____________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________________
FORM 10-K10-K/A-1
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended March 31, 1996April 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____________________ ____________22-3285224Delaware 22-3285224
(State or other jurisdiction of (I.R.S. Employer IdentifcationIdentification Number)
incorporation or organization)
Number)
_______NineNine Entin Road,Parsippany, NJ______ ___07054NJ 07054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:_______(201) 884-5800_______ (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 per share 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 JuneJuly 27, 19961998 (computed by reference to the last
reported sale price of the Common Stock on the American Stock Exchange on such
date): $30,278,133.$10,805,037.
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 JuneJuly 27, 1996: 40,252,7721998: 50,772,615
DOCUMENTS INCORPORATED BY REFERENCE: Proxy Statement forNone
The undersigned registrant hereby amends the 1996 Annual
Meeting of Stockholders: Part III
________________________________________________________________________________
PART I
Item 1. BUSINESS
General
Emerson Radio Corp. ("Emerson"following items, financial
statements, exhibits or the "Company"), one of the nation's
largest volume consumer electronics distributors, directly and through
subsidiaries, designs, sources, imports and markets a variety of televisions and
other video products, microwave ovens, audio, car audio, home theater, home and
personal security products and clocks. The Company distributes its products
primarily through mass merchants and discount retailers leveraging on the
strengthportions of its "EMERSON and G-Clef" trademark, a nationally recognized trade
name in the consumer electronics industry. The trade name "Emerson Radio"
dates back to 1912 and is one of the oldest and most well respected names in
the consumer products industry. In addition, the Company offers audio
products for sale under the "H.H. Scott" and "Electrophonic" brand names.
Approximately $18 billion of factory sales are generated by the industry in
the market segment in which the Company competes. In calendar year 1995,
Emerson was among the top brand names in unit sales volume of video cassette
recorders ("VCRs"), TV/VCR combinations and color televisions.
The Company believes it possesses an advantage over its competitors due to
the combination of (i) the "EMERSON and G-Clef" brand recognition, (ii) its
extensive distribution base and established relations with customers in the mass
merchant and discount retail channels of distribution, (iii) its sourcing
expertise and established vendor relations, and (iv) an infrastructure with
personnel experienced in servicing and providing logistical support to the
domestic mass merchant distribution channel. Emerson intends to continue to
leverage its core competencies to offer a broad variety of current and new
consumer products to retail customers in developing markets worldwide. The
Company has in the past and intends in the future to form joint ventures and
enter into licensing agreements which will take advantage of the Company's
trademarks and utilize the Company's logistical and sourcing advantages.
The Company's core business consists of the distribution and sale of
various low to moderately priced product categories, including black and white
and color televisions, VCRs, video cassette players ("VCPs"), TV/VCR combination
units, home stereo and portable audio products, car audio, home theater, home
and personal security products, clocks and microwave ovens. The majority of the
Company's marketing and sales of these products is concentrated in the United
States and, to a lesser extent, Canada and certain other international regions.
Emerson's major competition in these markets are foreign-based manufacturers and
distributors. See "Business - Competition."
The Company successfully restructured its financial position (the
"Restructuring") through a plan of reorganization, confirmed by the United
States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"),Annual Report on Form 10-K
pursuant to the provisions of Chapter 11 of the Bankruptcy Code on March 31,
1994 ("Plan of Reorganization"). Through the Restructuring, the Company reduced
its institutional debt by approximately $203 million. Additionally, in the
fiscal year ended March 31, 1996 ("Fiscal 1996"), the Company has reduced its
annual fixed operating costs by approximately 60% since the fiscal year ended
March 31, 1993.
The Company was originally formed in the State of New York in 1956 under
the name Major Electronics Corp. In 1977, the Company reincorporated in the
State of New Jersey and changed its name to Emerson Radio Corp. On April 4,
1994, the Company was reincorporated in Delaware by merger of its predecessor
into its wholly-owned Delaware subsidiary formed for such purpose. References
to "Emerson" or the "Company" refers to Emerson Radio Corp. and its
subsidiaries, unless the context otherwise indicates. The Company's principal
executive offices are located at Nine Entin Road, Parsippany, New Jersey 07054-
0430. The Company's telephone number in Parsippany, New Jersey, is (201) 884-
5800.
Company Products
The Company directly and through subsidiaries designs, sources, imports and
markets a variety of television and other video products, microwave ovens,
audio, car audio, home theater, home and personal security products and clocks,
primarily on the strength of its "EMERSON and G-Clef" trademark, a nationally
recognized symbol in the consumer electronics industry. The Company's current
product categories consist of the following:
Video Products Audio Products Other
Color televisions Shelf systems Home theater
Black and white CD stereo systems Car audio
specialty
televisions
Color specialty Portable audio, Microwave
televisions cassette and CD ovens
systems
Color TV/VCR AM/FM Bicycle Home and
combination units radios personal
security
Video cassette Personal audio, Clocks
recorders cassette and CD
systems
Specialty video Digital clock
cassette players radios
All of the Company's products offer various features. Color television
units range in screen size from 5 inches to 25 inches and specialty color
televisions are offered in 5 inch and 9 inch units. Combination units range in
screen size from 9 inches to 25 inches. Portable audio systems incorporate
AM/FM radios and/or cassette and/or CD players in a variety of models.
Microwave ovens range in size from 0.6 cubic feet to 1.2 cubic feet containing
features such as turntables, key pad touch controls, auto defrost and multi-
power levels. In Fiscal 1996, the Company introduced new product categories
which include home theater systems, car audio, home and personal security
products, and clocks. Industry sales of home theater audio components increased
45% in 1995, to $755 million. Emerson introduced two new products in this
market segment during Fiscal 1996. Car audio aftermarket sales are estimated to
have increased an average of 11% per year from 1990 to 1995. Declining prices
have made CD car audio products more affordable and more visible to the retail
discount consumer. The sale of home and personal security products and clocks
allows the Company to promote the "EMERSON and G-Clef" brand name in retail
stores' other departments.
Growth Strategy
The Company's strategic focus is to: (i) develop and expand its
distribution of consumer electronics products in the domestic marketplace to new
customers and the development and sale of new products, such as home theater,
car audio and home and personal security products; (ii) capitalize on
opportunities to license the "EMERSON and G-Clef" trademark; (iii) leverage and
exploit its sourcing capabilities, buying power and logistics expertise in the
Far East either internally or on behalf of third parties; (iv) expand
international sales and distribution channels; and (v) expand through strategic
mergers and acquisitions of companies in similar or complimentary businesses.
As part of its efforts to expand through strategic mergers and
acquisitions, the Company has been pursuing the acquisition through merger of
International Jensen Incorporated ("Jensen"). Jensen manufactures and
distributes speakers for automobiles and the home-audio market. Initial
contacts were made through Emerson's current financial advisor on the Company's
behalf in 1995. On January 3, 1996, Jensen entered into and announced a merger
agreement with Recoton Corporation ("Recoton"), whereby Jensen stockholders
would be paid $8.90 per share in cash and Recoton stock. This merger agreement
with Recoton also contemplated the contemporaneous sale of Jensen's original
equipment manufacturing business ("OEM Business") to a group led by Mr. Robert
G. Shaw, Chairman of the Board, Chief Executive Officer and President of Jensen,
for a purchase price which the Company's management believes is far less than
the net book value of the OEM Business.
Emerson announced its initial merger proposal in April 1996, which
contemplated a purchase price of $9.90 per share to all of Jensen's
stockholders. Between April 1996 and the date hereof, Emerson has made a number
of acquisition proposals, which currently contemplate the purchase of Jensen
while retaining the OEM Business, none of which have been accepted by Jensen.
On June 24, 1996, Jensen announced, and its board approved, a revised merger
agreement with Recoton providing for the payment of $11.00 per share to Jensen's
outside stockholders and $8.90 per share to Mr. Shaw and William Blair Leveraged
Capital Fund, L.P. (the "Blair Fund"). Mr. Shaw and the Blair Fund own a
majority of the outstanding stock of Jensen. This merger transaction with
Recoton still contemplates the contemporaneous sale of the OEM Business to the
group led by Mr. Shaw. Emerson believes that such sale is still at a price well
below the value of the OEM Business. In response, Emerson announced a merger
proposal on June 25, 1996, whereby Emerson would pay Jensen's public
stockholders $12.00 per share and Mr. Shaw and the Blair Fund the same $8.90 per
share that they have agreed to accept under the Recoton merger transaction.
This proposal does not contemplate the separate sale of the OEM Business.
Jensen announced its rejection of Emerson's offer on June 26, 1996, and Emerson
announced on June 27, 1996, that its offer would remain open through Jensen's
proxy solicitation process on the Recoton transaction. Emerson also indicated
it planned to file proxy solicitation materials in opposition to the Recoton
transaction.
The Jensen/Recoton/Shaw transactions are the subject of certain litigation
in the Chancery Court in Delaware which challenge the validity of such
transaction and certain related transactions. The Company is not a party to
such litigation. The Company and Jensen are also parties to litigation in the
Federal District Court in Chicago, relating to alleged violations of the federal
proxy rules and breaches of a confidentiality agreement by Emerson and its
President, and a counterclaim brought by Emerson against Jensen and Mr. Shaw
alleging fraud and fraudulent inducement in the execution of the confidentiality
agreement. See "Legal Proceedings."
The Company believes that the "EMERSON and G-Clef" trademark is widely
recognized on a world-wide basis. A principal component of the Company's growth
strategy is to utilize this brand name recognition together with the Company's
reputation for quality and cost competitive products to aggressively promote its
product lines within the United States and Canada and targeted geographic areas
on an international basis. The Company's management believes that the Company
will be able to compete more effectively in the highly competitive consumer
electronics and microwave oven industries, domestically and internationally, by
combining innovative approaches to the Company's current product line and
augmenting its product line with complimentary products. The Company intends to
pursue such plans either on its own, or by forging new relationships, including
through license arrangements, partnerships or joint ventures. The Company has
successfully negotiated definitive licensing arrangements with (i) one of its
suppliers and certain of its affiliates (collectively, the "Supplier"), (ii) a
distributor of consumer electronics accessories, and (iii) the Franklin Mint.
See "Business-Licensing". Further, the Company is actively pursuing additional
similar transactions.
Sales and Distribution
The Company has an integrated system to coordinate the purchasing, sales
and distribution segments of its operations. The Company receives orders from
its major accounts electronically or by the conventional modes of facsimile,
telephone or mail. The Company does not have long-term contracts with any of
its customers, but rather receives orders on an ongoing basis. Products
imported by the Company (generally from the Far East and Mexico) are shipped by
ocean and/or inland freight and then stored in contracted public warehouse
facilities for shipment to customers. All merchandise received by Emerson is
automatically updated into the Company's on-line inventory system. As a
purchase order is received and filled, warehoused product is labeled and
prepared for outbound shipment to Company customers by common, contract or small
package carriers.
The Company also makes available to its customers (through subsidiaries) a
direct import program, pursuant to which products are imported directly by the
Company's customers. In Fiscal 1996 and the fiscal year ended March 31, 1995
("Fiscal 1995"), products representing approximately 44% and 68% of net
revenues, respectively, were imported directly from manufacturers to the
Company's customers. If the Company experiences a decline in sales effected
through direct imports and a corresponding increase in domestic sales, its
working capital and inventory requirements will be incrementally affected. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
Domestic Marketing
In the United States, the Company markets its products primarily through
mass merchandisers and discount retailers. Wal-Mart Stores, Inc. ("Wal-Mart" or
the "Customer") accounted for approximately 18% and 53%, and Target Stores,
Inc., accounted for approximately 16% and 10% of the Company's net revenues in
Fiscal 1996 and Fiscal 1995, respectively. Net revenues from Wal-Mart in
Fiscal 1996 exclude sales of certain video products which are subject to a
license/supply arrangement, effective March 31, 1995. As a result, the Company
now reports royalty revenues attributable to such sales, in lieu of reporting
the full dollar value of such sales and associated costs. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition." Net
sales of these products to Wal-Mart accounted for approximately 47% of
consolidated net revenues in Fiscal 1995. See "Business-Licensing." No other
customer accounted for more than 10% of the Company's net revenues in either
period.
Approximately 58% and 34% of the Company's revenues in Fiscal 1996 and
Fiscal 1995, respectively, were made through sales representative organizations
which receive sales commissions and work closely with Company sales personnel.
The sales representative organizations sell, in addition to the Company's
products, allied, but generally non-competitive, products. In most instances,
either party may terminate a sales representative relationship on 30 days' prior
notice in accordance with customary industry practice. The Company utilizes
approximately 30 sales representative organizations, including two through which
approximately 19% and 14% of the Company's net revenues were made in Fiscal 1996
as compared to 10% each in Fiscal 1995. No other sales representative
organization accounted for more than 10% of the Company's net revenues in either
period. The remainder of the Company's sales are made to retail customers
serviced principally by Company sales personnel. The Company has seven sales
professionals based in the United States. The domestic sales force is based in
the Company's New Jersey corporate headquarters, and in regional offices located
in Missouri and Oregon.
Foreign Marketing
While the major portion of the Company's marketing efforts are directed
toward the United States, approximately 5% and 7% of the Company's net revenues
in Fiscal 1996 and Fiscal 1995, respectively, were made to foreign customers in
Canada, Central and South America, Spain and the Middle East. See Note L of
Notes to Consolidated Financial Statements and "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
Licensing
In Fiscal 1995, the Company successfully concluded licensing agreements
with (i) the Supplier for the sale of certain video products bearing the
"EMERSON and G-Clef" trademark to the Customer's locations in the United
States and Canada, (ii) Jasco Products Co., Inc. ("Jasco"), one of the
largest domestic electronics accessory companies, for distribution of
electronic accessories in the United States, and (iii) the Franklin Mint for
distribution of classic Emerson Radio reproductions. The Company intends to
pursue additional licensing opportunities and believes that such licensing
activities has had and will continue to have a positive impact on operating
results by generating royalty income with minimal costs, if any, and without
the necessity of utilizing working capital or accepting customer returns.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition." The Company is also considering strategic alternatives
for its North American video business not covered under the license agreement
with the Supplier.
Design and Manufacturing
The Company's design team is responsible for product development and works
closely with the Company's manufacturers. The Company's engineers determine the
detailed cosmetic and option specifications for new products, which typically
incorporate commercially available electronic parts to be assembled according to
the Company's designs. Accordingly, the exterior designs and operating features
of the Company's products reflect the Company's judgment of current styles and
consumer preferences. The Company's designs are tailored to meet the needs of
the local market, particularly in the case of international distribution, where
products are generally introduced on a country-by-country basis.
The majority of the Company's products are manufactured by original
equipment manufacturers in accordance with the Company's specifications. The
manufacturers are primarily located in Hong Kong, South Korea, China, Malaysia,
Thailand and Mexico. Certain of the Company's video products had been assembled
by the Supplier in Indiana.
During Fiscal 1996 and Fiscal 1995, approximately 93% and 89%,
respectively, of the cost value of the Company's purchases consisted of imported
finished goods. The Supplier, a manufacturer headquartered in Japan, supplied
approximately 16% and 73%, respectively, of the Company's total purchases in
Fiscal 1996 and Fiscal 1995. Approximately 52% of the cost value of the
Company's purchases in Fiscal 1995 were video products purchased from the
Supplier and sold to the Customer. As a result of the supply and license
agreements (the "Agreements") between the Company and the Supplier, the Company
expects that purchases of finished goods from the Supplier over the three-year
term of the Agreements will continue to be in lower proportions than in Fiscal
1995. See "Business-Licensing." The Agreements also provide that the Supplier
will supply the Company with certain video products for sale to other customers
at preferred prices for the three-year term. The Agreements are currently the
subject of certain lawsuits filed by the Company and the Supplier. See "Legal
Proceedings." Additionally, Daewoo Electronics Co. Ltd., Kong Wah, Imarflex,
Mfg. Co., Ltd. and Musical Electronics Limited supplied approximately 21%, 17%,
14% and 12%, respectively, of the Company's total purchases in Fiscal 1996. No
other supplier accounted for more than 10% of the Company's total purchases in
Fiscal 1996 or Fiscal 1995. Except for the litigation with the Supplier (see
"Legal Proceedings"), the Company considers its relationships with its suppliers
to be satisfactory and believes that, barring any unusual shortages or economic
conditions, it could develop, and has developed, alternative sources for the
products it currently purchases. Except with respect to the Agreements with the
Supplier, the Company does not have a contractual agreement with any of its
suppliers and no assurance can be given that certain short-term shortages of
product would not result if the Company were required to seek alternative
sources of supply without adequate notice by a supplier or a reasonable
opportunity to seek alternate production facilities and component parts.
Warranties
The Company offers its United States and Canadian consumers limited
warranties comparable to those offered to consumers by its competitors and
accepts returns from its customers in accordance with customary industry
practices.
Returned Products
The Company's customers return product to the Company for a variety of
reasons, including liberal retailer return policies, damage to goods in transit
and occasional cosmetic imperfections and mechanical failure.
Effective April 1, 1994, the Company formed a partnership ("Partnership")
with Hopper Radio of Florida, Inc. ("Hopper"). The Company and Hopper each own
a 50% interest in the Partnership. The Partnership was formed to purchase (i)
all returned consumer electronics products in the United States from the
Company, refurbish them, if feasible, and sell them refurbished or "As-Is" on a
worldwide basis in all countries where the Company has trademark rights, and
(ii) new consumer electronics products from manufacturers sourced through a
subsidiary of the Company or through third parties, if such new products could
be obtained on more favorable prices and terms, for sale exclusively in Mexico
and Central and South America.
The partnership with Hopper has enabled the Company to control the costs
associated with product returns by providing a stable selling price for returned
products and increased inventory turnover by utilizing the distribution network
of Hopper to sell products. The Partnership's profits and losses are allocated
evenly and the general managerial activities are under the control of Barry
Smith, who is also the President of Hopper. The Company previously refurbished
certain products which were either sold as refurbished or, if not refurbished,
sold "As-Is". See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
Effective April 24, 1996, the Company and Hopper entered into an agreement
(the "Hopper Amendment") which, among other things, amended certain provisions
in the Partnership and Sales agreements and settled all outstanding litigation
between the Company, Hopper and the other named parties. See "Legal
Proceedings." Under the Hopper Amendment, Hopper advanced an additional $5
million to the Partnership, thereby increasing the liquidity of the Partnership
and equalizing the investment of the partners and the sharing of cash flows.
Additionally, the Hopper Amendment provides that the Partnership will continue
to buy all of the Company's product returns in the U.S. through December 31,
1996, excluding defective product returns subject to the return to vendor
agreements, as noted below. Subsequent to this date, either partner may give
notice to dissolve the Partnership, with a wind-down period to be completed no
later than six months from the date of such notice.
To further reduce the costs associated with product returns, the Company
has entered into "return to vendor" agreements with the majority of its
suppliers. For a fee, the agreements permit the Company to return defective-
product returns to the supplier and to receive in exchange an "A" quality unit.
The agreements cover certain microwave oven, audio and video products. The
Company expects to realize significant cost savings from such agreements
commencing in the fiscal year ending March 31, 1997 ("Fiscal 1997").
Backlog
From time-to-time, the Company has substantial orders from customers on
hand. Management believes, however, that backlog is not a significant factor in
its operations. The ability of management to correctly anticipate and provide
for inventory requirements is essential to the successful operation of the
Company's business.
Trademarks
The Company owns the "EMERSON and G-Clef", "H.H. Scott" and "Scott"
trademarks for certain of its home entertainment and electronic products in
the United States, Canada, Mexico and various other countries. Of the
trademarks owned by the Company, those registered in the United States must
be renewed at various times through 2008 and those registered in Canada must
be renewed at various times through 2007. The Company's trademarks are also
registered on a worldwide basis, which registrations must be renewed at
various times. The Company intends to renew all such trademarks. The
Company considers the "EMERSON and G-Clef" trademark to be of material
importance to its business. The Company owns several other trademarks, none
of which is currently considered by the Company to be of material importance
to its business. The Company has licensed certain applications of the
"EMERSON and G-Clef" trademark to the Supplier, Jasco and the Franklin Mint
on a limited basis. See "Business - Licensing."
Competition
The market segment of the consumer electronics industry in which the
Company competes generates approximately $18 billion of factory sales annually
and is highly fragmented, cyclical and very competitive, supporting major
American, Japanese and Korean companies, as well as numerous small importers.
The industry is characterized by the short life cycle of products which requires
continuous design and development efforts. Market entry is comparatively easy
because of low initial capital requirements.
The Company primarily competes in the low to medium-priced sector of the
consumer electronics market. Management estimates that the Company has several
dozen competitors, many of which are much larger and have greater financial
resources than the Company. Emerson's major competitors are foreign-based
manufacturers and distributors. The Company competes primarily on the basis of
its products' reliability, quality, price and design, the "EMERSON and
G-Clef" trademark and service to retailers and their customers. The
Company's products also compete at the retail level for shelf space and
promotional displays, all of which have an impact on the Company's
established and proposed distribution channels. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
Government Regulation
Pursuant to the TariffSecurities Exchange Act of 1930,1934, as amended, the Trade Act of 1974 and
regulations promulgated thereunder, the United States government charges tariff
duties, excess charges, assessments and penalties on many imports. These
regulations are subject to constant change and revision by government agencies
and by action by the United States Trade Representative and may have the effect
of increasing the cost of goods purchased by the Company or limiting quantities
of goods available to the Company from its overseas suppliers. A number of
states have adopted statutes regulating the manner of determining the amount of
payments to independent service centers performing warranty service on products
such as those sold by the Company. Additional Federal legislation and
regulations regarding the importation of consumer electronics products,
including the products marketed by the Company, have been proposed from
time-to-time and, if enacted into law, could adversely affect the Company's
results of operations.
Employees
As of June 27, 1996, the Company had approximately 154 employees. The
Company considers its labor relations to be generally satisfactory.
Item 2. PROPERTIES
The Company, directly and through its subsidiaries, leases warehouse and
office space in New Jersey, Canada, Missouri and the Far East under leases
expiring at various times from calendar 1996 to 1998, at minimum aggregate
rentals as follows:
Year Ending
March 31, (In Thousands)
1997 1,608
1998 1,197
1999 329
$3,134
In the past several years, the Company has closed substantially all of its
leased or owned warehouse facilities in favor of utilizing public warehouse
space as part of the Company's effort to convert fixed costs to variable costs.
Such commitments are evidenced by contracts with terms of up to one year. The
cost for the public warehouse space is primarily based on a fixed percentage of
the Company's sales from each respective location. Such amounts are not
included in the above table.
Item 3. LEGAL PROCEEDINGS
Bankruptcy Claims
Pursuant to the Plan of Reorganization and the Bankruptcy Code, all claims
against the Company existing as of September 29, 1993, were discharged, except
as specifically set forth in the
Planpages attached hereto:
PART III, Items 10 - 13 are amended by the inclusion of Reorganization. See "Management's
Discussionsuch items herein.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS
MANAGEMENT
OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the officers
and AnalysisDirectors of Results of Operations and Financial Condition." The
Plan of Reorganization provides that unsecured creditors other than the
Company's bank group and the holdersEmerson Radio Corp. (the "Company") as of the senior notes holding pre-petition
claims which are allowed, will receive unsecured promissory notes in the
principal amount equal to 18.3%date hereof:
NAME AGE POSITION
Geoffrey P. Jurick 57 Chairman of the Board, Chief
Executive Officer, President and
Director
John P. Walker 35 Executive Vice President and Chief
Financial Officer
Marino Andriani 50 President, Emerson Radio Consumer
Products Corporation
John J. Raab 62 Senior Vice President - Operations
Elizabeth J. Calianese 40 Vice President - Human Resources,
Deputy General Counsel and Secretary
Christina A. Iatrou 36 Assistant Secretary and Assistant
General Counsel
Robert H. Brown, Jr. 44 Director
(1)(2)
Peter G. Bunger (2) 57 Director
Jerome H. Farnum (1) 62 Director
Raymond L. Steele 63 Director
(1)(2)
(1) Member of the allowed amountAudit Committee
(2) Member of the claim; the notes
would bear interest at a rate based on the London Interbank Offered Rate
("LIBOR") for one year obligationsCompensation and would be payablePersonnel Committee
GEOFFREY P. JURICK has served as follows: (i) 35% of
the outstanding principal is due 12 months from the date of issuance, and (ii)
the remaining balance would be due 18 months from the date of issuance. The
Company is presently contesting claims submitted by several creditors.
The largest claim was filed on or aboutDirector since September 1990, Chief Executive
Officer since July 25, 1994 in connection with
the rejection of certain executory contracts with two Brazilian entities,
Cineral Electronica de Amazonia Ltda. and Cineral Magazine Ltda. (collectively,
"Cineral"). The contracts were executed in August 1993, shortly before the
Company's filing for bankruptcy protection. The amount claimed was $93,563,457,
of which $86,785,000 represents a claim for loss of profits and $6,400,000 for
plant installation and the establishment of offices, which were installed and
established prior to execution of the contracts. The claim was filed as an
unsecured claim and, therefore, will be satisfied, to the extent the claim is
allowed by the Bankruptcy Court, in the manner other allowed unsecured claims
were satisfied. The Company believes the Bankruptcy Court will separately
review the portion of the claim for lost profits from the substantially smaller
claim for actual damages. The Company has objected to the claim, intends to
vigorously contest such claim and believes it has meritorious defenses to the
highly speculative portion of the claim for lost profits and the portion of the
claim for actual damages for expenses incurred prior to the execution of the
contracts. Additionally, on or about September 30, 1994, the Company instituted
an adversary proceeding in the Bankruptcy Court asserting damages caused by
Cineral and seeking declaratory relief and replevin. A motion filed by Cineral
to dismiss the adversary proceeding has been denied. The adversary proceeding
and claim objection have been consolidated into one proceeding and discovery
commenced. This action has been stayed1992, Chairman since June 1995 by order of the
Bankruptcy Court pending settlement negotiations. An adverse final ruling on
the Cineral claim could have a material adverse effect on the Company, even
though it would be limited to 18.3% of the final claim determined by a court of
competent jurisdiction; however, in light of the foregoing, the Company believes
the chances for recovery for lost profits are remote.
Teletech Litigation
In December 1990, an action entitled Emerson Radio (Hong Kong) Limited (a
wholly owned subsidiary of the Company) and Teletech (Hong Kong) Limited was
commenced in the Supreme Court of Hong Kong High Court (the "Teletech Action")
by Emerson Radio (Hong Kong) Limited ("Emerson (H.K.)") against Teletech (Hong
Kong) Limited ("Teletech"). The Statement of Claim (the "Claim"), filed and
served in March 1991, alleges that Teletech breached its agreements to sell
cordless telephones and telephone answering machines to Emerson (H.K.). The
Claim seeks damages of approximately $1,000,000. In March 1991, Teletech filed
a counterclaim that essentially denies the allegations and alleges that Emerson
(H.K.) breached its agreement to purchase cordless telephones and telephone
answering machines arising from wrongful cancellation of placed orders. The
counterclaim seeks damages of approximately $1,700,000. In May 1991, Emerson
(H.K.) filed a reply to the counterclaim denying the allegations in the
counterclaim. The case is presently dormant. This litigation was not affected
by the bankruptcy proceedings.
Otake Litigation
On December 20, 1995, the Company filed suit in the United States District
Court for the District of New Jersey against Orion Sales, Inc., Otake Trading
Co. Ltd., Technos Development Limited, Shigemasa Otake, and John Richard Bond,
Jr. (collectively, the "Otake Defendants") alleging breach of contract, breach
of covenant of good faith and fair dealing, unfair competition, interference
with prospective economic gain, and conspiracy in connection with certain
activities of the Otake Defendants under certain agreements between the Company
and the Otake Defendants. Mr. Bond is a former officer and sales representative
of the Company, having served in the latter capacity until he became involved
working for the other Otake Defendants. Certain of the other Otake Defendants
have supplied the majority of the Company's purchases until the Company's most
recent fiscal year.
On December 21, 1995, Orion Sales, Inc. and Orion Electric (America), Inc.
filed suit against the Company in the United States District Court, Southern
District of Indiana, Evansville Division, alleging various breaches of certain
agreements by the Company, including breaches of the confidentiality provisions,
certain payment breaches, breaches of provisions relating to product returns,
and other alleged breaches of those agreements, and seeking damages in the
amount of $2,452,656, together with interest thereon, attorneys' fees, and
certain others costs. While the outcome of the New Jersey and Indiana actions
are not certain at this time, the Company believes it has meritorious defenses
against the claims made by the plaintiffs in the Indiana action. In any event,
the Company believes the results of that litigation should not have a material
adverse effect on the financial condition of the Company or on its operations.
To date, all royalty payments due under the license agreement with the Supplier
have been made.
Tax Matters
In June and October 1988, the Franchise Tax Board of the State of
California issued Notices of Proposed Assessment to the Company proposing
additional state income tax of approximately $501,000 in the aggregate, plus
interest, for the fiscal years 1980, 1985 and 1986. In August and November
1988, the Company filed protests with the Franchise Tax Board taking exception
to the Notices of Proposed Assessment. After disallowing the Company's protest,
on July 24, 1992, the Franchise Tax Board issued a formal Notice of Action
assessing a deficiency in the aggregate of approximately $664,000, which
includes interest through July 24, 1992. On August 24, 1992, the Company filed
an appeal with the California State Board of Equalization. The Franchise Tax
Board filed a response on April 29, 1993 and the Company filed its reply onPresident since April
1997. Mr. Jurick also previously served as President from July 16, 1993.
On1993 to October
1994. From March 9,1990 until approximately 1994, the Company filed an adversary complaint with the
Bankruptcy Court, to obtain a declaratory judgment against the Franchise Tax
Board with regard to this matter. The Franchise Tax Board filed its response on
April 6, 1994. On July 26, 1994, the Franchise Tax Board moved to dismiss the
adversary proceeding for the purpose of litigating the deficiency with the
California State Board of Equalizationhe was President and requested the Bankruptcy Court to
abstain. On October 19, 1994, the Bankruptcy Court entered an Order of
Abstention which directed the parties to litigate in California. The Company
appealed. The District Court of New Jersey has affirmed the Order of
Abstention. The Company has appealed the District Court Order to the Third
Circuit Court of Appeal. The Third Circuit Court of Appeal heard oral arguments
on the merits on June 28, 1996, but has not yet rendered its decision.
However, as a result of the District Court's dismissal of the proceeding,
the Company was advised that the automatic stay under Section 362 of the
Bankruptcy Code was lifted and the Company must now continue the proceedings in
California's State Board of Equalization. Subsequent to entry of the District
Court order, the Company filed its reply brief with the California State Board
of Equalization on October 27, 1995.
On February 15, 1994, the Franchise Tax Board issued Notices of Proposed
Assessment to the Company proposing additional state income tax of approximately
$382,000 in the aggregate, plus interest, for the fiscal years 1987, 1988 and
1989. The Company filed its protest with the Franchise Tax Board on April 15,
1994, taking exception to the Notices of Proposed Settlement.
Management believes that adequate amounts of tax reserves have been
provided for any adjustments which may result from the above assessments and any
possible additional adjustments for years not currently under examination.
Litigation Regarding Certain Outstanding Common Stock
Subsequent to confirmation of the Plan of Reorganization, litigation arose
among the principal shareholdersDirector
of Fidenas Investment Limited. Since December 1993, Mr. Jurick has served as a
Director of Fidenas International Limited, L.L.C. and its predecessor ("FIL"FIN"), the
Company's largest shareholder prior to confirmation
and, since May 1994, as an officer and general manager of the Plan of
Reorganization, with respect to various business relations and transactions
entered into among the shareholders, certain affiliates and their principals,
including GeoffreyFidenas International.
Mr. Jurick the Company'shas served as a Director, Chairman and Chief Executive Officer and Petra and Donald Stelling. Mr. Stelling was the former Chairman of the
Company; he resigned on December 2, 1993 as a director and as Chairman, creating
uncertainty about the ability of FIL to honor its commitment to the Company and
the Company's bank group to satisfy its obligations to infuse $75 million in
funds for the purpose of financing the Restructuring. A proceeding was commenced
in the Commonwealth of Bahamas by one of its shareholders, a Bahamian entity
controlled by Petra Stelling, wife of Donald Stelling, for the winding-up of
FIL. The liquidator appointed by the Bahamian Court for the winding-up of FIL
commenced litigation against the predecessor of Fidenas International Limited,
L.L.C. ("FIN"), presently the Company's largest stockholder, and Mr. Jurick with
respect to claims arising from the acquisition of the Company's Common Stock by GSE
Multimedia Technologies Corporation ("GSE"), which is traded in the over-the-
counter market, since May 1994. Since March 1996, Mr. Jurick has served as
Chairman of Elision International Ltd. ("Elision"). For more than the past five
years, Mr. Jurick has held a variety of senior executive positions with several
of the entities comprising the Fidenas group of companies ("Fidenas Group"),
whose activities encompass merchant banking, investment banking, investment
management, and FIN. Oncorporate development. Since December 1996, Mr. Jurick has
served as a Director and Chairman of the Board and since January 23, 1997 as
Chief Executive Officer of Sport Supply Group, Inc. ("SSG"), whose securities
are traded on the New York Stock Exchange. The Company owns 28% of the
outstanding common shares of SSG. See "Item 13. - Certain Relationships and
Related Transactions".
JOHN P. WALKER has served as Executive Vice President and Chief Financial
Officer since April 18, 1996 and was Senior Vice President from April 1994 until
March 1996. Mr. Walker was Vice President-Finance from February 1993 to April
1994 and Assistant Vice President-Finance from June 1991 to January 1993. Since
December 1996, Mr. Walker has served as a Director and Chief Financial Officer
of SSG. See "Item 13. - Certain Relationships and Related Transactions".
MARINO ANDRIANI has served as President of Emerson Radio Consumer Products
Corporation since February 1996. From December 1994 until February 1996, Mr.
Andriani was President of Appliance Corp. of America, a Welbilt Consumer
Products Company. From March 1993 to December 1994, Mr. Andriani was President
of Orient Express Marketing. Prior to March 1993, Mr. Andriani was Executive
Vice President-Sales of the Official LiquidatorCompany from September 1990 to March 1993.
JOHN J. RAAB has served as Senior Vice President - International since October
1997, Senior Vice President-Operations from October 1995 until September 1997
and was Vice President-Far East Operations from May 1995 until September 1995.
Prior to May 1995 he was President and Chief Operating Officer of FILRobeson
Industries Corp. from March 1990 to March 1995. Robeson Industries Corp. filed
a complaint infor relief under Chapter 11 of the United States District
Court in Newark, New Jersey (the "Court"), seeking damagesBankruptcy Code and injunctive relief
with respect to certain shares of Emerson Common Stock heldemerged
from Bankruptcy and was sold in the namesend of FIN,
GSE,1994.
ELIZABETH J. CALIANESE has served as Secretary since January 1996, as Vice
President-Human Resources since May 1995 and Elision International,as Deputy General Counsel since May
1995. From April 1991 to May 1995, Ms. Calianese served as Assistant General
Counsel.
CHRISTINA A. IATROU has served as Assistant Secretary since August 1996 and as
Assistant General Counsel since May 1995. From October 1987 to May 1995, Ms.
Iatrou was a senior associate with the law firm of Crocco & De Maio, P.C. in New
York City.
ROBERT H. BROWN, JR. has been a Director since July 1992. Since July 1, 1998,
Mr. Brown has been a private investor. From January 1998 to July 1998, he was
Executive Vice President of Dain Rauscher, formerly Rauscher Pierce Refsnes,
Inc. ("Elision"Rauscher"). The Stelling interests have pursuedFrom February 1994 to January 1998, Mr. JurickBrown was Executive
Vice President of Capital Markets of Rauscher, in Dallas, Texas. From January
1990 until February 1994, Mr. Brown was Senior Vice President and certain business
associates (including Mr. Peter Bunger and Jerome Farnum, directorsDirector of
the Company) and affiliates in actions in Switzerland for certain claims relating to
their business relationships and transactions. BasedCorporate Finance Department of Rauscher. Since May 1993, Mr. Brown has
served as a Director of Stevens Graphics Corp., which is traded on certain charges raised
by the Stellings, the Swiss authorities commenced investigations and have
questioned Messrs. Jurick,American
Stock Exchange.
PETER G. BUNGER has been a Director since July 1992. Presently, he is a
consultant with Savarina AG. Since October 1992, Mr. Bunger and Farnum. While the investigation is still
pending, nonehas served as
Director of Messrs. Jurick, Bunger or Farnum have been charged or indicted
by the Swiss authorities, and, in connection with the settlement discussed
below, letters will be sent to the Swiss authorities requesting the
discontinuance of the criminal investigations of these individuals. The Federal
Banking Commission of Switzerland has issued a decree purporting to determine
that certain entities affiliated with Messrs. Jurick and Farnum are subject to
Swiss banking laws and haveSavarina AG, engaged in banking activities withoutthe business of portfolio management
monitoring in Zurich, Switzerland, and since 1992, as Director of ISCS, a
license.
Thecomputer software Company. From December 1991 until December 1993, he was Vice
Chairman of Montcour Bank and Trust Company filed suit in the Court on July 14, 1994, naming Petra and
Donald Stelling as defendants, alleging, among other things, breaches by Mr.
Stelling of fiduciary duties and breaches of contract by Mr. Stelling, as agent,
and Mrs. Stelling, as principal, and seeking monetary damages as well as
declaratory judgments that the provisions of the Plan of Reorganization
providing for releases do not apply to the Stellings and that they are estopped
from claiming any interest in the Company. The Stellings filedLimited, a motion to
dismiss the suit.
An Official Liquidator was appointed in the Commonwealth of Bahamas for
Fidenas International Bank Limited ("FiBank") (which management believes to be a
holder of approximately 18% of the shares of Elision and approximately 11% of
the shares of GSE). The Official Liquidator filed an actionbank organized in the
Bahamas and an affiliate of Fidenas International. Since December 1996, Mr.
Bunger has served as a Director of SSG. See "Item 13. - Certain Relationships
and Related Transactions".
JEROME H. FARNUM has been a Director since July 1992. Since July 1994, Mr.
Farnum has been an independent consultant. From 1979 until 1994, Mr. Farnum
served as a senior executive with several of the entities comprising the Fidenas
Group, in charge of legal and tax affairs, accounting, asset and investment
management, foreign exchange relations, and financial affairs.
RAYMOND L. STEELE has been a Director since July 1992. From August 1990 until
September 1993, Mr. Steele served as Executive Vice President of Pacholder
Associates, Inc., a company providing investment management and other financial
advisory services to institutional clients. Mr. Steele is a member of the United States District Court on behalfBoard
of FiBank with respect to certain
sharesDirectors of Common Stock issued to FIN in conjunction with the Restructuring. An
injunction on the transfer of such stock was issued by the Bahamian CourtPharmhouse, Inc., Video Services Corp., Modernfold, Inc., ICH,
and the transferGFTA Advisory Board.
ITEM 11 - EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION OF EXECUTIVE OFFICERS
The following executive compensation disclosures reflect all plan and non-
plan compensation awarded to, earned by, or paid to the named executive officers
of such shares has been restrainedthe Company. The "named executive officers" are the Company's Chief
Executive Officer (the "CEO"), regardless of compensation level, and the subject shares deposited
intofour
most highly compensated executive officers, other than the registryCEO, serving as such
on April 3, 1998. Where a named executive officer has served during any part of
the Court pending further order.
Barclays Bank PLC ("Barclays"), a creditorCompany's fiscal year ended April 3, 1998 ( "Fiscal 1998" ), the disclosures
reflect compensation for the full year in each of Elision, has requestedthe periods presented.
SUMMARY COMPENSATION TABLE
The following table summarizes for the years indicated the compensation
awarded to, earned by, or paid to the named executives for services rendered in
all capacities to the Company:
SECURI-
OTHER TIES ALL
NAME AND ANNUAL UNDER- OTHER
PRINCIPAL FISCAL COMPEN- LYING COMPEN-
POSITION(S) YEAR SALARY BONUS SATION(1) OPTIONS SATION(2)
GEOFFREY P. JURICK 1998 $321,407 $ - $125,208 - $8,215
CHAIRMAN OF THE 1997 443,473 38,500 121,646 - 2,207
BOARD, CHIEF 1996 490,000 137,500 102,661 - 1,693
EXECUTIVE
OFFICER
AND PRESIDENT
(3)
JOHN P. WALKER 1998 107,692 50,000 - - 2,721
EXECUTIVE VICE 1997 179,166 40,000 18,816 - 7,089
PRESIDENT AND 1996 165,000 40,000 24,307 - 4,912
CHIEF FINANCIAL
OFFICER (4)
MARINO ANDRIANI 1998 385,000 - 8,400 - 6,033
PRESIDENT, 1997 387,100 - 9,808 75,000 11,352
EMERSON 1996 51,827 - 1,400 - -
RADIO CONSUMER
PRODUCTS
CORPORATION(5)
(6)
JOHN J. RAAB 1998 210,000 - 8,400 - 5,912
SENIOR VICE 1997 212,100 - 8,638 - 11,237
PRESIDENT- 1996 178,846 - 9,131 50,000 1,882
INTERNATIONAL
(5)
ELIZABETH J. 1998 102,503 10,000 8,400 30,000 1,687
CALIANESE 1997 95,000 - 8,400 30,000 1,425
VICE PRESIDENT- 1996 95,000 5,000 8,400 - 1,425
HUMAN RESOURCES,
SECRETARY, AND
DEPUTY GENERAL
COUNSEL(5) (7)
(1) Consists of (i) car allowance and obtained a preliminary injunction (stillauto expenses afforded to the listed
Company executive officers, including $0, $13,063, $20,745 paid to
Mr. Walker, $8,400, $8,400 and $1,400 to Mr. Andriani, $8,400, $8,400
and $8,400 to Mr. Raab and Ms. Calianese, respectively, in effect) issued by a state court in
Massachusetts, which enjoins Elision from transferring any interest in Elision's
assets, other than in the usual course of business. In addition, Barclays
obtained a default judgment against GSEFiscal 1998,
1997 and 1996, (ii) relocation and temporary lodging expenses and
associated tax gross-ups in the amount of $1,835,423.26 in a
state court in New York.
On June 11, 1996, Barclays, Petra Stelling, the Official Liquidator of
FiBank (collectively, the "Creditors"),$125,208, $120,573 and
$102,661 for Mr. Jurick, the Company (together with
the Creditors, the "Lead Parties"), FIN, Elision, GSEfor Fiscal 1998, 1997 and the Official
Liquidator of FIL signed a Stipulation of Settlement and Order (the "Settlement
Agreement") providing for a settlement of all litigation among them on a global
basis. Under the Settlement Agreement, Mr. Jurick and FIN have agreed to pay
the Creditors the aggregate sum of $49.5 million (the "Settlement Amount") and
Mr. Jurick will be paid the sum of $3.5 million, contemplated to be solely
from the proceeds of the sale of shares of Emerson's Common Stock (the
"Settlement Shares") owned by FIN, GSE, and Elision (the "Jurick Payment"
and, together with the Settlement Amount, the "Aggregate Amount"). On the
effective date of the Settlement Agreement, all Settlement Shares owned by
GSE and Elision will be transferred to and registered in FIN's name, and all
Settlement Shares will be deposited with and remain in the custody of the
Court, to prevent defaults under the Company's borrowing facilities.
The Settlement Shares (consisting of 29,152,542 shares of Emerson's Common
Stock) will be divided into two pools. The "Pool A Shares" initially will
consist of 15,286,172 Settlement Shares. The "Pool B Shares" will consist
of the number of Settlement Shares with respect to which Mr. Jurick must
retain beneficial ownership of voting power to avoid an event of default
arising out of a Change of Control under the Company's Indenture relating to its
8-1/2% Senior Subordinated Convertible Debentures Due 2002 and its United States
secured credit facility. All Settlement Shares will be pledged to secure all
obligations under the Settlement Agreement, but the Pool B Shares generally will
not be available for sale or release from the custody of the Court or subject to
foreclosure, to prevent defaults under the Company's borrowing facilities.
FIN (which is controlled by Mr. Jurick) will retain title to and the
voting power over all Settlement Shares, but will provide notice to the
Creditors prior to certain stockholder votes. The Creditors may seek to have
the Court direct FIN to vote against any proposal of the Emerson Board, but
the Emerson Board may withdraw and not solicit any vote of its stockholders
with respect to such proposal.
The Settlement Agreement contemplates the employment of a marketing advisor
(the "Advisor"), based on a recommendation by the Company, which must be
approved by all of the other Lead Parties. If all Lead Parties do not approve
an Advisor, an alternative mechanism exists for the Court to appoint the
Advisor. The Advisor will formulate a marketing plan for the sale from time to
time of the Pool A Shares and will also appoint the Settlement Agent, who will
administer certain ministerial aspects of the settlement. On the date hereof,
based on the closing price1996.
(2) Consists of the Company's Common Stock on June 28, 1996,contribution to its 401(k) employee savings plan,
life insurance and disability insurance. Includes $7,170 in premiums paid
in Fiscal 1998 for a life insurance policy for Mr. Jurick.
(3) Includes reimbursement of salary from SSG of $135,414 and $46,527 for Mr.
Jurick in Fiscal 1998 and 1997, respectively. Pursuant to the Pool A Shares have an aggregate market valueManagement
Services Agreement, between SSG and the Company (the "Management Services
Agreement"), effective October 18, 1997, the Company reduced Mr. Jurick's
salary by $80,000 and will no longer be reimbursed by SSG for a portion of
approximately $45.9 million. In
formulatingMr. Jurick's salary. See "Item 13. - Certain Relationships and Related
Transactions".
(4) Effective January 15, 1998, the marketing plan, the Advisor will take into account the interests
of all of the Lead Parties, including the interests of the Company's minority
stockholders. Sales may be made of the Settlement Shares in accordance with the
marketing planCompany no longer pays Mr. Walker's salary
directly. However, pursuant to a registered offering if the sales price is not less
than 90% of the average of the three most recent closing prices (the "Average
Closing Price"), or, other than in a registered offering, of up to 1% of the
Emerson Common Stock outstanding per quarter, if the sales price is not less
than 90% of the Average Closing Price. Any other attempted sale may be made
only after notice to all Lead Parties, any of which may request that the Court
conduct an expedited hearing contesting whether such sale should proceed.
No definite time has been provided for the sale of any shares or the full
payment of the Aggregate Amount. However, a Creditor may apply to the Court,
on notice to all other Lead Parties, to terminate the SettlementManagement Services Agreement based on the totality of the circumstances, on the grounds that its goalsby and
purposes are not reasonably likely to be realized. The Creditors will be
able to resort to consent judgments against Mr. Jurick and his affiliates if
the Settlement Agreement is terminated.
The Settlement Agreement ends all litigation over ownership of the
Settlement Shares. The Company has executed the Settlement Agreement to
facilitate the settlement process. The Company's rights and obligations under
the Settlement Agreement include the following:
1. The Company will advance certain expenses of the Advisorbetween SSG and the Settlement
AgentCompany, the Company began reimbursing SSG for Mr.
Walker's salary and advance the reasonable feesbonus that on an annualized basis is equivalent to
$100,000 and expenses for registration of the
Settlement Shares, in each instance to be reimbursed from the proceeds of the
first sales of the Settlement Shares.
2. If an offer$50,000 respectively during Fiscal 1998. See "Item 13. -
Certain Relationships and Related Transactions".
(5) In November 1995, Mr. Raab was granted a stock option to purchase Settlement Shares that would result in a Change of
Control of the Company (i.e., beneficial ownership of 25% of more of the
Company's Common Stock) were to occur, the offeror will be required to meet
with the Company's independent directors and President, or their successors
(the "Special Committee"), and the Special Committee will determine whether to
approve such offer in the exercise of their fiduciary duties under applicable
Delaware law. Any of the Creditors may apply to the Court to permit an
exception, subject to the legal standard set forth in the immediately
preceding sentence. The Company intends to seek stockholder approval of an
amendment to its Certificate of Incorporation to embody this provision
therein.
3. The Company has agreed to register the offer and sale of the Pool A Shares
as set forth in the marketing plan. The Company previously has filed a shelf
registration statement covering five million Settlement Shares owned by FIN to
finance a settlement, which is subject to certain contractual restrictions and
may be offered for sale or sold only by means of an effective registration
statement.
4. The Lead Parties have agreed that Mr. Jurick will limit his total cash
compensation not to exceed $750,000 until the Settlement Amount has been
paid. The Company has also agreed not to grant Mr. Jurick any additional
non-cash compensation. On the date hereof, Mr. Jurick owns options to
acquire 600,00050,000
shares of Emerson Commoncommon stock at an exercise price of $1.10$2.875 per share. In April
1996, Mr. Jurick will continueAndriani was granted a stock option to receive reimbursementpurchase 75,000 shares of
reasonable business expenses pursuantcommon stock at an exercise price of $2.563 per share and in October 1996,
Ms. Calianese was granted a stock option to the Company's policies.
For the Settlement Agreementpurchase 30,000 shares of
common stock at an exercise price of $ 2.25 per share. Ms. Calianese's
options were repriced in May 1997 to become effective, the certificates
representing certain$1.00 per share. The options vest in
annual increments of the Settlement Shares that are still held by the Swiss
authorities must be received by the Court, the Settlement Agreement must be
approved by the Court following a hearing on notice to interested parties,
outstanding injunctions must be dissolved, and certain other documents must be
received by the Court. The Lead Parties are currently working to resolve these
matters. The Settlement Agreement is to become effective by December 31, 1996,
or it may be withdrawn after that time if not yet effective. Requests are to be
made by Petra Stelling to the Swiss authorities to discontinue the
investigations involving Messrs. Jurick, Bunger, and Farnum, as described above.
Hopper Litigation
The Company filed a complaint on July 5, 1995 in the Superior Court of New
Jersey, Morris County, alleging that Hopper, Barry Smith and three former
employees of the Company (collectively, the "Hopper Defendants") formed a
business entity for the purpose of engaging in the distribution of consumer
electronics and that the action of the Hopper Defendants in connection therewith
violated certain duties owed to, and rights including contractual rights
from, two agreements with the Company. The Partnership continued to operate
after the filing of the lawsuit.
On January 25, 1996, the New Jersey Court dismissed the Company's complaint
as to certain of the Hopper Defendants based upon the Court's determination that
certain clauses contained in the agreements between the parties mandated
Delaware as the more proper forum for the Company's lawsuit. The Company also
filed suit on January 27, 1996, in the Delaware Chancery Court, New Castle
County, as to those Hopper Defendants who did not reside in New Jersey, which
contained similar allegations to those contained in the New Jersey suit. The
Delaware suit also sought a preliminary injunction against those Hopper
Defendants covered by the Delaware suit.
Effective April 24, 1996, the Company and Hopper entered into the Hopper
Amendment which, among other things, amended certain provisions in the
Partnership and Sales Agreements and settled all outstanding litigation between
the Company, Hopper and the other named parties. Under the Hopper Amendment,
Hopper advanced an additional $5 million to the Partnership, thereby increasing
the liquidity of the Partnership and equalizing the investment of the partners
and the sharing of cash flows. Additionally, the Hopper Amendment provides that
the Partnership will continue to buy all of the Company's product returns in the
United States through December 31, 1996 excluding defective product returns
subject to the return to vendor agreements. See "Business-Returned Products."
Subsequent to this date, either partner may give notice to dissolve the
Partnership, with a wind-down period to be completed no later than six monthsone-third, commencing one year from the date of such notice.
Jensen Litigation
On May 10, 1996, Jensen filed an action in the United States District Court
for the Northern District of Illinois, Eastern Division, against the Companygrant,
and its President, Eugene I. Davis, for violations of proxy solicitation rules and
for breach of a confidentiality agreement with Jensen. On May 14, 1996, the
Court entered a temporary restraining order against the Company and its
President, which has subsequently lapsed, enjoining them from (i) further
solicitation of Jensen's stockholders or their representatives until the Company
has filed a Proxy Statementexercise is contingent on continued employment with the Securities and Exchange Commission which
complies with the provisionsCompany.
(6) Mr. Andriani became an executive officer of Regulation 14A of the Securities Exchange Act of
1934; (ii) making further solicitation containing false and misleading or
misleading statements of material fact or material omissions; and (iii)
disclosing confidential information in violation of the confidentiality
agreement. On May 20, 1996, the Company filed a counterclaim in this action
alleging that Jensen and Mr. Shaw fraudulently induced the Company to enter into
a confidentiality agreement and failed to negotiate with the Company in good
faith. In its counterclaim,February 1996.
(7) Options to acquire 30,000 shares of Common Stock granted to Ms. Calianese
in prior fiscal years were repriced during Fiscal 1998 and are, therefore,
reported as compensation in Fiscal 1998. See "Board Report on Option
Repricing".
OPTION GRANTS DURING 1998 FISCAL YEAR
There were no options granted to the Company requests such other equitable or other
relief as the Court finds proper and an award of attorneys' fees and expenses.
The Company and its President intend to vigorously defend Jensen's claim against
the Company and to vigorously pursue its counterclaim against Jensen and Mr.
Shaw. The Company believes that Jensen's claims are without basis, that it has
meritorious defenses against Jensen's claim and that the litigation or results
thereof will not have a material adverse effect on the Company's
consolidated financial position. See "Business - Growth Strategy."
Other Litigation
The Company is involved in other legal proceedings and claims of various
typesnamed executives identified in the ordinary course of business. While any litigation to which the
Company is a party contains an element of uncertainty, management presently
believes that the outcome of each such proceeding or claim which is pending or
known to be threatened (including the actions noted above), or all of them
combined, will not have a material adverse effect on the Company's consolidated
financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1996.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITYSummary
Compensation Table.
OPTION EXERCISES AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock has traded on the American Stock Exchange since
December 22, 1994 under the symbol MSN. The Common Stock began trading publicly
on September 1, 1994 in the over-the-counter market. Prior thereto, there was
no established public trading market for the Common Stock.
Prior to confirmation of the Plan of Reorganization on March 31, 1994,
there were approximately 4,500 stockholders of record of the common stock of the
Company's predecessor. The shares of such stockholders were terminated and
cancelled on the effective date of the Plan of Reorganization. Such shares had
been traded on the New York Stock Exchange until trading was suspended on
October 6, 1993 and the shares delisted on April 15, 1994.HOLDINGS
The following table sets forthprovides information related to options exercised by the
rangenamed executive officers during Fiscal 1998 and the number and value of high and low bid pricesoptions
held at fiscal year end. The Company does not have any outstanding stock
appreciation rights.
OPTION EXERCISES DURING 1998 FISCAL YEAR AND FISCAL YEAR - END OPTION VALUES
Number of
Securities
Underlying Value of
Unexercised Unexercised
Options/SARs In-the-Money
at FY-End Options/SARs
Shares (#) at FY-End
Acquired Value Exercisable/ ($)(1)
on Exercise Realized Unexer- Exercisable/
Name (#) ($) cisable Unexercisable
Geoffrey P. Jurick -- -- 600,000/0 $ 0/$ 0
John P. Walker -- -- 200,000/0 $ 0/$ 0
Marino Andriani -- -- 50,000/25,000 $ 0/$ 0
John J. Raab -- -- 33,333/16,667 $ 0/$ 0
Elizabeth J. Calianese -- -- 20,000/10,000 $ 0/$ 0
(1) The closing price for the Company's Common Stock as reported by the
National Quotations Bureau forAmerican Stock Exchange on April 3, 1998 was $ .44. Value is calculated on the
period September 1, 1994 through December 21, 1994basis of the difference between the closing price and the rangeoption exercise price
of high"in the money" options, multiplied by the number of shares of Common Stock
underlying the option.
BOARD REPORT ON OPTION REPRICING
The Board believes that the Company has taken constructive steps to improve
its performance and lowbelieves that hiring and retaining key employees is central
to implementing these measures. In furtherance of these goals, in May 1997, the
Board reduced the per share exercise price of options previously granted to Ms.
Calianese. The Board concluded that Ms. Calianese's eight years of continuing
service as an executive of the Company and her experience as Deputy General
Counsel were basis for repricing of options granted to her. On May 13, 1997,
the price of the options was reduced from $2.25 per share to $1.00. The closing
sales pricesprice of the Company's Common Stock on May 13, 1997, as reported by the
American Stock Exchange, from December 22, 1994.
Fiscal 1995 High Low
Second Quarter $1-1/2 $1
Third Quarter 2-7/8 15/16
Fourth Quarter 3-3/8 2
Fiscal 1996 High Low
First Quarter $3-1/8 $2-1/4
Second Quarter 3-3/4 2-1/4
Third Quarter 3 1-3/8
Fourth Quarter 2-7/8 1-3/4
was $.438. No other provisions of this option were
altered.
In accordance with the rules of the SEC, this Option Repricing Report of the
Board of Directors is not intended to be "filed" or "soliciting Material" or
subject to Regulations 14A or 14C or Section 18 of the Exchange Act, or
incorporated into any other filing by the Company with the SEC.
The Series A Preferred Stock and Warrants outstanding are freely tradeable;
however, there is no established trading market for either security.
(b) Holders
At June 27, 1996, there were approximately 450 stockholdersfollowing table summarizes certain information concerning the repricing of
record ofoptions to buy the Company's Common Stock and 21 holders of record of the Series A Preferred
Stock and 14 holders of the Warrants.
(c) Dividends
The Company's policy has been to retainheld by all available earnings, if any, for
the development and growth of its business. The Company has never paid cash
dividends on its Common Stock. In deciding whether to pay dividends on the
Common Stock in the future, the Company's Board of Directors will consider
factors it deems relevant, including the Company's earnings and financial
condition and its working capital and anticipated capital expenditures. The
Company's United States credit facility and the Indenture contain certain
dividend payment restrictions on the Company's Common Stock. Additionally, the
Company's Certificate of Incorporation, defining the rights of the Series A
Preferred Stock, prohibits Common Stock dividends unless the Series A Preferred
Stock dividends are paid or put aside. The Series A Preferred Stock earns
dividends, payable on a quarterly basis, at a 7% dividend rate through March 31,
1997, then declining by a 1.4% dividend rate each succeeding year until March
31, 2001 when no further dividends are payable.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The Company changed its fiscal year end from December 31 to March 31,
commencing with the period ended March 31, 1992. The following table sets forth
selected consolidated financial data of the Company for the years ended March
31, 1996, 1995, 1994 and 1993, the three months ended March 31, 1992 and the
year ended December 31, 1991. The selected consolidated financial data should
be read in conjunction with the Company's consolidated financial statements,
including the notes thereto, and "Management's Discussion and Analysis of
Results of Operations and Financial Condition" set forth elsewhere in this Form
10-K.executive officers:
TEN YEAR OPTION REPRICING
Three
Year Months Year Year Year Year
Ended Ended Ended Ended Ended Ended
Dec. Mar. Mar. Mar. Mar. Mar.
31, 31, 31, 31, 31, 31,
1991 1992 1993 1994 1995 1996
(In thousands, except per share data)Number
of Length of
Secur- Original
ities Market Option
Under- Price of Exercise Term
lying Stock at Price New Remaining
Date of Options Time of at Time of Exercise at Date of
Name Repricing Repriced Repricing Repricing Price Repricing
Summary of Operations:
Net Revenues:
Core Business (1) $716,651 $169,936 $741,357 $487,390 $654,671 $245,667
Personal Computers
and Other 73,555 1,562
$790,206 $171,498 $741,357 $487,390 $654,671 $245,667
Net Earnings (Loss) (2):
Before Extraordinary
Gain $(60,746) $ (6,976) $(56,000) $(73,654) $ 7,375 $(13,389)
Extraordinary Gain 129,155
$(60,746) $ (6,976) $(56,000) $ 55,501 $ 7,375 $(13,389)
Balance Sheet Data at
Period End:
Total Assets $226,131 $216,693 $194,510 $119,021 $113,969 $ 96,576
Current Liabilities
(3) 218,504 215,069 249,307 76,083 59,782 35,008
Long-Term Debt (3) 130 157 151 227 214 20,886
Shareholders' Equity
(Deficit) 4,550 (1,480) (57,895) 42,617 53,651 40,382
Working Capital
(Deficit) (29,503) (36,003) (89,949) 32,248 42,598 50,306
Current Ratio 0.9 to 0.8 to 0.6 to 1.4 to 1.7 to 2.4 to
1 1 1 1 1 1
Per Common Share:
Net Earnings (Loss) Per
Common Share (2) (4):
Before Extraordinary
Gain $( 1.60) $(0.18) $(1.47) $(1.93) $ 0.16 $(0.35)
Extraordinary Gain 3.38
$( 1.60) $(0.18) $(1.47) $ 1.45 $ 0.16 $(0.35)
Common Shareholders'
Equity
(Deficit) (5) Per
Common Share $ 0.12 $(0.04) $(1.52) $ 0.98 $ 1.08 $ 0.75
Weighted Average Number
of Common and Common
Equivalent Shares
Outstanding 37,897 37,968 38,179 38,191 46,571 40,253ELIZABETH J. 05/13/97 30,000 $0.438 $2.25 $1.00 N/A
CALIANESE
______________________________
(1) The decline in net direct revenuesCERTAIN EMPLOYMENT CONTRACTS
On August 13, 1992, Geoffrey P. Jurick, Chairman, Chief Executive Officer
and President of the Company, entered into five-year employment agreements
("Jurick Employment Agreements") with the Company and two of its wholly-owned
subsidiaries, Emerson Radio (Hong Kong) Ltd. and Emerson Radio
International Ltd. (formerly Emerson Radio (B.V.I.) Ltd.)
(hereinafter, collectively the "Companies"), providing for Fiscal 1996an
aggregate annual compensation of $490,000 as of April 1, 1995.
Effective October 18, 1997, Mr. Jurick's employment agreement with
the Company (but not the wholly-owned subsidiaries) was due primarilyamended and Mr.
Jurick's annual salary under the Jurick Employment Agreements was reduced to
$410,000. In addition to his base salary, the Jurick Employment Agreements
provide that Mr. Jurick is entitled to an annual bonus upon recommendation by
the Compensation and Personnel Committee of the Company's Board of Directors,
subject to the implementationfinal approval of the Company's Board of Directors. By letter
agreement dated April 16, 1997, the terms of the Jurick Employment Agreements
signed with the Supplier, effectivewere extended until March 31, 1995. Net Revenues for Fiscal 1996 excludes $254,840,000 of
Emerson branded gross sales2000. However, pursuant to the Settlement
Agreement, hereinafter defined, Mr. Jurick's cash compensation from the Company
and all subsidiaries and affiliates is limited to a total of $750,000 annually
until the Settlement Amount is paid. See "Certain Relationships and Related
Transactions." Pursuant to the Management Services Agreement, SSG reimbursed
the Company for $125,444 and $46,527 in salary payments made to Mr. Jurick in
Fiscal 1998 and 1997 respectively, for the benefit of SSG. The Management
Services Agreement was amended as of October 18, 1997 to provide that SSG will
no longer reimburse the Company for any of Mr. Jurick's salary payments, but
will pay Mr. Jurick directly. See "Item 13. - Certain Relationships and Related
Transactions - Management Services Agreement".
Subject to certain conditions, each of the Jurick Employment Agreements
grants to Mr. Jurick severance benefits, through expiration of the respective
terms of each of such agreements, commensurate with Mr. Jurick's base salary, in
the event that his employment with the Companies terminates due to permanent
disability, without cause or as a result of constructive discharge (as defined
therein). In the event that Mr. Jurick's employment with the Companies
terminates due to termination for "cause", because Mr. Jurick unilaterally
terminates the agreements or for reasons other than constructive discharge or
permanent disability, Mr. Jurick shall only be entitled to base salary earned
through the applicable date of termination. If Mr. Jurick were to be terminated
due to permanent disability, without cause or as a result of constructive
discharge, the estimated dollar amount to be paid after April 3, 1998, based on
the terms of the employment contract, would be $823,000. However, the estimated
amounts to be paid is subject to certain limitations under the Settlement
Agreement. See "Item 13. - Certain Relationships and Related Transactions -
Certain Outstanding Common Stock".
As of April 1, 1994, John P. Walker, Executive Vice President and Chief
Financial Officer, entered into a three-year employment agreement with the
Company providing for an annual compensation of $165,000 as of April 1, 1995 and
increased to $210,000 effective April 1, 1996 ("Walker Employment Agreement").
Effective January 15, 1998, the Walker Employment Agreement was terminated and
the Management Services Agreement with SSG was amended to provide that the
Company will reimburse SSG for a portion of Mr. Walker's salary and bonus, if
any, thus reducing that portion paid directly by the Company to Mr. Walker to
$0.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS
There are no employment agreements deemed to have an anti-takeover effect.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Personnel Committee, which is presently comprised of
Messrs. Brown, Steele, and Bunger, (i) makes recommendations to the full Board
concerning remuneration arrangements for executive management; (ii) administers
the Company's 1994 Stock Compensation Program; and (iii) makes such reports and
recommendations, from time to time, to the Board of Directors upon such matters
as the committee may deem appropriate or as may be requested by the Board.
Geoffrey P. Jurick serves as Chairman of the Board and Chief Executive
Officer of the Company and SSG. John P. Walker serves as Executive Vice
President and Chief Financial Officer of the Company and SSG. Mr. Walker is
also a Director of SSG. Mr. Bunger, who is a Director of the Company and SSG,
serves on the Compensation Committees of the Company and SSG. Geoffrey Jurick
was also a member of the Company's Board of Directors during Fiscal 1998 and
participated in deliberations concerning executive officer compensation.
REPORT OF COMPENSATION AND PERSONNEL COMMITTEE
The Compensation and Personnel Committee of the Board of Directors (the
"Compensation Committee"), which contains two independent non-employee
Directors, oversees the Company's executive compensation strategy. The strategy
is implemented through policies designed to support the achievement of the
Company's business objectives and the enhancement of stockholder value. The
Compensation Committee reviews, on an ongoing basis, all aspects of executive
compensation.
The Compensation Committee's executive compensation policies support the
following objectives:
-- The reinforcement of management's concern for enhancing stockholder
value.
-- The attraction and retention of qualified executives.
-- The provision of competitive compensation opportunities for exceptional
performance.
The basic elements of the Company's executive compensation strategy are:
BASE SALARY. Base salaries for the executive managers of the Company
represent compensation for the performance of defined functions and
assumption of defined responsibilities. The Compensation Committee reviews
each executive's base salary on an annual basis. In determining salary
adjustments, the Compensation Committee considers the Company's growth in
earnings and revenues and the executive's performance level, as well as
other factors relating to the executive's specific responsibilities. Also
considered are the executive's position, experience, skills, potential for
advancement, responsibility, and current salary in relation to the expected
level of pay for the position. The Compensation Committee exercises its
judgment based upon the above criteria and does not apply a specific
formula or assign a weight to each factor considered.
ANNUAL INCENTIVE COMPENSATION. At the beginning of each year, the
Board of Directors establishes performance goals of the Company for that
year, which may include target increases in sales, net income and earnings
per share, as well as more subjective goals with respect to marketing,
product introduction and expansion of customer base.
LONG-TERM INCENTIVE COMPENSATION. The Company's long-term incentive
compensation for management and employees consists of the 1994 Stock
Compensation Program.
The Compensation Committee views the granting of stock options as a
significant method of aligning management's long-term interests with those of
the stockholders. The Compensation Committee determines awards to executives
based on its evaluation of criteria that include responsibilities, compensation,
past and expected contributions to the achievement of the Company's long-term
performance goals. Stock options are designed to focus executives on the long-
term performance of the Company by enabling executives to share in any increases
in value of the Company's stock.
The Compensation Committee encourages executives, individually and
collectively, to maintain a long-term ownership position in the Company's stock.
The Compensation Committee believes this ownership, combined with a significant
performance-based incentive compensation opportunity, forges a strong linkage
between the Company's executives and its stockholders.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Geoffrey P. Jurick is the Chief Executive Officer, Chairman of the
Board of Directors and President of the Company. The Compensation Committee
considered the Company's results in all aspects of its business, and the
terms of his employment agreement with the Company, in its review of
Mr. Jurick's performance during Fiscal 1998.
Mr. Jurick's annual compensation, comprised of annual base salary of
$411,600, is consistent with the Committee's targeted annual compensation level
and with the limitations established by the Settlement Agreement (See "Item 13.
- - Certain Relationships and Related Transactions - Certain Outstanding Common
Stock"). Mr. Jurick reduced his salary by $80,000 in Fiscal 1998 as a result of
SSG paying Mr. Jurick directly (See "Item 13. - Certain Relationships and
Related Transactions - Management Services Agreement"). The terms and
conditions of Mr. Jurick's employment agreement are discussed in detail
beginning on page 4 (See "Item 11. - Executive Compensation and Other
Information - Certain Employment Contracts").
POLICY ON QUALIFYING COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), for tax years beginning on or after January 1, 1994, provides that
public companies may not deduct in any year compensation in excess of $1 million
paid to any of the individuals named in the Summary Compensation Table that is
not, among other requirements, "performance based," as defined in Section
162(m). None of the named individuals received compensation in excess of $1
million during Fiscal 1998, 1997 or 1996. The Company's policy is to qualify, to
the extent reasonable, its executive officers' compensation for deductibility
under applicable tax laws. However, the Board of Directors believes that its
primary responsibility is to provide a compensation program that will attract,
retain and reward the executive talent necessary to the Company's success.
Consequently, the Board of Directors recognizes that the loss of a tax deduction
could be necessary in some circumstances.
COMPENSATION AND PERSONNEL COMMITTEE
Raymond L. Steele, Chairman
Robert H. Brown, Jr.
Peter G. Bunger
BOARD OF DIRECTORS AND COMMITTEES
The business of the Company is managed under the direction of the Board of
Directors. The Board meets during the year. Net
Revenues for Fiscal 1995 included $340,465,000Company's fiscal year to review
significant developments affecting the Company and to act on matters requiring
Board approval. The Board of sales of video products
now coveredDirectors held eight formal meetings and acted by
the new arrangement with the Supplier. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
(2) Net earnings forunanimous written consent three times during the fiscal year ended March 31, 1994 includeApril 3,
1998. During Fiscal 1998, each member of the Board participated in at least 80%
of all Board and committee meetings held during the period for which he served
as a Director and/or committee member.
During Fiscal 1998, the Board of Directors had an extraordinary gain of $129,155,000, or $3.38 per common share, onAudit Committee and a
Compensation and Personnel Committee to devote attention to specific subjects
and to assist the extinguishment of debt settledBoard in the Plandischarge of Reorganization. Accordingly,
the Company recorded reorganization expensesits responsibilities. The functions
of $17,385,000 relating
primarilythese committees and their current members are described below.
AUDIT COMMITTEE. The Company's Audit Committee is presently comprised of
Messrs. Brown (Chairman), Steele and Farnum. The Audit Committee recommends to
the writedownBoard of assets transferredDirectors the appointment of a firm of certified public accountants
to creditors under the Plan
of Reorganization and professional fees and other related expenses incurred
during the bankruptcy proceedings. The results of operations for the fiscal
year ended March 31, 1993, the three months ended March 31, 1992 and the year
ended December 31, 1991 include restructuring and other nonrecurring charges
aggregating $35,002,000, $3,698,000 and $36,964,000, respectively. These
charges represent the cost of discontinuing the personal computer business,
professional fees and other expenses related to the Company's financial
restructuring, and the up-front costs and writedowns of certain assets
associated with implementing long-term cost reduction programs. Charges for
the fiscal year ended March 31, 1993 also include costs related to the proxy
contest settled in June 1992. The year ended December 31, 1991 also includes
charges related to the discontinuance of the then existing H.H. Scott
domestic business.
(3) The aggregate outstanding principal balanceconduct audits of the Company's senior notes
has been classifiedconsolidated financial statements and
monitors the performance of such firm, reviews accounting objectives and
procedures of the Company and the findings and reports of the independent
certified public accountants, and makes such reports and recommendations to the
Board of Directors as currentit deems appropriate. During Fiscal 1998, the Audit
Committee met two times and acted by unanimous written consent one time.
COMPENSATION AND PERSONNEL COMMITTEE. The Compensation and Personnel
Committee, which is presently comprised of Messrs. Brown, Steele (Chairman), and
Bunger, (i) makes recommendations to the full Board concerning remuneration
arrangements for executive management; (ii) administers the Company's 1994 Stock
Compensation Program; and (iii) makes such reports and recommendations, from
time to time, to the Board of Directors upon such matters as the committee may
deem appropriate or as may be requested by the Board. During Fiscal 1998, the
Compensation Committee met one time. See "Item 11. - Executive Compensation and
Other Information--Report of Compensation and Personnel Committee".
The Board of Directors did not have a standing nominating committee, or any
other committee performing similar functions during Fiscal 1998. The functions
customarily attributable to a nominating committee were performed by the Board
of Directors as a whole.
COMPENSATION OF DIRECTORS
Directors of the Company who are employees do not receive compensation for
serving on the Board. Non-employee Directors are paid $20,000 per annum in
quarterly installments. The Chairman of the Audit Committee receives an
additional $10,000 per annum and the Chairman of the Compensation and Personnel
Committee receives an additional $10,833 per month in quarterly installments.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1993July 27, 1998, the beneficial
ownership of (i) each current Director, (ii) each officer named in the Summary
Compensation Table, (iii) the Directors and 1992,executive officers as a group and
December
31, 1991. See Note B(iv) each stockholder known to management of Notesthe Company to Consolidated Financial Statements.
(4) Net earnings (loss) perown beneficially
more than 5% of the Company's outstanding shares of common share for all periods priorStock.
For purposes of this Form 10-K/A-1, beneficial ownership of securities is
defined in accordance with the rules of the Securities and Exchange Commission
("SEC") and means generally that the power to Fiscal 1995
arevote or exercise investment
discretion with respect to securities regardless of any economic interests
therein. Except as otherwise indicated and based upon the Company's review of
information as filed with the SEC, the Company believes that the beneficial
owners of the securities listed below have sole investment and voting power with
respect to such shares, subject to community property laws where applicable.
Amount and Nature Percent
Name and Address Of Beneficial Owners of Beneficial Ownership(1) of Class
Geoffrey P. Jurick (2) (3) 29,752,542 57.4%
Fidenas International Limited, L.L.C. 29,152,642 56.3%
831 Route 10
Suite 38, #113
Whippany, NJ 07981 (2)
Grace Brothers Ltd. 4,369,896 7.8%
1560 Sherman Avenue, Suite 900
Evanston, IL 60201 (7)
Oaktree Capital Management 3,056,489 5.6%
550 South Hope St., 22nd Fl
Los Angeles, CA 90071 (8)
Robert H. Brown, Jr. (4) 50,000 *
Peter G. Bunger (4) 25,000 *
Jerome H. Farnum (4) 25,000 *
Raymond L. Steele (4) 50,000 *
John P. Walker (5) 200,000 *
Marino Andriani (5) 50,000 *
John J. Raab (5) 33,333 *
Elizabeth J. Calianese (5) 20,000 *
All Directors and Officers 30,205,875 58.3%
as a Group (9 persons) (6)
(*) Less than one percent
(1) Based on the weighted average number50,772,615 shares of old common shares outstanding
during each period. Net loss per common share for Fiscal 1996 is based on
the net loss and deduction of preferred stock dividend requirements
(resulting in a loss attributable to common stockholders) and the weighted
average of new Common Stock outstanding during the fiscal year. The net loss
per shareas of July 27, 1998,
plus shares of Common Stock under option of any Director or executive
officer, exercisable within 60 days. Except as otherwise indicated, does
not include common stock equivalents assumed outstanding since
they are anti-dilutive. Net earnings per common share for Fiscal 1995 is
based on the weighted average number of(i) shares of new Common Stock and
related common stock equivalents outstanding during the year. Common Stock
equivalents include 9,081,000 shares assumingissuable upon conversion of $10 million5,137
shares of Series A Preferred Stock, at a price equal to 80% of the weighted average
market value of a share of(ii) Common Stock determined on a quarterly basis.
Since the Series A Preferred Stock is not convertible into Common Stock until
March 31, 1997, the number of shares issuable upon
conversion may be
significantly different.
(5) Calculated based on common shareholders' equity (deficit) divided by
actual shares of certain warrants issued to the Company's former creditors,
(iii) Common Stock outstanding.issuable upon exercise of outstanding options, which are
not currently exercisable within 60 days, (iv) Common shareholders' equity at
March 31, 1996, 1995 and 1994 is equal to total shareholders' equity less $10
million for the liquidation preferenceStock issuable upon
conversion of the Series A Preferred Stock.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
General
On August 30, 1995, the Company completed a private placement of
$20,750,000 aggregate principal amount ofCompany's 8-1/2% Senior Subordinated Convertible
Debentures Due 2002 (the "Debentures"), resultingor (v) Common Stock issuable upon
the exercise of warrants granted to (a) Dresdner Securities (USA) Inc., or
(b) First Cambridge Securities Corporation ("First Cambridge"), and/or
representatives of First Cambridge it so designates or its beneficiaries.
(2) Consists of 15,552,542, 1,600,000 and 12,000,000 shares of Common Stock
which were held by FIN, Elision, and GSE, respectively. FIN is record
holder of an additional 847,458 shares of Common Stock and formerly held
such shares as nominee. The nominee relationship has been terminated and
FIN and Mr. Jurick disclaim beneficial ownership of such additional
shares. Mr. Jurick indirectly owns, through a controlled holding company
approximately 95% of FIN. In addition, Mr. Jurick is the manager of FIN.
FIN owns approximately 14.3% of Elision. Mr. Jurick indirectly owns,
through certain holding companies and beneficial interests in net proceeds toaffiliates,
a controlling interest in each of GSE and Elision. In accordance with a
Stipulation and Order of Settlement, dated June 11, 1996 (the
"Stipulation"), the Companyshares of approximately $19,208,000 afterCommon Stock held by Elision and GSE were
transferred and registered in the paymentname of FIN. All of the expenses of such
offering. The proceeds of this offering were initially applied against the
Company's United States secured credit facility to reduce the then present
working capital costs. See Note F of Notes to Consolidated Financial Statements
included elsewhere in this Form 10-K. Management is currently utilizing the
benefits of such net proceeds to fund an intercompany obligation to a foreign
subsidiary, exploit new business opportunities via product line additionsshares owned by
FIN, GSE and extensions and the expansion of its distribution base, and may use such proceeds
for acquisitions, including for the potential acquisition of Jensen. See
"Business - Growth Strategy" and "Legal Proceedings."
The Company also amended its United States secured credit facility with its
primary United States lender ("the Lender") effective as of August 24, 1995.
The amendment includes, among other things, a reduction of 1% in the interest
rate charged on borrowings, down to 1.25% above the stated prime rate, an
extension on the term of the facility for one additional year to March 1998, an
increase in working capital requirements, a reduction of other loan fees and
charges under such facility, and the release of the Lender's security interests
in the trademarks of the Company. The trademarksElision are subject to a negative
pledge covenant. In addition, the Company recast its adjusted net worth
covenant on such facility effective June 30, 1996.certain restrictions. See Notes E"Item 13. -
Certain Relationships and NRelated Transactions - Certain Outstanding
Common Stock".
(3) Includes options, exercisable within 60 days, to purchase 600,000 shares
of Notes
to Consolidated Financial Statements included elsewhere in this Form 10-K. The
modifications to its United States secured credit facility, together with the
net proceeds from the saleCommon Stock.
(4) Comprised of the Debentures, has enabled the Company to reduce
its effective cost of borrowing while permitting the Company to expand its
product lines and distribution base.
Effective March 31, 1995, the Company and the Supplier entered into the
Agreements. The Company granted a license of certain trademarks to the Supplier
for a three-year term. The license permits the Supplier to manufacture and sell
certain video products under the "EMERSON and G-Clef" trademark to the
Customer, in the United States and Canada. As a result, the Company is
receiving royalties attributable to such sales over the three-year term of
the Agreements in lieu of reporting the full dollar value of such sales and
associated costs. Net sales of these products to the Customer accounted for
approximately 47% of consolidated net revenues for Fiscal 1995. The Company
will continue to supply other products to the Customer directly. Further,
the Agreements provide that the Supplier will supply the Company with certain
video products for sale to other customers at preferred prices for a
three-year term. Under the terms of the Agreements, the Company will receive
non-refundable minimum annual royalties from the Supplier to be credited
against royalties earned from sales of VCRs, VCPs, TV/VCR combination units,
and color televisions to the Customer. In addition, effective August 1, 1995,
the Supplier assumed responsibility for returns and after-sale and warranty
services on all video products manufactured by the Supplier and sold to the
Customer, including video products sold by the Company prior to August 1,
1995. As a result, the impact of sales returns on the Company's operating
results have been significantly reduced, effective with the quarter ended
September 30, 1995. The Company has reported lower net direct revenues
in Fiscal 1996 as a result of the Agreements, but its net operating
results for such year have not been impacted negatively. The Company has
realized and expects to continue to realize a more stable cash flow over the
three-year term of the Agreements, as well as reduced short-term borrowings
necessary to finance accounts receivable and inventory thereby reducing interest
costs. Additionally, the Company's gross margins are expected to improve as the
change in mix to higher margin products and a reduction in costs for product
returns (which have historically been higher for video products) take hold. The
Company and the Supplier are currently involved in litigation over certain
matters concerning the terms of the Agreements.
The Company reported a significant decline in its net direct sales for
Fiscal 1996 as compared to Fiscal 1995 primarily due to the licensed video
sales. However, the Company's United States sales to other customers also
declined due to increased price competition, primarily in video product
categories, high retail stock levels, a slowdown in retail activity and the
extremely high level of sales achieved in Fiscal 1995. The Company expects its
United States sales for the first quarter of Fiscal 1997 to be lower than the
first quarter of Fiscal 1996 due to the continuing weak retail climate and the
increased level of price competition in video product categories.
Results of Operations - Fiscal 1996 compared with Fiscal 1995
Consolidated net revenues for Fiscal 1996 decreased $409,004,000 (or 62%)
as compared to Fiscal 1995. The effects of the Agreements described above
accounted for a substantial portion of the decrease in revenues and sales to the
Customer were reduced to 18% of consolidated net revenues in Fiscal 1996 as
compared to 53% in Fiscal 1995. Gross sales to the Customer of video products
bearing the" EMERSON and G-Clef" trademark were reported by the Supplier to the
Company to be $254,840,000 in Fiscal 1996 or 25% lower than recorded by the
Company in Fiscal 1995. Royalty income recognized by the Company from these
sales was $4,442,000 in Fiscal 1996. In addition, sales to other customers for
Fiscal 1996 decreased as a result of lower unit sales of televisions and
television/video cassette recorder combination units due to increased price
competition in these product categories. The Company's Canadian operations
reported a decline of $17.8 million in sales for Fiscal 1996 due to declines in
unit volume and sales prices due to a weak Canadian retail economy and the
bankruptcy of two key customers in Fiscal 1995. The Company's European sales
decreased $16.7 million in Fiscal 1996 dueoptions issued pursuant to the Company's discontinuance1994 Non-Employee
Director Stock Option Plan. See "Security Ownership of Certain Beneficial
Owners and wind-downManagement--Compensation of its Spanish branch and subsequent assignment, to an independent
distributor, of the rights to sell Emerson Radio brand product in Spain.
Cost of sales, as a percentage of consolidated revenues, was 94% in Fiscal
1996 as compared to 92% in Fiscal 1995. Gross profit margins in Fiscal 1996
were lower on a comparative basis due primarily to the recognition of large
purchase discounts in Fiscal 1995 and the recognition of a loss experienced by
the Company's 50%-owned joint venture which sells product returns in Fiscal
1996. Additionally, the Company experienced lower sales prices and the
allocation of reduced fixed costs over a lower revenue base in Fiscal 1996 which
were substantially offset by a change in product mix, the recognition of
licensing income, reduced reserve requirements for sales returns and reduced
fixed costs associated with the downsizing of the Company's foreign offices.
The reduction in gross margins was unfavorably impacted by the accrual of
$9.9 million in Fiscal 1995 of purchase discounts received from one of the
Company's suppliers. Beginning in Fiscal 1996, the Company was not entitled to
a purchase discount from this supplier due to a reduction in purchase volume
associated with the Agreements. Due to the increase in the value of the
Japanese Yen in 1995, and its impact on the cost of certain raw materials and
subassemblies of the Company's suppliers, the Company absorbed certain price
increases from its suppliers. Additionally, the Company was not able to recover
such price increases from its customers due to increased price competition. As
the value of the Yen has decreased in 1996, the Company has been able to
negotiate lower prices from various sources of supply for certain audio and
video products.
The Company's margins continue to be impacted by the pricing category of
the consumer electronics market in which the Company competes. The Company's
products are generally placed in the low-to-medium priced category of the
market. These categories tend to be the most competitive and generate the
lowest profits. The Company intends to focus on its higher margin products and
is reviewing new product categories that can generate higher margins than the
current business, either through license arrangements, acquisitions, joint
ventures or on its own.
Other operating costs and expenses declined $3,968,000 in Fiscal 1996 as
compared to Fiscal 1995, primarily as a result of a decrease in (i) handling and
freight charges associated with reduced customer returns and (ii) compensation
and other expenses incurred to perform after-sale services as a result of the
Company's downsizing program. See Note M to the Consolidated Financial
Statements included elsewhere in this Form 10-K.
Selling, general and administrative expenses ("S,G&A") as a percentage of
revenues were 8% in Fiscal 1996 as compared to 5% in Fiscal 1995.Directors."
(5) In absolute
terms, S,G&A decreased by $11,550,000 in Fiscal 1996 as compared to Fiscal 1995.
The decrease for Fiscal 1996 was primarily attributable to lower selling
expenses due to lower revenues, a reduction in compensation and fixed overhead
costs relating to the Company's downsizing program, lower provisions for
accounts receivable reserves and higher professional fees incurred in Fiscal
1995 due to bankruptcy costs. The increase in S,G&A as a percentage of
revenues is due primarily to the allocation of fixed S,G&A costs over a
significantly lower revenue base. Additionally, the Company's exposure to
foreign currency fluctuations, primarily in Canada and Spain, resulted in the
recognition of net foreign currency exchange gains aggregating $508,000 in
Fiscal 1996 as compared to $354,000 in Fiscal 1995. In Fiscal 1997, the Company
will be conducting its business in Spain in U.S. dollars, thereby reducing its
exposure to foreign currency fluctuations.
Interest expense increased by $393,000 in Fiscal 1996 as compared to Fiscal
1995. The increase in interest expense was attributable to interest incurred on
the Debentures issued in August 1995, partially offset by lower average
borrowings on the Company's United States secured credit facility.
As a result of the foregoing factors, the Company incurred a net loss of
$13,389,000 in Fiscal 1996 as compared to net earnings of $7,375,000 in Fiscal
1995.
Results of Operations -- Fiscal 1995 Compared with Fiscal 1994
Consolidated net revenues for Fiscal 1995 increased $167,281,000 as
compared to Fiscal 1994, resulting from a significant increase in unit sales of
VCRs, VCPs and TV/VCR combination units, partially offset by a decline in unit
sales of color televisions and audio products, as well as lower sales prices for
such products. The sales increase for the VCR, VCP and TV/VCR product
categories was attributable to significantly higher sales to the Company's two
largest customers, resulting from an improved retail climate, low retail stock
levels after the 1993 holiday season, and an improved perception of the Company
by retailers since its emergence from bankruptcy. Net sales to the Company's
largest customer approximated 53% of consolidated net revenues for Fiscal 1995.
The Company's Canadian operations experienced a decline in net revenues for
Fiscal 1995 due to declines in unit volume and sales prices (relating to a weak
retail climate) and unfavorable foreign currency exchange rates.
Cost of sales, as a percentage of consolidated revenues, was approximately
92% for Fiscal 1995 as compared to approximately 100% for Fiscal 1994. Gross
profit margins were favorably impacted by the allocation of fixed overhead costs
over a significantly higher revenue base, a decline in fixed overhead costs,
reduced losses associated with product returns, the recognition of $9.9 million
of purchase discounts from a supplier, $1.2 million of licensing income and
reduced reserve requirements for sales returns due primarily to an agreement
with the Company's largest supplier. See "Liquidity and Capital Resources."
This improvement was partially offset by a 1% decline in gross profit margins
attributable to lower sales prices in most product categories resulting from
increased price competition, and a change in product mix.
Other operating costs and expenses declined $3,230,000 in Fiscal 1995 as
compared to Fiscal 1994, primarily as a result of a decrease in compensation and
other expenses incurred to process product returns, due to the Company's
downsizing program and changes in the resale arrangement for product returns.
See "Business - Refurbished Products."
S,G&A, as a percentage of revenues, was 5% and 7% for Fiscal 1995 and
Fiscal 1994, respectively. In absolute terms, S,G&A decreased $3,505,000 in
Fiscal 1995. The decrease was primarily attributable to lower compensation
expense relating to the Company's downsizing program, lower selling expenses,
including decreases in promotional allowances granted to customers, and improved
foreign currency results. The Company's exposure to foreign currency
fluctuations, primarily in Canada and Spain, resulted in net foreign currency
exchange gains aggregating $354,000 in Fiscal 1995 as compared to net foreign
currency exchange losses of $1,406,000 in Fiscal 1994.
Interest expense decreased $7,361,000 in Fiscal 1995 as compared to Fiscal
1994. The decrease was attributable to the extinquishment of approximately $203
million of institutional debt in connection with the Restructuring, effective
March 31, 1994, and a moratorium on interest accrued on pre-petition
indebtedness during the pendency of the Company's bankruptcy proceedings in
Fiscal 1994.
In FiscalJuly 1994, the Company recorded reorganization costs of $17,385,000
relating to professional fees and related expenses incurred in the bankruptcy
proceedings, and the writedown of certain assets transferred to a liquidating
trust pursuant to the bankruptcy settlement.
The Company recorded an extraordinary gain on extinguishment of debt of
$129,155,000 in Fiscal 1994. This gain related to the settlement of the
Company's pre-petition liabilities, as a result of the Company's emergence from
bankruptcy.
As a result of the foregoing factors, the Company earned $7,375,000 and
$55,501,000 for Fiscal 1995 and Fiscal 1994, respectively.
Liquidity and Capital Resources
Net cash utilized by operating activities was $11,357,000 for Fiscal 1996.
Cash was used to fund the loss from operations and to reduce a large customer's
credit balance, partially offset by a decrease in accounts receivable and
receipt of funds for purchase discounts accrued in Fiscal 1995. The license
revenues earned from sales of video products by the Supplier to the Customer in
Fiscal 1996 did not generate any cash during this period because the royalty
earned in excess of the minimum annual royalty (received in Fiscal 1995) was not
received until May 1996.
Net cash utilized by investing activities was $1,198,000 for Fiscal 1996.
Investing activities consisted primarily of capital expenditures for the
purchase of new product molds partially offset by the redemption of pledged
certificates of deposit.
In Fiscal 1996, the Company's financing activities provided $11,668,000 of
cash. Cash was provided by the private placement of $20,750,000 aggregate
principal amount of Debentures. The proceeds of approximately $19,208,000, net
of issuance costs, was initially used to reduce borrowings under the U.S. line
of credit facility, and to fund costs for product line additions and extension
and expansion of the Company's distribution base.
On September 29, 1993, the Company and five of its U.S. subsidiaries filed
voluntary petitions for relief under the reorganization provisions of Chapter 11
of the United States Bankruptcy Code and operated as debtors-in-possession under
the supervision of the Bankruptcy Court while their reorganization case was
pending. The precipitating factor for these filings was the Company's severe
liquidity problems relating to its high level of indebtedness and a significant
decline in sales from the prior year.
Effective March 31, 1994, the Bankruptcy Court entered an order confirming
the Plan of Reorganization. The Plan of Reorganization provided for the
implementation of a recapitalization of the Company. In accordance with the Plan
of Reorganization, the Company's pre-petition liabilities (of approximately $233
million) were settled with the creditors in the aggregate, as follows:
I. The Company's bank group (the "Bank Lenders") received $70 million
in cash and the right to receive the initial $2 million of net proceeds
from one of the Company's non-trade receivables.
II. The institutional holders of the Company's senior notes (the
"Noteholders") initially received $2,650,000 in cash and warrantsgranted stock options to purchase 750,000200,000 shares
of common stock for a period of seven yearsCommon Stock to Mr. Walker exercisable at an exercise price of $1.00 per share, provided that the exercise price shall
increase by 10% per year commencing in year four, and further received $1
million, payable $922,498 in cash from the initial public offering of
common stock and $77,502 in common stock calculated on the basis of $1.00 per
share. III. The Bank Lenders and Noteholders received their pro rata
percentage of the following:
A. $2,350,000 in cash (however $350,000 of this amountIn November 1995, Mr. Raab was distributablegranted stock options to the holders of allowed unsecured claims);
B. 10,000 shares of Series A Preferred Stock with a face value
of $10 million (estimated fair market value of approximately $9
million at March 31, 1994);
C. 4,025,277 shares of common stock, including 691,944 shares
issued in February 1995 pursuant to an anti-dilution provision;
D. The net proceeds from the sale of the Company's Indiana land
and building; and
E. The net proceeds to be received from the non-trade
receivables discussed in I. above in excess of $2 million.
IV. Holders of allowed unsecured claims received a pro-rata portion
of the $350,000 distribution and interest bearing promissory notes equal to
18.3% of the allowed claim amount, payable in two installments over 18
months. See "Legal Proceedings."
In accordance with the Plan of Reorganization, the Company completed an
initial public offering of its Common Stock in September 1994 to shareholders of
record as of March 31, 1994, excluding its largest pre-bankruptcy shareholder.
The Company sold 6,149,993purchase
50,000 shares of Common Stock forat an exercise price of $2.875 per share.
In April 1996, Mr. Andriani was granted stock options to purchase 75,000
shares of Common Stock at an exercise price of $2.563 per share and in
October 1996, Ms. Calianese was granted stock options to purchase
30,000 shares of Common Stock at an exercise price of $2.25 per share.
In May 1997, the options granted to Ms. Calianese were repriced to
$1.00 per share. The options vest in annual increments of one-
third, commencing one year from the date of grant, and their exercise is
contingent on continued employment with the Company.
(6) Includes 1,043,333 shares of Common Stock subject to unexercised stock
options which were exercisable within 60 days under the Company's
Stock Compensation Program. Does not include options to purchase an
aggregate of 61,667 shares of Common Stock not currently exercisable
within 60 days.
(7) Based on information set forth in Schedule 13G dated May 12, 1998, filed
with the SEC by Grace Brothers Ltd. Includes 4,290,019 common shares
issuable upon conversion of the owner's holdings in the Company's Series A
Convertible Preferred shares if such holdings were converted into shares of
the Company's Common Stock as of December 31, 1997. The percentage of
beneficial ownership assumes that the common shares that would be issued
upon conversion are outstanding.
(8) Based on information set forth in Schedule 13D dated May 22, 1998, filed
with the SEC by Oaktree Capital Management LLC, Kenneth Grossman and OCM
Principal Opportunities Fund, L.P. Includes 2,956,489 common shares
issuable upon conversion of the owners' holdings of the Company's
Debentures if such holdings were converted into shares of the Company's
Common Stock. The percentage of beneficial ownership assumes that the
common shares that would be issued upon conversion are outstanding.
COMPARISON OF CUMULATIVE TOTAL RETURN
PERFORMANCE GRAPH
The graph below compares the cumulative total stockholders' return on the
Company's Common Stock for the period December 22, 1994 (the date on which the
Company's Common Stock began trading on the American Stock Exchange) to April 3,
1998, with the cumulative total return over the same period of the American
Stock Exchange and a peer group of companies selected by the Company for
purposes of comparison, which includes Cobra Electronics Corp., Matsushita
Electric Industrial Co. Ltd., Philips Electronics N.V., Sony Corp. and Zenith
Electronics Corp. The peer group assumes the investment of $100 in the
Company's Common Stock, on December 22, 1994 and reinvestment of all dividends.
The information in the graph was provided by Media General Financial Services
("MGFS"). The comparison of the returns are as follows:
COMPARISON OF CUMULATIVE TOTAL RETURN OF
EMERSON RADIO CORP., PEER GROUP INDEX
AND BROAD MARKET INDEX
FISCAL YEAR ENDING
COMPANY/INDEX/MARKET 1994 1995 1996 1997 1998
Emerson Radio Corp. 100 135.14 110.81 45.95 18.92
Peer Group Index 100 103.95 114.52 141.47 142.79
NASDAQ Market Index 100 102.95 138.47 154.92 234.12
The Customer Selected Stock List is made up of the following securities:
COBRA ELECTRONICS CORP.
MATSUSHITA ELEC IND CO
PHILIPS ELECTRONICS NV
SONY CORP
ZENITH ELECTRONICS CORP.
The stock price performance depicted in the above graph is not necessarily
indicative of future price performance. The Corporate Performance Graph will
not be deemed to be incorporated by reference in any filing by the Company under
the Securities Act or the Exchange Act except to the extent that the Company
specifically incorporates the graph by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SPORT SUPPLY GROUP, INC.
On August 1, 1996, the Company and Emerson Radio (Hong Kong) LTD. ("Emerson
HK"), filed a Schedule 13D with the SEC. Pursuant to the Schedule 13D, Emerson
HK reported that it acquired 669,500 shares of SSG's Common Stock (the "Initial
Shares").
On December 10, 1996, the Company acquired directly from SSG (i) an
additional 1,600,000 shares of newly-issued SSG Common Stock (the "New Shares")
for an aggregate consideration of $11,500,000, or approximately $7.19 per share,
resulting
in proceedsand (ii) 5-year 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 (the "Emerson Warrants") for an aggregate consideration of
$500,000.
Prior to the exercise of any of the Emerson Warrants, the Company and
Emerson HK own approximately 28% of the issued and outstanding shares of SSG
Common Stock. If all of the Emerson Warrants are exercised by the Company, the
Company will own approximately 36% of the issued and outstanding shares of SSG
Common Stock.
Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement"), SSG granted to the Company netand Emerson HK certain demand and
incidental registration rights with respect to the resale of issuance costs,the shares of $5,692,000.
TheSSG
Common Stock they own, as well as on the exercise and resale of the shares of
SSG Common Stock the Company maintains an asset-based revolving credit facility, as amended,
with the Lender. The facility provides for revolving loans and letters of
credit, subject to individual maximums which, in the aggregate, cannot exceed
the lesser of $60 million or a "Borrowing Base" amount based on specified
percentages of eligible accounts receivable and inventories. All credit
extendedmay acquire under the line is securedWarrant Agreement governing
the Emerson Warrants.
The total consideration paid by the U.S.Company pursuant to the Emerson
Agreement was $12 million, of which $11,500,000 was attributable to the
1,600,000 New Shares and Canadian assets of$500,000 was attributable to the Emerson Warrants. The
$12,000,000 purchase price was borrowed by the Company except for trademarks, which are subject to a negative pledge covenant.
The interest rate on these borrowings is 1.25% abovefrom Congress Financial
Corporation ("Congress"), the stated prime rate. At
March 31, 1996, the weighted average interest rate on the outstanding borrowings
was 9.5%. Based on the "Borrowing Base" amount at March 31, 1996, $5.5 million
of the credit facility was not utilized. The facility is also subject to an
unused line fee of 0.25% per annum. Pursuant toCompany's United States senior secured lender,
under the terms of thisthe Company's existing credit facility and in accordance with
the terms of the consent obtained from Congress. Pursuant to a Pledge and
Security Agreement as amended, the Company is restricted from, amonghas pledged to Congress 500,000 of
the New Shares together with all proceeds thereof and all dividends and other
things, paying
cash dividends (other than onincome and distributions thereon or with respect thereto and all rights of the
Series A Preferred Stock), redeeming stock,
and entering into certain transactions and is requiredCompany to maintain certain
working capital and equity levels (as defined). The Company was required to
maintain a minimum adjusted net worth, as defined, of $38,000,000 at March 31,
1996. Effective June 30, 1996,have such minimum adjusted net worth, as amended, is
$30,000,000. See Note N of Notes to Consolidated Financial Statements included
elsewhere in this Form 10-K. At March 31, 1996, there was $21,151,000
outstandingNew Shares registered under the revolving loan facility,Registration Rights
Agreement.
In addition, for a period of at least 2 years after the closing, neither
SSG nor any of its subsidiaries are permitted to enter into or be a party to any
agreement or transaction with any Affiliate (as such term is defined in the
Exchange Act) of SSG or the Company, except (i) in the ordinary course of SSG's
or its subsidiaries' business and $1,177,000 of outstanding
letters of credit issued for inventory purchases.
The Company's Hong Kong subsidiary currently maintains various credit
facilities, as amended, aggregating $62.1 millionon terms no less favorable to SSG or its
subsidiaries than would be obtained in a comparable arms' length transaction
with a bankperson not an Affiliate of SSG or the Company or (ii) unless approved by
a majority of SSG's Directors who do not have a direct or indirect material
financial interest in Hong Kong
consistingthe agreement or transaction and which includes a majority
of Directors who are not officers or employees of SSG or the Company or
Directors of the following: (i)Company.
Pursuant to the Emerson Agreement, SSG also caused a $12.1 million credit facility which is
generally used for letters of credit for a foreign subsidiary's direct import
business and affiliates' inventory purchases and (ii) a $50 million credit
facility, for the benefit of a foreign subsidiary, which is for the
establishment of back-to-back letters of credit with the Customer. At March 31,
1996, the Company's Hong Kong subsidiary had pledged $4 million in certificates
of deposit to this bank to assure the availability of these credit facilities.
At March 31, 1996, there were $5,644,000 and $3,056,000, respectively, of
letters of credit outstanding under these credit facilities.
The Company's Hong Kong subsidiary maintains an additional credit facility
with another bank in Hong Kong. The facility provides for (i) a $10 million
line of credit for documentary letters of credit, (ii) a $10 million back-to-
back letter of credit line and (iii) a $100,000 standby letter of credit
facility. At March 31, 1996, the Company's Hong Kong subsidiary had pledged
$5,000,000 in certificates of deposit to assure the availability of these
credit facilities. At March 31, 1996, $991,000majority of the
lettermembers of credit line
was utilized.
In November 1995, the Company'sits Board of Directors approved a plan to repurchase up to 2 million of its common shares, or about 20%consist of the Company's current floatdesignees. SSG's
Board of approximately 11 million shares, from time to time inDirectors now includes the open
market. Although therefollowing people that are 40,252,772 shares outstanding, approximately 29.2
million shares are held directly or indirectly by affiliated entities ofassociated with
the Company: Geoffrey P. Jurick, Chairman, and Chief Executive Officer of
Emerson and SSG; John P. Walker, Executive Vice President and Chief Financial
Officer of Emerson and SSG; and Peter G. Bunger, a Director of both companies
and member of the Compensation Committee of each Company. Mr. Jurick has
employment agreements with the Company (which are
subjectand SSG. Messrs. Jurick and Walker split
their time between the two companies.
MANAGEMENT SERVICES AGREEMENT
During Fiscal 1997, SSG and the Company entered into a Management Services
Agreement, which was amended in Fiscal 1998, in an effort to utilize SSG's
excess capacity and to enable the Company to reduce certain costs. The
Management Services Agreement implements a settlementprogram whereby SSG performs certain
services for the Company in exchange for a fee. The services include payroll,
banking, computer/management information systems, payables processing, warehouse
services (including subleasing warehouse storage space), provision of office
space, design services and financial management services. During Fiscal 1998,
SSG also reimbursed the Company for the sharing of certain employees. The
Management Services Agreement may be terminated by either party upon sixty (60)
days' prior notice. Termination of the Management Services Agreement could have
a material adverse effect on the Company and its results of operations. The
Company was billed $272,000 and $3,000 for services provided with respect to
the above mentioned agreement withduring Fiscal 1998 and 1997 respectively.
Effective October 18, 1997, SSG began paying Mr. Jurick directly for his
services. Effective January 15, 1998, the Company began reimbursing SSG for
base salary and his affiliated entities'
creditorsbonus paid to Mr. Walker for the Company's benefit in lieu of
paying Mr. Walker directly. The Company billed SSG approximately $135,000 and
$47,000 towards Mr. Jurick's salary during Fiscal 1998 and 1997 respectively.
The Company owed SSG approximately $57,000 for services as of April 3, 1998.
CERTAIN OUTSTANDING COMMON STOCK
For information on this matter, reference is made to the Company's most
recent Form 10-Q, for the quarterly period ended July 3, 1998, "Part II. - see "LegalOther
Information, Item 1. - Legal Proceedings").
FUTURE TRANSACTIONS AND LOANS
The Company has agreed with Mr. Jurickadopted a policy that such sharesall future affiliated transactions
and loans will not be subjectmade or entered into on terms no less favorable to repurchase. The stock repurchase
program is subject to consent of certain of the Company's lenders, certain court
imposed restrictions, price and availability of shares, compliance with
securities laws and alternative capital spending programs, including new
acquisitions. The repurchase of common shares is intended to be funded by
working capital, if and when available. It is uncertain at this time when, or
if, the Company
mightthan those that can be able to so repurchase any of its shares of Common
Stock.
Since the emergence of the Companyobtained from bankruptcy, management believes
that it has been able to compete more effectively in the highly competitive
consumer electronics and microwave oven industries in the United States and
Canada by combining innovative approaches to the Company's current product line
such as value-added promotions, and augmenting its product line with higher
margin complimentary products. The Company also intends to engage in the
marketing of distribution, sourcing and other services tounaffiliated third parties. In addition,
all future affiliated transactions and loans, and any forgiveness of loans, must
be approved by a majority of the Company intends to undertake efforts to expand the international
distribution of its products into areas where management believes low to
moderately priced, dependable consumer electronics and microwave oven products
will have a broad appeal. The Company has in the past and intends in the
future to pursue such plans either on its own or by forging new relationships,
including license arrangements, partnerships, joint ventures or strategic
mergers and acquistions of companies in similar or complimentary businesses.
In Fiscal 1995, the Company successfully concluded licensing agreements for
existing core business products and new products. The Company intends to pursue
additional licensing opportunities and believes that such licensing activities
will have a positive impact on net operating results by generating royalty
income with minimal costs, if any, and without the necessity of utilizing
working capital or accepting customer returns. The Company is also considering
strategic alternatives for its North American video business not covered under
the license agreement with the Supplier.
Short-Term Liquidity. At present, management believes that future cash
flow from operations and the institutional financing noted above will be
sufficient to fund allindependent outside members of the Company's
cash requirements for the next year.
The Company's liquidity is impacted by the seasonalityBoard of its business.
The Company records the majority of its annual salesDirectors who do not have an interest in the quarters ending
September 30 and December 31. This requires the Company to open significantly
higher amounts of letters of credit during the quarters ending June 30 and
September 30, therefore significantly increasing the Company's working capital
needs during these periods. Additionally, the Company receives the largest
percentage of customer returns in the quarter ending March 31. The higher level
of returns during this period adversely impacts the Company's collection
activity during this period, and therefore its liquidity. The Company believes
that the Agreements with the Supplier (as noted above) and the "return-to-
vendor" agreements should favorably impact the Company's cash flow over their
respective terms.
Long-Term Liquidity. The revolving credit facility with the Lender imposes
financial covenants on the Company that could materially affect its liquidity in
the future. However, management believes that the financing noted above and
anticipated cash flow from operations in Fiscal 1997 will provide sufficient
liquidity to meet the Company's operating and debt service cash requirements on
a long-term basis.
In November 1995, the Company's stockholders approved an amendment to the
Company's certificate of incorporation increasing the number of authorized
shares of preferred stock from one million shares to ten million shares. Such
additional shares provide management with the flexibility to take advantage of
any opportunities that may occur for which additional capital would need to be
raised or shares would be used to acquire a business.
Inflation and Foreign Currency
Except as disclosed above, neither inflation nor currency fluctuations had
a significant effect on the Company's results of operations during Fiscal 1996,
Fiscal 1995 or Fiscal 1994. The Company's exposure to currency fluctuations has
been minimized by the use of U.S. dollar denominated purchase orders, and by
sourcing production in more than one country. However, the strength of the
Japanese Yen in 1995 had raised the costs of certain raw materials and
subassemblies of the Company's suppliers which were passed on to the Company in
the form of price increases in Fiscal 1996. The Company was not able to recover
such price increases from the selling price to its customers due to increased
price competition. However, the Company has been able to negotiate lower prices
from various sources of supply for certain audio products, commencing in the
second half of Fiscal 1996 and for certain video products commencing in Fiscal
1997. The weakening of the value of the Japanese Yen in 1996 should enable the
Company to obtain further cost reductions from its suppliers.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item 8 are
set forth at the pages indicated in Item 14(a) below.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1996 Annual Meeting of
Shareholders.
Item 11. EXECUTIVE COMPENSATION
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1996 Annual Meeting of
Shareholders.
Item 12. SECURITYtransactions.
SECTION 16(a) BENEFICIAL OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1996 Annual Meeting of
Shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required is incorporated herein by reference to the
Company's definitive Proxy Statement for the 1996 Annual Meeting of
Shareholders.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, STATEMENT SCHEDULE AND REPORTS ON FORM
8-K
(a) Financial Statements and Schedule:
Report of Independent Auditors F-1
Consolidated Statements of Operations for the years ended
March 31, 1996, 1995 and 1994 F-2
Consolidated Balance Sheets at March 31, 1996 and 1995 F-3
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows for the years ended
March 31, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6
Schedule VIII -- Valuation and Qualifying Accounts and Reserves F-26
ALL OTHER SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE OR THE
REQUIRED INFORMATION IS SHOWN IN THE FINANCIAL STATEMENTS OR NOTES THERETO.
(b) No reports on Form 8-K were filed by the Company during the last quarter of
the fiscal year ended March 31, 1996.
(c) Exhibits
(2) Confirmation Order and Fourth Amended Joint Plan of Reorganization of
Emerson Radio Corp. ("Old Emerson") and certain subsidiaries under
Chapter 11 of the United States Bankruptcy Code, dated March 31, 1994
(incorporated by reference to Exhibit (2) of Emerson's Registration
Statement on Form S-1, Registration No. 33-53621, declared effective
by the Securities and Exchange Commission ("SEC") on August 9, 1994).
(3) (a) Certificate of Incorporation of Emerson (incorporated by reference to
Exhibit (3) (a) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(3) (b) Certificate of Designation for Series A Preferred Stock (incorporated
by reference to Exhibit (3) (b) of Emerson's Registration Statement on
Form S-1, Registration No. 33-53621, declared effective by the SEC on
August 9, 1994).
(3) (c) Plan of Reorganization and Agreement of Merger by and between Old
Emerson and Emerson Radio (Delaware) Corp. (incorporated by reference
to Exhibit (3) (c) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(3) (d) Certificate of Merger of Old Emerson with and into Emerson Radio
(Delaware) Corp. (incorporated by reference to Exhibit (3) (d) of
Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(3) (e) Amendment dated February 14, 1996 to the Certificate of Incorporation
of Emerson (incorporated by reference to Exhibit (3) (a) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(3) (f) By-Laws of Emerson adopted March 1994 (incorporated by reference to
Exhibit (3) (e) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(3) (g) Amendment dated November 28, 1995 to the By-Laws of Emerson adopted
March 1994 (incorporated by reference to Exhibit (3) (b) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(4) (a) Warrant Agreement to Purchase 750,000 shares of Common Stock, dated as
of March 31, 1994 (incorporated by reference to Exhibit (4) (a) of
Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(4) (b) Indenture, dated as of August 17, 1995 between Emerson and Bank One,
Columbus, NA, as Trustee (incorporated by reference to Exhibit (1) of
Emerson's Current Report on Form 8-K filed with the SEC on September
8, 1995).
(4) (c) Common Stock Purchase Warrant Agreement to purchase 50,000 shares of
Common Stock, dated as of December 8, 1995 between Emerson and Michael
Metter (incorporated by reference to Exhibit (10) (e) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(4) (d) Common Stock Purchase Warrant Agreement to purchase 200,000 shares of
Common Stock, dated as of December 8, 1995 between Emerson and Kenneth
A. Orr (incorporated by reference to Exhibit (10) (f) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(10) (a) Agreement, dated as of November 14, 1973, between National Union
Electric Corporation ("NUE") and Emerson (incorporated by reference to
Exhibit (10) (a) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(10) (b) Trademark User Agreement, dated as of February 28, 1979, by and
between NUE and Emerson (incorporated by reference to Exhibit (10) (b)
of Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(10) (c) Agreement, dated July 2, 1984, between NUE and Emerson (incorporated
by reference to Exhibit (10) (c) of Emerson's Registration Statement
on Form S-1, Registration No. 33-53621, declared effective by the SEC
on August 9, 1994).
(10) (d) Agreement, dated September 15, 1988, between NUE and Emerson
(incorporated by reference to Exhibit (10) (d) of Emerson's
Registration Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(10) (e) Form of Promissory Note issued to certain Pre-Petition Creditors
(incorporated by reference to Exhibit (10) (e) of Emerson's
Registration Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(10) (f) Loan and Security Agreement, dated March 31, 1994, by and among
Emerson, Majexco Imports, Inc. and Congress Financial Corporation
("Congress") (incorporated by reference to Exhibit (10) (f) of
Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(10) (g) Amendment No. 1 to Financing Agreements, dated as of August 24, 1995,
among Emerson, Majexco Imports, Inc. and Congress (incorporated by
reference to Exhibit (2) of Emerson's Current Report on Form 8-K filed
with the SEC on September 8, 1995).
(10) (h) Amendment No. 2 to Financing Agreements, dated as of February 13, 1996
(incorporated by reference to Exhibit (10) (c) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995).
(10) (i) Emerson Radio Corp. Stock Compensation Program (incorporated by
reference to Exhibit (10) (i) of Emerson's Registration Statement on
Form S-1, Registration No. 33-53621, declared effective by the SEC on
August 9, 1994).
(10) (j) Employment Agreement between Emerson and Eugene I. Davis (incorporated
by reference to Exhibit 6(a)(4) of Emerson's Quarterly Report on Form
10-Q for quarter ended June 30, 1992).
(10) (k) Employment Agreement between Emerson and Albert G. McGrath, Jr.
(incorporated by reference to Exhibit 6(a)(7) of Emerson's Quarterly
Report on Form 10-Q for quarter ended June 30, 1992).
(10) (l) Agreement dated as of January 1, 1996, between Emerson and Albert G.
McGrath, Jr. relating to termination of employment and agreement on
consulting services (incorporated by reference to Exhibit (10) (a) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended December
31, 1995).
(10) (m) Employment Agreement between Emerson and Geoffrey P. Jurick
(incorporated by reference to Exhibit 6(a)(6) of Emerson's Quarterly
Report on Form 10-Q for quarter ended June 30, 1992).
(10) (n) Employment Agreement between Emerson Radio (Hong Kong) Ltd. and
Geoffrey P. Jurick (incorporated by reference to Exhibit 6(a)(6) of
Emerson's Quarterly Report on Form 10-Q for quarter ended June 30,
1992).
(10) (o) Employment Agreement between Emerson Radio International Ltd.
(formerly Emerson Radio (B.V.I), Ltd.) and Geoffrey P. Jurick
(incorporated by reference to Exhibit 6(a)(6) of Emerson's Quarterly
Report on Form 10-Q for quarter ended June 30, 1992).
(10) (p) Lease Agreement dated as of March 26, 1993, by and between Hartz
Mountain Parsippany and Emerson with respect to the premises located
at Nine Entin Road, Parsippany, NJ (incorporated by reference to
Exhibit (10) (ww) of Emerson's Annual Report on Form 10-K for the year
ended December 31, 1992).
(10) (q) Employment Agreement, dated July 13, 1993, between Emerson and Merle
Eakins (incorporated herein by reference to Exhibit (10)(vv) to
Emerson's Annual Report on Form 10-K for the year ended March 31,
1993).
(10) (r) Agreement dated as of January 31, 1996, between Emerson and Merle
Eakins relating to termination of employment and agreement on
consulting services (incorporated by reference to Exhibit (10) (b) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended December
31, 1995).
(10) (s) Employment Agreement, dated April 1, 1994, between Emerson and John
Walker (incorporated herein by reference to Exhibit (10)(ee) of
Emerson's Statement on Form S-1, Registration No. 33-53621, declared
effective by the SEC on August 9, 1994).
(10) (t) Liquidating Trust Agreement, dated as of March 31, 1994, by and among
Emerson, Majexco Imports, Inc., H.H. Scott, Inc., and Stuart D. Gavsy,
Esq., as Trustee (incorporated by reference to Exhibit (10) (ff) of
Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(10) (u) Partnership Agreement, dated April 1, 1994, between Emerson and Hopper
Radio of Florida, Inc (incorporated by reference to Exhibit (10) (q)
of Emerson's Annual Report on Form 10-K for the year ended March 31,
1995).
(10) (v) Sales Agreement, dated April 1, 1994, between Emerson and E & H
Partners (incorporated by reference to Exhibit (10) (r) of Emerson's
Annual Report on Form 10-K for the year ended March 31, 1995).
(10) (w) Agreement, dated as of April 24, 1996 by and among Emerson and E & H
Partners relating to amendments of the Partnership Agreement dated
April 1, 1994 and the Sales Agreement dated April 1, 1994 and the
settlement of certain outstanding litigation.*
(10) (x) Independent Consultant's Agreement, dated October 1, 1994, between
Emerson Radio International Ltd. and Peter G. Bunger (incorporated by
reference to Exhibit (10) (t) of Emerson's Annual Report on Form 10-K
for the year ended March 31, 1995).
(10) (y) Independent Consultant's Agreement, dated October 1, 1994, between
Emerson Radio Europe B.V. and Peter G. Bunger (incorporated by
reference to Exhibit (10) (u) of Emerson's Annual Report of Form 10-K
for the year ended March 31, 1995).
(10) (z) Employment Agreement, dated October 3, 1994, between Emerson and
Andrew Cohan (incorporated by reference to Exhibit (10) (v) of
Emerson's Annual Report on Form 10-K for the year ended March 31,
1995).
(10) (aa) License Agreement, dated February 22, 1995, between Emerson and Otake
Trading Co. Ltd. and certain affiliates ("Otake") (incorporated by
reference to Exhibit 6(a)(1) of Emerson's Quarterly Report on Form
10-Q for quarter ended December 31, 1994).
(10) (ab) Supply Agreement, dated February 22, 1995, between Emerson and Otake
(incorporated by reference to Exhibit 6(a)(2) of Emerson's Quarterly
Report on Form 10-Q for quarter ended December 31, 1994).
(10) (ac) 1994 Non-Employee Director Stock Option Plan (incorporated by
reference to Exhibit (10) (y) of Emerson's Annual Report on Form 10-K
for the year ended March 31, 1995).
(10) (ad) Consulting Agreement, dated as of December 8, 1995 between Emerson and
First Cambridge Securities Corporation (incorporated by reference to
Exhibit (10) (d) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
(10) (ae) Stipulation of Settlement and Order dated June 11, 1996 by and among
the Official Liquidator of Fidenas International Bank Limited, Petra
Stelling, Barclays Bank PLC, the Official Liquidator of Fidenas
Investment Limited, Geoffrey P. Jurick, Fidenas International Limited,
L.L.C., Elision International, Inc., GSE Multimedia Technologies
Corporation and Emerson.*
(11) Computation of Primary Earnings Per Share.*
(12) Computation of Ratio of Earnings (Loss) to Combined Fixed Charges and
Preferred Stock Dividends.*
(21) Subsidiaries of the Company as of March 31, 1996.*
(27) Financial Data Schedule for year ended March 31, 1996.*
___________________
* Filed herewith.
SIGNATURES
Pursuant to the requirements ofREPORTING COMPLIANCE
Section 13 or 15(d)16(a) of the Securities Exchange Act of 1934, as amended ("Section
16(a)") requires the Registrant has duly caused this reportCompany's officers and Directors, and persons who own more
than 10% of a registered class of the Company's equity securities to be signedfile
reports of ownership and changes in ownership with the SEC and the American
Stock Exchange. Officers, Directors and greater than 10% stockholders are
required by certain regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on its behalf by the undersigned, thereunto duly authorized.
EMERSON RADIO CORP.
By: /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chairmanreview of the Board
Dated: July 1, 1996copies of such forms received by it, the
Company believes that, during the year ended April 3, 1998, its officers,
Directors and greater than 10% beneficial owners have complied with all
applicable filing requirements with respect to the Company's equity securities.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following personsperson on behalf of the Registrant
and in the capacities and on the datesdate indicated.
/s/ Geoffrey P. Jurick Chairman of the Board, July 1, 199631, 1998
Geoffrey P. Jurick Chief Executive Officer /s/ Eugene I. Davisand
President and Director July 1, 1996
Eugene I. Davis
/s/ John P. Walker Executive Vice President, July 1, 199631, 1998
John P. Walker Chief Financial Officer
/s/ Eddie Rishty Senior Vice President- July 1, 1996
Eddie Rishty Controller & Logistics
(Chief Accounting Officer)
/s/ Robert H. Brown, Jr., Director July 1, 199631, 1998
Robert H. Brown, Jr.
/s/ Peter G. Bunger Director July 1, 199631, 1998
Peter G. Bunger
/s/ Jerome H. Farnum Director July 1, 199631, 1998
Jerome H. Farnum
/s/ Raymond L. Steele Director July 1, 199631, 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 March 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years ended March 31, 1996, 1995 and 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Emerson
Radio Corp. and Subsidiaries at March 31, 1996 and 1995 and the consolidated
results of its operations and cash flows for the years ended March 31, 1996,
1995 and 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
June 7, 1996, except for Note N,
as to which the date is June 28, 1996.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended March 31,
1996 1995 1994
Net revenues $245,667 $654,671 $487,390
Costs and expenses:
Cost of sales 231,455 604,329 486,536
Other operating costs and
expenses 4,803 8,771 12,001
Selling, general and
administrative expenses 19,497 31,047 34,552
255,755 644,147 533,089
Operating profit (loss) (10,088) 10,524 (45,699)
Interest expense 3,275 2,882 10,243
Earnings (loss) before
reorganization costs and taxes (13,363) 7,642 (55,942)
Reorganization items:
Writedown of assets 12,914
Professional fees and other
related expenses 4,545
Interest earned on accumulated
cash (74)
17,385
Earnings (loss) before income
taxes and extraordinary gain (13,363) 7,642 (73,327)
Provision for income taxes 26 267 327
Earnings (loss) before
extraordinary gain (13,389) 7,375 (73,654)
Extraordinary gain on
extinguishment of debt 129,155
Net earnings (loss) $(13,389) $7,375 $55,501
Net earnings (loss) per common
share:
Before extraordinary gain $(0.35) $0.16 $(1.93)
Extraordinary gain 3.38
Net earnings (loss) $(0.35) $0.16 $1.45
Weighted average number of common
and common equivalent shares
outstanding 40,253 46,571 38,191
Pro forma:
Loss per common share $(1.51)
Weighted average number of
common shares outstanding 33,333
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31,
1996 1995
ASSETS
Current Assets:
Cash and cash equivalents $16,133 $ 17,020
Accounts receivable (less allowances of $6,139
and $9,350, respectively) 23,583 34,309
Inventories 35,292 35,336
Prepaid expenses and other current assets 10,306 15,715
Total current assets 85,314 102,380
Property and equipment, net 3,501 4,676
Other assets 7,761 6,913
Total Assets $96,576 $113,969
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $21,151 $ 27,296
Current maturities of long-term debt 173 508
Accounts payable and other current liabilities 10,391 18,982
Accrued sales returns 3,091 12,713
Income taxes payable 202 283
Total current liabilities 35,008 59,782
Long-term debt, less current maturities 20,886 214
Other non-current liabilities 300 322
Shareholders' Equity:
Preferred shares -- 10,000,000 shares
authorized, 10,000 shares issued and
outstanding 9,000 9,000
Common shares -- $.01 par value, 75,000,000
shares authorized; 40,252,772 shares issued and
outstanding 403 403
Capital in excess of par value 108,991 107,969
Accumulated deficit (78,175) (64,086)
Cumulative translation adjustment 163 365
Total shareholders' equity 40,382 53,651
Total Liabilities and Shareholders' Equity $96,576 $113,969
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
Common Shares Issued
Capital
in Accumu- Cumulative
Preferred Number Par Excess of lated Translation
Stock of Shares Value Par Value Deficit Adjustment
Balance --
March 31,1993 38,191,299 $3,819 $63,730 $(126,262) $818
Cancellation
of common stock (38,191,299) (3,819) 3,819
Issuance of
common stock 30,000,000 300 29,700
Issuance of
preferred and
common stock
and warrants
pursuant
to bankruptcy
settlement $9,000 3,333,333 33 6,192
Other (14) (200)
Net earnings 55,501
Balance -- March
31, 1994 9,000 33,333,333 333 103,427 (70,761) 618
Issuance of
common stock in
public offering,
net of expenses 6,149,993 62 5,630
Issuance of
common stock to
former creditors 769,446 8 (8)
Payment to
former creditors (922)
Preferred
stock dividends (700)
Other (158) (253)
Net earnings 7,375
Balance -- March
31, 1995 9,000 40,252,772 403 107,969 (64,086) 365
Issuance of
common stock
warrants 1,065
Preferred
stock dividends (700)
Other (43) (202)
Net loss (13,389)
Balance -- March
31, 1996 $9,000 40,252,772 $403 $108,991 $(78,175) $163
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended March 31,
1996 1995 1994
Cash Flows from Operating
Activities:
Net earnings (loss) $(13,389) $7,375 $55,501
Adjustments to reconcile net
earnings (loss) to net
cash provided (used) by
operating activities:
Depreciation and
amortization 3,664 3,876 7,327
Extraordinary gain (129,155)
Reorganization expenses 12,914
Asset valuation and loss
reserves (14,209) (2,268) (1,296)
Other 298 (969) 2,643
Changes in assets and
liabilities:
Accounts receivable 17,391 (14,805) 12,081
Inventories (437) 11,032 34,942
Prepaid expenses and
other current assets 5,071 (5,598) 6,181
Other assets (601) (605) 89
Accounts payable and
other current liabilities (9,092) (18,633) 27,287
Income taxes payable (53) (379) (924)
Net cash provided (used) by
operations (11,357) (20,974) 27,590
Cash Flows from Investing
Activities:
Additions to property and
equipment (1,666) (2,874) (3,552)
Redemption of (investment in)
certificates of deposit 945 8,455 (500)
Other (477) 110 114
Net cash provided (used) by
investing activities (1,198) 5,691 (3,938)
Cash Flows from Financing
Activities:
Net borrowings (repayments)
under line of credit
facility (6,145) 7,256 20,040
Proceeds from private
placement of senior
subordinated convertible
debentures 19,208
Proceeds from issuances of
common stock 5,692 30,000
Retirement of long-term debt (298) (500) (30)
Payment to former creditors (922)
Payment of preferred stock
dividends (700) (525)
Payment of pre-petition
obligations (75,000)
Payment of debt costs (237) (2,139)
Other (160) (321) (83)
Net cash provided (used) by
financing activities 11,668 10,680 (27,212)
Net decrease in cash and cash
equivalents (887) (4,603) (3,560)
Cash and cash equivalents at
beginning of year 17,020 21,623 25,183
Cash and cash equivalents at
end of year $16,133 $17,020 $21,623
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
Note A -- Significant Accounting Policies:
(1) Basis of Presentation:
The consolidated financial statements include the accounts of Emerson Radio
Corp. and its majority-owned subsidiaries (the "Company"). All significant
intercompany transactions and balances have been eliminated. A 50% ownership of
a domestic joint venture is accounted for by the equity method (see Note M).
Historical cost accounting was used to account for the plan of reorganization
(the "Plan of Reorganization") (see Note B) since the transaction did not meet
the criteria required for fresh-start reporting.
(2) Use of Estimates:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
(3) Cash and Cash Equivalents:
Short-term investments with original maturities of three months or less at
the time of purchase are considered to be cash equivalents. The carrying amount
reported in the balance sheet for cash and cash equivalents approximates fair
value.
(4) Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or
market.
(5) Property and Equipment:
Property and equipment, stated at cost, is being depreciated for financial
accounting purposes on the straight-line method over its estimated useful life.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the useful life of the improvement or the term of the lease. Upon the sale or
retirement of property and equipment, the costs and related accumulated
depreciation are eliminated from the accounts. Any resulting gains or losses
are included in income. The cost of repairs and maintenance is charged to
expense as incurred.
(6) Warranty Claims:
The Company provides an accrual for future warranty costs when the product
is sold.
(7) Net Earnings (Loss) per Share:
Net loss per common share for the year ended March 31, 1996 is based on the
net loss and deduction of preferred stock dividend requirements and the weighted
average number of shares of common stock outstanding during the period. This
calculation does not include common stock equivalents since they are anti-
dilutive.
Net earnings per common share for the year ended March 31, 1995 is based on
the weighted average number of shares of common stock and common stock
equivalents outstanding during the year. Common stock equivalents include shares
issuable upon conversion of the Company's Series A Preferred Stock, exercise of
stock options and warrants, and shares issued in the year ended March 31, 1995
primarily to satisfy an anti-dilution provision. The Series A Preferred Stock
is not convertible into common stock until March 31, 1997, and the number of
shares of common stock issuable upon conversion is dependent on the market value
of the common stock at the time of conversion (See Note I(3)). Net earnings
(loss) per common share for the year ended March 31, 1994 is based on the
weighted average number of shares of common stock outstanding prior to
confirmation of the Plan of Reorganization (See Note B) and cancelled as a part
thereof, and do not include common stock equivalents assumed outstanding since
they were anti-dilutive.
Pro forma loss per common share for the year ended March 31, 1994 gives
effect to the bankruptcy restructuring and is based on the number of shares of
common stock issued and outstanding at March 31, 1994. The pro forma loss per
common share does not include common stock equivalents assumed outstanding since
they were anti-dilutive. The pro forma loss per common share also gives effect
to the following adjustments:
(i) Elimination of extraordinary gain of $129,155,000 and
reorganization expenses of $17,385,000;
(ii) Reduction of $6,666,000 in interest expense to give effect to
the reorganized debt structure. The pro forma interest expense is based on
the maximum amount of borrowings ($45 million) permitted under the new
credit facility at the interest rate that would have been in effect for the
year ended March 31, 1994 (8.25%). Additionally, the amortization of
closing fees on the credit facility is included in the pro forma interest
expense above;
(iii) Assumed dividends on the Series A Preferred Stock aggregating
$700,000 for the year ended March 31, 1994.
(8) Foreign Currency:
The assets and liabilities of foreign subsidiaries have been translated at
current exchange rates, and related revenues and expenses have been translated
at average rates of exchange in effect during the year. Related translation
adjustments are reported as a separate component of shareholders' equity. Gains
and losses resulting from foreign currency transactions are included in the
Consolidated Statements of Operations and amounted to gains of $475,000 and
$220,000 and a loss of $1,489,000 for the years ended March 31, 1996, 1995 and
1994, respectively.
The Company does not enter into foreign currency exchange contracts to
hedge its exposures related to foreign currency fluctuations. However, the
Company is reducing its foreign currency exposure by conducting its European
business in U.S. dollars commencing in the fiscal year ending March 31, 1997.
Note B -- Reorganization:
On September 29, 1993, the Company and five of its U.S. subsidiaries filed
voluntary petitions for relief under the reorganization provisions of Chapter 11
of the United States Bankruptcy Code and operated as debtors-in-possession under
the supervision of the Bankruptcy Court while their reorganization cases were
pending. The precipitating factor for these filings was the Company's severe
liquidity problems relating to its high level of indebtedness and a significant
decline in sales from the prior year.
Effective March 31, 1994, the Bankruptcy Court entered an order confirming
the Plan of Reorganization. The Plan of Reorganization provided for the
implementation of a recapitalization of the Company. In accordance with the
Plan of Reorganization, the Company's pre-petition liabilities (of approximately
$233 million) were settled with the creditors in the aggregate, as follows:
I. The Company's bank group (the "Bank Lenders") received $70 million
in cash and the right to receive the initial $2 million of net proceeds
from one of the Company's non-trade receivables.
II. The institutional holders of the Company's senior notes (the
"Noteholders") initially received $2,650,000 in cash and warrants to
purchase 750,000 shares of common stock for a period of seven years at
an exercise price of $1.00 per share, provided that the exercise price
shall increase by 10% per year commencing in year four, and further
received $1 million, payable $922,498 in cash from the initial public
offering of common stock (see Note I(5)) and $77,502 in common stock
calculated on the basis of $1.00 per share.
III. The Bank Lenders and Noteholders received their pro rata
percentage of the following:
A. $2,350,000 in cash (however $350,000 of this amount was
distributable to the holders of allowed unsecured claims);
B. 10,000 shares of Series A Preferred Stock with a face value
of $10 million (estimated fair market value of approximately $9
million at March 31, 1994);
C. 4,025,277 shares of common stock, including 691,944 shares
issued in February 1995 pursuant to an anti-dilution provision;
D. The net proceeds from the sale of the Company's Indiana land
and building; and
E. The net proceeds to be received from the non-trade
receivables discussed in I. above in excess of $2 million.
IV. Holders of allowed unsecured claims received a pro-rata portion
of the $350,000 distribution and interest bearing promissory notes equal to
18.3% of the allowed claim amount, payable in two installments over 18
months (see Note F).
Pursuant to the provisions of the Plan of Reorganization, as of March 31,
1994, the equity of the Company's shareholders, and the equity interest of
holders of stock options and warrants were cancelled.
Based on the settlement of the Chapter 11 proceedings, the Company
recognized an extraordinary gain of $129.2 million from the extinguishment of
debt. Additionally, the Company recognized a writedown of $12.9 million to
estimated fair market value on the assets transferred for the benefit of the
Bank Lenders and Noteholders.
Pursuant to the Plan of Reorganization, and in consideration for $30
million, the reorganized Company issued 30 million shares of common stock,
initially held by the following parties:
Number of Shares
Fidenas International Limited L.L.C. ("FIN") 16,400,000
Elision International, Inc. ("Elision") 1,600,000
GSE Multimedia Technologies Corporation ("GSE") 12,000,000
The Company's Chairman and Chief Executive Officer has a controlling
beneficial ownership interest in each of the three entities listed above and,
therefore holds an approximate 73% interest in the Company's outstanding common
stock at March 31, 1996. Included above are 847,458 shares of common stock held
by FIN, as nominee, as to which FIN and the Company's CEO, Mr. Geoffrey P.
Jurick, disclaim beneficial ownership. In accordance with a Stipulation of
Settlement and Order (the "Settlement Agreement") dated June 11, 1996, upon the
effective date of the Settlement Agreement, Elision and GSE will transfer all of
their Emerson shares to FIN, to be registered in the name of FIN. See Note K.
Note C -- Inventories:
Inventories are comprised primarily of finished goods. Spare parts
inventories, net of reserves, aggregating $2,042,000 and $2,763,000 at March 31,
1996 and 1995, respectively, are included in "Prepaid expenses and other current
assets."
Note D -- Property and Equipment:
Property and equipment is comprised of the following:
March 31,
1996 1995
(In thousands)
Furniture and fixtures $ 4,528 $ 5,854
Molds and tooling 1,281 3,806
Machinery and equipment 1,372 1,847
Leasehold improvements 742 271
7,923 11,778
Less accumulated depreciation and
amortization 4,422 7,102
$ 3,501 $ 4,676
Depreciation and amortization of property and equipment amounted to
$2,800,000, $3,267,000 and $6,679,000 for the years ended March 31, 1996, 1995
and 1994, respectively.
Pursuant to the Plan of Reorganization, the Company transferred its land
and building in Indiana to a liquidating trust established for the benefit of
the Bank Lenders and Noteholders. In connection with this transfer, the Company
recorded a writedown of approximately $2.3 million to reduce the carrying value
to estimated fair market value at March 31, 1994.
Note E -- Notes Payable:
Effective March 31, 1994, the Company entered into a three year Loan and
Security Agreement, as amended in August and December 1995, with a U.S.
financial institution (the "Lender") providing for an asset-based revolving
credit facility. The facility provides for revolving loans and letters of
credit, subject to individual maximums and, in the aggregate, not to exceed the
lesser of $60 million or a "Borrowing Base" amount based on specified
percentages of eligible accounts receivable and inventories. All credit
extended under the line of credit is secured by the U.S. and Canadian assets of
the Company, except for trademarks which are subject to a negative pledge
covenant. The interest rate on these borrowings is 1.25% above the stated prime
rate. At March 31, 1996 and 1995, the interest rate on the outstanding
borrowings was 9.5% and 11.25%, respectively. The facility is also subject to
an unused line fee of 0.25% per annum. Pursuant to the Loan and Security
Agreement, as amended, the Company is restricted from, among other things,
paying cash dividends (other than on the Series A Preferred Stock), redeeming
stock, and entering into certain transactions and is required to maintain
certain working capital and equity levels (as defined). At March 31, 1996,
there was $21,151,000 outstanding under the revolving loan facility and
approximately $1,177,000 of outstanding letters of credit issued for inventory
purchases. The fair market value of these notes payable is estimated to
approximate their carrying amount.
Cash paid for interest was $3,207,000, $3,371,000 and $11,251,000 for the
years ended March 31, 1996, 1995 and 1994, respectively.
In the six months ended March 31, 1994, interest expense was only accrued
and paid on the Company's debtor-in-possession financing. No interest was
accrued during the pendency of the bankruptcy proceedings on the debt owed to
the Bank Lenders or the Noteholders. Had the contractual interest been
accrued during this period, interest expense would have been
approximately $10.2 million higher than the amount reported on the Consolidated
Statement of Operations for the year ended March 31, 1994.
Note F -- Long-Term Debt:
Long-term debt consists of the following:
March 31,
1996 1995
(In thousands)
8-1/2% Senior Subordinated Convertible
Debentures Due 2002 $20,750 $ --
Notes payable to unsecured creditors 79 465
Equipment notes and other 230 257
21,059 722
Less current obligations 173 508
$20,886 $ 214
The 8-1/2% Senior Subordinated Convertible Debentures Due 2002 (the
"Debentures") were issued in August 1995. The Debentures bear interest at the
rate of 8-1/2% per annum, payable quarterly on the 15th of March, June,
September and December, in each year. The Debentures mature on August 15,
2002. The Debentures are convertible into shares of the Company's common
stock at any time prior to redemption or maturity at an initial conversion price
of $3.9875 per share, subject to adjustment under certain circumstances. The
Debentures are redeemable, at the option of the Company, three years from the
date of issuance, in whole or in part, at an initial redemption price of 104% of
principal, decreasing by 1% per year until maturity. The Debentures are
subordinated to all existing and future senior indebtedness (as defined in the
indenture governing the Debentures). The Debentures restrict, among other
things, the amount of senior indebtedness and other indebtedness that the
Company, and, in certain instances, its subsidiaries, may incur. Each holder of
Debentures has the right to cause the Company to redeem the Debentures if
certain designated events (as defined) should occur. The Debentures are subject
to certain restrictions on transfer, although the Company has registered the
offer and sale of the Debentures and the underlying common stock.
Pursuant to the Plan of Reorganization, the holders of allowed unsecured
claims received interest bearing promissory notes equal to 18.3% of the claim
amount. The notes are due in two installments: 35% of the outstanding principal
is due 12 months from the date of issuance, and the remaining balance is due 18
months from the date of issuance. The notes bear interest at the London
Interbank Offered Rate in effect at the date of issuance for one year
obligations.
Note G -- Income Taxes:
The income tax provision consists of the following:
Years Ended March
31,
1996 1995 1994
(In thousands)
Current:
Federal $ (39) $ 40
Foreign, state and other 65 227 327
$ 26 $267 $327
The difference between the effective rate reflected in the provision for
income taxes and the amounts determined by applying the statutory U.S. rate of
34% to earnings (loss) before income taxes are analyzed below:
Years Ended March 31,
1996 1995 1994
(In thousands)
Statutory provision (benefit) $(4,543) $2,598 $(24,931)
Utilization of net operating loss
carryforwards --- (632) ---
U.S. and foreign net operating
losses without tax benefit 4,493 1,675 24,975
Foreign income subject to foreign
tax, not subject to U.S. tax --- (785) ---
Tax recognition of prior year book
deductions --- (888) ---
Rate differential on foreign income 9 (1,959) 327
Nondeductible bankruptcy expenses 24 137 1,545
Nondeductible debt restructuring
expenses --- --- (1,540)
Other, net (44) 121 (49)
Total income tax provision $ 26 $267 $ 327
Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," under which the
liability method (rather than the deferred method) is used in accounting for
income taxes. Under the liability method, deferred tax assets and liabilities
are determined based on differences between financial reporting and tax bases of
assets and liabilities, and are measured using enacted tax rates and laws that
will be in effect when the differences are expected to reverse. The change had
no effect on the results of operations for the year ended March 31, 1994.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
March 31,
1996 1995
(In thousands)
Deferred tax assets:
Accounts receivable reserves $ 2,995 $ 7,653
Inventory reserves 2,259 1,188
Net operating loss carryforwards 18,250 10,588
Other 445 1,014
Total deferred tax assets 23,949 20,443
Valuation allowance for deferred tax assets (23,287) (20,189)
Net deferred tax assets 662 254
Deferred tax liabilities (662) (254)
Net deferred taxes $ -- $ --
Total deferred tax assets of the Company at March 31, 1996 represent the
tax-effected net operating loss carryforwards subject to annual limitations (as
discussed below), and tax-effected deductible temporary differences. The Company
has established a valuation reserve against any expected future benefits.
Cash paid for income taxes was $151,000, $725,000 and $946,000 for the
years ended March 31, 1996, 1995 and 1994, respectively.
Income before taxes of foreign subsidiaries was $3,786,000 for the year
ended March 31, 1995. Losses before taxes of foreign subsidiaries was
$6,233,000 and $16,042,000 for the years ended March 31, 1996 and 1994,
respectively. Provision is made for federal income taxes which may be payable on
earnings of foreign subsidiaries to the extent that the Company anticipates they
will be remitted. Unremitted earnings of foreign subsidiaries which have been,
or are intended to be permanently reinvested (and for which no federal income
tax has been provided) aggregated $1,034,063, $3,396,000 and $1,086,000 at March
31, 1996, 1995 and 1994, respectively.
As of March 31, 1996, the Company has a net operating loss carryforward of
approximately $117,810,000, of which $33,074,000, $13,385,000, $50,193,000 and
$21,159,000 will expire in 2006, 2007, 2009 and 2010, respectively. The
utilization of these net operating losses will be limited based on the effects
of the Plan of Reorganization consummated on March 31, 1994. Pursuant to
the Plan of Reorganization, the Bank Lenders, the Noteholders, FIN, Elision and
GSE initially received 100% of the common stock. As a result, an
ownership change occurred with respect to the Company, and subjected the
Company's net operating losses and foreign tax credit
carryforwards to the limitation provided for in Section's 382 and 383,
respectively, of the Internal Revenue Code. Subject to special rules regarding
increases in the annual limitation for the recognition of net unrealized
built-in gains, the Company's annual limitation will be approximately $2.2
million.
Note H -- Commitments and Contingencies:
(1) Leases:
The Company leases warehouse and office space at minimum aggregate rentals
as follows:
Year Ending
March 31, Amount
(In thousands)
1997 $ 1,608
1998 1,197
1999 329
$3,134
Rent expense aggregated $1,705,000, $2,731,000 and $2,663,000 for the years
ended March 31, 1996, 1995 and 1994, respectively. Rental income from the
sublease of warehouse and office space aggregated $278,000, $273,000 and $89,000
in the years ended March 31, 1996, 1995 and 1994, respectively.
(2) Letters of Credit:
Outstanding letters of credit for the purchase of inventory, not reflected
in the accompanying financial statements, aggregated $6,821,000 (including
$1,177,000 issued under the Loan and Security Agreement -- see Note E) at March
31, 1996.
The Company's Hong Kong subsidiary also currently maintains various credit
facilities aggregating $62.1 million with a bank in Hong Kong consisting of the
following: (i) a $12.1 million credit facility which is generally used for
letters of credit for a foreign subsidiary's direct import business and
affiliates' inventory purchases, and (ii) a $50 million credit facility, for the
benefit of a foreign subsidiary, which is for the establishment of back-to-back
letters of credit with the Company's largest customer. At March 31, 1996, the
Company's Hong Kong subsidiary had pledged $4 million in certificates of deposit
to this bank to assure the availability of these credit facilities. At March
31, 1996, there were $5,644,000 and $3,056,000 of letters of credit outstanding
under these credit facilities.
The Company's Hong Kong subsidiary maintains an additional credit facility
with another bank in Hong Kong. The facility provides for (i) a $10 million line
of credit for documentary letters of credit, (ii) a $10 million back-to-back
letter of credit line, and (iii) a $100,000 standby letter of credit facility.
At March 31, 1996, the Company's Hong Kong subsidiary has pledged $5,000,000 in
certificates of deposit to assure the availability of these credit
facilities. At March 31, 1996, $991,000 of the letter of credit line was
utilized.
Note I -- Shareholders' Equity:
(1) In July 1994, the Company's Board of Directors adopted, and the
stockholders subsequently ratified, a Stock Compensation Program ("Program")
intended to secure for the Company and its stockholders the benefits arising
from ownership of the Company's common stock by those selected directors,
officers, other key employees, advisors and consultants of the Company who are
most responsible for the Company's success and future growth. The maximum
aggregate number of shares of common stock available pursuant to the Program is
2,000,000 shares and the Program is comprised of 4 parts -- the Incentive Stock
Option Plan, the Supplemental Stock Option Plan, the Stock Appreciation Rights
Plan and the Stock Bonus Plan. A summary of transactions since the inception of
the Program is as follows:
Number of Price Aggregate
Shares Per Share Price
Granted 1,860,000 $1.00 - $1.10 $1,920,000
Cancelled (30,000) $1.00 (30,000)
Outstanding -- March 31,
1995 1,830,000 $1.00 - $1.10 1,890,000
Granted 125,000 $2.63 - $2.88 341,000
Cancelled (287,000) $1.00 (287,000)
Outstanding -- March 31,
1996 1,668,000 $1.00 - $2.88 $1,944,000
The term of each option is ten years, except for options issued to any
person who owns more than 10% of the voting power of all classes of capital
stock, for which the term is five years. Options may not be exercised during
the first year after the date of the grant. Thereafter each option becomes
exercisable on a pro rata basis on each of the first through third anniversaries
of the date of the grant. The exercise price of options granted must be at
least equal to the fair market value of the shares on the date of the grant,
except that the option price with respect to an option granted to any person who
owns more than 10% of the voting power of all classes of capital stock shall not
be less than 110% of the fair market value of the shares on the date of the
grant.
(2) In October 1994, the Company's Board of Directors adopted, and the
stockholders subsequently approved, the 1994 Non-Employee Director Stock Option
Plan. The maximum number of shares of common stock available under such plan is
300,000 shares. A summary of transactions since inception of the plan is as
follows:
Number of Price Aggregate
Shares Per Share Price
Granted 175,000 $1.00 $175,000
Outstanding--March 31,
1995 175,000 $1.00 175,000
Cancelled (25,000) $1.00 (25,000)
Outstanding--March 31,
1996 150,000 $1.00 $150,000
The provisions for exercise price, term and vesting schedule are the same
as noted above for the Stock Compensation Program.
(3) Pursuant to the Plan of Reorganization, on March 31, 1994, the Company
issued Series A Preferred Stock, $.01 par value, with a face value of $10
million and an estimated fair market value of approximately $9 million. The
preferred stock is convertible into Common Stock at any time during the
period beginning on March 31, 1997 and ending on March 31, 2002; the preferred
stock is convertible into common stock at a price per share of common stock
equal to 80% of the market value of a share of common stock on the date of
conversion. The preferred stock bears dividends commencing June 30, 1994 on a
cumulative basis at the following rates:
Dividend Rate
Year 1 to 3 7.0%
Year 4 5.6%
Year 5 4.2%
Year 6 2.8%
Year 7 1.4%
Thereafter None
The preferred stock is non-voting. However, the terms of the preferred
stock provide that holders shall have the right to appoint two directors to the
Company's Board of Directors if the preferred stock dividends are in default for
six consecutive quarters.
(4) Pursuant to the Plan of Reorganization, the Noteholders received
warrants for the purchase of 750,000 shares of common stock. The warrants are
exercisable for a period of seven years from March 31, 1994 and provide for an
exercise price of $1.00 per share for the first three years, escalating by $.10
per share per annum thereafter until expiration of the warrants.
(5) In accordance with the Company's Plan of Reorganization, the Company
completed an initial public offering of its common stock in September 1994 to
shareholders of record (in those states in which the offering could be made) as
of March 31, 1994, excluding the Company's former largest shareholder. The
Company sold 6,149,993 shares of common stock for $1.00 per share resulting in
proceeds to the Company, net of issuance costs, of approximately $5,692,000.
Pursuant to the terms of the Plan of Reorganization, in January 1995, the
Company paid approximately $922,000 to satisfy certain obligations owed to
former creditors, and in February 1995 issued 769,446 shares of common stock to
former creditors, primarily to satisfy an anti-dilution provision. The
remainder of such funds were used for working capital and other corporate
purposes.
(6) In connection with the Debentures offering in August 1995, the Company
issued, to the placement agent and its authorized dealers, warrants for the
purchase of 500,000 shares of common stock. The warrants are exercisable for a
period of four years from August 24, 1996 and provide for an exercise price of
$3.9875 per share, subject to adjustment under certain circumstances.
(7) In connection with a consulting agreement in December 1995, the
Company issued, to the consultant, warrants for the purchase of 250,000 shares
of common stock at an exercise price of $4.00 per share. The warrants vest and
may be exercised by the holder (i) 50% at any time after six months from the
date of issuance, and (ii) the balance at any time after one year from the date
of issuance, in either event until December 8, 2000, when such warrants shall
expire.
(8) In November 1995, the Company filed a shelf registration statement
covering 5,000,000 shares of common stock owned by FIN to finance a settlement
of the Litigation Regarding Certain Outstanding Common Stock (See Note K). The
shares covered by the shelf registration are subject to certain contractual
restrictions and may be offered for sale or sold only by means of an effective
prospectus following registration under the Securities Act of 1933, as amended.
(9) In November 1995, the Company's stockholders approved an amendment to
the Company's certificate of incorporation increasing the number of authorized
shares of preferred stock from one million shares to ten million shares.
(10) In November 1995, the Company's Board of Directors approved a plan to
repurchase up to two million of its common shares, or about 20% of the Company's
current float of approximately eleven million shares, from time to time in the
open market. Although there are 40,252,772 shares outstanding, approximately
29.2 million shares are held directly or indirectly by affiliated entities of
Geoffrey Jurick, Chairman and Chief Executive Officer of the Company. The
Company has agreed with Mr. Jurick that such shares will not be subject
to repurchase. The stock repurchase program is subject to consent of certain of
the Company's lenders, certain court imposed restrictions, price and
availability of shares, compliance with securities laws and alternative capital
spending programs, including new acquisitions. The repurchase of common shares
is intended to be funded by working capital, if and when available. It is
uncertain at this time when the Company might be able to so repurchase any of
its shares of Common Stock.
Note J -- License Agreements:
(1) In February 1995, the Company and a former large supplier and certain
affiliates (collectively, the "Supplier") entered into two mutually contingent
agreements (the "Agreements"). Effective March 31, 1995, the Company granted a
license of certain trademarks to the Supplier for a three-year term. The
license permits the Supplier to manufacture and sell certain video products
under the "EMERSON and G-Clef" trademark to one of the Company's significant
customers (the "Customer") in the U.S. and Canada, and precludes the Supplier
from supplying product to the Customer other than under the "Emerson and
G-Clef" or the Supplier trademarks. The Company will continue to supply other
products to the Customer directly. Further, the Agreements provide that the
Supplier will supply the Company with certain video products for sale to
other customers at preferred prices for a three-year term. Under the terms of
the Agreements, the Company will receive non-refundable minimum annual royalties
from the Supplier to be credited against royalties earned from sales of video
cassette recorders and players, television/video cassette recorder and player
combinations, and color televisions to the Customer. In addition, effective
August 1, 1995, the Supplier assumed responsibility for returns and after-sale
and warranty services on all video products manufactured by the Supplier and
sold to the Customer, including video products sold by the Company prior to
April 1, 1995. Royalty income recognized by the Company pursuant to the
Agreements was $4,442,000 in Fiscal 1996.
Additionally, the Company and the Supplier agreed on a series of purchase
discounts, consistent with agreements and past practices between the Supplier
and the Company. Through March 31, 1995, the Supplier had paid the Company $6.3
million against an aggregate $10.2 million of purchase discounts for product
purchased from January 1, 1993 to March 31, 1995, and the balance of $3.9
million was paid in September 1995. The Company recognized $9.9 million of
discounts in the year ended March 31, 1995, of which $4.3 million of discounts
were attributable to purchases prior to April 1, 1994.
(2) In October 1994, the Company entered into a license agreement with
Jasco Products Co., Inc., ("Jasco"), which was amended during Fiscal 1996,
whereby the Company granted a license of certain trademarks to Jasco for use on
non-competing consumer electronics accessories. Under the terms of the
agreement, the Company will receive minimum annual royalties through the life
of the agreement, which expires on December 31, 1997, and the agreement is
automatically renewable for three successive three-year periods based upon
Jasco's compliance with the agreement. The minimum royalty was not exceeded in
the first contract year ended December 31, 1995. The Company recognized license
fee income of approximately $1,125,000 in the year ended March 31, 1995.
Note K -- Legal Proceedings:
Otake Litigation
On December 20, 1995, the Company filed suit in the United States District
Court for the District of New Jersey against Orion Sales, Inc., Otake Trading
Co. Ltd., Technos Development Limited, Shigemasa Otake, and John Richard Bond,
Jr. (collectively, the "Otake Defendants") alleging breach of contract, breach
of covenant of good faith and fair dealing, unfair competition, interference
with prospective economic gain, and conspiracy in connection with certain
activities of the Otake Defendants under certain agreements between the Company
and the Otake Defendants. Mr. Bond is a former officer and sales representative
of the Company, having served in the latter capacity until he became involved
working for the other Otake Defendants. Certain of the other Otake Defendants
have supplied the majority of the Company's purchases until the Company's most
recent fiscal year.
On December 21, 1995, Orion Sales, Inc. and Orion Electric (America), Inc.
filed suit against the Company in the United States District Court, Southern
District of Indiana, Evansville Division, alleging various breaches of certain
agreements by the Company, including breaches of the confidentiality provisions,
certain payment breaches, breaches of provisions relating to product returns,
and other alleged breaches of those agreements, and seeking damages in the
amount of $2,452,656, together with interest thereon, attorneys' fees, and
certain others costs. While the outcome of the New Jersey and Indiana actions
are not certain at this time, the Company believes it has meritorious defenses
against the claims made by the plaintiffs in the Indiana action. In any event,
the Company believes the results of that litigation should not have a material
adverse effect on the financial condition of the Company or on its operations.
Litigation Regarding Certain Outstanding Common Stock:
The 30 million shares of Common Stock issued to GSE, FIN and Elision on
March 31, 1994, pursuant to the Plan of Reorganization, were the subject of
certain legal proceedings. On June 11, 1996, the Settlement Agreement was
executed, which settles various legal proceedings in Switzerland, the Bahamas
and the United States. The Settlement Agreement provides for, among other
things, the payment by Mr. Jurick and his affiliated entities of $49.5 million
to various claimants of Mr. Jurick and affiliated entities (the "Creditors"), to
be paid from the proceeds of the sale of the 29,152,542 shares of Emerson common
stock (the "Settlement Shares") owned by affiliated entities of Mr. Jurick. In
addition, Mr. Jurick will be paid the sum of $3.5 million from the sale of such
stock. The Settlement Shares will be sold over an extended, but indeterminate,
period of time by a financial advisor (the "Advisor") to be selected by Emerson
in consultation with Mr. Jurick and the Creditors. Such Advisor will
formulate a marketing plan taking into consideration (i) the interests of
Emerson's minority stockholders, and (ii) the goal of generating sufficient
proceeds to pay the Creditors and Mr. Jurick as quickly as possible. The
Settlement Shares will be divided into two pools. The Pool A Shares will
initially consist of 15,286,172 Emerson shares. The Pool B Shares consist
of the number of Emerson shares with respect to which Mr. Jurick must retain
beneficial ownership of voting power to avoid an event of default arising out of
a change of control pursuant to the terms of the Company's Loan and Security
Agreement with the Lender and/or the indenture governing the Debentures. Sales
may be made of the Settlement Shares pursuant to a registered offering if the
sales price in not less than 90% of the average of the three most recent closing
prices (the "Average Closing Price"), or, other than in a registered offering,
of up to 1% of the Emerson common stock outstanding per quarter, if the sales
price is not less than 90% of the Average Closing Price. Any other attempted
sales are subject to the consent of Mr. Jurick, the Creditors and if necessary,
the Court. The Settlement Agreement will only become effective after, among
other things, receipt by the Court of certain share certificates currently held
in foreign jurisdictions and all documents required in the Settlement Agreement.
Bankruptcy Claims:
The Company is presently engaged in litigation regarding several bankruptcy
claims which have not been resolved since the restructuring of the Company's
debt. The largest claim was filed on or about July 25, 1994 in connection with
the rejection of certain executory contracts with two Brazilian entities,
Cineral Electronica de Amazonia Ltda. and Cineral Magazine Ltda. (collectively,
"Cineral"). The contracts were executed in August 1993, shortly before the
Company's filing for bankruptcy protection. The amount claimed was $93,563,457,
of which $86,785,000 represents a claim for loss of profits and $6,400,000 for
plant installation and establishment of offices, which were installed and
established prior to execution of the contracts. The claim was filed as
an unsecured claim and, therefore, will be satisfied, to the extent the claim is
allowed by the Bankruptcy Court, in the manner other allowed unsecured claims
were satisfied. The Company has objected to the claim and intends to vigorously
contest such claim and believes it has meritorious defenses to the highly
speculative portion of the claim for lost profits and the portion of the claim
for actual damages for expenses incurred prior to the execution of the
contracts. Additionally, on or about September 30, 1994, the Company instituted
an adversary proceeding in the Bankruptcy Court asserting damages caused by
Cineral and seeking declaratory relief and replevin. A motion filed by Cineral
to dismiss the adversary proceeding has been denied. The adversary proceeding
and claim objection have been consolidated into one proceeding and discovery
commenced. This action has been stayed since June 1995 by order of the
Bankruptcy Court pending settlement negotiations. An adverse final ruling on
the Cineral claim could have a material adverse effect on the Company, even
though it would be limited to 18.3% of the final claim determined by a court of
competent jurisdiction; however, with respect to the claim for lost profits, in
light of the foregoing, the Company believes the chances for recovery for lost
profits are remote.
Hopper Litigation
Effective April 24, 1996, the Company and Hopper entered into the Hopper
Amendment which, among other things, amended certain provisions in the
Partnership and Sales Agreements and settled all outstanding litigation between
the Company, Hopper and the other named parties. Under the Hopper Amendment,
Hopper advanced an additional $5 million to the Partnership, thereby increasing
the liquidity of the Partnership and equalizing the investment of the partners
and the sharing of cash flows. Additionally, the Hopper Amendment provides that
the Partnership will continue to buy certain of the Company's product returns
through December 31, 1996. Subsequent to this date, either partner may give
notice to dissolve the Partnership, with a wind-down period to be completed no
later than six months from the date of notice.
International Jensen Incorporated ("Jensen") Litigation
On May 10, 1996, Jensen filed an action in the United States District Court
for the Northern District of Illinois, Eastern Division, against the Company and
its President, Eugene I. Davis, for violations of proxy solicitation rules and
for breach of a confidentiality agreement with Jensen. On May 14, 1996, the
Court entered a temporary restraining order against the Company and its
President, which subsequently lapsed, enjoining them from (i) further
solicitation of Jensen's stockholders or their representatives until the
Company has filed a Proxy Statement with the Securities and Exchange
Commission which complies with the provisions of Regulation 14A of the
Securities Exchange Act of 1934; (ii) making further solicitation containing
false and misleading or misleading statements of material fact or material
omissions; and (iii) disclosing confidential information in violation of the
confidentiality agreement. On May 20, 1996, the Company filed a counterclaim
in this action alleging that Jensen and its Chairman, Chief Executive Officer
and President, Robert G. Shaw, fraudulently induced the Company to enter into a
confidentiality agreement and failed to negotiate with the Company in good
faith. In its counterclaim, the Company requests such other equitable or
other relief as the Court finds proper and an award of attorneys' fees and
expenses. The Company and its President intend to vigorously defend Jensen's
claim against the Company and to vigorously pursue its counterclaim against
Jensen and Mr. Shaw. The Company believes that Jensen's claims are without
basis, that it has meritorious defenses againstJensen's claim and that the
litigation or results thereof will not have a material adverse effect on the
Company's consolidated financial position.
Other Litigation:
The Company is involved in other legal proceedings and claims of various
types in the ordinary course of business. While any litigation contains an
element of uncertainty, management presently believes that the outcome of each
such proceeding or claim which is pending or known to be threatened (including
the actions noted above), or all of them combined, will not have a material
adverse effect on the Company's consolidated financial position.
Note L -- Business Segment Information and Major Customers:
The consumer electronics business is the Company's only business segment.
Operations in this business segment are summarized below by geographic area:
Year Ended March 31, 1996 U.S. Foreign Eliminations Consolidated
(In thousands)
Sales to unaffiliated
customers $234,369 $11,298 $ $245,667
Transfers between
geographic areas 2,884 876 (3,760)
Total net revenues $237,253 $12,174 $ (3,760) $245,667
Earnings (loss) before
income taxes $(11,324) $(2,039) $ $(13,363)
Identifiable assets $ 90,350 $ 6,226 $ $ 96,576
Year Ended March 31,1995
Sales to unaffiliated
customers $608,717 $45,954 $ $654,671
Transfers between
geographic areas 5,954 184 (6,138) --
Total net revenues $614,671 $46,138 $ (6,138) $654,671
Earnings (loss) before
income taxes $ 12,238 $(4,596) $ -- $ 7,642
Identifiable assets $98,604 $15,470 $ (105) $113,969
Year Ended March 31, 1994
Sales to unaffiliated
customers $433,495 $53,895 $ -- $487,390
Transfers between
geographic areas 2,587 -- (2,587) --
Total net revenues $436,082 $53,895 $ (2,587) $487,390
Loss before
reorganization
costs and income taxes $(50,718) $(5,224) $ -- $(55,942)
Identifiable assets $ 99,726 $19,295 $ -- $119,021
Transfers between geographic areas are accounted for on a cost basis.
Identifiable assets are those assets used in operations in each geographic area.
At March 31, 1996 and 1995, total assets include $27,779,000 and
$37,492,000, respectively, of assets located in foreign countries.
The Company's net sales to one customer aggregated approximately 18%, 53%
and 34% of consolidated net revenues for the years ended March 31, 1996, 1995
and 1994, respectively. At March 31, 1996 and 1995, the Company had a liability
balance to this customer for product returns. The Company's net sales to
another customer aggregated 16%, 10% and 12% for the years ended March 31, 1996,
1995 and 1994, respectively. Trade receivables from this customer approximated
5% and 10% of accounts receivable at March 31, 1996 and 1995, respectively, and
were not collateralized.
Note M -- Investment in Joint Venture
The Company has a 50% investment in E & H Partners, a joint venture that
purchases, refurbishes and sells certain of the Company's product returns. The
results of this joint venture are accounted for by the equity method. The
Company's equity in the earnings (loss) of the joint venture is reflected as an
increase or reduction of cost of sales in the Company's Consolidated Statements
of Operations. Summarized financial information relating to the joint venture
is as follows:
March 31,
1996 1995
(In thousands)
Activity between Company and E & H Partners
Accounts receivable from joint venture (a) $13,270 $15,283
Investment in joint venture 1,265 1,565
Sales to joint venture 17,629 32,500
E & H Partners Summarized Financial Information
Condensed balance sheet:
Current assets $19,326 $26,749
Noncurrent assets 162 161
Total $19,488 $26,910
Current liabilities $16,958 $23,780
Partnership equity 2,530 3,130
Total $19,488 $26,910
Condensed income statement:
Net sales (b) $27,712 $24,760
Net earnings (loss) (600) 2,130
___________________
(a) Accounts receivable were secured by a full lien on all of the partnership's
inventory at these dates, and such lien had been assigned to the Lender as
collateral for the U.S. line of credit facility. In April 1996, the Company
agreed to equally share the lien on the partnership's inventory with the other
partner in the joint venture, in exchange for, among other things, a $5 million
loan by such partner to the joint venture and a subsequent paydown of E&H
Partners' obligation to the Company of the same amount.
(b) Includes sales to the Company of $5,964,000 and $3,796,000, respectively.
Note N -- Subsequent Events:
In June 1996, the Company amended its adjusted net worth covenant with the
Lender, effective June 30, 1996. The adjusted net worth covenant, as amended,
requires the Company to maintain an adjusted net worth, as defined, of not less
than the sum of (i) the base amount of $30,000,000 plus (ii) any proceeds
received by the Company after December 31, 1995 from the sale of any equity or
debt securities.
EMERSON RADIO CORP. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
Column A Column B Column C ColumnD Column E
Balance Charged Balance
at to at
beginning costs end of
of and year
Description year expenses Deductions (C)
Allowance for doubtful
accounts/chargebacks:
Year ended:
March 31, 1996 $4,150 $1,111 $2,430 $2,831
March 31, 1995 3,349 1,306 505(A) 4,150
March 31, 1994 3,267 3,023 2,941(A) 3,349
Inventory reserves:
Year ended:
March 31, 1996 $ 470 $1,087 $ 335 $1,222
March 31, 1995 644 251 425(B) 470
March 31, 1994 1,559 6,619 7,534(B) 644
(A) Accounts written off, net of recoveries.
(B) Net realizable value reserve removed from account when inventory is sold.
(C) Amounts do not include certain accounts receivable reserves that are
disclosed as "allowances" on the Consolidated Balance Sheets since they are not
valuation reserves.
INDEX TO EXHIBITS
PAGE NUMBER
IN
SEQUENTIAL
NUMBERING
EXHIBIT DESCRIPTION SYSTEM
(2) Confirmation Order and Fourth Amended Joint Plan of
Reorganization of Emerson Radio Corp. ("Old Emerson")
and certain subsidiaries under Chapter 11 of the
United States Bankruptcy Code, dated March 31, 1994
(incorporated by reference to Exhibit (2) of
Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
Securities and Exchange Commission ("SEC") on August
9, 1994).
(3) (a) Certificate of Incorporation of Emerson (incorporated
by reference to Exhibit (3) (a) of Emerson's
Registration Statement on Form S-1, Registration No.
33-53621, declared effective by the SEC on August 9,
1994).
(3) (b) Certificate of Designation for Series A Preferred
Stock (incorporated by reference to Exhibit (3) (b)
of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(3) (c) Plan of Reorganization and Agreement of Merger by and
between Old Emerson and Emerson Radio (Delaware)
Corp. (incorporated by reference to Exhibit (3) (c)
of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(3) (d) Certificate of Merger of Old Emerson with and into
Emerson Radio (Delaware) Corp. (incorporated by
reference to Exhibit (3) (d) of Emerson's
Registration Statement on Form S-1, Registration No.
33-53621, declared effective by the SEC on August 9,
1994).
(3) (e) Amendment dated February 14, 1996 to the Certificate
of Incorporation of Emerson (incorporated by
reference to Exhibit (3) (a) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December
31, 1995).
(3) (f) By-Laws of Emerson adopted March 1994 (incorporated
by reference to Exhibit (3) (e) of Emerson's
Registration Statement on Form S-1, Registration No.
33-53621, declared effective by the SEC on August 9,
1994).
(3) (g) Amendment dated November 28, 1995 to the By-Laws of
Emerson adopted March 1994 (incorporated by reference
to Exhibit (3) (b) of Emerson's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995).
(4) (a) Warrant Agreement to Purchase 750,000 shares of
Common Stock, dated as of March 31, 1994
(incorporated by reference to Exhibit (4) (a) of
Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(4) (b) Indenture, dated as of August 17, 1995 between
Emerson and Bank One, Columbus, NA, as Trustee
(incorporated by reference to Exhibit (1) of
Emerson's Current Report on Form 8-K filed with the
SEC on September 8, 1995).
(4) (c) Common Stock Purchase Warrant Agreement to purchase
50,000 shares of Common Stock, dated as of December
8, 1995 between Emerson and Michael Metter
(incorporated by reference to Exhibit (10) (e) of
Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
(4) (d) Common Stock Purchase Warrant Agreement to purchase
200,000 shares of Common Stock, dated as of December
8, 1995 between Emerson and Kenneth A. Orr
(incorporated by reference to Exhibit (10) (f) of
Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
(10) (a) Agreement, dated as of November 14, 1973, between
National Union Electric Corporation ("NUE") and
Emerson (incorporated by reference to Exhibit (10)
(a) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(10) (b) Trademark User Agreement, dated as of February 28,
1979, by and between NUE and Emerson (incorporated by
reference to Exhibit (10) (b) of Emerson's
Registration Statement on Form S-1, Registration No.
33-53621, declared effective by the SEC on August 9,
1994).
(10) (c) Agreement, dated July 2, 1984, between NUE and
Emerson (incorporated by reference to Exhibit (10)
(c) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(10) (d) Agreement, dated September 15, 1988, between NUE and
Emerson (incorporated by reference to Exhibit (10) (d)
of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(10) (e) Form of Promissory Note issued to certain Pre-
Petition Creditors (incorporated by reference to
Exhibit (10) (e) of Emerson's Registration Statement
on Form S-1, Registration No. 33-53621, declared
effective by the SEC on August 9, 1994).
(10) (f) Loan and Security Agreement, dated March 31, 1994, by
and among Emerson, Majexco Imports, Inc. and Congress
Financial Corporation ("Congress") (incorporated by
reference to Exhibit (10) (f) of Emerson's
Registration Statement on Form S-1, Registration No.
33-53621, declared effective by the SEC on August 9,
1994).
(10) (g) Amendment No. 1 to Financing Agreements, dated as of
August 24, 1995, among Emerson, Majexco Imports, Inc.
and Congress (incorporated by reference to Exhibit (2)
of Emerson's Current Report on Form 8-K filed with the
SEC on September 8, 1995).
(10) (h) Amendment No. 2 to Financing Agreements, dated as of
February 13, 1996 (incorporated by reference to Exhibit
(10) (c) of Emerson's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1995).
(10) (i) Emerson Radio Corp. Stock Compensation Program
(incorporated by reference to Exhibit (10) (i) of
Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(10) (j) Employment Agreement between Emerson and Eugene I.
Davis (incorporated by reference to Exhibit 6(a)(4) of
Emerson's Quarterly Report on Form 10-Q for quarter
ended June 30, 1992).
(10) (k) Employment Agreement between Emerson and Albert G.
McGrath, Jr. (incorporated by reference to Exhibit
6(a)(7) of Emerson's Quarterly Report on Form 10-Q for
quarter ended June 30, 1992).
(10) (l) Agreement dated as of January 1, 1996, between Emerson
and Albert G. McGrath, Jr. relating to termination of
employment and agreement on consulting services
(incorporated by reference to Exhibit (10) (a) of
Emerson's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995).
(10) (m) Employment Agreement between Emerson and Geoffrey P.
Jurick (incorporated by reference to Exhibit 6(a)(6) of
Emerson's Quarterly Report on Form 10-Q for quarter
ended June 30, 1992).
(10) (n) Employment Agreement between Emerson Radio (Hong Kong)
Ltd. and Geoffrey P. Jurick (incorporated by reference
to Exhibit 6(a)(6) of Emerson's Quarterly Report on
Form 10-Q for quarter ended June 30, 1992).
(10) (o) Employment Agreement between Emerson Radio
International Ltd. (formerly Emerson Radio (B.V.I),
Ltd.) and Geoffrey P. Jurick (incorporated by reference
to Exhibit 6(a)(6) of Emerson's Quarterly Report on
Form 10-Q for quarter ended June 30, 1992).
(10) (p) Lease Agreement dated as of March 26, 1993, by and
between Hartz Mountain Parsippany and Emerson with
respect to the premises located at Nine Entin Road,
Parsippany, NJ (incorporated by reference to Exhibit
(10) (ww) of Emerson's Annual Report on Form 10-K for
the year ended December 31, 1992).
(10) (q) Employment Agreement, dated July 13, 1993, between
Emerson and Merle Eakins (incorporated herein by
reference to Exhibit (10)(vv) to Emerson's Annual
Report on Form 10-K for the year ended March 31, 1993).
(10) (r) Agreement dated as of January 31, 1996, between Emerson
and Merle Eakins relating to termination of employment
and agreement on consulting services (incorporated by
reference to Exhibit (10) (b) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31,
1995).
(10) (s) Employment Agreement, dated April 1, 1994, between
Emerson and John Walker (incorporated herein by
reference to Exhibit (10)(ee) of Emerson's Registration
Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(10) (t) Liquidating Trust Agreement, dated as of March 31,
1994, by and among Emerson, Majexco Imports, Inc., H.H.
Scott, Inc., and Stuart D. Gavsy, Esq., as Trustee
(incorporated by reference to Exhibit (10) (ff) of
Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(10) (u) Partnership Agreement, dated April 1, 1994, between
Emerson and Hopper Radio of Florida, Inc (incorporated
by reference to Exhibit (10) (q) of Emerson's Annual
Report on Form 10-K for the year ended March 31, 1995).
(10) (v) Sales Agreement, dated April 1, 1994, between Emerson
and E & H Partners (incorporated by reference to
Exhibit (10) (r) of Emerson's Annual Report on Form 10-
K for the year ended March 31, 1995).
(10) (w) Agreement, dated as of April 24, 1996 by and among
Emerson and E & H Partners relating to amendments of
the Partnership Agreement dated April 1, 1994 and the
Sales Agreement dated April 1, 1994 and the settlement
of certain outstanding litigation.*
(10) (x) Independent Consultants Agreement, Dated October 1,
1994, between Emerson Radio International Ltd. and
Peter G. Bunger (incorporated by reference to Exhibit
(10) (t) of Emerson's Annual Report on Form 10-K for
the year ended March 31, 1995).
(10) (y) Independent Consultant's Agreement, dated October 1,
1994, between Emerson Radio Europe B.V. and Peter G.
Bunger (incorporated by reference to Exhibit (10) (u)
of Emerson's Annual Report on Form 10-K for the year
ended March 31, 1995).
(10) (z) Employment Agreement, dated October 3, 1994, between
Emerson and Andrew Cohan (incorporated by reference to
Exhibit (10) (v) of Emerson's Annual Report on Form 10-
K for the year ended March 31, 1995).
(10) (aa) License Agreement, dated February 22, 1995, between
Emerson and Otake Trading Co. Ltd. and certain affilates ("Otake")
(incorporated by reference to Exhibit 6(a)(1) of Emerson's
quarterly report on Form 10-Q for quarter ended December 31, 1994).
(10) (ab) Supply Agreement, dated February 22, 1995, between
Emerson and Otake (incorporated by reference to Exhibit
6(a)(2) of Emerson's quarterly report on Form 10-Q for
quarter ended December 31, 1994).
(10) (ac) 1994 Non-Employee Director Stock Option Plan
(incorporated by reference to Exhibit (10) (y) of
Emerson's Annual Report on Form 10-K for the year ended
March 31, 1995).
(10) (ad) Consulting Agreement, dated as of December 8, 1995
between Emerson and First Cambridge Securities
Corporation (incorporated by reference to Exhibit (10)
(d) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
(10) (ae) Stipulation of Settlement and Order dated June 11, 1996
by and among the Official Liquidator of Fidenas
International Bank Limited, Petra Stelling, Barclays
Bank PLC, the Official Liquidator of Fidenas Investment
Limited, Geoffrey P. Jurick, Fidenas International
Limited, L.L.C., Elision International, Inc., GSE
Multimedia Technologies Corporation and Emerson.*
(11) Computation of Primary Earnings Per Share.*
(12) Computation of Ratio of Earnings (Loss) to Combined
Fixed Charges and Preferred Stock Dividends.*
(21) Subsidiaries of the Registrant as of March 31, 1996.*
(27) Financial Data Schedule for year ended March 31, 1996.*
___________________
* Filed herewith.
EXHIBIT 11
Emerson Radio Corp. and Subsidiaries
Exhibit to Form 10-K
Computation of Primary Earnings Per Share
(in thousands, except per share data)
Years Ended March 31,
1996 1995 1994
Net earnings (loss) $(13,389) $ 7,375 $55,501
Preferred stock dividends (700) N/A N/A
Net earnings (loss)
attributable to $(14,089) $7,375 $55,501
common shareholders
Weighted average number of
actual shares outstanding 40,253 36,530 38,191
Additional shares assuming
conversion or exercise of:
Preferred stock (a) 9,081
Stock options and warrants 960
Weighted average number of
common and common equivalent
shares outstanding 40,253 46,571 38,191
Primary earnings (loss) per
share $(0.35) $0.16 $1.45
___________________________
(a) Based on the assumed conversion of $10 million of Series A Preferred Stock
into Common Stock at a price per share equal to 80% of the weighted average
market value of a share of Common Stock, determined on a quarterly basis. Since
the Series A Preferred Stock is not convertible into Common Stock until March
31, 1997, the number of shares issuable upon conversion may be significantly
different than noted above.
EXHIBIT 12
EMERSON RADIO CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-K
COMPUTATION OF RATIO OF EARNINGS (LOSS) TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
(In thousands, except ratio data)
Historical
Three
Year Months Year Year Year Year
Ended Ended Ended Ended Ended Ended
Dec. Mar. Mar. Mar. Mar. Mar.
31, 31, 31, 31, 31, 31,
1991 1992 1993 1994 1995 1996
Pretax earnings
(loss) $(59,571) $(6,743) $(55,291) $(73,327) $7,642 $(13,363)
Fixed charges:
Interest 18,546 4,217 18,257 10,243 2,582 2,788
Amortization of
debt expenses 300 487
18,546 4,217 18,257 10,243 2,882 3,275
Pretax earnings
(loss) before
fixed charges $(41,025) $(2,526) $(37,034) $(63,084) $10,524 $(10,088)
Fixed charges:
Interest $ 18,546 $ 4,217 $ 8,257 $ 10,243 $ 2,582 $ 2,788
Amortization of
debt expenses 300 487
Preferred stock
dividend
requirements 725(a) 700
$ 18,546 $ 4,217 $ 8,257 $ 10,243 $ 3,607 $ 3,975
Ratio of
earnings (loss)
to combined
fixed charges
and preferred
stock
dividends (2.21) (0.60) (2.03) (6.16) 2.92 (2.54)
Coverage
deficiency $ 18,546 $ 4,217 $ 8,257 $ 10,243 $ 3,975
________________________
(a) The preferred stock dividend requirements have been adjusted to reflect the
pretax earnings which would be required to cover such dividend requirements.
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
Emerson Radio (Hong Hong Kong 100%*
Kong) Limited
Emerson Radio British 100%
International Ltd. Virgin Islands
* One share is owned by a resident director pursuant to local law.