SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 3, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-25226
EMERSON RADIO CORP.
(Exact name of registrant as specified in its charter)
Delaware 22-3285224
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
Nine Entin Road, Parsippany, NJ 07054
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (973) 884-5800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $.01 American Stock Exchange
per share
Securities registered pursuant to Section 12(g) of the Act: Series A Preferred
Stock and Warrants.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days. [X] YES [ ] NO.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock of the registrant held by non-
affiliates of the registrant at June 24, 1998 (computed by reference to the last
reported sale price of the Common Stock on the American Stock Exchange on such
date): $10,461,520.
Indicate by check mark whether the registrant has filed all documents and
reports to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. [X] YES [ ] NO.
Number of Common Shares outstanding at June 24, 1998: 51,118,915
DOCUMENTS INCORPORATED BY REFERENCE: Proxy Statement for the 1998 Annual
Meeting of Stockholders: Part III
PART I
Item 1. BUSINESS
GENERAL
Emerson Radio Corp. ("Emerson" or the "Company"), a consumer electronics
distributor, directly and through subsidiaries, designs, sources, imports and
markets a variety of televisions and other video products, microwave ovens,
audio, home theater, specialty and other consumer electronic products. The
Company also licenses the Emerson and G-Clef trademark for a variety of
television, video, telephone, and other products domestically and
internationally to certain non-affiliated entities (See "Business-Licensing and
Related Activities" for further discussion). The Company distributes its
products primarily through mass merchants and discount retailers leveraging the
strength of its Emerson and G-Clef trademark, a nationally recognized trade name
in the consumer electronics industry. The trade name "Emerson Radio" dates back
to 1912 and is one of the oldest and most well respected names in the consumer
electronics industry.
The Company believes it possesses an advantage over its competitors due to
the combination of (i) the Emerson and G-Clef brand recognition, (ii) its
distribution base and established relations with customers in the mass merchant
and discount retail channels, (iii) its sourcing expertise and established
vendor relations, and (iv) an infrastructure with personnel experienced in
servicing and providing logistical support to the domestic mass merchant
distribution channel. Emerson intends to continue to leverage its core
competencies to offer a broad variety of current and new consumer products to
retail customers. In addition, the Company has in the past and intends in the
future to form joint ventures and enter into licensing and distributor
agreements which will take advantage of the Company's trademarks and utilize the
Company's logistical and sourcing advantages for products which are more
efficiently marketed with the assistance of these partners.
The Company's core business consists of the distribution and sale of
various low to moderately priced product categories, including black and white
and color televisions, video cassette recorders ("VCRs"), video cassette players
("VCPs"), TV/VCR combination units, home stereo and portable audio products,
home theater products and microwave ovens. The majority of the Company's
marketing efforts and sales of these products is concentrated in the United
States and, to a lesser extent, certain other international regions. Emerson's
major competition in these markets are foreign-based manufacturers and
distributors. See "Business - Competition."
The Company was originally formed in the State of New York in 1956 under
the name Major Electronics Corp. In 1977, the Company reincorporated in the
State of New Jersey and changed its name to Emerson Radio Corp. On March 31,
1994, the Company successfully reorganized under Chapter 11 of the Federal
Bankruptcy Code. On April 4, 1994, the Company was reincorporated in Delaware
by merger of its predecessor into its wholly-owned Delaware subsidiary formed
for such purpose. References to "Emerson" or the "Company" refer to Emerson
Radio Corp. and its predecessor and subsidiaries, unless the context otherwise
indicates. The Company's principal executive offices are located at Nine Entin
Road, Parsippany, New Jersey 07054-0430. The Company's telephone number in
Parsippany, New Jersey, is (973) 884-5800.
PRODUCTS
The Company directly and through subsidiaries designs, sources, imports and
markets a variety of television and other video products, microwave ovens,
audio, home theater, specialty and other consumer electronic products, primarily
on the strength of its Emerson and G-Clef trademark, a nationally
recognized symbol in the consumer electronics industry.
The Company's current product categories consist of the following
core products:
<TABLE>
Video Products Audio Products Other
<S> <C> <C>
Color televisions Shelf systems Home theater
Black and white specialty televisions CD stereo systems Microwave ovens
Color specialty televisions Portable audio,
Color TV/VCR combination units cassette & CD
Video cassette recorders systems
Specialty video cassette players Personal audio,
cassette & CD
systems
Digital clock
radios
Specialty clock
radios
</TABLE>
All of the Company's products offer various features. Color television
units range in screen size from 5 inches to 25 inches and specialty color
televisions are offered in 5 inch and 9 inch units. Combination units range in
screen size from 9 inches to 25 inches. Portable audio systems incorporate
AM/FM radios and/or cassette and/or CD players in a variety of models.
Microwave ovens range in size from 0.6 cubic feet to 1.2 cubic feet containing
features such as turntables, key pad touch controls, auto defrost and multi-
power levels. Industry sales of units of home theater speakers increased 60%
($126 million) in 1997 and are expected to increase another 20% ($70 million) in
1998. During the fiscal year ending April 3, 1998 ("Fiscal 1998") Emerson
introduced its CinemaSurround(R) product line, a new concept in Home
Theater Technology which uses a patented technology to deliver dynamic
3-dimensional sound from any stereo source, without the need for any decoding
electronics.
GROWTH STRATEGY
The Company's strategic focus is to: (i) develop and expand its
distribution of consumer electronics products in the domestic marketplace to
existing and new customers; (ii) develop and sell new products, such as home
theater; (iii) capitalize on opportunities to license the Emerson and G-Clef
trademark; (iv) leverage and exploit its sourcing capabilities, buying power and
logistics expertise in the Far East either internally or on behalf of third
parties; (v) expand international sales and distribution channels; and (vi)
expand through strategic mergers and acquisitions of, or controlling interests
in, other companies. See Note 3 to the consolidated financial statements
included in Item 8 "Financial Statements and Supplementary Data" regarding
Emerson's investment in Sport Supply Group ("SSG") as part of its strategic plan
to expand.
The Company believes that the Emerson and G-Clef trademark is recognized in
many countries. A principal component of the Company's growth strategy is to
utilize this global brand name recognition together with the Company's
reputation for quality and cost competitive products to aggressively promote its
product lines within the United States and targeted geographic areas on an
international basis. The Company's management believes the Company will be able
to compete more effectively in the highly competitive consumer electronics and
microwave oven industries, domestically and internationally, by combining
innovative approaches to the Company's current product line and augmenting its
product line with complimentary products. The Company intends to pursue such
plans either on its own, or by forging new relationships, including through
license arrangements, distributorship agreements and joint ventures. See
"Business-Licensing and Related Activities."
SALES AND DISTRIBUTION
The Company makes available to its customers a direct import program,
pursuant to which products bearing the Emerson trademark are imported directly
by the Company's customers. In Fiscal 1998 and Fiscal 1997, products
representing approximately 77% and 46% of net revenues, respectively, were
imported directly from manufacturers to the Company's customers. If the Company
experiences a decline in sales effected through direct imports and a
corresponding increase in domestic sales, the Company will require increased
working capital in order to purchase inventory to make such sales. This
increase in working capital may affect the liquidity of the Company. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Forward-looking Information".
The Company has an integrated system to coordinate the purchasing, sales
and distribution aspects of its operations. The Company receives orders from
its major accounts electronically or by the conventional modes of facsimile,
telephone or mail. The Company does not have long-term contracts with any of
its customers, but rather receives orders on an ongoing basis. Products
imported by the Company (generally from the Far East and Mexico) are shipped by
ocean and/or inland freight and then stored in contracted public warehouse
facilities for shipment to customers. This also includes the use of an
Affiliate's warehouse pursuant to a Management Services Agreement between the
Company and the Affiliate. (See Note 3 to the Consolidated Financial Statements
included in Item 8). All merchandise received by Emerson is automatically input
into the Company's on-line inventory system. As a purchase order is received
and filled, warehoused product is labeled and prepared for outbound shipment to
Company customers by common, contract or small package carriers for sales made
from the Company's inventory.
DOMESTIC MARKETING
In the United States, the Company markets its products primarily through
mass merchandisers and discount retailers. Wal-Mart Stores accounted for
approximately 58% and 36%, and Target Stores accounted for approximately 16% and
13% of the Company's net revenues in Fiscal 1998 and Fiscal 1997, respectively.
No other customer accounted for more than 10% of the Company's net revenues in
either period. Management believes that any loss or reduction in sales from
these customers may have a material impact on the Company's operating income.
Approximately 34% and 43% of the Company's sales in Fiscal 1998 and Fiscal
1997, respectively, were made through sales representative organizations that
receive sales commissions and work closely with the Company's sales personnel.
The sales representative organizations sell, in addition to the Company's
products, similar, but generally non-competitive, products. In most instances,
either party may terminate a sales representative relationship on 30 days' prior
notice in accordance with customary industry practice. The Company utilizes
approximately 30 sales representative organizations, including one through which
approximately 13% of the Company's net revenues were made in 1997. No other
sales representative organization accounted for more than 10% of the Company's
net revenues in either year. The remainder of the Company's sales are made to
retail customers serviced by the Company's sales personnel.
FOREIGN MARKETING
While the major portion of the Company's marketing efforts are made in the
United States, approximately 2% and 8% of the Company's net revenues in Fiscal
1998 and Fiscal 1997, respectively, were derived from customers based in foreign
countries. See Note 14 of notes to consolidated financial statements included in
Item 8 "Financial Statements and Supplementary Data" and "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
LICENSING AND RELATED ACTIVITIES
The Company has several license agreements in place, which allow licensees
the use of the Emerson and G-Clef trademark for the manufacture and/or the sale
of consumer electronics and other products. The license agreements cover
various countries throughout the world and are subject to renewal at the
expiration of the agreements. Additionally, the Company has entered into
several sourcing and inspection agreements that require the Company to provide
these services in exchange for a fee. License revenues recognized in Fiscal
years 1998, 1997 and 1996 were $5,597,000, $5,040,000 and $4,493,000,
respectively. The Company records a majority of licensing revenues as they
are earned over the term of the related agreements.
In February 1995, the Company and one of its largest Suppliers and certain
of the Supplier's affiliates (collectively, the "Supplier") entered into two
mutually contingent agreements (the "Agreements"). Effective March 31, 1995,
the Company granted a license of certain trademarks to the Supplier for a three-
year term. The license permitted the Supplier to manufacture and sell certain
video products under the Emerson and G-Clef trademark to one of the Company's
largest customer (the "Customer") in the U.S. and Canada, and precluded the
Supplier from supplying product to the Customer other than under the Emerson and
G-Clef trademark or the Supplier's other trademarks. Further, the Agreements
provided that the Supplier would supply the Company with certain video products
for sale to other customers at preferred prices for a three-year term. Under
the terms of the Agreements, the Company received non-refundable minimum annual
royalties from the Supplier to be credited against royalties earned from sales
of video cassette recorders and players, television/video cassette recorder and
player combinations, and color televisions to the Customer. In addition,
effective August 1, 1995, the Supplier assumed responsibility for returns and
after-sale and warranty services on all video products manufactured by the
Supplier and sold to the Customer, including similar video products sold by the
Company prior to April 1, 1995. Royalty income recognized by the Company
pursuant to the Agreements were $4,000,000, $4,000,000 and $4,442,000 in
Fiscal 1998, 1997 and 1996, respectively, and are included in the balances
provided above. The agreement expired on March 31, 1998.
In anticipation of the expiration of the Agreements, Emerson executed a
four-year agreement ("Daewoo Agreement") with Daewoo Electronics Co. Ltd.,
("Daewoo") in April 1997. This agreement provides that Daewoo will manufacture
and sell television and video products bearing the Emerson and G-Clef trademark
to customers in the U.S. market. Daewoo is responsible for and assumes all
risks associated with, order processing, shipping, credit and collections,
inventory, returns and after-sale service. The Company will arrange sales and
provide marketing services and in return receive a commission for such services.
This agreement can be terminated without cause by either party upon 90 days
notice.
The Daewoo Agreement may result in commission revenues that will be less
than, equal to or exceed those earned from the Supplier Agreement. The
agreement with Daewoo does not contain minimum annual commissions and is
entirely dependent on the volume of sales made by the Company that are subject
to the Daewoo Agreement. Should the Company not generate commission revenues
that are at levels substantially equal to the revenues generated from the
Supplier Agreement, the Company's results of operations will be effected
adversely.
In February 1997, the Company executed five-year license/supply agreements
with Cargil International Corp. ("Cargil"), covering the Caribbean and Central
and South American markets. The agreements provide for the license of the
Emerson and G-Clef trademark for certain consumer electronics and other products
and require Emerson to source and inspect product for Cargil. Under the terms
of the agreements, the Company will receive minimum annual royalties and a
separate fee for the provision of sourcing and inspection services. Cargil
assumes all costs and expenses associated with the purchasing, marketing and
after-sales support of such products.
In October 1994, the Company entered into a license agreement with Jasco
Products Co., Inc., ("Jasco"), as amended, whereby the Company granted a license
of certain trademarks to Jasco for use on consumer electronics accessories.
Under the terms of the agreement as amended in April 1997, the Company will
receive minimum annual royalties through the life of the agreement, which
expires on December 31, 1998.
In June 1997, the Company entered into an eighteen month non-exclusive
license agreement with World Wide One, Ltd., 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 to Makro International Far East Ltd. for
sales of these products in China, Indonesia, Malaysia, Philippines, South Korea,
Taiwan and Thailand. The Company will provide sourcing and inspection services
for at least 50% of the licensee's purchase requirement. The licensee is
required to meet certain minimum sales requirements as well as to ensure the
establishment of adequate service centers or agents for after-sales warranty
services.
In March 1998, the Company executed three-year license and supply
agreements with WW Mexicana, S. A. de C. V. ("WW Mexicana"), a distributor
located in Mexico covering the Mexico market. The agreements provide for the
license of the Emerson and G-Clef trademark for use on certain consumer products
to be sold in Mexico and sourcing and inspection services. Under the terms of
these agreements, the Company will receive minimum annual royalties through the
life of the agreement and will receive a separate fee for sourcing and
inspection services.
In March 1998 the Company executed a three-year license agreement with Tel-
Sound Electronics, Inc. ("Tel-Sound"), covering the United States and Canada
markets. The agreement provides for the license of the Emerson and G-Clef
trademark for use with telephones, answering machines and caller ID products.
Under the terms of this agreement, the Company will receive minimum annual
royalties through the life of the agreement.
The Company intends to pursue additional licensing opportunities and
believes that such licensing activities have had and will continue to have a
positive impact on operating results by generating royalty and sourcing income
with minimal incremental costs, if any, and without the necessity of utilizing
working capital. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Forward-Looking Information."
DESIGN AND MANUFACTURING
The majority of the Company's products are manufactured by original
equipment manufacturers in accordance with the Company's specifications. These
manufacturers are primarily located in Hong Kong, South Korea, China, Malaysia,
Thailand and Mexico.
The Company's design team is responsible for product development and works
closely with its suppliers. Company engineers determine the detailed cosmetic,
electronic and other features for new products, which typically incorporate
commercially available electronic parts to be assembled according to its design.
Accordingly, the exterior designs and operating features of the Company's
products reflect the Company's judgment of current styles and consumer
preferences. The Company's designs are tailored to meet the consumer
preferences of the local market, particularly in the case of the Company's
international markets.
During Fiscal 1998 and Fiscal 1997, 100% of the Company's purchases
consisted of imported finished goods.
The following summarizes the Company's purchases from its major suppliers.
<TABLE>
FISCAL YEAR
SUPPLIER 1998 1997
<S> <C> <C>
Daewoo 42% 22%
Tonic Electronics 20% *
Orient Power * 21%
Imarflex * 16%
* Less than 10%.
</TABLE>
No other supplier accounted for more than 10% of the Company's total
purchases in Fiscal 1998 or Fiscal 1997. The Company considers its
relationships with its suppliers to be satisfactory and believes that, barring
any unusual shortages or economic conditions (See "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and "Forward-Looking
Information" regarding the economic crisis in Asia) the Company could develop,
as it already has developed, alternative sources for the products it currently
purchases. Except for the agreement with Daewoo described above (See "Licensing
and Related Activities"), the Company does not have a contractual agreement with
any of its suppliers for product purchases. No assurance can be given that
certain shortages of product would not result if the Company was required to
seek alternative sources of supply without adequate notice by a supplier or a
reasonable opportunity to seek alternate production facilities and component
parts.
WARRANTIES
On sales the Company makes to customers within the United States, the
Company offers limited warranties comparable to those offered to consumers by
its competitors.
RETURNED PRODUCTS
Customers return product to the Company for a variety of reasons, including
liberal retailer return policies with their customers, damage to goods in
transit and occasional cosmetic imperfections and mechanical failures.
The Company has executed an agreement with Hi Quality International
(U.S.A.) Inc. ("Hi Quality") as an outlet for the Company's returned products
pursuant to which Hi Quality has agreed to purchase from the Company all
returned consumer electronics products in the United States that are not subject
to the return-to-vendor agreements discussed below. Hi Quality will refurbish
them, if feasible, and sell them as either refurbished or "As-Is" product.
To further reduce the costs associated with product returns, the Company
has entered into return-to-vendor agreements with the majority of its
suppliers. For a fee, the Company returns defective returned product to the
supplier and in exchange receives a replacement unit. The agreements cover
certain microwave oven, home theater, audio and video products. The Company has
realized and expects to continue to realize significant cost savings from such
agreements.
BACKLOG
From time-to-time, the Company has substantial orders from customers on
hand. Management believes, however, that backlog is not a significant factor in
its operations. The ability of management to correctly anticipate and provide
for inventory requirements is essential to the successful operation of the
Company's business.
TRADEMARKS
The Company owns the Emerson and G-Clef , "H.H. Scott" and "Scott"
trademarks for certain of its home entertainment and consumer electronic
products in the United States, Canada, Mexico and various other countries. Of
the trademarks owned by the Company, those registered in the United States must
be renewed at various times through 2008 and those registered in Canada must be
renewed at various times through 2011. The Company's trademarks are also
registered on a worldwide basis in various countries, which registrations must
be renewed at various times. The Company intends to renew all such trademarks.
The Company considers the Emerson and G-Clef trademark to be of material
importance to its business. The Company owns several other trademarks, none of
which is currently considered by the Company to be of material importance to its
business. The Company has licensed certain applications of the Emerson and G-
Clef trademark to Tel-Sound, WW Mexicana, Cargil, Daewoo, World Wide One, Jasco
and the Franklin Mint on a limited basis and for a definitive period of time.
See " Licensing and Related Activities."
COMPETITION
The market segment of the consumer electronics industry in which the
Company competes generates approximately $18 billion of factory sales annually
and is highly fragmented, cyclical and very competitive, supporting major
American, Japanese and Korean companies, as well as numerous small importers.
The industry is characterized by the short life cycle of products which requires
continuous design and development efforts. Market entry is comparatively easy
because of low initial capital requirements.
The Company primarily competes in the low to medium-priced sector of the
consumer electronics market. Management estimates that the Company has several
dozen competitors that are manufacturers and/or distributors, many of which are
much larger and have greater financial resources than the Company. The Company
competes primarily on the basis of its products' reliability, quality, price,
design, consumer acceptance of the Emerson and G-Clef trademark and quality
service to retailers and their customers. The Company's products also compete
at the retail level for shelf space and promotional displays, all of which have
an impact on the Company's established and proposed distribution channels. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
SEASONALITY
The Company generally experiences stronger demand from its customers for
its products in the fiscal quarters ending September 30 and December 31.
Accordingly, to accommodate such increased demand, the Company generally is
required to place higher orders with its vendors during the quarters ending June
30 and September 30, thereby increasing the Company's need for working capital
during such periods. On a corresponding basis, the Company also is subject to
increased returns during the quarters ending March 31 and June 30, which
adversely affects the Company's collection activities and liquidity during such
periods. Operating results may fluctuate due to other factors such as the
timing of the introduction of new products, price changes by the Company and its
competitors, demand for the Company's products, product mix, delay, available
inventory levels, fluctuation in foreign currency exchange rates relative to the
United States dollar, seasonal cost increases, and general economic conditions.
GOVERNMENT REGULATION
Pursuant to the Tariff Act of 1930, as amended, the Trade Act of 1974 and
regulations promulgated thereunder, the United States government charges tariff
duties, excess charges, assessments and penalties on many imports. These
regulations are subject to constant change and revision by government agencies
and by action by the United States Trade Representative and may have the effect
of increasing the cost of goods purchased by the Company or limiting quantities
of goods available to the Company from its overseas suppliers. A number of
states have adopted statutes regulating the manner of determining the amount of
payments to independent service centers performing warranty service on products
such as those sold by the Company. Additional Federal legislation and
regulations regarding the importation of consumer electronics products,
including the products marketed by the Company, have been proposed from
time-to-time and, if enacted into law, could adversely affect the Company's
results of operations.
EMPLOYEES
As of June 24, 1998, the Company had approximately 108 employees. The
Company considers its labor relations to be generally satisfactory. The Company
has no union employees.
Item 2. PROPERTIES
The Company leases warehouse and office space in New Jersey, Texas, Canada
and Hong Kong under leases expiring at various times.
Lease agreements for 10,132 square feet of office space in Hong Kong expire
July 31, 2000. Renewal for reduced square footage for office space at its
Corporate offices in New Jersey for 19,216 square feet was entered into on May
15, 1998 for commencement as of August 1, 1998 and expires on July 31, 2003.
There is also 5,400 square feet of warehouse and office space rented from an
Affiliate pursuant to a Management Services Agreement which can be terminated by
either party upon 60 days notice.
In the past several years, the Company has closed substantially all of its
leased or owned warehouse facilities in favor of public warehouse space as part
of the Company's effort to convert fixed costs to variable costs. Such public
warehouse commitments are evidenced by contracts with terms of up to one year.
The cost for the public warehouse space is primarily based on a fixed percentage
of the Company's sales from each respective location. The Company does not
presently own any real property. In addition, a portion of its New Jersey
corporate headquarters has been subleased through July 1998.
Item 3. LEGAL PROCEEDINGS
CERTAIN OUTSTANDING COMMON STOCK
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 in proceedings before the United States District Court for the District
of New Jersey, 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 29.2
million 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, TM Capital
(the "Advisor") pursuant to 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 15.3 million 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 of the
Settlement Shares may be made 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% per quarter of the Emerson common stock outstanding, 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. In November 1997, Petra Stelling and Barclays Bank filed a motion with
the Court for an order (i) terminating the Settlement Agreement on the ground
that there is no reasonable prospect that the goals contemplated by the
Settlement Agreement can be accomplished, and (ii) granting the Creditors
authorization to exercise all the rights and remedies provided by the Settlement
and Pledge Agreements in the event of termination including authorizing the
Collateral Agent to sell the Emerson Shares to fund payment of the Settlement
Amount and to vote the Emerson Shares pending such sale, directing the entry and
release of the Consent Judgments, authorizing Petra Stelling to enforce the
Swiss Judgment and for such other relief as the Court deems appropriate. The
Company and Mr. Jurick responded, the Creditors replied and a hearing on the
motion was held in April 1998 at which time it was adjourned. The hearing is
currently scheduled to resume on July 9, 1998.
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).
If the Creditors foreclose on the Settlement Shares and such foreclosure results
in a change of control (as defined in the Senior Secured Credit Facility), such
foreclosure will be deemed an event of default under the Company's Senior
Secured Credit Facility entitling the holders to accelerate payment of such
indebtedness. In addition, if a change of control (as defined in the Indenture
governing the Debentures) occurs, each of the holders of the Debentures, subject
to the right of the Senior Secured Creditors to impose a 120 day payment block,
has the right to require the Company to repurchase its Debentures at the par
value thereof plus accrued but unpaid interest. Such repurchases may have a
material adverse effect on the Company's future business activities.
In 1994, Petra and Donald Stelling ("the Stellings"), two of the Creditors
filed a complaint with the Swiss Authorities alleging that Messrs. Jurick and
Jerome H. Farnum ("Farnum"), directors of the Company, had conducted banking
operations in Switzerland without appropriate licenses and that Messrs. Jurick,
Farnum, and Peter G. Bunger ("Bunger"), also a director of the Company, engaged
in improper activities in the financing of the Plan of Reorganization.
Although, as part of the settlement discussed herein, the Stellings and other
affected parties requested the discontinuance of the criminal investigations of
these individuals, the matter is presently pending before a Swiss Court with a
trial, if any, to be held no earlier than 1999. The Federal Banking Commission
of Switzerland previously issued a decree purporting to determine that certain
entities affiliated with Messrs. Jurick and Farnum were subject to Swiss banking
laws and had engaged in banking activities without a license.
OTAKE
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") seeking damages and 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, subsequently amended, 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 declaratory and injunctive relief and damages in the amount of $3.2
million, together with interest thereon, attorneys' fees, and certain other
costs. The Company is presently owed the sum of $5 million from Orion
representing royalty payments past due and owing pursuant to a certain License
Agreement dated February 22, 1995 by and between the Company and Orion. In the
context of the action Orion Sales, Inc. v. Emerson Radio Corp., pending in the
United States District Court for the Southern District of Indiana (the "District
Court"), Orion has executed a pre-judgment garnishment of these funds and
deposited them with the Clerk of the District Court pursuant to an Order of the
District Court. Orion has not contested the Company's entitlement to these
royalty payments. Orion has also posted a bond with the District Court
sufficient to compensate Emerson for any and all damages that may result from
the pre-judgment garnishment.
The Company has withheld payment of the sum of $3.2 million for certain
consumer electronic products that Orion and its affiliates sold and delivered to
Emerson pursuant to a certain Agreement dated February 22, 1995 by and between
Emerson on the one hand and Orion, Otake Trading Co., Inc. and Technos
Development Limited on the other (the "Supply Agreement"). Emerson has
vigorously contested Orion and its affiliates' entitlement to the $3.2 million
payment.
Both the Company and Orion have asserted claims for interest accruing on
the unpaid principal balances respectively due them, which are presently pending
before the District Court. The Company's management believes that it will
receive the $5 million due pursuant to the license agreement and has meritorious
defenses to Orion's claim for the $3.2 million payment, and, also, the interest
allegedly accrued thereon. In any event, the Company believes the results of
that litigation should not have a material adverse effect on the financial
condition of the Company or on its operations.
BANKRUPTCY CLAIMS
The Company is presently engaged in litigation regarding several bankruptcy
claims which have not been resolved since the restructuring of the Company's
debt in March 31, 1994. The largest claim was filed on or about July 25, 1994,
with the United States Bankruptcy Court for the District of New Jersey, 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 $93.6 million, of
which $86.8 million 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, the Company
believes the chances for recovery for lost profits are remote. There has been
no activity regarding this litigation during the current fiscal year.
TAX CLAIM
A wholly owned subsidiary of the Company, Emerson Radio (Hong Kong) Ltd.
was assessed $858,000 by the Hong Kong Inland Revenue Department (the "IRD") in
May 1998. The assessment relates to the 1992/1993 to 1997/1998 tax years and
asserts that certain revenues reported as non taxable by Emerson Radio (Hong
Kong) Ltd. are subject to a profits tax. Emerson Radio (Hong Kong) Ltd.
is also in litigation with the IRD regarding a separate assessment
of $489,000 pertaining to the deduction of certain expenses that relate
to the taxable years 1991/1992 to 1997/1998. The outcome of both actions is
uncertain at this time. However, the Company believes that it will
prevail in both cases. During June 1998 the Company received a
favorable ruling in regards to the assessment of $489,000, which is
subject to appeal.
GRACE BROTHERS
The Company has filed legal proceedings on May 15, 1998 in the United
States District Court for the District of New Jersey against Grace Brothers
seeking damages and injunctive relief arising from its claims that Grace
violated sections of the Exchange Act and Securities and Exchange Act as a
result of its dealings with the Company's Series A Convertible Preferred Stock.
EISENBACH
On January 19, 1998, the Company was served with a lawsuit filed in June
1997 in the German Regional Court Frankfurt Am Main, filed by Professor Gerhard
Eisenbach against the Company, Geoffrey P. Jurick, the Company's Chairman, Chief
Executive Officer and President, Fidenas International Ltd. LLC, an affiliate of
Mr. Jurick, and Eugene I. Davis, a former executive officer of the Company,
jointly and severally, alleging breach of contractual duty, tort and investment
fraud arising from Eisenbach's $1,000,000 investment in the Company, on or about
March 31, 1994, in conjunction with the Company's reorganization in the
Bankruptcy Court. While the outcome of this action is not certain at this time,
the Company believes it has meritorious defenses to the claims made and intends
to vigorously defend this action.
EUGENE DAVIS
On September 24, 1997, pursuant to the terms of his Employment Agreement,
as amended, Mr. Davis was requested to resign as a director. On September 25,
1997 the Company terminated Mr. Davis' employment for cause. The circumstances
surrounding such termination of employment are the subject of two proceedings
filed on September 30, 1997 and October 2, 1997, respectively, in the Superior
Court of the State of New Jersey ("Superior Court") seeking injunctive relief
and money damages, respectively, in which the Company, the Affiliate and Mr.
Davis are parties. While the outcome of these actions is not certain at this
time, 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.
The Company is involved in other legal proceedings and claims of various
types in the ordinary course of business. While any such litigation to which
the Company is a party contains an element of uncertainty, management presently
believes that the outcome of each such proceeding or claim which is pending or
known to be threatened, or all of them combined, will not have a material
adverse effect on the Company's consolidated financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Company's shareholders was held on January 6,
1998, at which time the shareholders elected the following slate of nominees to
remain on the Board of Directors: Peter G. Bunger, Robert H. Brown, Jr., Jerome
H. Farnum, Geoffrey P. Jurick and Raymond L. Steele. Election of the Board of
Directors was the only matter submitted for shareholder vote. There were
45,739,099 shares of outstanding capital stock of the Company entitled to vote
at the record date for this meeting and there were present at such meeting, in
person or by proxy, stockholders holding 42,861,567 shares of the Company's
Common Stock which represented 93.7% of the total capital stock outstanding and
entitled to vote. There were 42,861,567 shares voted on the matter of the
election of directors. The result of the votes cast regarding each
nominee for office was:
<TABLE>
Nominee for Director Votes For Votes Withheld
<S> <C> <C>
Robert H. Brown, Jr. 42,213,563 648,004
Peter G. Bunger 42,215,336 646,231
Jerome H. Farnum 42,215,336 646,231
Geoffrey P. Jurick 42,196,331 665,236
Raymond L. Steele 42,215,836 645,731
</TABLE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock has traded on the American Stock Exchange since
December 22, 1994 under the symbol MSN. The following table sets forth the
range of high and low sales prices for the Company's Common Stock as reported by
the American Stock Exchange during the last two fiscal years.
<TABLE>
Fiscal 1997 Fiscal 1998
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $3 $2 $1-1/16 $1/2
Second Quarter 3 2 3/ 4 7/16
Third Quarter 2-1/4 1-1/8 3/ 4 3/ 8
Fourth Quarter 1-7/8 7/8 9/16 3/ 8
</TABLE>
There is no established trading market for the Company's Common Stock
Purchase Warrants.
(b) Holders
At June 24, 1998, there were approximately 511 stockholders of record of
the Company's Common Stock, and 11 holders of the Warrants.
(c) Dividends
The Company's policy has been to retain all available earnings, if any, for
the development and growth of its business. The Company has never paid cash
dividends on its Common Stock. In deciding whether to pay dividends on the
Common Stock in the future, the Company's Board of Directors will consider
factors it deems relevant, including the Company's earnings and financial
condition and its working capital and anticipated capital expenditures. The
Company's United States credit facility and the Indenture contain certain
dividend payment restrictions on the Company's Common Stock. Additionally, the
Company's Certificate of Incorporation, defining the rights of the Series A
Preferred Stock, prohibits Common Stock dividends unless the Series A Preferred
Stock dividends are paid or put aside. The Series A Preferred Stock 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 of the Company's Series A Preferred Stock. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
(d) Unregistered Securities
The Company issued 10 million shares of Series A Convertible Preferred
Stock ("Series A Preferred Stock") in conjunction with the Company's Plan of
Reorganization completed March 31, 1994.
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 months ended April 3, 1998, the Company issued a total of
1,818,201 shares of the common stock, upon conversion of 650 shares of Series A
Preferred Stock. 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 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for the five years ended April 3, 1998. For the year ended April 3,
1998, the Company changed its financial reporting year to a 52/53 week year
ending on the Friday closest to March 31. Accordingly, the current fiscal year
ended on April 3, 1998. The selected consolidated financial data should be read
in conjunction with the Company's consolidated financial statements, including
the notes thereto, and "Management's Discussion and Analysis of Results of
Operations and Financial Condition" set forth elsewhere in this Form 10-K.
<TABLE>
Year Ended
April 3, March 31, March 31, March 31, March 31,
1998 1997 1996 1995 1994
(In thousands, except per share data)
Summary of Operations:
<S> <C> <C> <C> <C> <C>
Net Revenues (1) $162,730 $178,708 $245,667 $654,671 $487,390
Net Earnings (Loss) (2):
Before Extraordinary
Gain $(1,430) $(23,968) $(13,389) $ 7,375 $(73,654)
Extraordinary Gain -- -- -- -- 129,155
$(1,430) $(23,968) $(13,389) $ 7,375 $ 55,501
Balance Sheet Data at
Period End:
Total Assets $51,920 $58,768 $ 96,576 $113,969 $ 119,021
Current Liabilities 17,043 21,660 35,008 59,782 76,083
Long-Term Debt 20,929 21,079 20,886 214 227
Shareholders'Equity 13,948 16,029 40,382 53,651 42,617
Working Capital 11,164 13,258 48,434 42,598 32,248
Current Ratio 1.7 to 1 1.6 to 1 2.4 to 1 1.7 to 1 1.4 to 1
Per Common Share: (2) (3)
Earnings (Loss) Per Common
Share: Basic
Income (Loss) Before
Extraordinary Gain $ (.04) $ (0.61) $(0.35) $ 0.25 $ (1.95)
Extraordinary Gain -- -- -- -- 3.38
Net Income (Loss)
Per Common Share $ (.04) $ (0.61) $(0.35) $ 0.25 $ 1.43
Earnings (Loss) Per Common
Share: Diluted
Income (Loss) Before
Extraordinary Gain $ (.04) $ (0.61) $(0.35) $ 0.19 $ (1.95)
Extraordinary Gain -- -- -- -- 3.38
Net Income (Loss)
Per Common Share $ (.04) $ (0.61) $(0.35) $ 0.19 $ 1.43
Weighted Average Shares
Outstanding:
Basic 45,167 40,292 40,253 36,530 38,191
Diluted 45,167 40,292 40,253 47,900 38,191
Common Shareholders'
Equity per Common
Share (4) $ 0.18 $ 0.15 $ 0.75 $ 1.08 $ 0.98
</TABLE>
(1) The decline in net direct revenues for Fiscal 1995 through 1998 was due
primarily to the implementation of the Agreement signed with the Supplier
effective March 31, 1995. Net Revenues for Fiscal 1995 included $340,465,000
of sales of video products covered by the arrangement with the Supplier which
expired on March 31, 1998. See "Business-Licensing and Related Activities".
(2) Net earnings for Fiscal 1994 includes an extraordinary gain of
$129,155,000, or $3.38 per common share, on the extinguishment of debt
settled in the Plan of Reorganization. Accordingly, the Company recorded
reorganization expenses of $17,385,000 relating primarily to the writedown of
assets transferred to creditors under the Plan of Reorganization and
professional fees and other related expenses incurred during the bankruptcy
proceedings.
(3) Earnings (loss) per common share for Fiscal 1994 are based on the weighted
average number of old common shares outstanding . Earnings per common share
for Fiscal 1995 is based on the weighted average number of shares of new
Common Stock and related potentially dilutive securities outstanding during
the year. Potentially dilutive securities include 4,664,000 shares assuming
conversion of $10 million of Series A Preferred Stock at a price equal to 80%
of the weighted average market value of a share of Common Stock, determined
as of March 31, 1995. Since the Series A Preferred Stock was not convertible
into Common Stock until March 31, 1997, the number of shares issuable upon
conversion may have been significantly different. Loss per common share for
Fiscal 1996, Fiscal 1997 and Fiscal 1998 are based on the net loss and
deduction of preferred stock dividend requirements (resulting in additional
loss attributable to common stockholders) and the weighted average of new
Common Stock outstanding during each fiscal year. Loss per share does not
include potentially dilutive securities assumed outstanding since they are
anti-dilutive.
(4) Calculated based on common shareholders' equity divided by actual shares of
Common Stock outstanding. Common shareholders' equity at April 3, 1998, is
equal to total shareholders' equity less $5,713,000 for the liquidation
preference of the Series A Preferred Stock. Common shareholders' equity at
March 31, 1997, 1996, 1995 and 1994 is equal to total shareholders' equity
less $10 million for the liquidation preference of the Series A Preferred
Stock.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
GENERAL
The Company reported a decline in its net sales for Fiscal 1998, 1997 and
1996 as compared to Fiscal 1995 primarily due to the licensing of video sales.
However, the Company's sales of video products to other customers in the United
States also declined during these periods due to increased price competition,
higher retail stock levels, weak consumer demand, a soft retail market and the
extremely high level of sales achieved in Fiscal 1995. The Company expects its
sales in the United States for the first two quarters of Fiscal 1999 to be
higher than the first two quarters of Fiscal 1998 due to an improved retail
climate, improved sales of microwave products, and that licensing and commission
revenues will increase in future years.
RESULTS OF OPERATIONS - FISCAL 1998 COMPARED WITH FISCAL 1997
NET REVENUES Consolidated net revenues for Fiscal 1998 decreased $16.0
million (9%) as compared to Fiscal 1997. The decrease in net revenues resulted
primarily from decreases in unit sales of video cassette recorders, televisions
and television/video cassette recorder combination units due to the Company's
licensing agreement with Daewoo and The Supplier. The decrease also resulted
from decreases in unit sales of (i) home theater products, due to a reduction in
the variety of products offered, and (ii) car audio products, which were
discontinued in Fiscal 1998, and the transfer of the Company's Canadian sales to
a local distributor. The reduced revenues were partially offset by increased
sales of microwave ovens attributable to a broader product line, by the
introduction of the Company's CinemaSurround(R) product, and by the sales
of home audio products into foreign markets as well
as the U.S. market. Revenues recognized from the licensing
of the Emerson and G-Clef trademark were $5.6
million in Fiscal 1998 as compared to $5.0 million for Fiscal 1997.
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. (See
"Business-Licensing and Related Activities"). The Company expects its U.S. gross
sales on its Core 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 Cost of Sales, as a percentage of consolidated revenues,
was 87% in Fiscal 1998 as compared to 97% in Fiscal 1997. In absolute dollars,
cost of sales decreased by $31.8 million (18%) for Fiscal 1998 as compared to
Fiscal 1997. Cost of sales in Fiscal 1998 were significantly improved as a
percent of sales and in absolute dollars due to the change in the 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 a
direct import basis. For Fiscal 1998, products representing approximately 77%
of net revenues were directly imported from manufacturers to the Company's
customers as compared to 46% for Fiscal 1997.
The Company's gross profit margins continue to be subject to competitive
pressures arising from pricing strategies associated with the 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 agreements with Cargil, W. W. Mexicana and Tel-Sound; (iii) introduction
of its new home theater product, CinemaSurround(R), and (iv) distributor
agreements in Canada, Europe and parts of Asia will all have a favorable impact
on the Company's gross profit. 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 and joint ventures or on its own.
OTHER OPERATING COSTS AND EXPENSES Other operating costs and expenses
increased $1.3 million in Fiscal 1998 as compared to Fiscal 1997, primarily as a
result of the Company's implementation of its return to vendor program.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("S,G&A") S,G&A, as a
percentage of net revenues, were 9.5% in Fiscal 1998 as compared to 10.5% in
Fiscal 1997. In absolute terms, S,G&A decreased by $3.2 million in Fiscal 1998
as compared to Fiscal 1997. The decrease in S,G&A as a percentage of net
revenues and in absolute terms was primarily attributable to the following: (i)
a decrease in salary expense associated with the Company's reduced staffing
levels; (ii) a decrease in professional fees; and (iii) a decrease in
depreciation expense.
RESTRUCTURING AND OTHER NONRECURRING CHARGES The Company did not record
any restructuring charges in Fiscal 1998, compared to charges of $3.0 million in
Fiscal 1997. The charges recorded in Fiscal 1997 includes charges for the
closure of the Company's local Canadian office; employee severance; asset write-
downs; and $1.9 million of nonrecurring charges relating to the proposed but
unsuccessful acquisition of International Jensen Incorporated.
EQUITY IN EARNINGS OF AFFILIATE The Company's 28% share in the earnings of
an Affiliate amounted to $1.5 million for Fiscal 1998 as compared to a loss of
$66,000 for Fiscal 1997. During Fiscal 1998, fourteen months of earnings were
included in the Consolidated Statement of Operations, compared to Fiscal 1997
when only two months of operations were included in the Statement of Operations
due to the acquisition of the Affiliates stock on December 10, 1996 and a change
in the Affiliate's Fiscal year.
INTEREST EXPENSE Interest expense decreased by $919,000 in Fiscal 1998
as compared to Fiscal 1997. The decrease was attributable to a significant
reduction in borrowings on the U.S. revolving line of credit facility primarily
due to the reduction in trade accounts receivable and inventory.
NET LOSS As a result of the foregoing factors, the Company generated a
net loss of $1.4 million for Fiscal 1998 as compared to a net loss of
approximately $24.0 million for Fiscal 1997.
RESULTS OF OPERATIONS - FISCAL 1997 COMPARED WITH FISCAL 1996
NET REVENUES Consolidated net revenues for Fiscal 1997 decreased $66.9
million (27%) as compared to Fiscal 1996. The decrease in revenues resulted
primarily from decreases in unit sales of video cassette recorders, televisions
and television/video cassette recorder combination units due to higher retail
stock levels, increased price competition in these product categories, weak
consumer demand, a soft retail market and closure of Emerson's Canadian office
in December 1996. The reduced revenues were partially offset by increased sales
of microwave ovens attributable to a broader product line; the introduction of
the Company's new home theater product, CinemaSurround(TM);
and car audio products which were not introduced
until the second and third quarters of Fiscal 1996.
Revenues recognized from the licensing of theEmerson and G-Clef trademark were
$5.0 million in Fiscal 1997 as compared to $4.4 million for Fiscal 1996.
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.
COST OF SALES Cost of sales, as a percentage of consolidated revenues,
was 97% in Fiscal 1997 as compared to 94% in Fiscal 1996. In absolute dollars,
cost of sales decreased by $57.3 million (25%) for Fiscal 1997 as compared to
Fiscal 1996. Cost of sales margins in Fiscal 1997 were unfavorably impacted by
lower sales prices, a higher proportion of closeout sales, the allocation of
reduced fixed costs over a lower revenue base, and the recognition of income
relating to reduced reserve requirements for sales returns in Fiscal 1996. These
increases in cost of sales were partially offset by the introduction of higher
margin products_home theater and car audio products_and by a reduction in the
costs associated with product returns.
OTHER OPERATING COSTS AND EXPENSES Other operating costs and expenses
declined $1.7 million in Fiscal 1997 as compared to Fiscal 1996, primarily as a
result of (i) reduced sales levels and reduced customer returns and (ii) a
decrease in compensation and other expenses incurred to perform after-sale
services as a result of the Company's downsizing program.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("S,G&A") S,G&A, as a
percentage of net revenues, were 10.5% in Fiscal 1997 as compared to 8% in
Fiscal 1996. In absolute terms, S,G&A decreased by $781,000 in Fiscal 1997 as
compared to Fiscal 1996. The increase in S,G&A as a percentage of net revenues
was primarily attributable to the allocation of S,G&A costs over a lower sales
base. In absolute terms the decrease in S,G&A was primarily attributable to a
reduction in fixed costs and compensation expense relating to the Company's
continuing cost reduction program in both the U.S. and its foreign offices and
lower selling expenses attributable to lower sales, partially offset by the
reversal of accounts receivable reserves in the prior year and foreign currency
exchange losses.
RESTRUCTURING AND OTHER NONRECURRING CHARGES The Company recorded charges
of approximately $3.0 million in Fiscal 1997. Of this total, $1.1 million
related to restructuring charges for the closure of the Company's local Canadian
office and distribution operations in favor of utilizing an independent
distributor and the downsizing of the Company's U.S. operations. The charges
include costs for employee severance, asset write-downs, and facility and
equipment lease costs. The remaining portion of the $3 million charge included
$1.9 million of nonrecurring charges relating to the proposed but unsuccessful
acquisition of International Jensen Incorporated. These costs primarily include
investment banking, loan commitment, and professional fees, including litigation
costs, relating to the proposed acquisition.
EQUITY IN EARNINGS OF AFFILIATE The Company's 28% share in the loss of
the Affiliate amounted to $66,000 for Fiscal 1997. During Fiscal 1997 the
Company included two months of the Affiliate's operation in the Company's
consolidated statement of operations following the December 10, 1996 purchase of
the Affiliate's shares.
INTEREST EXPENSE Interest expense increased by $154,000 in Fiscal 1997 as
compared to Fiscal 1996. The increase was attributable to interest incurred on
the debentures issued in August 1995 partially offset by lower average
borrowings at lower average interest rates on the U.S. revolving line of credit
facility.
NET LOSS As a result of the foregoing factors, the Company generated a
net loss of $24.0 million for Fiscal 1997 as compared to a net loss of $13.4
million for Fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $6,091,000 for Fiscal 1998.
Cash was primarily provided by the reduction in accounts receivables and
inventories partially offset by an increase in prepaid expenses. The decrease
in accounts receivable is due primarily to the change in the nature of the
Company's sales to a direct shipment basis and the decrease in inventory is
primarily due to a more conservative purchasing strategy focusing on reducing
inventory levels combined with a majority of the Company's sales being made on a
direct basis.
Net cash used by financing activities was $6,096,000. Cash was used
primarily to reduce the Company's borrowings under its U.S. line of credit
facility. On March 31, 1998, the Company amended its Loan and Security
Agreement which includes a senior secured credit facility. The facility
provides for revolving loans and letters of credit, subject to certain limits
which, in the aggregate, cannot exceed the lesser of $10 million or a
"Borrowing Base" amount based on specified percentages of eligible accounts
receivable and inventories. The Company is required to maintain certain working
capital and net worth levels, and is in compliance with these requirements. At
April 3, 1998, there were no outstanding borrowings under the facility, and no
outstanding letters of credit issued for inventory purchases.
The Company's Hong Kong subsidiary currently maintains various credit
facilities, as amended, aggregating $28.5 million with a bank in Hong Kong
consisting of the following: (i) a $3.5 million credit facility which is
generally used for letters of credit for a foreign subsidiary's direct import
business and affiliates' inventory purchases and (ii) a $25 million credit
facility, for the benefit of a foreign subsidiary, which is for the
establishment of back-to-back letters of credit. At April 3, 1998, the
Company's Hong Kong subsidiary pledged $1 million in certificates of deposit to
this bank to assure the availability of these credit facilities. At April 3,
1998, there were $1,958,000 and $23,700,000 respectively, of letters of credit
outstanding under these credit facilities.
The Company successfully concluded 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. (See "Business-Licensing and Related Activities").
SHORT-TERM LIQUIDITY. At present, management believes that future cash
flow from operations and the institutional financing noted above will be
sufficient to fund all of the Company's cash requirements for the next fiscal
year. However, the adequacy of future cash flow from operations is dependent
upon the Company achieving its operating plan. During Fiscal 1998, the Company
reduced inventory levels approximately 15%, accounts receivable by 58% and
executed cost-reduction programs. The Company intends to maintain these reduced
inventory levels and to continue the sale of its products on a direct basis. In
Fiscal 1998, products representing approximately 77% of net revenues were
directly imported from manufacturers to the Company's customers. The direct
import program implemented by the Company is critical in providing sufficient
working capital to meet its liquidity objectives. If the Company is unable
maintain its existing level of direct sales volume, it may not have sufficient
working capital to finance its operating plan.
The Company is currently in arrears on $727,000 of dividends on the
Company's Series A Preferred Stock. The preferred stock is convertible into
common stock until March 31, 2002 at a price per share of common stock equal to
80% of the defined average market value of a share of common stock on the date
of conversion. The preferred stock dividend rate for Fiscal 1999 is 4.2%.
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 higher amounts
of letters of credit during the quarters ending June 30 and September 30,
therefore increasing the Company's working capital needs during these periods.
Additionally, the Company receives the largest percentage of customer returns in
the quarters ending March 31 and June 30. The higher level of returns during
these periods adversely impacts the Company's collection activity, and therefore
its liquidity. The Company believes that the agreements with Cargil, Daewoo, WW
Mexicana, Tel-Sound and other licensees, as discussed above, and the
arrangements it has implemented concerning returned merchandise, should
favorably impact the Company's cash flow over their respective terms.
LONG-TERM LIQUIDITY. The Company has discontinued certain lower margin
lines of products and believes that this, together with the agreements covering
its North American video business and the introduction of CinemaSurround(TM),
can reverse the negative trends of net losses reported in Fiscal 1998 and Fiscal
1997. The senior secured credit facility with the Lender was amended in March
1998 and extended to March 31, 2001 and imposes financial covenants on the
Company which could materially affect its liquidity in the future. Management
believes that its direct import program and the anticipated cash flow from
operations and the financing noted above will provide sufficient liquidity to
meet the Company's operating and debt service cash requirements on a long-term
basis.
As of April 3, 1998 the Company had no material commitments for Capital
expenditures.
INFLATION AND FOREIGN CURRENCY
Neither inflation nor currency fluctuations had a significant effect on the
Company's results of operations during Fiscal 1998. The Company's exposure to
currency fluctuations has been minimized by the use of U.S. dollar denominated
purchase orders, and by sourcing production in more than one country. The
Company purchases virtually all of its products from manufacturers located in
various Asian countries. The economic crises in these countries and its related
impact on their financial markets has not impacted the Company's ability to
purchase product. Should these crises continue, they could have a material
adverse effect on the Company by inhibiting its relationship with its suppliers
and its ability to acquire products for resale.
YEAR 2000
The Company has developed and is in the process of implementing a plan to
modify its management information system to be year 2000 compliant. The Company
currently expects to be substantially complete with this conversion by mid-1999.
The incremental cost of conversion is estimated to be less than $300,000. The
Company does not expect the conversion to have a significant effect on
operations or the Company's financial results. In addition, the year 2000
problem may impact other entities with which the Company transacts business, and
the Company cannot predict the effect of the year 2000 problem on such entities.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
Recent pronouncements of the Financial Accounting Standards Board ("FASB")
which are not required to be adopted at April 3, 1998, include the following
Statements of Financial Accounting Standards ("SFAS"):
SFAS no. 129, "Disclosure of Information about Capital Structure," which
will be effective for the Company for the fiscal year ending March 31, 1999,
consolidates existing disclosure requirements. This new standard requires the
Company to report its capital structure and relevant information in summary
format. The Company voluntarily adopted SFAS No. 129 in the 1998 fiscal year.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income (all changes in equity during a
period except those resulting from investments by and distributions to owners)
and its components in the financial statements. This new standard, which will
be effective for the Company for the fiscal year ending March 31, 1999, is not
currently anticipated to have a significant impact on the Company's financial
statements based on the current financial structure and operations of the
Company.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," which will be effective for the Company for the fiscal year ending
March 31, 1999, establishes standards for reporting information about operating
segments in the annual financial statements, selected information about
operating segments in interim financial reports and disclosures about products
and services, geographic areas and major customers. This new standard requires
the Company to report financial information on the basis that is used internally
for evaluating segment performance and deciding how to allocate resources to
segments, which may result in more detailed information in the notes to the
Company's financial statements than is currently required and provided. The
Company has not yet determined the effects, if any, of implementing SFAS No. 131
on its reporting of financial information.
FORWARD-LOOKING INFORMATION
This report contains various forward looking statements under the Private
Securities Litigation Reform Act of 1995 (the "Reform Act') and information that
are based on Management's beliefs as well as assumptions made by and information
currently available to Management. When used in this report, the words
"anticipate", "estimate", "expect", "predict", "project", and similar
expressions are intended to identify forward looking statements. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, expected or projected. Among the key factors that could cause
actual results to differ materially are as follows: (i) the ability of the
Company to continue selling products to its largest customers whose net revenues
represented 58% and 16% of Fiscal 1998 net revenues; (ii) competitive factors
such as competitive pricing strategies utilized by retailers in the domestic
marketplace which negatively impacts product gross margins; (iii) the ability of
the Company to maintain its suppliers, primarily all of whom are located in the
Far East; (iv) the Company's ability to replace the licensing income from the
Supplier with commission revenues from Daewoo; (v) the outcome of the
litigation. (See "Legal Proceedings"); (vi) the availability of sufficient
capital to finance the Company's operating plans; (vii) the ability of the
Company to comply with the restrictions imposed upon it by its outstanding
indebtedness; and (viii) general economic conditions.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item 8 are
set forth at the pages indicated in Item 14(a) below.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. Directors And Executive Officers
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders.
Item 11. Executive Compensation
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders.
Item 13. Certain Relationships and Related Transactions
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, STATEMENT SCHEDULE AND REPORTS ON FORM
8-K
(a) Financial Statements and Schedule:
Report of Independent Auditors F- 1
Consolidated Statements of Operations for the years ended
April 3, 1998, March 31, 1997 and 1996 F- 2
Consolidated Balance Sheets at April 3, 1998
and March 31,1997 F- 3
Consolidated Statements of Changes in
Shareholders' Equity
for the years ended April 3, 1998,
March 31, 1997 and 1996 F- 4
Consolidated Statements of Cash Flows for
the years ended April 3, 1998, March 31, 1997
and 1996 F- 5
Notes to Consolidated Financial Statements F- 6
Schedule VII Valuation and Qualifying
Accounts and Reserves F- 27
ALL OTHER SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE OR THE REQUIRED
INFORMATION IS SHOWN IN THE FINANCIAL STATEMENTS OR NOTES THERETO.
(b) No reports on Form 8-K were filed by the Company during the last
quarter of the fiscal year ended April 3, 1998.
(c) Exhibits
(2) Confirmation Order and Fourth Amended Joint Plan of Reorganization of
Emerson Radio Corp. ("Old Emerson") and certain subsidiaries under
Chapter 11 of the United States Bankruptcy Code, dated March 31, 1994
(incorporated by reference to Exhibit (2) of Emerson's Registration
Statement on Form S-1, Registration No. 33-53621, declared effective
by the Securities and Exchange Commission ("SEC") on August 9, 1994).
(3) (a) Certificate of Incorporation of Emerson (incorporated by reference to
Exhibit (3) (a) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(3) (b) Certificate of Designation for Series A Preferred Stock (incorporated
by reference to Exhibit (3) (b) of Emerson's Registration Statement on
Form S-1, Registration No. 33-53621, declared effective by the SEC on
August 9, 1994).
(3) (c) Plan of Reorganization and Agreement of Merger by and between Old
Emerson and Emerson Radio (Delaware) Corp. (incorporated by reference
to Exhibit (3) (c) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(3) (d) Certificate of Merger of Old Emerson with and into Emerson Radio
(Delaware) Corp. (incorporated by reference to Exhibit (3) (d) of
Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(3) (e) Amendment dated February 14, 1996 to the Certificate of Incorporation
of Emerson (incorporated by reference to Exhibit (3) (a) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(3) (f) By-Laws of Emerson adopted March 1994 (incorporated by reference to
Exhibit (3) (e) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(3) (g) Amendment dated November 28, 1995 to the By-Laws of Emerson adopted
March 1994 (incorporated by reference to Exhibit (3) (b) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(4) (a) Warrant Agreement to Purchase 750,000 shares of Common Stock, dated as
of March 31, 1994 (incorporated by reference to Exhibit (4) (a) of
Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(4) (b) Indenture, dated as of August 17, 1995 between Emerson and Bank One,
Columbus, NA, as Trustee (incorporated by reference to Exhibit (1) of
Emerson's Current Report on Form 8-K filed with the SEC on September
8, 1995).
(4) (c) Common Stock Purchase Warrant Agreement to purchase 50,000 shares of
Common Stock, dated as of December 8, 1995 between Emerson and Michael
Metter (incorporated by reference to Exhibit (10) (e) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(4) (d) Common Stock Purchase Warrant Agreement to purchase 200,000 shares of
Common Stock, dated as of December 8, 1995 between Emerson and Kenneth
A. Orr (incorporated by reference to Exhibit (10) (f) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(10) (a) Form of Promissory Note issued to certain Pre-Petition Creditors
(incorporated by reference to Exhibit (10) (e) of Emerson's
Registration Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(10) (b) 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) (c) 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) (d) 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) (e) 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) (f) 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) (g) 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) (h) 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) (i) 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) (j) 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) (k) 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) (l) Agreement dated April 10, 1997 between Emerson and Daewoo Electronics
Co., Ltd.
(10) (m) 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) (n) 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) (o) 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) (p) 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) (q) Form of Termination of Employment Agreement between Emerson and John
Walker dated as of January 15, 1998.*
(10) (r) License Agreement dated as of March 30, 1998 by and between
Tel-Sound Electronics, Inc. and Emerson. *
(10) (s) License Agreement dated as of March 31, 1998 by and between WW
Mexicana, S. A. de C. V. and Emerson. *
(10) (t) Amendment No. 7 to Financing Agreements, dated as of March 31,
1998. *
(10) (u) Amendment No. 1 to Pledge and Security Agreement dated as of
March 31, 1998.*
(10) (v) Second Lease Modification dated as of May 15, 1998 between
Hartz Mountain, Parsippany and Emerson. *
(12) Computation of Ratio of Earnings (Loss) to Combined Fixed Charges
and Preferred Stock Dividends. *
(21) Subsidiaries of the Company as of April 3, 1998.*
(23) Consent of Independent Auditors*
(27) Financial Data Schedule for year ended April 3, 1998.*
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
EMERSON RADIO CORP.
By: /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chairman of the Board
Dated: July 1, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Geoffrey P. Jurick Chairman of the Board, July 1, 1998
Geoffrey P. Jurick Chief Executive Officer and
President
/s/ John P. Walker Executive Vice President July 1, 1998
John P. Walker Chief Financial Officer
/s/ Robert H. Brown, Jr. Director July 1, 1998
Robert H. Brown, Jr.
/s/ Peter G. Bunger Director July 1, 1998
Peter G. Bunger
/s/ Jerome H. Farnum Director July 1, 1998
Jerome H. Farnum
/s/ Raymond L. Steele Director July 1, 1998
Raymond L. Steele
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of Emerson Radio Corp.
We have audited the accompanying consolidated balance sheets of Emerson Radio
Corp. and Subsidiaries as of April 3, 1998 and March 31, 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended April 3, 1998. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Emerson
Radio Corp. and Subsidiaries at April 3, 1998 and March 31, 1997, and the
consolidated results of its operations and cash flows for each of the three
years in the period ended April 3, 1998, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
New York, New York
July 1, 1998
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended April 3, 1998, March 31, 1997 and 1996
(In thousands, except per share data)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net revenues $ 162,730 $ 178,708 $ 245,667
Cost of sales 142,372 174,184 231,455
Other operating costs and
expenses 4,351 3,079 4,803
Selling, general and
administrative expenses 15,483 18,716 19,497
Restructuring and other
nonrecurring charges -- 2,972 --
162,206 198,951 255,755
Operating income (loss) 524 (20,243) (10,088)
Equity in earnings (loss) of
Affiliate 1,524 (66) --
Write-down of investment in
and advances to Joint Venture (714) -- --
Interest expense, net (2,510) (3,429) (3,275)
Loss before income taxes (1,176) (23,738) (13,363)
Provision for income taxes 254 230 26
Net loss $ (1,430) $(23,968) $(13,389)
Net loss per common share $ (.04) $ (.61) $ (.35)
Weighted average shares
outstanding
Basic 45,167 40,292 40,253
Diluted 45,167 40,292 40,253
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of April 3, 1998 and March 31, 1997
(In thousands, except share data)
<CAPTION>
1998 1997
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 2,608 $ 2,640
Accounts receivable (less allowances
of $4,884 and $6,001, respectively) 5,247 12,452
Other receivables 6,474 2,117
Inventories 11,375 13,329
Prepaid expenses and other current assets 2,503 4,380
Total current assets 28,207 34,918
Property and equipment (net of accumulated
depreciation of $3,152 and 1,381 2,130
$3,521, respectively)
Investment in Affiliates and Joint Venture 17,522 16,033
Other assets 4,810 5,687
Total Assets $51,920 $58,768
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ -- $ 5,689
Current maturities of long-term debt 85 85
Accounts payable and other current liabilities 12,256 13,053
Accrued sales returns 4,511 2,730
Income taxes payable 191 103
Total current liabilities 17,043 21,660
Long-term debt, less current maturities 20,750 20,856
Other non-current liabilities 179 223
Shareholders' Equity:
Preferred shares -- 10,000,000 shares authorized;
5,237 and 10,000 shares issued
and outstanding, respectively 4,713 9,000
Common shares -- $.01 par value, 75,000,000 shares
authorized; 51,044,730 and 40,335,642 shares
issued and outstanding, respectively 510 403
Capital in excess of par value 113,201 109,278
Accumulated deficit (104,673) (102,843)
Cumulative translation adjustment 197 191
Total shareholders' equity 13,948 16,029
Total Liabilities and Shareholders' Equity $51,920 $ 58,768
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For The Years Ended April 3, 1998, March 31, 1997 and 1996
(In thousands, except share data)
<CAPTION>
Common Shares Issued
Cap-
ital Cumula-
in tive
Excess Trans-
Prefer- Number of Accum- lation
red of Par Par ulated Adjust-
Stock Shares Value Value Deficit ment
<S> <C> <C> <C> <C> <C> <C>
Balance-March 31,
1995 $9,000 40,252,772 $ 403 $107,969 $(64,086) $ 365
Issuance of
common stock
warrants 1,065
Preferred
stock dividends (700)
Other (43) (202)
Net loss (13,389)
Balance-March 31,
1996 9,000 40,252,772 403 108,991 (78,175) 163
Issuance of
common stock
warrants 257
Exercise of
stock options
and warrants 82,870 40
Preferred
stock dividends (700)
Other (10) 28
Net loss (23,968)
Balance-March 31,
1997 9,000 40,335,642 403 109,278 (102,843) 191
Issuance of
common stock
upon conversion
of preferred
stock (4,287) 10,709,088 107 4,180
Cancellation of
common stock
warrants (257)
Preferred stock dividends (400)
Other 6
Net loss (1,430)
Balance-April
3, 1998 $4,713 $51,044,730 $510 $ 113,201 $(104,673) $ 197
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended April 3, 1998, March 31, 1997 and 1996
(In thousands)
<CAPTION>
1998 1997 1996
Cash Flows from Operating
Activities:
<S> <C> <C> <C>
Net loss $ (1,430) $ (23,968) $ (13,389)
Adjustments to reconcile net
loss to net cash provided
(used) by operating
activities:
Depreciation and amortization 1,759 2,844 3,664
Equity in earnings of
affiliate (1,524) 66 --
Restructuring and other
nonrecurring charges -- 2,782 --
Asset valuation and loss
reserves (2,378) ( 752) (14,209)
Other (251) 1,048 298
Changes in assets and
liabilities:
Accounts receivable 9,151 11,230 17,391
Other receivables (4,357) (2,117) --
Inventories 3,418 20,871 (437)
Prepaid expenses and
other current assets 845 3,884 3,231
Other assets ( 71) (896) (601)
Accounts payable and
other current liabilities 841 1,827 (9,092)
Income taxes payable 88 (98) (53)
Net cash provided (used) by
operations 6,091 16,721 (13,197)
Cash Flows from Investing
Activities:
Investment in affiliates -- (14,513) 1,840
Additions to property and
equipment (27) (255) (1,666)
Redemption of certificates of
deposit -- 100 945
Other -- 12 (477)
Net cash provided (used) by
investing activities (27) (14,656) 642
Cash Flows from Financing
Activities:
Net repayments under line of
credit facility (5,689) (15,462) (6,145)
Net proceeds from issuance of
senior subordinated
convertible debentures -- -- 19,208
Retirement of long-term debt (106) (118) (298)
Payment of preferred stock
dividends (257) (231) (700)
Payment of debt costs -- -- (237)
Other (44) 253 (160)
Net cash provided (used) by
financing activities (6,096) (15,558) 11,668
Net decrease in cash and cash
equivalents (32) (13,493) (887)
Cash and cash equivalents at
beginning of year 2,640 16,133 17,020
Cash and cash equivalents at end
of year $2,608 $ 2,640 $16,133
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 3, 1998
Note 1 -- Significant Accounting Policies:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Emerson Radio
Corp. and its majority-owned subsidiaries (the "Company"). All significant
intercompany transactions and balances have been eliminated. A 28% owned
investment in an Affiliate and a 50% ownership of a domestic joint venture are
accounted for by the equity method (see Notes 3 and 15).
EARNINGS (LOSS) PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement 128 requirements.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could materially differ from those
estimates.
CASH AND CASH EQUIVALENTS
Short-term investments with original maturities of three months or less at
the time of purchase are considered to be cash equivalents. The carrying amount
reported in the balance sheet for cash and cash equivalents approximates fair
value.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments have been determined by
the Company using available market information, including current interest
rates, and the following valuation methodologies:
Cash and cash equivalent and accounts receivable -- the carrying amounts
reported in the balance sheet for cash and cash equivalents approximate their
fair values because of the short maturity of these instruments. The carrying
amount of accounts receivable approximate their fair value.
Other receivables -- the fair value is estimated on the basis of discounted
cash flow analyses, using appropriate interest rates for similar instruments.
Notes payable and long-term debt -- the fair value is estimated on the
basis of rates available to the Company for debt of similar maturities.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market.
CONCENTRATIONS OF CREDIT RISK
Certain financial instruments potentially subject the Company to
concentrations of credit risk. Accounts receivable represent sales to retailers
and distributors of consumer electronics throughout the United States and
Canada. The Company periodically performs credit evaluations of its customers
but generally does not require collateral.
DEPRECIATION AND AMORTIZATION AND VALUATION OF INTANGIBLES
Property and equipment, stated at cost, are being depreciated by the
straight-line method over their estimated useful lives. Leasehold improvements
are amortized on a straight-line basis over the shorter of the useful life of
the improvement or the term of the lease.
Goodwill (resulting from its investment in an Affiliate) and trademarks are
amortized using the straight-line method, principally over 40 years. Management
periodically evaluates the recoverability of goodwill and trademarks. The
carrying value of goodwill and trademarks would be reduced if it is probable
that management's best estimate of future operating income before amortization
of goodwill and trademarks will be less than the carrying value over the
remaining amortization period.
FOREIGN CURRENCY
The assets and liabilities of foreign subsidiaries have been translated at
current exchange rates, and related revenues and expenses have been translated
at average rates of exchange in effect during the year. Related translation
adjustments are reported as a separate component of shareholders' equity. Gains
and losses resulting from foreign currency transactions are included in the
Consolidated Statements of Operations and amounted to a gain (loss) of
($39,000), ($79,000), and $475,000 for the years ended April 3, 1998, March 31,
1997 and 1996, respectively.
The Company does not enter into foreign currency exchange contracts to
hedge its exposures related to foreign currency fluctuations.
RECLASSIFICATION
Certain amounts in the prior period's consolidated financial
statements have been reclassified to conform to current periods presentation.
CHANGE IN ACCOUNTING PERIOD
Beginning in Fiscal 1998, the Company changed its financial reporting year
to a 52/53 week year ending on the Friday closest to March 31. Accordingly, the
current fiscal year ended on April 3, 1998.
Note 2 -- Inventories:
Inventories are comprised primarily of finished goods. Spare parts
inventories, net of reserves, aggregating $384,000 and $1,469,000 at April 3,
1998 and March 31, 1997, respectively, are included in "Prepaid expenses and
other current assets."
Note 3 -- Investment in Unconsolidated Affiliate
On December 10, 1996, the Company purchased from Sport Supply Group, Inc.
("Affiliate") 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 expiring 2001 (the "SSG
Warrants") to acquire an additional 1,000,000 shares of SSG common 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 purchase of the SSG Stock, as set forth above, the Company owns
approximately 28% of the outstanding SSG common shares. If the Company
exercises all of the SSG Warrants, it will beneficially own approximately 36% of
the SSG common shares. In July 1997, the Company entered into a Management
Services Agreement with SSG, whereby SSG would provide various managerial and
administrative services to the Company.
The investment in and results of operations of SSG are accounted for by the
equity method. In January 1997, SSG changed its financial reporting year end
from October 31 to September 30. This change in accounting period resulted in
the Company now recording its share of SSG earnings on a concurrent basis.
Previously, the Company recorded its share of SSG's earnings on a two month
delay. The Company's investment in SSG includes goodwill of $3,973,000 and is
being amortized on a straight line basis over 40 years. At April 3, 1998, the
aggregate market value quoted on the New York Stock Exchange of Emerson's shares
of SSG common shares was approximately $21 million. Summarized financial
information derived from SSG's financial reports to the Securities and Exchange
Commission was as follows (in thousands):
<TABLE>
(Unaudited)
April 3, 1998 January 31, 1997
<S> <C> <C>
Current assets $ 37,282 $ 39,850
Property, plant and
equipment and
other assets 19,878 36,748
Current liabilities 8,395 39,011
Long-term debt 7,498 324
</TABLE>
<TABLE>
(Unaudited)
For the 14 For the 3
Months Ended Months Ended
April 3, 1998 January 31, 1997
<S> <C> <C>
Net sales $ 111,214 $ 14,580
Gross profit 43,275 5,905
Earnings (loss) from
continuing operations 5,903 (1,356)
Loss from discontinued
operations -- (2,574)
Net (loss) income 5,903 (3,930)
</TABLE>
Note 4 -- Property and Equipment:
As of April 3, 1998 and March 31, 1997, property and equipment is comprised
of the following:
<TABLE>
1998 1997
(In thousands)
<S> <C> <C>
Furniture and fixtures. . . . . . $3,745 $4,021
Machinery and equipment . . . . . 532 891
Leasehold improvements. . . . . . 256 739
4,533 5,651
Less accumulated depreciation and
amortization . . . . . . . . . 3,152 3,521
$1,381 $2,130
</TABLE>
Depreciation and amortization of property and equipment amounted to
$776,000, $1,631,000 and $2,800,00 for the years ended April 3, 1998, March 31,
1997 and 1996, respectively.
Note 5 -- Credit Facility:
On March 31, 1998, the Company amended its existing Loan and Security
Agreement (the "Loan and Security Agreement") which includes a senior secured
credit facility with a U.S. financial institution. The amendment to the
facility reduced the facility to $10 million from $35 million, and amended
certain financial covenants as defined below. The facility provides for
revolving loans and letters of credit, subject to individual maximums which, in
the aggregate, cannot exceed the lesser of $10 million or a "Borrowing Base"
amount based on specified percentages of eligible accounts receivable and
inventories. Amounts outstanding under the senior credit facility are secured by
substantially all of the Company's U.S. and Canadian assets except for
trademarks, which are subject to a negative pledge covenant and a majority of
its investment in an unconsolidated Affiliate. At April 3, 1998 and March 31,
1997, the weighted average interest rate on the outstanding borrowings was 9.75%
and 9.5%, respectively, which is the prime rate of interest plus 1.25%.
Interest paid totaled $316,000, $1,494,000 and $2,429,000 respectively, for the
years ended April 3, 1998, March 31, 1997 and 1996. Pursuant to the Loan and
Security Agreement, the Company is restricted from, among other things, paying
cash dividends (other than on the Series A Preferred Stock), redeeming stock,
and entering into certain transactions and is required to maintain certain
working capital and equity levels. An event of default under the credit
facility may trigger a default under the Company's 8-1/2% Senior Subordinated
Convertible Debentures Due 2002. At March 31, 1998, there were no outstanding
borrowings under the facility, and no outstanding letters of credit issued for
inventory purchases. At March 31, 1997, there was $5,689,000 outstanding
borrowing and $444,000 outstanding letters of credit.
Note 6 -- Long-Term Debt:
As of April 3, 1998 and March 31, 1997, long-term debt consisted of the
following:
<TABLE>
1998 1997
(in thousands)
<S> <C> <C>
8-1/2% Senior Subordinated
Convertible Debentures Due 2002. . . $20,750 $20,750
Notes payable to unsecured
creditors . . . . . . . . . . . . . -- 3
Equipment notes and other . . . . . . . 85 188
20,835 20,941
Less current obligations. . . . . . . . 85 85
Long term debt $20,750 $20,856
</TABLE>
The Senior Subordinated Convertible Debentures Due 2002 ("Debentures") were
issued in August 1995. The Debentures bear interest at the rate of
8-1/2% per annum, payable quarterly, and mature on
August 15, 2002. The Debentures are convertible into
shares of the Company's common stock at any time prior to
redemption or maturity at an initial conversion price of $3.9875 per share,
subject to adjustment under certain circumstances. Beginning August 15, 1998,
at the option of the Company, the Debentures are redeemable in whole or in part
at an initial redemption price of 104% of principal, decreasing by 1% per year
until maturity. The Debentures are subordinated to all existing and future
senior indebtedness (as defined in the Indenture governing the Debentures). The
Debentures restrict, among other things, the amount of senior indebtedness and
other indebtedness that the Company, and, in certain instances, its
subsidiaries, may incur. Each holder of Debentures has the right to cause the
Company to redeem the Debentures if certain designated events (as defined)
should occur. The Debentures are subject to certain restrictions on transfer,
although the Company has registered the offer and sale of the Debentures and the
underlying common stock.
Note 7 -- Income Taxes:
The income tax provision for the years ended April 3, 1998, March 31, 1997
and 1996 consisted of the following:
<TABLE>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 13 $ -- $ (39)
Foreign, state and other 241 230 65
$ 254 $ 230 $ 26
</TABLE>
The difference between the effective rate reflected in the provision for income
taxes and the amounts determined by applying the statutory U.S. rate of 34% to
earnings (loss) before income taxes for the years ended April 3, 1998, March 31,
1997 and 1996 are analyzed below:
<TABLE>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Statutory provision
benefit) $ (400) $ (8,071) $ (4,543)
U. S. and foreign net
operating losses
without tax benefit (930) 8,098 4,493
Expiration of state
net operating
losses 1,384 -- --
Rate differential on
foreign income 223 248 96
Other, net (23) (45) (20)
Total income tax
provision $ 254 $ 230 $ 26
</TABLE>
As of April 3, 1998 and March 31, 1997 the significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
1998 1997
(In thousands)
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserves $ 5,003 $ 4,255
Inventory reserves 2,332 2,880
Federal operating loss
carryforwards 15,469 15,682
State net operating loss
carryforwards 6,759 8,161
Other 1,050 322
Total deferred tax assets 30,613 31,300
Valuation allowance for
deferred tax assets (29,844) (31,091)
Net deferred tax assets 769 209
Deferred tax liabilities (769) (209)
Net deferred taxes $ -- $ --
</TABLE>
Total deferred tax assets of the Company at April 3, 1998 and March 31, 1997
represent the tax-effected net operating loss carryforwards subject to annual
limitations (as discussed below), and tax-effected deductible temporary
differences. The Company has established a valuation reserve against any
expected future benefits.
Cash paid for income taxes was $152,000, $125,000 and $151,000 for the
years ended April 3, 1998, March 31, 1997 and 1996, respectively.
Income (loss) of foreign subsidiaries before taxes was $3,065,000,
($2,512,000) and ($6,233,000) for the years ended April 3, 1998, March 31, 1997
and 1996, respectively. Provision is made for federal income taxes which may be
payable on earnings of foreign subsidiaries to the extent that the Company
anticipates they will be remitted. It is the policy of the Company to
permanently reinvest all the earnings from its foreign subsidiaries.
As of March 31, 1997, the Company has a federal net operating loss
carryforward of approximately $132,265,000, of which $29,160,000, $13,385,000,
$50,193,000, $20,575,000, and $18,952,000 will expire in 2006, 2007, 2009, 2011
and 2013, respectively. The utilization of these net operating losses are
limited based on the effects of a Plan of Reorganization consummated on March
31, 1994. Pursuant to the Plan, an ownership change occurred with respect to
the Company and subjected the Company's net operating loss and foreign tax
credit carryforwards to limitations provided in Sections 382 and 383,
respectively, of the Internal Revenue Code. Subject to special rules regarding
increases in the annual limitation for the recognition of net unrealized
built-in gains, the Company's annual limitation is approximately $2.2 million.
Note 8 -- Commitments and Contingencies:
Leases:
The Company leases warehouse and office space at minimum aggregate rentals
net of sublease income as follows:
<TABLE>
Fiscal
Years Amount
<C> <C>
1999 $1,225
2000 963
2001 577
2002 384
2003 384
Later years 128
</TABLE>
Rent expense, net of rental income, aggregated $1,570,000, $1,790,000 and
$1,705,000 for the years ended March 31, 1998, 1997 and 1996, respectively.
Rental income from the sublease of warehouse and office space aggregated
$238,000, $256,000 and $278,000 in the years ended April 3, 1998, March 31, 1997
and 1996, respectively.
Letters of Credit:
There were no letters of credit outstanding under the Loan and Security
Agreement (See Note 5) at April 3, 1998 and $444,000 of Letters of Credit were
outstanding at March 31, 1997. The Company's Hong Kong subsidiary also currently
maintains various credit facilities aggregating $28.5 million with a bank in
Hong Kong subject to annual review consisting of the following: (i) a $3.5
million credit facility which is generally used for letters of credit for a
foreign subsidiary's direct import business and an 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 Company's largest customer. At April 3, 1998, the Company's Hong Kong
subsidiary had pledged $1 million in certificates of deposit to this bank to
assure the availability of these credit facilities. At April 3, 1998, there
were $1,958,000 and $23,700,000 of letters of credit outstanding under these
credit facilities, respectively.
Tax Assessments:
A wholly owned subsidiary of the Company, Emerson Radio (Hong Kong) Ltd.
was assessed $858,000 by the Hong Kong Inland Revenue Department (the "IRD") in
May 1998. The assessment relates to the 1992/1993 to 1997/1998 tax years and
asserts that certain revenues reported as non taxable by Emerson Radio (Hong
Kong) Ltd. are subject to a profits tax. Emerson Radio Hong Kong Ltd. is also
in litigation with the IRD regarding a separate assessment of $489,000
pertaining to the deduction of certain expenses that relate to the taxable years
1991/1992 to 1997/1998. The outcome of both actions is uncertain at this time.
However, the Company believes that it will prevail in both cases. During June
1998 the Company received a favorable ruling in regards to the assessment of
$489,000, which is subject to appeal.
Note 9-- Shareholders' Equity:
In July 1994, the Company adopted a Stock Compensation Program ("Program")
intended to secure for the Company and its stockholders the benefits arising
from ownership of the Company's common stock by those selected directors,
officers, other key employees, advisors and consultants of the Company who are
most responsible for the Company's success and future growth. The maximum
aggregate number of shares of common stock available pursuant to the Program is
2,000,000 shares and the Program is comprised of 4 parts-the Incentive Stock
Option Plan, the Supplemental Stock Option Plan, the Stock Appreciation Rights
Plan and the Stock Bonus Plan. A summary of transactions during the last three
years is as follows:
<TABLE>
Number of Price Aggregate
Shares Per Share Price
<S> <C> <C> <C>
Outstanding-March 31, 1995 1,830,000 $1.00 - $1.10 $1,890,000
Granted 125,000 $2.63 - $2.88 341,000
Canceled (287,000) $1.00 (287,000)
Outstanding-March 31, 1996 1,668,000 $1.00 - $2.88 1,944,000
Granted 50,000 $2.25 - $2.56 119,000
Exercised (69,000) $1.00 (69,000)
Canceled (59,000) $1.00 - $2.56 (67,000)
Outstanding-March 31, 1997 1,590,000 $1.00 - $2.88 1,927,000
Granted 207,000 $1.00 207,000
Canceled (790,000) $1.00 - $2.88 (1,067,000)
Outstanding-April 3, 1998 1,007,000 $1.00 - $1.10 $1,067,000
</TABLE>
The term of each option is ten years, except for options issued to any
person who owns more than 10% of the voting power of all classes of capital
stock, for which the term is five years. Options may not be exercised during
the first year after the date of the grant. Thereafter each option becomes
exercisable on a pro rata basis on each of the first through third anniversaries
of the date of the grant. The exercise price of options granted must be at
least equal to the fair market value of the shares on the date of the grant,
except that the option price with respect to an option granted to any person who
owns more than 10% of the voting power of all classes of capital stock shall not
be less than 110% of the fair market value of the shares on the date of the
grant.
The Company has elected to follow APB25 and related interpretations for
stock-based compensation and accordingly has recognized no compensation expense.
Had compensation cost been determined based upon the fair value at grant date
for awards consistent with the methodology prescribed by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123"), the Company's net loss would have increased approximately $21,000,
$45,000 and $81,000 for the years ended April 3, 1998, March 31, 1997 and 1996,
respectively.
The fair value of these options, and all other options and warrants of the
Company, was estimated at the date of grant using a Black-Scholes option
pricing model with the following assumptions for the years ended April 3, 1998
and March 31, 1997 and 1996; risk-free interest rate of 5%, an expected life of
10 years and a dividend yield of zero. For the years ended April 3, 1998 and
March 31, 1997 and 1996, volatility was 56%, 73% and 85%, respectively. The
effects of applying FAS 123 and the results obtained are not likely to be
representative of the effects on future pro-forma income.
In October 1994, the Company's Board of Directors adopted, and the
stockholders subsequently approved, the 1994 Non-Employee Director Stock Option
Plan. The maximum number of shares of common stock available under such plan is
300,000 shares. A summary of transactions since inception of the plan is as
follows:
<TABLE>
Number of Price Aggregate
Shares Per Share Price
<S> <C> <C> <C>
Outstanding-March 31, 1995 175,000 $1.00 $175,000
Canceled (25,000) $1.00 (25,000)
Outstanding_March 31, 1996,
March 31, 1997,
April 3, 1998 150,000 $1.00 $150,000
</TABLE>
The provisions for exercise price, term and vesting schedule are the same
as noted above for the Stock Compensation Program.
On September 29, 1993, the Company and five of its U.S. subsidiaries filed
voluntary petitions for relief under the reorganization provisions of Chapter 11
of the United States Bankruptcy Code and operated as debtors-in-possession under
the supervision of the Bankruptcy Court while their reorganization cases were
pending. The precipitating factor for these filings was the Company's severe
liquidity problems relating to its high level of indebtedness and a significant
decline in sales from the prior year. Effective March 31, 1994, the Bankruptcy
Court entered into an order confirming the Plan of Reorganization. The Plan of
Reorganization provided for the implementation of a recapitalization of the
Company.
Pursuant to the Plan of Reorganization, on March 31, 1994, the Company
issued Series A Preferred Stock, $.01 par value, with a face value of $10
million and an estimated fair market value of approximately $9 million. The
preferred stock is convertible into Common Stock at any time during the
period beginning on March 31, 1997 and ending on March 31, 2002; the preferred
stock is convertible into common stock at a price per share of common stock
equal to 80% of the defined average market value of a share of common stock on
the date of conversion. The preferred stock bears dividends on a cumulative
basis currently at 5.6% and declines by 1.4% each June 30th until no dividends
are payable.
The preferred stock is non-voting. However, the terms of the preferred
stock provide that holders shall have the right to appoint two directors to the
Company's Board of Directors if the preferred stock dividends are in default for
six consecutive quarters. At April 3, 1998, the Company was in arrears on
$727,000 of dividends.
Pursuant to the Plan of Reorganization the Noteholders received warrants
for the purchase of 750,000 shares of common stock. The warrants are
exercisable for a period of seven years from March 31, 1994 and provide for an
exercise price of $1.00 per share for the first three years, escalating by $.10
per share per annum thereafter until expiration of the warrants.
In connection with the Debentures offering, the Company in August 1995,
issued to the placement agent and its authorized dealers warrants for the
purchase of 500,000 shares of common stock. The warrants are exercisable for a
period of four years from August 24, 1996 and provide for an exercise price of
$3.9875 per share, subject to adjustment under certain circumstances.
In connection with a consulting agreement, the Company in December 1995,
issued warrants for the purchase of 250,000 shares of common stock at an
exercise price of $4.00 per share. The warrants may be exercised until December
8, 2000, when such warrants shall expire.
In November 1995, the Company filed a shelf registration statement covering
5,000,000 shares of common stock owned by FIN to finance a settlement of the
Litigation Regarding Certain Outstanding Common Stock. The shares covered by
the shelf registration are subject to certain contractual restrictions and may
be offered for sale or sold only by means of an effective prospectus following
registration under the Securities Act of 1933, as amended.
In November 1995, the Company's Board of Directors approved a plan to
repurchase up to two million of its common shares, from time to time in the open
market. In May 1998, the plan was modified to approve the repurchase of $2
million of common shares. Although there are 51,044,730 shares outstanding,
approximately 29.2 million shares are held directly or indirectly by affiliated
entities of Geoffrey Jurick, Chairman, Chief Executive Officer and
President of the Company. The Company has agreed with Mr. Jurick that
such shares will not be subject to repurchase under the Plan approved in
1995. The stock repurchase program is subject to consent of certain of the
Company's lenders, certain court imposed restrictions, price and availability of
shares, compliance with securities laws and alternative capital spending
programs, including new acquisitions. The repurchase of common shares is
intended to be funded by working capital.
Note 10 -- Capital Structure:
In February 1997 the Financial Accounting Standards Board issued Statement
No. 129 "Disclosure of Information About Capital Structure" which requires
companies to adopt a method for reporting an entity's capital structure and
relevant information in summary format. The following disclosure sets forth the
required information.
The outstanding capital stock of the Company at April 3, 1998 consisted of
common stock and Series A convertible preferred stock. The preferred shares are
convertible to common shares at any time beginning March 31, 1997 until March
31, 2002.
During the year ended April 3, 1998, 4,763 shares of Series A Preferred
Stock were converted into 10.7 million shares of common stock. If all existing
outstanding Preferred shares were converted at April 3, 1998, an estimated 14.7
million additional common shares would be issuable. Dividends for the Preferred
Stock accrue and are payable quarterly at 7% up to March 31, 1997 then decline
by 1.4% each succeeding year until March 31, 2001 when no further dividends are
payable. The dividend rate at April 3, 1998 was 5.6% and as of April 3, 1998,
$727,000 of dividends were in arrears. Preferred shareholders have liquidation
rights subordinated to the Company's Senior Secured Lender and 8-1/2%
Senior Subordinated Convertible Debentures.
The Company has outstanding approximately 1.0 million options with exercise
prices ranging from $1.00 to $1.10. If the options were exercised, the holders
would have rights similar to common shareholders. Outstanding warrants total
approximately 670,000 common shares and have conversion prices ranging
from $1.10 to $4.00. If the warrants were exercised, the holders would
have rights similar to common shareholders.
The Company has outstanding $20.8 million of Senior Subordinated
Convertible Debentures due in 2002 and pay interest quarterly. The Debentures
are redeemable, in whole or in part, at the Company's option at the following
redemption prices beginning August 15, 1998 of 104% and declining by 1% per year
until maturity.
Holders may redeem the Debentures at any time at a conversion price of
$3.9875 per share of common stock, subject to certain adjustments which would
result in 5.2 million additional common shares being issued. The Debentures are
subordinated to all existing and future senior indebtedness.
Note 11 --Net Earnings (Loss) per Share:
The following table sets forth the computation of basic and diluted loss
per share for the years ended April 3, 1998, March 31, 1997 and 1996:
<TABLE>
(In thousands, except per share amount)
1998 1997 1996
<S> <C> <C> <C>
Loss $(1,430) $(23,968) $(13,389)
Less: Preferred Stock
Dividends 400 700 700
Loss available to
Common Stockholders
(numerator) (1,830) (24,668) (14,089)
Weighted average
shares (denominator) 45,167 40,292 40,253
Loss per share $ (.04) $ (.61) $ (.35)
</TABLE>
Options and warrants to purchase 1,826,000, 2,410,000, and 2,510,000 of common
stock were not included in computing diluted earnings per share for 1998, 1997
and 1996, respectively, because the effect would be antidilutive.
Preferred stock convertible into 14,700,000, 9,000,000 and 5,400,000 shares of
common stock were not included in computing diluted earnings per share for 1998,
1997 and 1996, respectively, because the effect would be antidilutive.
Senior subordinated debentures convertible into 5,204,000 shares of common stock
if converted were not included in computing diluted earnings per share for 1998,
1997 and 1996, respectively, because the effect would be antidilutive.
Note 12 -- License Agreements:
The Company has several license agreements in place, which allow licensees
the use of the Emerson and G-Clef trademark for the manufacture and/or the sale
of consumer electronics and other products. The license agreements cover
various countries throughout the world and are subject to renewal at the
expiration of the agreements. Additionally, the Company has entered into
several sourcing and inspection agreements that require the Company to provide
these services in exchange for a fee. License revenues recognized in Fiscal
years 1998 and 1997 were $5,597,000 and $5,040,000 respectively. The Company
records a majority of licensing revenues as it is earned over the term of the
related agreement. In Fiscal 1998 and Fiscal 1997, $908,000 and $1,074,000 of
license revenues recognized represented the discounted value of the minimum
royalties due under the term of the agreements. This will reduce the revenue
recognized related to such agreements in future years.
In February 1995, the Company and one of its largest Suppliers and certain
of the Supplier's affiliates (collectively, the "Supplier") entered into two
mutually contingent agreements (the "Agreements"). Effective March 31, 1995,
the Company granted a license of certain trademarks to the Supplier for a three-
year term. The license permitted the Supplier to manufacture and sell certain
video products under the Emerson and G-Clef trademark to one of the Company's
largest customers (the "Customer") in the U.S. and Canada, and precluded the
Supplier from supplying product to the Customer other than under the Emerson
and G-Clef trademark or the Supplier's other trademarks. Further, the
Agreements provided that the Supplier would supply the Company with
certain video products for sale to other customers at preferred prices
for a three-year term. Under the terms of the Agreements, the Company
received non-refundable minimum annual royalties from the Supplier to be
credited against royalties earned from sales of video cassette recorders
and players, television/video cassette recorder and player combinations,
and color televisions to the Customer. In addition,
effective August 1, 1995, the Supplier assumed responsibility for returns and
after-sale and warranty services on all video products manufactured by the
Supplier and sold to the Customer, including similar video products sold by the
Company prior to April 1, 1995. Royalty income recognized by the Company
pursuant to the Agreements was $4,000,000, $4,000,000 and $4,442,000 in Fiscal
1998, 1997 and 1996, respectively. The agreement expired on March 31, 1998.
In anticipation of the expiration of the Agreements, Emerson executed a
four-year agreement ("Daewoo Agreement") with Daewoo Electronics Co. Ltd.,
("Daewoo") in April 1997. This agreement provides that Daewoo will manufacture
and sell television and video products bearing the Emerson and G-Clef trademark
to customers in the U.S. market. Daewoo is responsible for and assumes all
risks associated with, order processing, shipping, credit and collections,
inventory, returns and after-sale service. The Company will arrange sales and
provide marketing services and in return receive a commission for such services.
This agreement can be terminated without cause by either party upon 90 days
notice.
The Daewoo Agreement may result in commission revenues that will
be less than, equal to or exceed those earned from the Supplier
Agreement. The agreement with Daewoo does not contain minimum annual
commissions and is entirely dependent on the volume of sales made by
the Company that are subject to the Daewoo Agreement. Should the
Company not generate commission revenues that are at levels
substantially equal to the revenues generated from the Supplier
Agreement the Company's results of operations will be effected
adversely.
In February 1997, the Company executed five-year license/supply agreements
with Cargil International Corp. ("Cargil"), covering the Caribbean and Central
and South American markets. The agreements provide for the license of the
Emerson and G-Clef trademark for certain consumer electronics and other products
and require Emerson to source and inspect product for Cargil. Under the terms
of the agreements, the Company will receive minimum annual royalties and a
separate fee for the provision of sourcing and inspection service. Cargil
assumes all costs and expenses associated with the purchasing, marketing and
after-sales support of such products.
In October 1994, the Company entered into a license agreement with Jasco
Products Co., Inc., ("Jasco"), as amended, whereby the Company granted a license
of certain trademarks to Jasco for use on consumer electronics accessories.
Under the terms of the agreement, as amended in April 1997, the Company will
receive minimum annual royalties through the life of the agreement, which
expires on December 31, 1998.
In June 1997, the Company entered into an eighteen month license
agreement with World Wide One, Ltd., 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 to Makro International Far East Ltd. for
sales of these products in China, Indonesia, Malaysia, Philippines, South Korea,
Taiwan and Thailand. The Company will provide sourcing and inspection services
for at least 50% of the licensee's purchase requirement. The licensee is
required to meet certain minimum sales requirements as well as to ensure the
establishment of adequate service centers or agents for after-sales warranty
services.
In March 1998, the Company executed three-year license and supply
agreements with WW Mexicana, S. A. de C. V. ("WW Mexicana"), a distributor
located in Mexico covering the Mexico market. The agreements provide for the
license of the Emerson and G-Clef trademark for use on certain consumer products
to be sold in Mexico and sourcing and inspection services. Under the terms of
these agreements, the Company will receive minimum annual royalties through the
life of the agreement and will receive a separate fee for sourcing and
inspection services.
In March 1998 the Company executed a three-year license agreement with Tel-
Sound Electronics, Inc. ("Tel-Sound"), covering the United States and Canada
markets. The agreement provides for the license of the Emerson and G-Clef
trademark for use with telephones, answering machines and caller ID products.
Under the terms of this agreement, the Company will receive minimum annual
royalties through the life of the agreement.
Note 13 --Legal Proceedings:
CERTAIN OUTSTANDING COMMON STOCK
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 in proceedings before the United States District Court for the District
of New Jersey, 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 29.2
million 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, TM Capital
(the "Advisor") pursuant to 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 15.3 million 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 of the
Settlement Shares may be made 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% per quarter of the Emerson common stock outstanding, 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. In November 1997, Petra Stelling and Barclays Bank filed a motion with
the Court for an order (i) terminating the Settlement Agreement on the ground
that there is no reasonable prospect that the goals contemplated by the
Settlement Agreement can be accomplished, and (ii) granting the Creditors
authorization to exercise all the rights and remedies provided by the Settlement
and Pledge Agreements in the event of termination including authorizing the
Collateral Agent to sell the Emerson Shares to fund payment of the Settlement
Amount and to vote the Emerson Shares pending such sale, directing the entry and
release of the Consent Judgments, authorizing Petra Stelling to enforce the
Swiss Judgment and for such other relief as the Court deems appropriate. The
Company and Mr. Jurick responded, the Creditors replied and a hearing on the
motion was held in April 1998 at which time it was adjourned. The hearing is
currently scheduled to resume on July 9, 1998.
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).
If the Creditors foreclose on the Settlement Shares and such foreclosure results
in a change of control (as defined in the Senior Secured Credit Facility), such
foreclosure will be deemed an event of default under the Company's Senior
Secured Credit Facility entitling the holders to accelerate payment of such
indebtedness. In addition, if a change of control (as defined in the Indenture
governing the Debentures) occurs, each of the holders of the Debentures, subject
to the right of the Senior Secured Creditors to impose a 120 day payment block,
has the right to require the Company to repurchase its Debentures at the par
value hereof plus accrued by unpaid interest. Such repurchases may have a
material adverse effect on the Company's future business activities.
In 1994, Petra and Donald Stelling ("the Stellings"), two of the Creditors,
filed a complaint with the Swiss Authorities alleging that Messrs. Jurick and
Jerome H. Farnum ("Farnum"), directors of the Company, had conducted banking
operations in Switzerland without appropriate licenses and that Messrs. Jurick,
Farnum, and Peter G. Bunger ("Bunger"), also a director of the Company, engaged
in improper activities in the financing of the Plan of Reorganization.
Although, as part of the settlement discussed herein, the Stellings
requested the discontinuance of the criminal investigations of these
individuals, the matter is presently pending before a Swiss Court with a
trial, if any, to be held no earlier than 1999. The Federal Banking Commission
of Switzerland previously issued a decree purporting to determine that certain
entities affiliated with Messrs. Jurick and Farnum were subject to Swiss banking
laws and had engaged in banking activities without a license.
OTAKE
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") seeking damages and 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, subsequently amended, 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 declaratory and injunctive relief and damages in the amount of $3.2
million, together with interest thereon, attorneys' fees, and certain other
costs. The Company is presently owed the sum of $5 million from Orion
representing royalty payments past due and owing pursuant to a certain License
Agreement dated February 22, 1995 by and between the Company and Orion. In the
context of the action Orion Sales, Inc. v. Emerson Radio Corp., pending in the
United States District Court for the Southern District of Indiana (the "District
Court"), Orion has executed a pre-judgment garnishment of these funds and
deposited them with the Clerk of the District Court pursuant to an Order of the
District Court. Orion has not contested the Company's entitlement to these
royalty payments. Orion has also posted a bond with the District Court
sufficient to compensate Emerson for any and all damages that may result from
the pre-judgment garnishment.
The Company has withheld payment of the sum of $3.2 million for certain
consumer electronic products that Orion and its affiliates sold and delivered to
Emerson pursuant to a certain Agreement dated February 22, 1995 by and between
Emerson on the one hand and Orion, Otake Trading Co., Inc. and Technos
Development Limited on the other (the "Supply Agreement"). Emerson has
vigorously contested Orion's and its affiliates' entitlement to the $3.2
million payment.
Both the Company and Orion have asserted claims for interest accruing on
the unpaid principal balances respectively due them, which are presently pending
before the District Court. The Company's management believes that it will
receive the $5 million due pursuant to the License Agreement and has meritorious
defenses to Orion's claim for the $3.2 million payment, and, also, the interest
allegedly accrued thereon. In any event, the Company believes the results of
that litigation should not have a material adverse effect on the financial
condition of the Company or on its operations.
BANKRUPTCY CLAIMS
The Company is presently engaged in litigation regarding several bankruptcy
claims which have not been resolved since the restructuring of the Company's
debt in March 31, 1994. 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 $93.6
million, of which $86.8 million 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, the
Company believes the chances for recovery for lost profits are remote. There
has been no activity regarding this litigation during the current fiscal year.
The Company is involved in other legal proceedings and claims of various
types in the ordinary course of business. While any such litigation to which
the Company is a party contains an element of uncertainty, management presently
believes that the outcome of each such proceeding or claim which is pending or
known to be threatened, or all of them combined, will not have a material
adverse effect on the Company's consolidated financial position.
Note 14-- Business Segment Information and Major Customers:
The consumer electronics business is the Company's only business segment.
Operations in this business segment are summarized below by geographic area:
<TABLE>
Year Ended April 3, 1998
(In thousands)
U.S. Foreign Eliminations Consolidated
<S> <C> <C> <C> <C>
Sales to unaffiliated
customers $159,108 $ 3,622 $ - $ 162,730
Earnings (loss) before
income taxes $ (2,368) $ 938 $ - $ (1,430)
Identifiable assets $ 51,008 $ 912 $ - $ 51,920
</TABLE>
<TABLE>
Year Ended March 31, 1997
U.S. Foreign Eliminations Consolidated
<S> <C> <C> <C> <C>
Sales to unaffiliated
customers $172,417 $ 6,291 $ - $ 178,708
Transfers between
geographic areas 2,592 581 (3,173) -
Total net revenues $175,009 $ 6,872 $ (3,173) $ 178,708
Earnings (loss) before
income taxes $(20,677) $(1,791) $ - $ (22,468)
Identifiable assets $ 58,382 $ 386 $ - $ 58,768
Year Ended March 31, 1996
Sales to unaffiliated
customers $234,369 $11,298 $ - $ 245,667
Transfers between
geographic areas 2,884 876 (3,760) -
Total net revenues $237,253 $12,174 $ (3,760) $ 245,667
Earnings (loss) before
income taxes $(11,324) $(2,039) $ - $ (13,363)
Identifiable assets $ 90,350 $ 6,226 $ - $ 96,576
</TABLE>
Transfers between geographic areas are accounted for on a cost basis.
Identifiable assets are those assets used in operations in each geographic area.
At April 3, 1998, March 31, 1997 and 1996, total assets include $9,187,000,
$10,657,000 and $27,779,000, respectively, of assets located in foreign
countries.
The Company's net sales to one customer aggregated approximately 58%, 36%
and 18% of consolidated net revenues for the years ended April 3, 1998, March
31, 1997 and 1996, respectively. This customer approximated 17% of the Company's
trade accounts receivable at April 3, 1998, and has not been collateralized. The
Company's net sales to another customer aggregated 16%, 13% and 16% for the
years ended April 3, 1998, March 31, 1997 and 1996, respectively. Trade
accounts receivable from this customer were less than 10% of total trade
receivables.
Note 15 - Investment in Joint Venture:
The Company has a 50% investment in E & H Partners, a joint venture in
liquidation that refurbishes and sells certain of the Company's product returns.
The results of this joint venture were accounted for by the equity method and
the Company's equity in the earnings (loss) of the joint venture was reflected
as an increase or reduction of cost of sales. Summarized financial information
relating to the joint venture for the years ended April 3, 1998, March 31, 1997
and 1996 is as follows:
<TABLE>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Activity between Company and
E & H Partners
Accounts receivable from joint
venture (a) $1,438 $3,522 $13,270
Investment in joint venture - 440 1,265
Sales to joint venture - 5,792 17,629
E & H Partners Summarized
Financial Information
Condensed balance sheet:
Current assets $1,889 $7,947 $19,326
Noncurrent assets - - 162
Total $1,899 $ 7,947 $19,488
Current liabilities $2,609 $ 7,476 $16,958
Partnership equity (720) 471 2,530
Total $1,889 $ 7,947 $19,488
Condensed income statement:
Net sales (b) $1,772 $31,564 $27,712
Net loss (318) (2,058) (600)
</TABLE>
(a) Accounts receivable are secured by a shared lien on the partnership's
inventory with the other partner in the joint venture, and such lien had been
assigned to the Lender as collateral for the U.S. line of credit facility.
(b) Includes sales to the Company of $0, $7,058,000 and $5,964,000,
respectively.
Effective January 1, 1997, the partners to the E&H Partnership mutually
agreed to dissolve the joint venture and wind down its operations. The partners
have elected to extend such wind down in order to facilitate a more orderly
liquidation of the joint venture.
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
<CAPTION>
Column A Column B Column C Column D Column E
Balance Charged Balance
at to at
beginning costs Deduc- end of
Decription of year expenses tions year (C)
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts/chargebacks:
Year ended:
April 3, 1998 $2,686 $1,165 $ 337(A) $ 3,514
March 31, 1997 2,831 2,558 2,703 2,686
March 31, 1996 4,150 1,111 2,430 2,831
Inventory reserves:
Year ended:
April 3, 1998 $2,161 $1,507 $2,971(B) $ 697
March 31, 1997 1,222 4,560 3,621 2,161
March 31, 1996 470 1,087 335 1,222
</TABLE>
(A) Accounts written off, net of recoveries.
(B) Net realizable value reserve removed from account when inventory is sold.
(C) Amounts do not include certain accounts receivable reserves that are
disclosed as "allowances" on the Consolidated Balance Sheets since they
are not valuation reserves.
INDEX TO EXHIBITS
PAGE NUMBER
IN SEQUENTIAL
NUMBERING
EXHIBIT DESCRIPTION SYSTEM
(2) Confirmation Order and Fourth Amended Joint Plan of
Reorganization of Emerson Radio Corp. ("Old Emerson") and
certain subsidiaries under Chapter 11 of the United
States Bankruptcy Code, dated March 31, 1994
(incorporated by reference to Exhibit (2) of Emerson's
Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the Securities and Exchange
Commission ("SEC") on August 9, 1994).
(3) (a) Certificate of Incorporation of Emerson (incorporated by
reference to Exhibit (3) (a) of Emerson's Registration
Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(3) (b) Certificate of Designation for Series A Preferred Stock
(incorporated by reference to Exhibit (3) (b) of
Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC
on August 9, 1994).
(3) (c) Plan of Reorganization and Agreement of Merger by and
between Old Emerson and Emerson Radio (Delaware) Corp.
(incorporated by reference to Exhibit (3) (c) of
Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC
on August 9, 1994).
(3) (d) Certificate of Merger of Old Emerson with and into
Emerson Radio (Delaware) Corp. (incorporated by reference
to Exhibit (3) (d) of Emerson's Registration Statement
on Form S-1, Registration No. 33-53621, declared
effective by the SEC on August 9, 1994).
(3) (e) Amendment dated February 14, 1996 to the Certificate of
Incorporation of Emerson (incorporated by reference to
Exhibit (3) (a) of Emerson's Quarterly Report on Form 10-
Q for the quarter ended December 31, 1995).
(3) (f) By-Laws of Emerson adopted March 1994 (incorporated by
reference to Exhibit (3) (e) of Emerson's Registration
Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(3) (g) Amendment dated November 28, 1995 to the By-Laws of
Emerson adopted March 1994 (incorporated by reference to
Exhibit (3) (b) of Emerson's Quarterly Report on Form 10-
Q for the quarter ended December 31, 1995).
(4) (a) Warrant Agreement to Purchase 750,000 shares of Common
Stock, dated as of March 31, 1994 (incorporated by
reference to Exhibit (4) (a) of Emerson's Registration
Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(4) (b) Indenture, dated as of August 17, 1995 between Emerson
and Bank One, Columbus, NA, as Trustee (incorporated by
reference to Exhibit (1) of Emerson's Current Report on
Form 8-K filed with the SEC on September 8, 1995).
(4) (c) Common Stock Purchase Warrant Agreement to purchase
50,000 shares of Common Stock, dated as of December 8,
1995 between Emerson and Michael Metter (incorporated by
reference to Exhibit (10) (e) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31,
1995).
(4) (d) Common Stock Purchase Warrant Agreement to purchase
200,000 shares of Common Stock, dated as of December 8,
1995 between Emerson and Kenneth A. Orr (incorporated by
reference to Exhibit (10) (f) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31,
1995).
(10) (a) Form of Promissory Note issued to certain Pre-Petition
Creditors (incorporated by reference to Exhibit (10)
(e) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC
on August 9, 1994).
(10) (b) 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) (c) 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) (d) 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) (e) 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) (f) 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) (g) 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) (h) 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) (i) 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) (j) 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) (k) 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) (l) Agreement dated April 10, 1997 between Emerson and
Daewoo Electronics Co., Ltd.
(10) (m) 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) (n) 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) (o) 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) (p) 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) (q) Form of Termination of Employment Agreement between
Emerson and John Walker dated as of January 15, 1998.*
(10) (r) License Agreement dated as of March 30, 1998 by and
between Tel-Sound Electronics, Inc. and Emerson. *
(10) (s) License Agreement dated as of March 31, 1998 by and
between WW Mexicana, S. A. de C. V. and Emerson. *
(10) (t) Amendment No. 7 to Financing Agreements, dated as of
March 31, 1998. *
(10) (u) Amendment No. 1 to Pledge and Security Agreement dated
as of March 31, 1998. *
(10) (v) Second Lease Modification dated as of May 15, 1998
between Hartz Mountain, Parsippany and Emerson. *
(12) Computation of Ratio of Earnings (Loss) to Combined
Fixed Charges and Preferred Stock Dividends. *
(21) Subsidiaries of the Company as of April 3,
1998.*
(23) Consent of Independent Auditors.*
(27) Financial Data Schedule for year ended April 3,
1998.*
* Filed herewith.
<TABLE>
EXHIBIT 12
EMERSON RADIO CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-K
COMPUTATION OF RATIO OF EARNINGS (LOSS) TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
(In thousands, except ratio data)
<CAPTION>
Historical
Year Year Year Year Year
Ended Ended Ended Ended Ended
Apr. 3, Mar. 31, Mar. 31, Mar. 31, Mar. 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Pretax earnings
(loss) $(1,176) $(23,738) $(13,363) $ 7,642 $(73,327)
Fixed charges:
Interest 1,911 2,789 2,788 2,582 10,243
Amortization of
debt expenses 677 640 487 300 -
2,588 3,429 3,275 2,882 10,243
Pretax earnings
(loss) before
fixed charges $1,412 $(20,309) $(10,088) $10,524 $(63,084)
Fixed charges:
Interest $1,911 $ 2,789 $ 2,788 $ 2,582 $10,243
Amortization of
debt expenses 677 640 487 300 -
Preferred stock
dividend
requirements 400 700 700 725(a)
requirements
$2,988 $ 4,129 $ 3,975 $3,607 $ 10,243
Ratio of earnings
(loss) to
combined fixed
charges and
preferred stock
dividends .47 (4.92) (2.54) 2.92 (6.16)
Coverage deficiency - $4,129 $ 3,975 - $10,243
</TABLE>
(a) The preferred stock dividend requirements have been adjusted to reflect the
pretax earnings which would be required to cover such dividend requirements.
<TABLE>
EXHIBIT 21
Emerson Radio Corp. and Subsidiaries
Exhibit to Form 10-K
Subsidiaries of the Registrant
Jurisdiction of Percentage of
Name of Subsidiary Incorporation Ownership
<S> <C> <C>
Emerson Radio (Hong Kong) Ltd. Hong Kong 100%*
Emerson Radio International Ltd. British Virgin Islands 100%
Sport Supply Group, Inc. Delaware 28%
</TABLE>
* One share is owned by a resident director pursuant to local law.
SUPPLY AND INSPECTION AGREEMENT
This Agreement, dated effective as of March 31, 1998, is by and between EMERSON
RADIO CORP., a Delaware corporation, having a place of business at Nine Entin
Road, Parsippany, New Jersey 07054 (hereinafter "Emerson"), and WW MEXICANA,
S.A. de C.V., a corporation duly organized under the laws of Mexico, having a
place of business at Carr. Picacho Ajusco no. 238 - 7o. piso, Col. Jardines en
la Montana, C.P. 14210, Mexico, D.F. (hereinafter "WW Mexicana").
Emerson, directly and through affiliates, distributes a variety of consumer
electronics products and microwave oven products in various countries throughout
the world. Emerson is the owner of certain valuable and well-known trademarks
throughout the world and the goodwill associated therewith;
WW Mexicana, directly and through affiliates, distributes consumer electronics
and other products in various countries throughout the world;
Emerson and WW Mexicana have entered into a License Agreement of even date
herewith (the "License Agreement") providing for the specified use by WW
Mexicana of the "Emerson and G-Clef" trademark in connection with the
distribution in the territory of Mexico ("the Territory" as defined in the
License Agreement), of televisions (color and black and white), video cassette
recorders, color television/video cassette recorder combinations, camcorders,
microwave ovens, boom boxes, shelf systems, clock radios, car radios, audio and
video products, Dolby Surround(Registered) Home Theater speaker systems
and compact refrigerators and freezers [more particularly described
in the License Agreement and referred to herein as "the Goods"].
WW Mexicana desires, and the parties have agreed that WW Mexicana
shall, as set forth herein, source through Emerson, for sale and
distribution within the Territory, certain of the Goods which are
the subject of the License Agreement, together with other products to be agreed
upon in advance by the parties in writing and replacement parts for all of the
foregoing (collectively referred to herein as "the Products");
Emerson and WW Mexicana desire to set forth their respective agreements to
provide for, among other things, the sourcing and inspection of Products by
Emerson or its affiliates, and the payment of a fee to Emerson by WW Mexicana
for these services, as set forth herein;
In consideration of the foregoing premises and mutual agreements set forth
herein, the following is agreed to:
1. DEFINITIONS
1.1 "Affiliate" will mean a person or entity who directly, or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with a specified person or entity.
1.2 "Confidential Information" will mean any and all information, data,
specifications, customer lists, products and services information, sales and
marketing information, vendor data, and proprietary information regarding
Emerson, WW Mexicana or their respective Affiliates (collectively, the
"Information") except:
(a) Information which at the time of disclosure is in the public
domain;
(b) Information which, after disclosure, through no fault of the
party receiving same, is published or otherwise becomes part of the
public domain;
(c) Information which the receiving party can document as having
been in its possession prior to the time of disclosure to it by the
other party;
(d) Information which the receiving party can document as having been
received by it on a non-confidential basis from a third party; or
(e) Data, specifications, customer lists, products and services
information and vendor data which the receiving party created on
its own or through independent third parties without use of the
Information.
1.3 "Emerson" means Emerson Radio Corp. and its Affiliates.
1.4 "Subsidiaries" will mean all direct and indirect subsidiaries of a party.
2. SUPPLY/SOURCING OF PRODUCTS BY EMERSON
2.1 Emerson, directly or through its Affiliates, shall source for WW Mexicana
(subject to force majeure as defined at SECTION 13 and timely payment pursuant
to SECTION 4), Products ordered by WW Mexicana, from time to time, from the date
hereof until the expiration or termination of the License Agreement executed by
the parties simultaneously herewith, or other termination as set forth herein,
in which case Emerson shall be relieved of its obligations as set forth herein.
WW Mexicana shall source through Emerson or its Affiliates not less than 75% of
WW Mexicana's video, audio, car stereo and microwave oven purchase requirements
under the License Agreement with Emerson or an Affiliate of Emerson. WW Mexicana
shall use its best efforts to achieve the total gross sales projections for the
Products covered by this Agreement, set forth on Appendix A hereto.
2.2 WW Mexicana shall submit to Emerson from time to time its written request
for purchase information setting forth the details of its request for Products,
including a description of the Products, the quantity of Products desired by WW
Mexicana, the delivery date desired for the Products, the delivery address and
such other terms as the parties shall agree upon.
2.3 Emerson shall then solicit from manufacturers, suppliers and vendors terms
and conditions for the purchase by and sale to WW Mexicana of such Products.
2.4 Thereafter, Emerson shall assist WW Mexicana in establishing pricing and
confirming purchase and delivery requests. Emerson shall then use its best
efforts to confirm the purchase price and delivery date to WW Mexicana.
2.5 Following confirmation of the purchase price and delivery date to WW
Mexicana by Emerson, WW Mexicana shall issue a purchase order directly to the
manufacturer, supplier or vendor, and simultaneously provide copies of each
purchase order to Emerson. Emerson shall use reasonable efforts to have such
manufacturer, supplier or vendor execute and deliver to WW Mexicana a copy of WW
Mexicana's General Specifications in the form to be supplied by WW Mexicana, and
reviewed and approved by Emerson, annexed as Appendix B. Notwithstanding
Emerson's ability to obtain the agreement to or signature on the General
Specifications, WW Mexicana shall, notwithstanding any agreement entered into
with a manufacturer, vendor or supplier of Products, whether oral or written, be
required to make the payments to Emerson as set forth herein, and shall require
such manufacturer, supplier or vendor, in any such agreement, to indemnify WW
Mexicana and its agents, including Emerson expressly, for any claims made as a
result of the sale of the Products to WW Mexicana. Such agreement shall include
the language set forth on Appendix C. WW Mexicana shall not enter into any such
agreement with a manufacturer, supplier or vendor which conflicts with the
provisions of this Agreement.
2.6 The purchase price of all Products ordered by, for the benefit of, or at
the direction of WW Mexicana which are sourced by Emerson from the
manufacturers, vendors or suppliers, shall be paid directly by WW Mexicana to
the manufacturer, vendor or supplier, and WW Mexicana shall make payment in
accordance with the manufacturer's requirements, directly to the manufacturer,
vendor or supplier. Emerson shall assist WW Mexicana to obtain the agreement of
the manufacturer, vendor or supplier to payment by 60-day sight letter of credit
and, in the event the manufacturer, vendor or supplier agrees to such payment
terms, WW Mexicana shall provide a copy to Emerson of all such letters of
credit. Letters of credit shall be subject to interest at the rate of 9.0% per
year, or .75% per month (subject to change based upon prime rate). All other
costs related to the sourcing and supply of Products, including, but not limited
to, applicable freight, insurance and tax charges and expenses, shall be borne
solely by WW Mexicana which shall pay such costs directly to the manufacturer,
supplier or vendor. One percent (1%) free parts shall be provided with each
order placed by WW Mexicana.
2.7 Short Term and Other Product Needs; Returns and Refurbished Merchandise.
See attached Schedule 2.7 which is incorporated herein.
3. INSPECTION OF PRODUCTS BY EMERSON. In addition to the services to be
performed by Emerson as set forth above, Emerson shall perform the following
sourcing and inspection services:
- supply plans for the production of Products and availability of samples
- provide quality control services, including testing inspection and
quality assurance audits in accordance with industry standards
- provide logistical services and support for the scheduling of deliveries
and transportation of the Products
- assist in the cosmetic design of goods and packaging engineering
- identify manufacturers
- investigate manufacturer's ability to manufacture to WW Mexicana's
specifications, including adequacy of manufacturer's
facilities, equipment and knowledge
- ensure that manufacturer has suitable testing equipment and personnel
- ensure manufacturer has adequate internal quality control procedures
- obtain information pertaining to the financial stability of manufacturer
- investigate manufacturer's reputation and ability to ship on a timely
basis
- assist in production scheduling and coordinating with the manufacturer
for the expedition of shipments after order placed by WW Mexicana
- provide Emerson quality control inspectors to inspect product, including
on manufacturer's premises (Emerson's China personnel)
- provide the assistance of Emerson quality assurance group to inspect
product to AQL levels (including samples and inspection by Emerson's
Hong Kong and China personnel)
- perform quality control life test procedures (including the performance
by Emerson Hong Kong personnel)
The above shall be performed by Emerson with respect to Products sourced by
Emerson and to be purchased by WW Mexicana, provided, however, that in each
instance WW Mexicana shall provide Emerson with all information in its
possession necessary or desirable to accomplish the foregoing. It is expressly
understood that WW Mexicana shall be solely responsible, at its sole cost and
expense, for obtaining all governmental permits and approvals customarily
obtained for sale of the Products and such permits and approvals as are required
by the laws of the Territory.
4. COMPENSATION.
4.1 In consideration for the performance by Emerson of the services described
herein, WW Mexicana shall pay to Emerson a sourcing fee for all Products ordered
by, for the benefit of, or at the direction of, WW Mexicana, which shall be one
and one-half percent (1.5%) of the Product F.O.B. price per unit. WW Mexicana
shall also pay to Emerson an inspection fee equal to one-half percent (1/2%) per
unit of the Product F.O.B. price for all Products ordered by, for the benefit
of, or at the direction of, WW Mexicana and for which a purchase order has been
issued by WW Mexicana, from the manufacturer, supplier or vendor or any agent or
contractor thereof.
4.2 The fees set forth in Section 4.1 above shall be billed by Emerson and
shall be payable upon net 60-day terms. No deduction shall be made for late or
non-conforming shipments or returned Products and all liability shall be against
the manufacturer, vendor or supplier.
5. INSURANCE. WW Mexicana shall cause to be maintained in full force and
effect, at its own cost, insurance for the benefit of Emerson, in accordance
with the provisions of the License Agreement executed by the parties
simultaneously herewith, and furnish Emerson with certificates of insurance
evidencing the requisite insurance coverage.
6. CONFIDENTIALITY.
6.1 The parties recognize that by reason of this Agreement, a party and its
representatives (including the auditors of a party) may acquire Confidential
Information. Each party will use the Confidential Information received from the
other party solely for the purpose of carrying out this Agreement. Each party
recognizes that all such Confidential Information acquired from the other party
is the property of such other party and that the recipient and its
representatives (including auditors) shall not, during the term of this
Agreement or thereafter, directly or indirectly, use, publish, disseminate or
otherwise disclose any Confidential Information obtained in connection with this
Agreement without the express written consent of a duly authorized officer of
the other party, unless compelled by law or required by applicable securities
rules and regulations or in the written opinion of counsel is required by law to
be disclosed. In such case, each party shall inform the other party as far in
advance as possible prior to making any such disclosure. Notwithstanding the
foregoing, Emerson shall not be required to inform or obtain the consent of WW
Mexicana for the issuance of any press release which utilizes, refers to or
discloses sales information relating to this Agreement, or for the reporting or
filing of this Agreement in accordance with applicable securities regulations.
Each party shall cause each of their respective officers, directors, agents,
auditors or employees to whom a disclosure of Confidential Information is made,
or any subcontractor, including the manufacturer(s), vendor(s) or supplier(s) of
the Products, to adhere to the terms and conditions of this SECTION 6 as if, and
to the same extent as if, he or she were a party to this Agreement.
6.2 Upon expiration or termination of this Agreement, each party shall return
to the other party all copies of Confidential Information provided by the other
party then in its possession or control and destroy memoranda or other documents
created using Confidential Information and confirm such destruction to the other
party upon such party's written request. Notwithstanding the above, Emerson
shall not be required to return or destroy financial or other information
relating to the sales and royalties pertaining to this Agreement or the License
Agreement entered into simultaneously herewith, which has become or becomes a
part of Emerson's books and records.
7. INDEPENDENT CONTRACTOR. Emerson will be considered, for all purposes,
an independent contractor and it will not, directly or indirectly, act as an
agent, servant or employee of WW Mexicana or make any commitments or incur any
liabilities on behalf of WW Mexicana without its prior written consent other
than in accordance with the terms of this Agreement. All personnel assigned by
Emerson to perform the services hereunder will be employees of Emerson, which
shall pay all salaries and expenses of, and all applicable payroll, withholding
or other taxes relating to such employees.
8. NON-SOLICITATION. So long as Emerson is acting as supply agent under the
terms hereof and for a period of two (2) years following the termination of this
Agreement, WW Mexicana shall not, unless it pays to Emerson all fees described
herein as if Emerson were performing as supply agent, solicit any manufacturers,
suppliers or vendors which sold, manufactured or otherwise distributed the
Products to, for the benefit of, or at the direction of WW Mexicana and as to
which Emerson has acted as supply agent, provided such manufacturers, suppliers
and vendors have not, prior to the effective date of this Agreement, done
business in any way with WW Mexicana concerning the Products.
9. TERM. Subject to the provisions of Section 10, the term of this
Agreement shall continue for a period of 3 years and 3 months from the effective
date of this Agreement, unless otherwise renewed or terminated by Emerson in
conjunction with the renewal or termination by Emerson of the License Agreement
executed by the parties simultaneously herewith.
10. TERMINATION. If either party defaults in performing its material
obligations under this Agreement and fails to cure that default within thirty
(30) days after receiving from the first party a written notice specifying the
default, the first party may terminate this Agreement upon written notice to the
other. Upon termination of this Agreement WW Mexicana shall be liable for all
payments due to Emerson through the date of termination in accordance with this
Agreement. Notwithstanding any termination of this Agreement, WW Mexicana shall
be required to fulfill its obligations pursuant to the License Agreement
executed by the parties simultaneously herewith, unless such License Agreement
is otherwise terminated by Emerson as set forth therein.
11. NO WARRANTY. EMERSON MAKES NO WARRANTY OF ANY KIND, EXPRESS OR IMPLIED,
CONCERNING THE PRODUCTS, OR THE MERCHANTABILITY OR FITNESS THEREOF FOR ANY
PURPOSE OR USE. IN THE EVENT OF AN EPIDEMIC FAILURE OR THE PRODUCTS FAIL TO
CONFORM TO WW MEXICANA'S SPECIFICATIONS, EMERSON SHALL USE ITS BEST EFFORTS TO
ASSIST WW MEXICANA IN ITS EFFORTS TO RECOVER FROM THE MANUFACTURER ANY
ADDITIONAL COSTS INCURRED BY WW MEXICANA AS A RESULT OF SUCH FAILURE. EMERSON
SHALL ALSO PROVIDE REASONABLE ASSISTANCE IN ENFORCING THE MANUFACTURER'S
WARRANTY AND WW MEXICANA'S GENERAL SPECIFICATIONS.
In no event shall Emerson be liable for any incidental, consequential, special
or indirect damages of any nature or kind whatsoever, or for lost profits, in
connection with the transport, storage, sale or use of the Products and for any
claim originating from the sale, marketing, distribution or use of the Products
WW Mexicana shall go directly to the manufacturer, supplier or vendor of
Products. WW Mexicana is not authorized to issue any warranty binding on
Emerson. Emerson shall not be liable for any canceled orders, delayed or non-
conforming shipments or any claims or damages flowing therefrom. Emerson shall
have no liability for products ordered directly by WW Mexicana.
12. INDEMNIFICATION. WW Mexicana shall defend, indemnify and hold harmless
Emerson, its Affiliates and the employees, agents, officers and directors of
each of Emerson and its Affiliates from and against any and all claims, demands,
judgments, liability, damages, losses, costs and expenses of any nature
(including attorneys' fees and expenses), including, without limitation, death,
personal injury, property damage or product liability arising from the
manufacture, assembly, packaging and transportation of the Products sold under
the terms hereof, which operations shall be performed by the manufacturer,
supplier or vendor. WW Mexicana hereby represents and warrants to Emerson that
the Products will not infringe upon or otherwise conflict with the intellectual
property rights of any person. WW Mexicana shall, at its own expense, defend
Emerson in any and all actions or suits alleging that any Product infringes
another person's intellectual property rights and shall indemnify and hold
Emerson harmless from all loss, damage, liability and cost and expense incurred
by Emerson on account of the sale, marketing, distribution or use of the
Products including any alleged infringement. WW Mexicana shall require, in its
General Specifications Agreement, that the manufacturer provide such defense and
indemnification to WW Mexicana and its agents, including Emerson expressly.
Emerson may, at its option, elect to participate in any defense of any action in
which it may be a named party. In the event WW Mexicana refuses or cannot defend
any such action or suit, whether following receipt of notice from Emerson or a
third party, Emerson may defend such action or suit and WW Mexicana shall
indemnify Emerson for all costs and expenses related thereto.
Emerson shall notify WW Mexicana promptly in writing upon receipt by Emerson of
any notice of any oral or written claim or demand, or any suit, alleging
infringement of any person's intellectual property right or any claim in
connection with the Products and shall permit WW Mexicana to defend, and shall
cooperate fully with WW Mexicana in the defense of, any such action, provided
that WW Mexicana shall reimburse Emerson for its expenses of such cooperation.
13. FORCE MAJEURE. If any party is rendered wholly or partially unable by
Force Majeure (other than financial) to carry out its obligations under this
Agreement, and if that party gives prompt written notice and details of such
Force Majeure to the other party, the notifying party shall be excused from
performance of its obligations under this Agreement during the continuance of
any inability so caused and for a period thereafter that is reasonably
necessary, taking into account all relevant circumstances, to permit that party
to recommence performance of its obligations. Such cause shall be remedied by
the notifying party as far as possible with reasonable speed and effort, but
neither party shall have any obligation to settle any labor dispute. For the
purposes of this Agreement, "Force Majeure" shall mean acts of God, industrial
disputes, acts of public enemies or terrorists, war, other military conflicts,
blockades, insurrections, riots, epidemics, quarantine restrictions, landslides,
lightning, earthquake, fires, storms, floods, washouts, arrests, civil
disturbances, restraints by or actions of any governmental authority (including
export or security restrictions on information, material, personnel, equipment
or otherwise), national economic crisis (which restricts credit or makes it
inaccessible with a resulting currency devaluation in excess of 20%), breakdowns
of plant or machinery, inability to obtain transport or supplies, and any other
acts or events whatsoever, whether or not similar to the foregoing, not within
the reasonable control of the party claiming excuse from performance, which by
the exercise of due diligence and best reasonable efforts said party shall not
have been able to overcome or avoid without unreasonable expense. The provisions
of this paragraph shall not apply to payment obligations under this Agreement.
In any event, either party may cancel this Agreement, upon written notice, if
the Force Majeure continues for a period of 120 consecutive days.
14. MISCELLANEOUS.
14.1 NO ASSIGNMENT. This Agreement may not be assigned by either party without
the prior written consent of the other party.
14.2 GOVERNING LAW AND JURISDICTION. This Agreement will be governed by and
construed in accordance with the laws of the State New York, U.S.A.,
notwithstanding any choice of laws rules thereof, and WW Mexicana irrevocably
submits to the exclusive jurisdiction of the courts of the State of New York,
and venue shall lie exclusively in New York County, New York. However, it is
expressly understood that this Section shall not preclude Emerson's right to
make application for, and seek enforcement of, any judgment or injunctive relief
in any court having jurisdiction.
14.3 NO AMENDMENT. This Agreement may not be changed, amended or modified
except by an instrument in writing executed by each of the parties.
14.4 NO WAIVER. Any waiver on the part of any party of any right or interest
hereunder shall not imply the waiver of any subsequent breach or the waiver of
any other rights. No waiver by either party of a breach hereof or a default
hereunder shall be deemed a waiver by such party of a subsequent breach or
default of like or similar nature.
14.5 SEVERABILITY. Should any provision of this Agreement prove to be invalid
or unenforceable under existing or future law, the remaining provisions of the
Agreement will remain in force in all other respects.
14.6 SURVIVAL. All obligations of the parties set forth in paragraphs 5, 6, 7,
8, 11, 12 and 14 of this Agreement shall survive the expiration or termination
of this Agreement.
14.7 NOTICE. All notices will be in writing and in English and will be served
personally or by registered or certified mail, return receipt requested, or by
overnight courier or by facsimile transmission to each party at its address
herein set forth, or at such other address as each party may provide to all
parties hereto in writing from time to time:
(A) If to Emerson:
Emerson Radio Corp.
Nine Entin Road, P.O. Box 430
Parsippany, New Jersey 07054-0430
Attn: Legal Department
[Facsimile No. (973) 428-2022]
(B) If to WW Mexicana:
WW Mexicana, S.A. de C.V.
Carr. Picacho Ajusco No. 238 - 7o. piso
Col. Jardines en la Montana, C.P. 14210
Mexico, D.F.
Attn.: Fernando Sanchez-Navarro M., President
[Facsimile No. (52)(5) 630-0122]
Any such notice will be effective upon actual receipt or three (3) days after it
is deposited with the United States Postal Service, postage prepaid, properly
addressed and certified, whichever occurs first.
14.8 ENTIRE AGREEMENT. Together with the License Agreement executed by the
parties simultaneously herewith, all documents referenced therein, and all
documents annexed thereto, this Agreement and exhibits hereto shall constitute
the entire and sole agreement and understanding of all parties hereto and
supersede all other agreements, understandings, and communications, whether oral
or written, regarding the subject matter hereof and of the License Agreement.
14.9 EXECUTION. This Agreement may be executed in any number of
counterparts, and by facsimile, but all counterparts and facsimiles hereof will
together constitute but one agreement. In proving this Agreement, it will not
be necessary to produce or account for more than one counterpart executed by all
of the parties.
14.10 PRESS RELEASES. WW Mexicana shall not disseminate any press release
or other announcement relating to the transactions contemplated by this
Agreement without Emerson's prior written consent as to the contents thereof.
14.11 PAYMENTS. All payments to be made pursuant to the terms of this
Agreement shall be made directly by WW Mexicana to Emerson, or a designated
affiliate of Emerson, and shall be made in U.S. dollars.
14.12 ENGLISH LANGUAGE. The parties have requested that this Agreement be
drawn up and interpreted in the English language.
IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
representative of each party effective as of the date set forth above.
EMERSON RADIO CORP. WW MEXICANA, S.A. DE C.V.
By: /s/ John J. Raab By: /s/ Fernando Sanchez-Navarro M.
John J. Raab Fernando Sanchez-Navarro M.
Senior Vice President- President
International
as of January 15, 1998
Mr. John P. Walker
c/o Emerson Radio Corp.
9 Entin Road
Parsippany, New Jersey 07054
EMPLOYMENT AGREEMENT
Dear Mr. Walker:
This letter will confirm that you and Emerson Radio Corp. ("Emerson") have
agreed to terminate the Employment Agreement between you and Emerson, dated
April 1, 1994 ("Employment Agreement"), as amended by Amendment No. 1 to
Employment Agreement, dated as of the 16th of April, 1997 ("Amendment No.
1")(hereinafter, collectively "Emerson Employment Agreement"). Accordingly, the
Emerson Employment Agreement shall be of no further force and effect.
Please indicate your agreement to the terms of this letter in the space provided
below.
Very truly yours,
Emerson Radio Corp.
By: ________________ Acknowledged and Agreed
(Name) to as of the 15th day of
________________ January, 1998
(Title)
______________________
John P. Walker
LICENSE AGREEMENT
This Agreement, dated effective as of March 30, 1998 (the "Effective Date"), is
by and between EMERSON RADIO CORP., a Delaware corporation, having a place of
business at Nine Entin Road, Parsippany, New Jersey 07054, and TEL-SOUND
ELECTRONICS, INC., a Florida corporation, having a place of business at
2400 W. Copans Road #9, Pompano Beach, FL 33069.
Licensor (as hereinafter defined), directly and through affiliates, distributes
a variety of consumer electronics products and microwave ovens in numerous
countries throughout the world. Licensor is the owner of certain valuable and
well-known trademarks, and the goodwill associated therewith;
Licensee (as hereinafter defined) desires to obtain a license of certain of
Licensor's trademarks in connection with the manufacturing, marketing, sale and
distribution of certain consumer electronics and other products as specifically
set forth on EXHIBIT A, together with replacement parts which may bear the
trademarks (collectively referred to herein as the "Goods");
Licensee desires to sell the Goods bearing the trademarks in the geographic
regions set forth on EXHIBIT B ("Territory") and use certain of Licensor's
trademarks in conjunction therewith;
Licensor is agreeable to license the use of certain of its trademarks with
respect to the manufacturing, marketing, distribution and sale of the Goods by
Licensee in the Territory, subject to the terms and conditions of this
Agreement.
In consideration of the foregoing premises and the mutual agreements contained
herein, the following is agreed to:
1. DEFINITIONS
1.1 "Affiliate" means a person or entity who directly, or indirectly through
one or more intermediaries, controls or is controlled by or is under common
control with a specified person or entity.
1.2 "Confidential Information" means any and all information, data,
specifications, customer lists, products and services information, sales and
marketing information, vendor data, and information regarding either Licensor,
Licensee or their respective Affiliates (collectively, the "Information")
except:
(a) Information which at the time of disclosure is in the public
domain;
(b) Information which, after disclosure, through no fault of the
party receiving same, is published or otherwise becomes
part of the public domain;
(c) Information which the receiving party can document as having
been in its possession prior to the time of disclosure
to it by the other party;
(d) Information which the receiving party can document as having
been received by it on a non-confidential basis from a
third party; or
(e) Data, specifications, customer lists, products and services
information and vendor data which the receiving party
created on its own or through independent third parties
without use of the Information.
1.3 "Contract Year" means, (i) as to the first Contract Year, the period
commencing on the Effective Date of this Agreement and ending on August 31,
1999; and (ii) each immediately subsequent full year during the term of this
Agreement commencing September 1, 1999.
1.4 "Contract Quarter" means each calendar quarter or part thereof within each
of the Contract Years.
1.5 "Goods" means those first quality new "A" stock consumer electronics and
other goods as specifically set forth on EXHIBIT A, which Exhibit may be amended
from time to time by mutual agreement to reflect additions to or the
obsolescence of one or more of the Goods.
1.6 "Landed Cost" means the product F.O.B. price, plus duty and ocean freight,
charged to Licensee, net of any discounts, allowances or rebates.
1.7 "Sale" means sale, lease, rental, transfer, exchange or other disposition
of the Goods by Licensee. A Sale will be deemed to have occurred when the Goods
are shipped or are invoiced, whichever occurs first.
1.8 "Sales Price" means the undiscounted invoice price of the Goods without
consideration for any form of allowances or discounts, whether stated on the
invoice or not.
1.9 "Trademarks" means the Emerson and G-Clef design in the form set forth on
EXHIBIT C and all future form(s) of same adopted by Licensor.
1.10 "Licensor" means Emerson Radio Corp.
1.11 "Licensee" means Tel-Sound Electronics, Inc.
2. GRANT
2.1 Subject to the terms and conditions of this Agreement, Licensor hereby
grants to Licensee an exclusive (to the extent contemplated by SECTION 8) non-
transferable license to utilize the Trademarks solely upon and in connection
with the manufacturing, sale, marketing and distribution of the Goods in the
Territory.
2.2 Licensee shall not use the Trademarks, or purport to give consent to the
use of the Trademarks, in any manner or on any product, items or services,
except as specifically set forth in this Agreement.
2.3 The Goods bearing the Trademarks shall not, directly or indirectly, be
distributed, sold, or otherwise transferred or disposed of outside of the
Territory by the Licensee. Licensee shall inform its customers and distributors
that the Goods cannot be distributed, sold or otherwise disposed of outside of
the Territory. Licensee agrees that it shall not sell the Goods to any customer
or distributor that may distribute, sell or otherwise dispose of the Goods
outside of the Territory. Notwithstanding the above and Licensor's right to
terminate this Agreement as set forth in Section 10.2, if Goods are sold or
otherwise disposed outside of the Territory, royalties shall be due on any and
all such sales of Goods.
3. TERM
Subject to the earlier expiration or termination of this Agreement as provided
in SECTION 10 or otherwise herein, this Agreement shall be effective as of the
Effective Date and expire as of the close of business on August 31, 2001 (the
"Initial Term"), but shall be automatically renewed, on condition that the
parties mutually agree in writing as to the minimum royalties for any Renewal
Term, for successive three (3)-year periods provided (i) Licensee has paid to
Licensor all royalties payable for each Contract Year as set forth herein in a
timely manner and in accordance with the payment schedule, (ii) Licensee has
satisfied and/or complied with all of its obligations hereunder, and (iii)
Licensee has satisfactorily performed under the projected business plan of
Licensee, which shall be required for the Initial Term and any Renewal Term (as
hereinafter defined), and which business plan and any subsequent revisions or
updates, shall be submitted within the time frame set forth by Licensor and be
subject to Licensor's prior review and approval. Each successive three (3)-year
period shall hereinafter be referred to as a "Renewal Term." "Initial Term" and
"Renewal Term" shall collectively be referred to as the "Term."
4. GOODS
4.1 Licensee shall maintain and comply with the quality standards for the Goods
as set forth in EXHIBIT D.
4.2 To assure Licensor that the provisions of this Agreement are being
observed, Licensee shall allow Licensor either itself or, if Licensor elects in
its sole discretion, by a third party, to take any and all action necessary for
the purpose of inspecting or otherwise ensuring the quality of the Goods. If
said quality standards are not being maintained at any time during the Term or
the Termination Period (as hereinafter defined), then upon written notice from
Licensor, Licensee shall immediately discontinue the sale and distribution of
the Goods that do not meet said quality standards. Any Goods which are
defective or dangerous and fall below the quality standards shall immediately be
removed from sale and if already sold, recalled. Goods, in inventory or
elsewhere, not meeting quality standards shall not be distributed or sold.
Licensee shall take the above actions at its own expense. Since monetary damages
would not be sufficient to remedy a breach of this covenant, Licensor shall be
entitled to an immediate temporary restraining order and/or preliminary
injunction, without bond or security, to prevent Licensee from violating the
terms hereof. Licensee shall promptly reimburse Licensor for the costs of such
legal action, including costs and attorneys' fees.
4.3 Licensee shall ensure that the manner of sale, distribution and/or
exploitation by Licensee shall in no manner reflect adversely upon the good name
or value of Licensor or any of the Trademarks.
4.4 Licensee shall comply with all applicable laws and regulations relating to
the manufacture, use, sale and distribution of the Goods throughout the
Territory (and, if applicable, where the Goods are manufactured), whether
foreign, federal, state or local, including but not limited to those of the FCC,
Underwriters Laboratory and CSA, as required. Such requirements shall include,
but not be limited to, obtaining all necessary regulatory and/or governmental
approvals, as well as any registrations, permits or licenses that may be
required. Upon request, Licensee shall provide Licensor with copies of all such
approvals, registrations, permits or licenses. In any license, registration or
request for government or regulatory approval, Licensor shall be identified as
the owner of the Trademarks.
4.5 Licensee shall, promptly after its initial commercial production of the
Goods (or earlier, if available, but in no event later than sixty (60) days
prior to Licensee's first sale of any of the Goods) deliver to Licensor (without
cost to Licensor) at its facilities in Parsippany, New Jersey, U.S.A., or such
other location designated by Licensor, three (3) representative samples of each
of the Goods or particular Goods bearing the Trademarks as well as the related
packaging, advertising, labels, promotional or any other printed material used
in conjunction with the sale of the Goods. Licensor, at its sole discretion,
may disapprove of the use of any of the Goods, the quality of which is not
consistent with the quality standards set forth in this SECTION 4 or Goods which
fail to comply with proper usage of the Trademarks as defined herein.
Licensor's approval shall be deemed given if Licensor does not notify Licensee
of Licensor's disapproval of any Goods within 15 business days after receipt of
same.
4.6 All of the Goods, and all advertising, promotion, packaging or any written
material distributed by or through Licensee will, unless otherwise specifically
agreed to in writing by Licensor, bear the following legend:
"EMERSON AND THE G-CLEF LOGO ARE REGISTERED TRADEMARKS OF EMERSON
RADIO CORP., PARSIPPANY, NEW JERSEY, U.S.A."
4.7 In all cases where Licensee desires artwork involving Goods to be prepared,
the cost of such artwork and the time for the production thereof shall be borne
by Licensee. All artwork and designs involving the Trademarks, or any
reproduction thereof, shall be and remain the property of Licensor.
5. ROYALTIES TO LICENSOR
5.1 Royalties due to Licensor by Licensee for the sale of Goods shall be
calculated based upon the classification of the Goods into two product
categories: (1) voice activated products and (2) core products. Voice activated
products shall be all Goods which are activated utilizing a voice recognition
feature and do not require manual activation, and core products shall be all
Goods which are not voice activated products.
5.2 Voice activated product royalties shall be calculated based upon a
percentage of Licensee's Gross Profits as set forth in Exhibit E. For purposes
of calculating such royalties "Gross Profits" shall mean the product Sales Price
less the product's Landed Cost, as these terms are defined in Sections 1.6 and
1.8, respectively. Payment of royalties on voice activated products are due
within ten (10) calendar days after the end of each month and shall be
accompanied by a certified monthly royalty statement in the form attached as
Schedule 5.2. Such royalty statements shall be required whether or not sales of
any voice activated products have taken place during the reporting period.
5.3 Core product royalties shall be calculated based upon the royalty rates set
forth in Exhibit E, multiplied by the product Sales Price, as defined in Section
1.8, of the Goods sold by Licensee. Payment of royalties due on core products
shall accompany the quarterly statement set forth in this paragraph. Licensee
shall furnish to Licensor a certified monthly royalty statement within ten (10)
calendar days after the end of each month in the form annexed as Schedule 5.3
setting forth the sales of core products for the previous month. A certified
quarterly royalty statement in the form annexed as Schedule 5.3 shall be due
within thirty (30) calendar days after the end of each Contract Quarter, or if
terminated, within thirty (30) days after such termination, along with payment
of any royalties due in excess of the minimum royalty payments due pursuant to
Exhibit F. A certified annual royalty statement in the form annexed as Schedule
5.3 shall be due within sixty (60) calendar days after the last day of each
Contract Year and shall be certified by an independent certified public
accounting firm.
5.4 Minimum royalty payments as set forth on Exhibit F shall be due for each of
the Contract Years and shall be nonrefundable and payable in accordance with the
minimum royalty payment schedule set forth on Exhibit F. The Licensee shall be
required to pay Licensor on a quarterly basis the greater of the royalties
actually reported in Section 5.3 for the sales of core products only, or the
minimum royalty payments due. If Licensee does not pay any minimum, monthly or
quarterly royalty when due, Licensor shall have the right to terminate this
agreement pursuant to Section 10.2.
5.5 No costs, taxes or expenses incurred by Licensee in the manufacture, sale,
distribution or exploitation of the Goods, or otherwise incurred by Licensee,
shall be deducted from, or diminish in any way, or result in the reduction of,
any royalties payable to Licensor. Licensee shall be responsible for completing
in a timely manner all documentation necessary to assist Licensor in deriving
duty drawbacks. Licensee shall be responsible for and pay any taxes and file any
reports, forms or tax returns required under the income or value added tax laws
of the Territory in a timely manner. Upon written request, Licensee shall
provide Licensor with copies of all duly executed reports, forms or tax returns,
and proof of payment of any such taxes, within 45 days after such reports, forms
or tax returns are due.
5.6 The acceptance by Licensor of any of the statements furnished pursuant to
this Agreement or of any royalties paid hereunder shall not preclude Licensor
from questioning the accuracy thereof at any time during the Term or within
three (3) years after the termination of this Agreement. Royalties shall be due
on any sales of products made at a special price to Licensee's subsidiaries, or
to any other person, firm or corporation affiliated in any manner with Licensee,
its officers, directors or major stockholders, and shall be based upon the
market pricing normally charged to unaffiliated parties. On an annual basis,
within 60 days after the close of Licensee's fiscal year, Licensee will provide
Licensor with Licensee's financial statements, audited by the regularly retained
independent certified public accountants of Licensee, and prepared in accordance
with generally accepted accounting principles, consistently applied.
5.7 Licensee shall keep, maintain and preserve accurate books of account and
records relating to the license hereby granted, and Licensor and its duly
authorized representatives shall have the unqualified right during each Contract
Year to conduct two (2) examinations of all books and records of Licensee; an
examination shall be permitted to take place at all reasonable hours of the day,
to examine, copy and extract said books of account and records and of all other
documents and materials in the possession or under the control of Licensee with
respect to the subject matter and terms of this Agreement. The books of account
and records shall be kept available for inspection by Licensor for six years
after the annual audit of such books and records. If Licensor's duly authorized
representatives shall discover a discrepancy of 5% or more pursuant to any such
examination, in addition to payment of the discrepancy as set forth in Section
5.8, Licensee shall pay to Licensor the cost of such examination or audit upon
presentation of documentation appropriate to evidence such discrepancy.
5.8 Royalties found to be due as a result of Licensor's examination of (a) any
statement provided pursuant to this Section 5 or (b) Licensee's books of
accounts and records, shall be paid immediately in good funds. Any and all late
payments of royalties shall bear interest, commencing on the date originally due
and payable pursuant to the terms hereof, at an annual interest rate equal to
the prime rate as listed in the Wall Street Journal, plus three percent (3%).
6. LIMITATION OF USE AND AUTHORITY
6.1 This Agreement does not grant Licensee any right of ownership, title or
interest in the Trademarks, nor authorize Licensee to use the Trademarks except
for the purposes set forth in this Agreement. Licensee acknowledges that it does
not have and has not acquired any rights in or to the Trademarks, product names,
likenesses or any derivations of the foregoing. The Trademarks, all rights
therein and use thereof, and the goodwill pertaining thereto, whether developed
by the Licensor or the Licensee, shall inure to the benefit of and be the
exclusive property of Licensor. If applicable, Licensee shall assign to Licensor
all the Trademarks and incidental rights created by its use, together with the
goodwill relating to that part of the business in connection with which the
Trademarks are used and shall execute and deliver to Licensor such documents as
Licensor requires to register Licensee as a registered or permitted user
thereof, in accordance with any applicable laws, rules, requirements or
regulations of the Territory. The Trademark shall be displayed by Licensee,
without alteration, on all Goods sold by Licensee. Any copyright which may be
created in any article, design, label or the like, bearing any Trademark shall
be subject to the prior approval before use, and be the property of Licensor.
Upon request, Licensee shall provide Licensor with all necessary documents or
information for the purpose of perfecting Licensor's title to any Trademark
registrations, including the date of the first use of the Trademarks on the
Goods in commerce in the Territory.
6.2 Neither Licensee nor any of its Affiliates will, directly or indirectly:
- sell, manufacture or distribute any goods whatsoever under a mark similar
to the Trademark.
- register or attempt to register the Trademarks in its own name or the
name of any third party.
- register or attempt to register in its name or that of any other person
or entity affiliated with it any name or mark, corporate name or any
designation of any kind, in any language, which is the same as,
similar to or a derivative of, or otherwise utilizing any portion of the
trademarks or trade names of Licensor or any of its Affiliates.
- incorporate or form any corporation or use any name which is the same as,
or which is likely to cause confusion or mistake with, any corporate
name of Licensor or of any of its Affiliates or subsidiaries.
- re-label any of the Goods.
- use any trademark, brand or trade dress which is the same as, or which is
likely to cause confusion or mistake with any trademark, brand or
trade dress of Licensor.
7. TRADEMARK INFRINGEMENT; INDEPENDENT CONTRACTOR
7.1 Licensee will notify Licensor promptly of any of the following that may
come to Licensee's knowledge:
(a) Any alleged infringement by Licensor or Licensee of the rights of
any third parties arising out of the activities undertaken in
connection with this Agreement;
(b) Any alleged infringement of any of the Trademarks of Licensor; or
(c) Any other factors or events which reasonably may be expected to
have a material adverse effect on the promotion of the Goods under
any of the Trademarks or on Licensor's rights and interests in any
of the Trademarks.
7.2 If any third party files a lawsuit, claim or any other type of proceeding
against Licensee claiming that the use by Licensee of the Trademarks infringes
upon a valid intellectual property right belonging to such third party, Licensor
shall defend such actions at its own expense and hold Licensee harmless against
the valid claims of any such third party. Licensor may choose to settle such
lawsuit, claim or other proceeding and Licensee shall cooperate to effect any
such settlement, provided that such settlement does not materially affect
Licensee's rights hereunder. Should any of the Goods covered by this Agreement
become or in Licensor's opinion be likely to become the subject of such a claim,
Licensor may, at its option, either procure for Licensee the right to continue
selling or using such product, or replace or modify the product so that it
becomes non-infringing. However, to the extent that any settlement, judgment or
decree prohibits or restricts Licensor's right to sell the goods covered hereby,
it shall be released and discharged from any duty to Licensee to supply the
same.
7.3 If, in the opinion of Licensee, it becomes desirable to enforce any of the
Trademarks against a third party, Licensor may use reasonable efforts to do so.
If Licensor fails to enforce such Trademarks, Licensee may bring an action
against such third party in its own name or in the name of Licensor. Any such
action or other proceedings shall be at Licensee's sole expense and any monetary
relief or award obtained shall be apportioned between the parties to the extent
of their respective losses. Licensor, however, shall at any time have the right
to take over the prosecution of any such action and, in such event, any monetary
relief or award shall inure to the benefit of Licensor and Licensor shall
reimburse Licensee for reasonable expenses incurred by Licensee in prosecution
of such action.
7.4 Licensee shall furnish all reasonable assistance, at Licensor's request or
direction, to enable Licensor to assert and prosecute any claims or defend
against any action arising in connection with or related to the Trademarks and
the matters described in SECTIONS 7.1 through 7.3 above. Such assistance shall
include, but not be limited to: monitoring and reporting to Licensor any
improper or unauthorized use of the Trademarks, signing documents, giving
testimony, joining such action and asserting claims with respect to the licensed
Trademarks against third parties.
7.5 Licensee shall not use the name or credit of Licensor in any manner
whatsoever, nor incur any obligation in Licensor's name. Nothing herein
contained shall be construed to constitute the parties joint venturers, nor
shall any similar relationship be deemed to exist between them. Nothing herein
contained shall be construed as constituting Licensee as Licensor's agent or as
authorizing Licensee to incur financial or other obligations in Licensor's name
without Licensor's specific authorization in writing. Under no circumstances
shall any power be granted, or be deemed to be granted to Licensee, be deemed to
be a power coupled with an interest. The rights and powers retained by Licensor
to supervise or otherwise intervene in Licensee's activities, all as hereinabove
provided, are retained because of the necessity of protecting Licensor's
copyrights, trademarks, properties and property rights generally, and
specifically to conserve the goodwill and good name of Licensor and of the
Trademarks.
8. EXCLUSIVITY
Nothing in this Agreement shall be construed to prevent Licensor from using or
granting any other licenses for the use of the Trademarks or from utilizing the
Trademarks in any manner whatsoever, except that Licensor shall not use nor
grant any other license of the Trademarks effective during the Term of this
Agreement within the Territory in connection with the sale of the Goods listed
in Exhibit A prior to any breach of this Agreement by Licensee or termination of
this Agreement, excluding the Termination Period, as hereinafter defined.
9. GOODWILL
Licensee recognizes the great value of the goodwill associated with the
Trademarks and that the Trademarks have a secondary meaning in the mind of the
public. Licensee acknowledges and agrees that a breach by Licensee of any of
its covenants, agreements or undertakings hereunder will cause Licensor
irreparable damage, which cannot be readily remedied in damages in an action at
law, and may, in addition, constitute an infringement of Licensor's copyrights
or trademarks, and agrees that, as a result, Licensor shall be entitled to
equitable remedies, costs and attorneys' fees.
10. TERMINATION
10.1 This Agreement shall immediately terminate by its own force without notice
from Licensor upon the occurrence of any one or more of the following events:
(i) an assignment by Licensee for the benefit of creditors; (ii) a public
admission by Licensee of its insolvency; (iii) dissolution of Licensee or loss
of its charter by forfeiture or otherwise; (iv) adjudication of Licensee as
bankrupt or insolvent; (v) appointment of a trustee, liquidator or receiver for
the Licensee or a material or substantial portion of its assets, subsidiaries or
property; (vi) exercise by any court or governmental agency of jurisdiction over
the property or business of the Licensee or any substantial part thereof; (vii)
the commencement of any proceedings for the reorganization, dissolution,
liquidation or winding up of the Licensee; (viii) the filing by Licensee of a
voluntary petition in bankruptcy under any bankruptcy or insolvency law or any
law providing for Licensee's reorganization, dissolution, liquidation or winding
up, or (ix) consent by Licensee to the appointment of a receiver or trustee of
itself or of its property or any substantial part thereof.
10.2 If Licensee: (i) without prior written consent of Licensor sells, or
permits or has reason to believe a party to whom it sells Goods shall sell, any
Goods outside the Territory bearing the Trademarks; (ii) has intentionally or
negligently rendered or renders an incorrect, material representation or report
in connection with the rights granted to Licensee hereunder; (iii) commits
intentional or negligent material damage or omits or fails to take steps within
its power to prevent such damage to Licensor's business, reputation, vendor
relationships, customers or client base, distribution channels or assets or the
value of any of Licensor's tradenames, trademarks, service marks, symbols,
signs, or other distinctive marks, or the goodwill associated therewith; (iv)
fails to provide insurance substantially in accordance with the terms of SECTION
16; (v) fails to pay any royalties set forth in SECTION 5 when due; (vi)
registers or attempts to register in its own name or the name of a third party a
Trademark or any other trademark owned by the Licensor or similar to such a
trademark, or any name or mark, corporate name or any designation of any kind
which is the same as, similar to or a derivative of, or otherwise utilizing any
portion of the Trademark or trade names of Licensor or any of its Affiliates;
(vii) assigns or transfers this Agreement, including by operation of law,
without the prior written consent of Licensor; or (viii) breaches any of its
obligations hereunder, then, in addition to the rights available under law or in
equity, Licensor may notify Licensee in writing that Licensee is in default
under the terms of the Agreement. If such default is not remedied within 15
days after the delivery of such notice, Licensor shall have the right to
terminate this Agreement effective upon delivery to Licensee of notice that the
Agreement is terminated.
10.3 Upon, and notwithstanding, termination of this Agreement, Licensor shall
have the right to retain all moneys paid hereunder to date, to receive all
moneys to which it is entitled and to avail itself of any legal or other remedy
or relief available to it including, but not limited to, equitable relief to
enjoin the use of the Trademarks and the manufacture, sale and distribution of
Goods utilizing the Trademarks. Licensee shall be responsible for all costs of
such enforcement. All remedies available to Licensor hereunder are cumulative,
and Licensor may exercise any one or more remedies or rights available to it
cumulatively. The termination of this Agreement shall be without prejudice to
Licensor's rights and remedies with respect to any obligation incurred or breach
committed prior to such termination, including the right to recover for damages
caused by Licensee's breach.
10.4 Upon termination of this Agreement, Licensee shall promptly deliver to
Licensor any and all property of the Licensor in the possession, custody or
control of Licensee, including all promotional material, original artwork,
product manuals and any other material bearing the Trademarks in the possession
of Licensee, subject to the provisions of Section 10.6.
10.5 Within ten (10) days of the termination of this Agreement, Licensee shall
deliver to Licensor a statement showing the number and description of Goods on
hand or in process. Licensor shall have the right to take a physical inventory
to ascertain or verify such statement, and refusal by Licensee to submit to such
physical inventory shall forfeit Licensee's right to dispose of such inventory
as provided in SECTION 10.6 hereof.
10.6 In the event of termination by Licensor by reason of any cause contained
in SECTION 10.1 or 10.2, Licensee, its receivers, representatives, trustees,
agents, administrators and successors shall have no further right to sell,
exploit or in any way deal in or with any advertising matter, packing material,
boxes, cartons or other documentation relating thereto bearing the Trademarks,
without the express written consent of Licensor; provided, however, Licensee
shall be entitled (subject to the obligation to timely pay all Royalties) to
dispose of Goods on hand or on order at the date of termination bearing the
Trademark for a period of one year from the date of termination. This one-year
period shall be referred to herein as the "Termination Period". Nothing
contained herein shall be deemed to permit the manufacture of any Goods for
Licensee during the Termination Period, or the sale of any such improperly
manufactured Goods during the Termination Period.
11. DISTRIBUTION OF GOODS
11.1 Licensee shall use its best efforts to achieve the total gross sales
projections for core products set forth on Exhibit G. Licensee shall, during the
Term, diligently and continuously market, manufacture (or cause to be
manufactured), distribute and sell the Goods and shall make and maintain
adequate arrangements for their distribution throughout the Territory.
11.2 Licensee acknowledges that its failure to cease (or cause to cease) the
marketing, manufacture, assembly and packaging, sale or distribution of Goods or
any class or category thereof using the Trademark at the termination of this
Agreement, other than as set forth in SECTION 10.6, will result in immediate and
irreparable damage to Licensor and to the rights of any subsequent licensee.
Licensee acknowledges and admits that there is no adequate remedy at law for
such failure and that, in the event of such failure, Licensor shall be entitled
to equitable relief by way of temporary and permanent injunctions and such other
further relief as any court with jurisdiction may deem just and proper and
Licensee shall be responsible for all costs thereof.
12. SUBCONTRACTORS
The Licensee shall obtain satisfactory written evidence from any subcontractor
that is retained by Licensee that such subcontractor will not use the Trademarks
in any manner not permitted under this Agreement, in the form set forth on
SCHEDULE 12, in those instances where the subcontractor furnishes Goods or
packaging for the Goods bearing the Trademarks. Licensee shall use its best
efforts to assist and cooperate with Licensor with respect to any action by
Licensor to enforce its rights to the Trademarks against any one or more of
Licensee's subcontractors.
13. SERVICE AND SPARE PARTS
Licensee shall establish and monitor such independent service agents and centers
in the Territory as may be necessary to the service of Goods. Licensee shall
maintain a sufficient inventory of spare parts for the Goods taking into account
any order lead, requiring same, during the Term and the Termination Period.
During the Term and subsequent to the expiration or termination of this
Agreement, Licensee shall provide for after sales warranty service, if required,
and maintain a sufficient inventory of spare parts for the Goods for the
respective periods required by applicable federal or local law, or Licensee's
warranty, in the particular countries or regions throughout the Territory.
14. REPRESENTATIONS AND WARRANTIES
Each party hereby represents and warrants to the other that:
(a) It is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation.
(b) It has the full power and authority to execute and deliver this
Agreement and to perform all of its obligations hereunder, and that entry
into this agreement and the performance of its obligations hereunder do not
and shall not contravene, conflict with or result in a breach of its
certificate of incorporation, by-laws, or any other agreement to which it
is a party.
(c) The execution and delivery of this Agreement has been duly authorized
by all necessary corporate action of the party and constitutes the valid
and legally binding obligation of the party enforceable against the party
in accordance with it terms.
(d) This Agreement shall be binding on the successors, assigns and legal
representatives of both parties.
15. DISCLAIMER AND INDEMNIFICATION
15.1 Licensee shall not and does not grant any warranty or guaranty binding
Licensor or creating any liability for Licensor. Licensee will make no
statements or representations whatsoever to any third parties which, expressly
or impliedly, states or suggests that Licensor is making any warranties with
respect to the Goods. Licensor expressly disclaims any implied warranties,
including the implied warranties of merchantability and fitness for a particular
purpose.
15.2 Licensor shall have no liability or responsibility to Licensee or any
other person and/or entity arising out of or relating to the rights granted to
Licensee pursuant to this Agreement. Licensee shall defend, indemnify and hold
harmless Licensor, its employees, officers, directors, stockholders, licensees,
representatives, successors and assigns from and against any and all claims,
demands, judgments, liabilities, damages, losses, costs and expenses of any
nature (including attorneys' fees and expenses), including without limitation,
death, personal injury, bodily injury, sickness, disease, property damage, loss
of use of property or product liability arising from or related to any (i)
claim, action or omission of Licensee, its agents, employees or their families,
affiliates, distributors or subcontractors arising under this Agreement, (ii)
Licensee's failure to comply with its obligations set forth herein, (iii)
Licensee's misrepresentation of any warranties or representations, or (iv) any
action or omission arising out of the operation of Licensee's business.
16. INSURANCE
Prior to the distribution or sale of any Goods, Licensee shall purchase and
maintain or cause to be maintained, at its own cost, insurance reasonably
satisfactory to Licensor of the kinds and in the amounts specified in SCHEDULE
16 or in amounts required by law, whichever is greater, and furnish Licensor
with certificates of insurance as evidence thereof, in the prescribed form prior
to the commencement of distribution of the Goods and annually thereafter not
less than thirty (30) days prior to the expiration dates of said policies. No
change shall be made in the certificate of insurance without Licensor's prior
written approval. Licensor shall receive copies of all insurance policies.
17. CONFIDENTIALITY
17.1 Each party will use the Confidential Information received by the other
party solely for the purpose of carrying out this Agreement. Neither party will
disclose the Confidential Information to third parties without the express
written consent of an officer of the other party, unless compelled by law,
required by applicable securities rules or regulations or, in the written
opinion of counsel such disclosure is required by law. In such event, each party
shall inform the other party as far in advance as possible prior to making any
such disclosure. Notwithstanding the foregoing, Licensor shall not be required
to inform or obtain the consent of Licensee for the issuance of any press
release which utilizes, refers to or discloses sales or royalty information
relating to this Agreement, or for the reporting or filing of this Agreement in
accordance with applicable securities regulations. Each party shall cause each
of their respective officers, directors, agents or employees to whom a
disclosure of Confidential Information is made or any subcontractor, including
the manufacturer(s) of the Goods, to adhere to the terms and conditions of this
SECTION 17 as if, and to the same extent as if, he or she were a party to this
Agreement.
17.2 Upon expiration or termination of this Agreement, each party shall return
to the other party all copies of the Confidential Information of the other party
in its possession or control, except that Licensor shall not be required to
return Confidential Information provided by Licensee which has become a part of
Licensor's books and records and which pertains to historical sales and royalty
information.
18. FORCE MAJEURE
18.1 Neither party will have any liability to the other by reason of any
failure or delay in performance of any provision of this Agreement, if and to
the extent that such failure or delay is due to any occurrence (other than
financial) beyond the reasonable control of the party failing or delaying to
perform. "Beyond reasonable control" shall mean acts of God, civil disturbances,
fires, floods, explosions, or riots, war, rebellion or sabotage. The provisions
of this paragraph shall not apply to payment obligations under this Agreement.
18.2 A party seeking relief pursuant to this SECTION 18 shall, as soon as
practicable after the impediment and its effect on such party's ability to
perform become known, give written notice to the other party. Written notice
shall also be given when the impediment ceases. In any event, either party may
cancel this Agreement, upon written notice, if the impediment continues for a
period of 120 consecutive days.
19. LICENSOR'S LINE OF BUSINESS
Licensee acknowledges that Licensor is presently in the business of selling
consumer electronic products, microwave ovens and other consumer products and is
seeking alliances, joint venture partners and/or licensees with the goal of
distributing other consumer products throughout the world. Licensee acknowledges
that marketing and distribution of the foregoing (as well as any other products
which Licensor may distribute) with the Trademarks shall not constitute a breach
of this Agreement.
20. ASSIGNMENT AND SUBLICENSING
The license herein granted is personal to Licensee and may not be assigned,
transferred, sub-licensed, pledged, mortgaged or otherwise encumbered by
Licensee in whole or in part without Licensor's prior written consent. For the
purposes of this Section, the term "assigned" shall include without limitation,
transfers of (i) control, whether by merger, consolidation, reorganization or
change of management and (ii) ownership of fifty percent (50%) or more of the
outstanding securities of Licensee. Notwithstanding these restrictions, Licensee
shall notify Licensor in writing prior to any proposed change in control or
transfer of ownership of fifty percent (50%) or more of the outstanding
securities of Licensee. If Licensee is interested in continuing the terms of
this Agreement, Licensor shall determine, following receipt of all financial or
other documents or due diligence materials requested by Licensor concerning the
proposed transfer of control or ownership, whether Licensor will approve, in its
sole discretion, such change of ownership or control. Any proposed transferee
must be financially sound, knowledgeable of the type of business of Licensee,
not a competitor of Licensor, committed to quality and positioned to grow the
business. Upon Licensor's approval in its sole discretion, control may be
transferred. Absent Licensor's approval, any change in control or transfer of
ownership which occurs shall entitle Licensor to terminate this Agreement upon a
date established at Licensor's sole discretion.
21. MISCELLANEOUS
21.1 No provision of this Agreement may be changed, amended or waived, except
in a writing signed by both parties.
21.2 Any waiver on the part of any party of any right or interest hereunder
shall not imply the waiver of any subsequent breach or the waiver of any other
rights. No waiver by either party of a breach hereof or a default hereunder
shall be deemed a waiver by such party of a subsequent breach or default of like
or similar nature.
21.3 Should any provision of this Agreement prove to be invalid or
unenforceable under existing or future law, the remaining provisions of the
Agreement will remain in force in all other respects.
21.4 All notices will be in writing and in English and will be served
personally or by registered or certified mail, return receipt requested, or by
overnight courier or by facsimile transmission to each other party at its
address herein set forth, or at such other address as each party may provide to
the other in writing from time to time:
(a) If to Licensor:
Emerson Radio Corp.
Nine Entin Road
Parsippany, NJ 07054
Attention: Legal Department
[Facsimile No. (973) 428-2022]
(b) If to Licensee:
Tel-Sound Electronics, Inc.
2400 W. Copans Road #9
Pompano Beach, FL 33069
Attention: Allan Weinstein, President
[Facsimile No. (954) 984-1755]
Any such notice will be effective upon actual receipt or three (3) days after it
is deposited in the mail, postage prepaid, properly addressed and certified,
whichever occurs first.
21.5 This Agreement is the entire and sole agreement and understanding of both
parties and supersedes all other agreements, understandings and communications,
whether oral or written, regarding the subject matter hereof.
21.6 This Agreement may be executed in any number of counterparts or by
facsimile, but all counterparts and facsimiles hereof will together constitute
but one agreement. In proving this Agreement, it will not be necessary to
produce or account for more than one counterpart executed by both parties.
21.7 All disputes between the parties concerning this Agreement will be
resolved under the laws of the State of New Jersey, U.S.A., excluding the
conflicts of laws provisions thereof, and the federal and state courts of New
Jersey will have sole and exclusive jurisdiction over the parties in any such
dispute and venue shall lie exclusively in Morris County, New Jersey, or the
United States District Court for the District of New Jersey. However, it is
expressly understood that this Section shall not preclude Licensor's right to
make application for, and seek enforcement of, injunctive relief in any court
having jurisdiction.
21.8 Licensee shall strictly and fully comply with all export controls imposed
by the United States or any country or organization of nations within whose
jurisdiction Licensee operates or does business.
21.9 The respective indemnities, agreements, representations, warranties and
other statements of each of the parties hereto and the undertakings set forth in
or made pursuant to this Agreement will remain in full force and effect, and
will survive the termination of this Agreement.
21.10 Licensee shall not disseminate any press release or other announcement
relating to the transaction contemplated by this Agreement without Licensor's
prior written consent as to the contents thereof.
21.11 All payments shall be made directly by Licensee to Licensor and shall be
in U.S. Dollars.
IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
representative of each party effective as of the date set forth above.
EMERSON RADIO CORP.
A Delaware Corporation
By: /s/ John J. Raab
John J. Raab
Senior Vice-President - International
TEL-SOUND ELECTRONICS, INC.
A Florida Corporation
By: /s/ Allan Weinstein
Allan Weinstein
President
UNCONDITIONAL AND CONTINUING GUARANTEE
For good and valuable consideration, the receipt of which is hereby
acknowledged, and to induce Emerson Radio Corp. to enter into the annexed
License Agreement with Tel-Sound Electronics, Inc., the undersigned Guarantors,
which include all of the shareholders of Licensee, jointly and severally,
unconditionally guarantee the due and timely payment in full, including all
interest, fees, and charges (including but not limited to costs of collection
and attorneys' fees), of all royalty and other payment obligations (hereinafter
"obligations") of Licensee set forth in the annexed License Agreement between
Emerson Radio Corp. as Licensor ("Licensor"), and Tel-Sound Electronics, Inc. as
Licensee ("Licensee"), which is being entered into simultaneously with this
Guaranty. Guarantors further agree that if these obligations are not paid by
Licensee, the Guarantors shall, jointly and severally, pay same unconditionally
and upon demand and without set-off or counterclaim.
Guarantors further understand that this is a continuing guarantee and shall
cover all payment obligations of Licensee. If any of the obligations are not
paid when due, Licensor shall not be required to exhaust any other remedies for
recovery and collection of the guaranteed obligations, or to commence any action
or obtain a judgment against Licensee, before looking to Guarantors for payment.
Guarantors shall promptly pay any monies due upon receipt of notice and demand
therefore from Licensor. Guarantors hereby waive notice of the acceptance of
this Guaranty, notice of demand and maturity of payments to become due, notice
of default in payment by the Licensee, notice of adverse changes in the
Licensee's financial condition or prospects, or any fact which may increase the
Guarantors' liability or risk, and all such other notices required or
customarily given under like circumstances. Guarantors expressly consent that
the time of payment and performance of any obligations hereby secured may be
extended, waived or modified from time to time without notice to or consent from
the Guarantors, and Guarantors shall not be released or discharged, either in
whole or in part, notwithstanding any extension, waiver, settlement or
modification, or by Licensor's failure or delay in any respect. Nothing shall
discharge or satisfy the liability of Guarantor hereunder except the full
performance and payment of the obligations with interest.
Guarantors, for themselves, their heirs, administrators, successors and assigns,
represent that they are financially interested in Licensee and agree to be held
responsible for said obligations, precisely as if the same had been contracted
and due and owing by the Guarantors themselves, and agree to pay the obligations
on demand, for any balance that may be due and payable at any time from the
Licensee to Licensor.
This is a continuing Guaranty and shall extend to cover any renewals of the
License Agreement, any claims, demands or other matters guaranteed under this
instrument, or the extension of time of payment or performance thereof, and
shall remain in full force and effect from the effective date of the License
Agreement until any termination or expiration. Notwithstanding any such
termination or expiration, the Guarantors shall continue to remain liable for
all obligations and amounts outstanding as of such termination or expiration and
all credit and forbearances extended to the Licensee, and all costs of
collection and enforcement of such obligations and sums against the Licensee and
Guarantors.
The Guarantors represent and warrant that execution and delivery of this
instrument does not violate any provision of law, restriction or provision
contained in any instrument or agreement binding upon the Guarantors. This
Guaranty will not render the Guarantors insolvent or unable to pay their debts
as they mature, or leave them with inadequate capital. Guarantors acknowledge
that entry into this guaranty agreement is a condition to Licensor's entry into
the License Agreement with Licensor and agree to waive any defenses to the
enforcement of this Guaranee or any rights of Licensor created hereby.
This document sets forth the entire understanding between the parties with
respect to its subject matter. It may not be modified, amended or superseded,
and no provision hereof may be waived, except by a writing executed by
Guarantors and by Licensor which, by its terms makes specific reference hereto.
This document shall be construed under the laws of the State of New Jersey
applicable to contracts executed and to be fully performed in such jurisdiction,
without reference to any conflicts of laws provisions thereof. Guarantors
consent to the personal jurisdiction and venue of the courts of the State of New
Jersey, in the County of Morris, and to the personal jurisdiction and venue of
the United States District Court for the District of New Jersey. Notices and
process to Guarantors may be given by certified mail at the addresses set forth
below.
IN WITNESS WHEREOF, the Guarantors have duly executed and delivered this
Guarantee, effective as of March 30, 1998.
Allan Weinstein
/s/ Allan Weinstein /s/ Judy Bryant
(Signature) (Notary Public)
(seal)
Residing at 2400 W. Copan Rd. #9
Pompano Beach FL 33069
Harold Tattleman
/s/ Harold Tattleman /s/ Cathleen Balka
(Signature) (Notary Public)
(seal)
Residing at 807 Willow Hills Lane
Prospect Hghts. ILL 60070
Leslie Sugar
/s/ Leslie Sugar /s/ Cathleen Balka
(Signature) (Notary Public)
(seal)
Residing at 2197 Lake Shore Cir.
Arlington Hts. IL 60004
LICENSE AGREEMENT
This Agreement, dated effective as of March 31, 1998 (the "Effective Date"), is
by and between EMERSON RADIO CORP., a Delaware corporation, having a place of
business at Nine Entin Road, Parsippany, New Jersey 07054, and WW MEXICANA, S.A.
de C.V., a corporation duly organized under the laws of Mexico, having a place
of business at Carr. Picacho Ajusco No. 238 - 7o. piso, Col. Jardines en la
Montana, C.P. 14210, Mexico, D.F.
Licensor (as hereinafter defined), directly and through affiliates, distributes
a variety of consumer electronics products and microwave ovens in numerous
countries throughout the world. Licensor is the owner of certain valuable and
well-known trademarks, and the goodwill associated therewith;
Licensee (as hereinafter defined) desires to obtain a license of certain of
Licensor's trademarks in connection with the manufacturing, marketing, sale and
distribution of certain consumer electronics and other products as specifically
set forth on EXHIBIT A, together with replacement parts which may bear the
trademarks (collectively referred to herein as the "Goods");
Licensee desires to sell the Goods bearing the trademarks in the geographic
region set forth on EXHIBIT B ("Territory") and use certain of Licensor's
trademarks in conjunction therewith;
Licensor is agreeable to license the use of certain of its trademarks with
respect to the manufacturing, marketing, distribution and sale of the Goods by
Licensee in the Territory, subject to the terms and conditions of this
Agreement.
In consideration of the foregoing premises and the mutual agreements contained
herein, the following is agreed to:
1. DEFINITIONS
1.1 "Affiliate" means a person or entity who directly, or indirectly through
one or more intermediaries, controls or is controlled by or is under common
control with a specified person or entity.
1.2 "Confidential Information" means any and all information, data,
specifications, customer lists, products and services information, sales and
marketing information, vendor data, and information regarding either Licensor,
Licensee or their respective Affiliates (collectively, the "Information")
except:
(a) Information which at the time of disclosure is in the public
domain;
(b) Information which, after disclosure, through no fault of the
party receiving same, is
published or otherwise becomes part of the public domain;
(c) Information which the receiving party can document as having
been in its possession prior to the time of disclosure to it by the
other party;
(d) Information which the receiving party can document as having
been received by it on a non-confidential basis from a third party;
or
(e) Data, specifications, customer lists, products and services
information and vendor data which the receiving party created on
its own or through independent third parties without use of the
Information.
1.3 "Contract Year" means, (i) as to the first Contract Year, the period
commencing on the Effective Date of this Agreement and ending on June 30, 1999;
and (ii) each immediately subsequent full year during the term of this Agreement
commencing July 1, 1999.
1.4 "Contract Quarter" means each calendar quarter or part thereof within each
of the Contract Years.
1.5 "Goods" means those first quality new "A" stock consumer electronics and
other goods as specifically set forth on EXHIBIT A, which Exhibit may be amended
from time to time by mutual agreement to reflect additions to or the
obsolescence of one or more of the Goods.
1.6 "Sale" means sale, lease, rental, transfer, exchange or other disposition
of the Goods by Licensee. A Sale will be deemed to have occurred when the Goods
are shipped or are invoiced, whichever occurs first.
1.7 "Trademarks" means the Emerson and G-Clef design in the form set forth on
EXHIBIT C and all future form(s) of same adopted by Licensor.
1.8 "Licensor" means Emerson Radio Corp.
1.9 "Licensee" means WW Mexicana.
2. GRANT
2.1 Subject to the terms and conditions of this Agreement, Licensor hereby
grants to Licensee an exclusive (to the extent contemplated by SECTION 8) non-
transferable license to utilize the Trademarks solely upon and in connection
with the manufacturing, sale, marketing and distribution of the Goods in the
Territory.
2.2 Licensee shall not use the Trademarks, or purport to give consent to the
use of the Trademarks, in any manner or on any product, items or services,
except as specifically set forth in this Agreement.
2.3 The Goods bearing the Trademarks shall not, directly or indirectly, be
distributed, sold, or otherwise transferred or disposed of outside of the
Territory by the Licensee. Licensee shall inform its customers and distributors
that the Goods cannot be distributed, sold or otherwise disposed of outside of
the Territory. Licensee agrees that it shall not sell the Goods to any customer
or distributor if Licensee has actual knowledge that such customer or
distributor may distribute, sell or otherwise dispose of the Goods outside of
the Territory. Notwithstanding the above and Licensor's right to terminate this
Agreement as set forth in Section 10.2, if Goods are sold or otherwise disposed
outside of the Territory, Royalties (as hereafter defined) shall be due on any
and all such sales of Goods which have been made in violation of the provisions
of this paragraph.
3. TERM
Subject to the earlier expiration or termination of this Agreement as provided
in SECTION 10 or otherwise herein, this Agreement shall be effective as of the
Effective Date and expire as of the close of business on June 30, 2001 (the
"Initial Term"). At the end of the Initial Term, if (i) Licensee has paid to
Licensor all Royalties (as hereinafter defined) payable for each Contract Year
as set forth herein in a timely manner and in accordance with the payment
schedule, (ii) Licensee has satisfied and/or complied with all of its
obligations hereunder, (iii) Licensee is not in substantial default of the gross
sales projections set forth on Exhibit G, and (iv) Licensee has satisfactorily
performed under the projected business plan of Licensee, which shall be required
for the Initial Term and the Renewal Term (as hereinafter defined), and which
business plan and any subsequent revisions or updates, shall be submitted within
the time frame set forth by Licensor and be subject to Licensor's prior review
and approval, then this Agreement shall be automatically renewed for one three
(3)-year period which shall hereinafter be referred to as "Renewal Term."
"Initial Term" and "Renewal Term" shall collectively be referred to as the
"Term." A condition precedent to such renewal shall be the mutual agreement in
writing by both parties as to the minimum royalties, as defined herein, and the
gross sales projections, both of which shall be required for any Renewal Term,
provided, however, that the gross sales projections for the Renewal Term shall
be reasonable and in accordance with the economic, marketing and other factors
then prevailing in the market of the Territory in accordance with Licensee's
projections and analysis of such market conditions. In the event the parties do
not mutually agree upon such minimum royalties and gross sales projections for
the Renewal Term prior to the expiration of the Initial Term, this Agreement
shall expire at the end of the Initial Term.
4. GOODS
4.1 Licensee shall maintain and comply with the quality standards for the Goods
as set forth in EXHIBIT D.
4.2 To assure Licensor that the provisions of this Agreement are being
observed, Licensee shall allow Licensor either itself or, if Licensor elects in
its sole discretion, by a third party, to take any and all action necessary for
the purpose of inspecting or otherwise ensuring the quality of the Goods. If
said quality standards are not being maintained at any time during the Term or
the Termination Period (as hereinafter defined), then upon written notice from
Licensor, Licensee shall immediately discontinue the sale and distribution of
the Goods that do not meet said quality standards. Any Goods which are defective
or dangerous and fall below the quality standards shall immediately be removed
from sale and if already sold, recalled. Goods, in inventory or elsewhere, not
meeting quality standards shall not be distributed or sold. Licensee shall take
the above actions at its own expense. A breach or threatened breach of this
provision may be enjoined or restrained without bond or proof of actual damages
in any court having jurisdiction. and Licensee shall promptly reimburse Licensor
for all costs of such legal action.
4.3 Licensee shall ensure that the manner of sale, distribution and/or
exploitation by Licensee shall in no manner reflect adversely upon the good name
or value of Licensor or any of the Trademarks.
4.4 Licensee shall comply with all applicable laws and regulations relating to
the manufacture, use, sale and distribution of the Goods throughout the
Territory (and, if applicable, where the Goods are manufactured), whether
foreign, federal, provincial, state or local, as required. Such requirements
shall include, but not be limited to, obtaining all necessary regulatory and/or
governmental approvals, as well as any registrations, permits or licenses that
may be required. Upon request, Licensee shall provide Licensor with copies of
all such approvals, registrations, permits or licenses. In any license,
registration or request for government or regulatory approval, Licensor shall be
identified as the owner of the Trademarks.
4.5 Licensee shall, promptly after its initial commercial production of the
Goods (or earlier, if available, but in no event later than sixty (60) days
prior to Licensee's first sale of any of the Goods) deliver to Licensor (without
cost to Licensor) at its facilities in Parsippany, New Jersey, U.S.A., or such
other location designated by Licensor, three (3) representative samples of each
of the Goods or particular Goods bearing the Trademarks as well as the related
packaging, advertising, labels, promotional or any other printed material used
in conjunction with the sale of the Goods. Licensor, at its sole discretion,
may disapprove of the use of any of the Goods, the quality of which is not
consistent with the quality standards set forth in this SECTION 4 or Goods which
fail to comply with proper usage of the Trademarks as defined herein.
Licensor's approval shall be deemed given if Licensor does not notify Licensee
of Licensor's disapproval of any Goods within 15 business days after receipt of
same.
4.6 All of the Goods, and all advertising, promotion, packaging or any written
material distributed by or through Licensee will, unless otherwise specifically
agreed to in writing by Licensor, bear the following legend:
"EMERSON AND THE G-CLEF LOGO ARE REGISTERED TRADEMARKS OF EMERSON
RADIO CORP., PARSIPPANY, NEW JERSEY, U.S.A."
4.7 In all cases where Licensee desires artwork involving Goods to be prepared,
the cost of such artwork and the time for the production thereof shall be borne
by Licensee. All artwork and designs involving the Trademarks, or any
reproduction thereof, shall be and remain the property of Licensor.
5. ROYALTIES TO LICENSOR
5.1 Licensee shall pay to Licensor by wire transfer, within ten (10) days after
the signing of this Agreement, as an advance royalty payment, the amount of
$100,000. The initial royalty payment shall be non-refundable and shall be
credited solely against the first year minimum royalty payment as set forth
herein.
5.2 (a) Licensee shall also pay to Licensor as royalties ("Royalties") a sum
equal to the royalty rate for the particular category of Goods on EXHIBIT E
hereto multiplied by the "Gross Sales Value" of the Goods directly or indirectly
sold by Licensee for each particular category of Goods. The term "Gross Sales
Value" shall mean the gross invoice price of the applicable Goods as translated
into U.S. Dollars using an average monthly exchange rate based upon the exchange
rate as listed in the Wall Street Journal. Licensee shall be required to pay
certain minimum royalties for each Contract Year as set forth on Exhibit F. Such
Royalties shall be non-refundable and paid in accordance with the minimum
royalty payment schedule set forth on EXHIBIT F. If the Royalties payable to
Licensor for any Contract Quarter pursuant to Section 5.4 exceed the Minimum
Royalty for the period as set forth on EXHIBIT F, Licensee shall pay to Licensor
the difference between the Royalties actually payable for the Contract Quarter
and the Minimum Royalty for the period, upon delivery of the quarterly report
delivered pursuant to SECTION 5.5 for the Contract Quarter of the Contract Year.
If Licensee does not pay any particular minimum or other Royalty when due,
Licensor shall have the right to terminate this Agreement pursuant to SECTION
10.2.
(b) All costs and expenses incurred in the manufacture, sale, distribution or
exploitation of the Goods, or otherwise incurred by Licensee, and all taxes,
duties, levies and assessments, including sales, value added and use taxes,
pertaining to the sale of the Goods, except for taxes on the net income
realized by Licensor under this Agreement, shall be paid by Licensee. No such
costs, expenses or taxes shall be deducted from, or diminish in any way, or
result in the reduction of, any Royalties payable to Licensor. Licensee shall be
responsible for completing in a timely manner all documentation necessary to
(i) permit Licensor to refrain from collecting taxes or assessments it would
otherwise be obligated to collect in the Territory or (ii) to assist Licensor in
deriving duty drawbacks. Licensee shall pay any such taxes and file any reports,
forms or tax returns required under the income or value added tax laws of the
Territory in a timely manner. Licensee shall provide Licensor with copies of all
duly executed reports, forms or tax returns, and proof of payment of any such
taxes, within 45 days after such reports, forms or tax returns are due.
5.3 If any sale of products is made at a special price to any of Licensee's
subsidiaries or to any other person, firm or corporation affiliated in any
manner with Licensee or its officers, directors or major stockholders, there
shall be a royalty paid on such sales based upon the price generally charged the
trade by Licensee.
5.4 Except for the Minimum Royalties which shall be paid in accordance with
the payment schedule set forth on Exhibit F, Royalties are payable for each
Contract Quarter, and shall be due on the 30th day of the month following the
end of each Contract Quarter during the Term of this Agreement with the final
payment due within thirty (30) days of the termination date of this Agreement.
Payment of Royalties shall accompany the quarterly statements required by
SECTION 5.5 below. The acceptance by Licensor of any of the statements furnished
pursuant to this Agreement or of any Royalties paid hereunder shall not preclude
Licensor from questioning the accuracy thereof at any time during the Term or
within two (2) years after the termination of this Agreement.
5.5 Within ten (10) days after the end of each month, Licensee shall furnish to
Licensor a Monthly Royalty Statement in the form attached as SCHEDULE 5.5,
certified to be accurate by Licensee, providing all of the information required
by such Schedule. Within thirty (30) days after each Contract Quarter, Licensee
shall furnish to Licensor complete and accurate statements in the form attached
as Schedule 5.5, certified to be accurate by Licensee, describing the Goods
distributed and/or sold by Licensee during the preceding Contract Quarter. All
of the foregoing statements shall be furnished to Licensor whether or not any of
the Goods have been sold during the month or Contract Quarter in question. On
an annual basis, within 60 days after the close of Licensee's fiscal year,
Licensee will provide Licensor with Licensee's financial statements, audited by
the regularly retained independent certified public accountants of Licensee, and
prepared in accordance with generally accepted accounting principles,
consistently applied. Within 60 days after the end of each Contract Year,
Licensee shall furnish to Licensor an Annual Royalty Statement in the form
annexed as SCHEDULE 5.5, certified to be accurate by a national independent
Certified Public Accounting firm.
5.6 Licensee shall keep, maintain and preserve accurate books of account and
records relating to the license hereby granted, and Licensor and its duly
authorized representatives shall have the unqualified right during each Contract
Year to conduct two (2) examinations of all books and records of Licensee; an
examination shall be permitted to take place at all reasonable hours of the day,
to examine, copy and extract said books of account and records and of all other
documents and materials in the possession or under the control of Licensee with
respect to the subject matter and terms of this Agreement. The books of account
and records shall be kept available for inspection by Licensor for three years
after the annual audit of such books and records. If Licensor's duly authorized
representatives shall discover a discrepancy of 5% or more pursuant to any such
examination, in addition to payment of the discrepancy as set forth in Section
5.7, Licensee shall pay to Licensor the cost of such examination or audit upon
presentation of documentation appropriate to evidence such discrepancy.
5.7 Royalties found to be due as a result of Licensor's examination of (a) any
statement provided pursuant to Paragraph 5.5 above or (b) Licensee's books of
accounts and records, shall be paid immediately in good funds. Any and all late
payments of Royalties shall bear interest, commencing on the date originally due
and payable pursuant to the terms hereof, at an annual interest rate equal to
the prime rate as listed in the Wall Street Journal.
6. LIMITATION OF USE AND AUTHORITY
6.1 This Agreement does not grant Licensee any right of ownership, title or
interest in the Trademarks, nor authorize Licensee to use the Trademarks except
for the purposes set forth in this Agreement. Licensee acknowledges that it does
not have and has not acquired any rights in or to the Trademarks, product names,
likenesses or any derivations of the foregoing. The Trademarks, all rights
therein and use thereof, and the goodwill pertaining thereto, whether developed
by the Licensor or the Licensee, shall inure to the benefit of and be the
exclusive property of Licensor. If applicable, Licensee shall assign to Licensor
all the Trademarks and incidental rights created by its use, together with the
goodwill relating to that part of the business in connection with which the
Trademarks are used and shall execute and deliver to Licensor such documents as
Licensor requires to register Licensee as a registered or permitted user
thereof, in accordance with any applicable laws, rules, requirements or
regulations of the Territory. The Trademark shall be displayed by Licensee,
without alteration, on all Goods sold by Licensee. Any copyright which may be
created in any article, design, label or the like, bearing any Trademark shall
be subject to the prior approval before use, and be the property of Licensor.
Upon request, Licensee shall provide Licensor with all necessary documents or
information for the purpose of perfecting Licensor's title to any Trademark
registrations, including the date of the first use of the Trademarks on the
Goods in commerce in the Territory.
6.2 Neither Licensee nor any of its Affiliates will, directly or indirectly:
- sell, manufacture or distribute any goods whatsoever under a mark similar
to the Trademark.
- register or attempt to register the Trademarks in its own name or the
name of any third party.
- register or attempt to register in its name or that of any other person
or entity affiliated with it any name or mark, corporate name or any
designation of any kind, in any language, which is the same as, similar
to or a derivative of, or otherwise utilizing any portion of the
trademarks or trade names of Licensor or any of its Affiliates.
- incorporate or form any corporation or use any name which is the same as,
or which is likely to cause confusion or mistake with, any corporate
name of Licensor or of any of its Affiliates or subsidiaries.
- re-label any of the Goods.
- use any trademark, brand or trade dress which is the same as, or which is
likely to cause confusion or mistake with any trademark, brand or
trade dress of Licensor.
7. TRADEMARK INFRINGEMENT; INDEPENDENT CONTRACTOR
7.1 Licensee will notify Licensor promptly of any of the following that may
come to Licensee's knowledge:
(a) Any alleged infringement by Licensor or Licensee of the
rights of any third parties arising out of the activities undertaken
in connection with this Agreement;
(b) Any alleged infringement of any of the Trademarks of
Licensor; or
(c) Any other factors or events which reasonably may be expected
to have a material adverse effect on the promotion of the Goods under
any of the Trademarks or on Licensor's rights and interests in any of
the Trademarks.
7.2 If any third party files a lawsuit, claim or any other type of proceeding
against Licensee claiming that the use by Licensee of the Trademarks infringes
upon a valid intellectual property right belonging to such third party, Licensor
shall defend such actions at its own expense and hold Licensee harmless against
the valid claims of any such third party. Licensor may choose to settle such
lawsuit, claim or other proceeding and Licensee shall cooperate to effect any
such settlement, provided that such settlement does not materially affect
Licensee's rights hereunder. Should any of the Goods covered by this Agreement
become or in Licensor's opinion be likely to become the subject of such a claim,
Licensor may, at its option, either procure for Licensee the right to continue
selling or using such product, or replace or modify the product so that it
becomes non-infringing. However, to the extent that any settlement, judgment or
decree prohibits or restricts Licensor's right to sell the goods covered hereby,
it shall be released and discharged from any duty to Licensee to supply the
same.
7.3 If, in the opinion of Licensee, it becomes desirable to enforce any of the
Trademarks against a third party, Licensor may use reasonable efforts to do so.
If Licensor fails to enforce such Trademarks, Licensee may bring an action
against such third party in its own name or in the name of Licensor. Any such
action or other proceedings shall be at Licensee's sole expense and any monetary
relief or award obtained shall be apportioned between the parties to the extent
of their respective losses. Licensor, however, shall at any time have the right
to take over the prosecution of any such action and, in such event, any monetary
relief or award shall inure to the benefit of Licensor and Licensor shall
reimburse Licensee for reasonable expenses incurred by Licensee in prosecution
of such action.
7.4 Licensee shall furnish all reasonable assistance, at Licensor's request or
direction, to enable Licensor to assert and prosecute any claims or defend
against any action arising in connection with or related to the Trademarks and
the matters described in SECTIONS 7.1 through 7.3 above. Such assistance shall
include, but not be limited to: monitoring and reporting to Licensor any
improper or unauthorized use of the Trademarks, signing documents, giving
testimony, joining such action and asserting claims with respect to the licensed
Trademarks against third parties.
7.5 Licensee shall not use the name or credit of Licensor in any manner
whatsoever, nor incur any obligation in Licensor's name. Nothing herein
contained shall be construed to constitute the parties joint venturers, nor
shall any similar relationship be deemed to exist between them. Nothing herein
contained shall be construed as constituting Licensee as Licensor's agent or as
authorizing Licensee to incur financial or other obligations in Licensor's name
without Licensor's specific authorization in writing. Under no circumstances
shall any power be granted, or be deemed to be granted to Licensee, be deemed to
be a power coupled with an interest. The rights and powers retained by Licensor
to supervise or otherwise intervene in Licensee's activities, all as hereinabove
provided, are retained because of the necessity of protecting Licensor's
copyrights, trademarks, properties and property rights generally, and
specifically to conserve the goodwill and good name of Licensor and of the
Trademarks.
8. EXCLUSIVITY
Nothing in this Agreement shall be construed to prevent Licensor from using or
granting any other licenses for the use of the Trademarks or from utilizing the
Trademarks in any manner whatsoever, except that Licensor shall not use nor
grant any other license of the Trademarks effective during the Term of this
Agreement within the Territory in connection with the sale of the Goods listed
in Exhibit A prior to any breach of this Agreement by Licensee or termination of
this Agreement, excluding the Termination Period, as hereinafter defined, unless
otherwise mutually agreed to by the parties. Licensor acknowledges that Licensee
will incur substantial expense and effort promoting and marketing the licensed
Goods in the Territory during the Term of this Agreement. Therefore, Licensor
agrees that it shall not sell, distribute, or otherwise make available any of
the first quality new "A" stock Goods listed on Exhibit A, either directly or
indirectly, through direct sales or distribution or through sales or
distribution by any other entity in the Territory during the Term of this
Agreement.
9. GOODWILL
Licensee recognizes the great value of the goodwill associated with the
Trademarks and that the Trademarks have a secondary meaning in the mind of the
public. Licensee acknowledges and agrees that a breach by Licensee of any of
its covenants, agreements or undertakings hereunder will cause Licensor
irreparable damage, which cannot be readily remedied in damages in an action at
law, and may, in addition, constitute an infringement of Licensor's copyrights
or trademarks, and agrees that, as a result, Licensor shall be entitled to
equitable remedies, costs and attorneys' fees.
10. TERMINATION
10.1 This Agreement shall immediately terminate by its own force without notice
from Licensor upon the occurrence of any one or more of the following events:
(i) an assignment by Licensee for the benefit of creditors; (ii) a public
admission by Licensee of its insolvency; (iii) dissolution of Licensee or loss
of its charter by forfeiture or otherwise; (iv) adjudication of Licensee as
bankrupt or insolvent; (v) appointment of a trustee, liquidator or receiver for
the Licensee or a material or substantial portion of its assets, subsidiaries or
property; (vi) exercise by any court or governmental agency of jurisdiction over
the property or business of the Licensee or any substantial part thereof; (vii)
the commencement of any proceedings for the reorganization, dissolution,
liquidation or winding up of the Licensee; (viii) the filing by Licensee of a
voluntary petition in bankruptcy under any bankruptcy or insolvency law or any
law providing for Licensee's reorganization, dissolution, liquidation or winding
up, or (ix) consent by Licensee to the appointment of a receiver or trustee of
itself or of its property or any substantial part thereof.
10.2 If Licensee: (i) without prior written consent of Licensor sells, or
permits or has reason to believe a party to whom it sells Goods shall sell, any
Goods outside the Territory bearing the Trademarks; (ii) has intentionally or
negligently rendered or renders an incorrect, material representation or report
in connection with the rights granted to Licensee hereunder; (iii) commits
intentional or negligent material damage or omits or fails to take steps within
its power to prevent such damage to Licensor's business, reputation, vendor
relationships, customers or client base, distribution channels or assets or the
value of any of Licensor's tradenames, trademarks, service marks, symbols,
signs, or other distinctive marks, or the goodwill associated therewith; (iv)
fails to provide insurance substantially in accordance with the terms of SECTION
16; (v) fails to pay any Royalties set forth in SECTION 5 when due; (vi)
registers or attempts to register in its own name or the name of a third party a
Trademark or any other trademark owned by the Licensor or similar to such a
trademark, or any name or mark, corporate name or any designation of any kind
which is the same as, similar to or a derivative of, or otherwise utilizing any
portion of the Trademark or trade names of Licensor or any of its Affiliates;
(vii) assigns or transfers this Agreement, including by operation of law,
without the prior written consent of Licensor; or (viii) breaches any of its
obligations hereunder, then, in addition to the rights available under law or in
equity, Licensor shall provide written notice to Licensee that Licensee is in
default under the terms of the Agreement. The written notice to Licensee shall
specify with particularity the nature of the default and the actions required to
be taken by Licensee to remedy such default to Licensor's satisfaction in its
sole discretion. Licensee shall have thirty (30) days after the delivery of such
notice to remedy such default in compliance with the requirements of Licensor.
Thereafter, in the event Licensee has not remedied the default as set forth
above, Licensor shall have the right to terminate this Agreement effective upon
delivery to Licensee of notice that the Agreement is terminated. The parties
may, by written agreement, agree to extend beyond such thirty (30)-day period,
the period of time by which Licensee must remedy a default hereunder.
10.3 Upon, and notwithstanding, termination of this Agreement, Licensor shall
have the right to retain all moneys paid hereunder to date, to receive all
moneys to which it is entitled and to avail itself of any and all legal,
equitable or other remedies, rights or relief available to it, cumulatively,
including, but not limited to, equitable relief to enjoin the use of the
Trademarks and the manufacture, sale and distribution of Goods utilizing the
Trademarks. Licensee shall be responsible for all costs of such enforcement.
10.4 Upon termination of this Agreement, Licensee shall promptly deliver to
Licensor any and all property of the Licensor in the possession, custody or
control of Licensee, including all promotional material, original artwork,
product manuals and any other material bearing the Trademarks in the possession
of Licensee, subject to the provisions of Section 10.6.
10.5 Within ten (10) days of the termination of this Agreement, Licensee shall
deliver to Licensor a statement showing the number and description of Goods on
hand or in process. Licensor shall have the right to take a physical inventory
to ascertain or verify such statement, and refusal by Licensee to submit to such
physical inventory shall forfeit Licensee's right to dispose of such inventory
as provided in SECTION 10.6 hereof.
10.6 In the event of termination by Licensor by reason of any cause contained
in SECTION 10.1 or 10.2, Licensee, its receivers, representatives, trustees,
agents, administrators and successors shall have no further right to sell,
exploit or in any way deal in or with any advertising matter, packing material,
boxes, cartons or other documentation relating thereto bearing the Trademarks,
without the express written consent of Licensor; provided, however, Licensee
shall be entitled (subject to the obligation to timely pay all Royalties) to
dispose of Goods on hand or on order at the date of termination bearing the
Trademark for a period of one year from the date of termination. This one-year
period shall be referred to herein as the "Termination Period". Nothing
contained herein shall be deemed to permit the manufacture of any Goods for
Licensee during the Termination Period, or the sale of any such improperly
manufactured Goods during the Termination Period.
11. DISTRIBUTION OF GOODS
11.1 Licensee shall use its best efforts to achieve the total gross sales
projections set forth on Exhibit G. Licensee shall, during the Term, diligently
and continuously market, manufacture (or cause to be manufactured), distribute
and sell the Goods and shall make and maintain adequate arrangements for their
distribution throughout the Territory.
11.2 Licensee acknowledges that upon termination of this Agreement, any use of
the Trademarks, other than as set forth in SECTION 10.6, will result in
immediate and irreparable damage to Licensor and to the rights of any subsequent
licensee. In the event of any such use of the Trademarks following termination,
Licensor may seek any equitable or other relief, including enjoining such
activity, in any court having jurisdiction and Licensee shall be responsible for
all costs thereof.
12. SUBCONTRACTORS
Licensee shall obtain the written agreement, in the form set forth on SCHEDULE
12, from any subcontractor that is retained by Licensee to furnish Goods or
packaging using the Trademarks, as to the proper use of the Trademarks. If
necessary, Licensee shall use its best efforts to assist and cooperate with
Licensor to enforce its rights to the Trademarks against any of Licensee's
subcontractors.
13. SERVICE AND SPARE PARTS
Licensee shall establish and monitor such independent service agents and centers
in the Territory as may be necessary to the service of Goods. Licensee shall
maintain a sufficient inventory of spare parts for the Goods taking into account
any order lead, requiring same, during the Term and the Termination Period.
During the Term and subsequent to the expiration or termination of this
Agreement, Licensee shall provide for after sales warranty service, if required,
and maintain a sufficient inventory of spare parts for the Goods for the
respective periods required by applicable federal or local law, or Licensee's
warranty, in the Territory.
14. REPRESENTATIONS AND WARRANTIES
Each party hereby represents and warrants to the other that:
(a) It is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation.
(b) It has the full power and authority to execute and deliver this
Agreement and to perform all of its obligations hereunder, and that entry
into this agreement and the performance of its obligations hereunder do not
and shall not contravene, conflict with or result in a breach of its
certificate of incorporation, by-laws, or any other empowering document or
agreement to which it is a party.
(c) The execution and delivery of this Agreement has been duly authorized
by all necessary corporate action of the party and constitutes the valid
and legally binding obligation of the party enforceable against the party
in accordance with it terms.
(d) This Agreement shall be binding on the successors, assigns and legal
representatives of both parties.
15. DISCLAIMER AND INDEMNIFICATION
15.1 Licensee shall not and does not grant any warranty or guaranty binding
Licensor or creating any liability for Licensor. Licensee will make no
statements or representations whatsoever to any third parties which, expressly
or impliedly, states or suggests that Licensor is making any warranties with
respect to the Goods. Licensor expressly disclaims any implied warranties,
including the implied warranties of merchantability and fitness for a particular
purpose.
15.2 Licensor shall have no liability or responsibility to Licensee or any
other person and/or entity arising out of or relating to the rights granted to
Licensee pursuant to this Agreement. Licensee shall defend, indemnify and hold
harmless Licensor, its employees, officers, directors, stockholders, licensees,
representatives, successors and assigns from and against any and all claims,
demands, judgments, liabilities, damages, losses, costs and expenses of any
nature (including attorneys' fees and expenses), including without limitation,
death, personal injury, bodily injury, sickness, disease, property damage, loss
of use of property or product liability arising from or related to any (i)
claim, action or omission of Licensee, its agents, employees or their families,
affiliates, distributors or subcontractors arising under this Agreement, (ii)
Licensee's failure to comply with its obligations set forth herein, (iii)
Licensee's misrepresentation of any warranties or representations, or (iv) any
action or omission arising out of the operation of Licensee's business.
16. INSURANCE
Licensee will, at all times during the Term of this Agreement, and where
specified for the period following expiration or termination of this Agreement,
maintain the following insurance:
1. COMMERCIAL GENERAL LIABILITY insurance, with Limits of Liability of at
least $250,000 for Bodily Injury or Property Damage and
Personal/Advertising Injury. Coverage is to be afforded for CONTRACTUAL
LIABILITY (coverage will be maintained for not less than three (3) years
following expiration or termination); COMPLETED OPERATIONS AND PRODUCTS
LIABILITY (coverage will be maintained for not less than three (3) years
following expiration or termination); and INDEPENDENT CONTRACTORS (Owner's
Protective) Liability. Licensor shall be named as ADDITIONAL INSURED for
all policy coverages. Coverage will be maintained by Licensee as respects
all its operations, premises and products in the territory in which
Licensee is authorized to operate and sell products.
2. WORKERS' COMPENSATION insurance providing statutory benefits as required by
Social Security or other laws of the jurisdiction(s) in which operations
will be performed, and EMPLOYER'S LIABILITY insurance as is obtainable
under the Commercial General Liability insurance required herein.
3. PHYSICAL LOSS OR DAMAGE insurance, covering Stock, Merchandise, Inventory,
Parts and Accessories while in transit from suppliers, manufacturers or
vendors, while at warehouse, store, storage or other premises, and while
in transit to Licensee's customers.
4. "EMPLOYEE DISHONESTY" (also known as "Fidelity") insurance in an amount
sufficient to protect against any loss which may occur as a result of
employee dishonesty, covering all officers, partners,
directors and employees of Licensee. Licensee shall maintain those
requirements and safeguards necessary to ensure against such losses.
All insurance required herein shall provide that Licensee has waived all rights
of recovery against Licensor, any subsidiaries and affiliates thereof, the
stockholders or partners, directors, officers, employees, and agents of all of
them. Licensee hereby agrees to hold all parties stated herein harmless and
indemnify them for all costs and expenses incurred by any of them if any insurer
attempts subrogation despite this agreement by Licensee. Licensor will be
notified sixty (60) days in advance, by certified mail, return receipt
requested, of any cancellation, material change or non-renewal of coverage
evidenced by the certificate. A certificate or certificates of insurance from
the insurance company(ies) signed by an authorized agent or employee of the
insurance company, showing the required insurance is in force, will be provided
to Licensor prior to the distribution or sale of any Goods. All certificates of
insurance should be addressed to Licensor at the address set forth in Section
21.4(a) of this Agreement.
17. CONFIDENTIALITY
17.1 Each party will use the Confidential Information received by the other
party solely for the purpose of carrying out this Agreement. Neither party will
disclose the Confidential Information to third parties without the express
written consent of an officer of the other party, unless compelled by law,
required by applicable securities rules or regulations or, in the written
opinion of counsel such disclosure is required by law. In such event, each party
shall inform the other party as far in advance as possible prior to making any
such disclosure. Notwithstanding the foregoing, Licensor shall not be required
to inform or obtain the consent of Licensee for the issuance of any press
release which utilizes, refers to or discloses sales or royalty information
relating to this Agreement, or for the reporting or filing of this Agreement in
accordance with applicable securities regulations. Each party shall cause each
of their respective officers, directors, agents or employees to whom a
disclosure of Confidential Information is made or any subcontractor, including
the manufacturer(s) of the Goods, to adhere to the terms and conditions of this
Section as if, and to the same extent as if, he or she were a party to this
Agreement.
17.2 Upon expiration or termination of this Agreement, each party shall return
to the other party all copies of the Confidential Information of the other party
in its possession or control, except that Licensor shall not be required to
return Confidential Information provided by Licensee which has become a part of
Licensor's books and records and which pertains to historical sales and royalty
information.
18. FORCE MAJEURE
18.1 Neither party will have any liability to the other by reason of any
failure or delay in performance of any provision of this Agreement, if and to
the extent that such failure or delay is due to any occurrence (other than
financial) beyond the reasonable control of the party failing or delaying to
perform. "Beyond reasonable control" shall mean acts of God, civil disturbances,
national economic crisis (which restricts credit or makes it inaccessible with a
resulting currency devaluation in excess of 20%), fires, floods, explosions, or
riots, war, rebellion or sabotage. The provisions of this paragraph shall not
apply to payment obligations under this Agreement.
18.2 A party seeking relief pursuant to this Section shall, as soon as
practicable after the impediment and its effect on such party's ability to
perform become known, give written notice to the other party. Written notice
shall also be given when the impediment ceases. In any event, either party may
cancel this Agreement, upon written notice, if the impediment continues for a
period of 120 consecutive days.
19. LICENSOR'S LINE OF BUSINESS
19.1 Licensee acknowledges that Licensor is presently in the business of
selling consumer electronic products, microwave ovens and other consumer
products and is seeking alliances, joint venture partners and/or licensees with
the goal of distributing other consumer products throughout the world. Licensee
acknowledges that marketing and distribution of the foregoing (as well as any
other products which Licensor may distribute) with the Trademarks shall not
constitute a breach of this Agreement. However, notwithstanding anything to the
contrary contained herein, Licensor agrees that during the Term of this
Agreement, Licensor shall not seek an alliance, joint venture partner and/or
licensees within the Territory with the goal of distributing the first quality
new "A" stock Goods listed on Exhibit A, and Licensor shall not, either directly
or indirectly, by itself or through others, distribute such Goods within the
Territory without the prior written consent of Licensee.
19.2 In the event Licensor is desirous of introducing into the Territory a new
category of products not previously offered to Licensee under the terms of this
Agreement ("New Product(s)"), Licensor hereby grants to Licensee a right of
first refusal with respect to the manufacture, sale, marketing and distribution
of such New Product(s) in the Territory. In such event, Licensor shall furnish
Licensee with a description of the New Product(s) and related specifications.
Licensee shall have 30 days after receipt of such notice to advise Licensor in
writing whether it is interested in acquiring an exclusive license for such New
Product(s) for the Territory, which shall be in accordance with the terms of
this Agreement, pursuant to such notice. If Licensee is interested in acquiring
such a license, within 60 days after notifying Licensor of such interest,
Licensee shall provide Licensor with (a) reasonable and realistic monthly sales
projections for the 12 month period beginning with product availability; (b) a
market study; and (c) detailed assumptions supporting the projections, all of
which must be in a form acceptable to Licensor. In the event Licensor accepts
the market study, related sales projections and the assumptions underlying same,
Licensor shall provide Licensee with written confirmation that the New
Product(s) is added to the list of Products set forth on Exhibit A and subject
to the terms of this Agreement. Should Licensee (i) refuse such offer or (ii)
fail to exercise its rights hereunder by providing Licensor with written notice
and an acceptable market study, sales projection or underlying assumptions
within the prescribed time period, then, in any such event, Licensee's rights
hereunder with respect to such New Product(s) shall be waived and Licensor, in
its sole discretion, shall be free to sell or grant distribution or trademark
license rights with respect to such New Product(s) within the Territory,
notwithstanding anything to the contrary in this Agreement.
20. ASSIGNMENT AND SUBLICENSING
The license herein granted is personal to Licensee and may not be assigned,
transferred, sub-licensed, pledged, mortgaged or otherwise encumbered by
Licensee in whole or in part without Licensor's prior written consent. For the
purposes of this Section the term "assigned" shall include without limitation,
transfers of (i) control, whether by merger, consolidation, reorganization or
change of management and (ii) ownership of fifty percent (50%) or more of the
outstanding securities of Licensee. Notwithstanding these restrictions, Licensee
shall notify Licensor in writing prior to any proposed change in control or
transfer of ownership of fifty percent (50%) or more of the outstanding
securities of Licensee. If Licensee is interested in continuing the terms of
this Agreement, Licensor shall determine, following receipt of all financial or
other documents or due diligence materials requested by Licensor concerning the
proposed transfer of control or ownership, whether Licensor will approve, in its
sole discretion, such change of ownership or control. Any proposed transferee
must be financially sound, knowledgeable of the type of business of Licensee,
not a competitor of Licensor, committed to quality and positioned to grow the
business. Upon Licensor's approval in its sole discretion, control may be
transferred. Absent Licensor's approval, any change in control or transfer of
ownership which occurs shall entitle Licensor to terminate this Agreement upon a
date established at Licensor's sole discretion.
21. MISCELLANEOUS
21.1 No provision of this Agreement may be changed, amended or waived, except
in a writing signed by both parties.
21.2 Any waiver on the part of any party of any right or interest hereunder
shall not imply the waiver of any subsequent breach or the waiver of any other
rights. No waiver by either party of a breach hereof or a default hereunder
shall be deemed a waiver by such party of a subsequent breach or default of like
or similar nature.
21.3 Should any provision of this Agreement prove to be invalid or
unenforceable under existing or future law, the remaining provisions of the
Agreement will remain in force in all other respects.
21.4 All notices will be in writing and in English and will be served
personally or by registered or certified mail, return receipt requested, or by
overnight courier or by facsimile transmission to each other party at its
address herein set forth, or at such other address as each party may provide to
the other in writing from time to time:
(a) If to Licensor:
Emerson Radio Corp.
Nine Entin Road
Parsippany, NJ 07054
Attention: Legal Department
[Facsimile No. (973) 428-2022]
(b) If to Licensee:
WW Mexicana, S.A. de C.V.
Carr. Picacho Ajusco No. 238 - 7o piso
Col. Jardines en la Montana
C.P. 14210, Mexico, D.F.
Attention: Fernando Sanchez-Navarro M., President
[Facsimile No. (52)(5) 630-0122]
Any such notice will be effective upon actual receipt or three (3) days after it
is deposited in the mail, postage prepaid, properly addressed and certified,
whichever occurs first.
21.5 This Agreement is the entire and sole agreement and understanding of both
parties and supersedes all other agreements, understandings and communications,
whether oral or written, regarding the subject matter hereof.
21.6 This Agreement may be executed in any number of counterparts or by
facsimile, but all counterparts and facsimiles hereof will together constitute
but one agreement. In proving this Agreement, it will not be necessary to
produce or account for more than one counterpart executed by both parties.
21.7 All disputes between the parties concerning this Agreement will be
resolved under the laws of the State of New York, U.S.A., excluding the
conflicts of laws provisions thereof, and the courts of New York will have sole
and exclusive jurisdiction over the parties in any such dispute and venue shall
lie exclusively in New York County, New York. However, it is expressly
understood that this Section shall not preclude Licensor's right to make
application for, and seek enforcement of, any judgment or any injunctive relief
in any court having jurisdiction.
21.8 Licensee shall strictly and fully comply with all export controls imposed
by the United States or any country or organization of nations within whose
jurisdiction Licensee operates or does business.
21.9 The respective indemnities, agreements, representations, warranties and
other statements of each of the parties hereto and the undertakings set forth in
or made pursuant to this Agreement will remain in full force and effect, and
will survive the termination of this Agreement.
21.10 Licensee shall not disseminate any press release or other announcement
relating to the transaction contemplated by this Agreement without Licensor's
prior written consent as to the contents thereof.
21.11 All payments shall be made directly by Licensee to Licensor and shall be
in U.S. Dollars.
21.12 The parties have requested that this Agreement be drawn up and
interpreted in the English language.
IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
representative of each party effective as of the date set forth above.
EMERSON RADIO CORP.
A Delaware Corporation
By: /s/ John J. Raab
John J. Raab
Senior Vice President - International
WW MEXICANA, S.A. DE C.V.
A Mexican Corporation
By: /s/ Fernando Sanchez-Navarro M.
Fernando Sanchez-Navarro M.
President
AMENDMENT NO. 7 TO FINANCING AGREEMENTS
As of March 31, 1998
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"; and 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,
by and 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,
Amendment No. 5 to Financing Agreements, dated February 18, 1997, and Amendment
No. 6 to Financing Agreements, dated August 14, 1997 (as amended, 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 Loan Agreement.
Borrower has requested that Lender agree to certain amendments to the
Financing Agreements, and Lender is willing to agree to such amendments, subject
to the terms and conditions set forth herein.
In consideration of the foregoing, the mutual agreements and covenants
contained herein and other good and valuable consideration, the parties hereto
agree as follows:
1. MAXIMUM CREDIT. The reference to "$30,000,000" in Section 1.34 of the
Loan Agreement, as previously amended, is hereby deleted and replaced with
"$10,000,000".
2. LETTER OF CREDIT ACCOMMODATIONS. The reference to "$15,000,000" in
Section 2.2(d) of the Loan Agreement, as previously amended, is hereby deleted
and replaced with "$5,000,000".
3. ADJUSTED NET WORTH.
(a) Section 1.2 of the Loan Agreement is hereby deleted in its
entirety and replaced with the following:
"1.2 "Adjusted Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP on a consolidated basis with such Person's
subsidiaries (except as otherwise specifically set forth below), the
amount equal to: (a) the difference between: (i) the aggregate net
book value of all assets of such Person and its subsidiaries,
calculating the book value of inventory, for this purpose on a first-
in-first-out basis, after deducting from such book values all
appropriate reserves in accordance with GAAP (including all reserves
for doubtful receivables, obsolescence, depreciation and amortization)
and (ii) the aggregate amount of the indebtedness and other
liabilities of such Person and its subsidiaries (including tax and
other proper accruals), plus (b) indebtedness of such Person and its
subsidiaries which is subordinated in right of payment to the full and
final payment of all of the Obligations on terms and conditions
acceptable to Lender."
(b) Section 9.14 of the Loan Agreement, as previously amended, shall
be deleted in its entirety and replaced with the following, effective as of the
date hereof:
"9.14 ADJUSTED NET WORTH. Emerson shall, at all
times, maintain, on a consolidated basis with its subsidiaries,
Adjusted Net Worth of not less than $10,000,000."
4. REVOLVING LOAN FORMULAS.
Section 2.1(a) of the Loan Agreement is hereby deleted in its entirety
and replaced with the following:
"2.1 LOANS.
(a) Subject to, and upon the terms and conditions
contained herein, Lender agrees to make Loans to Borrower from time to
time in amounts requested by Borrower up to the amount equal to:
(i) the sum of:
(A) the lesser of:
(1) $500,000; or
(2) sixty (60%) percent of the
Net Amount of Eligible Accounts of Emerson;
plus
(B) fifty-five (55%) percent of the
Value of Eligible Inventory consisting of first quality
finished goods of Emerson; plus
(C) twenty (20%) percent of the Value
of Eligible Inventory of Emerson consisting of finished
goods returned to Emerson by its customers, that is both (a)
owned by Emerson and (b) in the possession of Emerson or in
public warehouses under Emerson's control; less
(ii) any Availability Reserves."
None of the Inventory or Accounts of the Eligible Subsidiary shall be considered
Eligible Inventory or Eligible Accounts and no Loans or Letter of Credit
Accommodations shall be available in respect thereof. The "Canadian Sublimit"
as referred to in Section 2.1(e) of the Loan Agreement is hereby reduced to zero
($0). The last sentence of Section 2.1(c) of the Loan Agreement, as previously
amended, is hereby further amended by changing the reference to "$20,000,000"
contained therein to "$10,000,000".
5. UNUSED LINE FEE. Section 3.4 of the Loan Agreement, as previously
amended, is hereby deleted in its entirety and replaced with the following:
"3.4 UNUSED LINE FEE. Borrower shall pay to Lender
monthly an unused line fee calculated at the rate of nine-tenths
(.9%) percent per annum upon the amount by which $10,000,000
exceeds the average daily principal balance of the
outstanding Loans and Letter of Credit Accommodations
during the immediately preceding month (or part thereof) while the
Agreement is in effect and for so long thereafter as any of the
Obligations are outstanding, which fee shall be payable on the first
day of each month, in arrears."
6. RENEWAL DATE. The reference to "the date four (4) years from the date
hereof" contained in Section 12.1(a) of the Loan Agreement, as previously
amended, is hereby deleted and replaced with the following: "March 31, 2001".
7. EARLY TERMINATION FEE.
Section 12.1(c) of the Loan Agreement shall be deleted in its entirety
and replaced by the following:
"(c) If for any reason this Agreement is terminated
prior to the end of the then current term or renewal term of
this Agreement, in view of the impracticality and extreme
difficulty of ascertaining actual damages and by mutual
agreement of the parties as to a reasonable calculation of
Lender's lost profits as a result thereof, Borrower agrees to
pay to Lender, upon the effective date of such termination,
an early termination fee in the amount of one percent (1%)
of the Maximum Credit."
The provisions of Section 9(b) of Amendment No. 1 to Financing Agreements and of
Section 6(b) of Amendment No. 4 to Financing Agreements are no longer applicable
and are hereby deleted.
8. RELEASE OF PORTIONS OF PLEDGED COMMON STOCK AND WARRANTS. Lender
agrees to release from the Collateral all except 500,000 shares of the common
stock of Sport Supply Group Inc. previously pledged by Emerson to Lender and all
of the common stock warrants issued by Sport Supply Group Inc. previously
pledged by Emerson to Lender pursuant to the Pledge and Security Agreement,
dated December 10, 1996, by Emerson in favor of Lender, subject to the terms and
conditions contained herein and as provided in Amendment No. 1 to Pledge and
Security Agreement executed and delivered by Emerson in favor of Lender as of
the date hereof.
9. CONDITIONS PRECEDENT. The effectiveness of the other terms and
conditions contained herein shall be subject to
(a) the receipt by Lender of each of the following, in form and
substance satisfactory to Lender:
(i) an original of this Amendment, duly authorized, executed an
delivered by Borrower and consented and agreed to by the other Obligors; and
(ii) an original of Amendment No. 1 to Pledge and Security
Agreement, duly authorized, executed and delivered by Emerson; and
(b) no Event of Default shall exist or have occurred, and no event or
condition, which with the giving of notice or passage of time, or both, would
constitute an Event of Default, shall exist or have occurred.
10. 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 Loan Agreement and the
other 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, the Loan Agreement and the other Financing
Agreements, the terms of this Amendment shall control.
(b) GOVERNING LAW. This Amendment and the right 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/ Josephine Norris
Title: 1st VP
[SIGNATURES CONTINUED ON THE NEXT PAGE]
[SIGNATURES CONTINUED FROM THE PREVIOUS PAGE]
AGREED AND ACCEPTED:
EMERSON RADIO CORP.
By: /s/ John Walker
Title: EVP, CFO
MAJEXCO IMPORTS, INC.
By: /s/ John Walker
Title: SVP - Finance - Treasurer
CONSENTED TO AND AGREED:
H. H. SCOTT, INC.
EMERSON COMPUTER CORP.
By: /s/ John Walker
Title: SVP - Finance - Treasurer
EMERSON RADIO CANADA LTD.
By: /s/ John Walker
Title: Treasurer
EMERSON RADIO & TECHNOLOGIES N.V.
By: /s/ John Walker
Title: SVP - Finance - Treasurer
AMENDMENT NO. 1 TO PLEDGE AND SECURITY AGREEMENT
As of March 31, 1998
Emerson Radio Corp.
Majexco Imports, Inc.
9 Entin Road
Parsippany, New Jersey 07054
Gentlemen:
Congress Financial Corporation ("Pledgee"), Emerson Radio Corp. ("Pledgor")
and Majexco Imports, Inc. ("Majexco", and together with Pledgor, individually
and collectively, the "Borrower") have entered into certain financing
arrangements pursuant to the Loan and Security Agreement, dated March 31, 1994,
between Pledgee 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,
Amendment No. 5 to Financing Agreements, dated February 18, 1997, Amendment No.
6 to Financing Agreements, dated August 14, 1997 and Amendment No. 7 to
Financing Agreements dated as of the date hereof (as amended, the "Loan
Agreement"), together with various other agreements, documents and instruments
at any time executed and/or delivered in connection therewith or related
thereto, including, but not limited to, a certain Pledge and Security Agreement,
dated December 10, 1996, by Pledgor in favor of Pledgee ("Pledge Agreement") (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 shall have the meanings
assigned thereto in the Pledge Agreement, unless otherwise defined herein.
In connection with Amendment No. 7 to Financing Agreements, Pledgor has
requested that Pledgee release certain of the Pledge Securities and agree to
amend the Pledge Agreement by reason thereof, and Pledgee is willing to effect
such release and to enter into such amendment, 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. RELEASE. Pledgee hereby releases from the Pledged Securities (i) all
shares of the common stock of Sport Supply Group, Inc. ("SSG") constituting part
of the Pledged Stock on the date hereof, except for 500,000 shares thereof (the
"Retained SSG Pledged Shares'), which shall remain Pledged Stock and Pledged
Securities, and which shall remain part of the Pledged Property, and (ii) all
warrants issued by SSG constituting the Pledged Warrants on the date hereof. As
soon as practicable following the date hereof, Pledgee shall deliver to the
transfer agent for the common stock of SSG, the Certificate No. GYM 7162
evidencing 1,600,000 shares of common stock of SSG heretofore pledged to
Pledgee, accompanied by a written request by Pledgee, which shall be confirmed
or joined in by Pledgor, addressed to such transfer agent requesting that (x)
such Certificate No. GYM 7162 be exchanged for two newly issued certificates,
each registered in the name of Pledgor, for 1,100,000 shares and 500,000 shares
of common stock of SSG, respectively, (y) the new certificate evidencing
the 1,100,000 shares of SSG common stock be delivered to Pledgor, and (z)
the new certificate evidencing the 500,000 shares of SSG common stock be
delivered to Pledgee.
2. PLEDGED SECURITIES. Exhibit A to the Pledge Agreement is hereby
deleted and replaced in its entirety with Amended Exhibit A annexed hereto,
which Pledgee is authorized by Pledgor to complete with the certificate number
of the certificate evidencing the Retained SSG Pledged Shares. Pledgor shall
execute and deliver to Pledgee five (5) stock powers, undated and in blank, with
signature guarantee and medallion guarantee, with respect to the new stock
certificate evidencing the 500,000 shares of SSG common stock.
3. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective
only upon the satisfaction of all conditions to the effectiveness of Amendment
No. 7 to Financing Agreements, dated of even date herewith, by and between
Pledgor, Pledgee and certain affiliates of Pledgor.
4. EFFECT OF THIS AMENDMENT. Except as specifically modified pursuant
hereto, no other changes or modifications to the Pledge Agreement are intended
or implied and in all other respects, the Pledge Agreement is hereby
specifically ratified, restated and confirmed by Pledgor as of the date hereof.
To the extent of any conflicts between the terms of this Amendment and the
Pledge Amendment, the terms of this Amendment shall control. Except as
expressly stated herein, nothing contained herein shall be construed in any
manner to constitute a waiver, release or termination or to otherwise limit or
impair any of the Obligations or any duties or responsibilities of Borrower or
Pledgor to Pledgee under the Financing Agreements.
5. 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.
6. 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.
7. 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/ Josephine Norris
Title: 1st VP
AGREED AND ACCEPTED:
EMERSON RADIO CORP.
By: /s/ John P. Walker
Title: EVP, CFO
CONSENTED TO AND AGREED:
MAJEXCO IMPORTS, INC.
By: /s/ John P. Walker
Title: SVP - Finance - Treasurer
H. H. SCOTT, INC.
EMERSON COMPUTER CORP.
By: /s/ John P. Walker
Title: SVP - Finance - Treasurer
[SIGNATURES CONTINUED ON THE NEXT PAGE]
[SIGNATURES CONTINUED FROM THE PREVIOUS PAGE]
EMERSON RADIO CANADA LTD.
By: /s/ John Walker
Title: Treasurer
EMERSON RADIO & TECHNOLOGIES N.V.
By: /s/ John Walker
Title: SVP - Finance - Treasurer
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<FISCAL-YEAR-END> APR-03-1998
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<SALES> 157,133
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SECOND LEASE MODIFICATION AGREEMENT
THIS SECOND LEASE MODIFICATION AGREEMENT, made this 15 day of May, 1998 by
and between HARTZ MOUNTAIN PARSIPPANY, a New Jersey general partnership having
an office at 400 Plaza Drive, Secaucus, New Jersey 07094 (hereinafter referred
to as "Landlord") and EMERSON RADIO CORP., a Delaware corporation having an
office at 9 Entin Road, Parsippany, NJ 07054-0430 (hereinafter referred to as
"Tenant").
WITNESSETH:
WHEREAS, by Agreement of Lease dated March 26, 1993, as amended by First
Lease Modification Agreement dated July 23, 1993 (collectively the "Lease"),
Landlord leased to Tenant and Tenant hired from Landlord approximately 40,646.75
square feet of Floor Space located at on the second floor of 9 Entin Road in
Parsippany, New Jersey (hereinafter the "Original Demised Premises"); and
WHEREAS, Landlord and Tenant wish to modify the Lease (a) to reflect a
decrease in the area of the Demised Premises and (b) to extend the Term of the
Lease for an additional five (5) years beyond the current Expiration Date of
July 31, 1998, and amend the Lease accordingly;
NOW, THEREFORE, for and in consideration of the Lease, the mutual covenants
herein contained and the consideration set forth herein, the parties agree as
follows:
1. The Term of the Lease is hereby extended for a period of five years from
August 1, 1998 until July 31, 2003 (the "Extended Period").
2. During the Extended Period, the Fixed Rent will be at the rate of Twenty
Dollars ($20.00) per annum multiplied by the Floor Space of the New Demised
Premises, as defined below.
3. On or before July 31, 1998, Tenant will vacate and surrender in broom-clean
condition and otherwise in compliance with all provisions in the Lease
concerning surrender of Demised Premises, the portion of the Original Demised
Premises outlined in yellow on Exhibit A, attached hereto (the "Released
Premises").
4. Effective August 1, 1998, provided that Tenant has complied with paragraph
3, above, the Demised Premises will be reduced to 19,216 square feet as outlined
in red on the attached Exhibit A (the "New Demised Premises"). From and after
the later of the date that the Released Premises are vacated by Tenant or August
1, 1998, all reference in the Lease to the Demised Premises shall be deemed to
refer to the New Demised Premises.
5. Landlord will, at its sole cost and expense, demise the New Demised
Premises from the Original Demised Premises including, but not limited to,
construction of a demising wall separating the New Demised Premises and the
Original Demised Premises and separating the HVAC and electrical systems.
6. Effective August 1, 1998, provided Tenant has complied with paragraph 3,
above, Tenant's Fraction will be reduced to 10%.
7. Effective August 1, 1998, the number of Tenant's reserved parking spaces
will be reduced to eight (8).
8. Article 21.06 of the Lease and Section R2 of the Rider to Lease are hereby
deleted.
9. Amending Article 21.07 of the Lease, Tenant will be permitted to maintain
its existing exterior signage on the Building until such time as Landlord
requests its removal. At that time, Tenant shall promptly properly remove same
and restore the affected area or Landlord shall do so at Tenant's expense.
10. Notices to the Tenant pursuant to Article 34.01 of the Lease are to be sent
to the attention of the Legal Department.
11. The following language is hereby inserted at the end of 3.05 of the Lease:
In the event that any check tendered by Tenant to Landlord is returned for
insufficient funds, Tenant shall pay to Landlord, in addition to the charge
imposed by the preceding sentence, a fee of $25.00.
12. The following language is hereby inserted at the end of Article 11.08. of
the Lease:
Notwithstanding anything contained in this Lease to the contrary, Landlord
shall not be obligated to entertain or consider any request by Tenant to
consent to any proposed assignment of this Lease or sublet of all or any
part of the Demised Premises unless each request by Tenant is accompanied
by a non-refundable fee payable to Landlord in the amount of One Thousand
Dollars ($1,000.00) to cover Landlord's administrative, legal, and other
costs and expenses incurred in processing each of Tenant's requests.
Neither Tenant's payment nor Landlord's acceptance of the foregoing fee
shall be construed to impose any obligation whatsoever upon Landlord to
consent to Tenant's request.
13. Both parties represent that no broker was instrumental in bringing about or
consummating this Second Lease Modification Agreement and that neither party had
conversations or negotiations with any broker concerning the Second Lease
Modification. Tenant agrees to indemnify and hold harmless Landlord against and
from any claims for any brokerage commissions and all costs, expenses and
liabilities in connection therewith, including, without limitation, reasonable
attorneys' fees and expenses, arising out of any conversations or negotiations
had by Tenant with any broker.
14. Except as provided herein, all of the terms and conditions of the
Lease dated as amended above are in full force and effect and are confirmed
as if fully set forth herein.
IN WITNESS WHEREOF, the parties hereto have caused this Second Lease
Modification Agreement to be duly executed as of the day and year first above
written.
ATTEST: HARTZ MOUNTAIN PARSIPPANY
BY: HARTZ MOUNTAIN INDUSTRIES, INC.
/s/ Witness By: /s/ Irwin A. Horowitz
Irwin A. Horowitz
Executive Vice President
ATTEST: EMERSON RADIO CORP.
/s/ Witness By: /s/ John P. Walker
John P. Walker
Chief Financial Officer
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 33-63515) pertaining to the Stock Compensation Program and 1994
Non-Employee Director Stock Option Plan of Emerson Radio Corp. of our report
dated July 1, 1998, with respect to the consolidated financial statements and
schedule of Emerson Radio Corp. and Subsidiaries included in the Annual Report
(Form 10-K) for the year ended April 3, 1998.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
July 1, 1998
