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, 1997
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)
(973)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 November 13,
1997: 45,739,099.
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,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . $ 75,543 $101,656 $45,100 $60,509
Costs and expenses:
Cost of sales . . . . . . . . . 67,186 96,536 38,787 57,752
Other operating costs and expenses 1,503 1,624 637 689
Selling, general & administrative
expenses. . . . . . . . . . . . 7,154 9,705 3,552 4,342
Restructuring and other nonrecurring
charges . . . . . . . . . . . . 52 2,734 0 2,734
75,895 110,599 42,976 65,517
Operating profit (loss). . . . . . . (352) (8,943) 2,124 (5,008)
Equity in earnings of affiliate. . . 1,089 - 553 -
Interest expense . . . . . . . . . . 1,399 1,657 658 845
Earnings (loss) before income taxes. . . (662) (10,600) 2,019 (5,853)
Provision for income taxes . . . . . . 41 166 0 190
Net earnings (loss). . . . . . . . . $ (703) $(10,766) $ 2,019 $(6,043)
Net earnings (loss) per common share $ (.02) $ (.28) $ .03 $ (.15)
Weighted average number of common and
common equivalent shares outstanding 41,487 40,274 59,684 40,295
The accompanying notes are an integral part of the interim consolidated
financial statements.
</TABLE>
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<CAPTION>
Sept. 30, March 31,
1997 1997
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . $ 2,726 $ 2,640
Accounts receivable (less allowances of
$4,591 and $6,001, respectively) . . . . . 8,165 12,452
Inventories . . . . . . . . . . . . . . . . 12,643 13,329
Prepaid expenses and other current assets . 8,140 6,497
Total current assets . . . . . . . . . . . 31,674 34,918
Property and equipment - (at cost less
accumulated depreciation and amortization
of $3,342 and $3,521, respectively). . . . . 1,721 2,130
Investment in unconsolidated affiliate . . . . 17,022 16,033
Other assets . . . . . . . . . . . . . . . . . 5,319 5,687
Total Assets . . . . . . . . . . . . . . . $ 55,736 $ 58,768
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable . . . . . . . . . . . . . . . $ 3,830 $ 5,689
Current maturities of long-term debt . . . . 86 85
Accounts payable and other current
liabilities . . . . . . . . . . . . . . . 12,800 13,053
Accrued sales returns . . . . . . . . . . . 3,094 2,730
Income taxes payable . . . . . . . . . . . . 90 103
Total current liabilities . . . . . . . . 19,900 21,660
Long-term debt . . . . . . . . . . . . . . . . 20,804 20,856
Other non-current liabilities . . . . . . . . 201 223
Shareholders' Equity:
Preferred stock - $.01 par value, 10,000,000
shares authorized, 8,016 and 10,000 shares
issued and outstanding, respectively . . . . 7,214 9,000
Common stock - $.01 par value, 75,000,000
shares authorized, 44,091,698 and 40,335,642
shares issued and outstanding, respectively. 441 403
Capital in excess of par value . . . . . . . . 110,769 109,278
Accumulated deficit . . . . . . . . . . . . . (103,791) (102,843)
Cumulative translation adjustment . . . . . . 198 191
Total shareholders' equity . . . . . . . 14,831 16,029
Total Liabilities and Shareholders' Equity $ 55,736 $ 58,768
The accompanying notes are an integral part of the interim consolidated
financial statements.
</TABLE>
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
<CAPTION>
Six Months Ended
September 30,
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Net cash provided by operating
activities . . . . . . . . . . . . . . . . $ 2,005 $ 3,322
Cash Flows from Investing Activities:
Purchases of investment securities. . . . . . - $ (2,256)
Other. . . . . . . . . . . . . . . . . . . . 13 (56)
Net cash provided (used) by investing
activities . . . . . . . . . . . . . . . . 13 (2,312)
Cash Flows from Financing Activities:
Net repayments under line of credit
facility . . . . . . . . . . . . . . . . . (1,859) (1,965)
Other. . . . . . . . . . . . . . . . . . . . (73) (176)
Net cash used by financing
activities . . . . . . . . . . . . . . . . (1,932) (2,141)
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . 86 (1,131)
Cash and cash equivalents at beginning
of year. . . . . . . . . . . . . . . . . . . 2,640 16,133
Cash and cash equivalents at end of period . . $ 2,726(a) $15,002(a)
Supplemental disclosure of cash flow information:
Interest paid . . . . . . . . . . . . . . . $ 1,399 $ 1,661
Income taxes paid . . . . . . . . . . . . . $ 31 $ 15
(a) The balances at September 30, 1997 and 1996 include $1.7 million and $4.0
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.
</TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
These unaudited interim consolidated financial statements reflect all
normal and recurring adjustments that are, in the opinion of management,
necessary to present a fair statement of Emerson Radio Corp.'s (the "Company" or
"Emerson") consolidated financial position as of September 30, 1997 and the
results of operations for the three and six month periods ended September 30,
1997 and 1996. 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 Company's 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, 1997, included in the Company's annual report on Form 10-K.
The consolidated financial statements include the accounts of the Company
and all of its majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. 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
materially 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, 1997 are not necessarily indicative of the results of operations that may be
expected for the full year ending March 31, 1998.
NOTE 2
Net earnings per common share for the three months ended September 30, 1997
is based on the weighted average number of shares and related common stock
equivalents outstanding during the period. Common Stock equivalents include
17,312,000 shares assuming conversion of $8.0 million of Series A Preferred
Stock at a price equal to 80% of the weighted average market value of a share of
Common Stock, determined on a quarterly basis.
Net loss per common share for the three and six month periods ended
September 30, 1996 and the six month period ended September 30, 1997 are based
on the net loss and deduction of preferred stock dividend requirements and the
weighted average number of shares of common stock outstanding during each
period. These per share amounts do not include common stock equivalents assumed
outstanding since they are anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" ("FAS 128"), which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of FAS 128 on
the calculation of primary earnings per share is not expected to be material.
NOTE 3
The provision for income taxes for the three and six month periods ended
September 30, 1997 and 1996 consist primarily of taxes related to international
operations. The Company did not recognize tax benefits for losses incurred by
its domestic operations during the three months ended June 30, 1997 or the three
and six month periods ended September 30, 1996.
NOTE 4
Spare parts inventories, net of reserves, aggregating $1,259,000 and
$1,469,000 at September 30, 1997 and March 31, 1997, respectively, are included
in "Prepaid expenses and other current assets."
NOTE 5
On December 10, 1996, the Company purchased from Sport Supply Group, Inc.
("SSG") 1,600,000 shares of newly issued common stock, $.01 par value per share
(the "SSG Stock"), for aggregate consideration of $11.5 million, or
approximately $7.19 per share. In addition, the Company purchased, for an
aggregate consideration of $500,000, five-year warrants (the "SSG Warrants") to
acquire an additional 1,000,000 shares of SSG Stock at an exercise price of
$7.50 per share, subject to standard anti-dilution adjustments, pursuant to a
Warrant Agreement. Prior to such purchase, the Company beneficially owned
approximately 9.9% of the outstanding shares of SSG Stock which it had purchased
for $4,228,000 in open market transactions. Based upon the Company's purchase
of the SSG Stock as set forth above, and SSG's open market repurchases of SSG
Stock through August 1, 1997, the Company owns approximately 28% of SSG's issued
and outstanding shares of Common Stock. If the Company exercises all of the
SSG Warrants, it will beneficially own approximately 36% of SSG's issued
and outstanding Common Stock. In addition, the Company has arranged for foreign
trade credit financing of $2 million for the benefit of SSG to supplement SSG's
existing credit facilities. In connection with such purchase, SSG appointed the
Company's designees to become the majority of the members of its Board of
Directors and the Company's management is directly involved in SSG's day-to-day
operations. In March 1997, SSG's stockholders elected Emerson's nominees as a
majority of the members of its Board of Directors.
The investment in, and results of operations of, SSG are accounted for by
the equity method. SSG's fiscal year end was October 31; therefore, the
Company's equity in earnings (losses) of SSG has been recorded on a two-month
delay basis. SSG subsequently changed its year end to September 30, therefore,
the Company's equity in earnings (losses) of SSG will be recorded on a three-
month delay basis. The Company's investment in SSG includes goodwill of
$3,967,000 which is being amortized on a straight line basis over 40 years.
Equity in earnings of SSG was $553,000 and $1,089,000 for the three and six
month periods ended September 30, 1997. At September 30, 1997, the aggregate
market value quoted on the New York Stock Exchange of Emerson's shares of SSG
Common Stock was approximately $17,730,000. Summarized financial information
derived from SSG's financial reports to the Securities and Exchange Commission
was as follows (in thousands):
<TABLE>
(Unaudited)
As of August 1, 1997
<S> <C>
Current assets $34,112
Property, plant and equipment
and other assets 18,491
Current liabilities 7,149
Long-term debt 6,414
(Unaudited)
For the nine months
ended August 1, 1997
<S> <C>
Net revenues $66,117
Gross Profit 26,144
Earnings from continuing operations 3,580
Loss from discontinued operations (2,574)
Net earnings 21
</TABLE>
NOTE 6
<TABLE>
Long-term debt consists of the following:
(In thousands of dollars)
<CAPTION>
Sept. 30, March 31,
1997 1997
<S> <C> <C>
8 1/2% Senior Subordinated Convertible
Debentures Due 2002
(the "Debentures"). . . . . . . $20,750 $20,750
Other . . . . . . . . . . . . . . 140 191
20,890 20,941
Less current obligations. . . . . 86 85
$20,804 $20,856
</TABLE>
NOTE 7
Pursuant to the Company's bankruptcy restructuring plans on March 31, 1994,
30 million shares of the Company's Common Stock were issued to GSE Multimedia
Technologies Corporation ("GSE"), Fidenas International Limited, L.L.C. ("FIN")
and Elision International, Inc. ("Elision"). GSE, FIN and Elision (the
"Affiliated Entities") are all affiliates of Geoffrey P. Jurick, the Company's
Chairman of the Board, Chief Executive Officer and President. 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. The Settlement Agreement provides for, among other things, the
payment by Mr. Jurick and his Affiliated Entities of $49.5 million to various
claimants of Mr. Jurick and the Affiliated Entities (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 the Affiliated Entities.
In addition, Mr. Jurick is to be paid the sum of $3.5 million from the sale of
the Settlement Shares. The Settlement Shares are to be sold over an
indeterminate period of time by a financial advisor, initially TM Capital (the
"Advisor"). The Advisor is formulating 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 have been divided into two pools.
The Pool A Shares currently consist of 15,286,172 shares of Emerson's common
stock. The Pool B Shares currently consist of the number of Emerson shares with
respect to which Mr. Jurick must retain beneficial ownership of voting power to
avoid an event of default arising out of a change of control pursuant to the
terms of the Company's Loan and Security Agreement with 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, the Creditors, and, if necessary, the United States
District Court in Newark, New Jersey.
All of the Settlement Shares secure payment of the $49.5 million owed to
the Creditors on a first priority basis. Any Creditor may apply to the Court
for an order to terminate the Settlement Agreement if certain events occur.
Such events include, without limitation, delisting of the Settlement Shares from
a national securities exchange or a determination that there is no reasonable
prospect that the goals contemplated by the Settlement Agreement can be
achieved. If the Court enters an order terminating the Settlement Agreement,
the Creditors may take any action permitted by law to execute the Consent
Judgments given to them in connection with the Settlement Agreement to collect
the unpaid balance (including, without limitation, foreclosing on the Settlement
Shares). Such termination of the Settlement Agreement and execution of the
Consent Judgments would likely result in a change of ownership control of the
Company which is an event of default under the Company's borrowing facilities.
Such default entitles the holders, in certain circumstances, to accelerate
payment of all such indebtedness. Any such acceleration would have a material
adverse effect on the Company.
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. 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 $2,453,000, 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.
The Company is presently engaged in litigation regarding several bankruptcy
claims which have not been resolved since the restructuring of the Company's
debt. The largest claim was filed on or about July 25, 1994 in connection with
the rejection of certain executory contracts with two Brazilian entities,
Cineral Electronica de Amazonia Ltda. and Cineral Magazine Ltda. (collectively,
"Cineral"). The amount currently claimed is for $93,563,000, of which
$86,785,000 represents a claim for lost profits. The claim will be satisfied, to
the extent the claim is allowed by the Bankruptcy Court, in the manner other
allowed unsecured claims were satisfied. The Company has objected to the claim
and intends to vigorously contest such claim and believes it has meritorious
defenses to the highly speculative portion of the claim for lost profits and the
portion of the claim for actual damages for expenses incurred prior to the
execution of the contracts. 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.
On September 24, 1997, pursuant to the terms of his Employment Agreement,
as amended, Eugene I. Davis, former Vice Chairman of the Company, was requested
to resign as a director. On September 25, 1997 the Company terminated Mr.
Davis' employment. The circumstances surrounding such termination of employment
are the subject of two proceedings filed in the Superior Court of the State of
New Jersey ("Superior Court"). The Company filed an action in the Chancery
Division of the Superior Court against Mr. Davis on October 2, 1997, seeking
injunctive and other relief arising from claims of breach of contract, breach of
good faith and fair dealing and breach of fiduciary duty. On or about October
1, 1997, Mr. Davis filed an action against the Company, its affiliate SSG and
various unnamed "Johns Doe" in the Law Division of the Superior Court seeking
damages against the Company, its affiliates and the unnamed "Johns Doe",
jointly and severally, alleging breach of contract, tortious interference with
contractual relationships and compelled defamation. The Company has filed and
served an answer to Mr. Davis' claims and has counterclaimed for injunctive and
declaratory relief, and money damages, arising from Mr. Davis' breaches of
contract, fiduciary duty, conversion, tortious interference with contract and
unjust enrichment. While the outcome of these actions are not certain at this
time, the Company believes it has meritorious defenses against the claims made
by Mr. Davis. In any event, the Company believes the results of the litigation
should not have a material adverse effect on the financial condition of the
Company or on its results of operations.
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 materially 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.
General
In April 1997, Emerson executed a four-year agreement with Daewoo
Electronics Co. Ltd. and its U.S. affiliate (collectively, "Daewoo"). This
agreement provides that, subject to existing agreements relating to sales of
certain products to Wal-Mart Stores, Inc. ("Wal-Mart"), Daewoo manufactures and
sells television and video products bearing the Emerson and G-Clef trademark to
all customers in the U.S. market. The Company arranges sales and provides
marketing services and receives commissions for such services. Such commissions
are recorded as licensing revenues. Sales of television and video products to
Wal-Mart are currently subject to an existing license/supply agreement which
expires on March 31, 1998. No assurance can be made that the Company will be
able to renew, renegotiate or replace such license/supply agreements on
terms favorable to it or if at all, the loss of which would result in a loss
of the licensing revenues thereon and would have a material adverse effect
on the financial condition of the Company.
In June 1997, the Company entered into a non-exclusive license agreement
with World Wide One, a Hong Kong corporation, for use of the Emerson and G-Clef
trademark in connection with the sale of certain consumer electronics products
and other products for sale exclusively to Makro International Far East Ltd. in
China, Indonesia, Malaysia, Philippines, South Korea, Taiwan and Thailand. In
November 1997, this agreement was amended to expand World Wide One's sales to
two additional parties. The term is initially for 18 months, subject to a six
month trial period. Emerson provides sourcing and inspection services for at
least 50% of World Wide One's purchase requirements.
The Company's operating results and liquidity are impacted by the
seasonality of its business. The Company records the majority of its annual
sales in the quarters ending September 30 and December 31 and receives the
largest percentage of customer returns in the quarters ending March 31 and June
30. Therefore, the results of operations discussed below are not necessarily
indicative of the Company's prospective annual results of operations.
Results of Operations
Consolidated net revenues for the three and six month periods ended
September 30, 1997 decreased $15,409 (or 25%) and $26,113 (or 26%) as compared
to the same periods in the fiscal year ended March 31, 1997 ("Fiscal 1997"),
respectively. The decrease resulted primarily from decreases in unit sales of
video cassette recorders, televisions and television/video cassette recorder
combination units due to the Company's agreement with Daewoo described above.
The decrease also resulted from decreases in unit sales of (i) audio products,
due to increased demand on foreign suppliers which are producing at or near
capacity and shortages of component parts, and (ii) car audio products, which
were discontinued in the current year. Furthermore, the Company's Canadian and
European sales decreased $1.4 and $4.1 million for the three and six month
periods ended September 30, 1997, respectively, relating to the closure of
these operations in favor of independent distributors. The reduced revenues
were partially offset by increased sales of microwave ovens which was
attributable to a broader product line and the introduction of the Company's new
home theater product, CinemaSurround(trademark), into France, Germany, the UK
and Switzerland, as well as the U.S. market. Revenues earned from the licensing
of the Emerson and G-Clef trademark were $1,507,000 and $2,507,000 in the three
and six month periods ended September 30, 1997 as compared to $1,001,000 and
$2,002,000 in the same periods in Fiscal 1997, respectively.
The Company reports royalty and commission revenues earned from its
licensing arrangements, covering various products and territories, in lieu of
reporting the full dollar value of such sales and associated costs.
Consequently, the Company's future related revenues, as compared to pre-Fiscal
1997, are expected to be lower but the Company's gross profit margins should
improve. Although the Company expects its United States sales for the quarter
ending December 31, 1997 to be lower than the third quarter of Fiscal 1997 due
to the Daewoo agreement, the Company expects its U.S. gross sales, excluding
video products, to improve and its margins on such sales to also improve due to
the change in product mix to higher margin products.
Cost of sales, as a percentage of consolidated revenues, was 86% and 89%
for the three and six month periods ended September 30, 1997 as compared to 95%
for the same periods in Fiscal 1997, respectively. The significant improvement
in gross profit margins for the three and six month periods ended September 30,
1997 as compared to the same periods in the prior year were primarily
attributable to the change in product mix to higher margin products and the
reduction of inventory overhead costs due to the Company's successful efforts to
shift a higher proportion of its sales to its customers on a direct import
basis. For the three and six month periods ended September 30, 1997, products
representing approximately 83% and 86% of net revenues were directly imported
from manufacturers to the Company's customers as compared to 60% and 51% for the
same periods in the prior year, respectively.
The Company's gross profit margins continue to be impacted by the pricing
category of the consumer electronics market in which the Company competes.
The Company's products are generally placed in the low-to-medium priced category
of the market which tend to be the most competitive and generate the lowest
profits. The Company believes that the combination of the (i) arrangement with
Daewoo, (ii) license agreement with Cargil, (iii) introduction of its new home
theater product, CinemaSurround(trademark), and (iv) distributor agreements in
Canada, Europe and parts of Southeast Asia will all have a favorable impact on
the Company's gross profit margins. The Company continues to promote its direct
import programs to reduce its inventory levels and working capital risks thereby
reducing its inventory overhead costs. In addition, the Company continues to
focus on its higher margin products and is reviewing new products which can
generate higher margins than its current business, either through license
arrangements, acquisitions, joint ventures or on its own.
Other operating costs and expenses declined $52,000 and $121,000 in the
three and six month periods ended September 30, 1997 as compared to the same
periods in Fiscal 1997, respectively, primarily as a result of the closure of
the Company's Canadian operations.
Selling, general and administrative expenses ("S,G&A") as a percentage of
revenues, was 8% and 9% for the three and six month periods ended September 30,
1997, as compared to 7% and 10% for the same periods
in Fiscal 1997, respectively. In absolute terms, S,G&A decreased by $790,000 and
$2,551,000 in the three and six month periods ended September 30, 1997 as
compared to the same period in Fiscal 1997, respectively. In the three and six
month periods ended September 30, 1997, the decrease was primarily attributable
to a reduction in compensation expense relating to the Company's downsizing
program in the U.S. The decrease was also favorably impacted by a reduction in
professional fees for the six months ended September 30, 1997.
The Company recorded restructuring and other nonrecurring charges of
$52,000 and $2,734,000 in the six month periods ended September 30, 1997 and
1996, respectively. The charges recorded in the six months ended September 30,
1997 include costs for employee severances relating to further downsizing of the
Company's U.S. operations. The charges recorded for the six months ended
September 30, 1996 included (i) costs for employee severance, asset writedowns,
and facility and equipment lease costs totaling $917,000 related to the closure
of the Company's local Canadian office and distribution operations in favor of
an independent distributor, and (ii) $1,817,000 of non-recurring charges related
to the proposed but unsuccessful acquisition of International Jensen
Incorporated.
Equity in earnings of SSG amounted to $553,000 and $1,089,000 in the three
and six month periods ended September 30, 1997, respectively. SSG reported two
consecutive quarters of record earnings as compared to the same periods a year
ago in its first two full quarters under Emerson's management.
Interest expense decreased by $187,000 and $258,000 in the three and six
month periods ended September 30, 1997 as compared to the same periods in
Fiscal 1997, respectively. The decrease was attributable to lower average
borrowings 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,
1997 and 1996 was approximately 9.75% and 9.50%, respectively.
As a result of the foregoing factors, the Company generated net earnings of
$2,019,000 for the three month period ended September 30, 1997 and incurred a
net loss of $703,000 for the six month period ended September 30, 1997, as
compared to a net loss of $6,043,000 and $10,766,000 for the same periods in
Fiscal 1997, respectively.
Liquidity and Capital Resources
Net cash provided by operating activities was $2,005,000 for the six months
ended September 30, 1997. Cash was provided by the decrease in accounts
receivables partially offset by a decrease in accounts payable and other current
liabilities.
Net cash provided by investing activities was $13,000 for the six months
ended September 30, 1997.
In the six months ended September 30, 1997, the Company's financing
activities utilized $1,932,000 of cash. The Company reduced its borrowings
under its U.S. line of credit facility by $1,859,000 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") which expires on March
31, 1998. The facility provides for revolving loans and letters of credit,
subject to individual maximums which, in the aggregate, cannot 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, 1997,
there was approximately $3.8 million outstanding on the Company's revolving loan
facility. At September 30, 1997, the Company's letter of credit facility was
not utilized. Based on the "Borrowing Base" amount at September 30, 1997, $1.1
million of the credit facility was not utilized. Pursuant to the terms of the
credit facility, as amended, the Company is required to maintain certain
financial covenants. At September 30, 1997, the Company was in compliance with
all such covenants. The Company plans to renegotiate or replace its asset-based
revolving line of credit facility by March 31, 1998. No assurance can be made
that the Company will be able to renegotiate or replace its credit facility with
the Lender on terms favorable to it or if at all. Although the Company believes
that its relationship with the Lender is good, failure by the Company to
maintain an asset based lending facility would be an event of default pursuant
to the terms of the Indenture governing the Debentures. Such a default, if not
cured, would have a material adverse effect on the financial condition of the
Company.
The Company's Hong Kong subsidiary maintains various credit facilities, as
amended, aggregating $30.0 million with a bank in Hong Kong consisting of the
following: (i) a $3.5 million credit facility and a $1.5 million seasonal credit
facility which expires on December 15, 1997, both of which are generally used
for letters of credit for a foreign subsidiary's direct import business and
affiliates' inventory purchases, and (ii) a $25 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, 1997, the Company's Hong
Kong subsidiary had pledged $1.7 million in certificates of deposit to this bank
to assure the availability of these credit facilities. At September 30, 1997,
there were approximately $3.9 million and $12.3 million of letters of credit
outstanding on the combined $5.0 million and $25 million credit facilities,
respectively. The Hong Kong credit facilities are subject to an annual review
in April 1998. No assurance can be made that the Company will be able to
maintain these credit facilities. Although the Company believes that its
relationship with its bank in Hong Kong is good, failure by the Company to
renew, renegotiate or replace these credit facilities in April 1998 may have a
material adverse effect on the financial condition of the Company or on its
operations.
The Company successfully concluded several licensing agreements for
existing core business products and new products, and intends to pursue
additional licensing opportunities. The Company 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.
At present, management believes that future cash flow from operations and
the institutional financing noted above will be sufficient to fund all of the
Company's cash requirements for the next twelve months. However, the adequacy of
future cash flow from (i) operations is dependent upon the Company achieving its
business plan and (ii) institutional financing is dependent upon the
Company's ability to renegotiate, or refinance its credit facilities. The
Company's results of operations were substantially in line with its business
plan for the six months ended September 30, 1997. Current trends show that the
Company's results of operations for the three months ended December 31, 1997,
will be significantly improved as compared with the third quarter of Fiscal
1997. During Fiscal 1997, the Company reduced inventory levels approximately
62% and executed cost-reduction programs in both its U.S. and foreign offices.
The Company intends to further reduce inventory levels and shift a higher
proportion of its sales to direct import thereby reducing its inventory and its
needs for working capital. In Fiscal 1997, products representing approximately
49% of net revenues were directly imported from manufacturers to the Company's
customers. The Company's business plan includes an increase in this percentage
to approximately 80% in Fiscal 1998 and was 86% for the six months ended
September 30, 1997. This increase in the direct import portion of sales is
critical in providing sufficient working capital to meet its sales and liquidity
objectives. If the Company does not obtain these objectives, it may not have
sufficient working capital to finance its operations. It may be necessary for
the Company to reduce its investment in the SSG Stock to adequately finance the
Company's operations.
There can be no assurance that the Company will be able to successfully
achieve its business plan in a time frame or manner that will permit the Company
to fund current operations and other planned expenditures at current and
expected sales volumes, if at all. Additionally, at September 30, 1997 the
Company was in arrears on $727,000 of dividends on the Company's Series A
Preferred Stock. The preferred stock is convertible into common stock at any
time during the period beginning on March 31, 1997 and ending on March 31, 2002
and at a price per share of common stock equal to 80% times the average of the
daily market prices of a share of the Company's common stock for the 60
consecutive days immediately preceding the date of conversion. The preferred
stock dividend rate for Fiscal 1998 is 5.6%.
The Company's liquidity is impacted by the seasonality of its business.
The Company records the majority of its annual sales in the quarters ending
September 30 and December 31. This requires the Company to open significantly
higher amounts of letters of credit during the quarters ending June 30 and
September 30, therefore significantly increasing the Company's working capital
needs during these periods. Additionally, the Company receives the largest
percentage of customer returns in the quarter ending March 31. The higher level
of returns during this period adversely impacts the Company's collection
activity during this period, and therefore its liquidity. The Company believes
that the agreements with Daewoo and Cargil, as discussed above, and the
arrangements it has implemented over the past twelve months concerning
returned merchandise, should favorably impact the Company's cash flow over their
respective terms. The Company's liquidity could also be adversely affected by an
adverse outcome of certain matters discussed in Note 7 to the Interim
Consolidated Financial Statements included herein.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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, 1997, and
is incorporated herein by reference. Please refer to Part 1 Item-
3-Legal Proceedings in the Company's most recent annual report on
Form 10-K and Part III - Item 1 - Legal Proceedings in the
Company's quarterly report on Form 10-Q for the quarterly period
ended June 30, 1997.
ITEM 2. Changes in Securities and Use of Proceeds.
The Company's U.S. Senior Secured Credit Facility and the
Indenture governing the Company's 8-1/2% Senior Subordinated
Convertible Debentures due 2002 contain certain dividend payment
restrictions on the Company's common stock. In addition, the
Company's Certificate of Incorporation defining the rights of the
Series A Preferred Stock prohibits payment of dividends on the
common stock unless the Series A dividends are paid or put aside.
The Series A Preferred Stock accrues dividends payable on a
quarterly basis at a 7% dividend rate through March 31, 1997,
then declining by a 1.4% dividend rate each succeeding year until
March 31, 2001 when no further dividends are payable. The
Company is currently in arrears on $727,000 of dividends on the
Company's Series A Preferred Stock.
The Series A Preferred Stock is convertible into shares of
the Company's common stock at any time during the period
beginning on March 31, 1997 and ending on March 31, 2002. The
conversion rate is equal to 80% times the average of the daily
market prices of a share of the Company's common stock for the 60
consecutive days immediately preceding the conversion date.
During the three and six months ended September 30, 1997,
the Company issued a total of 3,460,026 and 3,756,056 shares of
the common stock, respectively, upon conversion of 1684 and 1984
shares of Series A Preferred Stock, respectively. No
consideration was received by the Company for the issuance of the
shares of common stock. The shares of common stock were issued
by the Company to certain of its existing holders of Series A
Preferred Stock where no commission or other remuneration was
paid or given directly or indirectly for soliciting such
exchange. The shares of common stock were issued pursuant to
Section 3(a)(9) of the Securities Act of 1933, as amended.
ITEM 3. Preferred Stock Dividends.
As of the date of this report, the Company was in arrears on
$727,000 of dividends on its Series A Preferred Stock.
ITEM 4. Not Applicable.
ITEM 5. Other Information.
(a) 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" within 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 of the retail consumer electronics market; price
competition and competition from companies with greater
resources; success of operating initiatives and new product
introductions, including CinemaSurround(trademark); operating
costs including continuing the Company's cost reduction program
and Company's return to vendor program; effects of foreign trade;
effects of the reversion of Hong Kong to the sovereignty of the
Peoples' Republic of China; advertising and promotional efforts;
brand awareness; the existence or absence of adverse publicity;
outcome of the events described in Note 7 to the Interim
Consolidated Financial Statements which is incorporated by
reference herein; success of the Company's acquisition strategy
including results of SSG's operations; changes in business
strategy or development plans; maintaining important agreements
such as the agreement with Daewoo and the Management Services
Agreement with SSG; success of management's strategy to finance
or refinance the Company's operations; quality of management;
success of licensing arrangements; 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:
(2) Confirmation Order and Fourth Amended Joint Plan of
Reorganization of Emerson Radio Corp. ("Old Emerson") and certain
subsidiaries under Chapter 11 of the United States Bankruptcy Code,
dated March 31, 1994 (incorporated by reference to Exhibit (2) of
Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the Securities and Exchange Commission
("SEC") on August 9, 1994).
(3) (a) Certificate of Incorporation of Emerson (incorporated
by reference to Exhibit (3) (a) of Emerson's Registration Statement on
Form S-1, Registration No. 33-53621, declared effective by the SEC on
August 9, 1994).
(3) (b) Certificate of Designation for Series A Preferred Stock
(incorporated by reference to Exhibit (3) (b) of Emerson's
Registration Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(3) (c) Plan of Reorganization and Agreement of Merger by and
between Old Emerson and Emerson Radio (Delaware) Corp. (incorporated
by reference to Exhibit (3) (c) of Emerson's Registration Statement on
Form S-1, Registration No. 33-53621, declared effective by the SEC on
August 9, 1994).
(3) (d) Certificate of Merger of Old Emerson with and into
Emerson Radio (Delaware) Corp. (incorporated by reference to Exhibit
(3) (d) of Emerson's Registration Statement on Form S-1, Registration
No. 33-53621, declared effective by the SEC on August 9, 1994).
(3) (e) Amendment dated February 14, 1996 to the Certificate of
Incorporation of Emerson (incorporated by reference to Exhibit (3) (a)
of Emerson's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995).
(3) (f) By-Laws of Emerson adopted March 1994 (incorporated by
reference to Exhibit (3) (e) of Emerson's Registration Statement on
Form S-1, Registration No. 33-53621, declared effective by the SEC on
August 9, 1994).
(3) (g) Amendment dated November 28, 1995 to the By-Laws of
Emerson adopted March 1994 (incorporated by reference to Exhibit (3)
(b) of Emerson's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995).
(4) (a) Warrant Agreement to Purchase 750,000 shares of Common
Stock, dated as of March 31, 1994 (incorporated by reference to
Exhibit (4) (a) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(4) (b) Indenture, dated as of August 17, 1995 between Emerson
and Bank One, Columbus, NA, as Trustee (incorporated by reference to
Exhibit (1) of Emerson's Current Report on Form 8-K filed with the SEC
on September 8, 1995).
(4) (c) Common Stock Purchase Warrant Agreement to purchase
50,000 shares of Common Stock, dated as of December 8, 1995 between
Emerson and Michael Metter (incorporated by reference to Exhibit (10)
(e) of Emerson's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995).
(4) (d) Common Stock Purchase Warrant Agreement to purchase
200,000 shares of Common Stock, dated as of December 8, 1995 between
Emerson and Kenneth A. Orr (incorporated by reference to Exhibit (10)
(f) of Emerson's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995).
(10) (a) Loan and Security Agreement, dated March 31, 1994, by
and among Emerson, Majexco Imports, Inc. and Congress Financial
Corporation ("Congress") (incorporated by reference to Exhibit (10)
(f) of Emerson's Registration Statement on Form S-1, Registration No.
33-53621, declared effective by the SEC on August 9, 1994).
(10) (b) Amendment No. 1 to Financing Agreements, dated as of
August 24, 1995, among Emerson, Majexco Imports, Inc. and Congress
(incorporated by reference to Exhibit (2) of Emerson's Current Report
on Form 8-K filed with the SEC on September 8, 1995).
(10) (c) Amendment No. 2 to Financing Agreements, dated as of
February 13, 1996 (incorporated by reference to Exhibit (10) (c) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended December
31, 1995).
(10) (d) Amendment No. 3 to Financing Agreements, dated as of
August 20, 1996 (incorporated by reference to Exhibit (10) (b) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended December
31, 1995).
(10) (e) Amendment No. 4 to Financing Agreements, dated as of
November 14, 1996 (incorporated by reference to Exhibit (10) (c) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).
(10) (f) Amendment No. 5 to Financing Agreements, dated as of
February 18, 1997 (incorporated by reference to Exhibit (10) (e) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended December
31, 1996).
(10) (g) Amendment No. 6 to Financing Agreements, dated as of
August 14, 1997.*
(10) (h) Emerson Radio Corp. Stock Compensation Program
(incorporated by reference to Exhibit (10) (i) of Emerson's
Registration Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(10) (i) Employment Agreement between Emerson and Eugene I.
Davis (incorporated by reference to Exhibit 6(a)(4) of Emerson's
Quarterly Report on Form 10-Q for quarter ended June 30, 1992).
(10) (j) Extension of Employment Agreement between Emerson and
Eugene I. Davis dated April 16, 1997 (incorporated by reference to
Exhibit (10)(n) of Emerson's Annual Report on Form 10-K for the year
ended March 31, 1997).
(10) (k) Employment Agreement between Emerson and Geoffrey P.
Jurick (incorporated by reference to Exhibit 6(a)(6) of Emerson's
Quarterly Report on Form 10-Q for quarter ended June 30, 1992).
(10) (l) Employment Agreement between Emerson Radio (Hong Kong)
Ltd. and Geoffrey P. Jurick (incorporated by reference to Exhibit
6(a)(6) of Emerson's Quarterly Report on Form 10-Q for quarter ended
June 30, 1992).
(10) (m) Employment Agreement between Emerson Radio
International Ltd. (formerly Emerson Radio (B.V.I.), Ltd.) and
Geoffrey P. Jurick (incorporated by reference to Exhibit 6(a)(6) of
Emerson's Quarterly Report on Form 10-Q for quarter ended June 30,
1992).
(10) (n) Extension of Employment Agreement between Emerson and
Geoffrey P. Jurick dated April 16, 1997 (incorporated by reference to
Exhibit (10)(r) of Emerson's Annual Report on Form 10-K for the year
ended March 31, 1997).
(10) (o) Lease Agreement dated as of March 26, 1993, by and
between Hartz Mountain Parsippany and Emerson with respect to the
premises located at Nine Entin Road, Parsippany, NJ (incorporated by
reference to Exhibit (10) (ww) of Emerson's Annual Report on Form 10-K
for the year ended December 31, 1992).
(10) (p) Employment Agreement, dated April 1, 1994, between
Emerson and John Walker (incorporated herein by reference to Exhibit
(10)(ee) of Emerson's Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(10) (q) Amendment No. 1 to Employment Agreement between Emerson
and John P. Walker dated April 16, 1997 (incorporated by reference to
Exhibit (10)(u) of Emerson's Annual Report on Form 10-K for the year
ended March 31, 1997).
(10) (r) Employment Agreement, dated January 29, 1996 between
Emerson and Marino Andriani (incorporated herein by reference to
Exhibit (10) (a) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996).
(10) (s) Partnership Agreement, dated April 1, 1994, between
Emerson and Hopper Radio of Florida, Inc (incorporated by reference to
Exhibit (10) (q) of Emerson's Annual Report on Form 10-K for the year
ended March 31, 1995).
(10) (t) Agreement, dated as of April 24, 1996 by and among
Emerson and E & H Partners relating to amendments of the Partnership
Agreement dated April 1, 1994 and the Sales Agreement dated April 1,
1994 and the settlement of certain outstanding litigation.
(10) (u) License Agreement, dated February 22, 1995, between
Emerson and Otake Trading Co. Ltd. and certain affiliates ("Otake")
(incorporated by reference to Exhibit 6(a)(1) of Emerson's Quarterly
Report on Form 10-Q for quarter ended December 31, 1994).
(10) (v) Supply Agreement, dated February 22, 1995, between
Emerson and Otake (incorporated by reference to Exhibit 6(a)(2) of
Emerson's Quarterly Report on Form 10-Q for quarter ended December 31,
1994).
(10) (w) 1994 Non-Employee Director Stock Option Plan
(incorporated by reference to Exhibit (10) (y) of Emerson's Annual
Report on Form 10-K for the year ended March 31, 1995).
(10) (x) License Agreement, dated as of August 23, 1996 between
Emerson and REP Investment Limited Liability Company (incorporated by
reference to Exhibit (10) (d) of Emerson's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996).
(10) (y) Distribution Agreement, dated as of September 11, 1996
between Emerson, Emerson Radio Canada Ltd. and AVS Technologies Inc.
(incorporated by reference to Exhibit (10) (e) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996).
(10) (z) Stipulation of Settlement and Order dated June 11, 1996
by and among the Official Liquidator of Fidenas International Bank
Limited, Petra Stelling, Barclays Bank PLC, the Official Liquidator of
Fidenas Investment Limited, Geoffrey P. Jurick, Fidenas International
Limited, L.L.C., Elision International, Inc., GSE Multimedia
Technologies Corporation and Emerson.
(10) (aa) Pledge Agreement dated as of February 4, 1997 by
Fidenas International Limited, L.L.C. ("FIN") in favor of TM Capital
Corp. (incorporated by reference to Exhibit (10) (a) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1996).
(10) (ab) Registration Rights Agreement dated as of February 4,
1997 by and among Emerson, FIN, the Creditors, FIL and TM Capital
Corp. (incorporated by reference to Exhibit (10) (b) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1996).
(10) (ac) License and Exclusive Distribution Agreement with
Cargil International Corp. dated as of February 12, 1997 (incorporated
by reference to Exhibit (10) (c) of Emerson's Quarterly Report on Form
10-Q for the quarter ended December 31, 1996).
(10) (ad) Supply and Inspection Agreement with Cargil
International Corp. dated as of February 12, 1996 (incorporated by
reference to Exhibit (10) (d) of Emerson's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1996).
(10) (ae) Agreement dated April 10, 1997 between Emerson and
Daewoo Electronics Co., Ltd. (incorporated by reference to Exhibit
(10)(ak) of Emerson's Annual Report on Form 10-K for the year ended
March 31, 1997).
(10) (af) Securities Purchase Agreement dated as of November 27,
1996, by and between Sport Supply Group, Inc. ("SSG") and Emerson
(incorporated by reference to Exhibit (2)(a) of Emerson's Current
Report on Form 8-K dated November 27, 1996).
(10) (ag) Form of Warrant Agreement by and between SSG and
Emerson (incorporated by reference to Exhibit (4)(a) of Emerson's
Current Report on Form 8-K dated November 27, 1996).
(10) (ah) Form of Registration Rights Agreement by and between
SSG and Emerson (incorporated by reference to Exhibit (4)(b) of
Emerson's Current Report on Form 8-K dated November 27, 1996).
(10) (ai) Consent No. 1 to Financing Agreements among Emerson,
certain of its subsidiaries, and Congress (incorporated by reference
to Exhibit (10)(b) of Emerson's Current Report on Form 8-K dated
November 27, 1996).
(10) (aj) License Agreement dated as of June 16, 1997 by and
between World Wide One Ltd. and Emerson (incorporated by reference to
Exhibit (10)(ap) of Emerson's Annual Report on Form 10-K for the year
ended March 31, 1997).
(10) (ak) Agreement dated as of July 2, 1997 by and between Hi
Quality International (U.S.A.) Inc. and Emerson (incorporated by
reference to Exhibit (10)(aq) of Emerson's Annual Report on Form 10-K
for the year ended March 31, 1997).
(10) (al) Form of Indemnification Agreement dated
September 23, 1997 by and between the Company and Terrence
M. Babilla.*
(10) (am) Consulting Agreement effective as of July 1, 1997 by
and between the Company and Jerome E. Ruzicka.*
(11) Computation of Primary Earnings Per Share.*
(27) Financial Data Schedule for the six months ended
September 30, 1997.*
(b) Reports on Form 8-K:
(1) During the three month period ended September
30, 1997, no Form 8-K was filed.
__________________
* Filed herewith.
EMERSON RADIO CORP. AND SUBSIDIARIES
PART II
OTHER INFORMATION - CONTINUED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMERSON RADIO CORP.
(Registrant)
Date: November 14, 1997 /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chairman, Chief Executive Officer and
President
Date: November 14, 1997 /s/ John P. Walker
John P. Walker
Executive Vice President and
Chief Financial Officer
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AMENDMENT NO. 6 TO FINANCING AGREEMENTS
August 14, 1997
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, Amendment No. 2 to Financing Agreements,
dated February 13, 1996, Amendment No. 3 to Financing Agreements, dated August
20, 1996, Amendment No. 4 to Financing Agreements, dated November 14, 1996 and
Amendment No. 5 to Financing Agreements, dated February 18, 1997 (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(a) of the Loan Agreement,
as previously amended through Amendment No. 5 to Loan Agreement, shall be
further amended by deleting the last sentence thereof and replacing it with the
following, effective as of June 30, 1997:
"As used herein, the `Base Amount' shall mean the amount of
$15,000,000."
2. FEE. In consideration of Lender's entering into this Amendment,
Borrower shall pay Lender a facility amendment fee in an amount equal to $5,000,
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. 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 signatures hereto of each of their 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: Vice President
AGREED AND ACCEPTED:
EMERSON RADIO CORP.
By: /s/ John Walker
Title: EVP & CFO
MAJEXCO IMPORTS, INC.
By: /s/ John Walker
Title:
CONSENTED TO AND AGREED:
H.H. SCOTT, INC.
EMERSON COMPUTER CORP.
By: /s/ John Walker
Title:
EMERSON RADIO CANADA LTD.
By: /s/ John Walker
Title:
EMERSON RADIO & TECHNOLOGIES N.V.
By: /s/ John Walker
Title:
as of July 1, 1997
Mr. Jerome E. Ruzicka
33 Adams Drive
Stow, Massachusetts 01775
CONSULTING AGREEMENT ("AGREEMENT")
Dear Mr. Ruzicka:
This letter, when signed by you, will confirm, and set forth the terms of, the
agreement between Emerson Radio Corp. ("Emerson" or "the Company") and you,
effective as of July 1, 1997 ("effective date"), regarding the services you
shall be performing for Emerson. Accordingly, in consideration of the mutual
covenants and agreements contained herein and for other good and valuable
consideration, Emerson and you mutually agree as follows:
1. Emerson engages you as a non-exclusive independent contractor to provide
consulting services for the design, development, specification and marketing of
products employing the proprietary technology ("Licensed Technology") to which
Emerson has secured rights under the licensing agreement with REP Investment
LLC, made as of August 23, 1996 ("License Agreement"). You agree to devote your
best efforts, skills, abilities and such time as is necessary for the successful
performance of the services as hereinafter defined, subject to the provisions
set forth in this Agreement.
2. The objectives of the work to be performed shall be for you to assist
Emerson and Emerson's engineering-manufacturing vendor personnel in establishing
a profitable high-growth new business venture based on the Licensed Technology
and to (1) devise variations of the Micro-10 product to prevent early saturation
of sales by expanding into diverse markets, and (2) facilitate development of a
comprehensive matrix of products, based on the Licensed Technology, to build and
grow a profitable business over a multi-year horizon. Your duties shall
include, but not be limited to, the following:
A. Advise and assist Emerson's CinemaSurround(Trademark) product
line manager (presently Gene Rissetto, Vice President - Product Development
of Emerson Radio Consumer Products Corporation) in matters relating to
audio technology, engineering application and product design and
evaluation, working in collaboration with Emerson's designated engineering-
manufacturing vendor(s) (presently known to be ATLM). Such duties may
include on-site consulting at Emerson's, or its vendor's(s'), engineering-
production facilities, including those in the Far East.
B. Provide general technical support, product line conceptual
design, feature and benefit recommendations, application engineering
assistance, prototype evaluation and trouble shooting, design defect
identification and product improvement design recommendations.
It is understood by the parties that the services to be provided under this
agreement are to be performed as needed by the market and development status of
the Licensed Technology and, therefore, shall not generally be delivered
uniformly over time. Periods of both high and low demands are anticipated.
However, it is agreed that generally you shall provide the services on an
average of three (3) days per week. Moreover, notwithstanding any provision of
this Agreement to the contrary, you shall not be required to provide services on
more than one hundred fifty-six (156) days, with not more than twenty (20) days
outside the continental United States, during the term of this Agreement.
Travel time and time spent in preparing reports shall be included for purposes
of such time limits.
All services to be provided under this agreement are collectively referred to
hereinafter as "Services".
3. You represent that to the best of your knowledge you are not aware of any
certificates or licenses which you are required to obtain in order to perform
the Services. You agree that you will use reasonable efforts to keep current on
any such requirements and will so comply when, and if, necessary. You also
agree to comply with all applicable International, Federal, State and Local
laws, rules and regulations of which you are aware, in performing the Services,
and to confirm such compliance upon request by Emerson. You further warrant
that in performing your Services you shall not violate or in any way infringe
upon any third party's property, contractual, employment, trade secrets,
proprietary information, non-disclosure, trademark, copyright or patent rights
of which you have knowledge.
4. In the performance of your Services, you shall cooperate fully with all
officers, employees and agents of Emerson as Emerson's Chief Executive Officer,
Board of Directors, President of Emerson Radio Consumer Products Corporation or
Vice President - Product Development of Emerson Radio Consumer Products
Corporation may direct. Emerson shall designate from time to time a
representative to serve as your primary contact with Emerson. You may rely upon
any instructions or information given to you by such representative. In the
event you receive any conflicting instructions or information given by such
representative, officers, employees or agents of Emerson, you shall advise such
representative of the conflict and such representative shall resolve same
internally with the Company and advise you of the final instructions. The
representative initially designated by Emerson is Gene Rissetto, Vice President-
Product Development of Emerson Radio Consumer Products Corporation. The
representative may be changed from time to time by written notice to you from
the Chairman of the Board of Directors of Emerson or the President of Emerson
Radio Consumer Products Corporation.
5. You agree that the relationship between you and Emerson under this
Agreement is one of independent contractor. In performance of the Services, you
shall have no authority, and shall not represent or hold yourself out as having
such authority, to enter into any agreement on behalf of Emerson or bind or
commit Emerson in any way unless otherwise agreed to in writing between Emerson
and you. Your engagement under this agreement is limited solely to providing
the Services as set forth herein. Since you are not an employee, you shall not
be entitled to receive any employee benefits or be entitled to participate in
any medical, health or other plan available to employees of the Company.
6. The term of this agreement commenced as of July 1, 1997 and it shall be in
full force and effect for a period of one year (1) from the effective date.
During the six (6) month period commencing as of the effective date of this
agreement, either party may terminate this agreement if the other party breaches
this agreement and such breach is not cured within thirty (30) days after
written notice and demand. After such six (6) month period, either party may
terminate this agreement at any time for any reason or no reason upon giving the
other party thirty (30) days' prior written notice. Upon expiration or
termination of this agreement, you shall promptly return to Emerson all
inventory, reports, documents, catalogs, literature, materials and tangible
property (whether in electronic, paper or any other format or medium) supplied
by Emerson or created or supplied by you or third parties arising from the
Services and any other confidential information in your possession, custody or
control related to the Services. Paragraphs 6, 7B, 7C, 7E, 7H, 9, 14, 16, 17,
19, 20 and 22 shall survive any termination or expiration of this agreement.
7. [redacted]
8. You represent that you are not subject to any restrictions (contractual or
otherwise) which prevent you from accepting this engagement. You covenant and
agree that, provided Emerson is not in default under the terms of this
agreement, for the period you are receiving payments under Paragraph 7.A, you
shall not render any services to any third parties which would conflict with any
of your responsibilities hereunder or create a conflict of interest. In
addition, for the period you are receiving payments as set forth in Paragraph
7.A, you also agree that you shall not represent, consult to, or become a
principal or owner in any entity attempting to develop or sell products
incorporating the Licensed Technology, whether directly or indirectly, alone or
as a member of a partnership or as an officer or stockholder of any corporation
or as an employee or agent thereof be engaged in or concerned with any business
engaged in such activities during such period, in any such case without
Emerson's prior written approval. Your interest in REP Investment Limited
Liability Company, your representation of its interests under the License
Agreement and your supervision of its activities shall not be deemed to conflict
with your obligations under this Agreement.
9. You shall use diligent efforts to perform the Services in accordance with
prevailing industry standards and you agree to indemnify, defend and hold
Emerson harmless from and against all demands, claims, damages, losses and
defenses (including reasonable costs, fees of attorneys, accountants and expert
witnesses) arising out of or resulting from your performance of, or omission to
perform, the Services due to gross negligence or willful misconduct. No
settlement shall be made without Emerson's prior written consent. Emerson
acknowledges that you are not warranting the achievement of any particular
results.
Emerson agrees to indemnify, defend and hold you harmless from and against
all demands, claims, damages, losses and defenses (including reasonable costs,
fees of attorneys, accountants and expert witnesses) for any claims arising out
of or resulting from the Services other than those based upon your gross
negligence or willful misconduct.
10. In the event any provisions contained in the License Agreement with respect
to rights to, or obligations in respect of, the Licensed Technology are
inconsistent with the provisions of this agreement, the terms of the License
Agreement shall govern.
11. This agreement is the complete agreement between the parties regarding the
Services. This agreement may not be changed orally but only by an agreement in
writing, signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
12. The failure of either party to insist upon strict compliance with any of
the terms, covenants or conditions hereof shall not be deemed a waiver of such
terms, covenants or conditions, nor shall any waiver or relinquishment of any
right or power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
13. The invalidity or unenforceability of any provision of this agreement shall
in no way affect the validity or enforceability of any other provisions.
14. Any notice or process shall be in writing and shall be deemed to have been
duly given to you if the same is 1.) delivered personally; 2.) received by
overnight delivery service; 3.) received by registered or certified mail, return
receipt requested; or, 4.) received by facsimile, with a copy to Jaffe, Raitt,
Heuer & Weiss, Professional Corporation, One Woodward Avenue, Detroit, Michigan
48226, Attention Joel J. Morris, to the location set forth above or to such
other location as you may designate by a notice given in like manner. In the
case of notice or service of process to Emerson, it shall be duly given if same
is 1.) delivered personally; 2.) received by overnight delivery service; 3.)
received by registered or certified mail, return receipt requested; or 4.)
received by facsimile, to the President, Emerson Radio Consumer Products
Corporation, with a copy to the Company's Law Department, at Nine Entin Road,
Parsippany, New Jersey 07054 or to such other location as it may designate by a
notice given in like manner. Notices by counsel on behalf of a party shall be
effective as if given by the party.
15. This agreement shall be binding upon and inure to the benefit of the
parties, their heirs, legal representatives, successors and assigns.
16. 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.
17. The Company may periodically request various reports from you on the
Services during the term of this Agreement. You agree to submit the reports
within the specified time provided by Emerson, which timing shall be reasonable.
You also agree to keep and maintain all records of your Services for not less
than six (6) years following expiration or earlier termination, as provided
herein, of this agreement and to permit any duly authorized employee, agent or
representative of the Company to inspect and copy any and all such books and
records upon telephone notice.
18. This agreement is non-assignable unless agreed to in writing by the
parties.
19. You shall use your own name in all dealings and may not use any trademarks
or tradenames or rights to use same belonging to the Company and/or its
subsidiaries or affiliates ("Brand Names and Marks") without the Company's prior
written consent in each instance. To the extent the Company gives such consent,
you may use such trademarks only in connection with the performance of its
Services. The Company may withdraw such consent at anytime. Thereafter, no
advertising or other use of the Brand Names and Marks may be made by you without
the Company's prior written approval in each instance. All use of the Brand
Names and Marks and all goodwill associated therewith shall inure to the benefit
of the Company. You shall have no interest in or rights to the Brand Names or
Marks or any of them nor shall you have or accrue any interest in or to the
goodwill associated therewith. Upon expiration or earlier termination of this
agreement, you shall discontinue all use of the Brand Names or Marks in
advertising or otherwise, and shall remove all signs and displays relating
thereto and shall return to the Company at the Company's expense, all signs,
displays and other writings and materials relating thereto. You are not and
this agreement does not constitute you as being a holder of a license or permit
to use the Brand Names or Marks nor shall this Agreement be deemed to make you a
franchisee.
20. All ideas, written materials, and other developments or improvements
conceived by you, alone or with others, during the term of this agreement, that
are within the scope of the Services of this agreement and are for the Company,
are the exclusive property of the Company, subject to the terms of the License
Agreement. You agree to use reasonable efforts to assist the Company, at its
expense, to obtain copyrights or any other applicable proprietary rights
("rights") on any such ideas, written materials, and other developments, and you
agree to execute such documents and to take such actions at no cost to you as
the Company may reasonably request in order to obtain such rights in its name.
Nothing in this Paragraph 20 or elsewhere in this Agreement shall affect the
rights of REP Investment Limited Liability Company under the License Agreement.
21. This agreement and the rights and obligations hereunder do not and shall
not confer any rights to any third parties and no third parties shall have any
rights under this Agreement.
22. During the course of your engagement, you will have access to confidential
information relating to the business, methods and practices of the Company,
including its rights to and efforts to sell, products with the Licensed
Technology, its plans for new products, its pricing policies, and its
relationships with vendors, accounts, customers, employees, etc. You
acknowledge that all the foregoing is confidential and that disclosure or
threatened disclosure of any of such confidential and proprietary information
would have a material adverse effect upon the business and prospects of the
Company. Accordingly, you agree to keep confidential and not to disclose all or
any part of the foregoing information. Should you violate or threaten to
violate the terms of this paragraph or those of paragraphs 5, 19 and 20, you
acknowledge that the Company could be irreparably injured and that it will not
have an adequate remedy at law. Accordingly, you agree that in any such event,
the Company may seek and obtain a temporary restraining order, injunction or
other appropriate equitable relief without proof of actual damages or the
posting of a bond or other security.
If the above terms conform with your understanding, kindly sign this letter
in the appropriate space below.
Very truly yours,
Emerson Radio Consumer Products Corporation
by: /s/ Marino Andriani
President
Acknowledged, agreed and accepted
this 16th day of October, 1997 Emerson Radio Corp.
by: /s/ Elizabeth J. Calianese
/s/ Jerome E. Ruzicka Vice President
Jerome E. Ruzicka
INDEMNIFICATION AGREEMENT
This Agreement is made effective as of September 23, 1997, by and between
Emerson Radio Corp., a Delaware corporation (the "Company"), and Terrence M.
Babilla ("Employee").
W I T N E S S E T H:
WHEREAS, in order to induce Employee to serve the Company, the Company has
agreed to provide Employee with the benefits contemplated by this Agreement;
NOW, THEREFORE, in consideration of the promises, conditions,
representations, and warranties set forth herein, the Company and Employee
hereby agree as follows:
1. DEFINITIONS. The following terms, as used herein, shall have the
following respective meanings:
"Change in Control" shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Act")), other than
Geoffrey P. Jurick or a trustee or other fiduciary holding securities under
an employee benefit plan of the Company or a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing 20% or more of the
total voting power represented by the Company's then outstanding voting
securities, (ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board of Directors of
the Company and any new director whose election by the Board of Directors
or nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease, for any reason,
to constitute a majority of the Board of Directors, (iii) the stockholders
of the Company approve a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation that would result
in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least
80% of the total voting power represented by the voting securities of the
Company or such surviving entity outstanding immediately after such merger
or consolidation, or (iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for sale or disposition
by the Company of all or substantially all of the Company's assets.
"Claim" means any threatened, pending, or completed action, suit, or
proceeding, or any inquiry or investigation, whether conducted by or on
behalf of the Company or any other party, that Employee in good faith
believes might lead to the institution of any such action, suit, or
proceeding, whether civil, criminal, administrative, investigative, or
other.
"Covered Act" means any breach of duty, neglect, error, misstatement,
misleading statement, omission, or other act done or wrongfully attempted
by Employee or any of the foregoing alleged by any claimant or any event or
occurrence related to the fact that Employee is or was a director, officer,
employee, agent, or fiduciary of the Company or is or was serving at the
request of the Company as a director, officer, employee, trustee, agent, or
fiduciary of another corporation, partnership, joint venture, trust, or
other entity.
"Determination" means a determination, based on the facts known at the
time, by:
(i) A majority vote of a quorum of disinterested directors;
(ii) Special, independent legal counsel in a written opinion
prepared at the request of a majority of a quorum of disinterested
directors or pursuant to Section 4(a);
(iii) A majority of the disinterested stockholders of
the Company; or
(iv) A final adjudication by a court of competent
jurisdiction.
"Determined" shall have a correlative meaning.
"Excluded Claim" means any Claim:
(i) Based upon or attributable to Employee gaining in fact
any personal profit or advantage to which Employee is not entitled;
(ii) For the return by Employee of any remuneration paid to
Employee without the previous approval of the stockholders of the
Company which is illegal;
(iii) Resulting from Employee's knowingly fraudulent,
dishonest, or willful misconduct; or
(iv) Any claim for which indemnification is prohibited by
applicable law.
"Expenses" means any expense incurred by Employee as a result of a
Claim or Claims made against him for Covered Acts including, without
limitation, attorneys' fees and all other costs, expenses, and obligations
paid or incurred in connection with investigating, defending, being a
witness in, or participating in (including on appeal), or preparing to
defend, be a witness in, or participate in any Claim relating to any
Covered Act, but shall not include Fines.
"Fines" means any fine, penalty or, with respect to an employee
benefit plan, any excise tax or penalty assessed with respect thereto.
"Losses" means any amount that Employee is legally obligated to pay as
a result of a Claim or Claims made against him for Covered Acts including,
without limitation, damages and judgments and sums paid in settlement of a
Claim or Claims, but shall not include Fines.
2. MAINTENANCE OF DIRECTORS' AND OFFICERS' LIABILITY INSURANCE.
(a) The Company hereby covenants and agrees that, subject to the
provisions of the Company's Certificate of Incorporation or Corporate By-
Laws, as may be amended from time-to-time, regarding the Company's power
and authority to purchase insurance or other arrangement for its directors
or officers, so long as Employee shall continue to serve as an employee of
the Company and thereafter so long as Employee shall be subject to any
Claim for any Covered Act, the Company, subject to Section 2(c), shall
purchase or maintain in full force and effect directors' and officers'
liability insurance or other arrangement.
(b) In all policies of directors' and officers' liability insurance
or other arrangement maintained by the Company, Employee shall be named as
an insured (to the extent permitted, if at all, by the Company's directors'
and officers' liability insurance carrier or other arrangement provider) in
such a manner as to provide Employee the same rights and benefits, subject
to the same limitations, as are accorded to the Company's directors or
officers most favorably insured by such policy.
(c) The Company shall have no obligation to maintain directors' and
officers' liability insurance or other arrangement if the Board of
Directors of the Company determines not to purchase and maintain such
insurance or other arrangement as set forth in the Company's Certificate of
Incorporation or Corporate By-Laws, including but not limited to, a
determination in good faith that such insurance is not reasonably
available, the premium costs for such insurance are disproportionate to the
amount of coverage provided, or the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit.
3. INDEMNIFICATION. The Company shall indemnify Employee and hold him
harmless from any and all Losses, Expenses, and Fines to the fullest extent
authorized, permitted, or not prohibited (i) by the General Corporation Law of
the State of Delaware (the "GCL"), or any other applicable law (including
judicial, regulatory, or administrative interpretations or readings thereof),
the Company's Certificate of Incorporation or Bylaws as in effect on the date
hereof, or (ii) by any amendment thereof or other statutory provisions
authorizing or permitting such indemnification that is adopted after the date
hereof, subject to the further provisions of this Agreement. In the event that
after the date hereof the Company provides any greater right of indemnification,
in any respect, to any other person serving as an officer, director or employee
of the Company, then such greater right of indemnification shall inure to the
benefit of and shall be deemed to be incorporated in this Agreement. In the
event the provisions of this Agreement are prohibited by the provisions of the
Company's Corporate By-Laws or Certificate of Incorporation, the Company's
Certificate of Incorporation and Corporate By-Laws shall prevail.
4. EXCLUDED COVERAGE.
(a) The Company shall have no obligation to indemnify Employee for
and hold him harmless from any Loss, Expense, or Fine which has been
Determined to constitute an Excluded Claim, provided that in the event of a
Change in Control, then with respect to all matters thereafter arising
concerning the rights of Employee to indemnity payments and Expense
advances under this Agreement, or any other agreements or bylaws now or
hereafter in effect relating to Claims for Covered Acts, a Determination
with respect to an Excluded Claim shall be made only by a court of
competent jurisdiction or by special, independent legal counsel selected by
Employee and approved by the Company (which approval shall not be
unreasonably withheld), and who has not otherwise performed services for
the Company or Employee. In the event that Employee and the Company are
unable to agree on the selection of the special, independent legal counsel,
such special, independent legal counsel shall be selected by lot from among
at least five law firms designated by Employee, each in the State of
Delaware, Essex and Morris Counties, New Jersey or Dallas, Texas, having
more than thirty-five (35) attorneys and having a rating of "av" or better
in the then current Martindale-Hubbell Law Directory. Such selection shall
be made in the presence of Employee (and Employee's legal counsel or either
of them, as Employee may elect). Such special, independent legal counsel,
among other things, shall determine whether and to what extent Employee
would be permitted to be indemnified under applicable law and shall render
its written opinion to the Company and Employee to such effect.
If there has been a Determination that the Company is not obligated to
indemnify Employee as a result of an Excluded Claim (whether by special,
independent legal counsel or otherwise), Employee shall have the right to
commence litigation in any court in the States of Delaware, New Jersey or
Texas having subject matter jurisdiction thereof, and in which venue is
proper, challenging any such Determination; provided that the Company shall
be entitled to be reimbursed by Employee (who hereby agrees to reimburse
the Company) for all such amounts theretofore paid with respect to such
Excluded Claim (only upon a final judicial Determination that Employee is
not entitled to indemnification made with respect thereto as to which all
rights of appeal therefrom have been exhausted or lapsed) and the Company
shall be obligated to indemnify or advance any additional amounts to
Employee attributable to the defense of such Excluded Claim until such a
judicial Determination has been made.
(b) The Company shall use its best efforts to make the Determination
contemplated herein promptly. Upon request by Employee, in connection with
any matter for which indemnification or reimbursement may be sought
hereunder, the Company agrees to promptly make a Determination whether such
matter constitutes an Excluded Claim. In this connection, the Company
agrees:
(i) if the Determination is to be made by a majority of
disinterested directors of the Company or a committee thereof, such
Determination shall be made not later than fifteen (15) days after a
written request for a Determination (a "Request") is delivered to the
Company by Employee;
(ii) if the Determination is to be made by special,
independent legal counsel, such Determination shall be made not later
than ninety (90) days after a Request is delivered to the Company by
Employee; and
(iii) if the Determination is to be made by the
stockholders of the Company, such Determination shall be made not
later than one hundred fifty (150) days after a Request is delivered
to the Company by Employee.
The failure to make a Determination within the above-specified time
periods shall constitute a Determination approving full indemnification or
reimbursement of Employee. All costs of making the Determination shall be
borne solely by the Company.
(c) The Company shall have no obligation to indemnify Employee and
hold him harmless for any Loss, Expense, or Fine to the extent that
Employee is actually and finally reimbursed for such Loss, Expense, or Fine
by the Company pursuant to the Company's Certificate of Incorporation,
Bylaws, or otherwise.
(d) The Company shall have no obligation to indemnify Employee and
hold him harmless for any Fines to the extent that such indemnification is
prohibited by the GCL.
5. INDEMNIFICATION PROCEDURES.
(a) Promptly after receipt by Employee of notice of the commencement
of or the threat of commencement of any Claim, Employee shall, if
indemnification with respect thereto is being sought from the Company under
this Agreement, notify the Company of the commencement thereof, provided
that failure to so notify the Company shall not relieve the Company from
any liability that it may have to Employee under this Agreement unless such
failure materially and adversely affects the rights of the Company
thereunder.
(b) Subject to the provisions of this Agreement if, at the time of
the receipt of such notice, the Company has directors' and officers'
liability insurance or other arrangement in effect, the Company shall give
prompt and proper notice of the commencement of such Claim to the insurer
or other arrangement provider. The Company shall thereafter take all
necessary or desirable action to pay or to cause such insurer to pay, on
behalf of Employee, all Losses, Expenses, and Fines payable as a result of
such Claim in accordance with the terms of such policies.
(c) To the extent the Company does not, at the time of the
commencement of or the threat of commencement of such Claim, have
applicable directors' and officers' liability insurance or other
arrangement provider, or if the full amount of any Expenses arising out of
such action, suit, or Claim will not be payable under such insurance then
in effect, the Company shall be obligated to pay the Expenses relating to
any such Claim in advance of the final disposition thereof and the Company,
if appropriate, shall be entitled to assume the defense of such Claim, with
counsel reasonably satisfactory to Employee, upon the delivery to Employee
of written notice of its election so to do. After delivery of such notice,
the Company will not be liable to Employee under this Agreement for any
legal or other Expenses subsequently incurred by Employee in connection
with such defense other than reasonable costs of investigation, provided
that Employee shall have the right to employ its counsel in any such Claim
but the fees and expenses of such counsel incurred after delivery of notice
from the Company of its assumption of such defense shall be at the
Employee's expense, provided further that if (i) the employment of counsel
by Employee has been previously authorized by the Company, (ii) Employee
shall have reasonably concluded that there may be a conflict of interest
between the Company and Employee in the conduct of any such defense, or
(iii) the Company shall not, in fact, have employed counsel to assume the
defense of such action, the reasonable fees and expenses of counsel shall
be at the expense of the Company.
(d) All payments on account of the Company's indemnification
obligations under this Agreement shall be made promptly, but in any event
within thirty (30) days of Employee's written request therefor, provided
that all payments on account of the Company's obligations under Paragraph
5(c) of this Agreement prior to the final disposition of any Claim, shall
be made within ten (10) days of Employee's written request therefor.
(e) Employee agrees that he will reimburse the Company for all
Losses, Expenses, and Fines paid by the Company on behalf of Employee in
connection with any Claim against Employee in the event and only to the
extent that a Determination shall have been made by a court in a final
adjudication from which there is no further right of appeal that the
Employee is not entitled to be indemnified by the Company for such amounts
because the Claim is an Excluded Claim or because Employee is otherwise not
entitled to payment under this Agreement.
6. FINAL DETERMINATION; SETTLEMENT. The Company shall pay all Losses or
Fines for which Employee is indemnified hereunder upon final determination
thereof. The Company shall have no obligation to indemnify Employee under this
Agreement for any amounts paid in settlement of any Claim effected without the
Company's prior written consent. The Company shall not settle any claim in any
manner which would impose any Fine or any obligation on Employee without
Employee's written consent. Neither the Company nor Employee shall unreasonably
withhold their consent to any proposed settlement.
7. RIGHTS NOT EXCLUSIVE. The rights provided hereunder shall not be
deemed exclusive of any other rights to which Employee may be entitled under any
charter provision, bylaw, agreement, vote of stockholders or of disinterested
directors or otherwise, both as to action in his official capacity and as to
action in any other capacity by holding such office, and shall continue after
Employee ceases to serve the Company as an employee.
8. ENFORCEMENT.
(a) Employee's right to indemnification shall be enforceable by
Employee only in the state courts of the States of Delaware, New Jersey and
Texas, and shall be enforceable notwithstanding any adverse Determination.
In any such action, if a prior adverse Determination has been made, the
burden of proving that indemnification is required under this Agreement
shall be on Employee. The Company shall have the burden of proving that
indemnification is not required under this Agreement if no prior adverse
Determination shall have been made.
(b) In the event that any action is instituted by Employee under this
Agreement, or to enforce or interpret any of the terms of this Agreement,
Employee shall be entitled to be paid all court costs and expenses,
including reasonable counsel fees, incurred by Employee with respect to
such action, unless the court determines that each of the material
assertions made by Employee as a basis for such action were not made in
good faith or were frivolous.
9. SEVERABILITY. In the event that any provision of this Agreement is
determined by a court to require the Company to do or to fail to do an act which
is in violation of applicable law, such provision shall be limited or modified
in its application to the minimum extent necessary to avoid a violation of law,
and, as so limited or modified, such provision and the balance of this Agreement
shall be enforceable in accordance with its terms.
10. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (AND NOT THE CHOICE OF LAW
PROVISIONS) OF THE STATE OF DELAWARE.
11. CONSENT TO JURISDICTION. The Company and Employee each hereby
irrevocably consent to the jurisdiction of the courts of the States of Delaware
and Texas for all purposes in connection with any action or proceeding that
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be brought only in the state courts of the States of
Delaware and Texas.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be (i) binding upon all
successors and assigns of the Company (including any transferee of all or
substantially all of its assets and any successor by merger or otherwise by
operation of law) and (ii) shall be binding on and inure to the benefit of the
heirs, personal representatives, and estate of Employee.
13. AMENDMENT. No amendment, modification, termination, or cancellation
of this Agreement shall be effective unless made in a writing signed by each of
the parties hereto.
14. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Employee, who shall execute all instruments required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents as may be necessary to enable the Company
effectively to bring suit to enforce such rights.
IN WITNESS WHEREOF, the Company and Employee have executed this Agreement
as of the day and year first above written.
EMERSON RADIO CORP.
By:
Geoffrey P. Jurick
Chairman of the Board,
Chief Executive Officer and President
Terrence M. Babilla
Employee
EXHIBIT 11
<TABLE>
Emerson Radio Corp. and Subsidiaries
Exhibit to Form 10-Q
Computation of Primary Earnings Per Share
(in thousands, except per share data)
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net earnings (loss) $ (703) $(10,766) $ 2,019 $(6,043)
Preferred Stock
dividends 245 350 N/A 175
Net earnings (loss)
attributable to
common shareholders $ (948) $(11,116) $ 2,019 $(6,218)
Weighted average number
of actual shares
outstanding 41,487 40,274 42,372 40,295
Additional shares
assuming conversion
or exercise of:
Preferred stock (a) - - 17,312 -
Weighted average number
of common and common
equivalent shares
outstanding 41,487 40,274 59,684 40,295
Primary earnings (loss)
per share $ (0.02) $ (0.28) $ 0.03 $ (0.15)
_________________________
(a) Based on the assumed conversion of $8 million of Series A Preferred Stock
into Common Stock at a price per share equal to 80% of the weighted average
market value of a share of Common Stock, determined on a quarterly basis.
</TABLE>
