Registration No. 33- 62873
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT No. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EMERSON RADIO CORP.
(Exact name of Registrant as specified in its charter)
Delaware 5064 22-3285224
(State of (Primary (I.R.S.
Incorporation) Standard Employer
Industrial Identification
Classification on No.)
Code Number)
Nine Entin Road
Parsippany, NJ 07054
(201) 884-5800
(Address including zip code and telephone number including
area code, of registrant's principal executive offices)
______________
Eugene I. Davis
President
Emerson Radio Corp.
Nine Entin Road
Parsippany, NJ 07054
(201) 884-5800
(Name address including zip code
and telephone number
including area code, of agent for service)
____________
With copies to:
Albert G. McGrath, Jr., Esq. Jeffrey M. Davis, Esq.
Senior Vice President and Lowenstein, Sandler, Kohl,
General Counsel Fisher & Boylan, P.A.
Emerson Radio Corp. 65 Livingston Avenue
Nine Entin Road Roseland, NJ 07068
Parsippany, NJ 07054 (201) 992-8700
Approximate date of commencement of proposed sale to the public. As soon as
practicable after the Securities and Exchange Commission declares the
Registration Statement effective.
If any of the securities being registered on this Form are to be offered on a
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box [ ]
Proposed Proposed
maximum maximum
Amount offering aggregate Amount of
Title of each class of to be price per offering registration
securities to be registered security price fee
registered
8 1/2% Senior $20,750,000 Par $20,750,000 $7,155.17
Subordinated
Convertible
Debentures Due 2002
Common Stock (1) (2) (2) (2)
$.01 par value
(1) This Registration Statement also relates to an indeterminate number of
shares of Common Stock to be issued if and when the Debentures are
converted in accordance with the terms thereof, including terms
providing for adjustment of the conversion price to prevent dilution.
(2) No additional consideration will be received for the Common Stock, and
accordingly no registration fee is required in connection with the
registration of the offer and sale of such Stock.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
EMERSON RADIO CORP.
Cross Reference Sheet Pursuant to Item 501 of Regulation S-K showing the
location in the Prospectus of the response to items of Part I of Form S-1.
Form S-1 Item Location in Prospectus
1. Forepart of Registration Cover Page
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Cover Page; Available Information; Back
Back Cover Pages of Cover Page
Prospectus
3. Summary Information, Risk Summary; Risk Factors
Factors and Ratio of
Earnings to Fixed Charges
4. Use of Proceeds Summary; Use of Proceeds; Management's
Discussion and
Analysis of Results of Operations and
Financial Condition
5. Determination of Offering Cover Page; Summary; Risk Factors; Plan
Price of Distribution
6. Dilution *
7. Selling Securityholders Cover Page; Summary; Selling
Securityholders; Plan of
Distribution
8. Plan of Distribution Cover Page; Summary; Plan of
Distribution
9. Description of Securities
to be Registered Cover Page; Summary; Description of
Registered Debentures; Description of Other
Securities
10. Interests of Named Experts
and Counsel Certain Relationships and Related
and Counsel
Transactions
11. Information with Respect to
the Registrant Summary; Risk Factors; The Company;
Capitalization; Selected Consolidated
Financial Data; Management's Discussion
and Analysis of Results of Operations
and Financial Condition; Business;
Legal Proceedings; Management;
Executive Compensation and Other
Information; Certain Relationships and
Related Transactions; Principal
Stockholders; Description of Other
Securities; Consolidated Financial
Statements.
12. Disclosure of Commission's *
position on indemnification
for Securities Act liabilities
_____________
* Not Applicable
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 21, 1995
PROSPECTUS *
$20,750,000
EMERSON RADIO CORP.
8 1/8-1/2% Senior Subordinated Convertible Debentures Due 2002
This Prospectus relates to the offer and sale of up to $20,750,000 aggregate
principal amount of 8 1/8-1/2% Senior Subordinated Convertible Debentures Due
2002 (the "Debentures") of Emerson Radio Corp. ("Emerson" or the "Company") by
the Selling Securityholders (as hereinafter defined). See
"Selling Securityholders." The Debentures are convertible into shares of the
Company's common stock, par value $0.01 per share (the "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.
This Prospectus also relates to the offer and sale of the shares of Common
Stock which may be owned by the Selling Securityholders upon conversion
of the Debentures. On September 15,October 20, 1995, the last reported sales price of the
Common Stock, which is traded on the American Stock Exchange ("AMEX") under
the symbol "MSN," was $3.3125$2.6875 per share. See "Description of Debentures,"
"Description of Other Securities" and "Plan of Distribution."
Interest on the Debentures is payable on March 15, June 15, September 15,
and December 15, of each year commencing September 15, 1995. The Debentures
are redeemable in whole or in part, at the option of the Company at anytime
after August 15, 1998, at the redemption prices set forth herein, plus accrued
interest, if any, to the redemption date. Each holder of Debentures will have
the right to cause the Company to redeem the Debentures if certain Designated
Events (as defined in the Indenture) should occur. The Debentures are
subordinated to all existing and future Senior Indebtedness (as defined in the
Indenture). At September 15,October 16, 1995, there was approximately $19.5$26.4 million of
outstanding Senior Indebtedness. The Debentures restrict the amount of Senior
Indebtedness and other indebtedness that the Company and, in certain cases, its
subsidiaries may incur. See "Description of Debentures."
The Debentures were initially sold in reliance on exemptions under Section
4(2) and other exemptions under the Securities Act of 1933, as amended (the
"Securities Act"), to qualified institutional buyers (as defined in Rule 144A
under the Securities Act) ("QIBs") and to a limited number of institutional
"accredited investors" (as such term is defined in Rule 501 under the
Securities Act and referred to herein as "Accredited Investors"). Certain of
the Debentures and Common Stock underlying the Debentures have been designated
for trading in the Private Offerings, Resales and Trading through Automatic
Linkages ("PORTAL") System of the National Association of Securities Dealers,
Inc. No other trading market currently exists for the Debentures.
AN INVESTMENT IN THE DEBENTURES OR THE UNDERLYING
COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED BY
PURCHASERS OF THE DEBENTURES OR THE UNDERLYING COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION"), NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
__________________________
The date of this Prospectus is September 21,October 25, 1995.
SUMMARY
The following summary is qualified in its entirety by the
detailed information and financial statements (including the
notes thereto) appearing elsewhere in this Prospectus or
incorporated by reference herein. References to "Emerson" or the
"Company" in this Prospectus refer to Emerson Radio Corp. and its
subsidiaries, unless the context otherwise indicates.
The Company
Emerson, one of the nation's largest volume consumer
electronics distributors, directly and through subsidiaries,
designs, sources, imports and markets a variety of video and
audio consumer electronics and microwave oven products. The
Company distributes its products primarily through mass merchants
and discount retailers, leveraging on the strength of its
"Emerson and G-Clef" trademark, a nationally recognized trade name
in the consumer electronics industry. The trade name "Emerson Radio"
dates back to 1912 and is one of the oldest and most well respected names
in the consumer products industry. In addition, the Company offers
a line of audio products for sale under the "H.H. Scott" brand
name. Approximately $15 billion of factory sales are generated
by the industry in the market segment in which the Company
competes. In calendar year 1994, Emerson believes it was among
the top three brand names in unit sales volume of video cassette
recorders ("VCRs") and TV/VCR combinations and among the top five
brand names in unit sales volume of color televisions.
The Company believes it possesses an advantage over its
competitors due to the combination of the Emerson brand
recognition, its extensive distribution base and established
relations with customers in the mass merchant and discount retail
channels of distribution, its sourcing expertise and established
vendor relations, and an infrastructure boasting personnel
experienced in servicing and providing logistical support to the
domestic mass merchant distribution channel. Emerson intends 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 intends 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 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."
The Company successfully restructured its financial position
(the "Restructuring") through a plan of reorganization confirmed
under Chapter 11 of the United States Bankruptcy Code ("Plan of
Reorganization") on March 31, 1994. Through the Restructuring,
the Company reduced its institutional debt by approximately $203
million. Additionally, the Company increased its net sales by
34% in the fiscal year ended March 31, 1995 ("Fiscal 1995"), the
fiscal year immediately following emergence from bankruptcy, as
compared to the prior fiscal year. Also, since the fiscal year
ended March 31, 1993 ("Fiscal 1993"), the Company has reduced its
annual fixed operating costs by more than 50%. See "The Company
- -
Restructuring of the Company."
The Offering
Securities Offered $20,750,000 aggregate principal
amount of 8 1/8-1/2% Senior
Subordinated Convertible
Debentures Due 2002 and the
underlying shares of Common
Stock by the Selling
Securityholders. See
"Description of Debentures" and
"Selling Securityholders."
Interest Payment Dates March 15, June 15, September 15
and December 15 of each year
commencing September 15, 1995.
For the interest period ending
on September 15, 1995, interest
as to each Debenture will be
calculated from the closing
date of the sale to the initial
Debenture holder applicable to
such Debenture.
Conversion Rights The Debentures are convertible
prior to redemption or
maturity, at the option of the
holder, into shares of Common
Stock at an initial conversion
price of $3.9875 per share of
Common Stock, subject to
adjustment under certain
circumstances (the "Conversion
Price"). See "Description of
Debentures."
Redemption at Option of the At the Company's option, the
Company Debentures are redeemable after
the expiration of three years
from the date of issuance, in
whole or in part, at the
redemption prices (expressed as
a percentage of principal
amount) set forth below for the
applicable 12-month period
beginning August 15:
Year Redemption Price
1998 104%
1999 103%
2000 102%
2001 101%
and at maturity at 100% of
principal, together in the case
of any such redemption with
accrued interest to the
redemption date. See
"Description of Debentures."
Repurchase at Option of If a Designated Event (as
Holders defined herein) occurs, each
holder of the Debentures has
the right, subject to certain
conditions and restrictions, to
require the Company to offer to
repurchase all outstanding
Debentures, in whole or in
part, owned by such holder at
100% of their principal amount
plus accrued interest, if any,
to the date of repurchase. If
a Designated Event occurs, no
assurance can be given that the
Company would have sufficient
funds to pay the repurchase
price for all Debentures
tendered by the holders
thereof. The Company's ability
to make such payments may be
limited by the terms of then
existing borrowings and other
agreements. See "Risk
Factors," "Management's
Discussion and Analysis of
Results of Operations and
Financial Condition" and
"Description of Debentures."
Subordination The Debentures are subordinated
to all existing and future
Senior Indebtedness (as defined
herein). At September 15,October 16, 1995,
there was approximately $19.5$26.4
million of outstanding Senior
Indebtedness. The Indenture
(the "Indenture") governing the
Debentures restricts the amount
of Senior Indebtedness and
other indebtedness that the
Company and, in certain
instances, its subsidiaries may
incur. See "Description of
Debentures."
Use of Proceeds The Company will not receive
any of the proceeds from the
sale of Debentures and/or
underlying Common Stock offered
and sold by the Selling
Securityholders.
Registration In the Indenture, the Company
agreed to file the
registration statement
applicable to this Prospectus
(the "Registration Statement")
covering the resale of the
Debentures (and the resale of
the Common Stock underlying the
Debentures) by December 21,
1995 and to maintain such
effectiveness for a three-year
period. The interest rate on
the Debentures shall be
increased by 0.5% if the
Company fails to cause the
Registration Statement to
become effective by December
21, 1995 or to maintain such
effectiveness for a three-year
period provided that such
increase shall be effective
only for so long as the
Registration Statement is not
effective. See "Description of
Debentures."
Trading Market Certain of the Debentures (and
the Common Stock underlying
such Debentures) sold to QIBs
have been designated for
trading on the PORTAL System.
No other market currently
exists for the Debentures. The
Common Stock is listed on the
AMEX under the symbol "MSN."
See "Description of Debentures"
and "Description of Other
Securities."
Shares of Common Stock
Outstanding Before Offering1 40,252,772
Shares of Common Stock
Outstanding Assuming
Conversion of
$20,750,000 Aggregate
Principal Amount of 45,456,533
Debentures1,2
Certain Covenants The Indenture pursuant to which
the Debentures were issued
restricts, among other items,
the ability of the Company and
its subsidiaries to: incur
additional indebtedness, pay
dividends or make distributions
or other restricted payments;
consolidate, merge or sell all
or substantially all of their
assets; create liens; sell
certain assets; sell or issue
capital stock of the Company's
subsidiaries; make certain
investments, loans and
advances; enter into
transactions with affiliates;
and make prepayments on
outstanding indebtedness other
than Senior Indebtedness.
These covenants are subject to
important exceptions and
qualifications. See
"Description of Debentures."
Risk Factors The Debentures offered hereby
involve a high degree of risk.
Prospective purchasers of the
Debentures or the Common Stock
underlying the Debentures
should carefully consider all
the information set forth in
this Prospectus and, in
particular, should evaluate the
specific risk factors set forth
under "Risk Factors,"
including, but not limited to,
a discussion of operating
losses and recent
reorganization, the Company's
secured indebtedness and
financing, and certain
outstanding litigation.
1Does not include an aggregate of 3,550,000 shares of Common Stock
issuable upon exercise of (i) 1,890,000 outstanding options exercisable
at a weighted average exercise price of $1.03 per share; (ii) 750,000
outstanding seven-
yearseven-year warrants exercisable at an exercise price of
$1.00 per share until March 31, 1997 and excalatingescalating $0.10 per share
per annum thereaftertherafter until expiration (March 31, 2001); (iii) 410,000
options availableavailabe for issuance under the Company's stock option plans;
and (iv) 500,000 outstanding five-year warrants exercisable at an exerciseexericse
price of $3,9875$3.9875 per share granted to Dresdner Securities (USA) Inc.
(the "Placement Agent") and its authorized dealers in connection with
the private placement of Debentures. Also does not include shares
of Common Stock issuable from and after March 31, 1997, upon conversion
of $10 million of Series A Preferred Stock at a price equal to 80% of
the average market value of a sharesshare of Common Stock at the time of
conversion. See "Risk Factors-Potential Future Sales of Stock,"
"Executive Compensation and Other Information" and "Description of
Other Securities."
2Gives effect to the issuance of 5,203,761 shares of Common Stock upon
conversion of $20,750,000 aggregate principal amount of Debentures at
the initial Conversion Price of $3,9875 per share.
Summary of Consolidated Financial and Operating Data
The following table sets forth for the periods and dates indicated,
selected consolidated financial data of the Company and its subsidiaries.
The Company changed its fiscal year-end from December 31 to March 31,
beginning with the period ended March 31, 1992. Previously, the Company had
changed its fiscal year-end from March 31 to December 31, beginning with the
period ended December 31, 1990. The Summary Financial Data should be read
in conjunction with the Consolidated Financial Statements, including the
notes thereto set forth elsewhere in this Prospectus. All unaudited
financial information reflects all adjustments that management believes
necessary to present fairly the results of operations for the periods being
reported.
Historical
Historical
Nine Months Year Three Months Year Year Year Three Months Three Months
Ended Ended Ended Ended Ended Ended Ended Ended
Dec. 31, Dec. 31, Mar. 31, Mar.Mar 31, MarMar. 31 Mar. 31 June 30 June 30,
1990 1991 1992 1993 1994 1995 1994 1995
(In thousands, except per share and ratio data)
Statement of
Operations Data:
Net Sales:
Core Business $528,809 $716,651 $169,936 $741,357 $487,390 $654,671 $137,140 $57,058$ 57,058
Personal
Computers and
Other $
96,609 73,555 1,562 -- -- -- --
--
625,418 790,206 171,498 741,357$741,357 487,390 654,671 137,140 57,058
Net Earnings (Loss(1) $(37,463)(37,463) (60,746) ( 6,976) $56,000)(6,976) (56,000) 55,501 7,375 (2,894) (1,401)
(Loss)(1)
Per Common Share:
Net Earnings
(Loss) Per
Common Share $Share(1)(2) (1.03) $ (1.60) $ (0.18) $ (1.47) 1.45(1.45) 0.16 (0.09) $ (0.03)
Weighted Average
Number of Common
and Common Equivalent
Shares Outstanding 36,519 37,897 37,968 38,179 38,191 46,571 33,333 40,253
Common Shareholders'
Equity (Deficit)(3) $1.78 $ 1.78 0.12 $ (0.04) $ (1.52) $ 0.98 $ 1.08 $ 0.88 $ 1.04
Ratio of Earnings
(Loss) to Combined
Fixed Charges
and Preferred Stock
Dividends ( 1.85)(1.85) (2.21) (0.60) (2.03) (6.16) 2.92 (3.74) (0.86)
Stock Dividends
Coverage Deficiency 13,978$13,978 $ 18,546 4,217 $ 18,257 $ 10,243 -- $ 635 $ 803
As of June 30, 1995
Balance Sheet Data: Actual As Adjusted(4)
Working Capital $39,871 $ 59,244
Total Assets 103,422 104,799
Total Debt 25,870 27,247
Common Shareholders' Equity 42,944 42,944
Shareholders' Equity 51,944 51,944
__________________
(1) The net earnings for the fiscal year ended March 31, 1994 ("Fiscal
1994"), include an extraordinary gain of $129,155,000, or $3.38 per share,
on the extinguishment of debt settled in the Plan of Reorganization.
Additionally, the Company recorded reorganization expenses of $17,385,000
relating primarily to the writedown of assets transferred to creditors under
the Plan of Reorganization and professional fees and other related expenses
incurred during the bankruptcy proceedings. The results of operations for
Fiscal 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
Fiscal 1993 also include costs related to the Company's proxy contest
settled in June 1992. The year ended December 31, 1991 also includes
charges related to the discontinuance of the H.H. Scott domestic business.
(2) Net earnings (loss) per common share for all periods, except Fiscal
1995 and the three months ended June 30, 1994 and 1995, are based on
the weighted average number of old common shares outstanding during each
period. Net earnings per common share for Fiscal 1995 is based on
the weighted average number of shares of new Common Stock and
related common stock equivalents outstanding during the year. Common
Stock equivalents include 9,081,000 shares assuming conversion of
$10 million of Series A Preferred Stock at a price equal to 80% of
the weighted average market value of a share of Common Stock,
determined 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.
Net loss per common share for the three months ended June 30, 1994
and 1995 is based on the weighted average number of shares of new
Common Stock outstanding during each period. The net loss per share
for both periods does not include common stock equivalents assumed
outstanding since they are anti-dilutive.
(3) Calculated based on common shareholders equity (deficit) divided by
actual shares of Common Stock outstanding. Common shareholders' equity at
March 31, 1994 and 1995 and June 30, 1994 and 1995 are equal to total
shareholders' equity less $10 million for the liquidation preference of the
Series A Preferred Stock.
(4) Balance sheet data is adjusted to give effect to the initial
application of the estimated net proceeds of $19,373,000 from the issuance
of $20,750,000 of Debentures.
Supplemental Results of Operations
The following table presents consolidated sales and net
earnings (loss) for the past five years on the basis of a March
31 fiscal year-end. This information is provided for comparative
purposes only and should be read in conjunction with the
Consolidated Financial Statements, including the notes thereto,
and "Management's Discussion and Analysis of Results of
Operations and Financial Condition" set forth elsewhere in the
Prospectus. The financial information for the years ended March
31, 1992 and March 31, 1991 is unaudited and was derived by
adjusting the audited results of operations of the Company for
the years ended December 31, 1990 and December 31, 1991 to
include the results of operations for the three month periods
ended March 31, 1991 (unaudited) and March 31, 1992,
respectively, and to omit the unaudited results of operations for
the three months ended March 31, 1991 for the latter. All
unaudited financial information reflects all adjustments that
management believes necessary to present fairly the results of
operations for the periods being reported.
Year Ended March 31,
1991 1992 1993 1994 1995
(In thousands, except per share data)
Net Sales:
Core Business
$662,421 $752,975 $741,357 $487,390 $654,671$752,97 $ 741,357 $ 487,390 $ 654,671
Personal Computers
and Other 123,385 48,341 - - -
$785,806 $801,316 $741,357 $487,390 $654,671785,806 801,316 741,357 487,390 654,671
Net Earnings (Loss) $(52,435) $(52,750) $(56,000) $(52,750) (56,000) 55,501 $ 7,375
Net Earnings (Loss)
Per Common
Share(1)(2) $ (1.42) $ (1.39) $ (1.47) $ 1.45 $ 0.16
Weighted Average
Number of Common
and Common
Equivalent Shares
Outstanding $ 36,854 37,925 38,179 38,191 46,571
_______________
(1)The net earnings for Fiscal 1994 include an extraordinary
gain of $129,155,000, or $3.38 per share, on the
extinguishment of debt settled in the Plan of Reorganization.
Additionally, the Company recorded reorganization expenses of
$17,385,000 relating primarily to the write down of assets
transferred to creditors in the Plan of Reorganization and
professional fees and other related expenses incurred during
the bankruptcy proceedings. The results of operations for
the fiscal years ended March 31, 1993, 1992 and 1991 include
restructuring and nonrecurring charges aggregating
$35,002,000, $40,012,000 and $650,000, 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 write downs of certain assets associated with
implementing long-term cost reduction programs. Charges for
Fiscal 1993 also include costs related to the Company's proxy
contest settled in June 1992. The year ended March 31, 1992
also includes charges related to the discontinuance of the
H.H. Scott domestic business.
(2)Net earnings (loss) per common share for all periods, except
Fiscal 1995, are based on the weighted average number of
shares of Common Stock outstanding during each fiscal year.
Net earnings per common share for Fiscal 1995 is based on the
weighted average number of shares of new Common Stock and
related common stock equivalents outstanding during the year.
Common stock equivalents include 9,081,000 shares assuming
conversion of $10 million of Series A Preferred Stock at a
price equal to 80% of the weighted average market value of a
share of Common Stock, determined 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.
RISK FACTORS
An investment in the Debentures or the underlying Common
Stock involves a high degree of risk. Prospective investors
should carefully consider the following risk factors, as well as
other information contained in this Prospectus:
Operating Losses
Although the Company reported a net profit of $7,375,000 in
Fiscal 1995, the Company subsequently reported a net loss of
$1,401,000 for the first quarter of its fiscal year ending March
31, 1996 ("Fiscal 1996") as compared with a loss of $2,884,000
during the comparable quarter of Fiscal 1995. See "Risk Factors
- - Seasonality." Prior thereto, the Company, on a consolidated
basis, operated at a loss in the aggregate from the nine month
period ended December 31, 1990 through Fiscal 1994 and had an
accumulated deficit of $199.9 million as of March 31, 1994, prior
to the extraordinary gain recognized on the extinguishment of
debt as a result of the Restructuring. See "The Company -
Restructuring of the Company." For Fiscal 1994, the Company
experienced a significant decline in sales from the prior year,
which decline commenced in the latter part of Fiscal 1993.
Additionally, for Fiscal 1994, the Company generated a gross
profit of $0.9 million on consolidated net sales of $487.4
million and recorded a consolidated net loss of $73.7 million
prior to the extraordinary gain recognized on the extinguishment
of debt. During Fiscal 1993, the Company reported a consolidated
net loss of $56 million attributable to reduced sales to key
customers and recorded substantial restructuring and other
nonrecurring charges aggregating $35 million. While the Company
reported a profit for Fiscal 1995, and decreased losses by
approximately 52% for the three months ended June 30, 1995 as
compared to the same period in the prior Fiscal Year, no
assurance can be given that the Company will be able to continue
to generate sufficient revenues to meet its operating expenses,
make its interest payments under the Debentures or otherwise
continue to operate profitably in the future. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition."
Risks Associated With the Company's Secured Indebtedness and
Financing
As of October 16, 1995, the Company had approximately $26.4
million of Senior Indebtedness outstanding with its United States
secured credit lender pursuant to the terms of a $60 million
credit facility. Substantially all of the assets of Emerson and
certain of its subsidiaries, except for their trademarks, are
encumbered to secure repayment of such indebtedness. The
trademarks are subject to a negative pledge covenant. See
"Management's Discussion and Analysis of Results of Operations
and Financial Condition - Subsequent Events." The Company's
ability to meet its ongoing debt service obligations and operate
its business will depend on a number of factors, including its
ability to operate its business as presently projected, the
success of future operations, the availability of working capital
and compliance with the requirements of the Indenture. See
"Management's Discussion and Analysis of Results of Operations
and Financial Condition" and "Description of Debentures." As
market conditions permit, the Company plans to secure additional
financing (subject to restrictions imposed on it by its credit
facilities and the Indenture), as necessary, in the form of debt
or equity, to finance the growth of its core business, product
line extensions and any new business ventures.
Dependence on Key Customers
During the three months ended June 30, 1995 and Fiscal 1995,
1994, and 1993, approximately 16%, 53%, 34%, and 39%,
respectively, of consolidated net sales were made by the Company
to Wal-Mart Stores, Inc. ("Wal-Mart"). Similarly, during such
periods, 10%, 10%, 12% and 11%, respectively, of consolidated net
sales were made by the Company to Target Stores, Inc. While
management believes that the Company presently has and
historically has had good relationships with these two customers,
the Company has no long-term contracts with such customers, as
they purchase on individually placed purchase orders submitted to
the Company. The Company has entered into agreements with Otake
Trading Co., Ltd. and certain related entities ("Otake") its
largest supplier, which provide, among other things, for the
limited license of certain trademarks to that supplier to
manufacture and sell video products under the "Emerson and
G-Clef" trademark directly to Wal-Mart. The decrease in sales to
Wal-Mart for the three months ended June 30, 1995, as compared
to the other periods presented was the direct result of these
agreements. It is anticipated that the net operating results of the
Company will not be adversely impacted by this decline in volume
since the Company will receive royalty payments under this arrangement
and expects a corresponding reduction in the Company's operating
expenses. No assurance can be given that the Company will obtain
such operating results or that the licensing arrangement will not
adversely impact its operations or the reputation of its trade
names or products. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition." There can be no
assurances that other key customers will continue to account for
comparable percentages of the Company's sales and the loss of a
significant volume of purchases could have a material adverse
impact on the Company in certain circumstances.
Dependence on Key Vendors
The Company is dependent upon certain unaffiliated foreign
manufacturers for various components, parts and finished
products; some of those manufacturers also produce products for
the Company's competitors. In particular, Otake accounted for
approximately 18%, 73%, 59%, and 71%, respectively, of the
Company's purchases during the three months ended June 30, 1995
and Fiscal 1995, 1994, and 1993. The Company has recently
entered into agreements with Otake, including a supply agreement
which provides the Company the option to purchase video products
from Otake for a period of three years. See "Risk Factors -
Dependence on Key Customers" and "Business - Licensing." Kong
Wah Video Company Limited and related entities ("Kong Wah")
accounted for approximately 10% of the Company's purchases during
the three months ended June 30, 1995 and Fiscal 1994.
Additionally, Daewoo Electronics Co., Ltd., Imarflex, Mfg. Co.,
Ltd. and Musical Electronics Limited accounted for approximately
22%, 21% and 14%, respectively, of the Company's purchases during
the three months ended June 30, 1995. Disruption or cessation in
purchases from, any delay or disruption in regular and timely
deliveries by, or any deterioration in the quality of products
of, such vendors could have a material adverse effect on the
Company's results of operations. Management, however, believes
alternative sources of supply are available in the marketplace.
From time to time, the Company has been required to allocate
product among its customer base. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition"
and "Business - Design and Manufacturing."
No Security for Debentures; Subordination
The Debentures represent general unsecured obligations of
the Company. The rights of the holders of the Debentures to
receive payment of any principal or interest thereon is
subordinate to the prior payment of the principal of (and
premium, if any), and the interest on, all Senior Indebtedness
(as defined in the Indenture and summarized herein under
"Description of Debentures") of the Company, whether secured or
unsecured, and any deferrals, renewals or extensions of such
Senior Indebtedness. As of October 16, 1995, the Company
estimates its Senior Indebtedness to be approximately $26.4
million. Upon any receivership, insolvency, assignment for the
benefit of creditors, bankruptcy, reorganization, sale of all or
substantially all of the assets, dissolution, liquidation, or any
other marshalling of the assets and liabilities of the Company,
or, if the Debentures are declared due and payable on the
occurrence of an Event of Default (as defined herein), then no
amounts shall be paid by the Company on the Debentures for their
respective principal and interest thereon unless and until the
principal of, and the interest on, all Senior Indebtedness then
outstanding are paid in full. See "Description of Debentures."
Lack of Sinking Fund; Substantial Final Payment for the
Debentures
The Company is under no obligation to make any sinking fund
payments with respect to the Debentures and the Debentures are
redeemable only at the Company's option prior to stated maturity,
except for a holder's limited right to repayment upon a
Designated Event pursuant to the terms of the Indenture. Thus,
the Company will be required to repay on August 15, 2002, up to
the principal amount of the Debentures sold in this Offering, and
then outstanding, and any accrued interest thereon on such date.
If the Company does not have sufficient funds to pay such amount
at maturity, it will have to refinance the Debentures at that
time. There can be no assurance that the Company will be able to
obtain such financing. See "Description of Debentures."
Licensing Risks
The Company has licensed the "Emerson and G-Clef"
trademark to certain parties on a limited basis and intends
to pursue additional licensing opportunities. While the Company
believes that its quality control system and contractual provisions
are adequate to protect the integrity and reputation of its trademarks,
there can be no assurance that the actions of the Company's licensees in
manufacturing or distributing products under the "Emerson and G-Clef"
trademark will not adversely, even if temporarily, impact the value of the
Company's trademarks. The Company has registered the "Emerson and G-Clef,"
"H.H. Scott" and "Scott" trademarks for certain of its consumer
products in the United States, Canada, Mexico and various other
countries. Despite the legal protection afforded by such
registration, there can be no assurance that there will not be
infringements of the Company's trademarks or that the Company
would be able to successfully prosecute any such infringements.
Any damage to the Company's trademarks by a licensee or any
trademark infringement could have a material adverse effect on
the Company's business. Further, the Company has agreed not to
pledge its trademarks under its United States secured credit
facility and under the Indenture. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition -
Subsequent Events," "Business - Licensing" and "Business -
Trademarks."
Seasonality
The Company generally experiences stronger demand for its
products in the quarters of each year ending September 30 and
December 31. Accordingly, to accommodate such increased demand,
the Company is generally required to place seasonally higher
orders with its vendors during the quarters ending June 30 and
September 30, thereby affecting the Company's need for working
capital during such periods. On a corresponding basis, the
Company also is subject to increased returns during the quarters
ending on March 31 and June 30, which adversely affects the
Company's collection activities during such periods, also
affecting its liquidity. Operating results may fluctuate due to
other factors such as the timing of the introduction of new
products, price reductions by the Company and its competitors,
demand for the Company's products, product mix, delay, available
inventory levels, fluctuation in foreign currency exchange rates
relative to the United States dollar, seasonal cost increases and
general economic conditions. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
Competition and Dependence on Market Acceptance
The market segment in which the Company operates is highly
competitive. The mass merchandise and discount retail market is
divided among a large number of foreign-based manufacturers and
distributors. Many of the Company's competitors have or may
obtain significantly greater financial and marketing strength and
resources than the Company, enabling them to compete more
effectively than the Company. Further, the Company's business is
dependent upon consumer awareness and acceptance of existing and
new products. The Company's products compete at the retail store
level for shelf space and promotional displays, all of which have
an impact on the Company's established and proposed distribution
channels. Competition, or failure of consumers to accept
existing or new products, may result in reduced sales, reduced
profit margins, or both, for the Company. There can be no
assurance that the Company will not encounter increased
competition in the future, which could have a material adverse
effect on the ability of the Company to successfully market
existing products, develop new products or expand its business.
See "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Business - Competition."
Potential Product Liability and Insurance Limits
A failure of any of the products marketed by the Company may
subject the Company to the risk of product liability claims and
litigation arising from injuries allegedly caused by the improper
functioning or design of its products. The Company currently
maintains product liability insurance in amounts which the
Company considers adequate. No product liability claims have
been asserted or, to the knowledge of the Company's management,
threatened against the Company to date, which management believes
would have a material adverse effect on the Company's
consolidated financial position. To the extent product liability
losses are beyond the limits or scope of the Company's insurance
coverage, any such losses could have a material adverse effect
upon the Company's business, operations, profitability and
assets.
Government Regulation
Pursuant to the Tariff Act of 1930, as amended, the Trade
Act of 1974, and regulations promulgated thereunder, the United
States Government charges tariff duties, excess charges,
assessments and penalties on many imports. These regulations are
subject to constant change and revision by governmental agencies
and by action of 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. Additionally, 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.
Such statutes may have the effect of increasing the costs of the
Company's operations. 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. See
"Business -- Government Regulation."
Tax Risks
The Company realized a substantial amount of cancellation of
indebtedness ("COD") as a result of the Restructuring. However,
the Company did not include such COD in its gross income because
the Restructuring was consummated as part of the Plan of
Reorganization. See "The Company - Restructuring of the
Company." Ordinarily, the Company would be required to reduce
certain Federal income tax attributes (e.g., a net operating loss
for the taxable year of the debt discharge, net operating loss or
tax credit carry forwards, tax basis of assets) by the amount of
COD so excluded from its gross income. The Company's management
believes that the exchanges of debt-for-stock by certain of the
Company's institutional creditors should qualify for an exception
from those requirements applicable to certain stock-for-debt
exchanges. Further, management believes that the Restructuring
should qualify as a tax free reorganization under the Internal
Revenue Code of 1986, as amended (the "Code"). It is possible
that the Internal Revenue Service could contend that the
stock-for-debt exception is not applicable to the Restructuring,
or that the Restructuring does not constitute a tax-free
reorganization. In either such event, the Company's net
operating loss carry forwards and tax credit carry forwards and
other tax attributes would be reduced by a significant amount,
and the reorganized Company's taxable income would be greater
than it would be if the Restructuring constitutes a tax-free
reorganization.
Assuming the stock-for-debt exception applies and the
Restructuring qualifies under the tax-free reorganization
provisions of the Code, the ability to carry forward the
Company's net operating loss and tax credit carry forwards from
taxable years (or portions thereof) ending on or prior to the
consummation of the Plan of Reorganization is subject to an
annual limitation under Sections 382 and 383 of the Code. The
annual limitation is approximately $2,200,000. This limitation
could be reduced or eliminated if the Company becomes subject to
a second, later, annual limitation under Sections 382 and 383 of
the Code because of future equity changes, including the issuance
of the Common Stock on conversion of the Debentures described in
this Prospectus or the litigation described in "Risk Factors -
Litigation Relating to Common Stock." Finally, under certain
circumstances, the Company could become subject to a personal
holding company tax in the future. See "Certain Federal Income
Tax Considerations."
Controlling Stockholders
As a result of the Restructuring, Fidenas International
Limited, now known as Fidenas International Limited, L.L.C.
("Fidenas International"), Elision International, Inc.
("Elision") and GSE Multimedia Technologies Corporation ("GSE"),
own, in the aggregate, 29,152,542 million shares of Common Stock,
representing approximately 72.4% of the Company's outstanding
shares of Common Stock. Geoffrey P. Jurick, Chairman of the
Board of Directors and Chief Executive Officer of the Company may
be deemed to control each of Fidenas International, GSE and
Elision, through stock ownership, direct or indirect, position of
officer or director, or otherwise. Consequently, Mr. Jurick and
these entities on a combined basis will have the power to elect
the Company's Board of Directors and, consistent with their
respective fiduciary responsibilities, to approve any action
requiring stockholder approval. Because of the existence of such
interrelationships noted above, it is possible that conflicts of
interest may arise between certain of the Company's officers and
directors, Fidenas International, GSE, Elision and/or any of
their respective affiliates. If conflicts of interest arise, the
Company's Board of Directors is obligated to resolve any such
conflicts in a manner consistent with its fiduciary duties. All
future transactions between the Company and its affiliates will
be on terms no less favorable than could be obtained from
unaffiliated third parties and must be approved by a majority of
the independent outside members of the Company's Board of
Directors who do not have an interest in the transactions.
Further, certain restrictions have been imposed on transactions
between the Company and its affiliates in the Indenture for the
Debentures. See "Principal Stockholders," "Certain Relationships
and Related Transactions," "Description of Debentures" and
"Description of Other Securities."
Litigation Relating to Common Stock
The shares of Common Stock issued to GSE, Fidenas
International and Elision in connection with the Restructuring
are the subject of certain legal proceedings in the Commonwealth
of Bahamas, the United States and Switzerland. It is possible
that a court of competent urisdiction may order the turnover of
all or a portion of the shares of Common Stock owned by such
persons to a third party. A turnover of a substantial portion of
the Common Stock could result in a "change of control" prohibited
pursuant to the terms of the Company's credit facility and
pursuant to the terms of the Debentures. Additionally, such a
change in control could result in a second ownership change
further limiting the Company's ability to use its net operating
loss carryforwards ("NOLs") and tax credit carryovers ("TCCOs").
See "Certain Federal Income Tax Considerations," "Principal
Stockholders" and "Legal Proceedings." If a turnover of a
substantial portion of the Common Stock results from such legal
proceedings, the holders of such Common Stock may have different
investment objectives than the current holders of the Common
Stock. Sales of such Common Stock by such holders, or the
perception that such sales may occur, could adversely affect
prevailing market prices for the Common Stock or the Company's
ability to raise capital in the future. See "Description of
Debentures" for a description of certain adjustments in the
Conversion Price of the Debentures upon certain decreases in the
weighted average closing price of the Common Stock attributable
to certain events resulting from the litigation described in this
paragraph.
Such securities, however, would constitute "restricted
securities" as defined in paragraph (a)(3) of Rule 144
promulgated under the Securities Act. Resales of such securities
may only be made in compliance with Rule 144, another applicable
exemption under the Securities Act, or pursuant to an effective
registration statement under the Securities Act. A settlement of
the legal proceedings described above may entail requests for
certain actions to be taken by the Company to permit greater
liquidity of any Common Stock transferred pursuant to any such
settlement. Such actions, if any, on the part of the Company
will be taken by the Board of Directors of the Company consistent
with its fiduciary duties and in accordance with certain
restrictive provisions contained in the Indenture for the
Debentures. The Placement Agent has agreed, subject to the
granting of registration rights in accordance with the
requirements of the Indenture and applicable law, to permit the
registration of up to 5,000,000 shares of Common Stock owned by
GSE, Fidenas International and Elision, which registration rights
were subsequently approved by the Board of Directors of the
Company. No assurance can be given that any settlement of such
legal proceedings will occur or that the terms of any such
settlement will be beneficial to the Company, its stockholders or
the market value of the Debentures or the Common Stock. See
"Legal Proceedings" and "Description of Other Securities - Common
Stock Eligible for Future Sale."
Bankruptcy Claims Resolution Process
During and subsequent to the Restructuring, the Company has
analyzed the various claims filed by creditors in the United
States Bankruptcy Court for the District of New Jersey (the
"Bankruptcy Court") in the Company's bankruptcy proceedings and,
where appropriate, contested certain claims. The Company is
presently engaged in litigation regarding such claims and no
assurance can be given as to whether an unfavorable judicial
determination could have a material adverse effect on the
Company. See "Legal Proceedings."
Risks Inherent in International Operations and Foreign Trade
The Company plans on increasing international distribution
and sales of its products. There can be no assurance that the
Company's trademarks will be as widely recognized or accepted
internationally as in the United States. In addition, there are
certain risks, varying in degrees, inherent in doing business
internationally and with respect to foreign trade. Such risks
include the possibility of quotas, anti-dumping laws and
regulations, unfavorable changes in tax or other laws; partial or
total expropriation; currency exchange rate fluctuations and
restrictions on currency repatriation; the disruption of
operations, production and shipping from labor and political
disturbances, insurrection or war; and the requirements of
partial local ownership of operations in certain countries. See
"Business."
Absence of An Established Market; Restrictions on Transfer
The Debentures sold to QIBs and Common Stock underlying such
Debentures have been designated for trading in the PORTAL System
and the Common Stock is listed for trading on the AMEX. No other
market currently exists for the Debentures. There can be no
assurance that an active trading market for the Debentures will
develop or, if one develops, that it will be maintained.
Although the Company has agreed to use its best efforts to
register the resale of the Debentures (and the resale of the
securities underlying the Debentures) in the Registration
Statement by December 21, 1995 and to maintain such effectiveness
for a three-year period, there can be no assurance that such
Registration Statement will remain effective. The interest rate
on the Debentures shall be increased by 0.5% if the Company fails
to cause the Registration Statement to become effective by
December 21, 1995 or to maintain such effectiveness for a three-
year period, provided that such increase shall be effective only
for so long as the Registration Statement is not effective. See
"Description of Debentures."
Potential Future Sales of Stock
No prediction can be made as to the effect, if any, that
future sales of securities by the Company, or the availability of
shares for future sale, will have on the market price of the
Common Stock prevailing from time-to-time. Sales of Common Stock
or the perception that such sales may occur, could adversely
affect prevailing market prices for the Common Stock or the
Company's ability to raise capital in the future. In connection
with its Restructuring, the Company issued 33,333,333 shares of
Common Stock ("Issued Common Stock") and 10,000 shares of Series
A Preferred Stock ("Series A Preferred Stock"), the latter of
which were issued to the Company's group of bank lenders
(collectively, with any successors in interest, the "Bank
Lenders") and insurance company creditors ("Noteholders"),
convertible upon certain terms and conditions into Common Stock
and warrants ("Creditor's Warrants") to purchase an aggregate of
750,000 shares of Common Stock. 3,333,333 shares of the Issued
Common Stock, the Creditor's Warrants, the Common Stock
underlying the Creditor's Warrants, the Series A Preferred Stock,
and the Common Stock underlying the Series A Preferred Stock,
were issued to certain of the Company's creditors in connection
with the Restructuring pursuant to Section 1145 of the Bankruptcy
Code, and are therefore freely tradeable, to the extent such
creditors are not affiliates of the Company. Additionally,
769,446 shares of Common Stock were issued in February 1995 to
such creditors and 6,149,993 shares were sold in the public
offering authorized by the Plan of Reorganization confirmed in
connection with the Restructuring. All such shares are freely
tradeable. The remaining 30 million shares of Common Stock are
"restricted securities" as that term is defined in paragraph
(a)(3) of Rule 144 promulgated under the Securities Act, although
the Company has recently granted certain registration rights with
respect to 5,000,000 of such shares and intends to file a
registration statement related thereto with the Commission in the
near future. Also, the Company has outstanding options to
acquire 1,890,000 shares of Common Stock, granted in accordance
with Rule 701 of the Securities Act, which may be sold under
certain conditions and issued warrants to purchase 500,000 shares
of Common Stock to the Placement Agent and its authorized
dealers. See "Description of Other Securities." Future sales of
shares of the Common Stock, including those made under Rule 144
or in accordance with the resale provisions of Rule 701,
depending on the timing thereof, may (i) have an adverse effect
on the then prevailing market price, if any, of the Common Stock,
(ii) adversely affect the Company's ability to obtain future
financing in the capital markets, and (iii) also create a
potential large block of Common Stock coming into the market at
substantially the same time. However, Fidenas International,
Elision and GSE and officers and directors of the Company, with
certain significant exceptions, have agreed to additional
restrictions on the transfer of their shares for a period of 12
months. See "Description of Debentures" and "Description of
Other Securities - Common Stock Eligible for Future Sale."
Anti-Takeover Provisions
Certain provisions of the Company's Certificate of
Incorporation and By-Laws, including provisions (i) authorizing
the Board of Directors to create new series of preferred stock,
including series of preferred stock that affect the voting rights
of Common Stock and may provide for conversion into Common Stock,
(ii) providing that any action requiring stockholder consent must
be effected at a meeting as opposed to by consent in writing and
(iii) setting forth that directors may only be removed for cause,
upon the affirmative vote of at least 80% of the voting
securities then outstanding, voting together as a single class,
may make it more difficult for a third party to make, or may
discourage a third party from making, an acquisition proposal for
the Company or initiating a proxy contest and may thereby inhibit
a change in control of the Company or the removal of incumbent
management or directors. There can be no assurance that the
issuance of one or more series of preferred stock will not be
authorized in the future. See "Description of Other Securities."
Certain Covenants
The Indenture pursuant to which the Debentures were issued
restricts, with certain exceptions and among other items, the
ability of the Company and, in certain cases, its subsidiaries
to: incur additional indebtedness, pay dividends or make
distributions or other restricted payments; consolidate, merge or
sell all or substantially all of their assets; create liens; sell
certain assets; sell or issue capital stock of the Company's
subsidiaries; make certain investments, loans and advances; enter
into transactions with affiliates; and make prepayments on
outstanding indebtedness other than Senior Indebtedness. These
covenants are subject to important exceptions and qualifications.
See "Description of Debentures."
THE COMPANY
General
Emerson, one of the nation's largest volume consumer
electronics distributors, directly and through subsidiaries,
designs, sources, imports and markets a variety of video and
audio consumer electronics and microwave oven products. The
Company distributes its products primarily through mass merchants
and discount retailers, leveraging on the strength of its
"Emerson and G-Clef" trademark, a nationally recognized trade name
in the consumer electronics industry. The trade name "Emerson
Radio" dates back to 1912 and is one of the oldest and most well
respected names in the consumer products industry. In addition,
the Company offers a line of audio products for sale under the
"H.H. Scott" brand name. Approximately $15 billion of factory sales are
generated by the industry in the market segment in which the Company
competes. In calendar year 1994, Emerson believes it was among
the top three brand names in unit sales volume of VCRs and TV/VCR
combinations and among the top five brand names in unit sales
volume of color televisions.
The Company believes it possesses an advantage over its
competitors due to the combination of the Emerson brand
recognition, its extensive distribution base and established
relations with customers in the mass merchant and discount retail
channels of distribution, its sourcing expertise and established
vendor relations, and an infrastructure boasting personnel
experienced in servicing and providing logistical support to the
domestic mass merchant distribution channel. Emerson intends 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 intends 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, VCPs,
TV/VCR combination units, home stereo and portable audio products
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."
The Company successfully restructured its financial position
through the Plan of Reorganization. Through the Restructuring,
the Company reduced its institutional debt by approximately $203
million. Additionally, the Company increased its net sales by
34% in Fiscal 1995, the fiscal year immediately following its
emergence from bankruptcy, as compared to the prior fiscal year.
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. 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. See
"Business - Properties."
Restructuring of the Company
In 1990, the Company defaulted on certain covenants in the
loan documents evidencing significant payment obligations to the
Noteholders. The Company subsequently, through several different
management teams, attempted for approximately three and a half
years to restructure such debt, as well as its lines of credit
with the Bank Lenders. No agreement could be reached with such
creditors. New management of the Company, consisting largely of
the current management of the Company, took control of the
Company's operations in July 1992. On September 29, 1993, the
Company and five of its domestic subsidiaries filed voluntary
petitions for relief under the Bankruptcy Code based upon an
agreement reached by the new management with the Bank Lenders.
On March 31, 1994, the Court entered an order confirming the Plan
of Reorganization implementing such agreement, which became
effective on such date. During the pendency of the proceedings,
the Company continued its operations in the ordinary course of
business. The Company was able to retain most of its senior
management and believes it maintained customer and supplier
goodwill and the confidence of its employees.
The principal components of the Plan of Reorganization
included the following:
The payment of $75 million to the Bank Lenders and the
Noteholders.
The issuance of (i) Common Stock of the reorganized
Company, such that the Bank Lenders and Noteholders
possess 10% of the Company's outstanding Common Stock
upon the effective date of the Plan of Reorganization
and subsequent to the completion of the offering
(described below) contemplated by the Plan of
Reorganization, (ii) 10,000 shares of Series A
Preferred Stock to the Bank Lenders and Noteholders,
having a face value of $10 million, and (iii)
Creditor's Warrants to the Noteholders to purchase
750,000 shares of Common Stock. See "Description of
Other Securities."
The issuance to Fidenas International, Elision and
GSE, upon the payment to the Company of $30 million, of
an aggregate of 90% of the Company's then outstanding
shares of Common Stock.
The transfer by the Company to a liquidating trust
established for the benefit of the Bank Lenders and
Noteholders of certain assets consisting of real estate
in Princeton, Indiana, and the Company's rights with
respect to certain anti-dumping duty receivables.
On the effective date of the Plan of Reorganization,
all then existing shares of common stock, stock options
and warrants were terminated and canceled.
Stockholders of the debtor company and third parties
(to the extent that the existing stockholders of the
debtor company did not purchase all of the offered
stock) were given the opportunity to purchase, at $1.00
per share, up to 15 million shares of Common Stock,
constituting approximately 30% of the outstanding
Common Stock of the Company, assuming a fully-
subscribed offering (6,149,993 shares of Common Stock
were sold in such offering).
The Company reincorporated under the laws of Delaware.
The payment of up to an aggregate of $1,850,000 of the
net proceeds of the offering to certain of the
Company's creditors.
The Plan of Reorganization effected a recapitalization of
the Company. After giving effect to the Plan of Reorganization:
The Company's total consolidated institutional debt
owed to its secured bank lenders and insurance company
noteholders was reduced by approximately $203 million,
from approximately $223 million immediately prior to
the effective date, to approximately $20 million
immediately subsequent to the effective date, which
consisted primarily of advances pursuant to a secured
revolving credit facility. The holders of the
prepetition institutional debt received 10% of the
Common Stock in connection with the Restructuring.
At the Plan of Reorganization's effective date,
stockholders' equity increased to approximately $42.6
million.
Commencing in early 1993 and continuing through the
reorganization proceedings, the Company successfully instituted a
series of downsizing and outsourcing measures to reduce the fixed
costs of the core consumer electronics business. As a result of
the outsourcing of several functions and the elimination of fixed
costs associated with such functions, the Company was able to
achieve a reduction in annual fixed costs from approximately
$59.1 million in the fiscal year ended 1993 to an anticipated
$25.7 million for the fiscal year ending in 1996, although there
can be no assurances that such reductions will be realized.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the
resale of any Debentures or sale of the shares of the underlying Common
Stock involves a high degree of risk. Prospective investors
should carefully consider the following risk factors, as well as
other information contained in this Prospectus:
Operating Losses and Recent Reorganization
Although the Company reported a net profit of $7,375,000 in
Fiscal 1995, the Company subsequently reported a net loss of
$1,401,000 for the first quarter of its fiscal year ending March
31, 1996 ("Fiscal 1996"). See "Risk Factors - Seasonality."
Prior thereto, the Company, on a consolidated basis, operated at
a loss in the aggregate from the nine month period ended December
31, 1990 through Fiscal 1994 and had an accumulated deficit of
$199.9 million as of March 31, 1994, prior to the extraordinary
gain recognized on the extinguishment of debt as a result of the
Restructuring. See "The Company - Restructuring of the Company."
For Fiscal 1994, the Company experienced a significant decline in
sales from the prior year, which decline commenced in the latter
part of Fiscal 1993. Additionally, for Fiscal 1994, the Company
generated a gross profit of $0.9 million on consolidated net
sales of $487.4 million and recorded a consolidated net loss of
$73.7 million prior to the extraordinary gain recognized on the
extinguishment of debt. During Fiscal 1993, the Company reported
a consolidated net loss of $56 million attributable to reduced
sales to key customers and recorded substantial restructuring and
other nonrecurring charges aggregating $35 million. While the
Company reported a profit for Fiscal 1995, and decreased losses
by approximately 52% for the three months ended June 30, 1995 as
compared to the same period in the prior Fiscal Year, no
assurance can be given that the Company will be able to continue
to generate sufficient revenues to meet its operating expenses,
make its interest payments under the Debentures or otherwise
continue to operate profitably in the future. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition."
Risks Associated With the Company's Secured Indebtedness and
Financing
As of September 15, 1995, the Company had approximately
$19.5 million of Senior Indebtedness outstanding with its United
States secured credit lender pursuant to the terms of a $60
million credit facility. Substantially all of the assets of
Emerson and certain of its subsidiaries, except for their
trademarks, are encumbered to secure repayment of such
indebtedness. The trademarks are subject to a negative pledge
covenant. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition - Subsequent Events." The
Company's ability to meet its ongoing debt service obligations
and operate its business will depend on a number of factors,
including its ability to operate its business as presently
projected, the success of future operations, the availability of
working capital and compliance with the requirements of the
Indenture. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition" and "Description of
Debentures." As market conditions permit, the Company plans to
secure additional financing (subject to restrictions imposed on
it by its credit facilities and the Indenture), as necessary, in
the form of debt or equity, to finance the growth of its core
business, product line extensions and any new business ventures.
Dependence on Key Customers
During the three months ended June 30, 1995 and Fiscal 1995,
1994, and 1993, approximately 16%, 53%, 34%, and 39%,
respectively, of consolidated net sales were made by the Company
to Wal-Mart Stores, Inc. ("Wal-Mart"). Similarly, during such
periods, 10%, 10%, 12% and 11%, respectively, of consolidated net
sales were made by the Company to Target Stores, Inc. While
management believes that the Company presently has and
historically has had good relationships with these two customers,
the Company has no long-term contracts with such customers, as
they purchase on individually placed purchase orders submitted to
the Company. The Company has entered into agreements with Otake
Trading Co., Ltd. and certain related entities ("Otake") its
largest supplier, which provide, among other things, for the
limited license of certain trademarks to that supplier to
manufacture and sell video product under the "Emerson and G-Clef"
trademark directly to Wal-Mart. The decrease in sales to
Wal-Mart for the three months ended June 30, 1995, as compared
to the other periods presented was the direct result of these
agreements. It is anticipated that the net operating results
of the Company will not be adversely impacted by such a
decline in volume attributable to the licensing arrangement with
its supplier since the Company will receive royalty payments under
this arrangement and a corresponding reduction in the Company's
operating expenses attributable thereto. No assurance can be given
that the Company will obtain such operating results or that
the licensing arrangement will not adversely impact its operations
or the reputation of its trade names or products. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition." There can be no assurances that other key customers
will continue to account for comparable percentages of the
Company's sales and the loss of a significant volume of purchases
could have a material adverse impact on the Company in certain
circumstances.
Dependence on Key Vendors
The Company is dependent upon certain unaffiliated foreign
manufacturers for various components, parts and finished
products; some of those manufacturers also produce products for
the Company's competitors. In particular, Otake accounted for
approximately 18%, 73%, 59%, and 71%, respectively, of the
Company's purchases during the three months ended June 30, 1995
and Fiscal 1995, 1994, and 1993. The Company has recently
entered into agreements with Otake, including a supply agreement
which provides the Company the option to purchase video product
from Otake for a period of three years. See "Risk Factors -
Dependence on Key Customers" and "Business - Licensing." Kong
Wah Video Company Limited and related entities ("Kong Wah")
accounted for approximately 10% of the Company's purchases during
the three months ended June 30, 1995 and Fiscal 1994.
Additionally, Daewoo Electronics Co., Ltd., Imarflex, Mfg. Co.,
Ltd. and Musical Electronics Limited accounted for approximately
22%, 21% and 14%, respectively, of the Company's purchases during
the three months ended June 30, 1995. Disruption or cessation in
purchases from, any delay or disruption in regular and timely
deliveries by, or any deterioration in the quality of products
of, such vendors could have a material adverse effect on the
Company's results of operations. Management, however, believes
alternative sources of supply are available in the marketplace.
From time to time, the Company has been required to allocate
product among its customer base. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition"
and "Business - Design and Manufacturing."
No Security for Debentures; Subordination
The Debentures represent general unsecured obligations of
the Company. The rights of the holders of the Debentures to
receive payment of any principal or interest thereon is
subordinate to the prior payment of the principal of (and
premium, if any), and the interest on, all Senior Indebtedness
(as defined in the Indenture and summarized herein under
"Description of Debentures") of the Company, whether secured or
unsecured, and any deferrals, renewals or extensions of such
Senior Indebtedness. As of September 15, 1995, the Company
estimates its Senior Indebtedness to be approximately $19.5
million. Upon any receivership, insolvency, assignment for the
benefit of creditors, bankruptcy, reorganization, sale of all or
substantially all of the assets, dissolution, liquidation, or any
other marshalling of the assets and liabilities of the Company,
or, if the Debentures are declared due and payable on the
occurrence of an Event of Default (as defined herein), then no
amounts shall be paid by the Company on the Debentures for their
respective principal and interest thereon unless and until the
principal of, and the interest on, all Senior Indebtedness then
outstanding are paid in full. See "Description of Debentures."
Lack of Sinking Fund; Substantial Final Payment for the
Debentures
The Company is under no obligation to make any sinking fund
payments with respect to the Debentures and the Debentures are
redeemable only at the Company's option prior to stated maturity,
except for a holder's limited right to repayment upon a
Designated Event pursuant to the terms of the Indenture. Thus,
the Company will be required to repay on August 15, 2002, up to
the principal amount of the Debentures sold in this Offering, and
then outstanding, and any accrued interest thereon on such date.
If the Company does not have sufficient funds to pay such amount
at maturity, it will have to refinance the Debentures at that
time. There can be no assurance that the Company will be able to
obtain such financing. See "Description of Debentures."
Licensing Risks
The Company has licensed the "Emerson and G-Clef" trademark
to certain parties on a limited basis and intends to pursue
additional licensing opportunities. While the Company believes
that its quality control system and contractual protective provisions
are adequate to protect the integrity and reputation of its trademarks,
there can be no assurance that the actions of the Company's licensees
in manufacturing or distributing products under the Emerson and G-Clef"
trademark will not adversely, even if temporarily, impact the value of the
Company's trademarks. The Company has registered the "Emerson and G-Clef"
"H.H. Scott" and "Scott" trademarks for certain of its consumer
products in the United States, Canada, Mexico and various other
countries. Despite the legal protection afforded by such
registration, there can be no assurance that there will not be
infringements of the Company's trademarks or that the Company
would be able to successfully prosecute any such infringements.
Any damage to the Company's trademarks by a licensee or any
trademark infringement could have a material adverse effect on
the Company's business. Further, the Company has agreed not to
pledge its trademarks under its United States secured credit
facility and under the Indenture. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition -
Subsequent Events," "Business - Licensing" and "Business -
Trademarks."
Seasonality
The Company generally experiences stronger demand for its
products in the quarters of each year ending September 30 and
December 31. Accordingly, to accommodate such increased demand,
the Company is generally required to place seasonally higher
orders with its vendors during the quarters ending June 30 and
September 30, thereby affecting the Company's need for working
capital during such periods. On a corresponding basis, the
Company also is subject to increased returns during the quarters
ending on March 31 and June 30, which adversely affects the
Company's collections activities during such periods, also
affecting its liquidity. Operating results may fluctuate due to
other factors such as the timing of the introduction of new
products, price reductions by the Company and its competitors,
demand for the Company's products, product mix, delay, available
inventory levels, fluctuation in foreign currency exchange rates
relative to the United States dollar, seasonal cost increases and
general economic conditions. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
Competition and Dependence on Market Acceptance
The market segment in which the Company competes is highly
competitive. The mass merchandise and discount retail market is
divided among a large number of foreign-based manufacturers and
distributors. Many of the Company's competitors have or may
obtain significantly greater financial and marketing strength and
resources than the Company, enabling them to compete more
effectively than the Company. Further, the Company's business is
dependent upon consumer awareness and acceptance of existing and
new products. The Company's products compete at the retail store
level for shelf space and promotional displays, all of which have
an impact on the Company's established and proposed distribution
channels. Competition, or failure of consumers to accept
existing or new products, may result in reduced sales, reduced
profit margins, or both, for the Company. There can be no
assurance that the Company will not encounter increased
competition in the future, which could have a material adverse
effect on the ability of the Company to successfully market
existing products, develop new products or expand its business.
See "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Business - Competition."
Potential Product Liability and Insurance Limits
A failure of any of the products marketed by the Company may
subject the Company to the risk of product liability claims and
litigation arising from injuries allegedly caused by the improper
functioning or design of its products. The Company currently
maintains product liability insurance in amounts which the
Company considers adequate. No product liability claims have
been asserted or, to the knowledge of the Company's management,
threatened against the Company to date, which management believes
would have a material adverse effect on the Company's
consolidated financial position. To the extent product liability
losses are beyond the limits or scope of the Company's insurance
coverage, any such losses could have a material adverse effect
upon the Company's business, operations, profitability and
assets.
Government Regulation
Pursuant to the Tariff Act of 1930, as amended, the Trade
Act of 1974, and regulations promulgated thereunder, the United
States Government charges tariff duties, excess charges,
assessments and penalties on many imports. These regulations are
subject to constant change and revision by governmental agencies
and by action of 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. Additionally, 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.
Such statutes may have the effect of increasing the costs of the
Company's operations. 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. See
"Business -- Government Regulation."
Tax Risks
The Company realized a substantial amount of cancellation of
indebtedness ("COD") as a result of the Restructuring. However,
the Company did not include such COD in its gross income because
the Restructuring was consummated as part of the Plan of
Reorganization. See "The Company - Restructuring of the
Company." Ordinarily, the Company would be required to reduce
certain Federal income tax attributes (e.g., a net operating loss
for the taxable year of the debt discharge, net operating loss or
tax credit carry forwards, tax basis of assets) by the amount of
COD so excluded from its gross income. The Company's management
believes that the exchanges of debt-for-stock by certain of the
Company's institutional creditors should qualify for an exception
from those requirements applicable to certain stock-for-debt
exchanges. Further, management believes that the Restructuring
should qualify as a tax free reorganization under the Internal
Revenue Code of 1986, as amended (the "Code"). It is possible
that the Internal Revenue Service could contend that the
stock-for-debt exception is not applicable to the Restructuring,
or that the Restructuring does not constitute a tax-free
reorganization. In either such event, the Company's net
operating loss carry forwards and tax credit carry forwards and
other tax attributes would be reduced by a significant amount,
and the reorganized Company's taxable income would be greater
than it would be if the Restructuring constitutes a tax-free
reorganization.
Assuming the stock-for-debt exception applies and the
Restructuring qualifies under the tax-free reorganization
provisions of the Code, the ability to carry forward the
Company's net operating loss and tax credit carry forwards from
taxable years (or portions thereof) ending on or prior to the
consummation of the Plan of Reorganization is subject to an
annual limitation under Sections 382 and 383 of the Code. The
annual limitation is approximately $2,200,000. This limitation
could be reduced or eliminated if the Company becomes subject to
a second, later, annual limitation under Sections 382 and 383 of
the Code because of future equity changes, including the issuance
of the Common Stock on conversion of the Debentures described in
this Prospectus. Finally, under certain circumstances, the
Company could become subject to a personal holding company tax in
the future. See "Certain Federal Income Tax Considerations."
Controlling Stockholders
As a result of the Restructuring, Fidenas International
Limited, now known as Fidenas International Limited, L.L.C.
("Fidenas International"), Elision International, Inc.
("Elision") and GSE Multimedia Technologies Corporation ("GSE"),
own, in the aggregate, 30 million shares of Common Stock,
representing approximately 74.5% of the Company's outstanding
shares of Common Stock. Geoffrey P. Jurick, Chairman of the
Board of Directors and Chief Executive Officer of the Company may
be deemed to control each of Fidenas International, GSE and
Elision, through stock ownership, direct or indirect, position of
officer or director, or otherwise. Consequently, such persons
and entities on a combined basis will have the power to elect the
Company's Board of Directors and, consistent with their
respective fiduciary responsibilities, to approve any action
requiring stockholder approval. Because of the existence of such
interrelationships noted above, it is possible that conflicts of
interest may arise between certain of the Company's officers and
directors, Fidenas International, GSE, Elision and/or any of
their respective affiliates. If conflicts of interest arise, the
Company's Board of Directors is obligated to resolve any such
conflicts in a manner consistent with its fiduciary duties. All
future transactions between the Company and its affiliates will
be on terms no less favorable than could be obtained from
unaffiliated third parties and must be approved by a majority of
the independent outside members of the Company's Board of
Directors who do not have an interest in the transactions.
Further, certain restrictions have been imposed on transactions
between the Company and its affiliates in the Indenture for the
Debentures. See "Principal Stockholders," "Certain Relationships
and Related Transactions," "Description of Debentures" and
"Description of Other Securities."
Litigation Relating to Common Stock
The shares of Common Stock issued to GSE, Fidenas
International and Elision in connection with the Restructuring
are the subject of certain legal proceedings in the Commonwealth
of Bahamas and the United States. It is possible that a court of
competent jurisdiction may order the turnover of all or a portion
of the shares of Common Stock owned by such persons to a third
party. A turnover of a substantial portion of the Common Stock
could result in a "change of control" prohibited pursuant to the
terms of the Company's credit facility and pursuant to the terms
of the Debentures. Additionally, such a change in control could
result in a second ownership change further limiting the
Company's ability to use its net operating loss carryforwards
("NOLs") and tax credit carryovers ("TCCOs"). See "Certain
Federal Income Tax Considerations," "Principal Stockholders" and
"Legal Proceedings." If a turnover of a substantial portion of
the Common Stock results from such legal proceedings, the holders
of such Common Stock may have different investment objectives
than the current holders of the Common Stock. Sales of such
Common Stock by such holders, or the perception that such sales
may occur, could adversely affect prevailing market prices for
the Common Stock or the Company's ability to raise capital in the
future. See "Description of Debentures" for a description of
certain adjustments in the Conversion Price of the Debentures
upon certain decreases in the weighted average closing price of
the Common Stock attributable to certain events resulting from
the litigation described in this paragraph. However, such
securities would constitute "restricted securities" as defined in
paragraph (a)(3) of Rule 144 promulgated under the Securities
Act. Resales of such securities may only be made in compliance
with Rule 144, another applicable exemption under the Securities
Act, or pursuant to an effective registration statement under the
Securities Act. A settlement of the legal proceedings described
above may entail requests for certain actions to be taken by the
Company to permit greater liquidity of any Common Stock
transferred pursuant to any such settlement. Such actions, if
any, on the part of the Company will be taken by the Board of
Directors of the Company consistent with its fiduciary duties and
in accordance with certain restrictive provisions contained in
the Indenture for the Debentures. The Placement Agent has
agreed, subject to the granting of registration rights in
accordance with the requirements of the Indenture and applicable
law, to permit the registration of up to 5,000,000 shares of
Common Stock owned by GSE, Fidenas International and Elision,
which registration rights were subsequently approved by the Board
of Directors of the Company. No assurance can be given that any
settlement of such legal proceedings will occur or that the terms
of any such settlement will be beneficial to the Company, its
stockholders or the market value of the Debentures or the Common
Stock. See "Legal Proceedings" and "Description of Other
Securities - Common Stock Eligible for Future Sale."
Bankruptcy Claims Resolution Process
During and subsequent to the Restructuring, the Company has
analyzed the various claims filed by creditors in the United
States Bankruptcy Court for the District of New Jersey (the
"Bankruptcy Court") in the Company's bankruptcy proceedings and,
where appropriate, contested certain claims. The Company is
presently engaged in litigation regarding such claims and no
assurance can be given as to whether an unfavorable judicial
determination could have a material adverse effect on the
Company. See "Legal Proceedings."
Risks Inherent in International Operations and Foreign Trade
The Company plans on increasing international distribution
and sales of its products. There can be no assurance that the
Company's trademarks will be as widely recognized or accepted
internationally as in the United States. In addition, there are
certain risks, varying in degrees, inherent in doing business
internationally and with respect to foreign trade. Such risks
include the possibility of quotas, anti-dumping laws and
regulations, unfavorable changes in tax or other laws; partial or
total expropriation; currency exchange rate fluctuations and
restrictions on currency repatriation; the disruption of
operations, production and shipping from labor and political
disturbances, insurrection or war; and the requirements of
partial local ownership of operations in certain countries. See
"Business."
Absence of An Established Market; Restrictions on Transfer
The Debentures sold to QIBs and Common Stock underlying such
Debentures have been designated for trading in the PORTAL System
and the Common Stock is listed for trading on the AMEX. No other
market currently exists for the Debentures. There can be no
assurance that an active trading market for the Debentures will
develop or, if one develops, that it will be maintained.
Although the Company has agreed to use its best efforts to
register the resale of the Debentures (and the resale of the
securities underlying the Debentures) in the Registration
Statement by December 21, 1995 and to maintain such effectiveness
for a three-year period, there can be no assurance that such
Registration Statement will remain effective. The interest rate
on the Debentures shall be increased by 0.5% if the Company fails
to cause the Registration Statement to become effective by
December 21, 1995 or to maintain such effectiveness for a three-
year period, provided that such increase shall be effective only
for so long as the Registration Statement is not effective. See
"Description of Debentures."
Potential Future Sales of Stock
No prediction can be made as to the effect, if any, that
future sales of securities by the Company, or the availability of
shares for future sale, will have on the market price of the
Common Stock prevailing from time-to-time. Sales of Common Stock
or the perception that such sales may occur, could adversely
affect prevailing market prices for the Common Stock or the
Company's ability to raise capital in the future. In connection
with its Restructuring, the Company issued 33,333,333 shares of
Common Stock ("Issued Common Stock") and 10,000 shares of Series
A Preferred Stock ("Series A Preferred Stock"), the latter of
which were issued to the Company's group of bank lenders
(collectively, with any successors in interest, the "Bank
Lenders") and insurance company creditors ("Noteholders"),
convertible upon certain terms and conditions into Common Stock
and warrants ("Creditor's Warrants") to purchase an aggregate of
750,000 shares of Common Stock. 3,333,333 shares of the Issued
Common Stock, the Creditor's Warrants, the Common Stock
underlying the Creditor's Warrants, the Series A Preferred Stock,
and the Common Stock underlying the Series A Preferred Stock,
were issued to certain of the Company's creditors in connection
with the Restructuring pursuant to Section 1145 of the Bankruptcy
Code, and are therefore freely tradeable, to the extent such
creditors are not affiliates of the Company. Additionally,
769,446 shares of Common Stock were issued in February 1995 to
such creditors and 6,149,993 shares were sold in the public
offering authorized by the Plan of Reorganization confirmed in
connection with the Restructuring. All such shares are freely
tradeable. The remaining 30 million shares of Common Stock are
"restricted securities" as that term is defined in paragraph
(a)(3) of Rule 144 promulgated under the Securities Act, although
the Company has recently granted certain registration rights with
respect to 5,000,000 of such shares and intends to file a
registration statement related thereto with the Commission in the
near future. Also, the Company has outstanding options to
acquire 1,890,000 shares of Common Stock, granted in accordance
with Rule 701 of the Securities Act, which may be sold under
certain conditions and issued warrants to purchase 500,000 shares
of Common Stock to the Placement Agent and its authorized
dealers. See "Description of Other Securities." Future sales of
shares of the Common Stock, including those made under Rule 144
or in accordance with the resale provisions of Rule 701,
depending on the timing thereof, may (i) have an adverse effect
on the then prevailing market price, if any, of the Common Stock,
(ii) adversely affect the Company's ability to obtain future
financing in the capital markets, and (iii) also create a
potential large block of Common Stock coming into the market at
substantially the same time. However, the holders of such shares
of Common Stock and officers and directors of the Company, with
certain significant exceptions, have agreed to additional
restrictions on the transfer of their shares for a period of 12
months. See "Description of Debentures" and "Description of
Other Securities - Common Stock Eligible for Future Sale."
Anti-Takeover Provisions
Certain provisions of the Company's Certificate of
Incorporation and By-Laws, including provisions (i) authorizing
the Board of Directors to create new series of preferred stock,
including series of preferred stock that affect the voting rights
of Common Stock and may provide for conversion into Common Stock,
(ii) providing that any action requiring stockholder consent must
be effected at a meeting as opposed to by consent in writing and
(iii) setting forth that directors may only be removed for cause,
upon the affirmative vote of at least 80% of the voting
securities then outstanding, voting together as a single class,
may make it more difficult for a third party to make, or may
discourage a third party from making, an acquisition proposal for
the Company or initiating a proxy contest and may thereby inhibit
a change in control of the Company or the removal of incumbent
management or directors. There can be no assurance that the
issuance of one or more series of preferred stock will not be
authorized in the future. See "Description of Other Securities."
Certain Covenants
The Indenture pursuant to which the Debentures were issued
restricts, with certain exceptions and among other items, the
ability of the Company and, in certain cases, its subsidiaries
to: incur additional indebtedness, pay dividends or make
distributions or other restricted payments; consolidate, merge or
sell all or substantially all of their assets; create liens; sell
certain assets; sell or issue capital stock of the Company's
subsidiaries; make certain investments, loans and advances; enter
into transactions with affiliates; and make prepayments on
outstanding indebtedness other than Senior Indebtedness. These
covenants are subject to important exceptions and qualifications.
See "Description of Debentures."
THE COMPANY
General
Emerson, one of the nation's largest volume consumer
electronics distributors, directly and through subsidiaries,
designs, sources, imports and markets a variety of video and
audio consumer electronics and microwave oven products. The
Company distributes its products primarily through mass merchants
and discount retailers, leveraging on the strength of its
"Emerson and G-Clef" trademark, a nationally recognized trade name
in the consumer electronics industry. The trade name "Emerson
Radio" dates back to 1912 and is one of the oldest and most well respected
names in the consumer products industry. In addition, the Company offers
a line of audio products for sale under the "H.H. Scott" brand
name. Approximately $15 billion of factory sales are generated
by the industry in the market segment in which the Company
competes. In calendar year 1994, Emerson believes it was among
the top three brand names in unit sales volume of VCRs and TV/VCR
combinations and among the top five brand names in unit sales
volume of color televisions.
The Company believes it possesses an advantage over its
competitors due to the combination of the Emerson brand
recognition, its extensive distribution base and established
relations with customers in the mass merchant and discount retail
channels of distribution, its sourcing expertise and established
vendor relations, and an infrastructure boasting personnel
experienced in servicing and providing logistical support to the
domestic mass merchant distribution channel. Emerson intends 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 intends 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, VCPs,
TV/VCR combination units, home stereo and portable audio products
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."
The Company successfully restructured its financial position
through the Plan of Reorganization. Through the Restructuring,
the Company reduced its institutional debt by approximately $203
million. Additionally, the Company increased its net sales by
34% in Fiscal 1995, the fiscal year immediately following its
emergence from bankruptcy, as compared to the prior fiscal year.
Also, since Fiscal 1993, the Company has reduced its annual fixed
operating costs by more than 50%.
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. 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. See
"Business - Properties."
Restructuring of the Company
In 1990, the Company defaulted on certain covenants in the
loan documents evidencing significant payment obligations to the
Noteholders. The Company subsequently, through several different
management teams, attempted for approximately three and a half
years to restructure such debt, as well as its lines of credit
with the Bank Lenders. No agreement could be reached with such
creditors. New management of the Company, consisting largely of
the current management of the Company, took control of the
Company's operations in July 1992. On September 29, 1993, the
Company and five of its domestic subsidiaries filed voluntary
petitions for relief under the Bankruptcy Code based upon an
agreement reached by the new management with the Bank Lenders.
On March 31, 1994, the Court entered an order confirming the Plan
of Reorganization implementing such agreement, which became
effective on such date. During the pendency of the proceedings,
the Company continued its operations in the ordinary course of
business. The Company was able to retain most of its senior
management and believes it maintained customer and supplier
goodwill and the confidence of its employees.
The principal components of the Plan of Reorganization
included the following:
The payment of $75 million to the Bank Lenders and the
Noteholders.
The issuance of (i) Common Stock of the reorganized
Company, such that the Bank Lenders and Noteholders
possess 10% of the Company's outstanding Common Stock
upon the effective date of the Plan of Reorganization
and subsequent to the completion of the offering
(described below) contemplated by the Plan of
Reorganization, (ii) 10,000 shares of Series A
Preferred Stock to the Bank Lenders and Noteholders,
having a face value of $10 million, and (iii)
Creditor's Warrants to the Noteholders to purchase
750,000 shares of Common Stock. See "Description of
Other Securities."
The issuance to Fidenas International, Elision and
GSE, upon the payment to the Company of $30 million, of
an aggregate of 90% of the Company's then outstanding
shares of Common Stock.
The transfer by the Company to a liquidating trust
established for the benefit of the Bank Lenders and
Noteholders of certain assets consisting of real estate
in Princeton, Indiana, and the Company's rights with
respect to certain anti-dumping duty receivables.
On the effective date of the Plan of Reorganization,
all then existing shares of common stock, stock options
and warrants were terminated and canceled.
Stockholders of the debtor company and third parties
(to the extent that the existing stockholders of the
debtor company did not purchase all of the offered
stock) were given the opportunity to purchase, at $1.00
per share, up to 15 million shares of Common Stock,
constituting approximately 30% of the outstanding
Common Stock of the Company, assuming a fully-
subscribed offering (6,149,993 shares of Common Stock
were sold in such offering).
The Company reincorporated under the laws of Delaware.
The payment of up to an aggregate of $1,850,000 of the
net proceeds of the offering to certain of the
Company's creditors.
The Plan of Reorganization effected a recapitalization of
the Company. After giving effect to the Plan of Reorganization:
The Company's total consolidated institutional debt
owed to its secured bank lenders and insurance company
noteholders was reduced by approximately $203 million,
from approximately $223 million immediately prior to
the effective date, to approximately $20 million
immediately subsequent to the effective date, which
consisted primarily of advances pursuant to a secured
revolving credit facility. The holders of the
prepetition institutional debt acquired 10% of the
Common Stock in connection with the Restructuring.
At the Plan of Reorganization's effective date,
stockholders' equity increased to approximately $42.6
million.
Commencing in early 1993 and continuing through the
reorganization proceedings, the Company successfully instituted a
series of downsizing and outsourcing measures to reduce the fixed
costs of the core consumer electronics business. As a result of
the outsourcing of several functions and the elimination of fixed
costs associated with such functions, the Company was able to
achieve a reduction in annual fixed costs from approximately
$59.1 million in the fiscal year ended 1993 to an anticipated
$25.7 million for the fiscal year ending in 1996, although there
can be no assurances that such reductions will be realized.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the
resale of any Debentures or sale of the shares of the Underlying
Common Stock by any of the Selling Securityholders. The Company
has and intends to use the proceeds from the initial sale of the
Debentures by the Company as described in "Management's
Discussion and Analysis of Results of Operations and Financial
Condition - Subsequent Events."
CAPITALIZATION
The following table sets forth the capitalization of the Company
as of June 30, 1995, and as adjusted to give effect to the issuance by
the Company of $20,750,000 of Debentures and the initial application
of $19,373,000 of estimated net proceeds therefrom. This table should
be read in conjunction with the Consolidated Financial Statements, set
forth elsewhere in this Prospectus.
As of June 30, 1995
Actual As Adjusted
Short-term debt $ 25,677 $ 6,304
Long-term debt $ 193 $ 20,943
Shareholders' Equity (1):
Preferred stock, $0.01 par
value, 1,000,000 shares
authorized, 10,000 issued and 9,000 9,000
outstanding Common stock,
$0.01 par value, 75,000,000
shares authorized, 40,252,772
shares 403 403 issued and outstanding; 403 403
Capital in excess of par value 107,969 107,969
Accumulated deficit (65,662) (65,662)
Cumulative translation adjustment 234 234
adjustment
Total shareholders' equity 51,944 51,944
Total capitalization $ 52,137 $ 72,887
________________
(1) Does not include an aggregate of 3,550,000 shares of
Common Stock issuable upon exercise of (i) 1,890,000
outstanding options exercisable at a weighted average exercise
price of $1.03 per share; (ii) 750,000 outstanding seven-year
warrants exercisable at an exercise price of $1.00 per share
until March 31, 1997 and escalating $0.10 per share per annum
thereafter until expiration (March 31, 2001); (iii) 410,000
options available for issuance under the Company's stock
option plans; and (iv) 500,000 outstanding five-year warrants
at an exercise price of $3.9875 per share granted to the
Placement Agent and its authorized dealers in connection with
the private placement of Debentures. Also does not include
shares of Common Stock issuable (i) from and after March 31,
1997, upon conversion of $10 million of Series A Preferred
Stock at a price equal to 80% of the average market value of a
share of Common Stock at the time of conversion; and (ii) upon
Conversion of the Debentures.
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. Previously, the Company
had changed its fiscal year-end from March 31 to December 31, beginning
with the period ended December 31, 1990. The following table sets forth
selected consolidated financial data of the Company for the years ended
March 31, 1995, 1994 and 1993, the three months ended March 31, 1992, the
year ended December 31, 1991 and the nine months ended December 31, 1990.
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 Prospectus.
Nine Three Three Three
Months Year Months Year Year Year Months Months
Ended Ended Ended Ended Ended Ended Ended Ended
Dec.31, Dec. 31, Mar.Dec. 31, Mar.31, Mar. 31, Mar. 31, Mar. 31 June 30, June 30,
1990 1991 1992 1993 1994 1995 1994 1995
(In thousands, except per share and ratio data)
Summary of Operations:
Net Sales:
Core Business $528,809 $716,651 $169,936 $741,357 $487,390 $654,671 $137,140 $57,058
Personal
Computers and Other 96,609 73,555 1,562 - - - - -
625,418 790,206 171,498 741,357 487,390 654,671 137,140 57,058_______ _______ _______ ______ ______
Other $625,418 $790,206 $171,498 $741,357 $487,390 $654,671 $137,140 $57,058
Net Earnings (Loss) (1):
Before Extraordinary
Gain $(37,463) $(60,746)$(60,746) $(6,976)$(56,000) $(73,654)$ 7,375 (2,894) $( 2,894)$(1,401)
Extraordinary Gain ________ ________ _______ _________ 129,155_______ ______ _______ _______ (37,463) $(60,746)________ _______
$(37,463)$(60,746) $(6,976)$(56,000) $(73,654)$ (56,000) 55,501 7,375 (2,894) $( 2,894)$(1,401)
Per Common Share:
Net Earnings
(Loss) Per Common
Share (1) (3):
Before Extraordinary
Gain $(1.03) (1.60)$ (1.03) $(1.60) $ (0.18) $ (1.47) (1.93) $$(1.93) 0.16 $(0.09) $(0.09) (0.03)
Extraordinary Gain ________ ______ ________ _____ 3.38 _____ _____ _____
_______ 3.38 _______ ______ _______
$(1.03) (1.60)$ (1.03) $(1.60) $ (0.18) $ (1.47) 1.45 $$(1.93) 0.16 $(0.09)(0.09) (0.03)
Weighted Average
Number of Common and
Common Equivalent
Shares Outstanding $36,51936,519 37,897 37,968 38,179 38,191 46,571 33,333 40,253
Common Shareholders'
Equity (Deficit((4)(Deficit(4) 1.78 0.12 (0.04) 1.52) $ (0.04)0.98 $ (1.52) 0.98 1.08 $ 0.88 1.04
Ratio of Earnings
(Loss) to Combined
Fixed Charges and
( 1.85)Preferred Stock
Dividends (1.85) (2.21) (0.60) (2.03) (6.16) 2.92 (3.74) (0.86)
Preferred Stock Dividends
Coverage Deficiency 13,978 18,546$13,978 $18,546 4,217 18,257 10,243$18,257 $10,243 -- 635$ 6.35 $ 803
December 31, March 31, June 30, 1995
As
1990 1991 1992 1993 1994 1995 Actual Adjusted(5)
Balance Sheet Data:
Total Assets $300,366 $226,131 $ 216,693$216,693 $194,510 $119,021 $113,969 $103,422 $104,799
Current LiabilitiesLiabilities(2) 232,220 218,504 215,069 249,307 76,083 59,782 50,961 31,588
Long-Term Debt (2) 60 130 157 151 227 214 193 20,943
Shareholders' Equity
(Deficit) 65,139 4,550 ( 1,480)(1,480) (57,895) 42,617 53,651 51,944 51,944
Working Capital
(Deficit) 31,111 (29,503) (36,003) (89,949) 32,248 42,598 39,871 59,244
Current Ratio 1.1 to 1 0.9 to 1 0.8 to 1 0.6 to 1 1.4 to 1 1.7 to 1 1.8 to1to 1 2.9 to 1
______________________________
(1) The net earnings for Fiscal 1994 include an extraordinary
gain of $129,155,000, or $3.38 per common share, on the
extinguishment of debt settled in the Plan of Reorganization.
Additionally, the Company recorded reorganization expenses of
$17,385,000 relating primarily to the writedown of assets
transferred to creditors under the Plan of Reorganization and
professional fees and other related expenses incurred during
the bankruptcy proceedings. The results of operations for
Fiscal 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 Fiscal 1993 also include
costs related to the Company's proxy contest settled in June
1992. The year ended December 31, 1991 also includes charges
related to the discontinuance of the H.H. Scott domestic
business.
(2) The aggregate outstanding principal balance of the
Company's senior notes has been classified as current as of
March 31, 1993 and 1992, and December 31, 1991 and 1990.
(3) Net earnings (loss) per common share for all periods,
except Fiscal 1995 and the three months ended June 30, 1994
and 1995, are based on the weighted average number of old
common shares outstanding during each period. Net earnings
per common share for Fiscal 1995 is based on the weighted
average number of shares of new Common Stock and related
common stock equivalents outstanding during the year. Common
Stock equivalents include 9,081,000 shares assuming conversion
of $10 million of Series A Preferred Stock at a price equal to
80% of the weighted average market value of a share of Common
Stock, determined 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. Net loss per common share for
the three months ended June 30, 1994 and 1995 is based on the
weighted average number of shares of new Common Stock
outstanding during each period. The net loss per share for
both periods does not include common stock equivalents assumed
outstanding since they are anti-dilutive.
(4) Calculated based on common shareholders' equity
(deficit) divided by actual shares of Common Stock
outstanding. Common shareholders' equity at March 31, 1994
and 1995 and June 30, 1994 and 1995 are equal to total
shareholders' equity less $10 million for the liquidation
preference of the Series A Preferred Stock.
(5) Balance sheet data is adjusted to give effect to the
initial application of the estimated net proceeds of
$19,373,000 from the issuance of $20,750,000 of Debentures.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
General
On March 31, 1994, the Company emerged from bankruptcy
pursuant to the Plan of Reorganization which resulted in a net
reduction of approximately $203 million in institutional debt,
cancellation of the Company's old common stock and other
equity, the issuance of 30 million shares of Common Stock for
$30 million and the issuance of certain equity securities to
certain of the Company's former creditors. The Restructuring
substantially reduced the Company's debt service costs and
significantly improved the Company's financial condition. The
Company experienced a significant improvement in its United
States sales in Fiscal 1995 over Fiscal 1994. However, the
Company expects sales for Fiscal 1996 to decline from Fiscal 1995
due to a license agreement entered into with the Company's
largest supplier (as described below).
On February 22, 1995, the Company and Otake, the Company's
largest supplier, entered into two mutually contingent agreements
(the "Agreements"). Effective March 31, 1995, the Company
granted a license of certain trademarks to Otake for a three-year
term. The license permits Otake to manufacture and sell certain
video products under the "Emerson and G-Clef" trademark to
Wal-Mart, the Company's largest customer, in the United States and
Canada. As a result, the Company will receive 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 Wal-Mart
accounted for approximately 47% of consolidated net sales for Fiscal
1995. The Company will continue to supply other products to Wal-Mart
directly. Further, the Agreements provide that Otake 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 Otake to be credited against royalties earned from sales
of VCRs, VCPs, TV/VCR combination units, and color televisions to
Wal-Mart. In addition, effective August 1, 1995, Otake assumed
responsibility for returns and after-sale and warranty services
on all video products manufactured by Otake and sold to Wal-Mart,
including video products sold by the Company prior to August 1,
1995. As a result, the impact of sales returns on the Company's
net sales and operating results are expected to be significantly
reduced commencing with the second quarter of Fiscal 1996. The
Company has reported lower direct sales in the quarter ended June
30, 1995 and expects to report lower direct sales in Fiscal 1996
as a result of the Agreements, but no negative material impact is
expected on its net operating results for such year. The Company
expects to realize a more stable cash flow over the three-year
term of the Agreements, and expects to reduce short-term
borrowings used to finance accounts receivable and inventory,
thereby reducing interest costs.
The Company reported a significant decline in its net
direct sales for the first quarter of Fiscal 1996 as compared to
the same period in Fiscal 1995 primarily due to the licensed
video sales. However, the Company's United States sales to other
customers also declined in the current quarter due to increased
price competition, primarily in video product categories, higher
retail stock levels, a slowdown in retail activity and the higher
levels of sales achieved in the first quarter of Fiscal 1995.
The Company expects its United States sales for the second
quarter of Fiscal 1996 to remain comparable with the second
quarter of Fiscal 1995, exclusive of the licensed video sales.
Net sales of video product to Wal-Mart in the second quarter of
Fiscal 1995 (quarter ended September 30, 1994) were $104,357,000,
or 53% of consolidated net sales.
The Company's operating results and liquidity are impacted
by the seasonality of its business. The Company records the
majority of its annual sales in the quarters ending September 30
and December 31 and receives the largest percentages of customer
returns in the quarters ending March 31 and June 30. Therefore,
the results of operations discussed below are not necessarily
indicative of the Company's prospective annual results of
operations.
Results of Operations --Three-- Three Months Ended June 30,
1995 Compared With Three Months Ended
June 30, 1994
Consolidated net sales for the three month period ended June
30, 1995 decreased $80,082,000 (58%) as compared to the same
period in Fiscal 1995. The effects of the Agreements described
above accounted for approximately 80% (or $64,452,000) of the
decrease in sales, net of licensing revenues received, and as a
result, sales to Wal-Mart were reduced to 16% of consolidated net
sales for the first quarter of Fiscal 1996, as compared to 49%
for the same period in Fiscal 1995. Net sales to Wal-Mart of
video products bearing the "Emerson and G-Clef" trademark was reported
by Otake to the Company to be $61,307,000 for the first quarter of
Fiscal 1996. In addition, the decrease resulted from lower unit
sales of VCRs, televisions and TV/VCR combination units due to higher
retail stock levels and increased price competition in these
product categories. Furthermore, the Company's European sales
decreased $6.5 million relating to the Company's discontinuance
of its Spanish branch office, and plan to sell products in Spain
through a distributor. See "Certain Relationships and Related
Transactions."
Cost of sales, as a percentage of consolidated sales, was
89% for the three month period ended June 30, 1995 as compared to
94% for the same period in Fiscal 1995. Gross profit margins in
the three month period ended June 30, 1995 were favorably
impacted by a change in product mix, the recognition of licensing
income, reduced reserve requirements for sales returns due
primarily to the Agreements with Otake, and reduced fixed costs
associated with the downsizing of the Company's foreign offices,
partially offset by lower sales prices.
Other operating costs and expenses declined $1,135,000 in
the three month period ended June 30, 1995 as compared to the
same period in Fiscal 1995, primarily as a result of a decrease
in compensation expense and other expenses incurred to process
product returns, both relating to the Company's downsizing
program and change in the resale arrangement for product returns.
Selling, general and administrative expenses ("S, G & A") as
a percentage of sales, was 9% for the three month period ended
June 30, 1995, as compared to 6% for the same period in Fiscal
1995. In absolute terms, S,G&A decreased by $2,613,000 in the
three month period ended June 30, 1995 as compared to the same
period in Fiscal 1995. The decrease was primarily attributable
to lower compensation expense relating to the Company's
downsizing program in both the United States and in its foreign
offices, and lower selling expenses attributable to the lower
sales. The increase in the S,G&A percentage of sales is due
primarily to the allocation of fixed S,G&A costs over a
significantly lower sales base resulting from the licensing of
video sales. 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 $432,000 and $401,000 in the three month periods
ended June 30, 1995 and 1994, respectively.
Interest expense increased by $168,000 in the three month
period ended June 30, 1995 as compared to the same period in
Fiscal 1995. The increase in interest expense in the current
quarter was attributable to higher average borrowings and higher
interest rates. The average rate in effect for the three month
periods ended June 30, 1995 and 1994 was approximately 11.3% and
9.1%, respectively.
As a result of the foregoing factors, the Company incurred a
net loss of $1,401,000 for the three month period ended June 30,
1995, compared to a net loss of $2,894,000 for the same period in
Fiscal 1995.
Results of Operations -- Fiscal 1995 Compared with Fiscal 1994
Consolidated net sales 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 sales for Fiscal 1995. The Company's Canadian
operations experienced a decline in net sales 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 sales, 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 sales 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.
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,
joint ventures or on its own.
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 sales, 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. In Fiscal 1996,
the Company intends to reduce its foreign currency exposure by
conducting its European business in U.S. dollars.
The Company has implemented additional cost reductions in
the first quarter of Fiscal 1996 by reducing the infrastructure
of its foreign offices, which should improve the Company's
operating results in Fiscal 1996.
Interest expense decreased $7,361,000 in Fiscal 1995 as
compared to Fiscal 1994. The decrease was attributable to the
extinguishment 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 Fiscal 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.
Results of Operations -- Fiscal 1994 Compared with Fiscal 1993
Consolidated net sales for Fiscal 1994 decreased
$253,967,000 as compared to Fiscal 1993, resulting from a
significant decrease in unit sales of VCR/VCP and television
products, as well as lower sales prices for the same product
categories. The sales decline was attributable to the effect of
the Restructuring and the Company's financial condition on the
retailers' perception of the Company, a cautious outlook
maintained by retailers over inventory levels, excess stock at
the retail level and increased price competition in the Company's
major product categories.
Cost of sales, as a percentage of consolidated sales, was
approximately 100% for Fiscal 1994 as compared to approximately
91% for Fiscal 1993. Gross profit margins were negatively
impacted by a $6.3 million increase in the reserve for sales
returns and were impacted further by the allocation of fixed
overhead costs over a significantly lower sales base, sales price
decreases which were in excess of price reductions received from
suppliers, and significant costs and inventory writedowns
associated with product returns. Additionally, gross margins
earned by the Company's foreign operations were adversely
impacted by a decline in the Canadian dollar and Spanish peseta
of 9% and 16%, respectively, from March 31, 1993 to March 31,
1994. Although the Company entered into foreign currency
contracts to minimize its exposure to foreign currency
fluctuations in Europe, it lacked the necessary working capital
to hedge all its foreign currency commitments.
Other operating costs and expenses declined $7,025,000 in
Fiscal 1994, as compared to Fiscal 1993, primarily as a result of
a reduction in compensation costs relating to the Company's
downsizing program and lower warranty expenses associated with
the decline in the Company's net sales.
S,G & A, as a percentage of sales, was 7% for Fiscal 1994
and Fiscal 1993. In absolute terms, S,G&A & A decreased by
$14,956,000 in Fiscal 1994 as compared to Fiscal 1993. In terms
of actual cost, the decrease in Fiscal 1994 was primarily
attributable to lower variable selling expenses, including
decreases in promotional allowances granted to customers, sales
commissions, facility and compensation costs relating to the
Company's downsizing program and a decrease in reserves against
the Company's accounts receivable.
Interest expense decreased by $8,014,000 in Fiscal 1994 as
compared to Fiscal 1993. The decrease was attributable to the
moratorium on interest accrued on pre-petition indebtedness for
the six month period ended March 31, 1994. Interest expense was
only accrued and paid on the Company's debtor-in-possession
financing during the pendency of the bankruptcy proceedings.
During Fiscal 1993, the Company recorded restructuring and
other nonrecurring charges aggregating $35,002,000. The
provision included $31.9 million of charges related to the
Company's core business operations of consumer electronics
products. These charges are primarily comprised of certain costs
associated with the consolidation of facilities, severance of
employees ($3,967,000 provision for termination of officers and
other employees), the writedown of certain assets, a provision
relating to a significant change in the resale arrangement for
returned product, and professional fees and other charges related
to the Company's proposed financial restructuring and to the
proxy contest settled in June 1992. The provision also included
$3.1 million in charges relating to the final wind-down of the
Company's personal computer business.
In Fiscal 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 Restructuring.
As a result of the foregoing factors, the Company earned
$55,501,000 for Fiscal 1994, compared to a net loss of
$56,000,000 for Fiscal 1993.
Liquidity and Capital Resources
Net cash provided by operating activities was $1,428,000 for
the three months ended June 30, 1995. Cash was provided by a
decrease in accounts receivable partially offset by a loss from
operations. The decrease in accounts receivable was due to a
decrease in sales and an increase in cash collections in the
current quarter.
Net cash utilized by investing activities was $1,177,000 for
the three months ended June 30, 1995. Investing activities
consisted primarily of capital expenditures for the purchase of
new product molds.
In the three months ended June 30, 1995, the Company's
financing activities utilized $2,797,000 of cash. The Company
reduced its borrowings under its United States line of credit
facility by $2,077,000 through the collection of accounts
receivable.
Net cash utilized by operating activities was $20,974,000
for Fiscal 1995. Cash was utilized to purchase inventory for
sale which resulted in increased sales and accounts receivable.
The increase in accounts receivable also reflects sales of
returned product to a 50% owned joint venture that has a net
payable to the Company of $15,283,000 at March 31, 1995. See
"Business - Refurbished Products." Further, a reduction in
accounts payable to the Company's largest supplier (as noted
below) and a reduction of a large customer's credit balance,
negatively impacted cash.
Net cash provided by investing activities was $5,691,000 for
Fiscal 1995. Investing activities consisted primarily of a
redemption of pledged certificates of deposit, net of capital
expenditures, primarily for new product molds. The redemption of
the pledged certificates of deposit relates primarily to a draw-
down of an $8 million standby letter of credit by the Company's
largest supplier against a certificate of deposit for the same
amount, fulfilling commitments made during the Restructuring.
In Fiscal 1995, the Company's financing activities provided
$10,680,000 of cash. The Company increased borrowings under its
U.S. line of credit facility by $7,256,000 to finance the higher
accounts receivable levels and reduce accounts payable.
Additionally, the Company generated net proceeds of $5,692,000
from an initial public offering of Common Stock, as described
below.
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 Bank Lenders received $70 million in cash and
the right to receive the initial $2 million of net proceeds
from the Company's anti-dumping duty receivable.
II. 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 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
Company's anti-dumping duty receivable 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 Fidenas Investment Limited ("FIL"). 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 $5,692,000.
The Company maintains an asset-based revolving credit
facility with a U.S. financial institution (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. Credit extended under the line is secured by
the U.S. and Canadian assets of the Company. Until August 24,
1995, the interest rate on these borrowings was 2.25% above the
prime rate. "Management's Discussion and Analysis of Results of
Operations and Financial Condition - Subsequent Events." At June
30, 1995, the weighted average interest rate on the outstanding
borrowings was 11.25%. The facility is also subject to an unused
line fee of 0.5% per annum. Pursuant to the terms of this credit
facility, 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). The Company is required to maintain a
minimum net worth of $42,000,000, excluding net proceeds received
by the Company from the sale of equity securities, which minimum
will increase to $50,000,000, effective January 1, 1996. At June
30, 1995, there was approximately $25.2 million outstanding under
the revolving loan facility, and approximately $2.1 million of
outstanding letters of credit issued for inventory purchases.
Based on the "Borrowing Base" amount at June 30, 1995, $2,939,000
of the credit facility was not utilized.
The Company's Hong Kong subsidiary maintains various credit
facilities aggregating $114.3 million with a bank in Hong Kong
consisting of the following: (i) a $12.3 million credit facility
which is generally used for letters of credit for a foreign
subsidiary's direct import business and affiliates' inventory
purchases, (ii) a $2 million standby letter of credit facility,
and (iii) a $100 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
June 30, 1995, 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 June 30, 1995, there
were $11.9 million and $9.9 million, respectively, of letters of
credit outstanding under the $12.3 million and $100 million
credit facilities.
The Company's Hong Kong subsidiary maintains an additional
credit facility with another bank in Hong Kong. The facility
provides for a $10 million line of credit for documentary letters
of credit and a $10 million back-to-back letter of credit line,
collateralized by a $5 million certificate of deposit. At June
30, 1995, the Company's Hong Kong subsidiary had pledged $5.1
million in certificates of deposit to assure the availability of
these credit facilities. At June 30, 1995, these credit
facilities were not utilized.
Management's strategy to compete more effectively in the
highly competitive consumer products market in the United States
and Canada, is to combine innovative approaches to the Company's
current product line, such as value-added promotions, augment its
product line with higher margin complementary products, including
personal and home security products, a home theater system, ready-
to-assemble furniture, clocks and watches, and car audio products
and engage in the sale of distribution, sourcing and other
services to third parties. Management believes that these new
products and services will contribute to the Company's sales and
operating results commencing in the second half of Fiscal 1996.
The Company also 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 through license arrangements, partnerships or joint
ventures.
In Fiscal 1995, the Company 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.
Short-Term Liquidity. At present, management believes that
cash flow from operations, the institutional financing noted
above and the sale of Debentures described below will be
sufficient to fund all of the Company's cash requirements for the
next year for its core business and to exploit new business
opportunities. The Company has also restructured its United
States secured credit facility as described below. Cash flow
from operations will be negatively impacted by any increase in
the prime rate of interest and by a decrease in the proportion of
the Company's direct import sales to consolidated sales. A lower
percentage of direct import sales will require increased use of
the Company's United States secured credit facility with the
Lender and may restrict growth of the Company's sales.
The Company's liquidity is also impacted by the seasonality
of its business. The Company records the majority of its annual
sales in the quarters ending September 30 and December 31. This
requires the Company to open significantly higher amounts of
letters of credit during the quarters ending June 30 and
September 30, therefore significantly increasing the Company's
working capital needs during this period. Additionally, the
Company receives the largest percentage of customer returns in
the quarters ending March 31 and June 30. The high level of
returns during this period adversely impacts the Company's
collection activity during this period, and therefore its
liquidity. The Company believes that its recent Agreements with
Otake (as noted above) should favorably impact the Company's cash
flow over the three-year term of the Agreements.
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 cash flow
from operations will provide sufficient liquidity to meet the
Company's operating and debt service cash requirements on a
long-term basis for its current core 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 the three months ended June 30, 1995, Fiscal
1995, Fiscal 1994 or Fiscal 1993. 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 has raised the costs of certain raw materials and
subassemblies of the Company's suppliers which has been passed on
to the Company in the form of price increases in Fiscal 1996.
There can be no assurance that the Company will be able to
recover such price increases from the selling price to its
customers. To mitigate the impact of the Yen, the Company has
been able to negotiate lower prices from new sources of supply
for certain audio products commencing primarily in the second
half of Fiscal 1996.
Subsequent Events
On August 30, 1995, the Company completed its private
placement of $20,750,000 aggregate principal amount of Debentures
to certain QIBs and institutional Accredited Investors, resulting
in net proceeds to the Company of approximately $19,373,000 after
the payment of commissions and other expenses of such offering.
The proceeds of this offering initially were used to reduce the
Company's United States secured credit facility. As of September
15,October
16, 1995, there was approximately $19.5$26.4 million of such
outstanding Senior Indebtedness.
The Company currently intends to utilize a portion of the
net proceeds of such offering or, alternatively, availability
under such United States secured credit facility, as follows: (i)
repayment of an intercompany balance with a foreign subsidiary;
(ii) finance development of a home theatre system; (iii) finance
development of the "H.H. Scott" product line; (iv) finance
development of an Emerson mobile audio product line; (v) working
capital; and (vi) acquisitions. To date, the Company does not
have any signed contracts, letters of intent, or agreements in
principle with respect to any acquisitions and is not currently
engaged in any significant negotiations to make any such
acquisition.
The allocation of net proceeds from the offering of the
Debentures by the Company set forth in this Prospectus represents
the Company's current estimates based upon its present plans and
certain assumptions, including plans and assumptions regarding
the Company's business and assumptions regarding the industry and
general economic and other conditions. If any of those factors
change, the Company may find it necessary or advisable to
reallocate some of the proceeds for other purposes.
The Company has also amended its United States secured
credit facility 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 trademarks are subject to a
negative pledge covenant. The modifications to its United States
secured credit facility, together with the net proceeds from the
sale of the Debentures, should enable the Company to
significantly reduce its costs of borrowings while permitting the
Company to expand its product lines and distribution base as
described above.
BUSINESS
General
Emerson, one of the nation's largest volume consumer
electronics distributors, directly and through subsidiaries,
designs, sources, imports and markets a variety of video and
audio consumer electronics and microwave oven products. The
Company distributes its products primarily through mass merchants
and discount retailers, leveraging on the strength of its "Emerson and
G-Clef" trademark, a nationally recognized trade name in the consumer
electronics industry. The trade name "Emerson Radio" dates back
to 1912 and is one of the oldest and most well respected names in
the consumer products industry. In addition, the Company offers
a line of audio products for sale under the "H.H. Scott" brand
name. Approximately $15 billion of factory sales are generated
by the industry in the market segment in which the Company
competes. In calendar year 1994, Emerson believes it was among
the top three brand names in unit sales volume of VCRs and TV/VCR
combinations and among the top five brand names in unit sales
volume of color televisions.
The Company believes it possesses an advantage over its
competitors due to the combination of the Emerson brand
recognition, its extensive distribution base and established
relations with customers in the mass merchant and discount retail
channels of distribution, its sourcing expertise and established
vendor relations, and an infrastructure boasting personnel
experienced in servicing and providing logistical support to the
domestic mass merchant distribution channel. Emerson intends 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 intends 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, VCPs,
TV/VCR combination units, home stereo and portable audio products
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.
The Company successfully restructured its financial position
through the Plan of Reorganization. Through the Restructuring,
the Company reduced its institutional debt by approximately $203
million. Additionally, the Company increased its net sales by
34% in Fiscal 1995, the fiscal year immediately following its
emergence from bankruptcy, as compared to Fiscal 1994. Also,
since Fiscal 1993, the Company has reduced its annual fixed
operating costs by more than 50%. See "The
Company - Restructuring of the Company."
Industry
Consumer electronics products play a major role in the
entertainment, information and education industries and provide
consumers with affordable options in these areas. Based on
industry sources, sales of consumer electronics products set all
time sales records in 1994, with estimated factory sales of
approximately $55.9 billion.
The consumer electronics industry comprises over 30
different categories of products. Of these, the largest
categories are personal computers, color televisions, auto sound,
computer peripherals, electronic software, VCRs, portable audio,
batteries, computer software, camcorders, audio systems and
telephone products. These categories represent $38.3 billion of
factory sales, or approximately 69% of the consumer electronics
industry. The specific product categories in which the Company
competes represent approximately $15 billion of factory sales, or
approximately 25% of the consumer electronics industry.
The consumer electronics industry factory sales data shown
in the table below are based on information provided by the
Electronics Industries Association:
Consumer Electronics Industry
Annual Factory Sales Dollars
Calendar 1991-1995
(Billions)
1991 1992 1993 1994 1995
Actual Actual Actual Estimated Projected
$42.08 $46.2 $51.03 $55.9 $59.8
Emerson sells a wide range of video, audio and microwave
oven products. The Company's significant sales volume is the
result of offering what management believes are well featured,
value priced products primarily to mass merchants, warehouse
clubs and catalog showrooms.
Company Products
The Company directly and through subsidiaries designs,
sources, imports and markets a variety of video and audio
consumer electronics and microwave oven products, primarily on
the strength of its "Emerson and G-Clef" trademark, a nationally
recognized symbol in the consumer electronics industry. The
Company's core business currently consists of the following video
and audio product categories as well as microwave ovens:
Video Products Audio Products
Color Televisions Shelf systems
Black and White Specialty CD stereo systems
Televisions
Color Specialty Televisions Portable audio,
cassette and CD systems
Color TV/VCR Combination UnitUnits AM/FM Bicycle radios
Video Cassette Recorders Personal audio,
cassette and CD
systems
Speciality Video Cassette Players Digital clock radios
Televisions:
Management believes that market saturation for color
televisions is extensive and that more than one-half of its
television sales will be replacement sets. Emerson intends to
capitalize on its strength in the small screen categories while
moving into the growing and more profitable larger screen sizes.
Emerson will continue to offer innovative new features and
contemporary styling.
VCRs and Combination Units:
Approximately 85% of all U.S. households have at least one
VCR. Industry sales reporting practices appear to indicate
modest growth rates in VCRs, with consumers purchasing both stand-
alone VCRs and the TV/VCR combination product. Emerson was one
of the first companies to sell VCRs through the discount store
channel of distribution. As the category began to mature, the
discount store channel experienced explosive sales growth,
resulting in a large market share for the "Emerson and G-Clef"
brand. In 1988, Emerson introduced the industry's first
TV/VCR combination product in the United States market. Since
that time, the Company has remained among the industry leaders.
The Company intends to maintain its leadership position
through the introduction of new, larger screen sizes and trendy
fashion colors in small screen models.
Audio:
Emerson competes in the following product categories within
the audio segment:
Clock Radios: In the clock radio category, Emerson
maintains a strong market share. The Company was one of the
first to offer models with large clock displays and continues to
introduce new products.
Headphone Stereo: Portable headset audio sales have
remained flat in the 1990's and this trend is expected to
continue. The Company is also developing a line of "active
series" products to tap into the fitness trend in the United
States.
Personal CD: With sales increases of 32% in 1994 and 18%
projected (based upon management's best estimate) in 1995, the
personal compact disc market continues to expand. Beginning in
1995, Emerson will introduce new products and programs to attempt
to gain a stronger position in this market.
Non-CD Portable Stereo: While the total "Boombox" category
is growing due to the strong sales of CD units, non-CD sales have
been declining rapidly. While maintaining a dominant position in
the entry level product area, the Company will attempt to expand
its presence in step-up products.
Portable CD/Radio/Cassette: The Company will increase its
emphasis on CD's. Emerson will offer CD combination models with
step-up features, while attempting to price such products below
its competition.
Shelf Systems: Shelf systems remain a growth area for the
industry. The category has dramatically shifted to digital with
93% of the unit sales in CD based systems in 1994.
Microwave Ovens:
The microwave category allows Emerson to merchandise its
products and promote its brand name in other departments. As a
result, the "Emerson and G-Clef" brand name is known in housewares
and appliance departments.
Emerson will maintain its focus in the under $150 price
range. The Company will attempt to gain market share by offering
better styled products with more features and greater dealer
margin, in conjunction with "Emerson and G-Clef" brand name
recognition to enhance sales to entry level purchasers. The Company
is also introducing ready-to-assemble furniture and home and
personal security products to complement its current product line.
Growth Strategy
The Company's strategic focus is to 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 ready-to-assemble furniture and home and
personal security products; capitalize on opportunities to
license the "Emerson and G-Clef" and "H.H. Scott" trade names;
leverage and exploit its sourcing capabilities, buying power and
logistics expertise in the Far East; and expand international
sales including not only core consumer electronic products but
also other consumer products such as ready-to-assemble furniture and
home and personal security products.
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 complementary 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
its largest supplier, a distributor of consumer electronics
accessories, a manufacturer of clocks and watches and the
Franklin Mint. See "Business - Licensing." Further, the Company
is currently involved in negotiations with different parties with
respect to additional similar transactions.
Sales and Distribution
The Company has implemented an integrated system to
coordinate the purchasing, sales and distribution segments of its
operations. The Company is equipped to receive 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) are shipped by ocean
freight and then stored in contracted public warehouse
facilities, for shipment to customers. Products manufactured by
vendors in Indiana are stored in public warehouses on an interim
basis until shipped to the Company's 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 the three
months ended June 30, 1995, Fiscal 1995 and Fiscal 1994, products
representing approximately 47%, 68% and 52% of net sales,
respectively, were imported directly from manufacturers to the
Company's customers. If the Company experiences a decline in the
percentage of sales effected through direct imports, its working
capital and inventory requirements may be incrementally affected.
See "Risk Factors" and "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 accounted for approximately 16%, 53% and 34%, and Target
Stores, Inc., accounted for approximately 10%, 10% and 12% of the
Company's net sales in the three months ended June 30, 1995,
Fiscal 1995 and Fiscal 1994, respectively. Net sales to Wal-Mart
for Fiscal 1995 and Fiscal 1994 include sales of certain video
products which are subject to a license/supply arrangement with
the Company's largest supplier, effective March 31, 1995. As a
result, the Company now reports royalty revenues attributable to
such sales, in lieu of reporting the full dollar values 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% and 21% of consolidated net sales in Fiscal 1995 and Fiscal
1994, respectively. See "Business-Licensing." No other customer
accounted for more than 10% of the Company's net sales during
these periods.
A portion of the Company's sales are made through sales
representative organizations which receive sales commissions and
work closely with Company sales personnel. The remainder of the
Company's sales are made to retail customers serviced principally
by Company sales personnel. The Company has six 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
California. 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 one through which approximately 13% and
10% of the Company's net sales were made in the three months
ended June 30, 1995 and Fiscal 1995, respectively. Additionally,
one other sales representative organization accounted for 14% of
the Company's net sales made in the three months ended June 30,
1995. No other sales representative organization accounted for
more than 10% of the Company's net sales in the three months
ended June 30, 1995 or Fiscal 1995.
Foreign Marketing
While the major portion of the Company's marketing efforts
are directed toward the United States, approximately 9% and 7% of
the Company's net sales in the three months ended June 30, 1995
and Fiscal 1995, respectively, were made to foreign customers in
Canada, Central and South America, Spain and the Middle East.
See Note M of Notes to Consolidated Financial Statements for
Fiscal 1995 and "Management's Discussion and Analysis of Results
of Operations and Financial Condition." The Company is expanding
its marketing and sales activities in certain international
geographic regions and has expanded such activities to cover
other parts of Europe, South America, the Far East and Mexico.
Licensing
The Company believes that 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 has successfully concluded licensing agreements with (i)
Otake for the sale of video products bearing the "Emerson and G-Clef"
trademark to Wal-Mart 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, (iii) Herald Holding Limited
("Herald"), a publicly-traded Hong Kong Company, for the
distribution of clocks and watches in the United States bearing
the "Emerson and G-Clef""r" trademark and (iv) the Franklin Mint for distribution of
classic Emerson Radio reproductions. The Company intends to
pursue additional licensing opportunities. See "Risk Factors"
and "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
Design and Manufacturing
The Company's design team is responsible for product
development and operates 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, Taiwan, China, Malaysia and Thailand. Certain
of the Company's products are also assembled by a contract
manufacturer in Indiana.
During the three months ended June 30, 1995, Fiscal 1995 and
Fiscal 1994, approximately 95%, 89% and 84%, respectively, of the
cost value of the Company's purchases consisted of imported
finished goods. Otake, a manufacturer headquartered in Japan,
supplied approximately 18%, 73% and 59%, respectively, of the
Company's total purchases in the three months ended June 30,
1995, Fiscal 1995 and Fiscal 1994. Approximately 52% and 30% of
the cost value of the Company's purchases in Fiscal 1995 and
Fiscal 1994, respectively, were video products purchased from
Otake and sold to Wal-Mart. As a result of the license/supply
arrangement with Otake, the Company expects to purchase a
significantly lower proportion of its finished goods from Otake
over the three-year term of the agreements. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition" and "Business-Licensing." The license/supply
arrangement also provides that Otake will supply the Company with
certain video products for sale to other customers at preferred
prices for a three-year term. Otake also sells a line of video
products under its Orion trademark. Kong Wah, a manufacturer
headquartered in Hong Kong, supplied approximately 10% of the
Company's total purchases in each of the three months ended June
30, 1995 and Fiscal 1994. Additionally, Daewoo Electronics Co.
Ltd., Imarflex, Mfg. Co., Ltd. and Musical Electronics Limited
accounted for approximately 22%, 21% and 14%, respectively, of
the Company's purchases during the three months ended June 30,
1995. No other supplier accounted for more than 10% of the
Company's total purchases during these periods. The Company
believes that, barring any unusual shortages or economic
conditions, it could develop alternative sources for any of the
products it currently purchases. Except with respect to the
Agreements with Otake, 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 the supplier or a reasonable
opportunity to seek alternate production facilities and component
parts. See "Risk Factors."
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. Warranties for
products sold internationally are, in certain cases, provided on
a region-by-region basis through local entities retained by the
Company.
Refurbished 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.
To improve profitability, effective April 1, 1994, the
Company formed a partnership ("Partnership") with Hopper Radio of
Florida, Inc. ("Hopper"), a major independent reseller of
consumer electronics products. The Company and Hopper each own a
50% interest in the Partnership. The Partnership was formed to
purchase (i) all returned consumer electronics products 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 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, and by potentially increasing the
Company's sales of new products to Mexico and Central and South
America. The Partnership's profits and losses are allocated
evenly. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition - Liquidity and Capital
Resources." 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."
In forming the Partnership, the Company contributed returned
product to the Partnership equal in value to the amount of
Hopper's initial cash contribution of $500,000. The Company also
agreed to (i) sell additional returned products to the
Partnership, pursuant to the terms of a sales agreement, (ii)
license to the Partnership its "Emerson and G-Clef" trademark
for sale of refurbished product worldwide and for sale of new
products in Mexico, Central and South America, (iii) provide the
Partnership with access to its vendors, (iv) relinquish its territories
for refurbished merchandise and (v) lease to the Partnership the
equipment to refurbish the returned merchandise. The partnership
agreement of the Partnership similarly provides that Hopper is
required to provide the Partnership with (i) the set price list
at which all merchandise shall be sold, to be approved in advance
by both partners, (ii) financing on terms to be agreed to by both
parties, and (iii) the physical location for refurbishing
activities at a rental rate of $2.00 per square foot, or as
otherwise agreed to by the parties.
The Company filed suit on July 5, 1995 in the State Court of
New Jersey alleging that Hopper, Barry Smith and three former
employees of the Company (collectively, the "Defendants") have
formed a business entity for the purpose of engaging in the
distribution of consumer electronics and that the action of the
Defendants in connection therewith violated certain duties owed
to and rights of the Company. The Partnership has continued to
operate since the filing of the lawsuit. The Company cannot
predict at this time how this suit will, if at all, affect the
Partnership or the Company.
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 from 1996 to 2008
and those registered in Canada must be renewed at various times
from 1995 to 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 also owns the
"Electrophonic" trademark and is studying the introduction of
this trademark on value priced audio products in fiscal year
1996. 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 Otake, Jasco,
Herald and the Franklin Mint on a limited basis. See "Business -
Licensing." The Company may not pledge the "Emerson and G-Clef"
trademark to secure indebtedness under its United States secured credit
facility or under the Indenture. See "Description of Debentures."
Competition
The market segment of the consumer electronics industry in
which the Company competes generates approximately $15 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 Tariff Act of 1930, as amended, the Trade
Act of 1974 and regulations promulgated thereunder, the United
States government charges tariff duties, excess charges,
assessments and penalties on many imports. These regulations are
subject to constant change and revision by government agencies
and by action by the United States Trade Representative and may
have the effect of increasing the cost of goods purchased by the
Company or limiting quantities of goods available to the Company
from its overseas suppliers. A number of states have adopted
statutes regulating the manner of determining the amount of
payments to independent service centers performing warranty
service on products such as those sold by the Company.
Additional Federal legislation and regulations regarding the
importation of consumer electronics products, including the
products marketed by the Company, have been proposed from
time-to-time and, if enacted into law, could adversely affect the
Company's results of operations.
Employees
As of September 15,October 18, 1995, the Company had 173 employees. The
Company considers its labor relations to be generally
satisfactory.
Properties
The Company, directly and through its subsidiaries, leases
warehouse and office space in New Jersey, California, Canada,
Georgia,
Missouri, the Far East and Spain under leases expiring at various
times from calendar 1995 to 1998, at minimum aggregate rentals as
follows:
Year Ending
March 31, (In Thousands)
1996 $1,507
1997 1,484
1998 1,071
1999 271
$4,333
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. The
cost for the public warehouse space is based on a fixed
percentage of the Company's sales from each respective location.
Such amounts are not included in the above table.
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
Plan of Reorganization. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition." The
Plan of Reorganization provides that unsecured creditors other
than the Bank Lenders and the Noteholders holding pre-petition
claims which are allowed, will receive unsecured promissory notes
in the principal amount equal to 18.3% of the allowed amount of
the claim; the notes will bear interest at a rate based on the
LIBOR rate for one year obligations, and are due and payable as
follows: (i) 35% of the outstanding principal is due 12 months
from the date of issuance, and (ii) the remaining balance is due
18 months from the date of issuance. The Company is presently
contesting claims submitted by several creditors.
The largest claim was filed on 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, the Company has
instituted an adversary proceeding in the Bankruptcy Court
asserting damages caused by Cineral. 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. An adverse final ruling on the Cineral
claim could have a material adverse effect on the Company, even
though liability of the Company 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 on
the Cineral claim 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. Discovery is currently proceeding. This
litigation was not affected by the bankruptcy proceedings.
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 on July 16, 1993.
On March 9, 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.
Discovery is proceeding. The Franchise Tax Board moved to
dismiss the adversary proceeding 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 to the District
Court of New Jersey. The District Court affirmed the order of
the Bankruptcy Court and the Company has filed a notice of appeal
with the Third Circuit. Subsequent to entry of the District
Court order, the California State Board of Equalization advised
the Company and the Franchise Tax Board of the opportunity and
deadlines to file additional papers with respect to the Notice of
Action.
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 additional adjustments for the
remaining years under examination.
Litigation Regarding Certain Outstanding Common Stock
Subsequent to confirmation of the Plan of Reorganization,
litigation arose among the principal shareholders of FIL, the
Company's largest shareholder prior to confirmation of the Plan
of Reorganization, with respect to various business relations and
transactions entered into between the shareholders, certain
affiliates and their principals, including Geoffrey Jurick, the
Company's Chairman and Chief Executive Officer, and Donald
Stelling, the former Chairman. Mr. Stelling resigned on December
2, 1993 from the Company's Board of Directors creating
uncertainty about the ability of FIL to honor its commitment to
the Company and the Bank Lenders to satisfy its obligations to
infuse $75 million in funds for the purpose of financing the
Restructuring. The $75 million commitment was made available by
Mr. Jurick and related companies, which utilized approximately
$15.2 million in funds which had been deposited by FIL into an
escrow account for the purpose of securing the Company's
Debtor-in-Possession financing obtained in connection with the
Restructuring. Management believes that, at the date of this
Prospectus, Messrs. Jurick and Peter Bunger, directors of the
Company, comprise the Board of Directors of FIL. The utilization
of the $15.2 million has been challenged by various Stelling
interests in three countries.
Proceedings were commenced in the Commonwealth of Bahamas
for the winding-up of FIL. The proceeding was brought by one of
its shareholders, a Bahamian entity controlled by Petra Stelling,
wife of Donald Stelling. The liquidator appointed by the
Bahamian Court for the winding-up of FIL commenced litigation
against Fidenas International and Mr. Jurick with respect to
claims arising from the acquisition of the Company's Common Stock
by GSE and Fidenas International.
The liquidator commenced ancillary proceedings in the United
States Bankruptcy Court pursuant to authorization granted by the
Bahamian Court for the purposes of, among other things, (i)
conducting discovery regarding the issuance of the shares of
Common Stock to Fidenas International, GSE and Elision and
utilization of the $15.2 million in funds which secured the
Company's Debtor-in-Possession Financing and (ii) restraining the
transfer, disposition or further encumbrance of any shares of the
Company owned by Fidenas International, GSE, and Elision issued
pursuant to the Plan of Reorganization. The ancillary proceeding
was dismissed by the Bankruptcy Court on February 16, 1995.
In addition to the litigation pending in the Bahamas and New
York, the Stelling interests have pursued Mr. Jurick and certain
business associates (including Mr. Bunger) and affiliates in
civil and criminal actions in Switzerland for various claims
relating to their business relationships and transactions. Based
on certain charges raised by the Stellings, the Swiss authorities
have commenced investigations of Messrs. Jurick, Bunger and
Jerome Farnum (also a director of the Company). In addition, the
Swiss authorities have questioned Messrs. Jurick and Farnum as
part of an investigation of possible violations by them of
certain Swiss bank licensing laws. While the investigation is
still pending, none of Messrs. Jurick, Farnum or Bunger have been
charged or indicted by the Swiss authorities. 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 have engaged in
banking activities without a license; the Commission has ordered
(i) the liquidation of one affiliate and the assets of another,
(ii) the appointment of a Swiss accounting firm to conduct the
decreed liquidation and (iii) certain preliminary measures
providing for the appointment of the Swiss accounting firm to act
as an observer with special supervisory powers. The Company has
been informed by counsel to those entities that an appeal has
beenwas
filed with respect to the decree and that during the pendency of
the appeal, if timely filed, the provisions of the decree
providing for the liquidation shall not be implemented. The
Company has been advised that the appeal was withdrawn on September
21, 1995 and a permanent liquidator appointed for one of the
affiliated entities.
Though the Company is not a party to any of the proceedings
in Switzerland or in the Commonwealth of Bahamas, the Company
intends to monitor the litigation. An order of a court of
competent jurisdiction requiring the turnover of all or a
substantial portion of the Common Stock may result in a default
under the terms of the Company's United States secured credit
facility and/or the Indenture. See "Risk Factors --- Litigation
Relating to Common Stock." Additionally, such a change in
control could result in a second ownership change further
limiting the Company's ability to use its NOLs and TCCOs. See
"Certain Federal Income Tax Considerations."
The Official Liquidator appointed in the Commonwealth of
Bahamas for Fidenas International Bank Limited (which management
believes to be a holder of approximately 18% of the shares of
Elision and approximately 11% of the shares of GSE) has filed an
action in the Bahamas concerning the ownership by Fidenas
International of certain shares of Common Stock. Transfer of the
stock has been enjoined by the Bahamian courts. The Official
Liquidator has also filed an action in the United States District
Court on behalf of Fidenas International Bank Limited with
respect to certain shares of Common Stock issued to Fidenas
International in conjunction with the Restructuring. As of the
date hereof, the transfer of such shares has been restrained, the
subject shares deposited into the registry of the Court pending
further order and discovery in the action has been commenced.
A creditor of Elision has requested and obtained a
preliminary injunction issued by a state court in Massachusetts
which enjoins Elision from conveying, pledging, hypothecating or
transferring any interest in assets of the corporation, including
securities registered in the name of the corporation, other than
in the usual course of business, until November 8, 1995. On that
date, a hearing is scheduled for further consideration of the
relief sought by such creditor. The order has the effect of
prohibiting transfers of any shares of Common Stock of the
Company owned by Elision.
Stelling Litigation
The Company filed a suit in federal court in New Jersey on
July 14, 1994, naming Mr. Stelling and his spouse 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. The suit sets forth
requests for 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 have
filed a motion to dismiss the suit. As of the date hereof, no
ruling has been made with respect to such motion.
Other Litigation
The Company is involved in other legal proceedings and
claims of various types 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, or all of them combined, will not have a
material adverse effect on the Company's consolidated financial
position.
MANAGEMENT
Officers and Directors
The following table sets forth certain information regarding
the officers and directors of the Company as of the date hereof:
Name Age Position
Geoffrey P. Jurick 54 Chairman of the Board and Chief
Jurick(1)
Executive Officer, Director
Eugene I. Davis(1) 40 President and Interim Chief Financial
Officer, Director
John P. Walker 32 Senior Vice President - Finance
Albert G. McGrath, Jr.Jr 38 Senior Vice President, Secretary and
General Counsel
Eddie Rishty 35 Vice President - Controller
Merle W. Eakins 48 Vice President - Sales
Andrew Cohan 40 Vice President - Merchandising
John J. Raab 59 Senior Vice President - Far East Operations
Frank L. Guerriero 51 Vice President - Logistics
Stuart D. Slugh 40 Vice President - Engineering/After
Sales Service
Elizabeth J. Calianese 37 Vice President - Human Resources
William A. Parks 56 Vice President - Home Products Division
Robert H. Brown, Jr.(2)(3)42 Director
Peter G. Bunger(2) 54 Director
Jerome H. Farnum 59 Director
Raymond L. Steele(2)Steele (2)(3) 60 Director
_____________________________
(1)Member of Executive Committee
(2)Member of Audit Committee
(3)Member of Compensation and Personnel Committee
Geoffrey P. Jurick has served as Director since September 1990,
Chief Executive Officer since July 7, 1992 and Chairman since
December 22, 1993. Mr. Jurick served as President from July 1993
to October 1994. Since March 1990, he has been President and
Director of FIL. Since December 1993, Mr. Jurick has served as a
Director of Fidenas International, and since May 1994, as an
officer and general manager of Fidenas International and as a
Director, Chairman and Chief Executive Officer of GSE, which is
traded on the pink sheets of the over-the-counter market. 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 corporate development.
Eugene I. Davis has served as President since October 1994,
Interim Chief Financial Officer since February 7, 1993 and a
Director since September 1990. Mr. Davis served as Executive
Vice President from July 7, 1992 to October 1994. From June 1989
to July 1992, Mr. Davis was a shareholder and director of the law
firm of Holmes Millard & Duncan, P.C., in Dallas, Texas. From
February 1988 to June 1989, he was a partner in the law firm of
Arter & Hadden, P.C., in Dallas, Texas. Since August 1992, Mr.
Davis has served as a director of Tipperary Corporation, which is
traded on the American Stock Exchange, and, from October 1993,
until January, 1995 he was a director of Crandall Finance
Corporation, which is traded on the pink sheets of the
over-the-counter market. From May 1995, Mr. Davis has also
served as Director of Beth Israel Health Care Services, a private
corporation.
John P. Walker has served as Senior Vice President since April
1994. Mr. Walker was Vice President - Finance from February 1993
to April 1994, Assistant Vice President - Finance from June 1991
to January 1993 and Director of Financial Management from
September 1990 to May 1991. Prior thereto, Mr. Walker was
Supervising Senior Accountant with KPMG - Peat Marwick.
Albert G. McGrath, Jr. has served as Secretary and General
Counsel since August 1992 and Senior Vice President since July
1993. Prior thereto, Mr. McGrath was a shareholder of Holmes
Millard & Duncan, P.C., in Dallas, Texas, from January 1990
through August 1992.
Eddie Rishty has served as Vice President - Controller since July
1993 and was Corporate Controller from October 1991 to June 1993.
Prior thereto, Mr. Rishty was Assistant Controller from April
1989 to September 1991.
Merle W. Eakins joined the Company as Vice President - Sales in
July 1993. Since 1976, Mr. Eakins was with Philips Consumer
Electronics Company in a variety of positions, most recently as
Vice President, National Accounts.
Andrew Cohan joined the Company in October 1994 as Vice President-
Merchandising. Prior thereto, he was an independent consultant
from August 1993 until October 1994, and was employed as Senior
Vice President - Retail Stores for McCrory Stores Corporation
from June 1992 to July 1993 and as Vice President - Retail Stores
for Ames Department Stores, Inc. from February 1984 to June 1992.
Prior thereto and for more than the past five years, Mr. Cohan
was employed by Ames Department Stores, Inc. in a variety of
positions. Each of McCrory Stores Corporation and Ames
Department Stores, Inc. filed for relief under the United States
Bankruptcy Code.
John J. Raab joined the Company in March 1995 as Vice President -
Far East Operations.Operations and become Senior Vice President - Operations
on October 1, 1995. Prior thereto, he was President and Chief
Operating Officer of Robeson Industries Corp. from March 1990 to
March 1995. Robeson Industries Corp. has filed for relief under
the United States Bankruptcy Code.
Frank L. Guerriero has served as Vice President - Logistics since
September 1994. Prior thereto, Mr. Guerriero was Assistant Vice
President - Operations and Logistics from April 1994 until
September 1994, and was the Director of Transportation and
Distribution for the Company from July 1981 until April 1994.
Stuart D. Slugh has served as Vice President - Engineering and
After Sales Service since September 1994. Prior thereto, Mr.
Slugh was Assistant Vice President - Engineering and After Sales
Service from April 1994 until September 1994, and was Director of
Technical Sales Services for the Company from May 1993 until
April 1994. Prior thereto and for more than the past five years,
Mr. Slugh was National Parts Manager for the Company.
Elizabeth J. Calianese has served as Vice President - Human
Resources since May 1995. Since April 1991, Ms. Calianese has
served as Assistant General Counsel. Prior thereto, from June
1989 until March 1991, Ms. Calianese was a corporate attorney
with the Company.
William A. Parks has served as Vice President - Home Products
Division since August 1995. Since 1991, Mr. Parks has been
President of William A. Parks & Assoc., Inc., a sales and
marketing consulting firm based in Newport, North Carolina.
Prior thereto, Mr. Parks served as President of Hamilton Beach,
Inc. in Washington, North Carolina.
Robert H. Brown, Jr. has been a Director since July 7, 1992.
Since February 1994, he has been Executive Vice President of
Capital Markets of Rauscher Pierce Refsnes, Inc. ("Rauscher") in
Dallas, Texas. From January 1990 until February 1994, Mr. Brown
was Senior Vice President and Director of the Corporate Finance
Department of Rauscher. Since May 1993, Mr. Brown has served as
a director of Stevens Graphics Corp., which is traded on the
American Stock Exchange.
Peter G. Bunger has been a Director since July 7, 1992. Since
October 1992, Mr. Bunger has served as Director of Savarina AG,
engaged in the business of portfolio management monitoring in
Zurich, Switzerland and since 1992, as director of ISCS, a
computer software company. From December 1991 until December
1993, he was Vice Chairman of Montcour Bank and Trust Company
Limited, a bank organized in the Bahamas and an affiliate of
Fidenas International. Montcour Bank and Trust Company Limited
is the subject of liquidation proceedings in Nassau, Bahamas.
From 1981 until 1992, Mr. Bunger was owner and Managing Director
of Peter G. Bunger Investment Consulting, a firm which
supervises, controls, and analyzes investments for individuals.
Jerome H. Farnum has been a Director since July 7, 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 7, 1992. Mr.
Steele has been retired since September 1993. 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 Board of
Directors of Orion Pictures Corporation, whose common stock is
traded on NASDAQ, and Pharmhouse, Inc., a publicly-traded retail
drug chain.
The terms of the Debentures require that, for their term,
the Company shall cause one-third of the Board of Directors to be
comprised of independent directors. Certain actions in
connection with the potential settlement of the litigation
described in "Legal Proceedings - Litigation Regarding Certain
Outstanding Common Stock" will require the approval of three
members of the Board of Directors, including the independent
Board members and Mr. Eugene I. Davis. See "Description of
Debentures." The terms of the Series A Preferred Stock provide
that the holders shall have the right to appoint two directors to
the Company's Board of Directors if dividends are in default for
six quarters. See "Description of Other Securities."
Director Compensation
Independent directors are entitled to an annual retainer of
$20,000. Committee chairmen who are independent directors
receive an annual retainer of $10,000. Each of the Company's
current independent directors received cash compensation of
$20,000 (excluding the Committee Chairmen who each received
$27,500) in connection with serving on the Company's Board of
Directors during the fiscal year ended March 31, 1995. Directors
who are officers or employees of the Company are not compensated
for serving as directors or for attending meetings. The Company
maintains directors and officers liability insurance policies it
deems satisfactory for such purposes.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Compensation of Executive Officers
The discussion that follows has been prepared based on the
actual compensation paid and benefits provided by the Company and
its subsidiaries to those persons who were, at March 31, 1995,
the Chief Executive Officer ("CEO") of the Company and the other
four most highly compensated executive officers of the Company
("Named Executives") for the periods indicated. This historical
data is not necessarily indicative of the compensation and
benefits that may be provided to such persons in the future.
Three Year Compensation Summary
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:
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards Payouts
OTHER ALL
OTHER ALL
ANNUAL SECURITIES OTHER
Name and Principal FISCAL COMPENS- RESTRICTED UNDERLYING LTIP COMPENS-
Position(s)Name and Principal YEAR SALARY BONUS ATION STOCK AWARDS OPTIONS PAYOUTS ATION
Position(s)
(3) (1) (6) (4)
GEOFFREY P. JURICK 1995 378,333 275,000$378,333 $275,000 $ 78,702 - 600,000 - $ 311$311
JURICK CHAIRMAN OF THE 1994 250,000 195,000 - - - - -
THE BOARD AND CHIEF 1993 187,500 - 5,589 - - -
CHIEF EXECUTIVE
OFFICER (2)(5)
EUGENE I. DAVIS 1995 360,000 175,000 102,024 - 600,000 - 6,986
PRESIDENT AND 1994 360,000 150,000 102,385 - - - 5,524
INTERIM CHIEF 1993 261,692 161,290 172,281 - - - 5,473
FINANCIAL OFFICER
(2) (5)
ALBERT G. MCGRATH,G.MCGRATH, JR. 1995 175,000 75,000 19,958 - 200,000 - 5,451
5,451JR. SENIOR VICE PRESIDENT, 1994 175,000 100,000 18,462 - - - 4,671
PRESIDENT,SECRETARY AND 1993 107,693 29,166 21,273 - - - -
GENERAL COUNSEL (5)
MERLE W. EAKINS 1995 193,077 40,000 89,17589,185 - 40,000 - 5,950
VICE PRESIDENT- 1994 130,577 40,000 45,870 - - - 621
SALES (5)
1993 - - - - - - -
JOHN P. WALKER 1995 110,000 75,000 20,420 - 200,000 - 3,841
SENIOR VICE PRESIDENT 1994 110,000 100,000 9,483 - - - 1,918
PRESIDENT-FINANCEFINANCE 1993 96,625 18,000 700 - - - 2,406
(1) Consists of (i) car allowance and auto expenses afforded to
the listed Company executive officers, including $26,947 and
$17,277 paid to Messrs. Davis and Walker, respectively, in
Fiscal 1995, (ii) tax preparation services provided to Mr.
Davis, (iii) expenses paid by the Company on behalf of Mr.
Davis, covering his club membership, and (iv) relocation and
temporary lodging expenses and associated tax gross-ups in
the amount of $73,394, $0 and $0 for Mr. Jurick, $43,002,
$64,643 and $132,270 for Mr. Davis, $0, $9,137 and $16,249
for Mr. McGrath, and $80,784 and $39,570 for Mr. Eakins paid
by the Company in Fiscal 1995 and 1994, respectively. See
"Certain Relationships and Related Transactions."
(2) Does not include Director's fees of $5,000 received by each
of Messrs. Jurick and Davis prior to becoming officers for
Fiscal 1993.
(3) In the case of Messrs. Davis and McGrath consists of
one-time bonus payments upon joining the Company in Fiscal
1993.
(4) Consists of the Company's contribution to its 401(k)
employee savings plan, life insurance and, disability
insurance.
(5) Messrs. Jurick and Davis became executive officers of the
Company in July 1992, Mr. McGrath became an executive
officer of the Company in August 1992 and Mr. Eakins became
an executive officer of the Company in July 1993.
(6) In July 1994, the Company granted stock options to purchase
600,000, 600,000, 200,000, 200,000 and 30,000 shares of
Common Stock to each of Messrs. Jurick, Davis, McGrath,
Walker and Eakins respectively, exercisable at an exercise
price of $1 per share (except $1.10 in the case of Mr.
Jurick). In September 1994, Mr. Eakins was granted an
additional option to purchase 10,000 shares of common stock
at an exercise price of $1 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.
Stock Options
The following table sets forth information regarding the
grant of stock options during Fiscal 1995 to the Named Executive
Officers:
OPTION GRANTS IN FISCAL 1995
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
for Option Term(2)
Individual Grants % of Totals
for Option Term(2)
Number Options Granted Exercise
of Options to Employees Price Per Expiration
Name Granted in Fiscal 1995 Share Date(1) 5% 10%
GEOFFREY P. JURICK 600,000 32% $1.10 7/7/04 $317,337 $896,245
EUGENE I. DAVIS 600,000 32% $1.00 7/7/04 $377,337 $956,245
ALBERT G. MCGRATH 200,000 11% $1.00 7/7/04 $125,779 $318,748
JOHN P. WALKER 200,000 11% $1.00 7/7/04 $125,779 $318,748
MERLE W. EAKINS 30,000 2% $1.00 7/7/04 $ 18,867 $ 47,812
10,000 1% $1.00 9/6/04 $ 6,289 $ 15,937
(1) The options were issued under the 1994 Stock Compensation
Program, and are exercisable commencing one year after the
grant date in three equal annual installments, with full
vesting occurring on the third anniversary of the date of
the grant.
(2) The dollar amounts under these columns are the result of
calculations at the assumed compounded market appreciation
rates of 5% and 10% as required by the Securities and
Exchange Commission over a ten-year term and therefore, are
not intended to forecast possible future appreciation, if
any, of the stock price.
Option Exercises And Holdings
The following table sets forth information with respect to
the Named Executive Officers concerning the exercise of options
during Fiscal 1995 and unexercised options held at March 31,
1995:
OPTION EXERCISES IN FISCAL 1995
AND MARCH 31, 1995 OPTION VALUES
Number of Value of Unexercised
Unexercised In-the-Money
Number of Options at Options at
Shares March 31, 1995 March 31, 1995
Acquired on Value Exercisable Exercisable/ Exercisable
Name Exercise Realized Unexercisable Unexercisable(1)
GEOFFREY P. JURICK 0 $- 0/600,000 $0/$1,215,000
EUGENE I. DAVIS 0 $- 0/600,000 $0/$1,275,000
ALBERT G. MCGRATH 0 $- 0/200,000 $0/$ 425,000
JOHN P. WALKER 0 $- 0/200,000 $0/$ 425,000
MERLE W. EAKINS 0 $- 0/ 40,000 $0/$ 85,000
(1) Calculated based on the difference between the aggregate
fair market value of the shares subject to options at March
31, 1995 and the aggregate option exercise price.
Certain Employment Contracts
On August 13, 1992, the Board of Directors of the Company
approved the Employment Agreements of certain of the Company's
senior management, including certain of the senior management
included in the table set forth above. A description of the
material terms of such employment agreements, each of which is
effective as of July 7, 1992 (unless stated to the contrary)
follows.
Geoffrey P. Jurick, Chairman and Chief Executive Officer 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), Limited and
Emerson Radio International Ltd. (formerly Emerson Radio
(B.V.I.), Ltd.) (hereinafter, collectively the "Companies"),
providing for an aggregate annual compensation of $250,000, which
was increased to $390,000 in May 1994 and to $490,000 effective
April 1, 1995. In addition to his base salary, 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 final approval of the Company's Board
of Directors.
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.
Similar provisions are set forth in each of the contracts
described below.
Eugene I. Davis, President and Interim Chief Financial
Officer entered into a five year Employment Agreement ("Davis
Employment Agreement") with the Company providing for an annual
compensation of $360,000, which was increased to $450,000
effective April 1, 1995. In addition to his base salary, Mr.
Davis is entitled to an annual bonus equal to an amount up to 30%
of Mr. Davis' base salary, based upon attainment of objectives
identified in the Company's five-year business plan ("Business
Plan"). Mr. Davis may also receive an additional annual
performance bonus to be recommended by the Compensation and
Personnel Committee of the Company's Board of Directors, subject
to the final approval of the Company's Board of Directors.
Pursuant to the Davis Employment Agreement, the Company
granted to Mr. Davis an option to purchase 500,000 shares of
Common Stock. Such option was cancelled pursuant to the Plan of
Reorganization; however, the Company subsequently granted Mr.
Davis options to purchase 600,000 shares of Common Stock. The
Company has also agreed for the term of the Davis Employment
Agreement and three years thereafter, to pay for and maintain
legal malpractice insurance covering Mr. Davis for occurrences
and actions taken by him at any time prior to or during the term
of such agreement on behalf of the Company or its employees. The
Company has also agreed to pay all sums which may be deductible
amounts not otherwise paid by such insurer.
Upon execution of the Davis Employment Agreement, the
Company provided Mr. Davis with a one-time lump sum payment of
$100,000, which figure is net of applicable taxes and
withholdings. In connection with Mr. Davis' relocation to New
Jersey, the Company assumed certain relocation expenses and
associated tax gross-ups on Mr. Davis' behalf aggregating
$239,915. See "Summary Compensation Table."
Albert G. McGrath, Jr., General Counsel, Senior Vice
President and Secretary, entered into a five-year Employment
Agreement ("McGrath Employment Agreement") with the Company
providing for an annual compensation of $175,000, which was
increased to $210,000 effective April 1, 1995. In addition to
his base salary, Mr. McGrath is entitled to an annual performance
bonus to be recommended by the Compensation and Personnel
Committee of the Company's Board of Directors, subject to the
final approval of the Company's Board of Directors.
Upon execution of the McGrath Employment Agreement, the
Company provided Mr. McGrath with a one-time lump sum payment of
$29,166, which figure is before applicable taxes and
withholdings. In connection with Mr. McGrath's relocation to New
Jersey, the Company assumed relocation expenses and associated
tax gross-ups on Mr. McGrath's behalf aggregating $25,386. See
"Summary Compensation Table."
Merle W. Eakins, Vice President-Sales, entered into a three-
year employment agreement with the Company providing for an
annual compensation of $175,000; which was increased to $195,000
effective May 1, 1994. In addition to his base salary, Mr.
Eakins is entitled to an annual bonus equal to an amount up to
30% of Mr. Eakins' base salary, upon attainment of objectives
identified by the Board of Directors. In connection with Mr.
Eakins' employment in New Jersey, the Company assumed relocation
expenses and associated tax gross-ups on Mr. Eakins' behalf
aggregating $120,354. See "Summary Compensation Table."
John P. Walker, Senior Vice President-Finance, entered into
a three-year employment agreement with the Company providing for
an annual compensation of $110,000, which was increased to
$165,000 effective April 1, 1995. In additional to his base
salary, Mr. Walker is entitled to an annual bonus equal to an
amount up to 30% of Mr. Walker's base salary; upon attainment of
objectives identified by the Executive Committee. Mr. Walker may
also receive an additional annual performance bonus to be
recommended by the Compensation and Personnel Committee of the
Company's Board of Directors, subject to the final approval of
the Company's Board of Directors.
In the event that Messrs. Jurick, Davis, McGrath, Eakins and
Walker 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 March 31, 1995 to each such
individual, based on the terms of their respective contracts,
would be $1,112,000, $1,021,000, $501,000, $263,000 and $330,000,
respectively.
Emerson Employee Savings Plan
The Emerson Radio Corp. Employee Savings Plan (the "Savings
Plan") is a defined contribution plan intended to qualify under
Sections 401(a) and 401(k) of the Code. Generally, a full-time
salaried employee who has completed three months of service may
elect to make basic contributions to the Savings Plan of up to 6%
of his or her compensation, commencing on the first day of the
Savings Plan year or the seventh month of such year subsequent to
satisfying such eligibility requirement. These contributions are
partially matched by the Company. In addition, the employee may
elect to contribute up to an additional 4% of his or her
compensation (for a total of 10%), which amount will not be
matched by the Company. All employee contributions (plus related
earnings and increased value) are 100% vested. Generally,
Company contributions become 50% vested after an employee has
satisfied one year of service and 100% vested after two years of
service. If the employee's employment terminates for any reason,
the employee's total vested plan account will be distributed to
him or her within a reasonable period of time after termination
of employment. If any nonvested account balance is forfeited,
the nonvested amount of any forfeiture remains in the Savings
Plan to be used as Company contributions. The amounts credited to
individual accounts are invested by the Savings Plan trustee as
directed by Savings Plan participants, and any gain or loss from
investments is credited to, or charged against, the individual
account of each participant.
Stock Plans
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. The Program is administered by
the Company's Compensation and Personnel Committee. Each of the
Plans provides for vesting of grants or awards in equal thirds on
the first three anniversaries after grant, unless the
Compensation and Personnel Committee otherwise provides, and that
the term of options granted thereunder may not exceed ten (10)
years. The Program also provides that the purchase price of
stock options granted under the Program shall not be less than
the fair market value of the Common Stock on the date of grant,
except that the purchase price with respect to an option granted
to a holder of at least 10% of the Company's outstanding
securities must be equal to at least 110% of the fair market
value of the Common Stock on the date of grant.
In July 1994 the Company's Compensation and Personnel
Committee granted options to purchase an aggregate of 1,630,000
shares of Common Stock to Messrs. Jurick (600,000), Davis
(600,000), McGrath (200,000), Walker (200,000) and Eakins
(30,000). The options granted to Messrs. Davis, McGrath, Walker
and Eakins are all exercisable at $1.00 a share and the options
granted to Mr. Jurick are exercisable at $1.10 a share. The
Compensation and Personnel Committee subsequently granted options
to purchase an aggregate of 170,000 shares of Common Stock to
various employees, each exercisable at $1.00 per share, in
September 1994 and also granted an aggregate of 60,000 options to
various employees, each exercisable at $1.00 per share, in
October 1994, for an aggregate of options on 230,000 shares
(143,333 net of cancellations).
In October 1994, the Company's Board of Directors adopted,
subject to stockholder approval, the 1994 Non-Employee Director
Stock Option Plan. The Committee authorized and appointed
pursuant to such plan, consisting of Messrs. Jurick and Davis,
has granted options to purchase an aggregate of 175,000 shares
(150,000 net of cancellations) of Common Stock to certain non-
employee directors of the Company at an exercise price of $1.00
per share. The maximum aggregate number of shares of Common
Stock available under such plan is 300,000. Each option granted
provides for vesting in equal thirds on the first three
anniversaries after the date of grant and has a term of ten (10)
years.
PRINCIPAL STOCKHOLDERS
The table below sets forth as of September 15,October 18, 1995, certain
information regarding the beneficial ownership of Common Stock by
each person or entity known by the Company to be the beneficial
owner of more than five percent of the outstanding Common Stock,
by each director of the Company and by all officers and directors
as a group:
Name and Address of Amount and
Percent of
Beneficial Owner Nature of Percent Percent of
Beneficial Percentof Class as
Ownership(3) of Class Adjusted(6)
Geoffrey P. Jurick(1)(5) 30,200,100 74.7% 66.1%29,352,642 72.6% 64.3%
Nine Entin Road
Parsippany, NJ 07054
Fidenas International 30,000,000 74.5% 66.0%
Limited, L.L.C. (2)LLC(2) 29,152,542 72.4% 64.1%
831 Route 10
Suite 38, #113
Whippany, NJ 07981
Elision International, Inc.(4) 1,600,000 4.0% 3.5%
Inc.(4)
275 Wyman Street
Waltham, MA 02154
GSE Multimedia 12,000,000 29.8% 26.4%
Technologies Corporation(4)
Kostheimer Landstrasse 36
Mainz-KostheimLandstrasse36
Germany D6502
Eugene I. Davis(5) 290,000 (7) (7)
Robert H. Brown, Jr.(8) 16,667 (7) (7)
Peter G. Bunger(9) 8,333 (7) (7)
Jerome Farnum(9) 8,333 (7) (7)
Raymond L. Steele(8) 16,667 (7) (7)
All Directors and 30,720,100 75.1% 66.7%29,872,642 73.1% 64.8%
Officers as a Group
(16Group(16
persons) (10)(11)
_______________
(1)Consists of 16,400,000,15,552,542, 1,600,000 and 12,000,000 shares of
Common Stock held by Fidenas International, Elision and GSE,
respectively, includingrespectively. Fidenas International is recordholder of
847,458 shares of Common Stock and formerly held by Fidenas International,such shares
as nominee. The nominee as to whichrelationship has been terminated and
Fidenas International and Mr. Jurick disclaim beneficial
ownership.ownership of such shares. All of such shares, except those
for which Fidenas International holds as nominee, will beare
subject to certain lockup agreements. See "Plan of
Distribution - Certain Restrictions on Offering,Officers, Directors
and Certain Stockholders." Mr. Jurick indirectly owns,
through a controlled holding company, approximately 80%95% of
Fidenas International. In addition, Mr. Jurick is an officer and
directorthe
manager of Fidenas International. Fidenas International owns
approximately 14.3% of Elision. Mr. Jurick indirectly owns,
through certain holding companies and beneficial interests in
affiliates, a controlling interest in each of GSE and
Elision. The shares of Common Stock issued to GSE, Fidenas
International and Elision in connection with the
Restructuring are the subject of certain legal proceedings in
the Commonwealth of the Bahamas and the United States. In
connection with settlement negotiations related thereto, the
Company has been advised that the parties to such
negotiations may desire a portion of these shares to be sold
in furtherance of a settlement of such litigation. See
"Legal Proceedings - Litigation Regarding Certain Outstanding
Common Stock".
(2)Includes 12,000,000 shares of Common Stock owned by GSE and
1,600,000 shares of Common Stock owned by Elision. Fidenas
International, GSE and Elision may be deemed to be under
common control. Also includesDoes not include 847,458 shares held by
Fidenas International, as record holder pursuant to a
subsequently terminated nominee relationship, as to which
Fidenas International disclaims beneficial ownership.
(3)Based on 40,252,772 shares of Common Stock outstanding as of
September 15,October 18, 1995 plus shares of Common Stock under option of
any director or executive officer, exercisable within 60
days. Does not include (i) shares of Common Stock issuable
upon conversion of 10,000 shares of Series A Preferred Stock
(ii) Common Stock issuable upon exercise of the Creditor's
Warrants (iii) Common Stock issuable upon conversion of the
Debentures; (iv) Common Stock issuable upon exercise of
outstanding options, which are not currently exercisable
within 60 days; or (v) shares of Common Stock issuable upon
exercise of warrants granted to the Placement Agent and its
authorized dealers in connection with the private placement
of the Debentures.
(4)A petition for the winding-up of Fidenas International Bank
Limited, a holder of 18% of the shares of Elision and 11% of
the shares of GSE, was filed by the majority of the
shareholders of the bank in the Commonwealth of Bahamas on
July 29, 1994.
(5)Includes options exercisable within 60 days to purchase
200,000 shares of Common Stock. Does not include options to
purchase an aggregate of 400,000 shares of Common Stock not
currently exercisable.
(6)Assumes conversion of all $20,750,000 aggregate principal
amount of Debentures at the initial Conversion Price of
$3.9875 per share into 5,203,761 shares of Common Stock.
(7)Represents less than 1% of the outstanding Common Stock.
(8)Includes options exercisable within 60 days to purchase
16,667 shares of Common Stock. Does not include options to
purchase an aggregate of 33,333 shares of Common Stock not
currently exercisable.
(9)Includes options exercisable within 60 days to purchase 8,333
shares of Common Stock. Does not include options to purchase
an aggregate of 16,667 shares of Common Stock not currently
exercisable.
(10) Includes 630,000 shares of Common Stock subject to
unexercised stock options which were exercisable within 60
days under the Company's Stock Compensation Program.
(11) Does not include options to purchase an aggregate of
1,260,000 shares of Common Stock not currently exercisable
within 60 days.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Plan of Reorganization
Debtor-in-Possession Financing
During the pendency of the Company's Restructuring, the
Company obtained Debtor-in-Possession financing ("DIP Financing")
from its present secured lender. Fidenas Investment Limited, of
which Mr. Jurick is President and a director, which is also an
affiliate of Fidenas International, guaranteed payment of the DIP
Financing. In April 1994, in connection with the DIP Financing,
the Company paid (i) $187,000 as a cumulative credit enhancement
fee which accrued commencing October 1, 1993 and (ii) $208,000
for reimbursement of various legal, accounting and filing fees at
the direction of the President of Fidenas Investment Limited to
its designee.
Capital Infusion at Confirmation of the Plan
To fund the Plan of Reorganization, Fidenas International,
Elision and GSE provided to the Company an aggregate of
approximately $30 million, for which they collectively received
30 million shares of Common Stock. See "Principal Stockholders."
Certain of the officers and directors of the Company are
affiliated with Fidenas International, Elision and GSE. See
"Management." In connection with the capital infusion,
reimbursements of $568,000 for various legal, accounting and
filing fees were paid at the direction of the President of
Fidenas International to its designee.
Other Transactions
The law firm of Lowenstein, Sandler, Kohl, Fisher & Boylan,
P.A., was retained as the Company's outside counsel following the
settlement of a proxy contest conducted in 1992. Payments
aggregating approximately $1,070,000 were made by the Company for
Fiscal 1994. The firm was retained by the Company as special
corporate counsel during the Restructuring proceedings and
received payment for services rendered and expenses incurred
during such proceedings. In addition, the firm provides ongoing
services for the Company, including representing the Company in
this Offering. The firm received approximately $182,000 and
$737,000 during the three months ended June 30, 1995 and Fiscal
1995, respectively. A brother of Mr. Davis joined such law firm
subsequent to its retention by the Company and serves of counsel
to such law firm.
In connection with the execution of their respective
employment agreements with the Company, each of Messrs. Martin
Holleran (a former officer of the Company), Davis, and Alex
Wijnen (a former officer of the Company) agreed to relocate their
respective residences to the general locality of the Company's
principal executive offices. To assist in such relocation, in
the fiscal year ended March 31, 1993, the Company provided to
Messrs. Holleran, Davis and Wijnen interest-free bridge loans of
$140,000, $120,000 and $130,000, respectively. In connection
with the resignations of Messrs. Holleran and Wijnen from the
Company, and the settlement of claims under their respective
employment contracts, Mr. Holleran's obligation to repay such
loans was discharged and Mr. Wijnen's loan will be repaid through
consulting services to be rendered in calendar year 1995. The
maturity date of Mr. Davis' loan has been extended and is due in
the fiscal year ending March 31, 1996.
Mr. Pablo Bunger, the brother of Peter Bunger, a director of
the Company, was the Managing Director of the Company's Spanish
branch. Pursuant to a consulting arrangement, Mr. Bunger
received compensation and reimbursement of expenses aggregating
$23,000 and $118,000 in the three months ended June 30, 1995 and
Fiscal 1995, respectively. The Company will be closing the
Spanish branch and has assigned the exclusive distribution rights
for Emerson brand products in Spain to a corporation controlled
by Mr. Pablo Bunger.Bunger, though the Company has sent notice of its
intention to terminate the distribution relationship.
The Company is in the process of reorganizing its Canadian
operations. In connection with such reorganization, Emerson's
Canadian subsidiary has entered into a series of agreements with
Tammy Venator, doing business as Venator Electronics Sales and
Service Ltd. ("Venator"). Ms. Venator is the daughter of Theo
Heuthorst, former President of Emerson's Canadian subsidiary, and
she was formerly the National Service Manager of such subsidiary.
Effective April 1, 1995, Emerson's Canadian subsidiary entered
into several three-year agreements with Venator providing for (i)
Venator receiving returned products, (ii) Venator purchasing
returned products on an "as-is" basis for refurbishing and resale
by Venator, (iii) Venator processing warranty claims submitted by
service centers authorized to engage in warranty service of
Emerson products sold in Canada, (iv) Venator distributing parts
to customers and service centers for Emerson products, which it
will purchase from the Company's Canadian subsidiary at a premium
over their costs, and (v) Venator maintaining an effective
service center network to accommodate all customers of Emerson's
Canadian subsidiary, maintaining a factory service center, and
maintaining a parts distribution center, and providing other
after sale services. The Company was billed $8,323 for services
provided with respect to the above-mentioned agreements during
the three months ended June 30, 1995. In addition, the Company
billed Venator approximately $24,000 for spare parts purchases
over the same period. The Company was owed approximately $24,000
for these purchases as of June 30, 1995. Through these
agreements, the Company believes it will be able to reduce its
costs of operations in Canada, while maintaining its market
presence in Canada. The Company believes that the terms on which
it has entered into the agreements with Venator described above
are no less favorable than could have been obtained from an
unrelated third party.
In the three months ended June 30, 1995 and in Fiscal 1995,
the Company sold finished goods and spare parts to GSE for
$114,000 and $341,000, respectively, on terms no more favorable
than those available to third parties. The Company was owed
$277,000 for these purchases as of June 30, 1995.
Rauscher was retained by the Company, for a fee of $20,000,
to make offers in connection with the public offering of the
Company's Common Stock authorized by the Plan of Reorganization
in those states requiring that all sales in such states be made
through broker/dealers. Robert H. Brown, Jr., a Director of the
Company, is Executive Vice President of Capital Markets of
Rauscher. See "Management."
At March 31, 1994, Emerson Radio (Hong Kong) Ltd., a wholly
owned subsidiary of the Company, had $1 million on deposit with
Fidenas International Bank Limited. The deposit was returned
shortly after March 31, 1994.
In October 1994 and February 1995, the Company employed two
professional advisers of Mr. Jurick and certain entities with
which Mr. Jurick is affiliated or associated. One individual was
paid $29,615 and $52,885 by the Company in the three months ended
June 30, 1995 and Fiscal 1995, respectively, as well as receiving
automobile benefits and related expenses in the amount of $1,256
and $3,027, respectively. The other individual was paid $20,865
and $6,856 by the Company for the three months ended June 30,
1995 and Fiscal 1995, respectively, as well as receiving
automobile benefits in the amount of $897 and $1,295,
respectively. The services of one individual were terminated as
of July 31, 1995 and the other will continue to be employed by
the Company until September 22, 1995 and to receive the benefits
described herein until such date. In addition to services
rendered to the Company, each of the individuals, while employed
by the Company, devoted substantial amounts of time to services
for Mr. Jurick and his associated or affiliated entities, and
consequently, Mr. Jurick may be deemed to receive an indirect
benefit from the payment by the Company of the salary and other
expenses of these two individuals.
Peter G. Bunger, a Director of the Company, has been engaged
as a consultant to two foreign subsidiaries of the Company. The
agreements, effective as of October 1, 1994, provide for
aggregate annual compensation of $140,000, have terms of two
years and authorize reimbursement for reasonable travel and
business expenses. Mr. Bunger has agreed to terminate the
agreements as of September 30, 1995.
Emerson Radio (Hong Kong) Ltd. retained Roger Vickery as a
consultant for a period of five months during Fiscal 1995. Mr.
Vickery, formerly a director of certain entities with which Mr.
Jurick was affiliated or associated, received $70,000 for
services rendered and $75,841 was paid for expenses incurred in
connection with such services.
In Fiscal 1995, the Company paid Elision the sum of $34,275
for consulting services with respect to management information
services. Elision owns 1,600,000 shares of Common Stock. Mr.
Jurick indirectly owns a controlling interest in Elision.
In May 1995, the Company and Elision organized Merchandising
Information Systems, L.L.C. ("MIS"), with equal ownership, for
the purpose of conducting a feasibility study to determine the
marketability of certain of Emerson's software applications and
know-how associated therewith through Elision's communications
and marketing services, to provide an on-line bureau
administration service for sourcing and distribution in the
consumer electronics industry. Initially, each of Emerson and
Elision has contributed $22,500 to MIS for purposes of conducting
such study. Further financing from each of Emerson and Elision
will be necessary if they determine to pursue the marketing of
such technology. The President of Elision will initially serve
as the President and Manager of MIS, and two of Emerson's
employees will also serve as officers of MIS.
The Company has adopted a policy that all future affiliated
transactions and loans will be made or entered into on terms no
less favorable to the Company than those that can be obtained
from unaffiliated third parties. In addition, all future
affiliated transactions and loans, and any forgiveness of loans,
must be approved by a majority of the independent outside members
of the Company's Board of Directors who do not have an interest
in the transactions. Certain restrictions have also been imposed
on transactions between the Company and its affiliates in the
Indenture for the Debentures. See "Description of Debentures."
DESCRIPTION OF DEBENTURES
General
The Debentures were issued under an Indenture (the
"Indenture"), dated as of August 17, 1995, between the Company
and Bank One, Columbus, NA, as trustee (the "Trustee"). The
following statements are summaries of certain provisions of the
Debentures and the Indenture and do not purport to be complete
and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Indenture, including
the definitions therein of certain terms (generally capitalized
when used herein), which provisions and definitions are
incorporated herein by reference.
The Company has issued $20,750,000 aggregate principal
amount of Debentures under the Indenture. They are unsecured
obligations of the Company and do not have the benefit of a
sinking fund for the retirement of principal. The Debentures are
subordinated in right of payment to the prior payment in full of
all Senior Indebtedness of the Company. See "Description of
Debentures - Subordination." At September 15,October 16, 1995, the Company
had $19.5$26.4 million of Senior Indebtedness outstanding under its
United States secured credit facility. See "Risk Factors - Risks
associated with the Company's Secured Indebtedness and
Financing". The Debentures will mature on August 15, 2002. Each
Debenture bears interest from the closing date applicable to such
Debenture in the Company's private placement of such Debentures,
at the rate per annum stated on the front cover of this
Prospectus, payable quarterly on March 15, June 15, September 15
and December 15 in each year commencing September 15, 1995, to
the person in whose name the Debenture is registered at the close
of business on the Regular Record Date for such interest, which
shall be the March 1, June 1, September 1 or December 1 (whether
or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months. The interest
payable on each December 15, March 15, June 15 and September 15
after September 15, 1995 will amount to $21.25 per $1,000
aggregate principal amount of Debentures. The interest rate
payable on the Debentures shall be increased by 0.5% if the
Company fails to cause the Registration Statement to become
effective by December 21, 1995 or if the Company fails to
maintain such effectiveness for the required three-year period;
provided, however, that such increased interest rate shall only
apply during the periods when such Registration Statement is not
effective in accordance with the terms of the Registration Rights
Agreement. Principal and interest will be payable at the office
or agency to be maintained by Emerson in New York, New York
(initially the office of the Trustee in New York).
The Company will issue the Debentures only in fully
registered form, without coupons, in denominations of $1,000 with
a minimum initial purchase of $25,000, subject to modification.
The Company will not assess a service charge for any transfer or
exchange of the Debentures, but it may require payment of a sum
sufficient to cover the tax or governmental charge payable in
connection therewith. Holders may transfer the Debentures by
surrendering them for transfer at the office of the Trustee. The
Company is not required to transfer or exchange any Debenture (i)
during a period beginning at the opening of business 15 days
before the date of the mailing of a notice of redemption and
ending at the close of business on the date of such mailing or
(ii) selected for redemption, in whole or in part, except the
unredeemed portion of Debentures being redeemed in part.
All moneys paid by the Company to the Trustee or any
Paying Agent for the payment of principal of and premium, if any,
and interest on any Debenture which remain unclaimed for two
years after such principal, premium or interest became due and
payable may be repaid to the Company. Thereafter, the Holder of
such Debenture may, as an unsecured general creditor, look only
to the Company for payment thereof.
Conversion
Each $1,000 principal amount of Debentures is
convertible at any time and from time to time, prior to
redemption or maturity, at the option of the Holders, into
approximately 251 shares of Common Stock of the Company (a
conversion price of $3.9875 per share). The right to convert
Debentures which have been called for redemption will terminate
at the close of business on the last business day prior to any
Redemption Date. Emerson has reserved a sufficient number of
shares of Common Stock for issuance upon conversion.
The Conversion Price is subject to adjustment in
certain events as more fully described in the Indenture,
including: (i) issuances or distributions of Common Stock or the
issuance of rights, warrants or options entitling the holder to
subscribe for or purchase Common Stock at less than the Current
Market Price (as defined in the Indenture) (except that no
adjustment of the Conversion Price shall be made as a result of
Permitted Transactions), (ii) dividends (and other distributions)
payable in Common Stock on any class of capital stock of the
Company or any Subsidiary; (iii) subdivisions, combinations or
reclassifications of Common Stock; (iv) dividends and
distributions to holders of Common Stock generally or to holders
(other than the Company or its Subsidiaries) of capital stock of
any Subsidiary of evidences of indebtedness of the Company or
assets (including shares of capital stock or other securities,
but excluding those dividends, rights, warrants, options and
distributions for which adjustments are made as described above
and dividends and distributions on the Series A Preferred Stock
in accordance with the terms thereof paid exclusively in cash out
of retained or current earnings), (v) upon a decrease of 35% (a
"Price Decrease") or more in the weighted average Closing Price
of the Common Stock in any forty-day period commencing ten days
prior to: (a) the disclosure (by press release or otherwise) of a
settlement, judgment, court order, disposition or other event
relating to the Litigation (relating to Geoffrey P. Jurick and
related entities and affiliates and described herein); or (b)
whether singly or in the aggregate and whether or not in the
public markets, (x) the offer, pledge, sale, contract to sell,
sale of any option or contract to purchase, purchase of any
option or contract to sell, grant of any option, right or warrant
to purchase, assignment, hypothecation, transfer or other
encumbrance or disposition of, any securities of the Company, or
(y) the entry into any swap or similar arrangement that
transfers, in whole or in part, the economic risk of ownership of
the Company's securities whether any such transaction described
in clause (x) or (y) above (any such transaction being referred
to herein as a "Transfer") is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise, which
Transfer is directly or indirectly related to, or for the benefit
of, the settlement or other disposition of the Litigation,
provided, however, no adjustment will be made with respect to
those Debentures held by a Holder who has engaged in open-market
sales of Debentures or underlying securities with the sole intent
of manipulating the price of the Common Stock in order to cause
such Price Decrease. The adjustment resulting from the
occurrence of a Price Decrease shall only be in effect for a
period of 90 days commencing upon the mailing of a notice of such
Price Decrease in accordance with the Debenture. For the
purposes of adjustments to the Conversion Price, "Permitted
Transaction" means an issuance by the Company of Capital Stock or
the issuance of rights, warrants or options entitling the holder
thereof to subscribe for or purchase Common Stock, in a single or
series of arms'-
length-length acquisition transactions, at a maximum
discount of 15% to the average Closing Price for 20 consecutive
Trading Days immediately prior to such issuance, provided (i)
such issuance is not otherwise prohibited by the terms of the
Indenture, (ii) no Default or Event of Default shall have
occurred or be continuing, (iii) all such transactions aggregate
not more than ten percent (10%) of the Company's then outstanding
voting stock while any Debentures are Outstanding, (iv) such
transaction(s) is in furtherance of a bona fide business purpose
of the Company and is in exchange for valuable consideration, (v)
such transaction(s) does not involve an Affiliate Transaction,
(vi) after giving pro forma effect to the transaction(s), there
will not exist a Default or an Event of Default, and (vii) such
transaction(s) will not have a Material Adverse Effect.
In certain circumstances it may be unclear as to
whether a Price Decrease has occurred or the cause thereof. The
determination of whether a Price Decrease has occurred is a
determination based on the facts and circumstances of the subject
transaction. No fractional shares will be issued upon
conversion, but the Company will pay cash in lieu thereof.
The Company from time to time may to the extent
permitted by law reduce the Conversion Price by any amount for
any period of at least 20 days, in which case the Company shall
give at least 15 days' notice of such reduction to the registered
Holders of the Debentures, if the Board of Directors of the
Company has made a determination that such reduction would be in
the best interests of the Company.
In addition, the Company will be permitted to make such
reductions in the Conversion Price as it considers to be
advisable in order that any event treated for federal income tax
purposes as a dividend of stock or stock rights will not be
taxable to the Holders of Common Stock. Under certain
circumstances, a decrease in the Conversion Price of the
Debentures may be considered as resulting in the distribution of
a dividend to Holders of the Debentures for federal income tax
purposes.
Subject to any applicable right of the Holders of the
Debentures to cause the Company to purchase the Debentures upon a
Designated Event (as described below), in case of any
consolidation or merger to which the Company is a party, other
than a transaction in which the Company is the continuing
corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or
substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation or other entity
(including any exchange effected in connection with a merger of a
third corporation or other entity into the Company), there will
be no adjustment of the Conversion Price, but the Holder of each
Debenture then outstanding will have the right to convert such
Debenture only into the kind and amount of securities, cash or
other property which the Holder would have owned or have been
entitled to receive immediately after such consolidation, merger,
statutory exchange, sale or conveyance had such Debenture been
converted immediately prior to the effective date of such
consolidation, merger, statutory exchange, sale or conveyance.
In the case of a cash merger of the Company with another
corporation or other entity or any other cash transaction of the
type mentioned above, the effect of these provisions would be
that the conversion features of the Debentures would thereafter
be limited to converting the Debentures at the Conversion Price
then in effect into the same amount of cash that such holder
would have received had such holder converted the Debentures into
Common Stock immediately prior to the effective date of such cash
merger or transaction. Depending upon the terms of such cash
merger or transaction, the aggregate amount of cash so received
on conversion could be more or less than the principal amount of
the Debentures.
Fractional shares of Common Stock will not be issued
upon conversion, but in lieu thereof, the Company will pay cash
equal to the market value of such fractional share computed with
reference to the Closing Price of the Common Stock on the last
business day prior to conversion. Debentures surrendered for
conversion during the period from the close of business on any
Regular Record Date to the opening of business on the next
succeeding Interest Payment Date (except Debentures whose
maturity is prior to such Interest Payment Date and Debentures
called for redemption on a Redemption Date within such period)
must be accompanied by payment of an amount equal to the interest
thereon to be paid on such Interest Payment Date (provided,
however, that if the Company shall default in payment of such
interest, such payment shall be returned to the payor thereof).
Except for Debentures surrendered for conversion which must be
accompanied by payment as described above, no interest on
converted Debentures will be payable by the Company on any
Interest Payment Date subsequent to the date of conversion.
The Company has covenanted under the Indenture to
reserve and keep available at all times out of its authorized but
unissued Common Stock, for the purpose of effecting conversions
of Debentures, the full number of shares of Common Stock
deliverable upon the conversion of all outstanding Debentures.
The Company will use its reasonable best efforts to
cause all registrations with, and to obtain any approvals by, any
governmental authority under any state law of the United States
that may be required in connection with conversion of the
Debentures into Common Stock and the resale thereof. If at any
time during the three year period following the effective date of
the Registration Statement the Registration Statement is not
effective, shares of Common Stock issued upon conversion of
Debentures ("Restricted Shares") may not be sold or otherwise
transferred except in accordance with Regulation S thereunder or
pursuant to any other exemption from, or otherwise in a
transaction not subject to, the registration requirements of the
Securities Act and, if such Registration Statement under the
Securities Act is not effective at the time of a conversion, the
Restricted Shares will bear a legend to that effect. The
Transfer Agent for the Common Stock will not be required to
accept for registration of transfer any Restricted Shares, except
upon presentation of satisfactory evidence that these
restrictions on transfer have been compiled with, all in
accordance with such reasonable regulations as the Company may
from time to time agree with the Transfer Agent.
Redemption at the Option of the Company
The Debentures are subject to redemption at the option
of the Company, in whole or in part, in cash, from time to time,
commencing on August 15, 1998 upon not less than 30 nor more than
45 days' notice mailed to the Holders thereof, at the Redemption
Prices established for the Debentures, together, in each case
with interest accrued and unpaid to the date fixed for redemption
(subject to the right of a Holder on the Regular Record Date for
an interest payment to receive such interest). The Redemption
Prices for the Debentures (expressed as a percentage of the
principal amount) shall be as follows for Debentures redeemed in
the 12-
month12-month period beginning August 15:
Year Percentage
1998 104%
1999 103%
2000 102%
2001 101%
and at maturity at 100% of principal, together in the case of any
such redemption with accrued interest to the redemption date.
The Company may elect to redeem less than all of the
Debentures. If the Company elects to redeem less than all of the
Debentures, the Trustee will select which Debentures to redeem,
using such method as it shall deem fair and appropriate, which
may include the selection for redemption of portions (equal to
$1,000 or any integral multiple thereof) of the principal amount
of Debentures of a denomination larger than $1,000.
Certain Rights to Require Repurchase of Debentures
Each Holder of a Debenture has the right, at such
Holder's option, to cause the Company to repurchase all or any
part of such Debenture, at a price equal to 100% of the principal
amount, together with accrued and unpaid interest to the
repurchase date, if any Change of Control (as defined below)
which constitutes a Designated Event occurs or has occurred after
the date of issuance of the Debentures and on or prior to
maturity. Notice with respect to the occurrence of a Designated
Event will be given as described in the Indenture and not later
than 15 days after the date of the occurrence of such Designated
Event. Such notice shall include among other things the
repurchase price; the date fixed for repurchase; and the
instructions which a Holder must follow in order to exercise a
repurchase right. The date fixed for such purchase will be the
date 30 days after notice of the occurrence of a Designated Event
is given (except as otherwise required by law). To be purchased,
a Debenture must be received with a duly executed written notice,
substantially in the form provided on the reverse side of such
Debenture, at the office of the Trustee not later than the fifth
day prior to the date fixed for such repurchase. All Debentures
purchased by the Company will be canceled. Such written notice
shall be irrevocable following the close of business on the fifth
day prior to the repurchase date, except in the discretion of the
Company.
A "Change of Control" of the Company will be deemed to
have occurred at such time as (i) any Person (including a
Person's Affiliates), becomes the beneficial owner (as defined
under Rule 13d-3 or any successor rule or regulation promulgated
under the Exchange Act) of 50% or more of the total permitted
voting power of the Company's Common Stock, (ii) Permitted
Holders shall cease to own beneficially at least 51% of the total
voting power of the Company's Common Stock, (iii) any Person
(including a Person's Affiliates and associates) becomes the
beneficial owner of more than 30% of the total voting power of
the Company's Common Stock, and Jurick beneficially owns, in the
aggregate, a lesser percentage of the total voting power of the
Common Stock of the Company than such other Person and does not
have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the Board of
Directors of the Company, (iv) there shall be consummated any
consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which
the Common Stock of the Company would be converted into cash,
securities or other property, other than a merger or
consolidation of the Company in which the holders of the Common
Stock of the Company outstanding immediately prior to the
consolidation or merger hold, directly or indirectly, at least a
majority of the Common Stock of the surviving corporation
immediately after such consolidation or merger, or (v) beginning
the date of the Indenture, during any period of two consecutive
years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with
any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Company
has been approved by 66 2/3% of the directors then still in
office who either were directors at the beginning of such period
or whose election or recommendation for election was previously
so approved) cease to constitute a majority of the Board of
Directors of the Company; provided, however, in any such event, a
Change of Control shall not be deemed to have occurred if Mr.
Jurick ceases to own beneficially 51%, but not less than 25%, of
the total voting power of the Company's Common Stock as a direct
result of an Approved Settlement and there is no other Person
which beneficially owns or controls a percentage of total voting
power of the Company's Common Stock equal to or greater than Mr.
Jurick. "Permitted Holders" means (i) Mr. Jurick, Fidenas
International, Elision or GSE, but, in the case of Fidenas
International, Elision or GSE, only if such entity is controlled
(as defined in the Indenture) by Mr. Jurick and (ii) the heirs,
executors, administrators testamentary, trustees, legatees or
beneficiaries of Mr. Jurick.
The Change of Control provisions described above may
deter certain mergers, tender offers and other takeover attempts
involving the Company. The Change of Control provisions will not
prevent a leveraged buyout led by the Company's management or a
recapitalization of the Company. In certain circumstances it may
be unclear as to whether a Change of Control has occurred. The
determination of whether a Change of Control has occurred is a
determination based on the facts and circumstances of the subject
transaction.
The Company will comply with the provisions of Rule 13e-413e-
4 and any other tender offer rules under the Exchange Act which
may then be applicable and will file a Schedule 13E-4 or any
other schedule required thereunder in connection with any offer
by the Company to purchase Debentures at the option of Holders
upon a Change in Control. The Change in Control purchase feature
is not, however, the result of management's knowledge of any
specific efforts to accumulate shares of Common Stock or to
obtain control of the Company by means of a merger, tender offer,
solicitation of proxies or consents or otherwise, or part of a
plan to implement a series of anti-takeover measures.
A "Designated Event" means the right to request the
Company to repurchase the Debentures and a Change of Control
shall constitute a Designated Event unless (i) the Closing Price
of the Common Stock is at least equal to 105% of the Conversion
Price of the Debentures in effect immediately preceding the time
of such Change of Control; (ii) all of the consideration
(excluding cash payments for fractional shares) in the
transaction giving rise to such Change of Control to the holders
of Common Stock consists of shares of Common Stock that are, or
immediately upon issuance will be, listed on a national
securities exchange or quoted on the Nasdaq National Market, and
as a result of such transaction the Debentures become convertible
solely into such Common Stock; or (iii) all of the consideration
in the transaction giving rise to such Change of Control to the
holders of Common Stock consists of cash, securities that are, or
immediately upon issuance will be, listed on a national
securities exchange or quoted on the Nasdaq National Market, or a
combination of cash and such securities, the aggregate fair
market value of such consideration (which, in the case of such
securities, shall be equal to the average of the daily Closing
Price of such securities during the ten consecutive Trading Days
commencing with the sixth Trading Day following consummation of
such transaction) is at least 105% of the Conversion Price of the
Debentures in effect on the date immediately preceding the
closing date of such transaction.
The Company, could, in the future, enter into certain
transactions, including certain recapitalizations of the Company,
that would not constitute a Change in Control under the
Debentures, but that would increase the amount of Senior
Indebtedness (or any other indebtedness) outstanding at such
time. The Company's ability to create any additional Senior
Indebtedness or additional Subordinated Indebtedness is limited
as described in the Debentures and the Indenture although, under
certain circumstances, the incurrence of significant amounts of
additional indebtedness could have an adverse effect on the
Company's ability to service its indebtedness, including the
Debentures. If a Change in Control were to occur, there can be
no assurance that the Company would have sufficient funds at the
time of such event to pay the Change in Control purchase price
for all Debentures tendered by the Holders thereof. A default by
the Company on its obligation to pay the Change in Control
purchase price could, pursuant to cross-default provisions,
result in acceleration of the payment of other indebtedness of
the Company outstanding at that time.
Certain of the Company's existing and future agreements
relating to its indebtedness could prohibit the purchase by the
Company of the Debentures pursuant to the exercise by a Holder of
the foregoing option, depending on the financial circumstances of
the Company at the time any such purchase may occur, because such
purchase could cause a breach of certain covenants contained in
such agreements. Such a breach may constitute an event of
default under such indebtedness and thereby restrict the
Company's ability to purchase the Debentures. See "Description
of the Debentures - Subordination."
Subordination
The payment of the principal of, premium, if any, and
interest on, the Debentures is, to the extent set forth in the
Indenture, subordinated in right of payment to the prior payment
in full of all Senior Indebtedness. Upon any payment or
distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the
benefit of creditors, or marshalling of assets, whether
voluntary, involuntary or in receivership, bankruptcy, insolvency
or similar proceedings, the holders of all Senior Indebtedness
will first be entitled to receive payment in full of all amounts
due or to become due thereon before any payment is made on
account of the principal of, any premium, if any, or interest on
the indebtedness evidenced by the Debentures or on account of any
other monetary claims, including such monetary claims as may
result from rights to repurchase or rescission, under or in
respect of the Debentures, before any payment is made to acquire
any of the Debentures for cash, property or securities. No
payments on account of principal of sinking fund requirements, if
any, or premium, if any, or interest on the Debentures shall be
made, and no Debentures shall be redeemed or repurchased, if at
the time thereof; (i) there is a default in the payment of all or
any portion of the obligations under any Senior Indebtedness; or
(ii) there shall exist a default in any covenant with respect to
the Senior Indebtedness (other than as specified in clause (i) of
this sentence), and, in such event, such default shall not have
been cured or waived or shall not have ceased to exist, the
Trustee and the Company shall have received written notice from
any holder of such Senior Indebtedness stating that no payment
shall be made with respect to the Debentures and such default
would permit the maturity of such Senior Indebtedness to be
accelerated, provided that no such default will prevent any
payment on, or in respect of, the Debentures for more than 120
days unless the maturity of such Senior Indebtedness has been
accelerated.
The Holders of the Debentures are subrogated to the
rights of the holders of the Senior Indebtedness to the extent of
payments made on Senior Indebtedness upon any distribution of
assets in any such proceedings out of the distributive share of
the Debentures.
By reason of such subordination, in the event of
insolvency, creditors of the Company, who are not holders of
Senior Indebtedness or of the Debentures, may recover less,
ratably, than holders of Senior Indebtedness, but may recover
more, ratably, than the Holders of the Debentures.
Senior Indebtedness is defined in the Indenture as (i)
the principal of all Indebtedness, now existing or hereafter
created, of the Borrower under or evidenced by the Senior Credit
Agreement (as defined in the Indenture); (ii) all interest with
respect to principal described in the foregoing clause (i) and
obligations described in clause (iii) of this definition
(including, without limitation, any interest accruing subsequent
to the commencement of any proceeding against or with respect to
the Company under federal bankruptcy law or any other proceedings
in insolvency, bankruptcy, receivership, reorganization,
dissolution, assignment for the benefit of creditors or other
similar case or proceeding whether or not such interest
constitutes an allowed claim in any such proceeding); and (iii)
all other Obligations (as defined in the Senior Credit Agreement)
then due and payable, now existing or hereafter arising under the
Senior Credit Agreement other than amounts referred to in clause
(i) of this definition, including, without limitation, premiums,
commitment, agency and other fees, expenses (including reasonable
and documented attorney's fees and disbursements payable
thereunder or in connection therewith) and indemnities then due
and payable thereunder; provided, however, Senior Indebtedness
shall not include (i) Indebtedness of the Company to a Subsidiary
or an Affiliate of the Company (including but not limited to
Jurick and his Affiliates), (ii) Indebtedness to, or guaranteed
on behalf of, any individual stockholder, director, officer,
employee or consultant of the Company (including, but not limited
to, Jurick and his Affiliates), or any of the Company's
Subsidiaries, and (iii) trade payables and other Indebtedness and
other amounts incurred in connection with obtaining goods,
materials or services.
The Debentures are obligations exclusively of the
Company. Except as described hereinafter, the Subsidiaries are
separate distinct entities that have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Debentures. In
addition, the payment of dividends, interest and the repayment of
certain loans and advances to the Company by the Subsidiaries may
be subject to certain statutory or contractual restrictions and
are contingent upon the earnings of such Subsidiaries. Moreover,
the right of the Company and, therefore, the right of creditors
of the Company (including Holders of Debentures) to receive
assets of any such Subsidiary upon the liquidation or
reorganization of any such Subsidiary or otherwise will be
effectively subordinated to the claims of the Subsidiaries'
creditors, except to the extent that the Company is itself
recognized as a creditor of such Subsidiary, in which case the
claims of the Company would still be subordinate to any secured
claim on the assets of such Subsidiary and any indebtedness of
such Subsidiary senior to that held by the Company.
Certain Covenants
Limitations on Dividends and Redemptions
Under the terms of the Indenture, Emerson has agreed
not to, and not to permit any Subsidiary to (a) declare or pay
any dividend, or make any other distribution on any Capital
Stock, except (i) dividends or distributions payable in Capital
Stock, (ii) dividends and distributions payable by the
Subsidiaries to the Company or its Wholly Owned Subsidiaries (as
defined in the Indenture), and (iii) that so long as no Default
or Event of Default shall have occurred and be continuing at the
time or as a consequence of the payment or distribution, the
Company may declare and pay during any fiscal year cash dividends
to the holders of the Series A Preferred Stock in accordance with
the terms of its Certificate of Designation, or (b) purchase,
redeem or otherwise acquire or receive for value any Capital
Stock acquired upon conversion thereof into other Capital Stock,
if, upon giving effect to such dividend, distribution, purchase,
redemption, retirement or other acquisition, a Default or Event
of Default shall have occurred and be continuing.
Limitation on Consolidation, Merger and Sale or
Acquisition of Assets.
Under the Indenture, the Company has agreed not to, and
except for Permitted Subsidiary Transactions, not to permit any
of its Subsidiaries, without the consent of the Holders of not
less than 66 2/3% in aggregate principal amount of the
Outstanding Debentures to: (i) consolidate with or merge into
any other Person or (ii) sell, lease, convey, or transfer, in a
single transaction or through a series of transactions, its
properties and assets substantially as an entirety to any Person
or Persons, or (iii) adopt a Plan of Liquidation, unless: (a)
either (x) the Company or such Subsidiary, as the case may be, is
the continuing surviving corporation or transferee or (y) the
corporation or other Person formed by such consolidation or into
which the Company or such Subsidiary, as the case may be, is
merged or the Person which acquires by sale, lease, conveyance,
transfer or other disposition, the properties and assets of the
Company or such Subsidiary shall be a corporation organized and
existing under the laws of the United States of America or any
State thereof or the District of Columbia, and shall expressly
assume, by a supplemental indenture executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and
punctual payment of the principal of (and premium, if any) and
interest on all the Debentures and the performance of every
covenant of the Indenture on the part of the Company to be
performed or observed; (b) the Person (or, in the case of (ii),
one Person to which property and assets are transferred) formed
by such consolidation or surviving such merger or to which the
properties and assets of the Company or such Subsidiary, as the
case may be, are sold, transferred, conveyed or leased as an
entirety or substantially as an entirety or pursuant to a Plan of
Liquidation shall have a Consolidated Net Worth immediately after
such transaction, equal to or greater than that of the Company or
such Subsidiary, as the case may be, immediately preceding, and
without giving effect to, such transaction; (c) immediately after
giving effect to such transaction, no Default or Event of
Default, and no event which, after notice or lapse of time, or
both, would become an Event of Default, shall have happened and
be continuing; (d) such transaction shall be on such terms as
shall not impair the rights and powers of the Trustee or the
Holders of Debentures or have a Material Adverse Effect; and (e)
certain other conditions are met.
Limitations on Additional Indebtedness
The Company has agreed in the Indenture not to, and not
to permit any of its Subsidiaries to, directly or indirectly,
Incur any Indebtedness (other than Permitted Indebtedness)
unless, after giving pro forma effect to the Incurrence thereof,
(i) no Default or Event of Default shall have occurred and be
continuing at the time or as a consequence (as defined in the
Indenture) of the Incurrence of such Indebtedness, (ii) the
Consolidated Interest Coverage Ratio (as defined in the
Indenture) of the Company and its consolidated Subsidiaries is
greater than 1.75 to 1, and (iii) such Indebtedness constitutes
Subordinated Indebtedness.
Contingency for Sinking Fund Under Certain
Circumstances
If the Company provides for one or more sinking funds
for securities representing indebtedness for money borrowed
ranking equal or junior to the Debentures, and such indebtedness
has a maturity or weighted average time to maturity which is on
or prior to the maturity date of the Debentures, the Company will
provide a sinking fund for the Debentures calculated to retire
that amount of Debentures equal to the lesser of (i) the same
percentage of outstanding Debentures prior to maturity as the
percentage of the principal amount of such other indebtedness to
be retired prior to maturity on the same payment schedule as such
other indebtedness or (ii) such amount of Debentures necessary to
result in the Debenture having the same weighted average time to
maturity as other indebtedness. Except as set forth herein with
respect to the credit against mandatory sinking fund payments,
the redemption price and other terms of the sinking fund
applicable to the Debentures shall be the same as those
applicable to the relevant indebtedness, except that the
redemption price of the Debentures in connection with the sinking
fund shall be 100% of the principal amount thereof plus accrued
and unpaid interest to the date fixed for redemption. The
Company may, at its option, receive credit against mandatory
sinking fund payments for the principal amount of (i) Debentures
acquired by the Company and surrendered for cancellation, (ii)
Debentures previously converted into Common Stock and (iii)
Debentures redeemed or called for redemption otherwise than
through the operation of the sinking fund.
Limitations on Liens
The Company has agreed not to, and, except for
Permitted Subsidiary Transactions, not to permit any of its
Subsidiaries to, directly or indirectly, Incur (as defined in the
Indenture) any Lien (as defined in the Indenture) upon any of the
property or assets (tangible or intangible) of the Company or any
of its Subsidiaries or any shares of stock or debt of any
Subsidiary which owns property or assets, now owned or hereafter
acquired (including Capital Stock (as defined in the Indenture)),
other than Permitted Liens (as defined in the Indenture).
Permitted Liens is defined in the Indenture to exclude any Lien
of any nature whatsoever on trademarks, service marks,
copyrights, tradenames, or application for the foregoing, of any
of the Company or its Subsidiaries.
Limitations on Sales of Assets
The Company has agreed not to and not to permit any of
its Subsidiaries to, directly or indirectly, consummate any Asset
Sale or otherwise permit an Asset Sale to occur, as the case may
be, (A) unless (i) the Company or such Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at
least equal to the fair market value of the property or other
assets subject to such Asset Sale (as determined in good faith by
a majority of the Independent Directors of the Company, as
evidenced by a Board Resolution, or as determined based upon an
opinion letter from an Independent Appraiser, which opinion
letter shall identify such Independent Appraiser as such and
shall be dated within 30 days of such Asset Sale), (ii) the
consideration therefor received by the Company or such Subsidiary
is in the form of cash or Cash Equivalents, (iii) the fair market
value of the property or other assets sold or otherwise disposed
of does not exceed $4,000,000 individually or in the aggregate,
during any consecutive 12 month period for all Asset Sales, and
(iv) such Asset Sale shall not have a Material Adverse Effect, or
(B) except (i) for sales of the Company's Common Stock (not
exceeding, singly or in the aggregate, 15% of the Company's then
outstanding voting stock) pursuant to an offering on behalf of
the Company effected at a discount of not more than seven percent
(7%) from the then Closing Price, (ii) if after giving pro forma
effect to the such offering, no Default or Event of Default shall
have occurred and be continuing at the time or as a consequence
of the offering, and (ii) not involving an Affiliate Transaction.
Not later than 10 business days prior to the occurrence
of any Asset Sale by the Company or any of its Subsidiaries that
will cause the aggregate amount of all Net Proceeds of Asset
Sales by the Company and/or its Subsidiaries in any year to
exceed $4,000,000, the Company shall notify the Trustee in
writing of the occurrence of such Asset Sale.
Limitation on Sale or Issuance of Capital Stock of
Subsidiaries
Except for Permitted Subsidiary Transactions the
Company has agreed not to (a) sell or otherwise convey or dispose
of any Capital Stock of any of its Subsidiaries, except to a
Wholly-Owned Subsidiary of the Company, or (b) permit any
Subsidiary to issue or sell to any Person, except the Company or
a Wholly-Owned Subsidiary, (A) any preferred stock of such
Subsidiary or (B) any other Capital Stock of Subsidiaries.
Limitations on Investments, Loans and Advances
Except for Permitted Subsidiary Transactions, the
Company has agreed not to make, and not to permit any of its
Subsidiaries to make, any capital contributions, advances or
loans to (including any guarantees of loans to), or investments
or purchases of Capital Stock in, any Person (collectively,
"Investments"), except: (i) Investments represented by accounts
receivable created or acquired in the ordinary course of
business; (ii) advances to employees in the ordinary course of
business not exceeding $50,000 per employee in any 12-month
period and not exceeding $250,000 in aggregate advances for all
employees in any 12-month period; (iii) certain Investments
arising in connection with Indebtedness permitted pursuant to the
Indenture; and (iv) cash and Cash Equivalents.
Limitation on Transactions with Affiliates
Under the terms of the Indenture, the Company may not,
and may not permit any of its Subsidiaries to, directly or
indirectly, enter into any transaction or series of related
transactions (including, but not limited to, the sale, purchase,
exchange, lease, transfer or other disposition of any properties,
assets or services to, or the purchase of any property, assets or
services from, or the entry into any contract, agreement,
undertaking, loan, advance or guarantee) with, or for the benefit
of, an Affiliate (an "Affiliate Transaction"), or extend, renew,
waive or otherwise modify the terms of any Affiliate Transaction
entered into prior to the date of issuance of the Debentures
unless (i) such Affiliate Transaction is between or among the
Company and its Wholly-Owned Subsidiaries, or (ii) the terms of
such Affiliate Transaction are fair and reasonable and at least
as favorable to the Company or such Subsidiary, as the case may
be, than those that could have been obtained in a comparable
arm's length transaction by the Company or such Subsidiary with
an unrelated Person, and such Affiliate Transaction is entered
into in the ordinary course of business of the parties thereto;
provided, however, notwithstanding anything to the contrary
contained in this paragraph, the Company may issue securities
pursuant to the exercise of outstanding options and warrants on
the terms in effect and described in this Prospectus. All
Affiliate Transactions must be approved in good faith by the
Board of Directors of the Company and majority of the Independent
Directors thereof, and such approval evidenced by a Board
resolution that such transaction meets the criterion set forth in
(i) or (ii) above.
Limitation on Prepayments
Neither the Company nor any of its Subsidiaries shall
voluntarily prepay any outstanding Indebtedness (as defined in
the Indenture), whether or not permitted by the terms of such
outstanding Indebtedness or by the agreement, indenture or
instrument creating or evidencing such outstanding Indebtedness;
provided, however, the Company and the Subsidiaries may prepay
any Senior Indebtedness to the extent permitted thereunder.
Independent Directors
Under the terms of the Indenture, prior to the Closing
Date, the Company has agreed to use its best efforts to cause at
least one-third of the members constituting the Company's entire
Board of Directors to be Independent Directors (as defined in the
Indenture) for the term of the Debentures. Any settlement or
other disposition of the litigation involving Mr. Jurick and
related entities and affiliates requires the approval of a
majority of three members of the Board of Directors (including
the Independent Directors and Mr. Eugene Davis) to the extent
such settlement or other disposition (i) includes the grant of
registration rights of any kind, and/or (ii) contemplates a
Transfer (as defined in the Indenture) of any securities which
might adversely impact the market price of the Common Stock. In
the context of any such Board vote, the Indenture requires the
Company to expressly instruct the Independent Directors to
consider the interests of the Holders.
Payments for Consent
The Indenture provides that neither the Company nor any
of its Subsidiaries shall, directly or indirectly, pay or cause
to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder of any Debentures for or as an
inducement to any consent, waiver or amendment of any of the
terms or provisions of the Indenture or the Debentures unless
such consideration is offered to be paid or agreed to be paid to
all Holders of the Debentures which so consent, waive or agree to
amend in the time frame set forth in solicitation documents
relating to such consent, waiver or agreement.
The Company has also covenanted and agreed to be bound
by certain other restrictive covenants, as more fully described
in the Indenture.
Events of Default
The Indenture defines the following as "Events of
Default": (1) default for a period of 30 days in the payment of
any interest on any Debenture when it becomes due and payable,
whether or not such payments are prohibited by the subordination
provisions of the Indenture; or (2) default in the payment of the
principal of (or premium, if any, on) any Debenture at its
Maturity, whether or not such payments are prohibited by the
subordination provisions of the Indenture; or (3) default in the
payment of the Repurchase Price or Redemption Price on any
Debentures, whether or not such payments are prohibited by the
subordination provisions of the Indenture; or (4) default in the
performance, or breach, of any covenant or warranty of the
Company in the Debentures or the Indenture, and continuance of
such default or breach for a period of 60 days after the Trustee
has given the Company, or the Holders of at least 25% in
principal amount of Outstanding Debentures have given the Company
and the Trustee, a written notice specifying such default or
breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" under the Indenture; or (5)
default on any Indebtedness of the Company or any Subsidiary of
the Company in excess of $1,000,000 which results in such
Indebtedness being declared due and payable after the expiration
of any applicable grace period or becoming due and payable; or
(6) an "Event of Default" as defined in the Senior Credit
Agreement resulting in such Senior Indebtedness being declared
due and payable after the expiration of any applicable grace
period or becoming due and payable; or (7) the entry of one or
more judgments (not paid or fully covered by insurance) against
the Company or any of its Subsidiaries in an aggregate amount in
excess of $1,000,000 (after deduction for the applicable
insurance coverage), which judgments are not vacated, discharge
or stayed or bonded pending appeal within 30 days from the entry
thereof; or (8) certain events of bankruptcy, insolvency, or
reorganization; or (9) the failure by the Company to have in
place for any consecutive seven day period an effective and
enforceable Senior Credit Facility.
If an Event of Default shall occur and be continuing
(other than an Event of Default resulting from certain events of
bankruptcy, insolvency, reorganization or the Company's failure
to have in place an effective and enforceable Senior Credit
Facility as described in clause (8) of the immediately preceding
paragraph) either the Trustee or the Holders of not less than 25%
in aggregate principal amount of Outstanding Debentures may
accelerate the maturity of all such Outstanding Debentures.
Prior to acceleration of maturity of such Debentures, the Holders
of at least 66-2/3% in aggregate principal amount of Outstanding
Debentures may waive any past defaults under the Indenture,
except for default in the payment of principal (or premium, if
any) or interest on any Debenture or in the payment of any
Repurchase Price or Redemption Price which may be due and payable
and except for certain covenants as provided in the Indenture.
The Holders of at least 66-2/3% in principal amount of
Outstanding Debentures may waive an Event of Default resulting in
acceleration, and annul the acceleration, of such Debentures, but
only if all the Events of Default have been remedied and all
payments (other than those due as a result of acceleration) have
been made.
The Company must furnish the Trustee annually with a
statement of certain officers of the Company as to their
knowledge of defaults.
Modification, Waiver and Satisfaction of Indenture
With certain exceptions that permit modifications of
the Indenture by Emerson and the Trustee only, the Indenture, the
rights and obligations of Emerson and the rights of Holders of
Debentures may be modified by the Company with the consent of
Holders of not less than 66-
2/66-2/3% in aggregate principal amount of
Outstanding Debentures affected thereby; provided that Emerson
may make no such modification without the consent of the Holder
of each Debenture affected thereby if such modification would:
(1) change the Stated Maturity of the principal
of, or any installment of interest on, any Debenture or
reduce the principal amount thereof or the rate of
interest thereon or any premium payable upon the
redemption thereof, or change the time or place of
payment where, or the coin or currency in which, any
Debenture or any premium or the interest thereon is
payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or
after the Redemption Date or, in the case of a
repurchase, on or after 10 days following the
Repurchase Date), or adversely affect the right to
convert any Debenture (except as permitted by
subparagraph (4) hereof);
(2) reduce the percentage in principal amount of
the Outstanding Debentures, the consent of whose
Holders is required for any such supplemental
indenture, or the consent of whose Holders is required
for any waiver (of compliance with certain provisions
of the Indenture or certain defaults hereunder and
their consequences) provided for in the Indenture;
(3) modify any of the provisions of this covenant
or the provisions regarding waiver of past defaults,
except to increase the percentage of Holders required
to waive a past default under the Indenture or to
provide that certain other provisions of the Indenture
cannot be modified or waived without the consent of the
Holder of each Outstanding Debenture affected thereby;
(4) modify or impair the absolute and
unconditional right of the Holder of any Debenture to
receive payment of the principal of (and premium, if
any) and interest on such Debenture on the respective
Stated Maturities expressed in such Debenture (or, in
the case of redemption, on the Redemption Date) and to
convert such Debenture pursuant to the Indenture and to
institute suit for the enforcement of any such payment
and right to convert without the consent of such
Holder;
(5) waive a Default or Event of Default in the
payment of principal of (and premium, if any) or
interest on, or redemption payment with respect to, any
Debenture (other than a Default or Event of Default in
the payment of an amount due as a result of an
acceleration if the Holders rescind such acceleration);
or
(6) adversely modify or affect (in any manner
adverse to the Holders) the terms and conditions of the
obligations of the Company under the Indenture to
repurchase the Debentures.
No supplemental indenture shall affect adversely the rights of
the holders of Senior Indebtedness without the consent of such
holders.
The Holders of at least 66-2/3% in aggregate principal
amount of Outstanding Debentures may waive Emerson's compliance
with certain restrictive provisions of the Indenture.
Upon cancellation of all of the Debentures or, with
certain limitations, upon Emerson's deposit with the Trustee of
funds sufficient therefor, Emerson may satisfy and discharge the
Indenture.
The Trustee
Bank One, Columbus, NA, is the Trustee under the
Indenture.
DESCRIPTION OF OTHER SECURITIES
The Company's authorized capital stock consists of
75,000,000 shares of Common Stock, par value $.01 per share, and
1,000,000 shares of Preferred Stock, par value $.01 per share.
The Company intends to request stockholder approval to increase
the authorized number of shares of Preferred Stock to 10,000,000.
Outstanding Common Stock
As of September 15,October 20, 1995, 40,252,772 shares of Common Stock
are outstanding. All of the issued and outstanding shares of
Common Stock are fully paid and non-assessable. Each share of
Common Stock has one vote on all matters to which stockholders
are entitled or permitted to vote upon, including the election of
directors. There are no cumulative voting rights. Shares of
Common Stock would participate ratably in any distribution of
assets in a liquidation, dissolution or winding up of the Company
subject to prior distribution rights of any shares of Preferred
Stock then outstanding. The Common Stock has no preemptive
rights or conversion rights nor are there any redemption or
sinking fund provisions applicable to the Common Stock. Subject
to the rights of the holders of the Series A Preferred Stock,
holders of Common Stock are entitled to participate in dividends
if and when declared by the Company's Board of Directors out of
funds legally available therefor. The Company's ability to pay
cash dividends is subject to certain restrictions. See
"Description of Debentures" and "Description of Other Securities
- - Dividend Policy Regarding Common Stock."
The transfer agent and registrar for the Common Stock is the
American Stock Transfer & Trust Company.
Outstanding Preferred Stock
The Certificate of Incorporation provides that the Board of
Directors of the Company may authorize the issuance of one or
more series of preferred stock having such rights, including
voting, conversion and redemption rights and such preferences,
including dividend and liquidation preferences, as the Board may
determine without any further action by the stockholders of the
Company which could adversely affect the voting rights of the
holders of Common Stock.
There are currently 10,000 shares of Series A Preferred
Stock outstanding, $10 million face value in the aggregate, which
were issued pursuant to the Plan of Reorganization and are held
as of the date hereof by 21 holders. Series A Preferred Stock is
convertible into Common Stock of the Company at any time during
the period beginning on the third anniversary of the issuance
date of the Series A Preferred Stock, March 31, 1994 (the
"Issuance Date"), and ending on the eighth anniversary thereof.
The Series A Preferred Stock will be convertible into Common
Stock at a price per share of Common Stock equal to 80% of the
then market value of a share of Common Stock (determined on a 60
day average prior to conversion). The Series A Preferred Stock
bears dividends as described below, prohibits Common Stock
dividends unless Series A Preferred Stock dividends are paid or
set aside, provides for the appointment of two directors if
Series A Preferred Stock dividends are in default for six
consecutive quarters and has other customary priorities. In the
event of liquidation, dissolution or winding-up of the Company,
the Series A Preferred stockholders are entitled to receive an
amount equal to $1,000 per share, plus a sum equal to cumulative
dividends accrued and unpaid, prior to any payment or
distribution to any other class or series of stock ranking
junior.
Dividend Policy Regarding Common Stock
The Company's policy has been to retain all available
earnings, if any, for the development and growth of its business.
The Company has never paid cash dividends on its common stock.
In deciding whether to pay dividends on the Common Stock in the
future, the Company's Board of Directors will consider factors it
deems relevant, including the Company's earnings and financial
condition and its working capital and anticipated capital
expenditures. The Company's existing United States secured
credit facility contains and, if consummated, the terms of the
contemplated Facility will contain, and the Indenture relating to
the Debentures will contain, certain dividend payment
restrictions on the Company's Common Stock. Also, the Company's
Certificate of Incorporation defining the rights of the Series A
Preferred Stock prohibits Common Stock dividends unless Series A
Preferred Stock dividends are paid or put aside.
Dividend Policy Regarding Series A Preferred Stock
The Company's Series A Preferred Stock earns dividends based
on a $1,000 per share stated value commencing June 30, 1994,
payable on a quarterly cumulative basis at (i) a 7% dividend rate
during the period beginning on the Issuance Date, and ending on
the day before the third anniversary thereof, (ii) a 5.6%
dividend rate during the period beginning on the third
anniversary of the Issuance Date and ending on the day before the
fourth anniversary thereof, (iii) a 4.2% dividend rate during the
period beginning on the fourth anniversary of the Issuance Date
and ending on the day before the fifth anniversary thereof, (iv)
a 2.8% dividend rate during the period beginning on the fifth
anniversary of the Issuance Date and ending on the day before the
sixth anniversary thereof, (v) a 1.4% dividend rate during the
period beginning on the sixth anniversary of the Issuance Date
and ending on the day before the seventh anniversary thereof, and
(vi) a 0% dividend rate thereafter.
Potential Anti-Takeover Implications
Under certain circumstances, an increase in the number of
shares of Common Stock or the authorization of a new series of
preferred stock could provide corporate management with a means
to discourage a change of control, such as through the issuance
to stockholders of rights to purchase shares of preferred stock
or additional shares of Common Stock at prices below the then
current market price. Such intentions to prevent or to
discourage changes of control could be accomplished without
further stockholder approval. However, the Board of Directors
has no present intention of using the preferred stock or the
additional shares of Common Stock for such a purpose and is not
aware that any takeover or similar action is contemplated.
Certain Provisions of Governing Documents
The Company's Certificate of Incorporation contains an
express election not to be governed by Section 203 of the
Delaware General Corporation Law ("Delaware Law"). Section 203
provides generally that a corporation may not engage in certain
transactions with an "interested stockholder" (as defined) within
a period of three years after the interested stockholder becomes
such, unless certain conditions are met. Because Fidenas
International may be deemed to be an "interested stockholder"
within the meaning of Section 203, the effect of such election is
to permit certain transactions between the Company and Fidenas
International, including certain business combinations and
issuances of securities, which would not be permitted (unless
certain conditions are met) were Section 203 to apply. No
transactions or business combinations to which Section 203 would
apply are currently contemplated by the Company, but for the
Company's election not to be governed by such section.
In addition, certain provisions of the Company's Certificate
of Incorporation and By-Laws, including provisions (i)
authorizing the Board of Directors to create new series of
preferred stock, (ii) providing that any action requiring
stockholder consent must be effected at a meeting as opposed to
by consent in writing and (iii) setting forth that directors may
only be removed for cause, upon the affirmative vote of at least
80% of the voting securities then outstanding, voting together as
a single class, may make it more difficult for a third party to
make, or may discourage a third party from making, an acquisition
proposal for the Company or initiating a proxy contest and may
thereby inhibit a change in control of the Company or the removal
of incumbent management or directors.
The Company has included in its Certificate of Incorporation
and By-
LawsBy-Laws provisions to (i) eliminate the personal liability of
its directors for monetary damages resulting from breaches of
their fiduciary duty (other than breaches of the duty of loyalty,
acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under
Section 174 of the Delaware Law or for any transactions from
which the director derived an improper personal benefit) and (ii)
indemnify its directors and officers to the fullest extent
permitted by Section 145 of the Delaware Law, including
circumstances in which indemnification is otherwise
discretionary. The Company believes that these provisions are
necessary to attract and retain qualified persons as directors
and officers.
Price Range of the Company's Common Stock
The Company's Common Stock has traded on the AMEX 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 the consummation of the Restructuring, there were
approximately 4,500 shareholders of record of the common stock of
the Company's predecessor. The shares of such shareholders were
terminated and canceled on the effective date of the confirmed
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.
The following table sets forth the range of high and low
closing bid prices for the Company's Common Stock as reported by
the National Quotations Bureau for the period September 1, 1994
through December 21, 1994 and the range of high and low last
reported sales prices as reported by the AMEX from December 22,
1994.
High Low
Fiscal 1995
Second Quarter $ 1-1/2 $ 1
Third Quarter 2-7/8 15/16
Fourth Quarter 3-3/8 2
Fiscal 1996
First Quarter $ 3-1/8 $ 2-1/4
Second Quarter (through
September 15, 1995) 3-3/4 2-1/4
Third quarter (through 3 2-5/8
October 20, 1995
On September 15,October 20, 1995, the last sale price of the Common Stock
as reported by the AMEX was $3.3125$2.6875 per share. As of September 15,October 23,
1995, there were approximately 459 stockholders of record.
Common Stock Eligible for Future Sale
As of March 31,October 23, 1995 the Company has 40,252,772 shares of
Common Stock outstanding, in addition to the Creditor's Warrants
and the Series A Preferred Stock. Of the outstanding shares of
Common Stock, an aggregate of 3,333,333 shares initially issued
to the Bank Lenders and the Noteholders, in addition to the
769,446 Shares issued in February 1995, are freely tradeable
without restriction or further registration under the Securities
Act. In addition, the Creditor's Warrants, shares of Common
Stock underlying the Creditor's Warrants, Series A Preferred
Stock, and Common Stock underlying the Series A Preferred Stock
and the 6,149,993 shares sold in the public offering authorized
by the Plan of Reorganization are freely tradeable. All of the
securities issued pursuant to the Plan of Reorganization
described above are deemed to be freely tradeable by virtue of
Section 1145 of the Bankruptcy Code, provided the holders thereof
are not deemed affiliates of the Company. Also, the Company has
outstanding options to acquire 1,890,000 shares of Common Stock,
granted in accordance with Rule 701 of the Securities Act, which
may be sold under certain conditions. The 30 million shares
issued pursuant to the Plan of Reorganization to Fidenas
International, Elision and GSE, and currently outstanding, are
"restricted securities" within the meaning of Rule 144 and are
eligible for sale in the public market in reliance upon Rule 144
commencing April 1996, subject to applicable volume restrictions,
to the extent that Fidenas International, Elision and GSE are
deemed to be "affiliates" of the Company, as that term is defined
under the Securities Act. The Placement Agent has agreed,
subject to the granting of registration rights in accordance with
the requirements of the Indenture and applicable law, to permit
the registration of up to 5,000,000 shares of Common Stock owned
by GSE, Fidenas International and Elision, which registration
rights were subsequently approved by the Board of Directors of
the Company. The Company intends to file a registration
statement related thereto with the commission in the near future.
Also, the holders of such shares of Common Stock and the officers
and directors of the Company, with certain exceptions, have
agreed to additional restrictions on the transfer of their shares
for a period of 12 months. See "Description of Debentures."
In addition, the Company has been advised by Mr. Jurick that
current settlement discussions regarding the litigation described
under "Legal Proceedings - Litigation Regarding Certain
Outstanding Common Stock" include discussions regarding the
possible sale of a portion of the shares of Common Stock
beneficially owned by him to fund settlement payments. In this
regard, it is anticipated that the Company may be requested in
the future, subject to the restrictions described in the
Indenture, to register the resale of certain of such shares. The
Placement Agent has, pursuant to an agreement with Mr. Jurick and
certain affiliated entities, an exclusive right to sell a certain
number of these shares in furtherance of the settlement. See
also "Plan of Distribution - Certain Restrictions on Officers,
Directors and Certain Stockholders." There can be no assurance
that a settlement will be reached or consummated or on favorable
terms. Moreover, any settlement and/or sales of Common Stock
thereunder may have an adverse effect on the market for the
Company's securities. See "Risk Factors - Litigation Relating to
Common Stock."
In general, under Rule 144, as currently in effect, a person
(or persons whose shares are aggregated), including persons who
may be deemed to be "affiliates" of the Company, as that term is
defined under the Securities Act, is entitled to sell within any
three-month period a number of restricted shares beneficially
owned for at least two years that does not exceed the greater of
(i) one percent of the then outstanding Common Shares, or (ii)
the average weekly trading volume in the Common Shares during the
four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain requirements as to the manner of
sale, notice and the availability of current public information
about the Company. However, a person who is not an affiliate and
has beneficially owned such shares for at least three years is
entitled to sell such shares without regard to the volume or
other resale requirements.
Creditor's Warrants
The Company has issued 750,000 Creditor's Warrants to the
Noteholders in connection with the consummation of the Plan of
Reorganization, which are held as of the date hereof by 11
holders. Each Creditor's Warrant entitles the holder thereof to
acquire one share of Common Stock at an exercise price of $1.00
per share until March 31, 1997, and escalating $0.10 per share
per annum thereafter until the expiration of the Creditor's
Warrants on March 31, 2001, subject in all events to standard
anti-dilution adjustments. All of these Creditor's Warrants are
currently exercisable, and the Company believes that the
Creditor's Warrants and the shares of Common Stock underlying
them are freely tradeable by virtue of Section 1145 of the
Bankruptcy Code, provided the holders thereof are not deemed
affiliates of the Company. See "Description of Other Securities
- - Common Stock Eligible for Future Sale." In connection with the
granting of the Creditor's Warrants, the Company granted the
holders thereof certain demand and incidental registration
rights, to the extent that the underlying shares of Common Stock
may not be freely tradeable by virtue of Section 1145 of the
Bankruptcy Code.
Placement Agent's Warrants
The Company has issued to the Placement Agent and its
authorized dealers five year warrants (the "Warrants") to
purchase 500,000 Shares of Common Stock, subject to adjustment
under certain circumstances. The Warrants shall be exercisable
at any time during a period of four years commencing at the
beginning of the second year after their issuance and sale at a
price equal to 100% of the initial Conversion Price subject to
adjustment under certain circumstances. The Company has granted
certain customary "piggyback" and "demand" registration rights
with respect to the Warrants.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary is a general discussion of certain of
the Federal income tax consequences of the Restructuring to the
Company and the purchase of Debentures to prospective investors.
The summary is based upon relevant provisions of the Code, the
applicable Treasury Regulations promulgated thereunder (the
"Treasury Regulations" or "Regulations"), judicial authority and
current administrative rulings and practice, all of which are
subject to change, possibly on a retroactive basis. The Company
has not requested a ruling from the Internal Revenue Service (the
"Service") with respect to these matters.
Tax Consequences of the Restructuring to the Company
Discharge of Indebtedness
Under the Code, a taxpayer generally must include in gross
income the amount of any discharged indebtedness realized during
the taxable year. No income is recognized, however, where a
taxpayer has a discharge of indebtedness while under Chapter 11
of the Bankruptcy Code, provided the taxpayer is under the
jurisdiction of the court and the cancellation of indebtedness is
granted by the court or is pursuant to a plan approved by the
court. However, the Code generally provides that the amount so
excluded from income reduces the tax attributes (see below) of
the taxpayer. The Code, as in effect on the date of the
Restructuring, contained an exception to the rule requiring
reduction of tax attributes (the "Stock-for-Debt Exception") for
a debtor corporation that transfers its own stock to a creditor
in satisfaction of its indebtedness while such corporation is
under Chapter 11 of the Bankruptcy Code.
The Stock-for-Debt Exception does not apply when, among
other tests, "nominal or token" shares are issued in exchange for
debt (the "Nominal/Token Rule"). The Nominal/Token Rule has only
been in the Code since 1980 and the Code does not define the term
"nominal or token" shares. There were no reported cases
interpreting the Nominal/Token Rule, nor were Treasury
Regulations or Revenue Rulings in effect at the time of the
Restructuring that governed the tax consequences of this aspect
of the Restructuring (although Regulations were promulgated by
the Treasury Department prior to the Restructuring, they are only
effective with respect to debt restructuring that occurred after
the Restructuring was completed).
If the Stock-for-Debt exception does not apply to the
Company's issuance of stock to creditors in satisfaction of
Company indebtedness (the "Exchange"), the Company's NOLs and
TCCOs would be eliminated. In addition, the Company's tax basis
in its assets would be reduced, but not below the aggregate
liabilities of the reorganized Company immediately after the
discharge of indebtedness.
The courts have not yet ruled on what factors should be
considered in determining whether stock issued to creditors is
nominal or token. Over the years the Service has proposed
various methods of applying the Nominal/Token Rule, and, in 1994,
it adopted a safe harbor ("Rev. Proc. 94-26") agreeing not to
treat the issuance of common stock as nominal or token if the
value of common stock issued to creditors for unsecured debt is
at least 15% of the value of all stock (including preferred
stock) outstanding after that exchange. The Exchange did not
satisfy that safe harbor. The Service also has issued
Regulations that generally are unfavorable to the Company, in
part because they treat preferred stock less favorably than
common stock in applying the Nominal/Token Rule. Neither Rev.
Proc. 94-26 nor the Regulations govern the Exchange, since by
their terms they do not apply to a plan of reorganization
confirmed by a bankruptcy court before May 18, 1994 and, in any
event, Rev. Proc. 94-26 only sets forth a safe harbor for
taxpayers that meet its test. Although no assurance can be given
that a court would reject the Service's interpretation of the
Nominal/Token Rule and although there is no definitive applicable
precedent, counsel believes that the better view is that the
stock issued to creditors in satisfaction of Company indebtedness
was not nominal or token and thus the Exchange should qualify for
the Stock-for-Debt Exception. In rendering its opinion, counsel
relied on certain factual representations made by the Company
about the value of stock and other consideration received by
creditors and others under the Plan and about the amount of
unsecured debt held by creditors at the time of the Exchange. The
balance of the description of Tax Consequences to the Company
assumes that the Stock-for-Debt Exception applies to the
Exchange.
Tax Attributes
For Federal income tax purposes, the Company has substantial
consolidated NOLs and consolidated TCCOs. As of March 31, 1995,
the Company had approximately $95 million of NOLs. The Company's
ability to utilize the NOLs is materially limited under Section
382 of the Code, as discussed below.
As of March 31, 1995, the Company had approximately $1.1
million of TCCOs, which all expire in 1996. The Company's
ability to utilize the TCCOs is limited under Section 383 of the
Code, which applies rules similar to those limiting NOLs under
Section 382, as discussed below.
Sections 382 and 383 of the Code provide rules governing the
utilization of a corporation's NOLs and TCCOs following an
"ownership change." An ownership change occurs, in general, if
the percentage of stock owned by one or more "5-percent
stockholders" has increased, in the aggregate, by more than 50
percentage points relative to the lowest percentage of stock
owned by such 5-percent stockholders during a specified period.
For this purpose, all stock owned by persons who own less than 5%
of a corporation's stock is generally treated as stock owned by a
single 5-percent stockholder.
An ownership change occurred with respect to the Company on
March 31, 1994 as a result of the Restructuring. Accordingly,
the amount of the Company's taxable income in any year ending
after the ownership change that may be offset by its prechange
NOLs (or TCCOs), in general, is limited to an amount (the
"Section 382 Limitation") equal to the product of (i) the value
of the Company's outstanding stock immediately after the
Restructuring and (ii) 5.15%, the long-term tax exempt rate (as
published by the Treasury Department) for ownership changes
occurring during March 1994. The Company estimates that the
annual Section 382 Limitation will be approximately $2,200,000.
In addition, if the Company had either net built-in gains or net
built-in losses (as defined in the Code) above certain threshold
levels, and those gains or losses are actually recognized within
a five year period, the effect would be to either increase the
Section 382 Limitation by such gains recognized, or treat those
losses recognized as pre-change losses, respectively.
In addition to this Debenture Offering, the Company is
considering a number of other transactions, and there are certain
other possible transactions beyond the Company's control, which,
in the aggregate, may trigger a second, future, ownership change
within the meaning of Section 382. A second ownership change
could cause the amount of the Section 382 Limitation to be
reduced below $2,200,000, thereby reducing the value of the NOLs
to the Company.
However, in the Company's opinion, if an ownership change
were to occur as of the date of this Prospectus, such a further
reduction in the annual Section 382 Limitation would not result.
While the Section 382 Limitation must be re-calculated after each
ownership change, in the case of successive ownership changes,
the smallest of the Section 382 Limitations will be applicable.
The Company's market value and the long term tax exempt rate have
both increased since the initial ownership change.
The Section 382 Limitation is reduced to zero if a
corporation does not continue its business enterprise (i.e.,
maintain a significant line of business) for the two-year period
following the ownership change. In addition, a corporation's
ability to utilize its NOLs and TCCOs will be disallowed if the
corporation is acquired for the principal purpose of tax
avoidance (see the discussion below relating to Section 269 of
the Code).
Section 269 of the Code authorizes the Service to disallow
any deduction, credit, or other allowance of a corporation if
control (i.e., ownership of stock having at least 50% of the
voting power or value of all of the corporation's outstanding
stock) of the corporation is acquired principally for the purpose
of evading or avoiding Federal income taxes by securing the
benefit of such deduction, credit, or other allowance. While the
existence of a principal tax-avoidance purpose is purely a
question of fact, and thus not one on which counsel can opine,
the Company believes that Section 269 of the Code should not
apply to the transactions provided for under the Plan of
Reorganization.
Tax-free Reorganization
Code section 368(a)(1)(G) classifies as a "reorganization"
(a "(G) reorganization") a transfer by a corporation (e.g., the
predecessor Company) of all or a part of its assets to another
corporation (e.g., the post-merger Company, sometimes referred to
as "Emerson (Del)") in a Chapter 11 case, but only if, in
pursuance of the plan, stock or securities of the transferee
(e.g., Emerson (Del)) are distributed in a transaction which
qualifies under Code sections 354, 355 or 356 (the "Distribution
Requirement"). In addition, a so-called "continuity of interest
test" must be satisfied. As a tax-free reorganization, the
Company would not recognize gain or loss as a result of the
Restructuring and the Company would succeed to the predecessor
Company's tax attributes.
If a court were to find that the Restructuring did not
constitute a reorganization within the meaning of Section
368(a)(1) of the Code, the principal tax consequence would be
that the Company would not succeed to the predecessor Company's
tax attributes (so that, for example, the Company could not use
the predecessor Company's NOL carryforward or TCCO carryforward);
further, the Company's tax basis in certain of the assets it
acquired from the predecessor Company as part of the
Restructuring would be less than the predecessor Company's tax
basis in those assets immediately before the Restructuring was
consummated, so that the Company's taxable income could be
greater than it would be if the Restructuring constituted a
tax-free reorganization.
To satisfy the aforementioned continuity of interest test,
the equity owners of a corporation generally must receive a
substantial portion of their total consideration in stock. It is
not certain who is treated as an equity owner in a (G)
reorganization, or what percentage of the consideration given to
those equity owners must be in the form of stock, to establish
continuity of interest. Based on the Company's representation
that more than 38.5% of the consideration received by certain
claimants under the Plan of Reorganization was in the form of
stock, and the fact that no stock was issued to any creditor on
account of claims in classes more senior than such aforementioned
claimants, counsel believed that it was more likely than not that
the continuity of interest test was met in the Restructuring.
That conclusion was based in part on the Bankruptcy Court's
determination that the Company's former shareholders received no
property for their Old Common Stock under the Plan of
Reorganization.
To satisfy the Distribution Requirement of a (G)
reorganization, Company stock must have been distributed to a
creditor in exchange for a security. While there is no bright
line test of what constitutes a "security" for this purpose,
counsel was of the opinion, based on applicable case law, that it
was more likely than not that the distribution requirement was
satisfied in the Restructuring by the distribution of Company
stock to certain of the creditors in exchange for notes they held
of the predecessor Company.
The Company believes that the Restructuring is a tax-free
reorganization and has obtained an opinion of counsel that it is
more likely than not that the Restructuring constituted a (G)
reorganization. That opinion relied on certain assumptions and
representations of the Company (as to valuation, business
matters, and the intentions of certain parties to the
Restructuring).
Personal Holding Company Status
Under the Code, a corporation will be designated as a
"Personal Holding Company," and taxed at 39.6% of its
"undistributed personal holding company income," if (in general)
at any time during the last half of the taxable year more than
50% in value of its outstanding stock is owned by, or on behalf
of, five or fewer individuals, and at least 60% of the
corporation's adjusted ordinary gross income consists of
"personal holding company income." Personal holding company
income is defined to include such passive types of income as
dividends, interest, royalties, annuities, and certain rents,
among others. Undistributed personal holding company income is
defined as the undistributed (i.e. dividend distributions)
portion of taxable income, with certain adjustments; the most
notable is the allowance of a deduction for Federal income tax,
but there also is an elimination of NOL carryforwards, other than
the immediately preceding year's NOL (i.e., the excess of
deductions over income). The tax imposed on the personal holding
company is in addition to the regular income tax and alternative
minimum tax.
The Company expects that the stock ownership test described
above may be met indirectly by reason of the ownership of Common
Stock by Fidenas International, Elision and GSE. However, it
also is the Company's expectation, based on the type and amount
of income the Company expects to generate, that the personal
holding company tax described above will not be applicable.
Alternative Minimum Tax
Under the corporate alternative minimum tax, a 20% tax is
imposed on a corporation's alternative minimum taxable income if
such tax exceeds the regular Federal income tax otherwise payable
by the corporation. The Company believes that the consummation
of the Plan of Reorganization should not have a material effect
on the Company's alternative minimum tax liability.
If the Company had a net unrealized built-in loss (as
described above) at the time of the ownership change, the basis
of each of the Company's assets will be written up or down to its
fair market value in computing the Company's alternative minimum
tax liability. A write-down may trigger additional alternative
minimum tax as assets are depreciated or sold.
State Taxes
The merger of the predecessor of the Company into a Delaware
subsidiary may cause the Company to lose certain of its state
NOLs for state income tax purposes.
Certain Federal Income Tax Consequences to Investors in
Debentures
The following discussion, which summarizes various United
States federal income tax consequences of ownership and
disposition of the Debentures to purchasers thereof, is for
general information only. This summary deals only with Debentures
held as capital assets within the meaning of Section 1221 of the
Code by holders who are purchasers of the Debentures. The
discussion assumes that the Debentures will constitute debt
rather than equity for federal income tax purposes. No assurance
can be given that the tax treatment described below to holders of
the Debentures will be accepted by the Service or a court of
competent jurisdiction. The following summary does not purport to
be a complete analysis or listing of all potential tax
considerations that may be relevant to a decision to purchase
Debentures.
This discussion does not address all aspects of federal
income taxation that may be relevant to particular investors in
light of their personal circumstances, or to certain types of
investors subject to special treatment under the Code (for
example, foreign individuals or entities, S corporations, certain
estates and trusts, insurance companies, tax exempt
organizations, taxpayers subject to the US alternative minimum
tax, financial institutions, brokers, dealers or holders that own
10% or more of the voting power of the Company) and does not
address any aspect of state, local or foreign tax laws or any
estate tax, gift tax or generation-
skippinggeneration-skipping tax considerations.
Prospective investors are urged to consult their own tax
advisors concerning the tax consequences of acquiring, owning,
converting and disposing of Debentures.
Distribution of Stock and Stock Rights
Although Code Section 305 generally provides that gross
income does not include the amount of a corporation's pro-rata
distribution of stock to its shareholders (i.e., a stock
dividend), under certain circumstances, such as a
disproportionate distribution or certain distributions of
preferred stock, stock distributions may be taxable as a
dividend. In addition, Sections 301 and 305 provide that certain
changes in the conversion ratio or redemption price of, for
example, convertible securities, that have the effect of
increasing the proportionate interest of certain shareholders in
the assets or earnings and profits of the corporation (which for
these purposes includes owners of convertible debt securities),
may be taxable as a dividend to those shareholders. Treasury
Regulations explain that where there is a "full adjustment" to a
conversion ratio by reason of a stock dividend to the
shareholders of a corporation, in general, an increase in the
proportionate interest will not be deemed to have occurred.
Furthermore, a change in the conversion ratio or conversion price
of convertible securities made pursuant to a bona fide,
reasonable, adjustment formula, which has the effect of
preventing dilution of the interest of the holders of such
securities, generally will not be considered to result in a
deemed distribution of stock. However, an adjustment in the
conversion ratio to reflect changes in the market price of the
common stock may have the effect of increasing the proportionate
interest of the convertible securities owners, as that concept is
explained in the Treasury Regulations.
The Indenture provides that the Conversion Price will be
adjusted upon the occurrence of certain circumstances, or if the
Company deems such adjustments advisable so that an event,
otherwise treated as a taxable stock distribution, will not be
taxable to the shareholders of Common Stock. There can be no
assurance that some of the adjustments, more fully described in
the Indenture, would not result in a deemed taxable dividend to
the Holders under Sections 301 and 305. In such case, Holders may
recognize income as a result of an event pursuant to which they
receive no cash or property that could be used to pay the related
income tax. Holders of the Debentures are advised to consult
with their tax advisors to more fully appreciate the potential of
taxable dividend distributions upon such conversion price
modifications (but see "Taxation of Debenture Holders" below,
including the discussion regarding the requirement that a company
have undistributed current or accumulated earnings and profits
for a distribution to be taxable as dividend).
Taxation of Debenture Holders
Stated Interest: Interest on a Debenture will be taxable to
a holder as ordinary income in accordance with the holder's
method of accounting at the time that such interest is either
accrued or received.
Market Discount: Subject to a statutory de minimis rule, if
a Holder purchases a Debenture for an amount that is less than
its principal amount, the Debenture generally will be considered
to bear "market discount" in the hands of such holder. In such
case, gain realized by such holder on the disposition of the
Debenture generally will be treated as ordinary interest income
to the extent of the market discount that accrued while held by
such holder (to the extent not previously included in income by
such holder pursuant to an election to include such market
discount in income as it accrues). Any accrued market discount
not previously included in income as of the date of conversion of
a Debenture will carry over to the Common Stock received on
conversion and generally any gain recognized upon the subsequent
disposition of the Common Stock will be treated as ordinary
income to the extent of such market discount. Market discount on
a Debenture will be treated as accruing ratably over the
remaining term of the Debenture, or at the election of the
holder, under a constant yield method. A holder of a Debenture
acquired at a market discount may be required to defer the
deduction of all or a portion of any interest paid or accrued on
any indebtedness incurred or continued to purchase or carry the
Debenture until the Debenture is disposed of in a taxable
transaction. Deferral of the deduction is not required, however,
if the holder elects to include accrued market discount in income
currently.
Bond Premium: If, as a result of purchasing a Debenture at
a premium or otherwise, a holder's adjusted tax basis in a
Debenture exceeds its stated principal amount, such excess may
constitute amortizable bond premium that the holder may elect to
amortize, using a constant yield method, over the remaining term
of the Debenture. Special rules apply which may require the
amount of the premium and the amortization thereof to be
determined with reference to the optional redemption price and
data of the Debentures. Amortizable bond premium does not
include any amount attributable to the conversion feature of the
Debentures. The amount attributable to the conversion feature of
the Debentures is determined by reference to the market price of
comparable instruments not having conversion features.
Conversion of Debenture into Common Stock: A holder
generally will not recognize gain or loss on the conversion of a
Debenture into Common Stock, except with respect to cash received
in lieu of a fractional share. The holding period of the Common
Stock received by the holder upon conversion of a Debenture
generally will include the period during which the Debenture was
held prior to the conversion. The holder's aggregate tax basis
in the Common Stock received upon conversion of a Debenture
generally will equal the holder's aggregate tax basis in the
Debenture exchanged (reduced by the portion allocable to cash
received in lieu of a fractional share).
A holder generally will recognize taxable gain or loss in
connection with any cash received in lieu of a fractional share
in an amount equal to the difference between the amount of cash
received and the holder's tax basis in the fractional share.
Sale, Exchange or Retirement of a Debenture or Common Stock:
A holder of a Debenture (or the Common Stock into which it was
converted) generally will recognize capital gain or loss upon the
sale, exchange, redemption, retirement or other disposition of
the Debenture (or the Common Stock) measured by the difference
between the amount realized (except to the extent the amount is
attributable to accrued interest income, which is taxable as
ordinary income) and the holder's tax basis in the Debenture (or
the Common Stock). The gain or loss on such disposition will be
long term capital gain or loss if the Debenture (or the Common
Stock) has been held for more than one year at the time of such
disposition.
Distributions made by the Company with respect to Common
Stock will constitute dividends for US federal income tax
purposes to the extent of the Company's undistributed current or
accumulated earnings and profits. Distributions in excess of the
Company's current or accumulated earnings and profits will be
treated first as a nontaxable return of capital reducing the
holder's tax basis in the Common Stock. Any such distributions in
excess of the holder's basis in the Common Stock will be treated
as capital gain to the holder. There can be no assurance as to
the characterization of any distribution for US federal income
tax purposes.
Distributions paid on the Common Stock that are treated as
dividends for US federal income tax purposes will be includable
in the holder's income as ordinary income. A corporate
shareholder that receives a dividend may be eligible to claim a
dividends received deduction. Further, the dividends received
deduction will be limited to specific percentages of the
corporate shareholder's taxable income and may be reduced or
eliminated if the corporate shareholder has indebtedness
"directly attributable" (as defined in the Code) to such holder's
investment in the stock. Further, a corporate shareholder may be
required to reduce its basis in the Common Stock by an amount
generally equal to the dividends received deduction allowable
with respect to an "extraordinary dividend" (generally, a
dividend or aggregate successive dividends greater than or equal
to 10% of a corporate shareholder's basis in Common Stock) paid
with respect to such stock if such shareholder has not held the
stock for more than two years before the dividend announcement
date.
Backup Withholding: A holder may be subject to "backup
withholding" at the rate of 31% with respect to interest (or
dividends), or the proceeds from a sale, exchange or redemption
of a Debenture (or Common Stock into which the Debenture was
converted). Such withholding generally applies only if the
holder (i) fails to furnish a social security number or other
taxpayer identification number ("TIN") within a reasonable time
after the request therefor, (ii) furnishes an incorrect TIN,
(iii) is notified by the Service that it has failed to properly
report payments of interest or dividends and the Service has
notified the Company that the holder is subject to backup
withholding, or (iv) fails, under certain circumstances, to
provide a certified statement, signed under penalty of perjury,
that the TIN provided is the holder's correct number and that the
holder is not subject to backup withholding. Any amount withheld
from a payment to a holder under the backup withholding rules is
allowable as a credit against such holder's federal income tax
liability.
Certain US Holders are exempt from backup withholding if
their exempt status is established properly. Holders of
Debentures should consult their tax advisors as to their
qualification for exemption from backup withholding and the
procedure for obtaining such an exemption.
The Company will report to holders and the Service the
amount of any "reportable payments" for each calendar year and
the amount of tax withheld, if any, with respect to payments on
the Debentures or Common Stock.
SELLING SECURITYHOLDERS
The table below lists all holders of Debentures as of the
date hereof (the "Selling Securityholders") and sets forth
certain information with respect to the ownership of the
Debentures prior to any sales of Debentures or underlying shares
of Common Stock hereunder by the Selling Securityholders. All
outstanding Debentures are covered by this Prospectus. To the
knowledge of the Company, none of the Selling Securityholders has
had any position, office, or other material relationship with the
Company within the past three years, except as a securityholder
of the Company. This Prospectus also covers the Common Stock
issuable upon the conversion of the Debentures. None of the
Selling Securityholders, except Guardian Life Insurance Co. which
beneficially owns approximately 1.8% of the Common Stock assuming
conversion of all Debentures, beneficially owns 1.0% or more of
the Common Stock.
AGGREGATE PERCENTAGE OF
PRINCIPAL AMOUNT CLASS
NAME OF SELLING SECURITYHOLDER OF DEBENTURES OWNED ON DATE
HEREOF
Michaelangelo, L.P. $200,000 *
Raphael, L.P. 200,000 *
Angelo, Gordon & Co., L.P. 100,000 *
International Forest Products 50,000 *
Holy Cross 50,000 *
Brandeis University 50,000 *
Boston College 100,000 *
ECH Fund 50,000 *
Chestnut Hill Fund L.P. 700,000 3.4%
Credit Suisse-Zurich 1,000,000 4.8
Kinder Investments L.P. 500,000 2.4
Bancroft Convertible Fund 750,000 3.6
Ellsworth Convertible Fund 750,000 3.6
Deltec Asset Management Corporation 400,000 1.9
Deutsche Bank AG London 500,000 2.4
F. Barry, M. Ferrigno, and B.
Allen DVMS Profit Sharing Plan
Dated 7/1/73 50,000 *
Forest Fulcrum Fund L.P. 500,000 2.4
Investors Bank & Trust Company 300,000 1.4
Chase Manhattan Bank for Jack
Sater Corp. 200,000 *
Guardian Life Insurance Co. 3,200,000 15.4
Guardian Pension Trust Fund 300,000 1.4
John N. Kapoor, Trustee forof the
John N. Kapoor Trust dated
September 20, 1989 50,000 *
Virginia Retirement System 226,000 1.1
Montgomery Value 281,000 1.4
Outboard Marine 236,000 1.1
Donaldson Company 54,000 *
Schwan's Profit Sharing Trust 89,000 *
Wacker Chemical 10,000 *
City of New Haven 35,000 *
Oklahoma Law Enforcement 71,000 *
Michigan Municipal Employees
Retirement System 305,000 1.5
Monsanto Master Trust 193,000 *
Offshore Strategies, L.P. 500,000 2.4
Laterman Strategies 90's, L.P. 300,000 1.4
Laterman & Co., L.P. 200,000 *
Nicholas Applegate Income &
Growth Fund 1,000,000 4.8
San Diego County 1,000,000 4.8
Prospect Street High Income
Portfolio 750,000 3.6
Putnam Global Growth Fund 1,500,000 7.2
Putnam Capital Appreciation Fund 500,000 2.4
Putnam Capital Manager Trust -
PCM Global Growth Fund 500,000 2.4
Robertson Stephens Growth &
Income Fund 500,000 2.4
The Bond Fund for Growth 1,500,000 7.2
Catholic Pension 200,000 *
Zazove Convertible Fund 650,000 3.1
United National Insurance Co.
Convertible Non-Investment Grade 150,000 *
__________________
*Less than 1.0%
From time to time this Prospectus may be supplemented and
amended as required by the Securities Act of 1933, and during any
time when a supplement or amendment is so required, the Selling
Securityholders will cease sales until the Prospectus is so
supplemented or amended.
PLAN OF DISTRIBUTION
The distribution of the Debentures and/or underlying shares
of Common Stock by the Selling SecuritholdersSecurityholders may be effected
from time to time in one or more transactions (which may involve
block transactions) (i) on the American Stock Exchange or such
other national security exchangeexchanges on which the Company's
securitessecurities are listed, in transactions that may include special
offerings and exchange distributions pursuant to and in
accordance with the rules of such exchanges, (ii) in the over-the-counterover-the-
counter market, or (iii) in transactions otherwise than on such
exchanges or in the over-the-counter market, or in a combination
of any such transactions. Such transactions may be effected by
the Selling SecurityholderSecurityholders at market prices prevailing at the
time of sale, at prices related to such prevailing market prices,
at negotiated prices or at fixed prices. The Selling
SecuritholdersSecurityholders may effect such transactions by selling the
Debentures and/or underlying shares of Common Stock to or through
broker-dealers and such broker-dealers will receive compensation
in the form of discounts or commissions from the Selling
Securityholders anyand may receive commissions from the purchasers
of such securities for whom they may act as agent (which
discounts or commissions from the Selling Securityholders or such
purchasers will not exceed those customary in the type of
transactions involved).
Any broker-dealers that participate with the Selling
Securityholders in the distribution of such securities may be
deemed to be "underwriters" within the meaning of the Securities
Act of 1933, and any commissions or discounts received by such
broker-dealers and any profit on the resale of the such
securities by such broker-dealers might be deemed to be
underwriting discounts and commissions under such act.
Pursuant to Registration Rights Agreements with the initial
holders of the Debentures, the Company is obligated to file with
the Commission and cause to become effective by December 21, 1995
a Registration Statement on such form as the Company deems
appropriate covering resales of the Debentures (and resales of
the securities issuable upon conversion thereof) by the holders
of the Debentures. The Company shall use its best efforts to
keep the Registration Statement continuously effective for a
period of three years from the effective date of the Registration
Statement or such shorter period that will terminate when all of
the Debentures (and the securities issuable upon conversion of
the Debentures) covered by the Registration Statement have been
sold pursuant to such Registration Statement. In the event the
Company fails to cause the Registration Statement to become
effective by December 21, 1995, or fails to maintain the
effectiveness of such Registration Statement under the Securities
Act during the three year period from the effective date of the
Registration Statement, then the Indenture provides for an
increase in the interest rate payable on the Debentures and the
Debentures and underlying securities may not be sold or otherwise
transferred except in limited circumstances.
Certain Restrictions on Officers, Directors and Certain
Stockholders
Except upon the prior written consent of the Company and the
Placement Agent, all officers, directors and stockholders
beneficially owningowing five percent or more of the Common Stock
(including, but not limited to Mr. Jurick and each of Fidenas
International, Elision, and GSE (collectively, the "Affiliated
Companies")), have agreed not to sell, offer to sell, or
otherwise transfer or dispose of, directly or indirectly (either
pursuant to Rule 144 under the Securities Act or otherwise) (the
"Lock-up") any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock
owned by them for a period of not less than twelve months
following the effective date of the Registration Statement (the
"Lock-up Period"); provided, however, that (i) Mr. Eugene I.
Davis may sell up to an aggregate 90,000 shares of Common Stock;
(ii) Mr. Jurick or the Affiliated Companies may (a) sell, in
accordance with applicable law, up to an aggregate maximum of
2,000,000 shares of Common Stock to a Company-sponsored qualified
Employee Stock Ownership Plan, (b) transfer or pledge for the
benefit of the plaintiffs in the litigation described at "Legal
Proceedings - Litigation Relating to Outstanding Common Stock" up
to an additional 3,000,000 shares of Common Stock (the
"Settlement Shares"); provided, however, that the Placement Agent
will act as the exclusive placement agent in connection with any
such transfer of Settlement Shares, with the Placement Agent
receiving a cash commission of $0.10 per Settlement Share sold,
and further provided, that the proceeds from the sale or transfer
of the Settlement Share sold, and further provided,
that the proceeds from the sale or transfer of the Settlement Shares shall be used for the sole purpose of
final settlement of the above-
referencedabove-referenced litigation and payment
of legal fees in connection therewith; and (c) upon prior written
notice to the Placement Agent, enter into transactions during
such period which would otherwise be prohibited up to an
aggregate maximum of 1,000,000 shares of Common Stock provided
that (A) with respect to a sale, the purchaser agrees in writing
with the Placement Agent to be bound by the Lock-up or (B) with
respect to any transfer other than an unconditional sale, all
shares not subject to such transfer not be finally transferable
to the transferee until the expiration of the Lock-up Period; and
(iii) the shares of Common Stock as to which Fidenas
International holds as nominee shall not be subject to the Lock-up.Lock-
Up. The parties subject to the Lock-up have consented to the
placing of certain legends and stop transfer instructions.
EXPERTS
The consolidated financial statements of Emerson Radio Corp.
and Subsidiaries at March 31, 1995 and 1994, and for the years
ended March 31, 1995, 1994 and 1993, appearing in the Prospectus
have been audited by Ernst & Young LLP, independent auditors, as
set forth in their report appearing elsewhere herein and are
included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with this Prospectus
will be passed upon for the Company by Lowenstein, Sandler, Kohl,
Fisher & Boylan, P.A., of Roseland, New Jersey.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended, and in
accordance therewith files reports and other information with the
Commission. Such reports and other information can be inspected
and copied (at prescribed rates) at the public reference
facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, DC 20549 or at the regional offices,
located at 7 World Trade Center, Suite 1300, New York, NY 10007
and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Common Stock is listed with the
American Stock Exchange, and certain reports and other
information concerning the Company may be inspected at the
offices of the American Stock Exchange at 86 Trinity Place, New
York, New York, 10006-1881.
Index to Consolidated Financial StatementsStatements:
Audited Consolidated Financial Statements:
Report of Ernst & Young LLP F-2
Consolidated Statements of Operations for the years ended
March 31, 1995, 1994 and 19941993 F-3
Consolidated Balance Sheets at March 31, 1995 and 1994 F-4
Consolidated Statements of Changes in ShareholdersShareholders' Equity
for the years ended March 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1995, 1994 and 1993 F-6
Notes to Consolidated Financial Statements F-7
Schedule VIII -- Valuation and Qualifying
Accounts and Reserves F-27
Unaudited Consolidated Financial StatementsStatements:
Consolidated Statements of Operations for the
three months ended June 30, 1995 and 1994 F-28
Consolidated Balance Sheets at June 30, 1995
and March 31, 1995 F-29
Consolidated Statements of Cash Flows for the
three months ended June 30, 1995 and 1994 F-30
Notes to Consolidated Financial Statements F-31
ALL OTHER SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT
APPLICABLE OR THE REQUIRED INFORMATION IS SHOWN IN THE FINANCIAL
STATEMENTS OR NOTES THERETO.
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, 1995 and
1994, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the years ended March
31, 1995, 1994 and 1993. 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. AnyAn
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, 1995 and 1994 and the consolidated results of its
operations and cash flows for the years ended March 31, 1995,
1994 and 1993, in conformity with generally accepted accounting
principles.
As discussed in Note H to the financial statements, in the year
ended March 31, 1994, the Company changed its method of
accounting for income taxes.
ERNST & YOUNG LLP
New York, New York
May 24, 1995
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended March 31,
1995 1994 1993
Net sales $ 654,671 $ 487,390 $ 741,357$654,671 $487,390 $741,357
Costs and expenses:
Costs of sales 604,329 486,536 674,855
Other operating costs and expenses 8,771 12,001 19,026
Selling, general and administrative expenses 31,047 34,552 49,508
administrative expenses
Restructuring and other 35,002
nonrecurring charges 35,002
644,147 533,089 778,391
Operating profit (loss) 10,524 (45,699) (37,034)
Interest expense 2,882 10,243 18,257
Earnings (loss) before
reorganization costs and taxes 7,642 (55,942) (55,291)
Reorganization items:
Writedown of assets 12,914
Professional fees and other 4,545
related expenses 4,545
Interest earned on accumulated (74)
cash (74)
- 17,385 -
Earnings (loss) before income
taxes and extraordinary gain 7,642 (73,327) (55,291)
Provision for income taxes 267 327 709
Earnings (loss) before
extraordinary gain 7,375 (73,654) (56,000)
Extraordinary gain on
extinguishment of debt 129,155
Net earnings (loss) $ 7,375$7,375 $ 55,501 $ (56,000)$(56,000)
Net earnings (loss) per common share:
Before extraordinary gain $ 0.16$0.16 ($1.93) ($1.47)
Extraordinary gain 3.38
Net earnings (loss) $ 0.16 $ 1.45$0.16 $1.45 ($1.47)
Weighted average number of common
and common equivalent shares outstanding 46,571 38,191 38,179
outstanding
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,
ASSETS 1995 1994
Current Assets:
Cash and cash equivalents $ 17,020 $ 21,623
Accounts receivable (less allowances of 34,309 20,131
$9,350 and $6,442, respectively) 34,309 20,131
Inventories 35,336 45,980
Prepaid expenses and other current assets 15,715 20,597
Total current assets 102,380 108,331
Property and equipment, net 4,676 5,256
Other assets 6,913 5,434
Total Assets $113,969 $ 119,021
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 27,296 $ 20,040
Current maturities of long-term debt 508 1,498
Accounts payable and other current liabilities 18,982 37,378
liabilities
Accrued sales returns 12,713 16,634
Income taxes payable 283 533
Total current liabilities 59,782 76,083
Long-term debt 214 227
Other non-current liabilities 322 94
Shareholders' Equity:
Preferred stock -- $.01 par value, 1,000,000
shares authorized, 10,000 issued and outstanding 9,000 9,000
outstanding
Common stock -- $.01 par value, 75,000,000
shares authorized; 40,252,772 and
33,333,333 shares issued and
outstanding, respectively 403 333
Capital in excess of par value 107,969 103,427
Accumulated deficit (64,086) (70,761)
Cumulative translation adjustment 365 618
Total shareholders' equity 53,651 42,617
Total Liabilities and Shareholders' Equity $ 113,969 $ 119,021
Equity
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 Cumulative
Preferred Number Par in Excess Accumulated Translation
Stock of Shares Value of Par Value Deficit Adjustment
Balance - March 31, 1992 37,978,119 $ 3,798$3,798 $ 63,881 $ (70,262)$(70,262) $ 1,103
Issuance of shares upon
exercise of stock options
and distribution of stock grants 59,333 6 113
Issuance of stock and warrants to
Semi-Tech 153,847 15 (15)
Redemption of stock purchase rights (271)271)
Other 22 (285)
Net Loss _______ ___________________ _______ _______ (56,000) _____________
Balance - March 31, 1993 38,191,299 3,819 63,730 (126,262) 818
Cancellation of common stock (38,191,299)(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, 6,149,993 62 5,630
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 ________ ________ 7,375 _________
Balance - March 31, 1995 $ 9,000 40,252,772 $ 403 $ 107,969 $(64,086)$107,969 (64,086) $ 365
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,
1995 1994 1993
Cash flows from Operating Activities:
Net earnings (loss) $ 7,375 $ 55,501 $ (56,000)
Adjustments to reconcile
net earnings (loss) to net
cash provided (used) by operating
activities:
Depreciation and amortization 3,876 7,327 6,419
Extraordinary gain (129,155)
Restructuring and other
nonrecurring charges (237) (9,711) 16,350
Reorganization expenses 12,914
Asset valuation and loss reserves (2,031) 8,415 6,495
Other (969) 2,643 1,570
Changes in assets and liabilities:
Accounts receivable (14,805) 12,081 26,769
Inventories 11,032 34,942 (28,884)
Prepaid expenses and other
current assets (5,598) 6,181 4,694
Other assets (605) 89 (498)
Accounts payable and other current
liabilities (18,633) 27,287 2,981
Income taxes payable (379) (924) (194)
Net cash provided (used) by operations (20,974) 27,590 (20,298)
Cash Flows from Investing Activities:
Additions to property and equipment (2,874) (3,552) (4,859)
Redemption of (investment in) certificates
of deposit 8,455 (500) (4,000)
Other 110 114 (134)
Net cash provided (used)
by investing activities 5,691 (3,938) (8,993)
Cash Flows from Financing Activities:
Net borrowings under line of
credit facility 7,256 20,040 25,366
Proceeds from issuances of common stock 5,692 30,000 125
Retirement of long-term debt (500) (30) (600)
Payment of former creditors (922)
Payment of preferred stock dividends (525)
Redemption of stock purchase rights (271)
Payment of pre-petition obligations (75,000)
Payment of debt costs (2,139)
Other (321) (83) (49)
Net cash provided (used)
by financing activities 10,680 (27,212) 24,571
Net decrease in cash and cash equivalents (4,603) (3,560) (4,720)
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended March 31,
1995 1994 1993
Cash flows from Operating
Activities:
Net earnings (loss) $ 7,375 $55,501 $(56,000)
Adjustments to reconcile net
earnings (loss) to net cash
provided (used) by operating
activities:
Depreciation and amortization 3,876 7,327 6,419
Extraordinary gain ( 129,155) 55)
Restructuring and other nonrecurring charges (237) (9,711) 16,350
Reorganization expenses 12,914
Asset valuation and loss reserves loss reserves (2,031) 8,415 6,495
Other (969) 2,643 1,570
Changes in assets and liabilities:
Accounts receivable (14,805) 12,081 26,769
Inventories 11,032 34,942 (28,884)
Prepaid expenses and other current assets ( 5,598) 6,181 4,694
Other assets ( 605) 89 (498)
Accounts payable and other current
liabilities 18,633) 27,287 2,981
Income taxes payable ( 379) (924) (194)
Net cash provided (used) by operations (20,974) 27,590 (20,298)
Cash Flows from Investing Activities:
Additions to property and equipment (2,874) (3,552) (4,859)
Redemption of (investment in)
certificates of deposit 8,455 (500) (4,000)
Other 110 114 (134)
Net cash provided (used) by investing activities 5,691 (3,938) (8,993)
Cash Flows from Financing Activities:
Net borrowings under line of credit facility 7,256 20,040 25,366
Proceeds from issuances of common stock 5,692 30,000 125
Retirement of long-term debt ( 500) (30) ( 600)
Payment of former creditors ( 922)
Payment of preferred stock dividends ( 525)
Redemption of stock purchase rights ( 271)
Payment of pre-petition obligations ( 75,000)
Payment of debt costs ( 2,139) )
Other ( 321) (83) ( 49)
Net cash provided (used) by financing activities 10,680 (27,212) 24,571
Net decrease in cash and cash equivalents ( 4,603) (3,560) ( 4,720)
Cash and cash equivalents at beginning of year 21,623 25,183 29,903
Cash and cash equivalents at end of year 17,020 21,623 25,183 29,903
Cash and cash equivalents
at end of year $ 17,020 $ 21,623 $ 25,183
The accompanying notes are an integral part of the consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
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 N).
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.
Certain prior year information has been reclassified to
conform with the current year presentation.
(2) 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.
(3) Inventories:
Inventories are stated at the lower of cost (first-in,
first-out) or market.
(4) 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.
(5) Warranty Claims:
The Company provides an accrual for future warranty costs
when the product is sold.
(6) Income Taxes:
Deferred income taxes are accounted for on the liability
method in accordance with Statement of Financial Accounting
Standards No. 109. Provision is made for federal income tax
which may be payable on earnings of foreign subsidiaries to the
extent that the Company anticipates they will be remitted.
(7) Earnings (Loss) per Share:
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 shares of Common Stock issuable
upon conversion is dependent on the market value of the Common
Stock at the time of conversion (See Note J(6)). Net earnings
(loss) per common share for the years ended March 31, 1994 and
1993 are 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 not 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
are 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 a gain of $220,000 and losses of $1,489,000 and
$1,073,000 for the years ended March 31, 1995, 1994 and 1993,
respectively.
The Company entered into foreign currency exchange contracts
to hedge exposures related to foreign currency fluctuations for
its European operations. Gains and losses were recognized in the
same period as the transactions being hedged. At March 31, 1995,
the Company has no forward exchange contracts outstanding. In the
fiscal year ending March 31, 1996, the Company intends to reduce
its foreign currency exposure by conducting its Canadian and
European businesses in U.S. dollars.
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 the Company's
anti-dumping duty receivable (see Note I (3)).
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 J(8)) 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
Company's anti-dumping duty receivable in excess
of $2 million (see Note I (3)).
IV. Holders of allowed unsecured claims received a 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 Company's
anti-dumping duty receivable in excess of $2 million (see
Note I (3)).
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
G).
Pursuant to the provisions of the Plan of Reorganization, as
of March 31, 1994, the equity of the Company's stockholders, 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, currently held by the following parties:
Number of Shares
Fidenas International Limited L.L.C. ("Fidenas International") 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 is an
officer and beneficial owner of 40% of Fidenas Investment Limited
("FIL"), the Company's largest shareholder prior to confirmation
of the Plan of Reorganization with an approximate 20%
ownership interest.
This officer has a controlling beneficial ownership interest
in each of the three entities listed above which purchased the
Company's Common Stock, and therefore holds an approximate 75%
interest in the Company's outstanding Common Stock at March 31,
1995.
Note C -- Restructuring and Other Nonrecurring Charges:
During the year ended March 31, 1993, the Company recorded
restructuring and other nonrecurring charges aggregating
$35,002,000. The provision included $31.9 million of charges
related to the Company's core business operations of consumer
electronics products. These charges were comprised primarily of
certain costs associated with the consolidation of facilities,
severance of employees ($3,967,000 provision for termination of
officers and other employees), the writedown of certain assets, a
provision relating to a significant change in the resale
arrangement for returned product, and professional fees and other
charges related to the Company's proposed financial restructuring
and to a proxy contest settled in June 1992. The provision also
included $3.1 million in charges relating to the final wind-down
of the Company's personal computer business.
Note D -- Inventories:
Inventories are comprised primarily of finished goods.
Spare parts inventories, net of reserves, aggregating $2,763,000
and $4,140,000 at March 31, 1995 and 1994, respectively, are
included in "Prepaid expenses and other current assets".
Note E -- Property and Equipment:
Property and equipment is comprised of the following:
March 31,
1995 1994
(In thousands)
Furniture and fixtures $ 5,854 $ 6,025
Molds and tooling 3,806 2,948
Machinery and equipment 1,847 2,509
Leasehold improvements 271 454
11,778 11,936
Less accumulated depreciation and amortization 7,102 6,680
$ 4,676 $ 5,256
Depreciation and amortization of property and equipment
amounted to $3,267,000, $6,679,000 and $5,062,000 for
the years ended March 31, 1995, 1994 and 1993, 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 F -- Notes Payable:
Effective March 31, 1994, the Company entered into a three
year Loan and Security Agreement 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. The interest rate on these
borrowings is 2.25% above the prime rate. At March 31, 1995 and
1994, the weighted average interest rate on the outstanding
borrowings was 11.25% and 8.5%, respectively. The facility is
also subject to an unused line fee of 0.5% per annum. Pursuant to
the Loan and Security Agreement, the Company is restricted from,
among other things, paying cash dividends (other than on the
Series A Preferred Stock), redeeming stock, and entering into
certain transactions and is required to maintain certain working
capital and equity levels (as defined). At March 31, 1995, there
was $27,296,000 outstanding under the revolving loan facility and
approximately $3,622,000 of outstanding letters of credit issued
for inventory purchases. The fair market value of the short-term
notes payable to the Lender at March 31, 1995 and 1994 is
estimated to be $27,296,000 and $20,040,000, respectively, which
is the historical cost.
During the pendency of the bankruptcy proceedings, the
Company obtained debtor-in-possession financing ("DIP Financing")
from the Lender. The terms of the DIP Financing provided for a
revolving credit facility in an aggregate principal amount of
$14.9 million and bore interest at the prime rate plus 0.5% per
annum. Repayment of the proceeds was guaranteed by FIL. All
principal and accrued interest on the DIP Financing was paid and
the DIP Financing was terminated as of March 31, 1994.
Cash paid for interest was $3,371,000, $11,251,000 and
$20,108,000 for the years ended March 31, 1995, 1994 and 1993,
respectively.
In the six months ended March 31, 1994, interest expense was
only accrued and paid on the Company's DIP Financing loan. 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 G -- Long-Term Debt:
Long-term debt consists of the following:
March 31,
1995 1994
(In thousands)
Notes payable to unsecured creditors $ 465 $ 842
Equipment notes and other 257 383
11 1/2% convertible subordinated note 500
722 1,725
Less current obligations 508 1,498
$ 214 $ 227
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 H --- Income Taxes:
The income tax provision consists of the following:
Years Ended March
31,
1995 1994 1993
(In thousands)
Current:
Federal $ 40 $215
Foreign, State and Other 227 $327 494
$267 $327 $709
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,
1995 1994 1993
(In thousands)
Statutory tax (benefit) $ 2,598 $(24,931) $(18,799)
Utilization of net operating loss
carryforwards (632)
U.S. and foreign net operating
losses without tax benefit 1,675 24,975 20,752
Foreign income subject to foreign
tax, not subject to U.S. tax (785) (1,431)
Tax recognition of prior year
book deductions (888)
Rate differential on foreign income (1,959) 327 (638)
income
Nondeductible bankruptcy expenses 137 1,545
Nondeductible debt restructuring
expenses (1,540) 521
Other, net 121 (49) 304
Total income tax provision $267 $ 327 $ 709
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,
1995 1994
(In thousands)
Deferred tax assets:
Accounts receivable reserves $ 7,653 $8,287$ 8,287
Inventory reserves 1,188 1,394
Net operating loss carryforwards 10,588 11,550
Other 1,014 1,131
Total deferred tax assets 20,443 22,362
Valuation allowance for deferred tax assets (20,189) (22,011)( 22,011)
Net deferred tax assets 254 351
Deferred tax liabilities:
Other (254) (351)
Total deferred tax liabilities (254) (351)
Net deferred taxes $ -- $ --
Total deferred tax assets of the Company at March 31, 1995
represent the tax-effected annual limitation multiplied by the
net operating loss carryforward period and tax-effected
deductible temporary differences. The Company has established a
valuation reserve against any expected future benefits.
Cash paid for income taxes was $725,000, $946,000 and
$453,000 for the years ended March 31, 1995, 1994 and 1993,
respectively.
Income before taxes of foreign subsidiaries was $3,786,000
and $5,334,000 for the years ended March 31, 1995 and 1993,
respectively. Losses before taxes of foreign subsidiaries was
$16,042,000 for the year ended March 31, 1994. 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 $3,396,000
and $1,086,000 at March 31, 1995 and 1994, respectively.
As of March 31, 1995, the Company has a net operating loss
carryforward of approximately $95,270,000, of which $31,692,000,
$13,385,000 and $50,193,000 will expire in 2006, 2007 and
2009, respectively. This net operating loss carryforward
reflects downward adjustments made in 1995 pursuant to IRS
examinations completed for the years ended March 31, 1990 and 1989
totaling $20,346,000. As of March 31, 1995, foreign tax credit
carryforwards of $929,000 are available and if not utilized, will
expire in 1996. In addition, as of March 31, 1995, the Company has
deductible temporary differences of approximately $26,003,000
principally attributable to accounts receivable reserves related
to sales returns and inventory reserves. The utilization of these
net operating losses and tax credits 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, Fidenas International, 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 tax credits to
the limitation provided for in Section 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 I -- Commitments, Contingencies and Related Party Transactions:
(1) Leases:
The Company leases warehouse and office space at minimum
aggregate rentals as follows:
Year Ending
March 31, Amount
(In
thousands)
1996 $ 1,507
1997 1,484
1998 1,071
1999 271
2000 --
$4,333
Rent expense aggregated $2,731,000, $2,663,000 and
$3,520,000 for the years ended March 31, 1995, 1994 and 1993,
respectively. Rental income from the sublease of warehouse space
aggregated $273,000, $89,000 and $201,000 in the years ended
March 31, 1995, 1994 and 1993, respectively.
The Company's previous headquarters was leased from a
limited partnership, 51% of which was indirectly owned by four
former executive officers of the Company. The lease, which was
scheduled to expire in April 1995 (excluding renewal options),
terminated in July 1993, as noted below. Rent expense related to
this lease amounted to $491,000 and $1,575,000 for the years
ended March 31, 1994 and 1993, respectively. In March 1993, the
Company entered into an agreement with the general partner of the
limited partnership under which the Company was released
without penalty from its lease obligations with respect to the
above location, effective July 1993, in consideration for
executing a five year lease (commencing on the same date) for
office space with an affiliate of the general partner. The new
lease provides for the annual payment of rent of approximately
$813,000, and that the Company pay for its proportionate share of
increases in real estate taxes.
(2) Letters of Credit:
Outstanding letters of credit for the purchase of inventory,
not reflected in the accompanying financial statements,
aggregated $11,863,000 (including $3,622,000 issued under the
Loan and Security Agreement -- see Note F) at March 31, 1995.
The Company's Hong Kong subsidiary also maintains various
credit facilities aggregating $114.3 million with a bank in Hong
Kong consisting of the following: (i) a $12.3 million credit
facility which is generally used for letters of credit for a
foreign subsidiary's direct import business and affiliates'
inventory purchases, (ii) a $2 million standby letter of credit
facility, and (iii) a $100 million credit facility, for the
benefit of a foreign subsidiary, which is for the establishment
of back-
to-backback-to-back letters of credit with the Company's largest
customer. At March 31, 1995, 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,
1995, there were $5,974,000 and $8,415,000 of letters of credit
outstanding under the $12.3 million and $100 million credit
facilities, respectively.
The Company's Hong Kong subsidiary secured an additional
credit facility in the year ended March 31, 1995 with another
bank in Hong Kong. The facility provides for a $10 million line
of credit for documentary letters of credit and a $10 million
back-to-back letter of credit line, collateralized by a $5
million certificate of deposit. At March 31, 1995, the
Company's Hong Kong subsidiary had pledged $5,041,000 in certificates
of deposit to assure the availability of these credit facilities.
At March 31, 1995, $3,871,000 of the letter of credit line was
utilized.
The Company has discounted unmatured notes received from its
European customers for payments of accounts receivable with
various foreign banks. At March 31, 1995, $1,282,000 of
discounted notes have not matured.
(3) Anti-Dumping Duty Receivable:
The Company was a participant in matters pending before the
United States Customs Service and the United States Department of
Commerce pertaining to the assessment and deposit of anti-dumping
duties on importations of color televisions from both the
Republic of Korea and Taiwan. Such deposits were based on U.S.
Commerce Department deposit requirements in effect at the time
and were deemed excessive based on the U.S. Commerce Department's
determinations of anti-dumping margins; however, the deposits
will not be refunded until litigation challenging the U.S.
Commerce Department determination of anti-dumping margins is
completed.
Pursuant to the Plan of Reorganization, the Company
transferred the anti-dumping duty deposits and related interest,
net of anti-dumping duty liabilities, to a liquidating trust for
the benefit of the Bank Lenders and Noteholders in exchange for a
reduction in outstanding indebtedness. In preparation for the
transfer, the Company reviewed the anti-dumping duty deposit
records of the U.S. Customs Service and noted significant
discrepancies between the Company's records and those of the U.S.
Customs Service on anti-dumping duties eligible for refund. The
Company believes that the U.S. Customs Service erroneously
liquidated certain anti-dumping duty entries that should be
suspended in accordance with court orders and misclassified
certain anti-dumping duty deposits as regular duty payments. The
magnitude of these differences, including interest accruing
thereon, was estimated at $6.6 million. The net anti-dumping
duty receivable was transferred to the liquidating trust at a
fair market value of $4 million based on third-party analysis,
resulting in a writedown of approximately $10.6 million (based on
a book value of $14.6 million).
(4) Other Matters:
A law firm of which two officers of the Company (one of whom
is a director) were members until July 1992 and August 1992,
respectively, received fees of $541,000 in the year ended March
31, 1993, primarily as reimbursement of amounts incurred by FIL
in a 1992 proxy contest. Another law firm which represented FIL
in the proxy contest was paid fees aggregating $200,000 in the
year ended March 31, 1993 by the Company in reimbursement of
amounts incurred by FIL in the proxy contest. Upon settlement of
the proxy contest, such law firm was retained as the Company's
outside counsel and provided legal services to the Company for
fees aggregating $737,000, $1,070,000 and $259,000 for the years ended
March 31, 1995, 1994 and 1993, respectively. A family member of
an officer of the Company joined such law firm, as of counsel,
subsequent to its retention by the Company.
Effective April 1, 1995, the Company's Canadian subsidiary
entered into a series of three-year agreements with a company
owned by a former employee of the Canadian subsidiary, and who is
also the daughter of a former officer of the Canadian subsidiary.
The agreements provide for this Canadian company to perform
certain after sale services, act as the exclusive parts
distributor for the Company's Canadian subsidiary and purchase
all products returned by the Company's Canadian customers.
In the year ended March 31, 1994, the Company paid $208,000
to a designee of FIL for expenses incurred relating to the DIP
Financing and $187,000 to guarantee the DIP Financing.
Additionally, the Company reimbursed Fidenas International
$568,000 for various legal, accounting and filing fees relating
to the capital infusion and debt restructuring in the year ended
March 31, 1994.
At March 31, 1994, the Company's Hong Kong subsidiary had $1
million on deposit with a bank that is an affiliate of Fidenas
International. These funds were withdrawn shortly thereafter.
The Company paid fees to a former executive officer of the
Company, in accordance with a three-year consulting agreement,
aggregating $204,000 and $490,000 for the years ended March 31,
1994 and 1993, respectively.
In accordance with the employment contract of an officer of
the Company, the Company has provided a non-interest bearing
relocation bridge loan to the officer of $120,000, secured by the
equity in the former personal residence of the officer. The
maturity date of the loan has been extended and is due in the
fiscal year ending March 31, 1996.
The Company has employment agreements with certain of its
officers, that expire at various dates through 1997, and provide
for minimum payments aggregating $3,601,000.
Note J -- Shareholders' Equity:
(1) In connection with the settlement of shareholder
litigation in 1991, the Company was required to redeem the common
stock purchase rights (the "Rights") previously granted under the
Company's 1989 Shareholder Rights Agreement at a redemption price
of $.01 per Right. In the year ended March 31, 1993, the
Company paid approximately $271,000 to holders of record on
March 13, 1992 to redeem the Rights and granted additional rights
which expired without exercise in July 1992.
(2) In June 1991, the Company entered into a Securities
Purchase Agreement (as amended, the "Securities Purchase
Agreement") with a subsidiary of Semi-Tech (Global) Limited
("Semi-Tech") providing for the purchase of 10 million common
shares and the issuance of stock purchase warrants. In April
1992, the Securities Purchase Agreement was terminated in
exchange for payment by the Company of $500,000 in cash and the
issuance of 153,847 common shares (then equal in value to
$500,000).
Concurrently, the Company and Semi-Tech entered into a
three-year Supply Agreement (the "Supply Agreement"). Pursuant
to the Supply Agreement, the Company issued to Semi-Tech a
four-year warrant (valued at $600,000) to purchase 1 million
common shares at $4.00 per share and a five-year warrant to
purchase 500,000 common shares at $4.00 per share. The Supply
Agreement and the warrants were cancelled pursuant to the Plan of
Reorganization.
(3) All stock options outstanding at March 31, 1994 under
the 1987 Stock Option Plan and the 1980 Employees' Stock
Participation Plan were cancelled pursuant to the Plan of
Reorganization.
(4) 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$1.00-$1.10 $1,920,000
Cancelled $1.00
( 30,000) (30,000)
$1.00 (30,000)
Outstanding -- MarchOutstanding--March 31, 1995 1,830,000 $1.00 - $1.10$1.00-$1.10 $1,890,000
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.
(5) In October 1994, the Company's Board of Directors
adopted, subject to stockholder approval, the 1994 Non-Employee
Director Stock Option Plan. The maximum number of shares of
Common Stock available under such plan is 300,000. 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 -- MarchOutstanding--March 31, 1995 175,000 $1.00 $175,000
The provisions for exercise price, term and vesting schedule
are the same as noted above for the Stock Compensation Program.
(6) Pursuant to the Plan of Reorganization, on March 31,
1994, the Company issued Series A Preferred Stock 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.
(7) 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 warrant.
(8) 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 FIL. 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
691,944 and 77,502 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.
Note K -- License Agreements:
(1) In February 1995, the Company and Otake Trading Co.
Ltd. and certain affiliates ("Otake"), the Company's largest
supplier, entered into two mutually contingent agreements (the
"Agreements"). Effective March 31, 1995, the Company granted a
license of certain trademarks to Otake for a three-year term.
The license permits Otake to manufacture and sell certain video
products under the trademark to Wal-Mart Stores, Inc. ("Wal-Mart"Wal-
Mart"), the Company's largest customer, in the U.S. and Canada,
and precludes Otake from supplying product to Wal-Mart other than
under the Emerson or Orion trademarks. The Company will continue
to supply other products to Wal-Mart directly. Further, the
Agreements provide that Otake 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 Otake 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 Wal-Mart.Wal-
Mart. In addition, effective August 1, 1995, Otake will assume
responsibility for returns and after-sale and warranty services
on all video products manufactured by Otake and sold to Wal-Mart,
including video products sold by the Company prior to April 1,
1995.
Additionally, the Company and Otake agreed on a series of
purchase discounts, consistent with agreements and past practices
between Otake and the Company. Through March 31, 1995, Otake has
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 is due 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") whereby the
Company granted a license of certain trademarks to Jasco for use
on non-competing consumer electronic 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 Company recognized license
fee income of approximately $1,125,000 in the year ended March
31, 1995.
Note L -- Legal Proceedings:
FIL Litigation:
The 30 million shares of Common Stock issued to GSE, Fidenas
International and Elision on March 31, 1994, pursuant to the Plan
of Reorganization, are the subject of certain legal proceedings.
Transfers of certain shares owned by Fidenas International have
been enjoined by court orders issued in the United States
Bankruptcy Court for the Southern District of New York and in
the Commonwealth of Bahamas. The Company is not a party to any
of the proceedings described herein; it is possible that a court
of competent jurisdiction may order the turnover of all or a
portion of the shares of Common Stock owned by such persons to a
third party. A turnover of a substantial portion of the Common
Stock could result in a "change of controlling ownership"
prohibited pursuant to the terms of the Company's Loan and
Security Agreement with its primary lender. Additionally, such a
change in control could result in a second "ownership change"
under Internal Revenue Code Section 382, which could affect the
Company's ability to use its net operating loss and tax credit
carryforwards. The Company does not believe the litigation or
the results thereof will have a material adverse effect on the
Company or on the Company's financial position.
Bankruptcy Claims:
The Company is presently engaged in litigation regarding
several bankruptcy claims which have not been resolved since the
restructuring of the Company's debt. The largest claim was filed
July 25, 1994 in connection with the rejection of certain
executory contracts with two Brazilian entities, Cineral
Electronica de Amazonia Ltda. and Cineral Magazine Ltda.
(collectively, "Cineral"). The contracts were executed in August
1993, shortly before the Company's filing for bankruptcy
protection. The amount claimed was $93,563,457, of which
$86,785,000 represents a claim for 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, the Company has instituted an
adversary proceeding in the Bankruptcy Court asserting damages
caused by Cineral. 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.
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.
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 M -- 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, 1995 U.S. Foreign Eliminations Consolidated
(In thousands)
Sales to unaffiliated customers $608,717 $ 608,717 $45,95445,954 $ -- $654,671
Transfers between geographicgeograhic areas 5,954 184 $ (6,138) --
Total net revenues $614,671 $ 614,671 $46,13846,138 $ (6,138) $654,671654,671
Earnings (loss) before taxes
income taxes 12,238 $ 12,238 $(4,596) $4,596) -- $ 7,642
Identifiable assets 98,604 $ 98,604 $15,47015,470 $ (105) $ 113,969
Year Ended March 31, 1994
Sales to unaffiliated customers $433,495 $ 433,495 $53,89553,895 $ -- $487,390487,390
Transfers between geographic areas 2,587 -- (2,587) --
Total net revenues $436,082 $ 436,082 $53,89553,895 $ (2,587) $487,390487,390
Loss before reorganization
costs and income taxes $(50,718) $ (50,718) $(5,224) $(5,224) -- $(55,942)
Identifiable assets 99,726 $ 99,726 $19,29519,295 $ -- $119,021
Year
Ended March 31, 1993
Sales to unaffiliated customers $ 693,997 $47,360$ 47,360 $ -- $741,357
Transfers between geographic areas 3,803 -- (3,803) --
Total net revenues $ 697,800 $47,360$ 47,360 $ (3,803) $ 741,357$741,357
Loss before income taxes $ (53,279) $(2,012)$( 2,012) $ -- $ (55,291)
Identifiable assets $ 175,363 $19,147$ 19,147 $ -- $ 194,510
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, 1995 and 1994, identifiable assets include
$37,492,000 and $51,390,000, respectively, of assets located in
foreign countries.
The Company's net sales to one customer aggregated
approximately 53%, 34% and 39%, of consolidated net sales for the
years ended March 31, 1995, 1994 and 1993, respectively. At March
31, 1995 and 1994, the Company had a liability balance to this
customer for product returns. The Company's net sales to another
customer aggregated 10%, 12% and 11% for the years ended March
31, 1995, 1994 and 1993, respectively. Trade receivables from
this customer approximated 10% and 11% of accounts receivable at
March 31, 1995 and 1994, respectively, and are not
collateralized.
Note N -- Investment in Joint Venture
The Company has a 50% investment in E & H Partners, a joint
venture that purchases, refurbishes and sells all of the
Company's product returns. The results of this joint venture are
accounted for by the equity method. The Company's equity in the
earnings of the joint venture is reflected as a reduction of cost
of sales in the Company's Consolidated Statements of Operations.
Summarized financial information relating to the joint venture is
as follows:
March 31, 1995
(In thousands)
Accounts receivable from joint venture $15,283(a)
Investment in joint venture 1,565
Condensed balance sheet:
Current assets $26,749
Noncurrent assets 161
Total $26,910
Current liabilities $23,780
Partnership equity 3,130
Total $26,910
Year Ended
March 31, 1995
(In thousands)
Sales to joint venture $32,500
Condensed income statement:
Net sales 24,760(b)
Net earnings 2,130
___________________
(a) Secured by a lien on the partnership's inventory. Such lien
has been assigned to the Lender as collateral for the U.S. line
of credit facility.
(b) Includes sales to the Company of $3,796,000.
EMERSON RADIO CORP. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
Column A Column B Column C Column D Column E
Balance at Charged to Balance
beginning costs and at end of
Description of year expenses Deductions year
Allowance for doubtful accounts:
Year ended:
March 31, 1995 $ 1,639 $ 1,574 $ 280(A) $ 2,933
March 31, 1994 2,374 998 1,733(A) 1,639
March 31, 1993 2,390 2,043 2,059(A) 2,374
Inventory reserves:
Year ended:
March 31, 1995 $ 644 $ 251 $ 425(B) $ 470
March 31, 1994 1,559 6,619 7,534(B)7,534(B 644
March 31, 1993 1,817 4,587 4,845(B)4,845(B 1,559
(A) Accounts written off, net of recoveries.
(B) Net realizable value reserve removed from account when
inventory is sold.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months
Ended June 30,
1995 1994
Net sales $ 57,058 $137,140
Costs and Expenses:
Cost of sales 50,886 128,906
Other operating costs and expenses 1,617 2,752
expenses
Selling, general &
administrative expenses 5,242 7,855
57,745 139,513
Operating loss (687) (2,373)
Interest expense 622 454
Loss before income taxes (1,309) (2,827)
Provision for income taxes 92 67
NET LOSS $ (1,401) $ (2,894)
Net loss per common share $ (.03) $ (.09)
Weighted average number of
common shares outstanding 40,253 33,333
The accompanying notes are an integral part of the interim
consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
June 30, March 31,
1995 1995
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 14,474 $ 17,020
Accounts receivable (less
allowances of $9,996 and
$9,350, respectively) 25,151 34,309
Inventories 35,312 35,336
Prepaid expenses and other 15,895 15,715
current assets 15,895 15,715
Total current assets 90,832 102,380
Property and equipment - (at
cost less accumulated
depreciation and amortization
of $5,676 and $7,102, respectively) 4,798 4,676
respectively)
Other assets 7,792 6,913
Total Assets $ 103,422 $ 113,969
LIABILITIES AND SHAREHOLDERS' EQUITYSHAREHOLDERS'EQUITY
Current Liabilities:
Notes payable $ 25,219 $ 27,296
Current maturities of long-term debtlong- 458 508
term debt
Accounts payable and other
current liabilities 19,929 18,982
Accrued sales returns 5,171 12,713
Income taxes payable 184 283
Total current liabilities 50,961 59,782
Long-term debt 193 214
Other non-current liabilities 324 322
Shareholders' Equity:
Preferred stock - $.01 par
value, 1,000,000 shares
authorized, 10,000
shares issued and
outstanding 9,000 9,000
Common stock - $.01 par value,
75,000,000 shares authorized,
40,252,772 shares issued and
outstanding 403 403
Capital in excess of par value 107,969 107,969
Accumulated deficit (65,662) (64,086)
Cumulative translation adjustment 234 365
adjustment
Total shareholders' equity 51,944 53,651
Total Liabilities and $103,422 $113,969
Shareholders' Equity $103,422 $113,969
The accompanying notes are an integral part of the interim
consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
Three Months Ended
June 30,
1995 1994
Cash Flows from Operating Activities:
Net cash provided (used) by
operating activities $ 1,428 $ (20,879)
Cash Flows from Investing Activities:
Redemption of (investment in)
certificates of depositdeposit. (16) 8,493
Additions to property and equipment (635) (1,443)
equipment
Other (526) ______
Net cash provided (used) by
investing activities (1,177) 7,050
Cash Flows from Financing Activities:
Net borrowings (repayments) under
line of credit facility.facility (2,077) 836
Other . (720) (336)
Net cash provided (used) by
financing activities (2,797) 500
Net decrease in cash and cash
equivalents (2,546) (13,329)
Cash and cash equivalents at
beginning of yearyear. 17,020 21,623
Cash and cash equivalents at end of period $ 14,474(a) $ 8,294(a)
period
Supplemental disclosure of cash
flow information:
Interest paid $ 884 $ 481
Income taxes paid $ 114 $ 275
(a) The balances at June 30, 1995 and 1994, include $9.1 million and
$2.0 million of cash and cash equivalents, respectively, pledged
to assure the availability of certain letter of credit facilities.
The accompanying notes are an integral part of the interim consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
(Unaudited)
NOTE 1
The unaudited interim consolidated financial statements
reflect all adjustments that management believes necessary to
present fairly the results of operations for the periods being
reported. The unaudited interim consolidated financial statements
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission and accordingly do not include
all of the disclosures normally made in the Emerson Radio Corp.
(the "Company") annual consolidated financial statements. It is
suggested that these unaudited interim consolidated financial
statements be read in conjunction with the consolidated financial
statements and notes thereto for the year ended March 31, 1995,
included in the Company's annual Form 10-K filing.
Due to the seasonal nature of the Company's consumer
electronics business, the results of operations for the three
months ended June 30, 1995 are not necessarily indicative of the
results of operations for the full year ending March 31, 1996.
NOTE 2
Net loss per common share for the three month periods ended
June 30, 1995 and 1994 are based on the weighted average number
of shares of common stock outstanding during each period. The
net loss per share for both periods does not include common stock
equivalents assumed outstanding since they are anti-dilutive.
NOTE 3
The provision for income taxes for the three months ended
June 30, 1995 and 1994 consists primarily of taxes related to
international operations. The Company did not recognize tax
benefits for losses incurred by its domestic operations (after
tax recognition of prior year book deductions) during the three
months ended June 30, 1995 and 1994.
NOTE 4
Spare parts inventories, net of reserves, aggregating
$2,583,000 and $2,763,000 at June 30, 1995 and March 31, 1995,
respectively, are included in "Prepaid expenses and other current
assets".
NOTE 5
Long-term debt consists of the following:
(In thousands of dollars)
June 30, March 31,
1995 1995
Notes payable to unsecured
creditors $ 342 $ 465
Equipment notes and other 309 257
651 722
Less current obligations 458 508
$ 193 $ 214
NOTE 6
The 30 million shares of Common Stock issued to GSE
Multimedia Technologies Corp., Fidenas International Limited
L.L.C. and Elision International, Inc. on March 31, 1994,
pursuant to the Company's bankruptcy restructuring plan, are the
subject of certain legal proceedings. Transfer of certain shares
owned by Fidenas International Limited L.L.C. have been enjoined
by court orders issued in the United States Bankruptcy Court for
the Southern District of New York and the Commonwealth of the
Bahamas. The Company is not a party to any of the proceedings
described herein; it is possible that a court of competent
jurisdiction may order the turnover of all or a portion of the
shares of Common Stock owned by such persons to a third party. A
turnover of a substantial portion of the Common Stock could
result in a "change of controlling ownership" prohibited pursuant
to the terms of the Company's loan and security agreement with
its primary United States lender. Additionally, such a change in
controlling ownership could result in a second "ownership change"
under Internal Revenue Code Section 382, which could affect the
Company's ability to use its net operating loss and tax credit
carryforwards. The Company does not believe the litigation or the
results thereof will have a material adverse effect on the
Company or on the Company's financial position.
The Company is presently engaged in litigation regarding
several bankruptcy claims which have not been resolved since the
restructuring of the Company's debt. The largest claim was filed
July 25, 1994 in connection with the rejection of certain
executory contracts with two Brazilian entities, Cineral
Electronica de Amazonia Ltda. and Cineral Magazine Ltda.
(collectively, "Cineral"). The contracts were executed in August
1993, shortly before the Company's filing for bankruptcy
protection. The amount claimed was $93,563,457, of which
$86,785,000 represents a claim for lost profits and $6,400,000
for plant installation and establishment of offices, which were
installed and established prior to execution of the
contracts. The claim was filed as an unsecured claim and,
therefore, will be satisfied, to the extent the claim is allowed
by the Bankruptcy Court, in the manner other allowed unsecured
claims are 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, the Company has instituted an
adversary proceeding in the Bankruptcy Court asserting damages
caused by Cineral. 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. An
adverse final ruling on the Cineral claim could have a material
adverse effect on the Company, even though it would be limited to
18.3% of the final claim determined by a court of competent
jurisdiction; however, with respect to the claim for lost
profits, in light of the foregoing, the Company believes the
chances for recovery for lost profits are remote.
NOTE 7
The Company has a 50% investment in E & H Partners, a joint
venture that purchases, refurbishes and sells all of the
Company's product returns. The results of this joint venture are
accounted for by the equity method. The Company's equity in the
earnings of the joint venture is reflected as a reduction of cost
of sales in the Company's unaudited interim Consolidated
Statements of Operations. Summarized financial information
relating to the joint venture is as follows (in thousands):
June 30, March 31,
1995 1995
Accounts receivable from joint $ 17,495(a) $ 15,283
venture (a) $17,495(a) $15,283
Three Months
Ended
June 30, 1995
(In thousands)
Condensed income statement (c):
Net sales $ 7,274(b)
Net earnings 919
____________________
(a) Secured by a lien on the partnership's inventory. Such lien
has been assigned to the Company's primary lender as collateral
for the U.S. line of credit facility.
(b) Includes sales to the Company of $1,425,000.
(c) E&H Partners was inactive for substantially all of the three
month period ended June 30, 1994.
The Company filed suit on July 5, 1995 in the State Court of
New Jersey alleging Hopper Radio of Florida, Inc. ("Hopper"), the
Company's partner in E&H Partners, Barry Smith, the President of
Hopper, and three former employees of the Company ( collectively,(collectively,
the "Defendants") have formed a business entity for the purpose
of engaging in the distribution of consumer electronics and that
the action of the Defendants in connection therewith violated
certain duties owed to and rights of the Company. E & H Partners
has continued to operate since the filing of said lawsuit.
However, the Company cannot predict at this time how this suit
will, if at all, affect the joint venture or the Company.
No person has been authorized to give any information or to make
any representation $20,750,000
not contained in this Prospectus in 8 1/2% Senior Subordinated
connection
with the offer made hereby. Convertible Debentures If given or made, such information
or Due 2002 representation must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute
an offer of any securities other than the securities to which it
relates or an offer to any "Emerson and G-Clef" person in any jurisdiction where such
an offer would be unlawful. Neither delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create
an implication that information contained herein is correct as of
any time subsequent to the date hereof.
$20,750,000 of
8-1/2% Senior Subordinated Convertible Debentures
Due 2002
TABLE OF CONTENTS
PAGE PROSPECTUS
PAGE
Summary 1
Risk Factors 11
The Company 20
Use of Proceeds 23
Capitalization 24
Selected Consolidated Financial Data 25
Management's Discussion and Analysis of
Results of Operations and
Financial Condition 27
Business 38
Legal Proceedings 49
Management 54 October 25, 1995
Executive Compensation and Other
Information 57
Principal Stockholders 65
Certain Relationships and Related
Transactions 67
Description of Debentures 71
Description of Other Securities 87
Certain Federal Income Tax
September 21, 1995
Considerations 93
Selling Securityholders 102
Plan of Distribution 104
Experts 105
Interim Financial Information 105
Legal Matters 106
Available Information 106
Index to Consolidated
Financial Statements F-1
PROSPECTUS
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution*
The following are the estimated expenses of the issuance and
distribution of the securities being registered, including fees
and expenses previously incurred by the Company, other than any
underwriting compensation. None of such expenses have been or
will be borne by the Selling Securityholders.
Item Amount
Securities and Exchange Commission
Registration Fees........................Fees $ 7,155.17
Legal Fees and Expenses....................Expenses 20,000.00
Accountants' Fees and Expenses.............Expenses 25,000.00
Trustee's Fees and Expenses.................Expenses 1,500.00
Printing and Engraving Expenses 20,000.00
Miscellaneous Expenses.....................Expenses 11,344.83
Total 85,000.00
_______________
*All* All expenses are estimated, except the Securities and Exchange
Commission Registration Fee.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law
("Section 145") (a) gives Delaware corporations broad powers to
indemnify their present and former directors and officers and
those of affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason
of being or having been such directors or officers, subject to
specified conditions and exclusions, (b) gives a director or
officer who successfully defends an action the right to be so
indemnified and (c) authorizes the corporation to buy directors'
and officers' liability insurance. Such indemnification is not
exclusive of any other right to which those indemnified may be
entitled under any bylaw, agreement, vote of stockholders or
otherwise.
The Company's Certificate of Incorporation provides that the
Company (a) shall indemnify every person who is or was a director
or officer of the Company or is or was serving at the
Corporation's request as a director or officer of another
corporation, partnership, joint venture, trust or other
enterprise and (b) shall, if the board of directors so directs,
indemnify any person who is or was an employee or agent of the
Company or is or was serving at the Company's request as an
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, to the extent, in the manner,
and subject to compliance with the applicable standards of
conduct, provided by Section 145 as the same (or any substitute
provision therefor) may be in effect from time to time.
Any such indemnification shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators
of such a person.
The Plan of Reorganization provided that, among specified
others, any and all directors, officers and stockholders who at
any time from after July 8, 1992, or as of the effective date of
the Plan of Reorganization acted as such, are released from all
liability based upon any act or commission of every kind related
to past service with, for or on behalf of any of the
Restructuring companies, except where such liability is
predicated on a finding of gross negligence, willful misconduct
or fraud.
The Company has procured insurance for the purpose of
substantially covering its future potential liability for
indemnification under Section 145 as discussed above and certain
future potential liability of individual officers or directors
incurred in their capacity as such which is not subject to
indemnification.
Item 15. Recent Sales of Unregistered Securities
During the past three years, the Company has not sold
any unregistered securities, except as follows:
(a) On March 31, 1994, the effective date of the Plan of
Reorganization, all shares of common stock and other equity
securities then outstanding were canceled in accordance with the
Plan of Reorganization, and 33,333,333 shares of Common Stock,
10,000 shares of Series A Preferred Stock, and Creditors'
Warrants to acquire 750,000 shares of Common Stock were issued.
Of such securities, 3,333,333 shares of Common Stock, 10,000
shares of Series A Preferred Stock, and the Creditors' Warrants
were issued to holders of claims (in exchange for such claims) in
reliance upon the exemption from registration provided by Section
1145 of the United States Bankruptcy Code. No underwriters were
involved in such transactions.
(b) In July, September, and October 1994, the Company
granted options to purchase an aggregate of 1,890,000 shares of
Common Stock (net of cancellations) at a purchase price of $1.00
per share (except for 600,000 of such options which have an
exercise price of $1.10 per share) to certain executive officers.
The options were granted in reliance on the exemption from
registration provided by Rule 701 promulgated under the
Securities Act.
(c) In February 1995, 769,446 shares of Common Stock were
issued without additional consideration to satisfy certain anti-dilutionanti-
dilution provisions of the Plan of Reorganization resulting from
the sale of 6,149,993 shares of Common Stock by the Company in a
registered public offering during 1994. Such shares were issued
to holders of claims in the Company's bankruptcy proceedings in
reliance upon the exemption from registration provided by Section
1145 of the United States Bankruptcy Code. No underwriters were
involved in the issuance of such shares to such holders of
claims.
(d) In August 1995, the Company issued $20,750,000 aggregate
principal amount of Debentures through the Placement Agent and
its authorized dealers to the Selling Securityholders in reliance
upon the exemption from registration provided by Section 4(2) of
the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
(a) The following is a complete list of Exhibits filed as a
part of this Registration Statement:
EXHIBIT DESCRIPTION
(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) By-Laws of Emerson adopted March 1994
(incorporated by reference to Exhibit
(3) (e) of Emerson's Registration
Statement on Form S-
1,S-1, Registration No.
33-53621, declared effective by the SEC
on August 9, 1994).
(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,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).
(5)(a) Opinion of Lowenstein, Sandler, Kohl,
Fisher & Boylan, P.A., with respect to
Issuance of the Debentures.**
(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-
53621,33-53621, 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-
53621,33-53621, declared
effective by the SEC on August 9, 1994).
(10) (e) Form of Promissory Note issued to
certain Pre-
PetitionPre-Petition Creditors
(incorporated by reference to Exhibit
(10)(e) of Emerson's Registration
Statement on Form S-1, Registration No.
33-
53621,33-53621, 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-
53621,33-53621, declared
effective by the SEC on August 9, 1994).
(10) (g) 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) (h) 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) (i) 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) (j) 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) (k) 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) (l) 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) (m) 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) (n) 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) (o) 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) (p) 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) (q) 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
fiscal year ended March 31, 1995).
(10) (r) 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 fiscal year ended March 31,
1995).
(10) (s) Agreement, dated July 1, 1994, between
Emerson and Alex Wijnen relating to
termination of employment and agreement
on consulting services. (incorporated by
reference to Exhibit 10(s) of Emerson's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1995).
(10) (t) 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 fiscal year ended
March 31, 1995).
(10) (u) 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 fiscal year ended March 31,
1995).
(10) (v) 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 fiscal year ended March 31,
1995).
(10) (w) License Agreement, dated February 22,
1995, between Emerson and 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) (x) 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) (y) 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 fiscal year
ended March 31, 1995).
(10) (z) 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).
(11) Computation of Primary Earnings Per
Share (incorporated by reference to
Exhibit (11) of Emerson's Annual Report
on Form 10-K for the fiscal year ended
March 31, 1995).
(12) Computation of Ratios**
(21) Subsidiaries of the Registrant as of
March 31, 1995 (incorporated by
reference to Exhibit (21) of Emerson's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1995).
(23) Consent of Experts and Counsel * and **
(25) Form T-1 of Bank One, Columbus, NA**
(27) Financial Data Schedule for year ended
March 31, 1995 (incorporated by
reference to Exhibit (27) of Emerson's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1995).
____________________
*Filed* Filed herewith (as to Consent of Ernst & Young LLP)
** Previously filed
(b) The following is a complete list of Financial
Statements, financial statement Schedules and Report of
Independent Auditors filed as a part of this Registration
Statement and included with the financial statements filed as a
part of this Registration Statement:
(1) Financial Statements are included in the
Prospectus; see "Index to Consolidated Financial Statements" in
the Prospectus at page F-1.
(2) Schedule VIII Valuation and Qualifying Accounts
and Reserves
All other schedules are omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
Item 17. Undertakings
A. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
B. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-
effectivepost-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement.
C. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under
the Securities Act of 1933, the information omitted from the form
of prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability
under the Securities Act of 1933, each post-effective amendment
that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Town of Parsippany, State of
New Jersey, on the 21th20th day of September,October, 1995.
EMERSON RADIO CORP.
By:/s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
as amended, this registration statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Geoffrey P. Jurick Chairman of the Board, September 21,October 20, 1995
Geoffrey P. Jurick Chief Executive Officer,
and Director (Principal
Executive Officer)
/s/ Eugene I. Davis President, Interim Chief September 21,October 20, 1995
Eugene I. Davis Financial Officer, and
Director (Principal
Financial and Accounting
Officer)
/s/ Robert H. Brown, Jr.
Robert H. Brown, Jr. Director September 21,October 20, 1995
/s/ Peter G. Bunger
Peter G. Bunger Director September 21,October 20, 1995
/s/ Jerome H. Farnum
Jerome H. Farnum Director September 21,October 20, 1995
/s/ Raymond L. Steele
Raymond L. Steele Director September 21,October 20, 1995
PAGE NUMBER
EXHIBIT DESCRIPTION IN SEQUENTIAL 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-
53621,33-53621, 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) By-Laws of Emerson adopted March 1994
(incorporated by reference to Exhibit
(3) (e) of Emerson's Registration
Statement on Form S-
1,S-1, Registration No.
33-53621, declared effective by the SEC
on August 9, 1994).
(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,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).
(5)(a) Opinion of Lowenstein, Sandler, Kohl,
Fisher & Boylan, P.A., with respect to
Issuance of the Debentures.**
(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-
53621,33-53621, 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-
53621,33-53621,
declared effective by the SEC on August 9,
1994).
(10) (e) Form of Promissory Note issued to
certain Pre-
PetitionPre-Petition Creditors
(incorporated by reference to Exhibit
(10) (e) of Emerson's Registration
Statement on Form S-1, Registration No.
33-
53621,33-53621, 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-
53621,33-53621, declared
effective by the SEC on August 9, 1994).
(10) (g) 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) (h) 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) (i) 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) (j) 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) (k) 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) (l) 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) (m) 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) (n) 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) (o) 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) (p) 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) (q) 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
fiscal year ended March 31, 1995).
(10) (r) 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 fiscal year ended March 31,
1995).
(10) (s) Agreement, dated July 1, 1994, between
Emerson and Alex Wijnen relating to
termination of employment and agreement
on consulting services. (incorporated by
reference to Exhibit 10(s) of Emerson's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1995).
(10) (t) 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 fiscal year ended
March 31, 1995).
(10) (u) 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 fiscal year ended March 31,
1995).
(10) (v) 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 fiscal year ended March 31,
1995).
(10) (w) License Agreement, dated February 22,
1995, between Emerson and 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) (x) 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) (y) 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 fiscal year
ended March 31, 1995).
(10) (z) 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).
(11) Computation of Primary Earnings Per
Share (incorporated by reference to
Exhibit (11) of Emerson's Annual Report
on Form 10-K for the fiscal year ended
March 31, 1995).
(12) Computation of Ratios**
(21) Subsidiaries of the Registrant as of
March 31, 1995 (incorporated by
reference to Exhibit (21) of Emerson's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1995).
(23) Consent of Experts and Counsel * and **
(25) Form T-1 of Bank One, Columbus, NA.**
(27) Financial Data Schedule for year ended
March 31, 1995 (incorporated by
reference to Exhibit (27) of Emerson's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1995).
____________________
*Filed* Filed herewith (as to Consent of Ernst & Young LLP)
** Previously filed