<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
EMERSON RADIO CORP.
(Name of Issuer)
Common Stock, par value $0.01 per share
(Title of Class of Securities)
291087
(CUSIP Number)
Kenneth S. Grossman Kenneth Liang
c/o Juris Partners Managing Director & General Counsel
579 Fifth Avenue, Suite 1050 Oaktree Capital Management, LLC
New York, New York 10017 333 South Grand Avenue, 28th Floor
(212) 593-0909 Los Angeles, California 90071
(213) 830-6300
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
December 15, 1998
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE> 2
<TABLE>
<CAPTION>
SCHEDULE 13D
<S> <C> <C>
- ----------------------------------------------- ------------------------------------------------
CUSIP NO. 291087 PAGE 2 OF 9 PAGES
------------------ ----- -----
- ----------------------------------------------- ------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Kenneth Grossman
- ---------------------------------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
- ---------------------------------------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ---------------------------------------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS
PF
- ---------------------------------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ---------------------------------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
- ---------------------------------------------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES None
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH
------------------------------------------------------------------------------------------------------------
8 SHARED VOTING POWER
3,483,134.7
-----------------------------------------------------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
None
-----------------------------------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
3,483,134.7
- ---------------------------------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,483,134.7
- ---------------------------------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
- ---------------------------------------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.7%
- ---------------------------------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
SCHEDULE 13D
<S> <C> <C>
- ----------------------------------------------- ------------------------------------------------
CUSIP NO. 291087 PAGE 3 OF 9 PAGES
------------ ----- -----
- ----------------------------------------------- ------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Oaktree Capital Management, LLC
- ---------------------------------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
- ---------------------------------------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ---------------------------------------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS
OO
- ---------------------------------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ---------------------------------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
- ---------------------------------------------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES None
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH
----------------------------------------------------------------------------------------------------------
8 SHARED VOTING POWER
3,483,134.7
----------------------------------------------------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
None
----------------------------------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
3,483,134.7
- --------------------------------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,483,134.7
- --------------------------------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
- --------------------------------------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.7%
- --------------------------------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IA;OO
- -------------- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
SCHEDULE 13D
<S> <C> <C>
- ----------------------------------------------- ------------------------------------------------
CUSIP NO. 291087 PAGE 4 OF 9 PAGES
----------- ----- -----
- ----------------------------------------------- ------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
OCM Principal Opportunities Fund, L.P.
- ---------------------------------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
- ---------------------------------------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ---------------------------------------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC
- ---------------------------------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ---------------------------------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- ---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY None
OWNED BY
EACH
REPORTING
PERSON WITH
------------------------------------------------------------------------------------------------------------
8 SHARED VOTING POWER
3,483,134.7
------------------------------------------------------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
None
------------------------------------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
3,483,134.7
- ---------------------------------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,483,134.7
- ---------------------------------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
- ---------------------------------------------------------------------------------------------------------------------------------\
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.7%
- ---------------------------------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
PN
- -------------- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 5
This Amendment No. 1 (this "Statement") amends and restates in its entirety the
statement on Schedule 13D of Kenneth S. Grossman, Oaktree Capital Management,
LLC and OCM Principal Opportunities Fund, L.P. filed with the Securities and
Exchange Commission on May 13, 1998.
ITEM 1. SECURITY AND ISSUER
This Statement relates to Common Stock, par value $0.01 per share (the "Common
Stock"), of Emerson Radio Corp., a Delaware corporation (the "Issuer"). The
address of the principal executive office of the Issuer is Nine Entin Road,
Parsippany, New Jersey, 07054.
ITEM 2. IDENTITY AND BACKGROUND
(a) - (c) & (f)
This Statement is filed on behalf of:
(i) Kenneth S. Grossman ("Grossman");
(ii) Oaktree Capital Management, LLC, a California limited liability
company ("Oaktree"); and
(iii) OCM Principal Opportunities Fund, L.P., a Delaware limited
partnership of which Oaktree is the general partner (the "Oaktree
Fund").
Grossman and the Oaktree Fund are referred to in this Statement together as the
"Investors."
(i) Grossman
The address of the principal business and principal office for Grossman is c/o
Juris Partners, 579 Fifth Avenue, Suite 1050, New York, New York 10017. The
principal business of Grossman is asset management, investment advisory
services, and investing in distressed and undervalued public and private
securities for his own and affiliated accounts. Grossman is a citizen of the
United States of America.
(ii) Oaktree
The address of the principal business and principal office for Oaktree is 333
South Grand Avenue, 28th Floor, Los Angeles, California 90071. The principal
business of Oaktree is to provide investment advice and management services to
institutional and individual investors. The members and executive officers of
Oaktree are listed below. The principal address for each member and executive
officer of Oaktree is 333 South Grand Avenue, 28th Floor, Los Angeles,
California 90071. All individuals listed below are citizens of the United States
of America.
Executive Officers and Members
Howard S. Marks Chairman and Principal
Bruce A. Karsh President and Principal
Sheldon M. Stone Principal
David Richard Masson Principal
Larry Keele Principal
Russel S. Bernard Principal
Stephen A. Kaplan Principal
David Kirchheimer Managing Director and Chief Financial and
Administrative Officer
Kenneth Liang Managing Director and General Counsel
(iii) The Oaktree Fund
The address of the principal business and principal office for the Oaktree Fund
is 333 South Grand Avenue, 28th Floor, Los Angeles, California 90071. The
principal business of the Oaktree Fund is to invest in entities over which there
is a potential for the Oaktree Fund to exercise significant influence. The
Oaktree Fund is an investment partnership, and
5 of 9
<PAGE> 6
Oaktree is its sole general partner. (See information in section (ii) above
regarding Oaktree and its members and executive officers.) The names and
addresses of the portfolio managers of the Oaktree Fund are listed below. All
individuals listed below are citizens of the United States of America.
Bruce A. Karsh
333 South Grand Avenue, 28th Floor
Los Angeles, California 90071
Stephen A. Kaplan
333 South Grand Avenue, 28th Floor
Los Angeles, California 90071
(d) & (e)
During the last five years, none of Grossman, Oaktree or the Oaktree Fund, nor
to the best of their knowledge any of their respective executive officers,
directors, general partners, members or portfolio managers (i) has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) has been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
The Oaktree Fund owns $13,239,000 in principal amount of the Issuer's 8-1/2%
Senior Subordinated Convertible Debentures Due 2002 (the "Debentures"), having
paid an aggregate of $11,341,979.89 for such Debentures. All purchases were
made from working capital of the Oaktree Fund.
Grossman, including family members and affiliated entities, owns $650,000 in
principal amount of the Debentures, having paid an aggregate of $447,687.50 for
such Debentures. All purchases were made from personal funds.
As of the date of this Statement, the Investors beneficially own 3,483,134.7
shares of Common Stock, which is approximately 6.7% of the Issuer's outstanding
Common Stock issuable upon conversion of the $13,889,000 in principal amount of
the Debentures.
ITEM 4. PURPOSE OF TRANSACTION
The Investors acquired the Debentures for investment purposes in connection with
the Investors' investigation of a possible restructuring of the Issuer's balance
sheet and asset deployment strategy in a manner which produces a favorable
return on the Investors' investment. Potential restructuring strategies include,
but are not limited to, the acquisition of a controlling Common Stock stake by
the Investors or others, the redemption of Debentures and/or the Issuer's
outstanding Preferred Stock, an exchange of the Investors' securities, property,
or cash for assets of the Issuer including the securities of the Issuer's
minority owned subsidiary, a sale of the Issuer's shares of such subsidiary in
one or more public or private transactions or a divestiture or spin-off of such
subsidiary, a change of certain members of the Issuer's present Board of
Directors, a possible replacement or renegotiation of the Issuer's working
capital facility or other extraordinary transactions.
As a result of these investigations, the Investors have decided to attempt to
acquire a controlling Common Stock stake in the Issuer. In furtherance of that
attempt, the Investors have made a proposal, attached hereto as Exhibit 1.3 and
incorporated herein by reference (the "Proposal"), to Petra Stelling, Thomas
Hackett and Barclays Bank (collectively,the "Creditors"), which if consummated
would result in the Investors acquiring an additional 29,152,542 shares of
Common Stock. The Creditors have advised the Investors that they will recommend
to the United States District Court for the District of New Jersey (the
"Court") that the Investors be permitted to commence a due diligence
investigation of the Issuer as contemplated by the Proposal and have also
indicated their support of the Proposal. Consummation of the transaction
described in the Proposal is subject to a number of conditions described
therein.
6 of 9
<PAGE> 7
Should the Investors acquire a controlling stake in the Issuer, it is
anticipated that as a result of such acquisition at least a majority of the
Issuer's Board of Directors will be nominees of the Investors and that the chief
executive officer of the Issuer will be replaced. Currently, the Investors do
not anticipate changing any other senior members of the Issuer's management but
reserve the right, after completion of their due diligence and the transaction
contemplated by the Proposal, to replace other senior members of the Issuer's
management.
The Investors reserve the right to withdraw or modify the Proposal at any time,
to continue to pursue other possible restructuring strategies as outlined above,
and subject to applicable law and the Issuer's charter, to seek to call a
special meeting of shareholders, to propose business or nominate directors at
any special or scheduled meeting of shareholders, to seek proxies, consents
and/or ballots in support of nominees at special or scheduled meetings of
shareholders or otherwise or in support of or against other matters that may
come before the Issuer's shareholders for their vote or consent.
The Investors intend to review on a continuing basis their investment in the
Debentures. The Investors may, from time to time, retain, convert, sell or
exchange all or a portion of their holdings of the Debentures in the open market
or in privately negotiated transactions. Any actions that the Investors might
undertake with respect to the Debentures will be dependent upon their review of
numerous factors, including, among other things, the availability of Debentures
for purchase, the price levels of such Debentures, general market and economic
conditions as well as those in the areas in which the Issuer's properties are
located, ongoing evaluation of the Issuer's business, financial condition,
properties, operations and prospects, the relative attractiveness of alternative
business and investment opportunities, the actions of the Management, the Board
of Directors and/or the Creditors of the Issuer and other future developments
including future rulings of the Court, if any.
Although the foregoing reflects activities presently contemplated by the
Investors with respect to the Issuer, the foregoing is subject to change at any
time, and there can be no assurance that the Investors, either alone or with
others, will take any of the actions referred to above. Except as set forth
above, the Investors have no present plans or proposals which would result in or
relate to any of the transactions described in subparagraphs (a) through (j) of
Item 4 of Schedule 13D.
ITEM 5. INTEREST AND SECURITIES OF THE ISSUER
(a) Each of the Investors and Oaktree, as general partner of the Oaktree Fund,
may be deemed to beneficially own 3,483,134.7 shares of Common Stock or 6.7% of
the Common Stock outstanding (based on 48,621,815 shares of Common Stock
outstanding on November 9, 1998 as reported on the Issuer's Quarterly Report on
Form 10-Q for the quarterly period ending October 2, 1998). This consists
entirely of 3,483,134.7 shares of Common Stock issuable upon conversion of
$13,889,000 of the Debentures based on a conversion price of $3.9875. To the
best of the Investors' and Oaktree's knowledge, none of the other people named
in response to Item 2 own any securities of the Issuer.
(b) Oaktree, as the general partner of the Oaktree Fund, has discretionary
authority and control over all of the assets of the Oaktree Fund pursuant to the
partnership agreement for the Oaktree Fund, including the power to vote and
dispose of the Issuer's Common Stock held in the name of the Oaktree Fund.
Pursuant to a letter agreement dated as of January 7, 1998, between the
Investors, Oaktree and the Oaktree Fund have discretionary authority and control
over the investments of the Investors including the securities owned by
Grossman, including discretionary authority to vote and dispose of the Issuer's
Common Stock held by Grossman.
(c) None of Grossman, Oaktree nor the Oaktree Fund, and to the best of their
knowledge, none of the other people named in response to Item 2, has effected
transactions involving the Issuer's Common Stock or Debentures during the last
60 days. Oaktree, as general partner of the Oaktree Fund, may be deemed to
beneficially own the shares of the Issuer's Common Stock which were purchased
by the Oaktree Fund. Oaktree and each of the individuals listed in Item 2
disclaims ownership of the shares of the Issuer's Common Stock reported herein,
and the filing of this Statement shall not be construed as an admission that
any such person is the beneficial owner of any securities covered by this
Statement.
(d) No other person has the right to receive or the power to direct the receipt
of dividends from, or the proceeds of sale of, any of the Issuer's Common Stock
beneficially owned by Oaktree and the Oaktree Fund, except to the extent that
the investment advisory clients of Oaktree and the partners of the Oaktree Fund
may have such right subject to the notice, withdrawal and/or termination
provisions of advisory and partnership arrangements. No such
7 of 9
<PAGE> 8
client or partner has an interest by virtue of such relationship that relates to
more than 5% of the Issuer's Common Stock.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER
The specified matter is incorporated by reference to Exhibits 1.2 and 1.3
hereto.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
The following is filed herewith as an Exhibit to this Statement:
Exhibit 1.1 A written agreement relating to the filing of the joint filing
statement as required by Rule 13d-1(k)(1) under the Securities
Exchange Act of 1934, as amended. (Incorporated by reference
to Exhibit 1.1 to the Schedule 13D filed on May 13, 1998.)
Exhibit 1.2 Letter Agreement, dated as of January 7, 1998, between the
Investors. (Portions of this document have been omitted
pursuant to a request for confidential treatment.)
(Incorporated by reference to Exhibit 1.2 to the Schedule 13D
filed on May 13, 1998.)
Exhibit 1.3 Proposal, dated as of December 15, 1998, submitted by the
Investors to the Creditors.
8 of 9
<PAGE> 9
SIGNATURE
After reasonable inquiry and to the best of his or its knowledge and belief,
each of the undersigned certify that the information set forth in this Statement
is true, complete and correct.
Dated as of this 15th day of December, 1998.
KENNETH S. GROSSMAN
/s/ Kenneth S. Grossman
----------------------------------------------
By: Kenneth S. Grossman
OAKTREE CAPITAL MANAGEMENT, LLC
/s/ Kenneth Liang
----------------------------------------------
By: Kenneth Liang
Title: Managing Director and General Counsel
OCM PRINCIPAL OPPORTUNITIES FUND, L.P.
By: Oaktree Capital Management, LLC
Its: General Partner
/s/ Kenneth Liang
----------------------------------------------
By: Kenneth Liang
Title: Managing Director and General Counsel
9 of 9
<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
1.1 A written agreement relating to the filing of the
joint filing statement as required by Rule
13d-1(k)(1) under the Securities Exchange Act of
1934, as amended. (Incorporated by reference to
Exhibit 1.1 to the Schedule 13D filed on May 13,
1998.)
1.2 Letter Agreement, dated as of January 7, 1998,
between the Investors. (Portions of this document
have been omitted pursuant to a request for
confidential treatment.) (Incorporated by
reference to Exhibit 1.2 to the Schedule 13D filed
on May 13, 1998.)
1.3 Proposal, dated as of December 15, 1998, submitted
by the Investors to the Creditors.
</TABLE>
<PAGE> 1
Exhibit 1.3
December 15, 1998 PRIVATE AND CONFIDENTIAL
Ms. Petra Stelling
c/o David H. Wollmuth, Esq.
Wollmuth Maher & Deutsch
516 5th Avenue 12th Floor
New York, NY 10036
Mr. Thomas F. Hackett
c/o Nancy Prahofer, Esq.
Dechert, Price & Rhodes
30 Rockefeller Plaza
New York, NY 10112
Mr. Ronald Spitzer
c/o Margot Schonholtz, Esq.
Zalkin, Rodin & Goodman LLP
750 3rd Avenue
New York, NY 10017
Dear Sirs and Mesdames:
I. The Proposal
Pursuant to our conversations with you and the Special Master appointed pursuant
to the Settlement Agreement, the OCM Principal Opportunities Fund, L.P. (the
"OCM Fund"), in collaboration with Kenneth S. Grossman (collectively, the
"Oaktree Group"), is pleased to submit the enclosed term sheet (the "Proposal")
for a transaction (the "Transaction") relating to certain shares of Emerson
Radio Corporation ("Emerson" or the "Company"). We are aware of the issues
confronting you and the Company as they relate to the Stipulation of Settlement
and Order entered June 11, 1996 (the "Settlement Agreement"). Based upon our
understanding of the situation, and the discussions we have had, we believe that
this Proposal represents an opportunity to resolve the pending litigation (the
"Litigation") in a timely manner.
<PAGE> 2
II. Confidentiality
This letter and the Proposal are being provided to you subject to your agreement
not to disclose the existence or contents of this letter or the Proposal to any
person other than United States District Court Judge Nicholas Politan and the
Special Master and his representatives and advisors, except as required by
applicable law and until and to the extent that the Oaktree Group makes its own
public disclosure of the Proposal.
III. Due Diligence
Subject to your written agreement to provide certain protections to the Oaktree
Group (the "Due Diligence Agreement"), it is our intention to commence a due
diligence investigation of Emerson as soon as the Company's management is ready
to accommodate us. The Oaktree Group has extensive experience conducting due
diligence reviews, and we believe the process can be accomplished with minimal,
if any, disruption to the day-to-day management and operations of the Company.
The Due Diligence Agreement will provide that the Creditors (i) will not discuss
the Transaction with potential purchasers of the Settlement Shares, encourage
the making of or otherwise solicit competing bids for the Settlement Shares or
negotiate with any potential purchaser of the Settlement Shares as long as due
diligence is ongoing, such period not to exceed sixty days from the date due
diligence activities commence (the "Diligence Period"), and (ii) will
immediately communicate to the Oaktree Group the terms of any alternative
proposal for the disposition of the Settlement Shares or for any other
resolution of the Litigation. The Due Diligence Agreement will further provide
that as reimbursement and compensation for the Oaktree Group's time spent and
expenses incurred in connection with its due diligence investigation of the
Company and work on other aspects of the Proposal, (i) upon the closing of any
sale of the Settlement Shares to a buyer other than the Oaktree Group (an
"Alternative Transaction"), pursuant to which the Creditors receive sale
proceeds in excess of $14,876,270, the Oaktree Group will receive $250,000 in
cash or (ii) upon the closing of any Alternative Transaction, pursuant to which
the Creditors receive sale proceeds in excess of the Purchase Price (as defined
in the Proposal) but less than $14,876,270, the Oaktree Group will receive one
hundred percent (100%) of the difference between the Purchase Price and the
proceeds of the Alternative Transaction not to exceed $250,000 (in either case,
the "Due Diligence Fee"). The Due Diligence Agreement will also provide that if
the Creditors breach the Due Diligence Agreement (other than by their acceptance
of an Alternative Transaction), then the Oaktree Group shall be entitled to
payment of $250,000 as liquidated damages, provided that the liquidated damages
shall be payable only from the proceeds (including cash dividends) of the
Settlement Shares and provided further that the Oaktree Group shall be entitled
to interest on the liquidated damages at the rate of ten per cent (10%) per
annum from the date of breach to the date of payment.
The Due Diligence Agreement will further provide that no later than the end of
the Diligence Period, the Oaktree Group will notify the Creditors in writing
whether or not it will pursue the Transaction (the "Notice Date"). If the
Oaktree Group notifies the Creditors that it will pursue the Transaction, the
terms of the Due Diligence Agreement will remain in effect for an additional 120
day period from the Notice Date (the "No-Shop Period"), unless the No-Shop
Period is terminated earlier or extended by the unanimous written consent of the
Creditors and the Oaktree
2
<PAGE> 3
Group. Any and all obligations under the Due Diligence Agreement and any
definitive agreements for the Transaction, including any obligation on the part
of the Creditors to pay any Due Diligence or Break-Up Fee (as defined in the
Proposal) for any reason, shall terminate if (i) the acquisition of the
Settlement Shares by the Oaktree Group is not consummated within 120 days after
the Notice Date for any reason other than breach by the Creditors or the
Creditors' acceptance of an Alternative Transaction, (ii) the Oaktree Group
provides the Creditors notice that it will not pursue the Transaction, or (iii)
any condition set forth in Section F (iii) of the Proposal cannot be satisfied
other than because of a breach by the Creditors or the Creditors' acceptance of
an Alternative Transaction. For the purposes of the Due Diligence Agreement and
any other definitive Transaction agreement, a breach of the Creditors shall
include their failure to use commercially reasonable efforts to consummate the
Transaction within 120 days after the Notice Date.
IV. Description of The Oaktree Group
Oaktree Capital Management LLC ("Oaktree"), which acts as general partner of the
OCM Fund, is a Los Angeles based private investment firm which manages
approximately $11 billion in niche investment markets for institutions and high
net worth individuals. The founding principals of Oaktree formed the company in
April 1995 after having managed related funds at Trust Company of the West since
1985. Oaktree invested in Emerson through Oaktree's Principal Activities Group,
which focuses on providing capital to sponsor management buyouts and other
private and public equity investments. The Principal Activities Group has made
substantial investments in over 30 companies and manages in excess of $1 billion
in committed capital for the purpose of investing in companies that are in need
of growth capital, recapitalization or financial restructuring. The Oaktree
Group has the financial resources to fund and execute the Transaction and would
not require financing as a condition to closing.
Kenneth S. Grossman is an investor in distressed and undervalued public and
private securities for his own and affiliated accounts.
V. Nonbinding Nature of Letter and Proposal
This letter and the Proposal are not an offer and are not intended to constitute
a binding and enforceable contract. It is acknowledged and agreed that the
Oaktree Group and the Creditors shall have no obligations to each other pursuant
to this letter, the Proposal or otherwise with respect to the Transaction, other
than the requirement to keep the letter and Proposal confidential pursuant to
Section II hereof, unless and until the Due Diligence Agreement or other
definitive Transaction agreements (which will include the conditions set forth
in Section F of the Term Sheet) are executed and delivered by the Creditors and
the Oaktree Group.
3
<PAGE> 4
We hope that this letter and the Proposal will enable us to proceed with a
Transaction, and we look forward to moving expeditiously to that end. Please
feel free to contact our counsel, James Ricciardi at (212) 351-3952, or to
contact Steve Kaplan at (213) 830-6350 or Ken Grossman at (212) 750-6750 to
discuss this matter.
Very truly yours,
By: /s/ Kenneth S. Grossman
-----------------------------
Kenneth S. Grossman
c/o Juris Partners
579 Fifth Avenue, Suite 1050
New York, NY 10017
By: /s/ Stephen A. Kaplan
-----------------------------
Stephen A. Kaplan
Principal, Oaktree Capital Management, LLC
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
4
<PAGE> 5
Private and Confidential
December 15, 1998
PROPOSED TRANSACTION TERM SHEET
A. The Creditors will transfer or cause to be transferred to the Oaktree Group
or its designee 100% of the shares of Emerson common stock currently held
under the Settlement Agreement (the "Settlement Shares").1
B. The Oaktree Group or its designee will purchase 100% of the Settlement
Shares for $0.50 per share in cash ($14,576,270 in total proceeds, assuming
29,152,542 shares) (the "Purchase Price").
C. The Oaktree Group will effect a recapitalization of the Company which will
provide cash proceeds sufficient to permit the Company to repurchase the
Company's 8.5% Convertible Senior Subordinated Debentures, due 2002, that
are validly put to Emerson at 100% of face value plus accrued interest
because of a change in control.
D. The Oaktree Group will replace or renegotiate, if necessary, Emerson's
working capital facility with Congress Financial Corporation.
E. The definitive agreements for the Transaction will provide that (i) upon
the closing of any Alternative Transaction pursuant to which the Creditors
receive sale proceeds in excess of $15,676,270, the Oaktree Group will
receive a break-up fee of $1,000,000 or (ii) upon the closing of any
Alternative Transaction pursuant to which the Creditors receive sale
proceeds in excess of the Purchase Price but less than $15,676,270, the
Oaktree Group will receive one hundred percent (100%) of the difference
between the Purchase Price and the proceeds of the Alternative Transaction,
not to exceed $1,000,000 (in either case, the "Break-Up Fee") and (iii) if
the Creditors breach any of the definitive agreements (other than by their
acceptance of an Alternative Proposal), then the Oaktree Group shall be
entitled to $1,000,000 as liquidated damages, provided that the liquidated
damages shall be payable only from the proceeds (including cash dividends)
of the Settlement Shares and provided further that the Oaktree Group shall
be entitled to interest on the liquidated damages at the rate of ten per
cent (10%) per annum from the date of the breach to the date of payment.
The Break-Up Fee shall be in lieu of the Due Diligence Fee to be provided
for in the Due Diligence Agreement.
- --------------------
1 Capitalized terms used herein and not defined herein have the
meanings given to them in the accompanying letter.
5
<PAGE> 6
F. Consummation of the Transaction would be subject to, among other things:
(i) Oaktree's completion of business, accounting, and legal due diligence
regarding Emerson and its subsidiaries and affiliates, including, but not
limited to, the resolution of corporate governance and management issues
(including the composition of the Boards of Directors) at the Company and
Sport Supply Group and their affiliates, the results of which are
satisfactory to the Oaktree Group in its sole and absolute discretion, (ii)
negotiation and execution of definitive agreements, with appropriate
conditions, representations, warranties, indemnities and covenants, and
(iii) receipt of approval of the Court of the Transaction and other
consents and approvals as required, or as agreed among the Oaktree Group
and the Creditors.
G. Currently, the Oaktree Group does not anticipate changing Emerson's
operating management or its strategic course.
6
