the
Company in deriving duty drawbacks.
15.6 Delivery shall be FOB the point of embarkation or EX WORKS (as
defined by INCOTERMS 1990 Edition), as provided in the acceptance memorandum
relating to the Order. In no event, however, shall Company be liable to
Distributor for damages which directly or indirectly arise from failures
relating to canceled and/or late shipments, late sailing, failures of
consolidators or freight forwarders or handlers, or from failures to give notice
thereof.
15.7 Notwithstanding the provisions of Section 15.6 above, Distributor
shall be responsible for procuring and obtaining all necessary entrance permits
and customs declarations.
16. LOCAL COMPLIANCE
16.1 Distributor represents and warrants that it is formed under the
laws of Ontario, Canada and that (i) it is wholly-owned by Canadian citizens
and (ii) it, and each of its affiliates, where applicable, possesses all
necessary registrations, licenses and permits to engage in distribution
activities of the type contemplated by this Agreement throughout the Territory
and it, and each of its affiliates, is and during the term of this Agreement
will use its best efforts to remain in compliance with, and not knowingly
violate, all local laws, rules, ordinances and regulations throughout the
Territory relating to the activities to be performed hereunder, including those
affecting the importation, sale, servicing and marketing of Products.
16.2 In the event that a local registration is required in any region
of the Territory, Distributor undertakes that within one (1) month of the date
hereof to have this Agreement registered with the applicable local agencies and
will promptly thereafter provide the Company with a copy of the certificate
evidencing such registration.
16.3 Should this Agreement expire or be terminated in accordance with
its terms, Distributor will cooperate with the Company and any new Distributor
or agent designated by the Company to cancel such registration and/or transfer
it to the new agent or Distributor. Distributor shall, at its own cost, take
all such other action as may be necessary or appropriate for it to fully perform
this Agreement and sell the Products under the laws, rules and regulations of
each of the jurisdictions in the Territory. All such permits, licenses,
certificates, approvals, franchises and registrations shall indicate that
Company is the owner of all rights therein. Upon termination of this Agreement,
to the extent permitted by local law, all transferable permits, licenses,
certificates, approvals, franchises and registrations shall be transferred to
Company free of all manner of liens and encumbrances. The Company or its
designee shall either agree to pay all costs and expenses of such transfer or it
shall waive transfer thereof.
17. TERM; RENEWAL.
The "term" of this Agreement shall commence on the date hereof and shall
continue until December 31, 1999 ("Initial Term") renewal for additional three
(3) year periods upon Distributor fulfilling minimum sales requirements as set
forth, and on the conditions contained, in Section 14 herein.
18. TERMINATION AND EXPIRATION.
18.1 This Agreement shall expire as provided above. It may also be
terminated by the Company upon not less than ten (10) days' written notice to
Distributor upon any of the following:
(a) If there is a change in i.) the beneficial ownership of 50.1%
or more of Distributor's voting stock, based upon the ownership of Distributor's
stock as of the Commencement Date, or ii.) the direct or indirect control or
management of Distributor. Such change shall include but shall not be limited
to any sale, lease, transfer or disposal, whether by contract, will, intestacy,
or otherwise. Distributor agrees to furnish Company, at Company's request,
with the names of all persons and other legal entities having any beneficial
ownership, management or control of Distributor, as well as the exact nature of
such ownership, management or control;
(b) If in any calendar year Distributor fails to satisfy the minimum
sales requirements set forth in this Agreement for such year provided that
notice to such effect is delivered to Distributor, pursuant to the terms of this
Agreement, within thirty (30) days following receipt of information regarding
Distributor's sales in the Territory as provided in Section 14.2 of this
Agreement;
(c) If Distributor fails to open any required letter of credit in a
timely fashion, as provided in Section 5, or fails to replace such letter of
credit with another acceptable Letter of Credit or to prepay or pay the purchase
price prior to delivery if the issuing bank fails, is prevented or refuses to
pay thereon, unless cured within such ten (10) day notice period;
(d) If Distributor fails to remain in compliance with local laws,
rules and regulations throughout the Territory, in accordance with Section 16.1,
relating to the activities to be performed hereunder, or any necessary
registration, license or permit filed on Distributor's behalf in the Territory
is revoked, lapses or is otherwise no longer in effect during the term of this
Agreement, unless cured within such ten (10) day cure period.
18.2 This Agreement shall terminate immediately by its own force upon
notice from the Company upon any of the following:
a) Company ceases distributing the Product(s) under the Company
trademark;
(b) Distributor makes an assignment for the benefit of
creditors, or a public or written admission of insolvency, or a
trustee, receiver or liquidator is appointed for Distributor or for
any material or substantial part of its property or its business
relating to the distribution or sale of Products or other consumer
electronic wares;
(c) Distributor is dissolved or loses its charter by forfeiture
or otherwise, or Distributor's rights or permits to conduct any of
its businesses are suspended or revoked;
(d) Distributor (i) ceases to function as a going concern or (ii)
becomes nationalized;
(e) Any court or governmental authority or agency shall have
taken jurisdiction of the property or business of Distributor, or any
substantial part thereof, whether or not in any proceedings for the
reorganization, dissolution, liquidation, marshaling or winding up of
the Distributor;
(f) The insolvency of Distributor shall immediately terminate
this Agreement. For this purpose, insolvency shall include, but shall
not be limited to the inability of Distributor to pay its debts as
they mature, or its liabilities being in excess of the fair market
value of its assets, or such other causes as may permit Distributor
to seek relief under any insolvency laws.
18.3 In the event that Distributor shall at any time (i) commit or
allow to be committed a breach of any material obligation set forth in this
Agreement, (ii) fails to fulfill the obligations of Section 3.3 of this
Agreement, (iii) render an incorrect, material representation in connection with
the rights granted herein, (iv) commit intentional or negligent damage or omits
or fails to take steps within its power to prevent damage to the Company's
business, reputation, distribution channels or value of the Marks, (v) fail to
conduct its business ethically in accordance with reasonable commercial
practices or (vi) fail to remain in compliance with local laws, rules and
regulations throughout the Territory, in accordance with the provisions of
Section 16.1, relating to the activities to be performed hereunder or any
necessary registration, license or permit filed either on Distributor's behalf
in the Territory is revoked, lapses or is otherwise no longer in effect during
the term of this Agreement, then, in addition to the rights available under law
or in equity, the Company may, by notice in writing given to Distributor,
require such breach or event to be remedied and if such breach or event is not
remedied within thirty (30) days after the giving of such notice, the Company
shall have the right to terminate this Agreement forthwith by a further notice
in writing.
18.4 In the event that in any of the three calendar years of the term
(commencing as of January 1, l997), or any year of any renewal term thereof, the
Company loses money from purchases of Product made by Distributor pursuant to
the terms of the distribution arrangement covered by this Agreement (excluding
any purchase of the Current, In Transit, Discontinued and Close-Out Inventory as
set forth in this Agreement), the Company shall, for 90 days following the close
of the initial three-year term or of any such subsequent year, have the right to
terminate the Agreement upon 30 days written notice unless Distributor shall
guarantee that the Company shall in future years make a profit equal to at least
1% of Distributor's purchases from the distribution arrangement covered by the
terms of this Agreement, or any renewal term thereof, or reimburse the Company
for the shortfall arising therefrom. For purposes of this Agreement,
calculations of whether or not the Company is losing money shall be based solely
on the fee revenue received by the Company (not including the sourcing load) and
the costs to the Company of the Distributor's business, including costs due to
the excess warranty cost provision and the Excessive Inventory provision of this
Agreement. Direct costs shall not include arbitrary allocations of overhead, or
general office expenses such as phone, fax or travel.
18.5 Should this Agreement be terminated for any reason, or expire in
accordance with its terms, the effects of such termination or expiration shall
be governed by this Section.
(a) At the Company's option, exercised by notice to Distributor, any
orders accepted by Company from Distributor prior to the effective date of
termination pursuant to this paragraph and remaining uncompleted on such date
shall not survive such termination unless any such orders are required by
Distributor to fill existing orders.
(b) The parties will proceed in good faith to the settlement of the
operations in progress, which shall be settled within six months from the date
of termination.
(c) The Company may, but shall not be obligated to, purchase existing
inventory from Distributor at (i) Distributor's cost for factory new and
sealed cartons of merchantable Products; and (ii) salvage value for any other
Products or parts. Such right may be exercised by the Company or by its
designee by a notice given to Distributor on or before the 30th day following
the expiration or termination date. Terms shall be net 60 days for inventory
purchased by the Company under this clause. During such period, the parties
shall cooperate with the Company in valuing the inventory. However, the Company
shall not be able to purchase any existing inventory that is required by
Distributor to fill orders existing at the time of termination or expiration of
this Agreement.
(d) Following the giving of a notice of default or a notice of termination
or, if this Agreement is expiring in accordance with its terms, then during the
6 months prior to such expiration date, the Company may and shall be free to
actively seek and to retain a replacement for Distributor. The Company may
accept orders from the replacement Distributor and the replacement Distributor
may register its agreement with the local agency immediately upon the effective
date of termination or expiration.
(e) Upon the expiration or earlier termination of this Agreement,
excluding any sale of existing inventory during period for settlement of
operations in progress as provided in this Agreement and agreed to by the
parties, Distributor shall cease using the Mark and shall suspend all publicity
in which its name appeared linked to that of the Company or to Products.
(f) The confidentiality provisions and obligations of indemnification and
Section 9.5 of this Agreement shall survive any expiration or termination of
this Agreement. Similarly, the obligations to provide warranty service to
customers and end-users of the Product shall continue following the termination
or expiration hereof. It is understood that Distributor shall not be responsible
for warranty services for any consumer electronic product bearing the Mark which
is sold in the Territory by the Company or a third party after the termination
or expiration of this Agreement unless sold by or on behalf of Distributor
during any period for settlement of operations in progress as agreed to by the
parties.
(g) Distributor shall not be entitled to any indemnity or other
compensation in the event of termination, non-renewal or expiration of this
Agreement.
19. IMPOSSIBILITY OF PERFORMANCE AND FORCE MAJEURE.
19.1 Neither party shall have any liability to the other by reason of
any failure or delay in performance of any provision of this Agreement or Orders
pursuant hereto (other than the obligation to timely post a letter of credit and
to make payment for Products hereunder), if and to the extent such failure or
delay is due to any occurrence (other than financial) beyond the reasonable
control of the party failing or delaying to perform, including but not limited
to, acts of God or a public enemy, war, civil unrest, sabotage, labor disputes,
natural disasters such as storms, cyclones, earthquakes, tidal waves, floods,
destruction by lightning, explosions, fires, boycotts, transportation failure or
delays, shortages of materials, failures of suppliers, breakdowns in factories,
or the acts, rules, regulations, orders or directives of any governmental body
(including any agency or subdivision thereof).
19.2 A party seeking relief shall, as soon as practicable after the
impediment and its effects upon its ability to perform become known to it, give
notice to the other party of such impediment and its effects on its ability to
perform. Notice shall also be given when the ground for relief ceases. Upon
the giving of such notice, and during the continuance of such impediment and for
a reasonable period thereafter, this Article relieves the failing party from
damages, penalties and other contractual sanctions, except from duty to pay
interest on money owing and the duty to amend and keep open letters of credit
relating to payment for Products for a period expiring not sooner than 30 days
from the date of shipment of the Products affected by the impediment.
19.3 If the impediment shall continue for a period in excess of 90
days, then either party may terminate the affected Order or this Agreement, in
total.
20. INTERPRETATION AND GOVERNING LAW. All questions relating to the
validity, interpretation, performance or breach of this Agreement, including
without limitation all claims and damages, shall be determined in accordance
with the law of the State of New Jersey, USA, applicable to agreements made in,
and to be fully performed in, that jurisdiction. THE 1980 UNITED NATIONS
CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS SHALL NOT APPLY TO
THIS AGREEMENT OR TO THE DUTIES OR OBLIGATIONS OF THE PARTIES HEREUNDER.
21. MISCELLANEOUS.
21.1 Waiver of Rights. The waiver or the failure by Company or
Distributor to claim a breach of any provision of this Agreement shall not
constitute a waiver of any subsequent breach or affect in any way the
effectiveness of such provisions.
21.2 Assignment. Distributor shall not assign this Agreement or any
right granted hereunder to any individual or entity without the prior written
consent of the Company. Distributor may not delegate any duty hereunder without
the prior written consent of the Company in each instance. For purposes of this
agreement, the terms "assign" and "assignment" shall be deemed to include all
transfers of control of Distributor, whether accomplished by means of a
transfer of equity, voting trust, merger, consolidation, amalgamation,
combination, reorganization or other means.
21.3 General Standards of Conduct. Distributor shall deal fairly and
honestly with the public, comply at all times, with all international, national,
state, provincial, county, city and other local laws, regulations and
ordinances. Distributor warrants that it has not, and covenants that it shall
not, directly or indirectly, make any loans or gifts or any thing of value to or
for the benefit of the following persons/entities if it would violate United
States or local law: (i) any government employee or official; (ii) any
political party, faction or candidate for office; (iii) any other person if
Distributor has reason to know that any part thereof would go to anyone
mentioned above,; or (iv) to any other person or entity to whom a payment or
gift would violate the laws or policies of the United States or of the
jurisdiction to whose authority such person or entity is subject.
21.4 Subdistributorships. Distributor shall not create any
subdistributorships, agencies, participations, joint ventures, rights, or other
similar arrangements delegating its duties hereunder or otherwise dealing with
the sale, repair, import, export, service or promotion of Products without the
prior written consent of the Company in each instance. It is agreed that
Distributor shall be permitted to sell Product(s) to regional distributors in
the Territory subject to the prior written consent of the Company.
21.5 Entire Agreement. This Agreement and the accompanying Exhibits,
and the terms of the Confidentiality Agreement letter dated June 19, 1996, the
terms of which are incorporated herein, sets forth the entire agreement and
understanding between the parties relating to the subject matter contained
herein, any course of prior dealings or usage of the trade notwithstanding,
supersedes all other agreements, oral or written, heretofore made between the
parties and supersedes any standard terms and conditions of purchase and any
standard terms and conditions of sale of purchaser and seller, respectively,
whether on purchase orders, confirmations or any other document exchanged
between them. Any amendment or additions to this Agreement shall be in writing
and signed by an authorized officer or agent of Company and Distributor. The
terms and conditions herein shall supersede any inconsistent provisions in
Company's or Distributor's orders, confirmations or other documentation. No
additional terms may be added and no terms may be deleted from this Agreement
unless the same is reflected in a writing referring to this Agreement which is
executed by both parties.
21.6 Notices. All notices required or given in connection with this
Agreement shall be in writing and shall be delivered by hand, facsimile, telex,
over night delivery service, or by registered mail, return receipt requested, to
the other party at the address set forth on page one of this Agreement, or to
such other address as a party may designate by written notice. Notice by hand
delivery, facsimile, telex, or overnight delivery service shall be effective
upon receipt. Notice by registered mail shall be deemed to have been given seven
(7) days after posting.
21.7 LAW; JURISDICTION. This Agreement shall be deemed to have been
made, executed and delivered in and shall be governed by and enforced in
accordance with the laws of, the State of New Jersey, United States of America.
Any controversy or claim arising out of or relating to this contract, or the
breach thereof, shall be governed by and enforced in accordance with the laws of
the State of New Jersey regardless of the choice of law rules and conflict of
law principles. Any dispute arising as to the legal nature of this Agreement
shall be settled in the courts of the State of New Jersey, in Morris County,
which shall have exclusive jurisdiction over all controversies that may arise
under or in relation to this Agreement, especially with respect to its validity,
execution, interpretation, enforcement, or compliance, the parties hereby
consenting to service, jurisdiction, and venue of such courts for any litigation
arising from this Agreement, and waiving any other venue to which they may be
entitled to by virtue of domicile, residence, or otherwise.
21.8 SEVERABILITY AND HEADINGS. IF AND TO EXTENT THAT ANY PROVISION OF
THIS AGREEMENT SHALL BE DETERMINED BY ANY LEGISLATURE OR COURT TO BE IN WHOLE OR
IN PART INVALID OR UNENFORCEABLE, SUCH PROVISION OR PART THEREOF SHALL BE DEEMED
TO BE SURPLUSAGE AND, TO THE EXTENT NOT SO DETERMINED TO BE INVALID OR
UNENFORCEABLE, EACH PROVISION HEREOF SHALL REMAIN IN FULL FORCE AND EFFECT. THE
HEADINGS TO THE PARAGRAPHS OF THIS AGREEMENT ARE INCLUDED MERELY FOR CONVENIENCE
OF REFERENCE AND SHALL NOT AFFECT THE MEANING OF THE LANGUAGE INCLUDED THEREIN.
21.9 SAVINGS CLAUSE. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall not invalidate the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
21.10 TIME PERIODS. The time periods referred to in this Agreement
will be calculated in accordance with the Gregorian Calendar.
21.11 ENGLISH LANGUAGE. The parties have requested that this
Agreement be drawn up in the English language; les parties ont demande que cette
entente et les documents accessoires soient redigees en langue anglaise.
21.12 EXECUTION OF AGREEMENT. The parties agree that this Agreement
may be executed in any number of counterparts and by facsimile(s), which
counterparts and facsimile(s) together shall constitute one agreement.
22. COLLECTION OF ACCOUNTS RECEIVABLE.
Distributor agrees to collect the Company's outstanding accounts
receivable. Distributor shall receive a fee for such services in the amount of
2.5% for cash collected for all receivables which are current or less than 31
days overdue as of the Commencement Date and 5% for cash collected for all other
receivables. Distributor shall have customers remit the collected accounts
receivable directly to the Company's designated lock box and the Company shall,
within thirty days after the close of each month, remit to Distributor the
applicable commissions as set forth herein. [It is agreed and understood that
Distributor shall make all reasonable efforts to collect the Company's
outstanding accounts receivable in Distributor's normal course of business.
Distributor is not required to initiate legal proceedings against any customer
to collect outstanding overdue accounts receivable and Distributor is not
responsible for the failure to collect from any account. Distributor's services
hereunder are nonexclusive.] The provisions herein are not applicable to the
Distributor accounts receivable, Venator accounts receivable and Emerson -
Emerson HK - Emerson Canada intercompany accounts receivable, which accounts
receivable are excluded. The Company shall provide Distributor with weekly cash
receipts data.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the day and year first above written.
EMERSON RADIO CORP.
(SEAL) BY: /s/ Eugene I. Davis
(NAME)
Eugene I. Davis, President
Print Name and Title
EMERSON RADIO CANADA LTD.
(SEAL) BY: /s/ Eugene I. Davis
(NAME)
Eugene I. Davis, President
Print Name and Title
AVS TECHNOLOGIES, INC.
(SEAL) BY: /s/ Stanely Plotnick
Stanley Plotnick
Stanley Plotnick, President
Print Name and Title
BY: /s/ Theodore Matthews
Theodore Matthews
Theodore Matthews, EVP
Print Name and Title
SCHEDULE OF EXHIBITS
Exhibit A Products
Exhibit B Marks
Exhibit C Territory
Exhibit D Customer Classifications
Exhibit E Customer Exclusions
Exhibit F Guaranteed Cap For Defective Returns
Exhibit G Epidemic Failure
Exhibit H Competitive Products
EXHIBIT A
PRODUCTS
Color televisions
Black & White televisions
Video Cassette Recorders and Players
TV/VCR Combination Units
Portable and Clock Radios
Radio/Cassette/CD Players
Audio Systems
Microwave Ovens
Car Audio
Security Products
Home Theater Products
Clocks
ALL PRODUCTS SHALL BE A STOCK PRODUCTS ONLY
For purposes of this Agreement, "A Stock Product" shall be defined as new
product (manufactured of new material and parts and not repaired, remanufactured
or rebuilt), which has not been subjected to use after original manufacture.
Products shall also be defined as including consumer electronic products not
defined herein which the Company may introduce in the future to be sold with the
Emerson Trademark as defined herein and which are reasonably interpreted as
natural extensions of the Product categories specifically defined herein.
This Agreement does not and shall not be interpreted as appointing Distributor
as the exclusive distributor for any Products other than the consumer
electronics products and any extensions thereof, as set forth herein. With
regard to any product lines which the Company may introduce which are not
consumer electronic products and/or any natural extensions thereof, as set forth
herein, the Company may in its sole discretion, but is not obligated to, offer
such lines to Distributor for sales in the Territory pursuant to Section 6 of
this Agreement.
EXHIBIT B
MARKS
Emerson with G-Clef
EXHIBIT C
TERRITORY
Canada, as such country is known as of the Commencement Date.
EXHIBIT D
CUSTOMER CLASSIFICATIONS
All customers except those specifically excluded in Exhibit E.
EXHIBIT E
CUSTOMER EXCLUSIONS
1. Sales of video Products to Wal-Mart Canada, which sales are covered by that
certain License Agreement entered into by Emerson and a Supplier regarding sales
of such video Products. In the event such video Products become no longer
covered by the provisions of that certain License Agreement, or any renewals or
extensions thereof, then AVS shall be permitted to sell video Products to Wal-
Mart Canada pursuant to the provisions of this Agreement.
2. AVS shall not sell Products to Future Shop Ltd. or its subsidiaries or
affiliates ("Future Shop Ltd.") which Products knowingly are to be shipped to
the Future Shop Ltd. locations in the US. Emerson shall not sell Products to
Future Shop Ltd. locations in the US which Products knowingly are to be shipped
to the Future Shop Ltd. locations in Canada.
3. AVS shall not knowingly sell product to any customer who will transship
such product out of Canada. Emerson shall not knowingly sell product to any
customer who will transship into Canada.
EXHIBIT F
<TABLE>
GUARANTEED CAP FOR DEFECTIVE RETURNS
<CAPTION>
GUARANTEED CAP (NOT
PRODUCT CATEGORY GREATER THAN)
<S> <C>
Audio I (Portable Radios) 7%
Audio II (Clock Radios) 7%
Audio III (Personal Stereos) 7%
Audio IV (Personal CDs) 17%
Audio V (Portable Radio/Cassettes) 7%
Audio VI (Portable CD/Radios) 15%
Audio VII (Non-CD Shelf Systems) 7%
Audio VIII (CD Shelf Systems) 12%
TV I (Under 13" Color TVs) 12%
All Other TVs 6%
VCRs 12%
Microwave Ovens 6%
Home Theater 10%
Car Stereos 20%
Clocks 5%
Security Products 10%
(Home Security: CO Detector
Personal Security: Personal Alarm; Safety Light with Motion Detector;
Door/Window Alarm; Motion Detector; Door/Window Alarm
with Booster Siren; Motion Detector with Booster Siren)
</TABLE>
EXHIBIT G
EPIDEMIC FAILURE
An epidemic failure occurs when there is a failure of more than 2.5% of
mechanical, electrical or cosmetic components, as defined below, in a Product
lot.
1. Mechanical components shall include, but shall not be limited to: motors,
cassette decks, cd decks, video decks, connectors, disk drives, switches, tape
drives, relays, condenser canisters, etc. Electrical components shall include,
but shall not be limited to: semi-conductors (ICs, memories, transistors,
diodes, computer chips, etc.), CRT, LCD, LED, FLD, transformers, capacitors,
resistors, printed circuit boards, rectifiers, solenoids, logic circuits,
sockets, pickups, power supplies, etc. Cosmetic components and critical defects
shall include, but shall be limited to: cabinet, panel, overlay, door, cover,
knob, labels, fit, finish, color, etc.
2. Epidemic failure means that the same parts or type of parts or assemblies
applied to the same circuitry of the purchased products have the same or similar
nature of defects or failures or failures or defects of a related kind or
nature.
EXHIBIT H
<TABLE>
COMPETITIVE PRODUCTS
<CAPTION>
BRAND MODEL DESCRIPTION
<S> <C> <C>
NIKKO NHT2500 Home theatre system with 6 speakers
(registered mark) and Dolby (registered mark) Pro Logic Amplifier
NHT1000 5 speakers and surround amplifier
built into TV/VCR stand
NHT2000 5 speakers and surround amplifier
built into TV/VCR stand
NHT3000 6 speakers and Pro Logic amplifier
built into TV/VCR stand
Eversafe MAA2 Motion activated alarm
(regis- WEA2 Door/window alarm
tered MAL2 Motion activated light/alarm
mark) MWA1 Window Alarm
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 15,002
<SECURITIES> 4,050
<RECEIVABLES> 18,232
<ALLOWANCES> 2,580
<INVENTORY> 27,517
<CURRENT-ASSETS> 72,699
<PP&E> 7,989
<DEPRECIATION> 5,166
<TOTAL-ASSETS> 82,633
<CURRENT-LIABILITIES> 32,276
<BONDS> 20,750
0
9,000
<COMMON> 403
<OTHER-SE> 19,803
<TOTAL-LIABILITY-AND-EQUITY> 82,633
<SALES> 101,656
<TOTAL-REVENUES> 101,656
<CGS> 96,536
<TOTAL-COSTS> 96,536
<OTHER-EXPENSES> 13,513
<LOSS-PROVISION> 550
<INTEREST-EXPENSE> 1,657
<INCOME-PRETAX> (10,600)
<INCOME-TAX> 166
<INCOME-CONTINUING> (10,766)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,766)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
