-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, On+6M2wu+zkUrDJSp2wz0iw3WL1OaimU3iHkempo3E7Pw3QPN96TF+JRLRQgaG10 NYWjUOSSsCXlKRUtD3zJ6w== 0000032621-96-000002.txt : 19960702 0000032621-96-000002.hdr.sgml : 19960702 ACCESSION NUMBER: 0000032621-96-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960701 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMERSON RADIO CORP CENTRAL INDEX KEY: 0000032621 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 223285224 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07731 FILM NUMBER: 96589464 BUSINESS ADDRESS: STREET 1: NINE ENTIN RD STREET 2: PO BOX 430 CITY: PARSIPPANY STATE: NJ ZIP: 07054-0430 BUSINESS PHONE: 2018845800 FORMER COMPANY: FORMER CONFORMED NAME: MAJOR ELECTRONICS CORP DATE OF NAME CHANGE: 19770921 10-K 1 10K ____________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _______________________ FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended March 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-25226 EMERSON RADIO CORP. (Exact name of registrant as specified in its charter) ____________Delaware____________________ ____________22-3285224 (State or other jurisdiction of (I.R.S. Employer Identifcation incorporation or organization) Number) _______Nine Entin Road, Parsippany, NJ______ ___07054 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:_______(201) 884-5800_______ Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, par value $.01 American Stock Exchange per share Securities registered pursuant to Section 12(g) of the Act: Series A Preferred Stock and Warrants. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirement for the past 90 days. [X] YES [ ] NO. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. Aggregate market value of the voting stock of the registrant held by non- affiliates of the registrant at June 27, 1996 (computed by reference to the last reported sale price of the Common Stock on the American Stock Exchange on such date): $30,278,133. Indicate by check mark whether the registrant has filed all documents and reports to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [X] YES [ ] NO. Number of Common Shares outstanding at June 27, 1996: 40,252,772 DOCUMENTS INCORPORATED BY REFERENCE: Proxy Statement for the 1996 Annual Meeting of Stockholders: Part III ________________________________________________________________________________ PART I Item 1. BUSINESS General Emerson Radio Corp. ("Emerson" or the "Company"), one of the nation's largest volume consumer electronics distributors, directly and through subsidiaries, designs, sources, imports and markets a variety of televisions and other video products, microwave ovens, audio, car audio, home theater, home and personal security products and clocks. The Company distributes its products primarily through mass merchants and discount retailers leveraging on the 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 audio products for sale under the "H.H. Scott" and "Electrophonic" brand names. Approximately $18 billion of factory sales are generated by the industry in the market segment in which the Company competes. In calendar year 1995, Emerson was among the top brand names in unit sales volume of video cassette recorders ("VCRs"), TV/VCR combinations and color televisions. The Company believes it possesses an advantage over its competitors due to the combination of (i) the "EMERSON and G-Clef" brand recognition, (ii) its extensive distribution base and established relations with customers in the mass merchant and discount retail channels of distribution, (iii) its sourcing expertise and established vendor relations, and (iv) an infrastructure with personnel experienced in servicing and providing logistical support to the domestic mass merchant distribution channel. Emerson intends to continue to leverage its core competencies to offer a broad variety of current and new consumer products to retail customers in developing markets worldwide. The Company has in the past and intends in the future to form joint ventures and enter into licensing agreements which will take advantage of the Company's trademarks and utilize the Company's logistical and sourcing advantages. The Company's core business consists of the distribution and sale of various low to moderately priced product categories, including black and white and color televisions, VCRs, video cassette players ("VCPs"), TV/VCR combination units, home stereo and portable audio products, car audio, home theater, home and personal security products, clocks and microwave ovens. The majority of the Company's marketing and sales of these products is concentrated in the United States and, to a lesser extent, Canada and certain other international regions. Emerson's major competition in these markets are foreign-based manufacturers and distributors. See "Business - Competition." The Company successfully restructured its financial position (the "Restructuring") through a plan of reorganization, confirmed by the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"), pursuant to the provisions of Chapter 11 of the Bankruptcy Code on March 31, 1994 ("Plan of Reorganization"). Through the Restructuring, the Company reduced its institutional debt by approximately $203 million. Additionally, in the fiscal year ended March 31, 1996 ("Fiscal 1996"), the Company has reduced its annual fixed operating costs by approximately 60% since the fiscal year ended March 31, 1993. The Company was originally formed in the State of New York in 1956 under the name Major Electronics Corp. In 1977, the Company reincorporated in the State of New Jersey and changed its name to Emerson Radio Corp. On April 4, 1994, the Company was reincorporated in Delaware by merger of its predecessor into its wholly-owned Delaware subsidiary formed for such purpose. References to "Emerson" or the "Company" refers to Emerson Radio Corp. and its subsidiaries, unless the context otherwise indicates. The Company's principal executive offices are located at Nine Entin Road, Parsippany, New Jersey 07054- 0430. The Company's telephone number in Parsippany, New Jersey, is (201) 884- 5800. Company Products The Company directly and through subsidiaries designs, sources, imports and markets a variety of television and other video products, microwave ovens, audio, car audio, home theater, home and personal security products and clocks, primarily on the strength of its "EMERSON and G-Clef" trademark, a nationally recognized symbol in the consumer electronics industry. The Company's current product categories consist of the following: Video Products Audio Products Other Color televisions Shelf systems Home theater Black and white CD stereo systems Car audio specialty televisions Color specialty Portable audio, Microwave televisions cassette and CD ovens systems Color TV/VCR AM/FM Bicycle Home and combination units radios personal security Video cassette Personal audio, Clocks recorders cassette and CD systems Specialty video Digital clock cassette players radios All of the Company's products offer various features. Color television units range in screen size from 5 inches to 25 inches and specialty color televisions are offered in 5 inch and 9 inch units. Combination units range in screen size from 9 inches to 25 inches. Portable audio systems incorporate AM/FM radios and/or cassette and/or CD players in a variety of models. Microwave ovens range in size from 0.6 cubic feet to 1.2 cubic feet containing features such as turntables, key pad touch controls, auto defrost and multi- power levels. In Fiscal 1996, the Company introduced new product categories which include home theater systems, car audio, home and personal security products, and clocks. Industry sales of home theater audio components increased 45% in 1995, to $755 million. Emerson introduced two new products in this market segment during Fiscal 1996. Car audio aftermarket sales are estimated to have increased an average of 11% per year from 1990 to 1995. Declining prices have made CD car audio products more affordable and more visible to the retail discount consumer. The sale of home and personal security products and clocks allows the Company to promote the "EMERSON and G-Clef" brand name in retail stores' other departments. Growth Strategy The Company's strategic focus is to: (i) develop and expand its distribution of consumer electronics products in the domestic marketplace to new customers and the development and sale of new products, such as home theater, car audio and home and personal security products; (ii) capitalize on opportunities to license the "EMERSON and G-Clef" trademark; (iii) leverage and exploit its sourcing capabilities, buying power and logistics expertise in the Far East either internally or on behalf of third parties; (iv) expand international sales and distribution channels; and (v) expand through strategic mergers and acquisitions of companies in similar or complimentary businesses. As part of its efforts to expand through strategic mergers and acquisitions, the Company has been pursuing the acquisition through merger of International Jensen Incorporated ("Jensen"). Jensen manufactures and distributes speakers for automobiles and the home-audio market. Initial contacts were made through Emerson's current financial advisor on the Company's behalf in 1995. On January 3, 1996, Jensen entered into and announced a merger agreement with Recoton Corporation ("Recoton"), whereby Jensen stockholders would be paid $8.90 per share in cash and Recoton stock. This merger agreement with Recoton also contemplated the contemporaneous sale of Jensen's original equipment manufacturing business ("OEM Business") to a group led by Mr. Robert G. Shaw, Chairman of the Board, Chief Executive Officer and President of Jensen, for a purchase price which the Company's management believes is far less than the net book value of the OEM Business. Emerson announced its initial merger proposal in April 1996, which contemplated a purchase price of $9.90 per share to all of Jensen's stockholders. Between April 1996 and the date hereof, Emerson has made a number of acquisition proposals, which currently contemplate the purchase of Jensen while retaining the OEM Business, none of which have been accepted by Jensen. On June 24, 1996, Jensen announced, and its board approved, a revised merger agreement with Recoton providing for the payment of $11.00 per share to Jensen's outside stockholders and $8.90 per share to Mr. Shaw and William Blair Leveraged Capital Fund, L.P. (the "Blair Fund"). Mr. Shaw and the Blair Fund own a majority of the outstanding stock of Jensen. This merger transaction with Recoton still contemplates the contemporaneous sale of the OEM Business to the group led by Mr. Shaw. Emerson believes that such sale is still at a price well below the value of the OEM Business. In response, Emerson announced a merger proposal on June 25, 1996, whereby Emerson would pay Jensen's public stockholders $12.00 per share and Mr. Shaw and the Blair Fund the same $8.90 per share that they have agreed to accept under the Recoton merger transaction. This proposal does not contemplate the separate sale of the OEM Business. Jensen announced its rejection of Emerson's offer on June 26, 1996, and Emerson announced on June 27, 1996, that its offer would remain open through Jensen's proxy solicitation process on the Recoton transaction. Emerson also indicated it planned to file proxy solicitation materials in opposition to the Recoton transaction. The Jensen/Recoton/Shaw transactions are the subject of certain litigation in the Chancery Court in Delaware which challenge the validity of such transaction and certain related transactions. The Company is not a party to such litigation. The Company and Jensen are also parties to litigation in the Federal District Court in Chicago, relating to alleged violations of the federal proxy rules and breaches of a confidentiality agreement by Emerson and its President, and a counterclaim brought by Emerson against Jensen and Mr. Shaw alleging fraud and fraudulent inducement in the execution of the confidentiality agreement. See "Legal Proceedings." The Company believes that the "EMERSON and G-Clef" trademark is widely recognized on a world-wide basis. A principal component of the Company's growth strategy is to utilize this brand name recognition together with the Company's reputation for quality and cost competitive products to aggressively promote its product lines within the United States and Canada and targeted geographic areas on an international basis. The Company's management believes that the Company will be able to compete more effectively in the highly competitive consumer electronics and microwave oven industries, domestically and internationally, by combining innovative approaches to the Company's current product line and augmenting its product line with complimentary products. The Company intends to pursue such plans either on its own, or by forging new relationships, including through license arrangements, partnerships or joint ventures. The Company has successfully negotiated definitive licensing arrangements with (i) one of its suppliers and certain of its affiliates (collectively, the "Supplier"), (ii) a distributor of consumer electronics accessories, and (iii) the Franklin Mint. See "Business-Licensing". Further, the Company is actively pursuing additional similar transactions. Sales and Distribution The Company has an integrated system to coordinate the purchasing, sales and distribution segments of its operations. The Company receives orders from its major accounts electronically or by the conventional modes of facsimile, telephone or mail. The Company does not have long-term contracts with any of its customers, but rather receives orders on an ongoing basis. Products imported by the Company (generally from the Far East and Mexico) are shipped by ocean and/or inland freight and then stored in contracted public warehouse facilities for shipment to customers. All merchandise received by Emerson is automatically updated into the Company's on-line inventory system. As a purchase order is received and filled, warehoused product is labeled and prepared for outbound shipment to Company customers by common, contract or small package carriers. The Company also makes available to its customers (through subsidiaries) a direct import program, pursuant to which products are imported directly by the Company's customers. In Fiscal 1996 and the fiscal year ended March 31, 1995 ("Fiscal 1995"), products representing approximately 44% and 68% of net revenues, respectively, were imported directly from manufacturers to the Company's customers. If the Company experiences a decline in sales effected through direct imports and a corresponding increase in domestic sales, its working capital and inventory requirements will be incrementally affected. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." Domestic Marketing In the United States, the Company markets its products primarily through mass merchandisers and discount retailers. Wal-Mart Stores, Inc. ("Wal-Mart" or the "Customer") accounted for approximately 18% and 53%, and Target Stores, Inc., accounted for approximately 16% and 10% of the Company's net revenues in Fiscal 1996 and Fiscal 1995, respectively. Net revenues from Wal-Mart in Fiscal 1996 exclude sales of certain video products which are subject to a license/supply arrangement, effective March 31, 1995. As a result, the Company now reports royalty revenues attributable to such sales, in lieu of reporting the full dollar value of such sales and associated costs. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." Net sales of these products to Wal-Mart accounted for approximately 47% of consolidated net revenues in Fiscal 1995. See "Business-Licensing." No other customer accounted for more than 10% of the Company's net revenues in either period. Approximately 58% and 34% of the Company's revenues in Fiscal 1996 and Fiscal 1995, respectively, were made through sales representative organizations which receive sales commissions and work closely with Company sales personnel. The sales representative organizations sell, in addition to the Company's products, allied, but generally non-competitive, products. In most instances, either party may terminate a sales representative relationship on 30 days' prior notice in accordance with customary industry practice. The Company utilizes approximately 30 sales representative organizations, including two through which approximately 19% and 14% of the Company's net revenues were made in Fiscal 1996 as compared to 10% each in Fiscal 1995. No other sales representative organization accounted for more than 10% of the Company's net revenues in either period. The remainder of the Company's sales are made to retail customers serviced principally by Company sales personnel. The Company has seven sales professionals based in the United States. The domestic sales force is based in the Company's New Jersey corporate headquarters, and in regional offices located in Missouri and Oregon. Foreign Marketing While the major portion of the Company's marketing efforts are directed toward the United States, approximately 5% and 7% of the Company's net revenues in Fiscal 1996 and Fiscal 1995, respectively, were made to foreign customers in Canada, Central and South America, Spain and the Middle East. See Note L of Notes to Consolidated Financial Statements and "Management's Discussion and Analysis of Results of Operations and Financial Condition." Licensing In Fiscal 1995, the Company successfully concluded licensing agreements with (i) the Supplier for the sale of certain video products bearing the "EMERSON and G-Clef" trademark to the Customer's locations in the United States and Canada, (ii) Jasco Products Co., Inc. ("Jasco"), one of the largest domestic electronics accessory companies, for distribution of electronic accessories in the United States, and (iii) the Franklin Mint for distribution of classic Emerson Radio reproductions. The Company intends to pursue additional licensing opportunities and believes that such licensing activities has had and will continue to have a positive impact on operating results by generating royalty income with minimal costs, if any, and without the necessity of utilizing working capital or accepting customer returns. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." The Company is also considering strategic alternatives for its North American video business not covered under the license agreement with the Supplier. Design and Manufacturing The Company's design team is responsible for product development and works closely with the Company's manufacturers. The Company's engineers determine the detailed cosmetic and option specifications for new products, which typically incorporate commercially available electronic parts to be assembled according to the Company's designs. Accordingly, the exterior designs and operating features of the Company's products reflect the Company's judgment of current styles and consumer preferences. The Company's designs are tailored to meet the needs of the local market, particularly in the case of international distribution, where products are generally introduced on a country-by-country basis. The majority of the Company's products are manufactured by original equipment manufacturers in accordance with the Company's specifications. The manufacturers are primarily located in Hong Kong, South Korea, China, Malaysia, Thailand and Mexico. Certain of the Company's video products had been assembled by the Supplier in Indiana. During Fiscal 1996 and Fiscal 1995, approximately 93% and 89%, respectively, of the cost value of the Company's purchases consisted of imported finished goods. The Supplier, a manufacturer headquartered in Japan, supplied approximately 16% and 73%, respectively, of the Company's total purchases in Fiscal 1996 and Fiscal 1995. Approximately 52% of the cost value of the Company's purchases in Fiscal 1995 were video products purchased from the Supplier and sold to the Customer. As a result of the supply and license agreements (the "Agreements") between the Company and the Supplier, the Company expects that purchases of finished goods from the Supplier over the three-year term of the Agreements will continue to be in lower proportions than in Fiscal 1995. See "Business-Licensing." The Agreements also provide that the Supplier will supply the Company with certain video products for sale to other customers at preferred prices for the three-year term. The Agreements are currently the subject of certain lawsuits filed by the Company and the Supplier. See "Legal Proceedings." Additionally, Daewoo Electronics Co. Ltd., Kong Wah, Imarflex, Mfg. Co., Ltd. and Musical Electronics Limited supplied approximately 21%, 17%, 14% and 12%, respectively, of the Company's total purchases in Fiscal 1996. No other supplier accounted for more than 10% of the Company's total purchases in Fiscal 1996 or Fiscal 1995. Except for the litigation with the Supplier (see "Legal Proceedings"), the Company considers its relationships with its suppliers to be satisfactory and believes that, barring any unusual shortages or economic conditions, it could develop, and has developed, alternative sources for the products it currently purchases. Except with respect to the Agreements with the Supplier, the Company does not have a contractual agreement with any of its suppliers and no assurance can be given that certain short-term shortages of product would not result if the Company were required to seek alternative sources of supply without adequate notice by a supplier or a reasonable opportunity to seek alternate production facilities and component parts. Warranties The Company offers its United States and Canadian consumers limited warranties comparable to those offered to consumers by its competitors and accepts returns from its customers in accordance with customary industry practices. Returned Products The Company's customers return product to the Company for a variety of reasons, including liberal retailer return policies, damage to goods in transit and occasional cosmetic imperfections and mechanical failure. Effective April 1, 1994, the Company formed a partnership ("Partnership") with Hopper Radio of Florida, Inc. ("Hopper"). The Company and Hopper each own a 50% interest in the Partnership. The Partnership was formed to purchase (i) all returned consumer electronics products in the United States from the Company, refurbish them, if feasible, and sell them refurbished or "As-Is" on a worldwide basis in all countries where the Company has trademark rights, and (ii) new consumer electronics products from manufacturers sourced through a subsidiary of the Company or through third parties, if such new products could be obtained on more favorable prices and terms, for sale exclusively in Mexico and Central and South America. The partnership with Hopper has enabled the Company to control the costs associated with product returns by providing a stable selling price for returned products and increased inventory turnover by utilizing the distribution network of Hopper to sell products. The Partnership's profits and losses are allocated evenly and the general managerial activities are under the control of Barry Smith, who is also the President of Hopper. The Company previously refurbished certain products which were either sold as refurbished or, if not refurbished, sold "As-Is". See "Management's Discussion and Analysis of Results of Operations and Financial Condition." Effective April 24, 1996, the Company and Hopper entered into an agreement (the "Hopper Amendment") which, among other things, amended certain provisions in the Partnership and Sales agreements and settled all outstanding litigation between the Company, Hopper and the other named parties. See "Legal Proceedings." Under the Hopper Amendment, Hopper advanced an additional $5 million to the Partnership, thereby increasing the liquidity of the Partnership and equalizing the investment of the partners and the sharing of cash flows. Additionally, the Hopper Amendment provides that the Partnership will continue to buy all of the Company's product returns in the U.S. through December 31, 1996, excluding defective product returns subject to the return to vendor agreements, as noted below. Subsequent to this date, either partner may give notice to dissolve the Partnership, with a wind-down period to be completed no later than six months from the date of such notice. To further reduce the costs associated with product returns, the Company has entered into "return to vendor" agreements with the majority of its suppliers. For a fee, the agreements permit the Company to return defective- product returns to the supplier and to receive in exchange an "A" quality unit. The agreements cover certain microwave oven, audio and video products. The Company expects to realize significant cost savings from such agreements commencing in the fiscal year ending March 31, 1997 ("Fiscal 1997"). Backlog From time-to-time, the Company has substantial orders from customers on hand. Management believes, however, that backlog is not a significant factor in its operations. The ability of management to correctly anticipate and provide for inventory requirements is essential to the successful operation of the Company's business. Trademarks The Company owns the "EMERSON and G-Clef", "H.H. Scott" and "Scott" trademarks for certain of its home entertainment and electronic products in the United States, Canada, Mexico and various other countries. Of the trademarks owned by the Company, those registered in the United States must be renewed at various times through 2008 and those registered in Canada must be renewed at various times through 2007. The Company's trademarks are also registered on a worldwide basis, which registrations must be renewed at various times. The Company intends to renew all such trademarks. The Company considers the "EMERSON and G-Clef" trademark to be of material importance to its business. The Company owns several other trademarks, none of which is currently considered by the Company to be of material importance to its business. The Company has licensed certain applications of the "EMERSON and G-Clef" trademark to the Supplier, Jasco and the Franklin Mint on a limited basis. See "Business - Licensing." Competition The market segment of the consumer electronics industry in which the Company competes generates approximately $18 billion of factory sales annually and is highly fragmented, cyclical and very competitive, supporting major American, Japanese and Korean companies, as well as numerous small importers. The industry is characterized by the short life cycle of products which requires continuous design and development efforts. Market entry is comparatively easy because of low initial capital requirements. The Company primarily competes in the low to medium-priced sector of the consumer electronics market. Management estimates that the Company has several dozen competitors, many of which are much larger and have greater financial resources than the Company. Emerson's major competitors are foreign-based manufacturers and distributors. The Company competes primarily on the basis of its products' reliability, quality, price and design, the "EMERSON and G-Clef" trademark and service to retailers and their customers. The Company's products also compete at the retail level for shelf space and promotional displays, all of which have an impact on the Company's established and proposed distribution channels. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." Government Regulation Pursuant to the Tariff Act of 1930, as amended, the Trade Act of 1974 and regulations promulgated thereunder, the United States government charges tariff duties, excess charges, assessments and penalties on many imports. These regulations are subject to constant change and revision by government agencies and by action by the United States Trade Representative and may have the effect of increasing the cost of goods purchased by the Company or limiting quantities of goods available to the Company from its overseas suppliers. A number of states have adopted statutes regulating the manner of determining the amount of payments to independent service centers performing warranty service on products such as those sold by the Company. Additional Federal legislation and regulations regarding the importation of consumer electronics products, including the products marketed by the Company, have been proposed from time-to-time and, if enacted into law, could adversely affect the Company's results of operations. Employees As of June 27, 1996, the Company had approximately 154 employees. The Company considers its labor relations to be generally satisfactory. Item 2. PROPERTIES The Company, directly and through its subsidiaries, leases warehouse and office space in New Jersey, Canada, Missouri and the Far East under leases expiring at various times from calendar 1996 to 1998, at minimum aggregate rentals as follows: Year Ending March 31, (In Thousands) 1997 1,608 1998 1,197 1999 329 $3,134
In the past several years, the Company has closed substantially all of its leased or owned warehouse facilities in favor of utilizing public warehouse space as part of the Company's effort to convert fixed costs to variable costs. Such commitments are evidenced by contracts with terms of up to one year. The cost for the public warehouse space is primarily based on a fixed percentage of the Company's sales from each respective location. Such amounts are not included in the above table. Item 3. LEGAL PROCEEDINGS Bankruptcy Claims Pursuant to the Plan of Reorganization and the Bankruptcy Code, all claims against the Company existing as of September 29, 1993, were discharged, except as specifically set forth in the 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 Company's bank group and the holders of the senior notes 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 would bear interest at a rate based on the London Interbank Offered Rate ("LIBOR") for one year obligations and would be payable as follows: (i) 35% of the outstanding principal is due 12 months from the date of issuance, and (ii) the remaining balance would be due 18 months from the date of issuance. The Company is presently contesting claims submitted by several creditors. The largest claim was filed on or about July 25, 1994 in connection with the rejection of certain executory contracts with two Brazilian entities, Cineral Electronica de Amazonia Ltda. and Cineral Magazine Ltda. (collectively, "Cineral"). The contracts were executed in August 1993, shortly before the Company's filing for bankruptcy protection. The amount claimed was $93,563,457, of which $86,785,000 represents a claim for loss of profits and $6,400,000 for plant installation and the establishment of offices, which were installed and established prior to execution of the contracts. The claim was filed as an unsecured claim and, therefore, will be satisfied, to the extent the claim is allowed by the Bankruptcy Court, in the manner other allowed unsecured claims were satisfied. The Company believes the Bankruptcy Court will separately review the portion of the claim for lost profits from the substantially smaller claim for actual damages. The Company has objected to the claim, intends to vigorously contest such claim and believes it has meritorious defenses to the highly speculative portion of the claim for lost profits and the portion of the claim for actual damages for expenses incurred prior to the execution of the contracts. Additionally, on or about September 30, 1994, the Company instituted an adversary proceeding in the Bankruptcy Court asserting damages caused by Cineral and seeking declaratory relief and replevin. A motion filed by Cineral to dismiss the adversary proceeding has been denied. The adversary proceeding and claim objection have been consolidated into one proceeding and discovery commenced. This action has been stayed since June 1995 by order of the Bankruptcy Court pending settlement negotiations. An adverse final ruling on the Cineral claim could have a material adverse effect on the Company, even though it would be limited to 18.3% of the final claim determined by a court of competent jurisdiction; however, in light of the foregoing, the Company believes the chances for recovery for lost profits are remote. Teletech Litigation In December 1990, an action entitled Emerson Radio (Hong Kong) Limited (a wholly owned subsidiary of the Company) and Teletech (Hong Kong) Limited was commenced in the Supreme Court of Hong Kong High Court (the "Teletech Action") by Emerson Radio (Hong Kong) Limited ("Emerson (H.K.)") against Teletech (Hong Kong) Limited ("Teletech"). The Statement of Claim (the "Claim"), filed and served in March 1991, alleges that Teletech breached its agreements to sell cordless telephones and telephone answering machines to Emerson (H.K.). The Claim seeks damages of approximately $1,000,000. In March 1991, Teletech filed a counterclaim that essentially denies the allegations and alleges that Emerson (H.K.) breached its agreement to purchase cordless telephones and telephone answering machines arising from wrongful cancellation of placed orders. The counterclaim seeks damages of approximately $1,700,000. In May 1991, Emerson (H.K.) filed a reply to the counterclaim denying the allegations in the counterclaim. The case is presently dormant. This litigation was not affected by the bankruptcy proceedings. Otake Litigation On December 20, 1995, the Company filed suit in the United States District Court for the District of New Jersey against Orion Sales, Inc., Otake Trading Co. Ltd., Technos Development Limited, Shigemasa Otake, and John Richard Bond, Jr. (collectively, the "Otake Defendants") alleging breach of contract, breach of covenant of good faith and fair dealing, unfair competition, interference with prospective economic gain, and conspiracy in connection with certain activities of the Otake Defendants under certain agreements between the Company and the Otake Defendants. Mr. Bond is a former officer and sales representative of the Company, having served in the latter capacity until he became involved working for the other Otake Defendants. Certain of the other Otake Defendants have supplied the majority of the Company's purchases until the Company's most recent fiscal year. On December 21, 1995, Orion Sales, Inc. and Orion Electric (America), Inc. filed suit against the Company in the United States District Court, Southern District of Indiana, Evansville Division, alleging various breaches of certain agreements by the Company, including breaches of the confidentiality provisions, certain payment breaches, breaches of provisions relating to product returns, and other alleged breaches of those agreements, and seeking damages in the amount of $2,452,656, together with interest thereon, attorneys' fees, and certain others costs. While the outcome of the New Jersey and Indiana actions are not certain at this time, the Company believes it has meritorious defenses against the claims made by the plaintiffs in the Indiana action. In any event, the Company believes the results of that litigation should not have a material adverse effect on the financial condition of the Company or on its operations. To date, all royalty payments due under the license agreement with the Supplier have been made. Tax Matters In June and October 1988, the Franchise Tax Board of the State of California issued Notices of Proposed Assessment to the Company proposing additional state income tax of approximately $501,000 in the aggregate, plus interest, for the fiscal years 1980, 1985 and 1986. In August and November 1988, the Company filed protests with the Franchise Tax Board taking exception to the Notices of Proposed Assessment. After disallowing the Company's protest, on July 24, 1992, the Franchise Tax Board issued a formal Notice of Action assessing a deficiency in the aggregate of approximately $664,000, which includes interest through July 24, 1992. On August 24, 1992, the Company filed an appeal with the California State Board of Equalization. The Franchise Tax Board filed a response on April 29, 1993, and the Company filed its reply 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. On July 26, 1994, the Franchise Tax Board moved to dismiss the adversary proceeding for the purpose of litigating the deficiency with the California State Board of Equalization and requested the Bankruptcy Court to abstain. On October 19, 1994, the Bankruptcy Court entered an Order of Abstention which directed the parties to litigate in California. The Company appealed. The District Court of New Jersey has affirmed the Order of Abstention. The Company has appealed the District Court Order to the Third Circuit Court of Appeal. The Third Circuit Court of Appeal heard oral arguments on the merits on June 28, 1996, but has not yet rendered its decision. However, as a result of the District Court's dismissal of the proceeding, the Company was advised that the automatic stay under Section 362 of the Bankruptcy Code was lifted and the Company must now continue the proceedings in California's State Board of Equalization. Subsequent to entry of the District Court order, the Company filed its reply brief with the California State Board of Equalization on October 27, 1995. On February 15, 1994, the Franchise Tax Board issued Notices of Proposed Assessment to the Company proposing additional state income tax of approximately $382,000 in the aggregate, plus interest, for the fiscal years 1987, 1988 and 1989. The Company filed its protest with the Franchise Tax Board on April 15, 1994, taking exception to the Notices of Proposed Settlement. Management believes that adequate amounts of tax reserves have been provided for any adjustments which may result from the above assessments and any possible additional adjustments for years not currently under examination. Litigation Regarding Certain Outstanding Common Stock Subsequent to confirmation of the Plan of Reorganization, litigation arose among the principal shareholders of Fidenas Investment Limited ("FIL"), the Company's largest shareholder prior to confirmation of the Plan of Reorganization, with respect to various business relations and transactions entered into among the shareholders, certain affiliates and their principals, including Geoffrey Jurick, the Company's Chairman and Chief Executive Officer, and Petra and Donald Stelling. Mr. Stelling was the former Chairman of the Company; he resigned on December 2, 1993 as a director and as Chairman, creating uncertainty about the ability of FIL to honor its commitment to the Company and the Company's bank group to satisfy its obligations to infuse $75 million in funds for the purpose of financing the Restructuring. A proceeding was commenced in the Commonwealth of Bahamas by one of its shareholders, a Bahamian entity controlled by Petra Stelling, wife of Donald Stelling, for the winding-up of FIL. The liquidator appointed by the Bahamian Court for the winding-up of FIL commenced litigation against the predecessor of Fidenas International Limited, L.L.C. ("FIN"), presently the Company's largest stockholder, and Mr. Jurick with respect to claims arising from the acquisition of the Company's Common Stock by GSE Multimedia Technologies Corporation ("GSE") and FIN. On April 18, 1996, the Official Liquidator of FIL filed a complaint in the United States District Court in Newark, New Jersey (the "Court"), seeking damages and injunctive relief with respect to certain shares of Emerson Common Stock held in the names of FIN, GSE, and Elision International, Inc. ("Elision"). The Stelling interests have pursued Mr. Jurick and certain business associates (including Mr. Peter Bunger and Jerome Farnum, directors of the Company) and affiliates in actions in Switzerland for certain claims relating to their business relationships and transactions. Based on certain charges raised by the Stellings, the Swiss authorities commenced investigations and have questioned Messrs. Jurick, Bunger and Farnum. While the investigation is still pending, none of Messrs. Jurick, Bunger or Farnum have been charged or indicted by the Swiss authorities, and, in connection with the settlement discussed below, letters will be sent to the Swiss authorities requesting the discontinuance of the criminal investigations of these individuals. The Federal Banking Commission of Switzerland has issued a decree purporting to determine that certain entities affiliated with Messrs. Jurick and Farnum are subject to Swiss banking laws and have engaged in banking activities without a license. The Company filed suit in the Court on July 14, 1994, naming Petra and Donald Stelling as defendants, alleging, among other things, breaches by Mr. Stelling of fiduciary duties and breaches of contract by Mr. Stelling, as agent, and Mrs. Stelling, as principal, and seeking monetary damages as well as declaratory judgments that the provisions of the Plan of Reorganization providing for releases do not apply to the Stellings and that they are estopped from claiming any interest in the Company. The Stellings filed a motion to dismiss the suit. An Official Liquidator was appointed in the Commonwealth of Bahamas for Fidenas International Bank Limited ("FiBank") (which management believes to be a holder of approximately 18% of the shares of Elision and approximately 11% of the shares of GSE). The Official Liquidator filed an action in the Bahamas and in the United States District Court on behalf of FiBank with respect to certain shares of Common Stock issued to FIN in conjunction with the Restructuring. An injunction on the transfer of such stock was issued by the Bahamian Court and the transfer of such shares has been restrained and the subject shares deposited into the registry of the Court pending further order. Barclays Bank PLC ("Barclays"), a creditor of Elision, has requested and obtained a preliminary injunction (still in effect) issued by a state court in Massachusetts, which enjoins Elision from transferring any interest in Elision's assets, other than in the usual course of business. In addition, Barclays obtained a default judgment against GSE in the amount of $1,835,423.26 in a state court in New York. On June 11, 1996, Barclays, Petra Stelling, the Official Liquidator of FiBank (collectively, the "Creditors"), Mr. Jurick, the Company (together with the Creditors, the "Lead Parties"), FIN, Elision, GSE and the Official Liquidator of FIL signed a Stipulation of Settlement and Order (the "Settlement Agreement") providing for a settlement of all litigation among them on a global basis. Under the Settlement Agreement, Mr. Jurick and FIN have agreed to pay the Creditors the aggregate sum of $49.5 million (the "Settlement Amount") and Mr. Jurick will be paid the sum of $3.5 million, contemplated to be solely from the proceeds of the sale of shares of Emerson's Common Stock (the "Settlement Shares") owned by FIN, GSE, and Elision (the "Jurick Payment" and, together with the Settlement Amount, the "Aggregate Amount"). On the effective date of the Settlement Agreement, all Settlement Shares owned by GSE and Elision will be transferred to and registered in FIN's name, and all Settlement Shares will be deposited with and remain in the custody of the Court, to prevent defaults under the Company's borrowing facilities. The Settlement Shares (consisting of 29,152,542 shares of Emerson's Common Stock) will be divided into two pools. The "Pool A Shares" initially will consist of 15,286,172 Settlement Shares. The "Pool B Shares" will consist of the number of Settlement Shares with respect to which Mr. Jurick must retain beneficial ownership of voting power to avoid an event of default arising out of a Change of Control under the Company's Indenture relating to its 8-1/2% Senior Subordinated Convertible Debentures Due 2002 and its United States secured credit facility. All Settlement Shares will be pledged to secure all obligations under the Settlement Agreement, but the Pool B Shares generally will not be available for sale or release from the custody of the Court or subject to foreclosure, to prevent defaults under the Company's borrowing facilities. FIN (which is controlled by Mr. Jurick) will retain title to and the voting power over all Settlement Shares, but will provide notice to the Creditors prior to certain stockholder votes. The Creditors may seek to have the Court direct FIN to vote against any proposal of the Emerson Board, but the Emerson Board may withdraw and not solicit any vote of its stockholders with respect to such proposal. The Settlement Agreement contemplates the employment of a marketing advisor (the "Advisor"), based on a recommendation by the Company, which must be approved by all of the other Lead Parties. If all Lead Parties do not approve an Advisor, an alternative mechanism exists for the Court to appoint the Advisor. The Advisor will formulate a marketing plan for the sale from time to time of the Pool A Shares and will also appoint the Settlement Agent, who will administer certain ministerial aspects of the settlement. On the date hereof, based on the closing price of the Company's Common Stock on June 28, 1996, the Pool A Shares have an aggregate market value of approximately $45.9 million. In formulating the marketing plan, the Advisor will take into account the interests of all of the Lead Parties, including the interests of the Company's minority stockholders. Sales may be made of the Settlement Shares in accordance with the marketing plan pursuant to a registered offering if the sales price is not less than 90% of the average of the three most recent closing prices (the "Average Closing Price"), or, other than in a registered offering, of up to 1% of the Emerson Common Stock outstanding per quarter, if the sales price is not less than 90% of the Average Closing Price. Any other attempted sale may be made only after notice to all Lead Parties, any of which may request that the Court conduct an expedited hearing contesting whether such sale should proceed. No definite time has been provided for the sale of any shares or the full payment of the Aggregate Amount. However, a Creditor may apply to the Court, on notice to all other Lead Parties, to terminate the Settlement Agreement, based on the totality of the circumstances, on the grounds that its goals and purposes are not reasonably likely to be realized. The Creditors will be able to resort to consent judgments against Mr. Jurick and his affiliates if the Settlement Agreement is terminated. The Settlement Agreement ends all litigation over ownership of the Settlement Shares. The Company has executed the Settlement Agreement to facilitate the settlement process. The Company's rights and obligations under the Settlement Agreement include the following: 1. The Company will advance certain expenses of the Advisor and the Settlement Agent and advance the reasonable fees and expenses for registration of the Settlement Shares, in each instance to be reimbursed from the proceeds of the first sales of the Settlement Shares. 2. If an offer to purchase Settlement Shares that would result in a Change of Control of the Company (i.e., beneficial ownership of 25% of more of the Company's Common Stock) were to occur, the offeror will be required to meet with the Company's independent directors and President, or their successors (the "Special Committee"), and the Special Committee will determine whether to approve such offer in the exercise of their fiduciary duties under applicable Delaware law. Any of the Creditors may apply to the Court to permit an exception, subject to the legal standard set forth in the immediately preceding sentence. The Company intends to seek stockholder approval of an amendment to its Certificate of Incorporation to embody this provision therein. 3. The Company has agreed to register the offer and sale of the Pool A Shares as set forth in the marketing plan. The Company previously has filed a shelf registration statement covering five million Settlement Shares owned by FIN to finance a settlement, which is subject to certain contractual restrictions and may be offered for sale or sold only by means of an effective registration statement. 4. The Lead Parties have agreed that Mr. Jurick will limit his total cash compensation not to exceed $750,000 until the Settlement Amount has been paid. The Company has also agreed not to grant Mr. Jurick any additional non-cash compensation. On the date hereof, Mr. Jurick owns options to acquire 600,000 shares of Emerson Common stock at an exercise price of $1.10 per share. Mr. Jurick will continue to receive reimbursement of reasonable business expenses pursuant to the Company's policies. For the Settlement Agreement to become effective, the certificates representing certain of the Settlement Shares that are still held by the Swiss authorities must be received by the Court, the Settlement Agreement must be approved by the Court following a hearing on notice to interested parties, outstanding injunctions must be dissolved, and certain other documents must be received by the Court. The Lead Parties are currently working to resolve these matters. The Settlement Agreement is to become effective by December 31, 1996, or it may be withdrawn after that time if not yet effective. Requests are to be made by Petra Stelling to the Swiss authorities to discontinue the investigations involving Messrs. Jurick, Bunger, and Farnum, as described above. Hopper Litigation The Company filed a complaint on July 5, 1995 in the Superior Court of New Jersey, Morris County, alleging that Hopper, Barry Smith and three former employees of the Company (collectively, the "Hopper Defendants") formed a business entity for the purpose of engaging in the distribution of consumer electronics and that the action of the Hopper Defendants in connection therewith violated certain duties owed to, and rights including contractual rights from, two agreements with the Company. The Partnership continued to operate after the filing of the lawsuit. On January 25, 1996, the New Jersey Court dismissed the Company's complaint as to certain of the Hopper Defendants based upon the Court's determination that certain clauses contained in the agreements between the parties mandated Delaware as the more proper forum for the Company's lawsuit. The Company also filed suit on January 27, 1996, in the Delaware Chancery Court, New Castle County, as to those Hopper Defendants who did not reside in New Jersey, which contained similar allegations to those contained in the New Jersey suit. The Delaware suit also sought a preliminary injunction against those Hopper Defendants covered by the Delaware suit. Effective April 24, 1996, the Company and Hopper entered into the Hopper Amendment which, among other things, amended certain provisions in the Partnership and Sales Agreements and settled all outstanding litigation between the Company, Hopper and the other named parties. Under the Hopper Amendment, Hopper advanced an additional $5 million to the Partnership, thereby increasing the liquidity of the Partnership and equalizing the investment of the partners and the sharing of cash flows. Additionally, the Hopper Amendment provides that the Partnership will continue to buy all of the Company's product returns in the United States through December 31, 1996 excluding defective product returns subject to the return to vendor agreements. See "Business-Returned Products." Subsequent to this date, either partner may give notice to dissolve the Partnership, with a wind-down period to be completed no later than six months from the date of such notice. Jensen Litigation On May 10, 1996, Jensen filed an action in the United States District Court for the Northern District of Illinois, Eastern Division, against the Company and its President, Eugene I. Davis, for violations of proxy solicitation rules and for breach of a confidentiality agreement with Jensen. On May 14, 1996, the Court entered a temporary restraining order against the Company and its President, which has subsequently lapsed, enjoining them from (i) further solicitation of Jensen's stockholders or their representatives until the Company has filed a Proxy Statement with the Securities and Exchange Commission which complies with the provisions of Regulation 14A of the Securities Exchange Act of 1934; (ii) making further solicitation containing false and misleading or misleading statements of material fact or material omissions; and (iii) disclosing confidential information in violation of the confidentiality agreement. On May 20, 1996, the Company filed a counterclaim in this action alleging that Jensen and Mr. Shaw fraudulently induced the Company to enter into a confidentiality agreement and failed to negotiate with the Company in good faith. In its counterclaim, the Company requests such other equitable or other relief as the Court finds proper and an award of attorneys' fees and expenses. The Company and its President intend to vigorously defend Jensen's claim against the Company and to vigorously pursue its counterclaim against Jensen and Mr. Shaw. The Company believes that Jensen's claims are without basis, that it has meritorious defenses against Jensen's claim and that the litigation or results thereof will not have a material adverse effect on the Company's consolidated financial position. See "Business - Growth Strategy." Other Litigation The Company is involved in other legal proceedings and claims of various 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 (including the actions noted above), or all of them combined, will not have a material adverse effect on the Company's consolidated financial position. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended March 31, 1996. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information The Company's Common Stock has traded on the American Stock Exchange since December 22, 1994 under the symbol MSN. The Common Stock began trading publicly on September 1, 1994 in the over-the-counter market. Prior thereto, there was no established public trading market for the Common Stock. Prior to confirmation of the Plan of Reorganization on March 31, 1994, there were approximately 4,500 stockholders of record of the common stock of the Company's predecessor. The shares of such stockholders were terminated and cancelled on the effective date of the Plan of Reorganization. Such shares had been traded on the New York Stock Exchange until trading was suspended on October 6, 1993 and the shares delisted on April 15, 1994. The following table sets forth the range of high and low 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 sales prices as reported by the American Stock Exchange from December 22, 1994. Fiscal 1995 High Low Second Quarter $1-1/2 $1 Third Quarter 2-7/8 15/16 Fourth Quarter 3-3/8 2 Fiscal 1996 High Low First Quarter $3-1/8 $2-1/4 Second Quarter 3-3/4 2-1/4 Third Quarter 3 1-3/8 Fourth Quarter 2-7/8 1-3/4
The Series A Preferred Stock and Warrants outstanding are freely tradeable; however, there is no established trading market for either security. (b) Holders At June 27, 1996, there were approximately 450 stockholders of record of the Company's Common Stock, and 21 holders of record of the Series A Preferred Stock and 14 holders of the Warrants. (c) Dividends The Company's policy has been to retain all available earnings, if any, for the development and growth of its business. The Company has never paid cash dividends on its Common Stock. In deciding whether to pay dividends on the Common Stock in the future, the Company's Board of Directors will consider factors it deems relevant, including the Company's earnings and financial condition and its working capital and anticipated capital expenditures. The Company's United States credit facility and the Indenture contain certain dividend payment restrictions on the Company's Common Stock. Additionally, the Company's Certificate of Incorporation, defining the rights of the Series A Preferred Stock, prohibits Common Stock dividends unless the Series A Preferred Stock dividends are paid or put aside. The Series A Preferred Stock earns dividends, payable on a quarterly basis, at a 7% dividend rate through March 31, 1997, then declining by a 1.4% dividend rate each succeeding year until March 31, 2001 when no further dividends are payable. Item 6. SELECTED CONSOLIDATED FINANCIAL DATA The Company changed its fiscal year end from December 31 to March 31, commencing with the period ended March 31, 1992. The following table sets forth selected consolidated financial data of the Company for the years ended March 31, 1996, 1995, 1994 and 1993, the three months ended March 31, 1992 and the year ended December 31, 1991. The selected consolidated financial data should be read in conjunction with the Company's consolidated financial statements, including the notes thereto, and "Management's Discussion and Analysis of Results of Operations and Financial Condition" set forth elsewhere in this Form 10-K. Three Year Months Year Year Year Year Ended Ended Ended Ended Ended Ended Dec. Mar. Mar. Mar. Mar. Mar. 31, 31, 31, 31, 31, 31, 1991 1992 1993 1994 1995 1996 (In thousands, except per share data) Summary of Operations: Net Revenues: Core Business (1) $716,651 $169,936 $741,357 $487,390 $654,671 $245,667 Personal Computers and Other 73,555 1,562 $790,206 $171,498 $741,357 $487,390 $654,671 $245,667 Net Earnings (Loss) (2): Before Extraordinary Gain $(60,746) $ (6,976) $(56,000) $(73,654) $ 7,375 $(13,389) Extraordinary Gain 129,155 $(60,746) $ (6,976) $(56,000) $ 55,501 $ 7,375 $(13,389) Balance Sheet Data at Period End: Total Assets $226,131 $216,693 $194,510 $119,021 $113,969 $ 96,576 Current Liabilities (3) 218,504 215,069 249,307 76,083 59,782 35,008 Long-Term Debt (3) 130 157 151 227 214 20,886 Shareholders' Equity (Deficit) 4,550 (1,480) (57,895) 42,617 53,651 40,382 Working Capital (Deficit) (29,503) (36,003) (89,949) 32,248 42,598 50,306 Current Ratio 0.9 to 0.8 to 0.6 to 1.4 to 1.7 to 2.4 to 1 1 1 1 1 1 Per Common Share: Net Earnings (Loss) Per Common Share (2) (4): Before Extraordinary Gain $( 1.60) $(0.18) $(1.47) $(1.93) $ 0.16 $(0.35) Extraordinary Gain 3.38 $( 1.60) $(0.18) $(1.47) $ 1.45 $ 0.16 $(0.35) Common Shareholders' Equity (Deficit) (5) Per Common Share $ 0.12 $(0.04) $(1.52) $ 0.98 $ 1.08 $ 0.75 Weighted Average Number of Common and Common Equivalent Shares Outstanding 37,897 37,968 38,179 38,191 46,571 40,253
______________________________ (1) The decline in net direct revenues for Fiscal 1996 was due primarily to the implementation of the Agreements signed with the Supplier, effective March 31, 1995. Net Revenues for Fiscal 1996 excludes $254,840,000 of Emerson branded gross sales pursuant to the Agreements during the year. Net Revenues for Fiscal 1995 included $340,465,000 of sales of video products now covered by the new arrangement with the Supplier. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." (2) Net earnings for the fiscal year ended March 31, 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. Accordingly, the Company recorded reorganization expenses of $17,385,000 relating primarily to the writedown of assets transferred to creditors under the Plan of Reorganization and professional fees and other related expenses incurred during the bankruptcy proceedings. The results of operations for the fiscal year ended March 31, 1993, the three months ended March 31, 1992 and the year ended December 31, 1991 include restructuring and other nonrecurring charges aggregating $35,002,000, $3,698,000 and $36,964,000, respectively. These charges represent the cost of discontinuing the personal computer business, professional fees and other expenses related to the Company's financial restructuring, and the up-front costs and writedowns of certain assets associated with implementing long-term cost reduction programs. Charges for the fiscal year ended March 31, 1993 also include costs related to the proxy contest settled in June 1992. The year ended December 31, 1991 also includes charges related to the discontinuance of the then existing H.H. Scott domestic business. (3) The aggregate outstanding principal balance of the Company's senior notes has been classified as current as of March 31, 1993 and 1992, and December 31, 1991. See Note B of Notes to Consolidated Financial Statements. (4) Net earnings (loss) per common share for all periods prior to Fiscal 1995 are based on the weighted average number of old common shares outstanding during each period. Net loss per common share for Fiscal 1996 is based on the net loss and deduction of preferred stock dividend requirements (resulting in a loss attributable to common stockholders) and the weighted average of new Common Stock outstanding during the fiscal year. The net loss per share does not include common stock equivalents assumed outstanding since they are anti-dilutive. Net earnings per common share for Fiscal 1995 is based on the weighted average number of 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. (5) Calculated based on common shareholders' equity (deficit) divided by actual shares of Common Stock outstanding. Common shareholders' equity at March 31, 1996, 1995 and 1994 is equal to total shareholders' equity less $10 million for the liquidation preference of the Series A Preferred Stock. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION General On August 30, 1995, the Company completed a private placement of $20,750,000 aggregate principal amount of 8-1/2% Senior Subordinated Convertible Debentures Due 2002 (the "Debentures"), resulting in net proceeds to the Company of approximately $19,208,000 after the payment of the expenses of such offering. The proceeds of this offering were initially applied against the Company's United States secured credit facility to reduce the then present working capital costs. See Note F of Notes to Consolidated Financial Statements included elsewhere in this Form 10-K. Management is currently utilizing the benefits of such net proceeds to fund an intercompany obligation to a foreign subsidiary, exploit new business opportunities via product line additions and extensions and the expansion of its distribution base, and may use such proceeds for acquisitions, including for the potential acquisition of Jensen. See "Business - Growth Strategy" and "Legal Proceedings." The Company also amended its United States secured credit facility with its primary United States lender ("the Lender") effective as of August 24, 1995. The amendment includes, among other things, a reduction of 1% in the interest rate charged on borrowings, down to 1.25% above the stated prime rate, an extension on the term of the facility for one additional year to March 1998, an increase in working capital requirements, a reduction of other loan fees and charges under such facility, and the release of the Lender's security interests in the trademarks of the Company. The trademarks are subject to a negative pledge covenant. In addition, the Company recast its adjusted net worth covenant on such facility effective June 30, 1996. See Notes E and N of Notes to Consolidated Financial Statements included elsewhere in this Form 10-K. The modifications to its United States secured credit facility, together with the net proceeds from the sale of the Debentures, has enabled the Company to reduce its effective cost of borrowing while permitting the Company to expand its product lines and distribution base. Effective March 31, 1995, the Company and the Supplier entered into the Agreements. The Company granted a license of certain trademarks to the Supplier for a three-year term. The license permits the Supplier to manufacture and sell certain video products under the "EMERSON and G-Clef" trademark to the Customer, in the United States and Canada. As a result, the Company is receiving royalties attributable to such sales over the three-year term of the Agreements in lieu of reporting the full dollar value of such sales and associated costs. Net sales of these products to the Customer accounted for approximately 47% of consolidated net revenues for Fiscal 1995. The Company will continue to supply other products to the Customer directly. Further, the Agreements provide that the Supplier will supply the Company with certain video products for sale to other customers at preferred prices for a three-year term. Under the terms of the Agreements, the Company will receive non-refundable minimum annual royalties from the Supplier to be credited against royalties earned from sales of VCRs, VCPs, TV/VCR combination units, and color televisions to the Customer. In addition, effective August 1, 1995, the Supplier assumed responsibility for returns and after-sale and warranty services on all video products manufactured by the Supplier and sold to the Customer, including video products sold by the Company prior to August 1, 1995. As a result, the impact of sales returns on the Company's operating results have been significantly reduced, effective with the quarter ended September 30, 1995. The Company has reported lower net direct revenues in Fiscal 1996 as a result of the Agreements, but its net operating results for such year have not been impacted negatively. The Company has realized and expects to continue to realize a more stable cash flow over the three-year term of the Agreements, as well as reduced short-term borrowings necessary to finance accounts receivable and inventory thereby reducing interest costs. Additionally, the Company's gross margins are expected to improve as the change in mix to higher margin products and a reduction in costs for product returns (which have historically been higher for video products) take hold. The Company and the Supplier are currently involved in litigation over certain matters concerning the terms of the Agreements. The Company reported a significant decline in its net direct sales for Fiscal 1996 as compared to Fiscal 1995 primarily due to the licensed video sales. However, the Company's United States sales to other customers also declined due to increased price competition, primarily in video product categories, high retail stock levels, a slowdown in retail activity and the extremely high level of sales achieved in Fiscal 1995. The Company expects its United States sales for the first quarter of Fiscal 1997 to be lower than the first quarter of Fiscal 1996 due to the continuing weak retail climate and the increased level of price competition in video product categories. Results of Operations - Fiscal 1996 compared with Fiscal 1995 Consolidated net revenues for Fiscal 1996 decreased $409,004,000 (or 62%) as compared to Fiscal 1995. The effects of the Agreements described above accounted for a substantial portion of the decrease in revenues and sales to the Customer were reduced to 18% of consolidated net revenues in Fiscal 1996 as compared to 53% in Fiscal 1995. Gross sales to the Customer of video products bearing the" EMERSON and G-Clef" trademark were reported by the Supplier to the Company to be $254,840,000 in Fiscal 1996 or 25% lower than recorded by the Company in Fiscal 1995. Royalty income recognized by the Company from these sales was $4,442,000 in Fiscal 1996. In addition, sales to other customers for Fiscal 1996 decreased as a result of lower unit sales of televisions and television/video cassette recorder combination units due to increased price competition in these product categories. The Company's Canadian operations reported a decline of $17.8 million in sales for Fiscal 1996 due to declines in unit volume and sales prices due to a weak Canadian retail economy and the bankruptcy of two key customers in Fiscal 1995. The Company's European sales decreased $16.7 million in Fiscal 1996 due to the Company's discontinuance and wind-down of its Spanish branch and subsequent assignment, to an independent distributor, of the rights to sell Emerson Radio brand product in Spain. Cost of sales, as a percentage of consolidated revenues, was 94% in Fiscal 1996 as compared to 92% in Fiscal 1995. Gross profit margins in Fiscal 1996 were lower on a comparative basis due primarily to the recognition of large purchase discounts in Fiscal 1995 and the recognition of a loss experienced by the Company's 50%-owned joint venture which sells product returns in Fiscal 1996. Additionally, the Company experienced lower sales prices and the allocation of reduced fixed costs over a lower revenue base in Fiscal 1996 which were substantially offset by a change in product mix, the recognition of licensing income, reduced reserve requirements for sales returns and reduced fixed costs associated with the downsizing of the Company's foreign offices. The reduction in gross margins was unfavorably impacted by the accrual of $9.9 million in Fiscal 1995 of purchase discounts received from one of the Company's suppliers. Beginning in Fiscal 1996, the Company was not entitled to a purchase discount from this supplier due to a reduction in purchase volume associated with the Agreements. Due to the increase in the value of the Japanese Yen in 1995, and its impact on the cost of certain raw materials and subassemblies of the Company's suppliers, the Company absorbed certain price increases from its suppliers. Additionally, the Company was not able to recover such price increases from its customers due to increased price competition. As the value of the Yen has decreased in 1996, the Company has been able to negotiate lower prices from various sources of supply for certain audio and video products. The Company's margins continue to be impacted by the pricing category of the consumer electronics market in which the Company competes. The Company's products are generally placed in the low-to-medium priced category of the market. These categories tend to be the most competitive and generate the lowest profits. The Company intends to focus on its higher margin products and is reviewing new product categories that can generate higher margins than the current business, either through license arrangements, acquisitions, joint ventures or on its own. Other operating costs and expenses declined $3,968,000 in Fiscal 1996 as compared to Fiscal 1995, primarily as a result of a decrease in (i) handling and freight charges associated with reduced customer returns and (ii) compensation and other expenses incurred to perform after-sale services as a result of the Company's downsizing program. See Note M to the Consolidated Financial Statements included elsewhere in this Form 10-K. Selling, general and administrative expenses ("S,G&A") as a percentage of revenues were 8% in Fiscal 1996 as compared to 5% in Fiscal 1995. In absolute terms, S,G&A decreased by $11,550,000 in Fiscal 1996 as compared to Fiscal 1995. The decrease for Fiscal 1996 was primarily attributable to lower selling expenses due to lower revenues, a reduction in compensation and fixed overhead costs relating to the Company's downsizing program, lower provisions for accounts receivable reserves and higher professional fees incurred in Fiscal 1995 due to bankruptcy costs. The increase in S,G&A as a percentage of revenues is due primarily to the allocation of fixed S,G&A costs over a significantly lower revenue base. Additionally, the Company's exposure to foreign currency fluctuations, primarily in Canada and Spain, resulted in the recognition of net foreign currency exchange gains aggregating $508,000 in Fiscal 1996 as compared to $354,000 in Fiscal 1995. In Fiscal 1997, the Company will be conducting its business in Spain in U.S. dollars, thereby reducing its exposure to foreign currency fluctuations. Interest expense increased by $393,000 in Fiscal 1996 as compared to Fiscal 1995. The increase in interest expense was attributable to interest incurred on the Debentures issued in August 1995, partially offset by lower average borrowings on the Company's United States secured credit facility. As a result of the foregoing factors, the Company incurred a net loss of $13,389,000 in Fiscal 1996 as compared to net earnings of $7,375,000 in Fiscal 1995. Results of Operations -- Fiscal 1995 Compared with Fiscal 1994 Consolidated net revenues for Fiscal 1995 increased $167,281,000 as compared to Fiscal 1994, resulting from a significant increase in unit sales of VCRs, VCPs and TV/VCR combination units, partially offset by a decline in unit sales of color televisions and audio products, as well as lower sales prices for such products. The sales increase for the VCR, VCP and TV/VCR product categories was attributable to significantly higher sales to the Company's two largest customers, resulting from an improved retail climate, low retail stock levels after the 1993 holiday season, and an improved perception of the Company by retailers since its emergence from bankruptcy. Net sales to the Company's largest customer approximated 53% of consolidated net revenues for Fiscal 1995. The Company's Canadian operations experienced a decline in net revenues for Fiscal 1995 due to declines in unit volume and sales prices (relating to a weak retail climate) and unfavorable foreign currency exchange rates. Cost of sales, as a percentage of consolidated revenues, was approximately 92% for Fiscal 1995 as compared to approximately 100% for Fiscal 1994. Gross profit margins were favorably impacted by the allocation of fixed overhead costs over a significantly higher revenue base, a decline in fixed overhead costs, reduced losses associated with product returns, the recognition of $9.9 million of purchase discounts from a supplier, $1.2 million of licensing income and reduced reserve requirements for sales returns due primarily to an agreement with the Company's largest supplier. See "Liquidity and Capital Resources." This improvement was partially offset by a 1% decline in gross profit margins attributable to lower sales prices in most product categories resulting from increased price competition, and a change in product mix. Other operating costs and expenses declined $3,230,000 in Fiscal 1995 as compared to Fiscal 1994, primarily as a result of a decrease in compensation and other expenses incurred to process product returns, due to the Company's downsizing program and changes in the resale arrangement for product returns. See "Business - Refurbished Products." S,G&A, as a percentage of revenues, was 5% and 7% for Fiscal 1995 and Fiscal 1994, respectively. In absolute terms, S,G&A decreased $3,505,000 in Fiscal 1995. The decrease was primarily attributable to lower compensation expense relating to the Company's downsizing program, lower selling expenses, including decreases in promotional allowances granted to customers, and improved foreign currency results. The Company's exposure to foreign currency fluctuations, primarily in Canada and Spain, resulted in net foreign currency exchange gains aggregating $354,000 in Fiscal 1995 as compared to net foreign currency exchange losses of $1,406,000 in Fiscal 1994. Interest expense decreased $7,361,000 in Fiscal 1995 as compared to Fiscal 1994. The decrease was attributable to the extinquishment of approximately $203 million of institutional debt in connection with the Restructuring, effective March 31, 1994, and a moratorium on interest accrued on pre-petition indebtedness during the pendency of the Company's bankruptcy proceedings in Fiscal 1994. In 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. Liquidity and Capital Resources Net cash utilized by operating activities was $11,357,000 for Fiscal 1996. Cash was used to fund the loss from operations and to reduce a large customer's credit balance, partially offset by a decrease in accounts receivable and receipt of funds for purchase discounts accrued in Fiscal 1995. The license revenues earned from sales of video products by the Supplier to the Customer in Fiscal 1996 did not generate any cash during this period because the royalty earned in excess of the minimum annual royalty (received in Fiscal 1995) was not received until May 1996. Net cash utilized by investing activities was $1,198,000 for Fiscal 1996. Investing activities consisted primarily of capital expenditures for the purchase of new product molds partially offset by the redemption of pledged certificates of deposit. In Fiscal 1996, the Company's financing activities provided $11,668,000 of cash. Cash was provided by the private placement of $20,750,000 aggregate principal amount of Debentures. The proceeds of approximately $19,208,000, net of issuance costs, was initially used to reduce borrowings under the U.S. line of credit facility, and to fund costs for product line additions and extension and expansion of the Company's distribution base. On September 29, 1993, the Company and five of its U.S. subsidiaries filed voluntary petitions for relief under the reorganization provisions of Chapter 11 of the United States Bankruptcy Code and operated as debtors-in-possession under the supervision of the Bankruptcy Court while their reorganization case was pending. The precipitating factor for these filings was the Company's severe liquidity problems relating to its high level of indebtedness and a significant decline in sales from the prior year. Effective March 31, 1994, the Bankruptcy Court entered an order confirming the Plan of Reorganization. The Plan of Reorganization provided for the implementation of a recapitalization of the Company. In accordance with the Plan of Reorganization, the Company's pre-petition liabilities (of approximately $233 million) were settled with the creditors in the aggregate, as follows: I. The Company's bank group (the "Bank Lenders") received $70 million in cash and the right to receive the initial $2 million of net proceeds from one of the Company's non-trade receivables. II. The institutional holders of the Company's senior notes (the "Noteholders") initially received $2,650,000 in cash and 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 non-trade receivables discussed in I. above in excess of $2 million. IV. Holders of allowed unsecured claims received a pro-rata portion of the $350,000 distribution and interest bearing promissory notes equal to 18.3% of the allowed claim amount, payable in two installments over 18 months. See "Legal Proceedings." In accordance with the Plan of Reorganization, the Company completed an initial public offering of its Common Stock in September 1994 to shareholders of record as of March 31, 1994, excluding its largest pre-bankruptcy shareholder. The Company sold 6,149,993 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, as amended, with the Lender. The facility provides for revolving loans and letters of credit, subject to individual maximums which, in the aggregate, cannot exceed the lesser of $60 million or a "Borrowing Base" amount based on specified percentages of eligible accounts receivable and inventories. All credit extended under the line is secured by the U.S. and Canadian assets of the Company except for trademarks, which are subject to a negative pledge covenant. The interest rate on these borrowings is 1.25% above the stated prime rate. At March 31, 1996, the weighted average interest rate on the outstanding borrowings was 9.5%. Based on the "Borrowing Base" amount at March 31, 1996, $5.5 million of the credit facility was not utilized. The facility is also subject to an unused line fee of 0.25% per annum. Pursuant to the terms of this credit facility, as amended, the Company is restricted from, among other things, paying cash dividends (other than on the Series A Preferred Stock), redeeming stock, and entering into certain transactions and is required to maintain certain working capital and equity levels (as defined). The Company was required to maintain a minimum adjusted net worth, as defined, of $38,000,000 at March 31, 1996. Effective June 30, 1996, such minimum adjusted net worth, as amended, is $30,000,000. See Note N of Notes to Consolidated Financial Statements included elsewhere in this Form 10-K. At March 31, 1996, there was $21,151,000 outstanding under the revolving loan facility, and $1,177,000 of outstanding letters of credit issued for inventory purchases. The Company's Hong Kong subsidiary currently maintains various credit facilities, as amended, aggregating $62.1 million with a bank in Hong Kong consisting of the following: (i) a $12.1 million credit facility which is generally used for letters of credit for a foreign subsidiary's direct import business and affiliates' inventory purchases and (ii) a $50 million credit facility, for the benefit of a foreign subsidiary, which is for the establishment of back-to-back letters of credit with the Customer. At March 31, 1996, the Company's Hong Kong subsidiary had pledged $4 million in certificates of deposit to this bank to assure the availability of these credit facilities. At March 31, 1996, there were $5,644,000 and $3,056,000, respectively, of letters of credit outstanding under these credit facilities. The Company's Hong Kong subsidiary maintains an additional credit facility with another bank in Hong Kong. The facility provides for (i) a $10 million line of credit for documentary letters of credit, (ii) a $10 million back-to- back letter of credit line and (iii) a $100,000 standby letter of credit facility. At March 31, 1996, the Company's Hong Kong subsidiary had pledged $5,000,000 in certificates of deposit to assure the availability of these credit facilities. At March 31, 1996, $991,000 of the letter of credit line was utilized. In November 1995, the Company's Board of Directors approved a plan to repurchase up to 2 million of its common shares, or about 20% of the Company's current float of approximately 11 million shares, from time to time in the open market. Although there are 40,252,772 shares outstanding, approximately 29.2 million shares are held directly or indirectly by affiliated entities of Geoffrey Jurick, Chairman and Chief Executive Officer of the Company (which are subject to a settlement agreement with his and his affiliated entities' creditors - see "Legal Proceedings"). The Company has agreed with Mr. Jurick that such shares will not be subject to repurchase. The stock repurchase program is subject to consent of certain of the Company's lenders, certain court imposed restrictions, price and availability of shares, compliance with securities laws and alternative capital spending programs, including new acquisitions. The repurchase of common shares is intended to be funded by working capital, if and when available. It is uncertain at this time when, or if, the Company might be able to so repurchase any of its shares of Common Stock. Since the emergence of the Company from bankruptcy, management believes that it has been able to compete more effectively in the highly competitive consumer electronics and microwave oven industries in the United States and Canada by combining innovative approaches to the Company's current product line such as value-added promotions, and augmenting its product line with higher margin complimentary products. The Company also intends to engage in the marketing of distribution, sourcing and other services to third parties. In addition, the Company intends to undertake efforts to expand the international distribution of its products into areas where management believes low to moderately priced, dependable consumer electronics and microwave oven products will have a broad appeal. The Company has in the past and intends in the future to pursue such plans either on its own or by forging new relationships, including license arrangements, partnerships, joint ventures or strategic mergers and acquistions of companies in similar or complimentary businesses. In Fiscal 1995, the Company successfully concluded licensing agreements for existing core business products and new products. The Company intends to pursue additional licensing opportunities and believes that such licensing activities will have a positive impact on net operating results by generating royalty income with minimal costs, if any, and without the necessity of utilizing working capital or accepting customer returns. The Company is also considering strategic alternatives for its North American video business not covered under the license agreement with the Supplier. Short-Term Liquidity. At present, management believes that future cash flow from operations and the institutional financing noted above will be sufficient to fund all of the Company's cash requirements for the next year. The Company's liquidity is impacted by the seasonality of its business. The Company records the majority of its annual sales in the quarters ending September 30 and December 31. This requires the Company to open significantly higher amounts of letters of credit during the quarters ending June 30 and September 30, therefore significantly increasing the Company's working capital needs during these periods. Additionally, the Company receives the largest percentage of customer returns in the quarter ending March 31. The higher level of returns during this period adversely impacts the Company's collection activity during this period, and therefore its liquidity. The Company believes that the Agreements with the Supplier (as noted above) and the "return-to- vendor" agreements should favorably impact the Company's cash flow over their respective terms. Long-Term Liquidity. The revolving credit facility with the Lender imposes financial covenants on the Company that could materially affect its liquidity in the future. However, management believes that the financing noted above and anticipated cash flow from operations in Fiscal 1997 will provide sufficient liquidity to meet the Company's operating and debt service cash requirements on a long-term basis. In November 1995, the Company's stockholders approved an amendment to the Company's certificate of incorporation increasing the number of authorized shares of preferred stock from one million shares to ten million shares. Such additional shares provide management with the flexibility to take advantage of any opportunities that may occur for which additional capital would need to be raised or shares would be used to acquire a business. Inflation and Foreign Currency Except as disclosed above, neither inflation nor currency fluctuations had a significant effect on the Company's results of operations during Fiscal 1996, Fiscal 1995 or Fiscal 1994. The Company's exposure to currency fluctuations has been minimized by the use of U.S. dollar denominated purchase orders, and by sourcing production in more than one country. However, the strength of the Japanese Yen in 1995 had raised the costs of certain raw materials and subassemblies of the Company's suppliers which were passed on to the Company in the form of price increases in Fiscal 1996. The Company was not able to recover such price increases from the selling price to its customers due to increased price competition. However, the Company has been able to negotiate lower prices from various sources of supply for certain audio products, commencing in the second half of Fiscal 1996 and for certain video products commencing in Fiscal 1997. The weakening of the value of the Japanese Yen in 1996 should enable the Company to obtain further cost reductions from its suppliers. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by this Item 8 are set forth at the pages indicated in Item 14(a) below. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS The information required is incorporated herein by reference to the Company's definitive Proxy Statement for the 1996 Annual Meeting of Shareholders. Item 11. EXECUTIVE COMPENSATION The information required is incorporated herein by reference to the Company's definitive Proxy Statement for the 1996 Annual Meeting of Shareholders. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required is incorporated herein by reference to the Company's definitive Proxy Statement for the 1996 Annual Meeting of Shareholders. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required is incorporated herein by reference to the Company's definitive Proxy Statement for the 1996 Annual Meeting of Shareholders. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENTS, STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) Financial Statements and Schedule: Report of Independent Auditors F-1 Consolidated Statements of Operations for the years ended March 31, 1996, 1995 and 1994 F-2 Consolidated Balance Sheets at March 31, 1996 and 1995 F-3 Consolidated Statements of Changes in Shareholders' Equity for the years ended March 31, 1996, 1995 and 1994 F-4 Consolidated Statements of Cash Flows for the years ended March 31, 1996, 1995 and 1994 F-5 Notes to Consolidated Financial Statements F-6 Schedule VIII -- Valuation and Qualifying Accounts and Reserves F-26 ALL OTHER SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE OR THE REQUIRED INFORMATION IS SHOWN IN THE FINANCIAL STATEMENTS OR NOTES THERETO. (b) No reports on Form 8-K were filed by the Company during the last quarter of the fiscal year ended March 31, 1996. (c) Exhibits (2) Confirmation Order and Fourth Amended Joint Plan of Reorganization of Emerson Radio Corp. ("Old Emerson") and certain subsidiaries under Chapter 11 of the United States Bankruptcy Code, dated March 31, 1994 (incorporated by reference to Exhibit (2) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the Securities and Exchange Commission ("SEC") on August 9, 1994). (3) (a) Certificate of Incorporation of Emerson (incorporated by reference to Exhibit (3) (a) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (b) Certificate of Designation for Series A Preferred Stock (incorporated by reference to Exhibit (3) (b) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (c) Plan of Reorganization and Agreement of Merger by and between Old Emerson and Emerson Radio (Delaware) Corp. (incorporated by reference to Exhibit (3) (c) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (d) Certificate of Merger of Old Emerson with and into Emerson Radio (Delaware) Corp. (incorporated by reference to Exhibit (3) (d) of Emerson's Registration Statement on Form S-1, Registration No. 33- 53621, declared effective by the SEC on August 9, 1994). (3) (e) Amendment dated February 14, 1996 to the Certificate of Incorporation of Emerson (incorporated by reference to Exhibit (3) (a) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (3) (f) By-Laws of Emerson adopted March 1994 (incorporated by reference to Exhibit (3) (e) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (g) Amendment dated November 28, 1995 to the By-Laws of Emerson adopted March 1994 (incorporated by reference to Exhibit (3) (b) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (4) (a) Warrant Agreement to Purchase 750,000 shares of Common Stock, dated as of March 31, 1994 (incorporated by reference to Exhibit (4) (a) of Emerson's Registration Statement on Form S-1, Registration No. 33- 53621, declared effective by the SEC on August 9, 1994). (4) (b) Indenture, dated as of August 17, 1995 between Emerson and Bank One, Columbus, NA, as Trustee (incorporated by reference to Exhibit (1) of Emerson's Current Report on Form 8-K filed with the SEC on September 8, 1995). (4) (c) Common Stock Purchase Warrant Agreement to purchase 50,000 shares of Common Stock, dated as of December 8, 1995 between Emerson and Michael Metter (incorporated by reference to Exhibit (10) (e) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (4) (d) Common Stock Purchase Warrant Agreement to purchase 200,000 shares of Common Stock, dated as of December 8, 1995 between Emerson and Kenneth A. Orr (incorporated by reference to Exhibit (10) (f) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (10) (a) Agreement, dated as of November 14, 1973, between National Union Electric Corporation ("NUE") and Emerson (incorporated by reference to Exhibit (10) (a) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (b) Trademark User Agreement, dated as of February 28, 1979, by and between NUE and Emerson (incorporated by reference to Exhibit (10) (b) of Emerson's Registration Statement on Form S-1, Registration No. 33- 53621, declared effective by the SEC on August 9, 1994). (10) (c) Agreement, dated July 2, 1984, between NUE and Emerson (incorporated by reference to Exhibit (10) (c) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (d) Agreement, dated September 15, 1988, between NUE and Emerson (incorporated by reference to Exhibit (10) (d) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (e) Form of Promissory Note issued to certain Pre-Petition Creditors (incorporated by reference to Exhibit (10) (e) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (f) Loan and Security Agreement, dated March 31, 1994, by and among Emerson, Majexco Imports, Inc. and Congress Financial Corporation ("Congress") (incorporated by reference to Exhibit (10) (f) of Emerson's Registration Statement on Form S-1, Registration No. 33- 53621, declared effective by the SEC on August 9, 1994). (10) (g) Amendment No. 1 to Financing Agreements, dated as of August 24, 1995, among Emerson, Majexco Imports, Inc. and Congress (incorporated by reference to Exhibit (2) of Emerson's Current Report on Form 8-K filed with the SEC on September 8, 1995). (10) (h) Amendment No. 2 to Financing Agreements, dated as of February 13, 1996 (incorporated by reference to Exhibit (10) (c) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (10) (i) Emerson Radio Corp. Stock Compensation Program (incorporated by reference to Exhibit (10) (i) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (j) Employment Agreement between Emerson and Eugene I. Davis (incorporated by reference to Exhibit 6(a)(4) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (k) Employment Agreement between Emerson and Albert G. McGrath, Jr. (incorporated by reference to Exhibit 6(a)(7) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (l) Agreement dated as of January 1, 1996, between Emerson and Albert G. McGrath, Jr. relating to termination of employment and agreement on consulting services (incorporated by reference to Exhibit (10) (a) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (10) (m) Employment Agreement between Emerson and Geoffrey P. Jurick (incorporated by reference to Exhibit 6(a)(6) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (n) Employment Agreement between Emerson Radio (Hong Kong) Ltd. and Geoffrey P. Jurick (incorporated by reference to Exhibit 6(a)(6) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (o) Employment Agreement between Emerson Radio International Ltd. (formerly Emerson Radio (B.V.I), Ltd.) and Geoffrey P. Jurick (incorporated by reference to Exhibit 6(a)(6) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (p) Lease Agreement dated as of March 26, 1993, by and between Hartz Mountain Parsippany and Emerson with respect to the premises located at Nine Entin Road, Parsippany, NJ (incorporated by reference to Exhibit (10) (ww) of Emerson's Annual Report on Form 10-K for the year ended December 31, 1992). (10) (q) Employment Agreement, dated July 13, 1993, between Emerson and Merle Eakins (incorporated herein by reference to Exhibit (10)(vv) to Emerson's Annual Report on Form 10-K for the year ended March 31, 1993). (10) (r) Agreement dated as of January 31, 1996, between Emerson and Merle Eakins relating to termination of employment and agreement on consulting services (incorporated by reference to Exhibit (10) (b) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (10) (s) Employment Agreement, dated April 1, 1994, between Emerson and John Walker (incorporated herein by reference to Exhibit (10)(ee) of Emerson's Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (t) Liquidating Trust Agreement, dated as of March 31, 1994, by and among Emerson, Majexco Imports, Inc., H.H. Scott, Inc., and Stuart D. Gavsy, Esq., as Trustee (incorporated by reference to Exhibit (10) (ff) of Emerson's Registration Statement on Form S-1, Registration No. 33- 53621, declared effective by the SEC on August 9, 1994). (10) (u) Partnership Agreement, dated April 1, 1994, between Emerson and Hopper Radio of Florida, Inc (incorporated by reference to Exhibit (10) (q) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1995). (10) (v) Sales Agreement, dated April 1, 1994, between Emerson and E & H Partners (incorporated by reference to Exhibit (10) (r) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1995). (10) (w) Agreement, dated as of April 24, 1996 by and among Emerson and E & H Partners relating to amendments of the Partnership Agreement dated April 1, 1994 and the Sales Agreement dated April 1, 1994 and the settlement of certain outstanding litigation.* (10) (x) Independent Consultant's Agreement, dated October 1, 1994, between Emerson Radio International Ltd. and Peter G. Bunger (incorporated by reference to Exhibit (10) (t) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1995). (10) (y) Independent Consultant's Agreement, dated October 1, 1994, between Emerson Radio Europe B.V. and Peter G. Bunger (incorporated by reference to Exhibit (10) (u) of Emerson's Annual Report of Form 10-K for the year ended March 31, 1995). (10) (z) Employment Agreement, dated October 3, 1994, between Emerson and Andrew Cohan (incorporated by reference to Exhibit (10) (v) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1995). (10) (aa) License Agreement, dated February 22, 1995, between Emerson and Otake Trading Co. Ltd. and certain affiliates ("Otake") (incorporated by reference to Exhibit 6(a)(1) of Emerson's Quarterly Report on Form 10-Q for quarter ended December 31, 1994). (10) (ab) Supply Agreement, dated February 22, 1995, between Emerson and Otake (incorporated by reference to Exhibit 6(a)(2) of Emerson's Quarterly Report on Form 10-Q for quarter ended December 31, 1994). (10) (ac) 1994 Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit (10) (y) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1995). (10) (ad) Consulting Agreement, dated as of December 8, 1995 between Emerson and First Cambridge Securities Corporation (incorporated by reference to Exhibit (10) (d) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (10) (ae) Stipulation of Settlement and Order dated June 11, 1996 by and among the Official Liquidator of Fidenas International Bank Limited, Petra Stelling, Barclays Bank PLC, the Official Liquidator of Fidenas Investment Limited, Geoffrey P. Jurick, Fidenas International Limited, L.L.C., Elision International, Inc., GSE Multimedia Technologies Corporation and Emerson.* (11) Computation of Primary Earnings Per Share.* (12) Computation of Ratio of Earnings (Loss) to Combined Fixed Charges and Preferred Stock Dividends.* (21) Subsidiaries of the Company as of March 31, 1996.* (27) Financial Data Schedule for year ended March 31, 1996.* ___________________ * Filed herewith. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EMERSON RADIO CORP. By: /s/ Geoffrey P. Jurick Geoffrey P. Jurick Chairman of the Board Dated: July 1, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Geoffrey P. Jurick Chairman of the Board, July 1, 1996 Geoffrey P. Jurick Chief Executive Officer /s/ Eugene I. Davis President and Director July 1, 1996 Eugene I. Davis /s/ John P. Walker Executive Vice President, July 1, 1996 John P. Walker Chief Financial Officer /s/ Eddie Rishty Senior Vice President- July 1, 1996 Eddie Rishty Controller & Logistics (Chief Accounting Officer) /s/ Robert H. Brown Jr., Director July 1, 1996 Robert H. Brown, Jr. /s/ Peter G. Bunger Director July 1, 1996 Peter G. Bunger /s/ Jerome H. Farnum Director July 1, 1996 Jerome H. Farnum /s/ Raymond L. Steele Director July 1, 1996 Raymond L. Steele REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of Emerson Radio Corp. We have audited the accompanying consolidated balance sheets of Emerson Radio Corp. and Subsidiaries as of March 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years ended March 31, 1996, 1995 and 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Emerson Radio Corp. and Subsidiaries at March 31, 1996 and 1995 and the consolidated results of its operations and cash flows for the years ended March 31, 1996, 1995 and 1994, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP New York, New York June 7, 1996, except for Note N, as to which the date is June 28, 1996. EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Years Ended March 31, 1996 1995 1994 Net revenues $245,667 $654,671 $487,390 Costs and expenses: Cost of sales 231,455 604,329 486,536 Other operating costs and expenses 4,803 8,771 12,001 Selling, general and administrative expenses 19,497 31,047 34,552 255,755 644,147 533,089 Operating profit (loss) (10,088) 10,524 (45,699) Interest expense 3,275 2,882 10,243 Earnings (loss) before reorganization costs and taxes (13,363) 7,642 (55,942) Reorganization items: Writedown of assets 12,914 Professional fees and other related expenses 4,545 Interest earned on accumulated cash (74) 17,385 Earnings (loss) before income taxes and extraordinary gain (13,363) 7,642 (73,327) Provision for income taxes 26 267 327 Earnings (loss) before extraordinary gain (13,389) 7,375 (73,654) Extraordinary gain on extinguishment of debt 129,155 Net earnings (loss) $(13,389) $7,375 $55,501 Net earnings (loss) per common share: Before extraordinary gain $(0.35) $0.16 $(1.93) Extraordinary gain 3.38 Net earnings (loss) $(0.35) $0.16 $1.45 Weighted average number of common and common equivalent shares outstanding 40,253 46,571 38,191 Pro forma: Loss per common share $(1.51) Weighted average number of common shares outstanding 33,333 The accompanying notes are an integral part of the consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) March 31, 1996 1995 ASSETS Current Assets: Cash and cash equivalents $16,133 $ 17,020 Accounts receivable (less allowances of $6,139 and $9,350, respectively) 23,583 34,309 Inventories 35,292 35,336 Prepaid expenses and other current assets 10,306 15,715 Total current assets 85,314 102,380 Property and equipment, net 3,501 4,676 Other assets 7,761 6,913 Total Assets $96,576 $113,969 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable $21,151 $ 27,296 Current maturities of long-term debt 173 508 Accounts payable and other current liabilities 10,391 18,982 Accrued sales returns 3,091 12,713 Income taxes payable 202 283 Total current liabilities 35,008 59,782 Long-term debt, less current maturities 20,886 214 Other non-current liabilities 300 322 Shareholders' Equity: Preferred shares -- 10,000,000 shares authorized, 10,000 shares issued and outstanding 9,000 9,000 Common shares -- $.01 par value, 75,000,000 shares authorized; 40,252,772 shares issued and outstanding 403 403 Capital in excess of par value 108,991 107,969 Accumulated deficit (78,175) (64,086) Cumulative translation adjustment 163 365 Total shareholders' equity 40,382 53,651 Total Liabilities and Shareholders' Equity $96,576 $113,969 The accompanying notes are an integral part of the consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands, except share data) Common Shares Issued Capital in Accumu- Cumulative Preferred Number Par Excess of lated Translation Stock of Shares Value Par Value Deficit Adjustment Balance -- March 31,1993 38,191,299 $3,819 $63,730 $(126,262) $818 Cancellation of common stock (38,191,299) (3,819) 3,819 Issuance of common stock 30,000,000 300 29,700 Issuance of preferred and common stock and warrants pursuant to bankruptcy settlement $9,000 3,333,333 33 6,192 Other (14) (200) Net earnings 55,501 Balance -- March 31, 1994 9,000 33,333,333 333 103,427 (70,761) 618 Issuance of common stock in public offering, net of expenses 6,149,993 62 5,630 Issuance of common stock to former creditors 769,446 8 (8) Payment to former creditors (922) Preferred stock dividends (700) Other (158) (253) Net earnings 7,375 Balance -- March 31, 1995 9,000 40,252,772 403 107,969 (64,086) 365 Issuance of common stock warrants 1,065 Preferred stock dividends (700) Other (43) (202) Net loss (13,389) Balance -- March 31, 1996 $9,000 40,252,772 $403 $108,991 $(78,175) $163 The accompanying notes are an integral part of the consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended March 31, 1996 1995 1994 Cash Flows from Operating Activities: Net earnings (loss) $(13,389) $7,375 $55,501 Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities: Depreciation and amortization 3,664 3,876 7,327 Extraordinary gain (129,155) Reorganization expenses 12,914 Asset valuation and loss reserves (14,209) (2,268) (1,296) Other 298 (969) 2,643 Changes in assets and liabilities: Accounts receivable 17,391 (14,805) 12,081 Inventories (437) 11,032 34,942 Prepaid expenses and other current assets 5,071 (5,598) 6,181 Other assets (601) (605) 89 Accounts payable and other current liabilities (9,092) (18,633) 27,287 Income taxes payable (53) (379) (924) Net cash provided (used) by operations (11,357) (20,974) 27,590 Cash Flows from Investing Activities: Additions to property and equipment (1,666) (2,874) (3,552) Redemption of (investment in) certificates of deposit 945 8,455 (500) Other (477) 110 114 Net cash provided (used) by investing activities (1,198) 5,691 (3,938) Cash Flows from Financing Activities: Net borrowings (repayments) under line of credit facility (6,145) 7,256 20,040 Proceeds from private placement of senior subordinated convertible debentures 19,208 Proceeds from issuances of common stock 5,692 30,000 Retirement of long-term debt (298) (500) (30) Payment to former creditors (922) Payment of preferred stock dividends (700) (525) Payment of pre-petition obligations (75,000) Payment of debt costs (237) (2,139) Other (160) (321) (83) Net cash provided (used) by financing activities 11,668 10,680 (27,212) Net decrease in cash and cash equivalents (887) (4,603) (3,560) Cash and cash equivalents at beginning of year 17,020 21,623 25,183 Cash and cash equivalents at end of year $16,133 $17,020 $21,623 The accompanying notes are an integral part of the consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 Note A -- Significant Accounting Policies: (1) Basis of Presentation: The consolidated financial statements include the accounts of Emerson Radio Corp. and its majority-owned subsidiaries (the "Company"). All significant intercompany transactions and balances have been eliminated. A 50% ownership of a domestic joint venture is accounted for by the equity method (see Note M). Historical cost accounting was used to account for the plan of reorganization (the "Plan of Reorganization") (see Note B) since the transaction did not meet the criteria required for fresh-start reporting. (2) Use of Estimates: The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. (3) Cash and Cash Equivalents: Short-term investments with original maturities of three months or less at the time of purchase are considered to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value. (4) Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market. (5) Property and Equipment: Property and equipment, stated at cost, is being depreciated for financial accounting purposes on the straight-line method over its estimated useful life. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. Upon the sale or retirement of property and equipment, the costs and related accumulated depreciation are eliminated from the accounts. Any resulting gains or losses are included in income. The cost of repairs and maintenance is charged to expense as incurred. (6) Warranty Claims: The Company provides an accrual for future warranty costs when the product is sold. (7) Net Earnings (Loss) per Share: Net loss per common share for the year ended March 31, 1996 is based on the net loss and deduction of preferred stock dividend requirements and the weighted average number of shares of common stock outstanding during the period. This calculation does not include common stock equivalents since they are anti- dilutive. Net earnings per common share for the year ended March 31, 1995 is based on the weighted average number of shares of common stock and common stock equivalents outstanding during the year. Common stock equivalents include shares issuable upon conversion of the Company's Series A Preferred Stock, exercise of stock options and warrants, and shares issued in the year ended March 31, 1995 primarily to satisfy an anti-dilution provision. The Series A Preferred Stock is not convertible into common stock until March 31, 1997, and the number of shares of common stock issuable upon conversion is dependent on the market value of the common stock at the time of conversion (See Note I(3)). Net earnings (loss) per common share for the year ended March 31, 1994 is based on the weighted average number of shares of common stock outstanding prior to confirmation of the Plan of Reorganization (See Note B) and cancelled as a part thereof, and do not include common stock equivalents assumed outstanding since they were anti-dilutive. Pro forma loss per common share for the year ended March 31, 1994 gives effect to the bankruptcy restructuring and is based on the number of shares of common stock issued and outstanding at March 31, 1994. The pro forma loss per common share does not include common stock equivalents assumed outstanding since they were anti-dilutive. The pro forma loss per common share also gives effect to the following adjustments: (i) Elimination of extraordinary gain of $129,155,000 and reorganization expenses of $17,385,000; (ii) Reduction of $6,666,000 in interest expense to give effect to the reorganized debt structure. The pro forma interest expense is based on the maximum amount of borrowings ($45 million) permitted under the new credit facility at the interest rate that would have been in effect for the year ended March 31, 1994 (8.25%). Additionally, the amortization of closing fees on the credit facility is included in the pro forma interest expense above; (iii) Assumed dividends on the Series A Preferred Stock aggregating $700,000 for the year ended March 31, 1994. (8) Foreign Currency: The assets and liabilities of foreign subsidiaries have been translated at current exchange rates, and related revenues and expenses have been translated at average rates of exchange in effect during the year. Related translation adjustments are reported as a separate component of shareholders' equity. Gains and losses resulting from foreign currency transactions are included in the Consolidated Statements of Operations and amounted to gains of $475,000 and $220,000 and a loss of $1,489,000 for the years ended March 31, 1996, 1995 and 1994, respectively. The Company does not enter into foreign currency exchange contracts to hedge its exposures related to foreign currency fluctuations. However, the Company is reducing its foreign currency exposure by conducting its European business in U.S. dollars commencing in the fiscal year ending March 31, 1997. Note B -- Reorganization: On September 29, 1993, the Company and five of its U.S. subsidiaries filed voluntary petitions for relief under the reorganization provisions of Chapter 11 of the United States Bankruptcy Code and operated as debtors-in-possession under the supervision of the Bankruptcy Court while their reorganization cases were pending. The precipitating factor for these filings was the Company's severe liquidity problems relating to its high level of indebtedness and a significant decline in sales from the prior year. Effective March 31, 1994, the Bankruptcy Court entered an order confirming the Plan of Reorganization. The Plan of Reorganization provided for the implementation of a recapitalization of the Company. In accordance with the Plan of Reorganization, the Company's pre-petition liabilities (of approximately $233 million) were settled with the creditors in the aggregate, as follows: I. The Company's bank group (the "Bank Lenders") received $70 million in cash and the right to receive the initial $2 million of net proceeds from one of the Company's non-trade receivables. II. The institutional holders of the Company's senior notes (the "Noteholders") initially received $2,650,000 in cash and warrants to purchase 750,000 shares of common stock for a period of seven years at an exercise price of $1.00 per share, provided that the exercise price shall increase by 10% per year commencing in year four, and further received $1 million, payable $922,498 in cash from the initial public offering of common stock (see Note I(5)) and $77,502 in common stock calculated on the basis of $1.00 per share. III. The Bank Lenders and Noteholders received their pro rata percentage of the following: A. $2,350,000 in cash (however $350,000 of this amount was distributable to the holders of allowed unsecured claims); B. 10,000 shares of Series A Preferred Stock with a face value of $10 million (estimated fair market value of approximately $9 million at March 31, 1994); C. 4,025,277 shares of common stock, including 691,944 shares issued in February 1995 pursuant to an anti-dilution provision; D. The net proceeds from the sale of the Company's Indiana land and building; and E. The net proceeds to be received from the non-trade receivables discussed in I. above in excess of $2 million. IV. Holders of allowed unsecured claims received a pro-rata portion of the $350,000 distribution and interest bearing promissory notes equal to 18.3% of the allowed claim amount, payable in two installments over 18 months (see Note F). Pursuant to the provisions of the Plan of Reorganization, as of March 31, 1994, the equity of the Company's shareholders, and the equity interest of holders of stock options and warrants were cancelled. Based on the settlement of the Chapter 11 proceedings, the Company recognized an extraordinary gain of $129.2 million from the extinguishment of debt. Additionally, the Company recognized a writedown of $12.9 million to estimated fair market value on the assets transferred for the benefit of the Bank Lenders and Noteholders. Pursuant to the Plan of Reorganization, and in consideration for $30 million, the reorganized Company issued 30 million shares of common stock, initially held by the following parties: Number of Shares Fidenas International Limited L.L.C. ("FIN") 16,400,000 Elision International, Inc. ("Elision") 1,600,000 GSE Multimedia Technologies Corporation ("GSE") 12,000,000
The Company's Chairman and Chief Executive Officer has a controlling beneficial ownership interest in each of the three entities listed above and, therefore holds an approximate 73% interest in the Company's outstanding common stock at March 31, 1996. Included above are 847,458 shares of common stock held by FIN, as nominee, as to which FIN and the Company's CEO, Mr. Geoffrey P. Jurick, disclaim beneficial ownership. In accordance with a Stipulation of Settlement and Order (the "Settlement Agreement") dated June 11, 1996, upon the effective date of the Settlement Agreement, Elision and GSE will transfer all of their Emerson shares to FIN, to be registered in the name of FIN. See Note K. Note C -- Inventories: Inventories are comprised primarily of finished goods. Spare parts inventories, net of reserves, aggregating $2,042,000 and $2,763,000 at March 31, 1996 and 1995, respectively, are included in "Prepaid expenses and other current assets." Note D -- Property and Equipment: Property and equipment is comprised of the following: March 31, 1996 1995 (In thousands) Furniture and fixtures $ 4,528 $ 5,854 Molds and tooling 1,281 3,806 Machinery and equipment 1,372 1,847 Leasehold improvements 742 271 7,923 11,778 Less accumulated depreciation and amortization 4,422 7,102 $ 3,501 $ 4,676
Depreciation and amortization of property and equipment amounted to $2,800,000, $3,267,000 and $6,679,000 for the years ended March 31, 1996, 1995 and 1994, respectively. Pursuant to the Plan of Reorganization, the Company transferred its land and building in Indiana to a liquidating trust established for the benefit of the Bank Lenders and Noteholders. In connection with this transfer, the Company recorded a writedown of approximately $2.3 million to reduce the carrying value to estimated fair market value at March 31, 1994. Note E -- Notes Payable: Effective March 31, 1994, the Company entered into a three year Loan and Security Agreement, as amended in August and December 1995, with a U.S. financial institution (the "Lender") providing for an asset-based revolving credit facility. The facility provides for revolving loans and letters of credit, subject to individual maximums and, in the aggregate, not to exceed the lesser of $60 million or a "Borrowing Base" amount based on specified percentages of eligible accounts receivable and inventories. All credit extended under the line of credit is secured by the U.S. and Canadian assets of the Company, except for trademarks which are subject to a negative pledge covenant. The interest rate on these borrowings is 1.25% above the stated prime rate. At March 31, 1996 and 1995, the interest rate on the outstanding borrowings was 9.5% and 11.25%, respectively. The facility is also subject to an unused line fee of 0.25% per annum. Pursuant to the Loan and Security Agreement, as amended, the Company is restricted from, among other things, paying cash dividends (other than on the Series A Preferred Stock), redeeming stock, and entering into certain transactions and is required to maintain certain working capital and equity levels (as defined). At March 31, 1996, there was $21,151,000 outstanding under the revolving loan facility and approximately $1,177,000 of outstanding letters of credit issued for inventory purchases. The fair market value of these notes payable is estimated to approximate their carrying amount. Cash paid for interest was $3,207,000, $3,371,000 and $11,251,000 for the years ended March 31, 1996, 1995 and 1994, respectively. In the six months ended March 31, 1994, interest expense was only accrued and paid on the Company's debtor-in-possession financing. No interest was accrued during the pendency of the bankruptcy proceedings on the debt owed to the Bank Lenders or the Noteholders. Had the contractual interest been accrued during this period, interest expense would have been approximately $10.2 million higher than the amount reported on the Consolidated Statement of Operations for the year ended March 31, 1994. Note F -- Long-Term Debt: Long-term debt consists of the following: March 31, 1996 1995 (In thousands) 8-1/2% Senior Subordinated Convertible Debentures Due 2002 $20,750 $ -- Notes payable to unsecured creditors 79 465 Equipment notes and other 230 257 21,059 722 Less current obligations 173 508 $20,886 $ 214
The 8-1/2% Senior Subordinated Convertible Debentures Due 2002 (the "Debentures") were issued in August 1995. The Debentures bear interest at the rate of 8-1/2% per annum, payable quarterly on the 15th of March, June, September and December, in each year. The Debentures mature on August 15, 2002. The Debentures are convertible into shares of the Company's common stock at any time prior to redemption or maturity at an initial conversion price of $3.9875 per share, subject to adjustment under certain circumstances. The Debentures are redeemable, at the option of the Company, three years from the date of issuance, in whole or in part, at an initial redemption price of 104% of principal, decreasing by 1% per year until maturity. The Debentures are subordinated to all existing and future senior indebtedness (as defined in the indenture governing the Debentures). The Debentures restrict, among other things, the amount of senior indebtedness and other indebtedness that the Company, and, in certain instances, its subsidiaries, may incur. Each holder of Debentures has the right to cause the Company to redeem the Debentures if certain designated events (as defined) should occur. The Debentures are subject to certain restrictions on transfer, although the Company has registered the offer and sale of the Debentures and the underlying common stock. Pursuant to the Plan of Reorganization, the holders of allowed unsecured claims received interest bearing promissory notes equal to 18.3% of the claim amount. The notes are due in two installments: 35% of the outstanding principal is due 12 months from the date of issuance, and the remaining balance is due 18 months from the date of issuance. The notes bear interest at the London Interbank Offered Rate in effect at the date of issuance for one year obligations. Note G -- Income Taxes: The income tax provision consists of the following: Years Ended March 31, 1996 1995 1994 (In thousands) Current: Federal $ (39) $ 40 Foreign, state and other 65 227 327 $ 26 $267 $327
The difference between the effective rate reflected in the provision for income taxes and the amounts determined by applying the statutory U.S. rate of 34% to earnings (loss) before income taxes are analyzed below: Years Ended March 31, 1996 1995 1994 (In thousands) Statutory provision (benefit) $(4,543) $2,598 $(24,931) Utilization of net operating loss carryforwards --- (632) --- U.S. and foreign net operating losses without tax benefit 4,493 1,675 24,975 Foreign income subject to foreign tax, not subject to U.S. tax --- (785) --- Tax recognition of prior year book deductions --- (888) --- Rate differential on foreign income 9 (1,959) 327 Nondeductible bankruptcy expenses 24 137 1,545 Nondeductible debt restructuring expenses --- --- (1,540) Other, net (44) 121 (49) Total income tax provision $ 26 $267 $ 327
Effective April 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," under which the liability method (rather than the deferred method) is used in accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. The change had no effect on the results of operations for the year ended March 31, 1994. Significant components of the Company's deferred tax assets and liabilities are as follows: March 31, 1996 1995 (In thousands) Deferred tax assets: Accounts receivable reserves $ 2,995 $ 7,653 Inventory reserves 2,259 1,188 Net operating loss carryforwards 18,250 10,588 Other 445 1,014 Total deferred tax assets 23,949 20,443 Valuation allowance for deferred tax assets (23,287) (20,189) Net deferred tax assets 662 254 Deferred tax liabilities (662) (254) Net deferred taxes $ -- $ --
Total deferred tax assets of the Company at March 31, 1996 represent the tax-effected net operating loss carryforwards subject to annual limitations (as discussed below), and tax-effected deductible temporary differences. The Company has established a valuation reserve against any expected future benefits. Cash paid for income taxes was $151,000, $725,000 and $946,000 for the years ended March 31, 1996, 1995 and 1994, respectively. Income before taxes of foreign subsidiaries was $3,786,000 for the year ended March 31, 1995. Losses before taxes of foreign subsidiaries was $6,233,000 and $16,042,000 for the years ended March 31, 1996 and 1994, respectively. Provision is made for federal income taxes which may be payable on earnings of foreign subsidiaries to the extent that the Company anticipates they will be remitted. Unremitted earnings of foreign subsidiaries which have been, or are intended to be permanently reinvested (and for which no federal income tax has been provided) aggregated $1,034,063, $3,396,000 and $1,086,000 at March 31, 1996, 1995 and 1994, respectively. As of March 31, 1996, the Company has a net operating loss carryforward of approximately $117,810,000, of which $33,074,000, $13,385,000, $50,193,000 and $21,159,000 will expire in 2006, 2007, 2009 and 2010, respectively. The utilization of these net operating losses will be limited based on the effects of the Plan of Reorganization consummated on March 31, 1994. Pursuant to the Plan of Reorganization, the Bank Lenders, the Noteholders, FIN, Elision and GSE initially received 100% of the common stock. As a result, an ownership change occurred with respect to the Company, and subjected the Company's net operating losses and foreign tax credit carryforwards to the limitation provided for in Section's 382 and 383, respectively, of the Internal Revenue Code. Subject to special rules regarding increases in the annual limitation for the recognition of net unrealized built-in gains, the Company's annual limitation will be approximately $2.2 million. Note H -- Commitments and Contingencies: (1) Leases: The Company leases warehouse and office space at minimum aggregate rentals as follows: Year Ending March 31, Amount (In thousands) 1997 $ 1,608 1998 1,197 1999 329 $3,134
Rent expense aggregated $1,705,000, $2,731,000 and $2,663,000 for the years ended March 31, 1996, 1995 and 1994, respectively. Rental income from the sublease of warehouse and office space aggregated $278,000, $273,000 and $89,000 in the years ended March 31, 1996, 1995 and 1994, respectively. (2) Letters of Credit: Outstanding letters of credit for the purchase of inventory, not reflected in the accompanying financial statements, aggregated $6,821,000 (including $1,177,000 issued under the Loan and Security Agreement -- see Note E) at March 31, 1996. The Company's Hong Kong subsidiary also currently maintains various credit facilities aggregating $62.1 million with a bank in Hong Kong consisting of the following: (i) a $12.1 million credit facility which is generally used for letters of credit for a foreign subsidiary's direct import business and affiliates' inventory purchases, and (ii) a $50 million credit facility, for the benefit of a foreign subsidiary, which is for the establishment of back-to-back letters of credit with the Company's largest customer. At March 31, 1996, the Company's Hong Kong subsidiary had pledged $4 million in certificates of deposit to this bank to assure the availability of these credit facilities. At March 31, 1996, there were $5,644,000 and $3,056,000 of letters of credit outstanding under these credit facilities. The Company's Hong Kong subsidiary maintains an additional credit facility with another bank in Hong Kong. The facility provides for (i) a $10 million line of credit for documentary letters of credit, (ii) a $10 million back-to-back letter of credit line, and (iii) a $100,000 standby letter of credit facility. At March 31, 1996, the Company's Hong Kong subsidiary has pledged $5,000,000 in certificates of deposit to assure the availability of these credit facilities. At March 31, 1996, $991,000 of the letter of credit line was utilized. Note I -- Shareholders' Equity: (1) In July 1994, the Company's Board of Directors adopted, and the stockholders subsequently ratified, a Stock Compensation Program ("Program") intended to secure for the Company and its stockholders the benefits arising from ownership of the Company's common stock by those selected directors, officers, other key employees, advisors and consultants of the Company who are most responsible for the Company's success and future growth. The maximum aggregate number of shares of common stock available pursuant to the Program is 2,000,000 shares and the Program is comprised of 4 parts -- the Incentive Stock Option Plan, the Supplemental Stock Option Plan, the Stock Appreciation Rights Plan and the Stock Bonus Plan. A summary of transactions since the inception of the Program is as follows: Number of Price Aggregate Shares Per Share Price Granted 1,860,000 $1.00 - $1.10 $1,920,000 Cancelled (30,000) $1.00 (30,000) Outstanding -- March 31, 1995 1,830,000 $1.00 - $1.10 1,890,000 Granted 125,000 $2.63 - $2.88 341,000 Cancelled (287,000) $1.00 (287,000) Outstanding -- March 31, 1996 1,668,000 $1.00 - $2.88 $1,944,000
The term of each option is ten years, except for options issued to any person who owns more than 10% of the voting power of all classes of capital stock, for which the term is five years. Options may not be exercised during the first year after the date of the grant. Thereafter each option becomes exercisable on a pro rata basis on each of the first through third anniversaries of the date of the grant. The exercise price of options granted must be at least equal to the fair market value of the shares on the date of the grant, except that the option price with respect to an option granted to any person who owns more than 10% of the voting power of all classes of capital stock shall not be less than 110% of the fair market value of the shares on the date of the grant. (2) In October 1994, the Company's Board of Directors adopted, and the stockholders subsequently approved, the 1994 Non-Employee Director Stock Option Plan. The maximum number of shares of common stock available under such plan is 300,000 shares. A summary of transactions since inception of the plan is as follows: Number of Price Aggregate Shares Per Share Price Granted 175,000 $1.00 $175,000 Outstanding--March 31, 1995 175,000 $1.00 175,000 Cancelled (25,000) $1.00 (25,000) Outstanding--March 31, 1996 150,000 $1.00 $150,000
The provisions for exercise price, term and vesting schedule are the same as noted above for the Stock Compensation Program. (3) Pursuant to the Plan of Reorganization, on March 31, 1994, the Company issued Series A Preferred Stock, $.01 par value, with a face value of $10 million and an estimated fair market value of approximately $9 million. The preferred stock is convertible into Common Stock at any time during the period beginning on March 31, 1997 and ending on March 31, 2002; the preferred stock is convertible into common stock at a price per share of common stock equal to 80% of the market value of a share of common stock on the date of conversion. The preferred stock bears dividends commencing June 30, 1994 on a cumulative basis at the following rates: Dividend Rate Year 1 to 3 7.0% Year 4 5.6% Year 5 4.2% Year 6 2.8% Year 7 1.4% Thereafter None
The preferred stock is non-voting. However, the terms of the preferred stock provide that holders shall have the right to appoint two directors to the Company's Board of Directors if the preferred stock dividends are in default for six consecutive quarters. (4) Pursuant to the Plan of Reorganization, the Noteholders received warrants for the purchase of 750,000 shares of common stock. The warrants are exercisable for a period of seven years from March 31, 1994 and provide for an exercise price of $1.00 per share for the first three years, escalating by $.10 per share per annum thereafter until expiration of the warrants. (5) In accordance with the Company's Plan of Reorganization, the Company completed an initial public offering of its common stock in September 1994 to shareholders of record (in those states in which the offering could be made) as of March 31, 1994, excluding the Company's former largest shareholder. The Company sold 6,149,993 shares of common stock for $1.00 per share resulting in proceeds to the Company, net of issuance costs, of approximately $5,692,000. Pursuant to the terms of the Plan of Reorganization, in January 1995, the Company paid approximately $922,000 to satisfy certain obligations owed to former creditors, and in February 1995 issued 769,446 shares of common stock to former creditors, primarily to satisfy an anti-dilution provision. The remainder of such funds were used for working capital and other corporate purposes. (6) In connection with the Debentures offering in August 1995, the Company issued, to the placement agent and its authorized dealers, warrants for the purchase of 500,000 shares of common stock. The warrants are exercisable for a period of four years from August 24, 1996 and provide for an exercise price of $3.9875 per share, subject to adjustment under certain circumstances. (7) In connection with a consulting agreement in December 1995, the Company issued, to the consultant, warrants for the purchase of 250,000 shares of common stock at an exercise price of $4.00 per share. The warrants vest and may be exercised by the holder (i) 50% at any time after six months from the date of issuance, and (ii) the balance at any time after one year from the date of issuance, in either event until December 8, 2000, when such warrants shall expire. (8) In November 1995, the Company filed a shelf registration statement covering 5,000,000 shares of common stock owned by FIN to finance a settlement of the Litigation Regarding Certain Outstanding Common Stock (See Note K). The shares covered by the shelf registration are subject to certain contractual restrictions and may be offered for sale or sold only by means of an effective prospectus following registration under the Securities Act of 1933, as amended. (9) In November 1995, the Company's stockholders approved an amendment to the Company's certificate of incorporation increasing the number of authorized shares of preferred stock from one million shares to ten million shares. (10) In November 1995, the Company's Board of Directors approved a plan to repurchase up to two million of its common shares, or about 20% of the Company's current float of approximately eleven million shares, from time to time in the open market. Although there are 40,252,772 shares outstanding, approximately 29.2 million shares are held directly or indirectly by affiliated entities of Geoffrey Jurick, Chairman and Chief Executive Officer of the Company. The Company has agreed with Mr. Jurick that such shares will not be subject to repurchase. The stock repurchase program is subject to consent of certain of the Company's lenders, certain court imposed restrictions, price and availability of shares, compliance with securities laws and alternative capital spending programs, including new acquisitions. The repurchase of common shares is intended to be funded by working capital, if and when available. It is uncertain at this time when the Company might be able to so repurchase any of its shares of Common Stock. Note J -- License Agreements: (1) In February 1995, the Company and a former large supplier and certain affiliates (collectively, the "Supplier") entered into two mutually contingent agreements (the "Agreements"). Effective March 31, 1995, the Company granted a license of certain trademarks to the Supplier for a three-year term. The license permits the Supplier to manufacture and sell certain video products under the "EMERSON and G-Clef" trademark to one of the Company's significant customers (the "Customer") in the U.S. and Canada, and precludes the Supplier from supplying product to the Customer other than under the "Emerson and G-Clef" or the Supplier trademarks. The Company will continue to supply other products to the Customer directly. Further, the Agreements provide that the Supplier will supply the Company with certain video products for sale to other customers at preferred prices for a three-year term. Under the terms of the Agreements, the Company will receive non-refundable minimum annual royalties from the Supplier to be credited against royalties earned from sales of video cassette recorders and players, television/video cassette recorder and player combinations, and color televisions to the Customer. In addition, effective August 1, 1995, the Supplier assumed responsibility for returns and after-sale and warranty services on all video products manufactured by the Supplier and sold to the Customer, including video products sold by the Company prior to April 1, 1995. Royalty income recognized by the Company pursuant to the Agreements was $4,442,000 in Fiscal 1996. Additionally, the Company and the Supplier agreed on a series of purchase discounts, consistent with agreements and past practices between the Supplier and the Company. Through March 31, 1995, the Supplier had paid the Company $6.3 million against an aggregate $10.2 million of purchase discounts for product purchased from January 1, 1993 to March 31, 1995, and the balance of $3.9 million was paid in September 1995. The Company recognized $9.9 million of discounts in the year ended March 31, 1995, of which $4.3 million of discounts were attributable to purchases prior to April 1, 1994. (2) In October 1994, the Company entered into a license agreement with Jasco Products Co., Inc., ("Jasco"), which was amended during Fiscal 1996, whereby the Company granted a license of certain trademarks to Jasco for use on non-competing consumer electronics accessories. Under the terms of the agreement, the Company will receive minimum annual royalties through the life of the agreement, which expires on December 31, 1997, and the agreement is automatically renewable for three successive three-year periods based upon Jasco's compliance with the agreement. The minimum royalty was not exceeded in the first contract year ended December 31, 1995. The Company recognized license fee income of approximately $1,125,000 in the year ended March 31, 1995. Note K -- Legal Proceedings: Otake Litigation On December 20, 1995, the Company filed suit in the United States District Court for the District of New Jersey against Orion Sales, Inc., Otake Trading Co. Ltd., Technos Development Limited, Shigemasa Otake, and John Richard Bond, Jr. (collectively, the "Otake Defendants") alleging breach of contract, breach of covenant of good faith and fair dealing, unfair competition, interference with prospective economic gain, and conspiracy in connection with certain activities of the Otake Defendants under certain agreements between the Company and the Otake Defendants. Mr. Bond is a former officer and sales representative of the Company, having served in the latter capacity until he became involved working for the other Otake Defendants. Certain of the other Otake Defendants have supplied the majority of the Company's purchases until the Company's most recent fiscal year. On December 21, 1995, Orion Sales, Inc. and Orion Electric (America), Inc. filed suit against the Company in the United States District Court, Southern District of Indiana, Evansville Division, alleging various breaches of certain agreements by the Company, including breaches of the confidentiality provisions, certain payment breaches, breaches of provisions relating to product returns, and other alleged breaches of those agreements, and seeking damages in the amount of $2,452,656, together with interest thereon, attorneys' fees, and certain others costs. While the outcome of the New Jersey and Indiana actions are not certain at this time, the Company believes it has meritorious defenses against the claims made by the plaintiffs in the Indiana action. In any event, the Company believes the results of that litigation should not have a material adverse effect on the financial condition of the Company or on its operations. Litigation Regarding Certain Outstanding Common Stock: The 30 million shares of Common Stock issued to GSE, FIN and Elision on March 31, 1994, pursuant to the Plan of Reorganization, were the subject of certain legal proceedings. On June 11, 1996, the Settlement Agreement was executed, which settles various legal proceedings in Switzerland, the Bahamas and the United States. The Settlement Agreement provides for, among other things, the payment by Mr. Jurick and his affiliated entities of $49.5 million to various claimants of Mr. Jurick and affiliated entities (the "Creditors"), to be paid from the proceeds of the sale of the 29,152,542 shares of Emerson common stock (the "Settlement Shares") owned by affiliated entities of Mr. Jurick. In addition, Mr. Jurick will be paid the sum of $3.5 million from the sale of such stock. The Settlement Shares will be sold over an extended, but indeterminate, period of time by a financial advisor (the "Advisor") to be selected by Emerson in consultation with Mr. Jurick and the Creditors. Such Advisor will formulate a marketing plan taking into consideration (i) the interests of Emerson's minority stockholders, and (ii) the goal of generating sufficient proceeds to pay the Creditors and Mr. Jurick as quickly as possible. The Settlement Shares will be divided into two pools. The Pool A Shares will initially consist of 15,286,172 Emerson shares. The Pool B Shares consist of the number of Emerson shares with respect to which Mr. Jurick must retain beneficial ownership of voting power to avoid an event of default arising out of a change of control pursuant to the terms of the Company's Loan and Security Agreement with the Lender and/or the indenture governing the Debentures. Sales may be made of the Settlement Shares pursuant to a registered offering if the sales price in not less than 90% of the average of the three most recent closing prices (the "Average Closing Price"), or, other than in a registered offering, of up to 1% of the Emerson common stock outstanding per quarter, if the sales price is not less than 90% of the Average Closing Price. Any other attempted sales are subject to the consent of Mr. Jurick, the Creditors and if necessary, the Court. The Settlement Agreement will only become effective after, among other things, receipt by the Court of certain share certificates currently held in foreign jurisdictions and all documents required in the Settlement Agreement. Bankruptcy Claims: The Company is presently engaged in litigation regarding several bankruptcy claims which have not been resolved since the restructuring of the Company's debt. The largest claim was filed on or about July 25, 1994 in connection with the rejection of certain executory contracts with two Brazilian entities, Cineral Electronica de Amazonia Ltda. and Cineral Magazine Ltda. (collectively, "Cineral"). The contracts were executed in August 1993, shortly before the Company's filing for bankruptcy protection. The amount claimed was $93,563,457, of which $86,785,000 represents a claim for loss of profits and $6,400,000 for plant installation and establishment of offices, which were installed and established prior to execution of the contracts. The claim was filed as an unsecured claim and, therefore, will be satisfied, to the extent the claim is allowed by the Bankruptcy Court, in the manner other allowed unsecured claims were satisfied. The Company has objected to the claim and intends to vigorously contest such claim and believes it has meritorious defenses to the highly speculative portion of the claim for lost profits and the portion of the claim for actual damages for expenses incurred prior to the execution of the contracts. Additionally, on or about September 30, 1994, the Company instituted an adversary proceeding in the Bankruptcy Court asserting damages caused by Cineral and seeking declaratory relief and replevin. A motion filed by Cineral to dismiss the adversary proceeding has been denied. The adversary proceeding and claim objection have been consolidated into one proceeding and discovery commenced. This action has been stayed since June 1995 by order of the Bankruptcy Court pending settlement negotiations. An adverse final ruling on the Cineral claim could have a material adverse effect on the Company, even though it would be limited to 18.3% of the final claim determined by a court of competent jurisdiction; however, with respect to the claim for lost profits, in light of the foregoing, the Company believes the chances for recovery for lost profits are remote. Hopper Litigation Effective April 24, 1996, the Company and Hopper entered into the Hopper Amendment which, among other things, amended certain provisions in the Partnership and Sales Agreements and settled all outstanding litigation between the Company, Hopper and the other named parties. Under the Hopper Amendment, Hopper advanced an additional $5 million to the Partnership, thereby increasing the liquidity of the Partnership and equalizing the investment of the partners and the sharing of cash flows. Additionally, the Hopper Amendment provides that the Partnership will continue to buy certain of the Company's product returns through December 31, 1996. Subsequent to this date, either partner may give notice to dissolve the Partnership, with a wind-down period to be completed no later than six months from the date of notice. International Jensen Incorporated ("Jensen") Litigation On May 10, 1996, Jensen filed an action in the United States District Court for the Northern District of Illinois, Eastern Division, against the Company and its President, Eugene I. Davis, for violations of proxy solicitation rules and for breach of a confidentiality agreement with Jensen. On May 14, 1996, the Court entered a temporary restraining order against the Company and its President, which subsequently lapsed, enjoining them from (i) further solicitation of Jensen's stockholders or their representatives until the Company has filed a Proxy Statement with the Securities and Exchange Commission which complies with the provisions of Regulation 14A of the Securities Exchange Act of 1934; (ii) making further solicitation containing false and misleading or misleading statements of material fact or material omissions; and (iii) disclosing confidential information in violation of the confidentiality agreement. On May 20, 1996, the Company filed a counterclaim in this action alleging that Jensen and its Chairman, Chief Executive Officer and President, Robert G. Shaw, fraudulently induced the Company to enter into a confidentiality agreement and failed to negotiate with the Company in good faith. In its counterclaim, the Company requests such other equitable or other relief as the Court finds proper and an award of attorneys' fees and expenses. The Company and its President intend to vigorously defend Jensen's claim against the Company and to vigorously pursue its counterclaim against Jensen and Mr. Shaw. The Company believes that Jensen's claims are without basis, that it has meritorious defenses againstJensen's claim and that the litigation or results thereof will not have a material adverse effect on the Company's consolidated financial position. Other Litigation: The Company is involved in other legal proceedings and claims of various types in the ordinary course of business. While any litigation contains an element of uncertainty, management presently believes that the outcome of each such proceeding or claim which is pending or known to be threatened (including the actions noted above), or all of them combined, will not have a material adverse effect on the Company's consolidated financial position. Note L -- Business Segment Information and Major Customers: The consumer electronics business is the Company's only business segment. Operations in this business segment are summarized below by geographic area: Year Ended March 31, 1996 U.S. Foreign Eliminations Consolidated (In thousands) Sales to unaffiliated customers $234,369 $11,298 $ $245,667 Transfers between geographic areas 2,884 876 (3,760) Total net revenues $237,253 $12,174 $ (3,760) $245,667 Earnings (loss) before income taxes $(11,324) $(2,039) $ $(13,363) Identifiable assets $ 90,350 $ 6,226 $ $ 96,576 Year Ended March 31,1995 Sales to unaffiliated customers $608,717 $45,954 $ $654,671 Transfers between geographic areas 5,954 184 (6,138) -- Total net revenues $614,671 $46,138 $ (6,138) $654,671 Earnings (loss) before income taxes $ 12,238 $(4,596) $ -- $ 7,642 Identifiable assets $98,604 $15,470 $ (105) $113,969 Year Ended March 31, 1994 Sales to unaffiliated customers $433,495 $53,895 $ -- $487,390 Transfers between geographic areas 2,587 -- (2,587) -- Total net revenues $436,082 $53,895 $ (2,587) $487,390 Loss before reorganization costs and income taxes $(50,718) $(5,224) $ -- $(55,942) Identifiable assets $ 99,726 $19,295 $ -- $119,021
Transfers between geographic areas are accounted for on a cost basis. Identifiable assets are those assets used in operations in each geographic area. At March 31, 1996 and 1995, total assets include $27,779,000 and $37,492,000, respectively, of assets located in foreign countries. The Company's net sales to one customer aggregated approximately 18%, 53% and 34% of consolidated net revenues for the years ended March 31, 1996, 1995 and 1994, respectively. At March 31, 1996 and 1995, the Company had a liability balance to this customer for product returns. The Company's net sales to another customer aggregated 16%, 10% and 12% for the years ended March 31, 1996, 1995 and 1994, respectively. Trade receivables from this customer approximated 5% and 10% of accounts receivable at March 31, 1996 and 1995, respectively, and were not collateralized. Note M -- Investment in Joint Venture The Company has a 50% investment in E & H Partners, a joint venture that purchases, refurbishes and sells certain of the Company's product returns. The results of this joint venture are accounted for by the equity method. The Company's equity in the earnings (loss) of the joint venture is reflected as an increase or reduction of cost of sales in the Company's Consolidated Statements of Operations. Summarized financial information relating to the joint venture is as follows: March 31, 1996 1995 (In thousands) Activity between Company and E & H Partners Accounts receivable from joint venture (a) $13,270 $15,283 Investment in joint venture 1,265 1,565 Sales to joint venture 17,629 32,500 E & H Partners Summarized Financial Information Condensed balance sheet: Current assets $19,326 $26,749 Noncurrent assets 162 161 Total $19,488 $26,910 Current liabilities $16,958 $23,780 Partnership equity 2,530 3,130 Total $19,488 $26,910 Condensed income statement: Net sales (b) $27,712 $24,760 Net earnings (loss) (600) 2,130
___________________ (a) Accounts receivable were secured by a full lien on all of the partnership's inventory at these dates, and such lien had been assigned to the Lender as collateral for the U.S. line of credit facility. In April 1996, the Company agreed to equally share the lien on the partnership's inventory with the other partner in the joint venture, in exchange for, among other things, a $5 million loan by such partner to the joint venture and a subsequent paydown of E&H Partners' obligation to the Company of the same amount. (b) Includes sales to the Company of $5,964,000 and $3,796,000, respectively. Note N -- Subsequent Events: In June 1996, the Company amended its adjusted net worth covenant with the Lender, effective June 30, 1996. The adjusted net worth covenant, as amended, requires the Company to maintain an adjusted net worth, as defined, of not less than the sum of (i) the base amount of $30,000,000 plus (ii) any proceeds received by the Company after December 31, 1995 from the sale of any equity or debt securities. EMERSON RADIO CORP. AND SUBSIDIARIES SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In thousands) Column A Column B Column C ColumnD Column E Balance Charged Balance at to at beginning costs end of of and year Description year expenses Deductions (C) Allowance for doubtful accounts/chargebacks: Year ended: March 31, 1996 $4,150 $1,111 $2,430 $2,831 March 31, 1995 3,349 1,306 505(A) 4,150 March 31, 1994 3,267 3,023 2,941(A) 3,349 Inventory reserves: Year ended: March 31, 1996 $ 470 $1,087 $ 335 $1,222 March 31, 1995 644 251 425(B) 470 March 31, 1994 1,559 6,619 7,534(B) 644
(A) Accounts written off, net of recoveries. (B) Net realizable value reserve removed from account when inventory is sold. (C) Amounts do not include certain accounts receivable reserves that are disclosed as "allowances" on the Consolidated Balance Sheets since they are not valuation reserves. INDEX TO EXHIBITS PAGE NUMBER IN SEQUENTIAL NUMBERING EXHIBIT DESCRIPTION SYSTEM (2) Confirmation Order and Fourth Amended Joint Plan of Reorganization of Emerson Radio Corp. ("Old Emerson") and certain subsidiaries under Chapter 11 of the United States Bankruptcy Code, dated March 31, 1994 (incorporated by reference to Exhibit (2) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the Securities and Exchange Commission ("SEC") on August 9, 1994). (3) (a) Certificate of Incorporation of Emerson (incorporated by reference to Exhibit (3) (a) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (b) Certificate of Designation for Series A Preferred Stock (incorporated by reference to Exhibit (3) (b) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (c) Plan of Reorganization and Agreement of Merger by and between Old Emerson and Emerson Radio (Delaware) Corp. (incorporated by reference to Exhibit (3) (c) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (d) Certificate of Merger of Old Emerson with and into Emerson Radio (Delaware) Corp. (incorporated by reference to Exhibit (3) (d) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (e) Amendment dated February 14, 1996 to the Certificate of Incorporation of Emerson (incorporated by reference to Exhibit (3) (a) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (3) (f) By-Laws of Emerson adopted March 1994 (incorporated by reference to Exhibit (3) (e) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (g) Amendment dated November 28, 1995 to the By-Laws of Emerson adopted March 1994 (incorporated by reference to Exhibit (3) (b) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (4) (a) Warrant Agreement to Purchase 750,000 shares of Common Stock, dated as of March 31, 1994 (incorporated by reference to Exhibit (4) (a) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (4) (b) Indenture, dated as of August 17, 1995 between Emerson and Bank One, Columbus, NA, as Trustee (incorporated by reference to Exhibit (1) of Emerson's Current Report on Form 8-K filed with the SEC on September 8, 1995). (4) (c) Common Stock Purchase Warrant Agreement to purchase 50,000 shares of Common Stock, dated as of December 8, 1995 between Emerson and Michael Metter (incorporated by reference to Exhibit (10) (e) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (4) (d) Common Stock Purchase Warrant Agreement to purchase 200,000 shares of Common Stock, dated as of December 8, 1995 between Emerson and Kenneth A. Orr (incorporated by reference to Exhibit (10) (f) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (10) (a) Agreement, dated as of November 14, 1973, between National Union Electric Corporation ("NUE") and Emerson (incorporated by reference to Exhibit (10) (a) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (b) Trademark User Agreement, dated as of February 28, 1979, by and between NUE and Emerson (incorporated by reference to Exhibit (10) (b) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (c) Agreement, dated July 2, 1984, between NUE and Emerson (incorporated by reference to Exhibit (10) (c) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (d) Agreement, dated September 15, 1988, between NUE and Emerson (incorporated by reference to Exhibit (10) (d) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (e) Form of Promissory Note issued to certain Pre- Petition Creditors (incorporated by reference to Exhibit (10) (e) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (f) Loan and Security Agreement, dated March 31, 1994, by and among Emerson, Majexco Imports, Inc. and Congress Financial Corporation ("Congress") (incorporated by reference to Exhibit (10) (f) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (g) Amendment No. 1 to Financing Agreements, dated as of August 24, 1995, among Emerson, Majexco Imports, Inc. and Congress (incorporated by reference to Exhibit (2) of Emerson's Current Report on Form 8-K filed with the SEC on September 8, 1995). (10) (h) Amendment No. 2 to Financing Agreements, dated as of February 13, 1996 (incorporated by reference to Exhibit (10) (c) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (10) (i) Emerson Radio Corp. Stock Compensation Program (incorporated by reference to Exhibit (10) (i) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (j) Employment Agreement between Emerson and Eugene I. Davis (incorporated by reference to Exhibit 6(a)(4) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (k) Employment Agreement between Emerson and Albert G. McGrath, Jr. (incorporated by reference to Exhibit 6(a)(7) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (l) Agreement dated as of January 1, 1996, between Emerson and Albert G. McGrath, Jr. relating to termination of employment and agreement on consulting services (incorporated by reference to Exhibit (10) (a) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (10) (m) Employment Agreement between Emerson and Geoffrey P. Jurick (incorporated by reference to Exhibit 6(a)(6) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (n) Employment Agreement between Emerson Radio (Hong Kong) Ltd. and Geoffrey P. Jurick (incorporated by reference to Exhibit 6(a)(6) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (o) Employment Agreement between Emerson Radio International Ltd. (formerly Emerson Radio (B.V.I), Ltd.) and Geoffrey P. Jurick (incorporated by reference to Exhibit 6(a)(6) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (p) Lease Agreement dated as of March 26, 1993, by and between Hartz Mountain Parsippany and Emerson with respect to the premises located at Nine Entin Road, Parsippany, NJ (incorporated by reference to Exhibit (10) (ww) of Emerson's Annual Report on Form 10-K for the year ended December 31, 1992). (10) (q) Employment Agreement, dated July 13, 1993, between Emerson and Merle Eakins (incorporated herein by reference to Exhibit (10)(vv) to Emerson's Annual Report on Form 10-K for the year ended March 31, 1993). (10) (r) Agreement dated as of January 31, 1996, between Emerson and Merle Eakins relating to termination of employment and agreement on consulting services (incorporated by reference to Exhibit (10) (b) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (10) (s) Employment Agreement, dated April 1, 1994, between Emerson and John Walker (incorporated herein by reference to Exhibit (10)(ee) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (t) Liquidating Trust Agreement, dated as of March 31, 1994, by and among Emerson, Majexco Imports, Inc., H.H. Scott, Inc., and Stuart D. Gavsy, Esq., as Trustee (incorporated by reference to Exhibit (10) (ff) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (u) Partnership Agreement, dated April 1, 1994, between Emerson and Hopper Radio of Florida, Inc (incorporated by reference to Exhibit (10) (q) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1995). (10) (v) Sales Agreement, dated April 1, 1994, between Emerson and E & H Partners (incorporated by reference to Exhibit (10) (r) of Emerson's Annual Report on Form 10- K for the year ended March 31, 1995). (10) (w) Agreement, dated as of April 24, 1996 by and among Emerson and E & H Partners relating to amendments of the Partnership Agreement dated April 1, 1994 and the Sales Agreement dated April 1, 1994 and the settlement of certain outstanding litigation.* (10) (x) Independent Consultants Agreement, Dated October 1, 1994, between Emerson Radio International Ltd. and Peter G. Bunger (incorporated by reference to Exhibit (10) (t) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1995). (10) (y) Independent Consultant's Agreement, dated October 1, 1994, between Emerson Radio Europe B.V. and Peter G. Bunger (incorporated by reference to Exhibit (10) (u) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1995). (10) (z) Employment Agreement, dated October 3, 1994, between Emerson and Andrew Cohan (incorporated by reference to Exhibit (10) (v) of Emerson's Annual Report on Form 10- K for the year ended March 31, 1995). (10) (aa) License Agreement, dated February 22, 1995, between Emerson and Otake Trading Co. Ltd. and certain affilates ("Otake") (incorporated by reference to Exhibit 6(a)(1) of Emerson's quarterly report on Form 10-Q for quarter ended December 31, 1994). (10) (ab) Supply Agreement, dated February 22, 1995, between Emerson and Otake (incorporated by reference to Exhibit 6(a)(2) of Emerson's quarterly report on Form 10-Q for quarter ended December 31, 1994). (10) (ac) 1994 Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit (10) (y) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1995). (10) (ad) Consulting Agreement, dated as of December 8, 1995 between Emerson and First Cambridge Securities Corporation (incorporated by reference to Exhibit (10) (d) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (10) (ae) Stipulation of Settlement and Order dated June 11, 1996 by and among the Official Liquidator of Fidenas International Bank Limited, Petra Stelling, Barclays Bank PLC, the Official Liquidator of Fidenas Investment Limited, Geoffrey P. Jurick, Fidenas International Limited, L.L.C., Elision International, Inc., GSE Multimedia Technologies Corporation and Emerson.* (11) Computation of Primary Earnings Per Share.* (12) Computation of Ratio of Earnings (Loss) to Combined Fixed Charges and Preferred Stock Dividends.* (21) Subsidiaries of the Registrant as of March 31, 1996.* (27) Financial Data Schedule for year ended March 31, 1996.* ___________________ * Filed herewith. EXHIBIT 11 Emerson Radio Corp. and Subsidiaries Exhibit to Form 10-K Computation of Primary Earnings Per Share (in thousands, except per share data) Years Ended March 31, 1996 1995 1994 Net earnings (loss) $(13,389) $ 7,375 $55,501 Preferred stock dividends (700) N/A N/A Net earnings (loss) attributable to $(14,089) $7,375 $55,501 common shareholders Weighted average number of actual shares outstanding 40,253 36,530 38,191 Additional shares assuming conversion or exercise of: Preferred stock (a) 9,081 Stock options and warrants 960 Weighted average number of common and common equivalent shares outstanding 40,253 46,571 38,191 Primary earnings (loss) per share $(0.35) $0.16 $1.45
___________________________ (a) Based on the assumed conversion of $10 million of Series A Preferred Stock into Common Stock at a price per share equal to 80% of the weighted average market value of a share of Common Stock, determined on a quarterly basis. Since the Series A Preferred Stock is not convertible into Common Stock until March 31, 1997, the number of shares issuable upon conversion may be significantly different than noted above. EXHIBIT 12 EMERSON RADIO CORP. AND SUBSIDIARIES EXHIBIT TO FORM 10-K COMPUTATION OF RATIO OF EARNINGS (LOSS) TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (In thousands, except ratio data) Historical Three Year Months Year Year Year Year Ended Ended Ended Ended Ended Ended Dec. Mar. Mar. Mar. Mar. Mar. 31, 31, 31, 31, 31, 31, 1991 1992 1993 1994 1995 1996 Pretax earnings (loss) $(59,571) $(6,743) $(55,291) $(73,327) $7,642 $(13,363) Fixed charges: Interest 18,546 4,217 18,257 10,243 2,582 2,788 Amortization of debt expenses 300 487 18,546 4,217 18,257 10,243 2,882 3,275 Pretax earnings (loss) before fixed charges $(41,025) $(2,526) $(37,034) $(63,084) $10,524 $(10,088) Fixed charges: Interest $ 18,546 $ 4,217 $ 8,257 $ 10,243 $ 2,582 $ 2,788 Amortization of debt expenses 300 487 Preferred stock dividend requirements 725(a) 700 $ 18,546 $ 4,217 $ 8,257 $ 10,243 $ 3,607 $ 3,975 Ratio of earnings (loss) to combined fixed charges and preferred stock dividends (2.21) (0.60) (2.03) (6.16) 2.92 (2.54) Coverage deficiency $ 18,546 $ 4,217 $ 8,257 $ 10,243 $ 3,975
________________________ (a) The preferred stock dividend requirements have been adjusted to reflect the pretax earnings which would be required to cover such dividend requirements. EXHIBIT 21 Emerson Radio Corp. and Subsidiaries Exhibit to Form 10-K Subsidiaries of the Registrant Jurisdiction of Percentage of Name of Subsidiary Incorporation Ownership Emerson Radio (Hong Hong Kong 100%* Kong) Limited Emerson Radio British 100% International Ltd. Virgin Islands * One share is owned by a resident director pursuant to local law.
EX-1 2 AGREEMENT THIS AGREEMENT made this 24th day of April, 1996 by and among E&H Partners and between Emerson Radio Corp. ("Emerson" or the "Company") on the one hand and Hopper Radio of Florida, Inc. ("Hopper"), Barry Smith ("Smith"), Kunio Takei ("Takei") and Memcorp., Inc. ("Memcorp") (collectively, the "Hopper Parties") and Donald Dvorkin ("Dvorkin") and Craig Roth ("Roth") on the other. Emerson and the Hopper Parties and Dvorkin and Roth, together with E&H Partners, may collectively be referred to as the "Parties." WITNESSETH: WHEREAS, effective as of April 1, 1994, Emerson and Hopper entered into a written agreement entitled "Partnership Agreement of E&H Partners" (the "Partnership Agreement") for the purpose of forming a partnership known as E&H Partners (sometimes referred to as the "Partnership"); and WHEREAS, effective as of April 1, 1994, Emerson and E&H Partners entered into a written agreement entitled "Sales Agreement" (the "Sales Agreement"), under which E&H Partners agreed to purchase from Emerson and Emerson agreed to sell exclusively to E&H Partners all "Emerson" branded or "H.H. Scott" branded consumer electronics and microwave products returned by Emerson's customers in the United States, except for any such product which is returned by Emerson's customers for which Emerson, with E&H Partners' and Hopper's consent, has entered into a "Return to Vendor" program with a manufacturer (the "Merchandise"); and WHEREAS, on or about July 3, 1995, as amended on August 23, 1995, Emerson commenced an action against the Hopper Parties, Dvorkin and Roth in the Superior Court of New Jersey, Morris County, Law Division, entitled Emerson Radio Corp. v. Hopper Radio of Florida, Inc., et al., Docket No. L-2062-95 (the "New Jersey Action"); on or about January 26, 1996, Emerson commenced an action against the Hopper Parties in the Court of Chancery for the State of Delaware in and for New Castle County entitled Emerson Radio Corp. v. Hopper Radio of Florida, Inc., et al., C.A. No. 14802 (the "Delaware Action"); and on or about March 7, 1996, the Hopper Parties filed a counterclaim against Emerson in the Delaware Action (collectively, the "Litigation"); and WHEREAS, Emerson agrees that Hopper and Smith shall be permitted under this Agreement to continue selling new and refurbished goods from other manufacturers and companies; and WHEREAS, Memcorp has sold consumer electronic products and, for purposes of this Agreement, will continue to sell consumer electronic products, except as set forth in paragraph 13, below; and WHEREAS, the parties have agreed to settle and dismiss the Litigation on the terms and conditions set forth herein. NOW, THEREFORE, the Parties hereto, in consideration of the mutual covenants and agreements to be performed as set forth below, hereby stipulate and agree as follows: 1. Payment By Hopper. On or before 1:00 p.m. Eastern Standard Time on Friday, April 26, 1996 Hopper will loan to E&H Partners, which will immediately pay to Emerson by single lump sum bank wire transfer to Emerson's account no. 610-3760133 at the Bank of New York, 1 Harmon Plaza, Secaucus, New Jersey 07099, the amount of $5 million, representing approximately one-half (1/2) of the difference between Hopper's present loan balance to E&H Partners and Emerson's present loan balance to E&H Partners as of that date (the "Hopper Loan"). Upon Emerson's receipt of the Hopper Loan, E&H Partners will immediately grant to Emerson and Hopper the Security Interest as set forth in paragraph 2 below, as evidenced by the exhibits attached hereto. The purpose of the Hopper Loan is to allow E&H Partners to pay Emerson for Merchandise sold by Emerson to the Partnership in an attempt to bring Emerson's loan balance to E&H Partners equal to the amount of Hopper's loan balance. 2. Security Interest In Partnership Inventory 2.1 E&H Partners hereby grants a security interest to Hopper in the following property of the Partnership: All goods (as defined by the Uniform Commercial Code) of the Partnership wherever located, whether now owned or leased or hereafter acquired, including but not limited to all inventory, Merchandise, raw materials, supplies, parts, assemblies, subassemblies, returned goods, packaging, cartons, goods in transit, whether or not held by the Partnership for processing, inspection, remanufacturing, refurbishment, sale or lease, or furnished or to be furnished under contracts of service or to be used or consumed in the Partnership's business, and whether or not on consignment to the Partnership or sold by the Partnership on consignment, on a sale or return, sale on approval or sale or use basis, all whether now existing, or owned or hereafter arising, manufactured or acquired, and in and to all substitutions and replacements therefor, wherever the same may be now or hereafter located; All proceeds and products thereof, All proceeds of insurance policies issued in connection with or relating to the foregoing. (collectively, the "Collateral"), to secure all liabilities to Hopper outstanding from time to time, now or in the future, and the Hopper Loan (including renewals, extensions, and substitutions of any of the foregoing) arising out of or relating to any and all loans or advances, services rendered and material supplied to the Partnership by Hopper or its affiliates (collectively, the "Hopper Secured Indebtedness"). 2.2 E&H Partners has previously granted a security interest to Emerson in goods (including inventory) which Emerson has assigned to Congress Financial Corporation ("Congress"). E&H Partners hereby grants a new security interest to Emerson in the following property of the Partnership: All goods (as defined by the Uniform Commercial Code) of the Partnership wherever located, whether now owned or leased or hereafter acquired, including but not limited to all inventory, Merchandise, raw materials, supplies, parts, assemblies, subassemblies, returned goods, packaging, cartons, goods in transit, whether or not held by the Partnership for processing, inspection, remanufacturing, refurbishment, sale or lease, or furnished or to be furnished under contracts of service or to be used or consumed in the Partnership's business, and whether or not on consignment to Partnership or sold by the Partnership on consignment, on a sale or return, sale on approval or sale or use basis, all whether now existing, or owned or hereafter arising, manufactured or acquired, and in and to all substitutions and replacements therefor, whether the same may be now or hereafter located; All proceeds and products thereof, All proceeds of insurance policies issued in connection with or relating to the foregoing. (collectively, the "Collateral"), to secure all liabilities to Emerson outstanding, from time to time, now or in the future, including payment of accounts payable to Emerson for goods sold and delivered by Emerson to the Partnership (the "Emerson Secured Indebtedness"). 2.3 The seniority and priority of the liens granted to Hopper and to Emerson individually and collectively (the "Emerson/Hopper Lien") shall be first priority, security interests, equal in right and dignity to each other. So long as Hopper and Emerson maintain perfected security interests in the Collateral, the security interests of Hopper and of Emerson shall be of equal rank with equal right to payment, regardless of when the UCC-1 Financing Statements thereon were filed or indexed, or the lien was first perfected. However, if either of them permits its lien to become unperfected or junior to the lien of any other person or entity such Party's lien shall be junior in right of payment and in priority of lien of and to the rights of the other. 2.4 The Partnership shall not permit any liens, encumbrances, title retention rights or security interests in or on the Collateral or on the assets of the Partnership other than the security interest granted to Emerson and Hopper herein and the lien granted to Emerson and assigned to Congress as set forth in Congress' Consent Agreement, a true copy of which is attached hereto as Exhibit A. 2.5 The bankruptcy of the Partnership or any other insolvency involving the Partnership, or the commencement of any proceeding under any federal or other bankruptcy, insolvency, receivership, compromise of debt or other law for the liquidation, reorganization or arrangement or compromise of debt, prioritizing of creditors rights, or other restructuring shall not affect the relative priorities of the Parties hereto or their rights in any property of the Partnership or in which it has an interest, including, without limitation, the Collateral. To the extent that Emerson or Hopper receives payment or property against the Hopper Loan or the Emerson Secured Indebtedness, whether out of the Collateral, or the proceeds of any sale, lease or transfer thereof, or in lieu of its interest therein, if any, the recipient shall pay or deliver one-half of all such payments or receipts to the other so that, as far as reasonably practicable, the Hopper Loan balance and the Emerson Secured Indebtedness shall be brought into balance and remain equal. 2.6 Neither Emerson nor Hopper may subordinate any of the rights granted herein, the security interest in the Partnership's property of any portion of the Hopper Loan or the Emerson Secured Indebtedness to any third party, except for Congress. Neither Emerson nor Hopper may lease, assign, terminate or amend the rights of the other as the secured party. In the event that continuation statements are filed by Emerson or Hopper, such continuation statements shall serve as a continuation statement for both Parties without the signature of the corresponding Party. 2.7 (a) Each Party shall give prompt notice to the other of the occurrence of any of the following events: (i) such Party learns of or receives any notice of any material default (including, without limitation, any non-payment of amounts due or of amounts required to be paid to preserve, maintain and protect any Collateral) by the Partnership with respect to any indebtedness of the Partnership to Emerson or to Hopper, or (ii) such Party gives any notice to the Partnership of a default, or of an acceleration, under the terms of the instruments relating to such indebtedness. (b) Each such notice shall specify the nature and extent of any such default and what actions, if any, the Party giving such notice proposes to take under the operative agreements, or any of them. (c) Without limiting the rights of either Hopper or Emerson to collect the full amount due and owing to it from the Partnership, each of them agrees that it will at all times cooperate in the enforcement of the security interests in, pledges on, and liens and other encumbrances upon the Collateral of the other. 2.8 Emerson and Hopper shall have the right, without liability to the other, to repossess and/or to foreclose upon the Collateral with or without notice or demand to the other and to avail itself of any other legal or equitable remedy, except that the Parties agree that neither Hopper nor Emerson may exercise any such repossession or foreclosure or levy rights unless and until the Partnership: (i) becomes insolvent as such term is given meaning under the United States Bankruptcy Code (Title 11 United States Code) (the "Bankruptcy Code"); (ii) makes an assignment for the benefit of its creditors generally; (iii) filed for or is the subject of an order for relief under the Bankruptcy Code relating to the Partnership; (iv) seeks appointment of a receiver, trustee or custodian for the Partnership or its assets; (v) the foreclosure, turnover (voluntary, by operation of law or by court order) of all or a portion of the Collateral to a creditor, sale or scheduling for sale of any portion of the Collateral by another creditor under a power of sale or court process; or (vi) the granting by the Partnership of any liens upon the Collateral or the sufferance by the Partnership of any lien or charge upon the Collateral other than to secure the payment of the Hopper Loan or the Emerson Secured Indebtedness ("Events of Default"), except for Congress. 2.9 Subject to the provisions of this Agreement which may restrict the unfettered right of Hopper or of Emerson to exercise its rights as a secured creditor under the UCC, upon the occurrence of any such Event of Default, and at any time thereafter, in addition to any right given by law or any other instrument or document executed by the Partnership and without notice or demand, Hopper and Emerson, as secured creditors: (a) shall have all rights and remedies afforded to secured creditors under the Uniform Commercial Code; (b) may and are authorized to enter upon and use the Partnership's premises for a reasonable period of time and use any and all equipment and property used or useful in the preservation and maintenance of the Collateral, without rental or other compensation; (c) may take immediate possession of all or any portion of the Collateral, with or without legal process, and timely take such measures as it may deem necessary for the proper care and protection thereof; (d) may haul, deliver, store (for a reasonable period of time) and sell the Collateral, or any part thereof, at such time or times for such sum or sums of money as it may deem proper, which sale may be public or private, and at any such sale, either of such creditors may be the purchaser of the Collateral. Whenever notification with respect to the sale or other disposition of Collateral is required by law, such notification of the time and place of any public sale, or of the date after which a private sale or other intended disposition is to be made, shall be deemed reasonable if given at least five (5) days before the time of such public sale, or the date after which any such private sale or other intended disposition is to be made, as the case may be. All of the rights of Emerson and of Hopper as creditors, and all of their respective remedies, whether by statute, rule, common law or evidenced hereby or by any other agreement, instrument or paper, shall be cumulative and may be exercised separately or concurrently. The Partnership agrees to pay on demand all costs and expenses (including reasonable attorneys' fees) incurred or paid by Emerson and Hopper as secured creditors in enforcing the obligations secured by this Agreement and the same shall be additional obligations hereunder and secured hereby. After deducting all costs and expenses of collection, storage, custody, sale or other disposition and delivery (including legal costs and reasonable attorneys' fees) and all other charges against the Collateral, the residue of the proceeds of any such sale or other disposition shall be applied to the payment of any and all obligations of the Partnership secured hereby and any and all other liabilities hereby secured, due or to become due, in such order of preference as Hopper and Emerson may reasonably determine as provided in this Agreement, proper allowance for interest on liabilities not then due being made, and, unless otherwise provided by law, any excess shall be returned to the Partnership. Either Hopper or Emerson may proceed against the Collateral, any other security, any guaranty, suit on the debt, or take such other action as it deems necessary or appropriate, in such order as it may elect, and need not marshal Collateral and may proceed against any obligor, asset or surety regardless or the interest of other therein. 2.10 Emerson represents to the Partnership and to Hopper that upon sale of any Merchandise to the Partnership there shall be no liens, encumbrances or title retention rights in favor of third parties in such Merchandise and that upon such sale or transfer, the Partnership shall acquire the same free of any liens, encumbrances or title retention rights of Emerson or of third parties other than Congress. 2.11 The Partnership will join with Emerson and with Hopper in the appropriate financing statements under the Uniform Commercial Code, and at all times, the Partnership will do, execute, acknowledge and deliver, and will cause to be done, executed, acknowledged and delivered, by any corporation or person obligated to the Partnership so to do, all and every such further acts, deeds, and assurances as Emerson or Hopper shall reasonably require for the better assuring and confirming unto them, as secured creditors, the security interest in the Collateral and the rights, privileges and remedies hereby or in any other agreement created, granted or assigned, or intended so to be, or which it may hereafter become bound to create, grant or assign to Emerson or to Hopper. If the Partnership shall fail or refuse to execute or deliver the same, any officer of Emerson or of Hopper is authorized and appointed the Partnership's agent and attorney in fact to execute and deliver the same in the Partnership's name as the act, and deed of the Partnership. 2.12 Copies of all relevant financing statements are attached hereto as Exhibit B. 3. E&H Partners' Billings. E&H Partners will continue to accept all of the Merchandise, that is actually received by Emerson or its agents through and including December 31, 1996 and the billings related thereto. The Parties specifically agree and acknowledge that the billings shall be paid only when there is sufficient cash flow as set forth in paragraphs 6 and 7 below, from the offset of the amount equal to the value of the Designated Stock as set forth in paragraph 4 below and from the value of the warehousing services set forth in paragraph 8 below. 4. Purchase of Designated Stock. Emerson agrees to purchase certain designated stock in accordance with its currently existing practice with the Partnership (the "Designated Stock") that E&H Partners can make available in reasonable quantities, with minimum lots of 100 units for each model for each weekly billing period and in accordance with the pricing structure currently used (i.e., E&H Partners' normal selling price of the same models at similar quantities) and/or as otherwise mutually agreed to by and between Emerson and Hopper. The pricing structure currently used for the Designated Stock does not necessarily reflect the price at which E&H Partners sells its RB (refurbished) product. Hopper agrees and acknowledges that upon the earliest of (i) movement of the Designated Stock to the storage area maintained by the Partnership for Emerson-owned inventory or shipment to or for Emerson, or (ii) any other segregation of such Designated Stock (physically or in the Partnership's records) from the inventory owned by and to be sold by the Partnership to customers other than Emerson, or (iii) the invoicing of such Designated Stock to Emerson, such Designated Stock is no longer subject to the Emerson/Hopper Lien and title thereto shall be deemed to have passed to Emerson. E&H Partners shall have no responsibility for any warranty claims on or returns of the Designated Stock and Emerson shall provide all warranty service and products liability insurance for the Designated Stock (which insurance shall cover E&H Partners as an additional insured.) 5. Payment of Fees. E&H Partners will continue to pay the following service fees which Hopper presently charges to E&H Partners in accordance with paragraph 4.5 of the Partnership Agreement: (i) a 1.5% management fee based upon net sales of E&H Partners; and (ii) reimbursement for certain of Hopper's warehouse and office overhead expenses that is allocable to E&H Partners based upon services actually rendered to E&H Partners, so long as Barry Smith, President of Hopper, is the General Manager of E&H Partners. 6. Cash Flow Sharing. Emerson and Hopper agree to share evenly the cash flow of E&H Partners after paying normal operating expenses and any purchases from the Otake Companies as set forth in paragraph 9 below. The Partner with the higher loan balance at each month's end shall receive the first cash distributed by E&H Partners to the extent necessary to make the loan balances equal. 7. Repayment Of Loan Balance. Any monies due on the Partners' respective loan balances (which includes both current and future billings and/or loans made by the respective Partners' to the Partnership in accordance with this Agreement) following the reconciliation set forth in paragraph 6 above may only be paid from the cash flow of the Partnership as set forth in paragraph 6 above and from the proceeds of a foreclosure set forth in paragraph 2 above, and with respect to Emerson only, from the offset of the amount equal to the value of the Designated Stock as set forth in paragraph 4 above and, also, the value of the warehousing services as set forth in paragraph 8 below. In the event of foreclosure as set forth in paragraph 2 above, the Partner whose loan balance is greater than the other at such time of foreclosure shall be entitled to first payment out of the proceeds of the foreclosure Collateral in that amount necessary to make the loan balances equal. For purposes of this Agreement, references to Emerson's loan balance and the Emerson Secured Indebtedness refer to all unpaid amounts for (1) Emerson's billing of the Merchandise to E&H Partners; (2) expenses paid by Emerson on behalf of E&H Partners; and (3) services rendered to or on behalf of E&H Partners by Emerson. For purposes of this Agreement, references to Hopper's loan balance and the Hopper Secured Indebtedness refer to all unpaid amounts for (1) Hopper's cash advances to E&H Partners; (2) expenses paid by Hopper on behalf of E&H Partners; and (3) services rendered to or on behalf of E&H Partners by Hopper. 8. Warehousing Services. E&H Partners will continue to provide warehousing services (distribution and receiving) to Emerson for Emerson-owned inventory in accordance with the terms and conditions established between Emerson and Hopper, until such time as Emerson provides thirty (30) days prior written notice to E&H Partners for discontinuance of such services. Emerson understands that E&H Partners' obligation to perform these warehousing services exists only so long as E&H Partners is using the "Potter Building" located in Princeton, Indiana. E&H Partners hereby represents that it has in the past segregated and will continue to segregate Emerson-owned inventory in its warehouse facilities and its books and records. E&H Partners also hereby acknowledges that Congress holds a first lien on all such Emerson-owned inventory. In the event Congress forecloses its lien upon such Emerson-owned inventory, both E&H Partners and Emerson will cooperate with Congress' instructions regarding the disposition of such Emerson-owned inventory. Emerson shall pay for any reasonable costs of the obligations or services provided by the Partnership under this paragraph 8. 9. Purchase And Sale Of Returned Goods And Merchandise. Any and all purchases and sales of "Emerson" branded refurbished goods from Orion Sales, Inc., Orion Electric (America), Inc., Otake Trading Co., Ltd., Technos Development Limited and their respective affiliates (the "Otake Companies") will be made by any of the Parties hereto for the benefit of E&H Partners. 10. Realization Of Payments. All payables and receivables between Emerson, Hopper and E&H Partners, including the Designated Stock described in paragraph 4 above, are to be netted weekly beginning with the first week following execution of this Agreement. 11. Repayment Of Past Interest Claims To Emerson. Notwithstanding any other provisions to the contrary in the Partnership Agreement, the Partnership Agreement is hereby amended to provide that E&H Partners shall remit payment to Emerson in the amount of $800,000 in satisfaction of all past interest claims due and owing to Emerson from the Partnership as of the date hereof ("past interest claims due") solely as follows: 11.1 If there is a sale of a Partner's interest in accordance with the terms of the Partnership Agreement and the purchase price is in excess of the respective Partner's Capital Account (Partner's equity in Partnership), such excess shall be paid to Emerson, up to the then balance of past interest claims due at such time, any remaining amounts thereafter shall be applied and/or distributed in accordance with Article VII of the Partnership Agreement; 11.2 If there is a sale of all or substantially all of the Partnership's assets with the purchase price(s) received in excess of all Partners' Capital Accounts (Partners' equity in the Partnership), such excess shall be paid to Emerson, up to the then balance of past interest claims due at such time, any remaining amounts thereafter shall be applied and/or distributed in accordance with Article VII of the Partnership Agreement; and 11.3 If profits are realized by the Partnership on sales of "Emerson" branded refurbished products purchased from the Otake Companies, or any of them, during such time as Emerson maintains an exclusive relationship with the Otake Companies, or any of them, for the purchase of "Emerson" branded refurbished product, such profits, including any profit realized from the sale of any such "Emerson" branded refurbished product purchased during the time in which Emerson maintained an exclusive relationship with the Otake Companies, or any of them, for the purchase of "Emerson" branded refurbished product, shall be allocated two-thirds (2/3) to Emerson and one-third (1/3) to Hopper with the difference between the two-thirds (2/3) received by Emerson and one-third (1/3) of such profit to be allocated to payment towards and reduction of the past interest claims due until such time as the past interest claims due is paid in full. If profits are realized by the Partnership on sales of "Emerson" branded refurbished products purchased from the Otake Companies, or any of them, during such time as Emerson does not maintain an exclusive relationship with the Otake Companies, or any of them, for the purchase of "Emerson" branded refurbished product, such profits shall be allocated one-half (1/2) to Emerson and one-half (1/2) to Hopper. If profits are realized by the Partnership on sales of products resulting from any transaction Emerson may bring to E&H Partners from any supplier other than the Otake Companies, or any of them, the profits will be allocated two- thirds (2/3) to Emerson and one-third (1/3) to Hopper until such time as the past interest claims due is paid in full. 11.4 For the purposes of this Article, "profits" is defined as the gross sales price to third party customers less the purchase price paid to third party vendors and less any other incremental expenses directly attributable to such sale. 11.5 Payment of the interest contemplated by this paragraph 11 shall be in full and complete satisfaction of all interest claims of Emerson and Hopper. Emerson and Hopper agree not to charge interest, late fees or any other charges related thereto, after March 31, 1996 on their respective loans and/or advances outstanding from time to time, now or in the future. 12. No Transfers. Nothing herein shall be interpreted as amending any of the provisions of the Partnership Agreement regarding transfer of interests in Article X of the Partnership. 13. Sourcing Of Video Product By Memcorp. Emerson and the Hopper Parties hereby agree that Memcorp shall not source any video product from Kong Wah Video Company Limited and its affiliates for its 1996 product line, except for the nine inch (9") color television already on order as of the date hereof, and from the Otake Companies for its 1996 product line, except for the TV/VCR combination units already on order as of the date hereof and any other video products not in Emerson's current product line-up. This provision shall immediately be waived in the event of and upon Emerson's sale, licensing or discontinuance of its entire existing television and video business. 14. Press Release. Emerson has prepared a joint press release in the form and substance attached hereto as Exhibit C, which Memcorp has approved, concerning the agreements and covenants contained herein, immediately prior to execution hereof and which may be issued immediately thereafter. This provision recognizes that Emerson as a publicly traded company is required to issue press releases regarding its material transactions in a timely manner. 15. Dissolution Of E&H Partners. Article XII of the Partnership Agreement is hereby amended to provide that the Partnership shall be dissolved and its affairs wound-up upon the first to occur of the following: 15.1 A mutual determination in writing by the Partners to dissolve the Partnership other than as provided herein; 15.2 The occurrence of the dissolution, insolvency or bankruptcy of a Partner if such event leaves only one other Partner remaining as a Partner; 15.3 The entry of a judgment of dissolution by a court of competent jurisdiction or appointment of a receiver for all or substantially all of the Partnership's assets; 15.4 A change of the largest common shareholder of Emerson from Emerson's current Chairman and Chief Executive Officer, Geoffrey P. Jurick, as held individually and/or with affiliates, successors or assigns; 15.5 If prior to December 31, 1996, upon thirty (30) days' written notice by either Partner that it wishes to dissolve the Partnership, but only if the loan balances of each and every Partner is paid in full on the date such written notice is dated or given, whichever is earlier; 15.6 If after December 31, 1996, upon written notice by either Partner to the other partner that it wishes to dissolve the Partnership, the dissolution shall occur in an orderly manner and as expeditiously as possible, supervised by Barry Smith as the Managing Partner, and which dissolution shall honor all outstanding agreements and obligations but in no event shall the dissolution be completed and operations cease later than six (6) months after the date of such notice. The Managing Partner may continue to operate the Partnership in the normal course of business during any such dissolution and may continue to make any and all decisions reasonably necessary to operate the Partnership to the extent set forth in the Partnership Agreement. 15.7 Article 12.1 of the Partnership Agreement shall be amended, effective upon execution of this Agreement, specifically and solely as set forth in paragraph 15 herein. 16. Ratification And Incorporation By Reference Of Partnership Agreement And Sales Agreement. All of the terms and conditions of the Partnership Agreement (the terms of which are incorporated by reference as if fully set forth herein), as hereby amended, are ratified, confirmed and adopted. Similarly, all of the terms and conditions of the Sales Agreement (the terms of which are incorporated by reference as if fully set forth herein), as hereby amended, are ratified, confirmed and adopted. Neither the Partnership Agreement nor the Sales Agreement may be further modified, amended or superseded except as provided specifically herein, and no provision of either the Partnership Agreement or the Sales Agreement may be waived, except in writing duly executed by Emerson and Hopper and their respective affiliates, successors or assigns. 17. Dismissal Of Litigation. The Parties agree to execute appropriate stipulations to dismiss the Litigation with prejudice and without costs or attorneys' fees to either party and will cause to be filed any and all necessary stipulations of dismissal in the appropriate courts no later than Friday, April 26, 1996. 18. Release By Emerson. In consideration of the Hopper Loan and the other consideration provided by the Hopper Parties hereunder, Emerson shall, upon receipt of the Hopper Loan and execution of this Agreement, release and forever discharge the Hopper Parties and E&H Partners and their respective officers, directors, shareholders, agents, employees and affiliates individually or collectively, from and against any and all claims asserted or assertable that Emerson may have against each and every one of the Hopper Parties and E&H Partners from the beginning of time to the date of execution of this Agreement. Emerson shall provide the Hopper Parties with separate general releases of all claims consistent with this paragraph 18, except that neither the Hopper Parties nor E&H Partners shall be released from their respective obligations to perform under this Agreement. Emerson specifically acknowledges and agrees that Dvorkin's, Roth's and Takei's employment and all duties for and on behalf of Emerson have expired and that there are no obligations of any nature due and owing from Dvorkin, Roth and/or Takei to Emerson except for the obligations provided in this Agreement. Emerson also agrees to release Dvorkin and Roth under the same terms and conditions as set forth in this paragraph 18. 19. Release By The Hopper Parties. In consideration of the mutual agreements set forth herein and other good and valuable consideration, the Hopper Parties hereby release and forever discharge Emerson and E&H Partners and their respective officers, directors, shareholders, agents, employees and affiliates, individually and collectively, from and against any and all claims, asserted or assertable, each and every one of the Hopper Parties may have against Emerson and/or E&H Partners from the beginning of time to the date of execution of this Agreement. The Hopper Parties shall provide Emerson and E&H Partners with separate general releases of all claims consistent with this paragraph 19, except that neither Emerson nor E&H Partners shall be released from their respective obligations to perform under this Agreement. 20. Release By Dvorkin And Roth. In consideration of the dismissal of the Litigation and other good and valuable consideration, Dvorkin and Roth hereby release and forever discharge Emerson and its officers, directors, shareholders, agents, employees and affiliates, individually and collectively, from and against any and all claims, asserted or assertable by Dvorkin and/or Roth against Emerson, as evidenced by their respective signatures below. Dvorkin, Roth and Takei specifically do not release Emerson from any duty which Emerson may owe to defend or indemnify them pursuant to the terms of their previous employment by Emerson or its subsidiaries and affiliates, or from its obligations to perform under this Agreement. 21. Release By E&H Partners. In consideration of the mutual agreements set forth herein and other good and valuable consideration, E&H Partners hereby releases and forever discharges Emerson, the Hopper Parties, Dvorkin and Roth and their respective officers, directors, shareholders, agents, employees and affiliates, individually and collectively, from and against any and all claims, asserted or assertable, E&H Partners may have against Emerson and/or the Hopper Parties, Dvorkin and Roth. E&H Partners shall provide Emerson, the Hopper Parties, Dvorkin and Roth with separate general releases of all claims consistent with this paragraph 21, except that neither Emerson, the Hopper Parties, Dvorkin nor Roth shall be released from their respective obligations to perform under this Agreement. 22. Further Acts. The Parties shall execute and deliver such instruments and take such other actions as may be necessary or desirable in order to carry out the provisions of this Agreement, without any further consideration therefor, except where specifically provided. 23. Representations and Warranties. The Hopper Parties jointly and severally represent and warrant that: (i) each of the Hopper Parties has full power and authority, corporate and other, to execute and deliver this Agreement, and to perform its obligations hereunder; (ii) this Agreement has been duly authorized, executed and delivered by each of the Hopper Parties, and constitutes a valid and binding agreement of each of them, enforceable against each of them in accordance with the terms; (iii) each of the Hopper Parties has been represented by and has consulted with an attorney concerning this Agreement and understands and accepts the terms hereof. Emerson represents and warrants that: (i) it has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder; (ii) this Agreement has been duly executed and delivered by Emerson and constitutes a valid and binding agreement of Emerson enforceable against Emerson in accordance with its terms, and (iii) Emerson has represented by and has consulted with an attorney concerning this Agreement and understands and accepts the terms hereof. The Partnership represents and warrants that it has all rights to convey, to Emerson and Hopper equally, a valid first security lien and interest in all of E&H Partners' present and future inventory and the proceeds thereof as referred to in paragraph 2 above. 24. Notices. All notices or other communications given hereunder shall be in writing and shall be delivered personally, by certified mail, return receipt requested, or overnight mail, postage prepaid, and shall be deemed given when delivered if delivered personally, or if mailed, such notice shall be deemed given three (3) days after the date of mailing, excluding Sundays. All notices provided hereunder shall be sent to the parties at the following addresses: If to Emerson: Eugene I. Davis, President Emerson Radio Corp. 9 Entin Road Parsippany, NJ 07054 Phone: (201) 428-2000 With a copy to: Jeffrey M. Davis, Esq. Wolff & Samson, P.A. 5 Becker Farm Road Roseland, NJ 07068 Phone: (201) 533-6561 Fax: (201) 740-1407 If to the Hopper Parties: Barry Smith Hopper Radio of Florida, Inc. 7145 W. 20th Avenue Hialeah, FL 33014 With a copy to: Craig B. Sherman, Esq. Sherman & Fischman, P.A. 3050 Biscayne Boulevard Suite 600 Miami, FL 33137-4269 Phone: (305) 576-5522 Fax: (305) 576-7079 If to E&H Partners: Barry Smith General Partner E&H Partners 7145 W. 20th Avenue Hialeah, FL 33014 If to Donald Dvorkin: Donald Dvorkin 27 Denison Drive Saddle River, NJ 07458 Fax: (201) 825-2085 If to Craig Roth: Craig Roth 14 Franklin Court Bernardsville, NJ 07929 If to Memcorp: Memcorp. Inc. 7145 W. 20th Avenue Hialeah, FL 33014 or at such other addresses as shall be furnished in writing by a party hereto to the other parties hereto. 25. Complete Agreement. This Agreement, the Releases, and the Partnership Agreement and Sales Agreement as amended by this Agreement, constitute the entire agreement between the Parties hereto pertaining to the subject matter hereof and supersedes all prior written, oral or implied agreements or understanding as to such subject matter, except as expressly provided herein. 26. Jurisdiction and Governing Law. This Agreement shall be exclusively governed by and construed in accordance with the laws of the State of Delaware without giving effect to and without reference to the choice of law principles thereof. Jurisdiction and venue for all purposes shall be in Delaware exclusively. No party shall seek to transfer jurisdiction and venue to any jurisdiction other than Delaware. 27. Amendment and Modifications. This Agreement may only be amended or modified in writing signed by the party against whom enforcement of such amendment or modification is sought. 28. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of, each of the Parties, and each of their respective executors, administrators, successors, assigns and legal representatives. 29. Titles and Headings. The titles and headings in this Agreement are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement. 30. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original agreement, but all of which together shall constitute one and the same instrument. 31. No Waiver. Neither any failure nor any delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver hereof or thereof, nor shall a single or partial exercise thereof preclude any other or further exercise or any other right, power or privilege. 32. Severability. If any provision of this Agreement shall be determined to be invalid or unenforceable to any extent, the remainder of this Agreement shall not be affected thereby, and each provision hereof shall be enforced to the fullest extent permitted by law. 33. Taxes. Each Party to this Agreement shall bear its own tax consequences, if any, that arise as a result of this Agreement. 34. Third Parties. Except as may be expressly set forth herein, the parties hereto do not intend to confer any rights or remedies upon any person other than the parties hereto. 35. Attorneys' Fees. Each of the Parties to this Agreement shall bear all of his or its attorneys fees and all of his or its expenses relating to all claims between the parties to date, including but not limited to, the preparation and review of this Agreement and all related matters. In the event of any litigation related to, arising out of or concerning this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees and costs. The representation of a Party to this Agreement shall not in and of itself preclude representation of E&H Partners. 36. Controlling Agreement. To the extent that this Agreement, or any section or portion of this Agreement, is inconsistent with either the Partnership Agreement or the Sales Agreement, then and in that event the terms of this Agreement shall control over the Partnership Agreement and/or the Sales Agreement. IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by the undersigned, thereunto duly authorized, as of the day and year first above written. HOPPER RADIO OF FLORIDA, INC. By:_/s/Barry Smith__________ Barry Smith, President BARRY SMITH __/s/Barry Smith ___________ KUNIO TAKEI __/s/Kunio Takei__________ DONALD DVORKIN __/s/ Donald Dvorkin______ CRAIG ROTH __/s/ Craig Roth __________ MEMCORP., INC. By:_/s/ Barry Smith _______ E&H PARTNERS Emerson Radio Corp. By:___/s/ Eddie Rishty______ Eddie Rishty, Senior Vice President-Controller & Logistics -and- Hopper Radio of Florida, Inc. By:__/s/ Barry Smith________ Barry Smith, President EMERSON RADIO CORP. By:__/s/ Eddie Rishty_______ Eddie Rishty, Senior Vice President-Controller & Logistics EX-2 3 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY - ----------------------------------------X In re: : Case Nos.: 93-27874/NW : through 93-27879 EMERSON RADIO CORP. et al., : inclusive : Debtors. : - ----------------------------------------X In re: : In a Case Ancillary : to a Foreign Petition of THOMAS HACKETT, : Proceeding under Official Liquidator of : 11 U.S.C. Section 304 FIDENAS INTERNATIONAL BANK LIMITED, : : No. 95-B-2263 Debtor in Foreign Proceeding. : - ----------------------------------------X THOMAS HACKETT, Official Liquidator of : FIDENAS INTERNATIONAL BANK LIMITED, : : CIVIL ACTION Plaintiff, : : No. 95-1179 (NHP) - against - : : GEOFFREY P. JURICK, ERIC F. GEBAIDE, : and FIDENAS INTERNATIONAL LIMITED, : : Defendants. : : - ----------------------------------------X STIPULATION OF SETTLEMENT AND ORDER WHEREAS, on September 29, 1993, Emerson Radio Corp. ("Emerson") and five of its subsidiaries filed voluntary petitions for relief under Chapter 11, Title 11, United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of New Jersey (the "New Jersey Bankruptcy Court") and, on March 31, 1994, a plan of reorganization (the "Emerson Plan") was confirmed. WHEREAS, Geoffrey P. Jurick ("Jurick") is the Chairman of the Board of Directors of Emerson (the "Emerson Board") and the direct or indirect owner or controlling person of Fidenas International Limited, L.L.C. ("FIN"), GSE Multimedia Technologies, Inc., formerly known as GSE Electronic Systems, Inc., ("GSE") and Elision International, Inc. ("Elision" and, together with Jurick, FIN and GSE, the "Jurick Group"). WHEREAS, on October 26, 1993, the Supreme Court of the Commonwealth of the Bahamas (the "Bahamas Court") appointed, subject to its ongoing supervision, Provisional Liquidators of Montcour Bank & Trust Company Limited ("MBT"); and, on July 29, 1994, the Bahamas Court ordered that MBT be wound up. WHEREAS, on April 14, 1994, the Bahamas Court appointed, subject to its ongoing supervision, Wayne J. Aranha (the "FIL Liquidator") the Provisional Liquidator of Fidenas Investment Limited ("FIL"); and, on January 10, 1995, the Bahamas Court appointed the FIL Liquidator as the Official Liquidator of FIL and ordered that FIL be wound up. WHEREAS, by complaint, dated July 14, 1994 (as amended August 3, 1994), Emerson commenced an action against Petra Jacobs Stelling ("Stelling") and Donald K. Stelling in the United States District Court for the District of New Jersey, Honorable Nicholas H. Politan (the "Court"), entitled Emerson Radio Corp. v. Donald K. Stelling and Petra Jacobs Stelling, Civil Action No. 94-3393 (NHP) (the "Stelling Proceedings"), seeking declaratory relief and damages; and by motion, dated October 31, 1994, the defendants therein moved to dismiss the action on several grounds, including lack of personal jurisdiction over Stelling. WHEREAS, Stelling is the direct or indirect owner of MBT, the direct or indirect majority owner of FIL, the direct or indirect owner of the principal creditors of MBT and FIL, and the direct or indirect owner of Montcour Finance Limited, Jenvan Limited, Cam-Pack Limited, and Montcour Holding Limited (all such persons and entities, together with Donald K. Stelling and any other person or entity directly or indirectly owned or controlled by Stelling, the "Stelling Group"). WHEREAS, by complaint, dated August 23, 1994, Stelling commenced an action for damages against Jurick in the district court of Zurich, Switzerland (the "Zurich Civil Proceedings"). WHEREAS, the District Attorney for the Canton of Zurich, Switzerland (the "Zurich District Attorney") is conducting a criminal investigation regarding alleged violations of law by Jurick, Peter G. Bunger ("Bunger") and Jerome H. Farnum ("Farnum"). WHEREAS, on September 15, 1994, on motion by Jurick and others, the Court ordered the transfer of a proceeding that had been commenced by the FIL Liquidator pursuant to Section 304 of the Bankruptcy Code in the Bankruptcy Court for the Southern District of New York, seeking the turnover of certain shares of Emerson common stock held in the names of FIN and GSE, to the New Jersey Bankruptcy Court on the ground, among others, that disputes concerning ownership of common stock issued pursuant to the Emerson Plan fell within the retained jurisdiction of the New Jersey Bankruptcy Court, as provided in the Emerson Plan (see In re Emerson Radio Corp., 173 B.R. 490, 495 (D.N.J. 1994), aff'd, 52 F.3d 50 (3d Cir. 1995)). WHEREAS, on July 14, 1994, the Swiss Federal Banking Commission issued a decree appointing a provisional liquidator to liquidate the assets in Switzerland of Fidenas International Bank Limited ("FIBANK") and Fidenas AG. WHEREAS, on October 4, 1994, the Bahamas Court ordered that FIBANK be wound up compulsorily under the supervision of the Bahamas Court; on January 27, 1995, Thomas Hackett (the "FIBANK Liquidator" and, together with the FIL Liquidator, the "Bahamian Liquidators") was appointed, subject to the ongoing supervision of the Bahamas Court, to liquidate FIBANK's assets; and, on February 1, 1996, the FIBANK Liquidator was recognized by the Swiss authorities as FIBANK's foreign liquidator in the territory of the Swiss Confederation. WHEREAS, the Bahamian Liquidators have separately sought and obtained certain orders in the Bahamas Court restricting the transfer of certain shares of Emerson common stock and other assets of Jurick and related entities (the "Mareva Injunctions"). WHEREAS, MBT is a member of the creditors' committee of FIBANK having filed a proof of claim in FIBANK's compulsory liquidation proceedings in the Bahamas Court on or about March 21, 1995. WHEREAS, on March 23, 1995, FIL filed a proof of claim in FIBANK's compulsory liquidation proceedings in the Bahamas Court. WHEREAS, on March 10, 1995, the FIBANK Liquidator commenced a proceeding in this Court under Section 304 of the Bankruptcy Code, entitled In re Petition of Thomas Hackett, Official Liquidator of Fidenas International Bank Limited, No. 95-B-2263, and a related civil action, entitled Thomas Hackett v. Geoffrey P. Jurick, Eric F. Gebaide and Fidenas International Limited, No. 95-1179 (NHP) (together, the "New Jersey Proceedings"), seeking the turnover of all FIBANK property owned or controlled by the defendants in that action and, specifically, certain shares of Emerson common stock held in the name of FIN. WHEREAS, on March 10, 1995, with the consent of Emerson and the parties to the New Jersey Proceedings, the Court issued an order withdrawing the reference of such proceedings to the New Jersey Bankruptcy Court. WHEREAS, on March 27, 1995, the FIL Liquidator filed in the New Jersey Proceedings a pleading containing a counterclaim against FIBANK and cross-claims against Jurick and FIN seeking the turnover of certain shares of Emerson common stock. WHEREAS, on April 18, 1996, the FIL Liquidator filed a complaint in this Court entitled Wayne J. Aranha v. Geoffrey P. Jurick, GSE Multimedia Technologies Corporation, Fidenas International Limited, L.L.C., and Elision International, Inc., No. 96-1645 (NHP) (the "FIL Action"), seeking damages and injunctive and declaratory relief with respect to certain shares of Emerson common stock held in the names of FIN, Elision or GSE. WHEREAS, Barclays Bank PLC ("Barclays") is a member of the creditors' committee of FIBANK having filed a proof of claim on or about May 9, 1995 in FIBANK's compulsory liquidation proceedings in the Bahamas Court. WHEREAS, by complaint, dated August 10, 1995, Barclays commenced an action in the Supreme Court of the State of New York, New York County, entitled Barclays Bank PLC v. GSE Multimedia Technologies, Inc., f/k/a GSE Electronic Systems, Inc., Index No. 120083/95 (the "New York Proceedings"), seeking a monetary judgment against GSE, and, on November 2, 1995, Barclays obtained a default judgment against GSE in the amount of US$1,835,423.26 (the "New York Judgment") (which was also recorded in Delaware). WHEREAS, by complaint, dated September 1, 1995 (as amended on October 17, 1995) Barclays commenced an action against Elision and MaxCom Corporation ("MaxCom") in the Commonwealth of Massachusetts, Middlesex Superior Court (the "Massachusetts Court"), entitled Barclays Bank PLC v. Elision International, Inc. and MaxCom Corporation, No. 95-5132A (the "Massachusetts Proceedings"), seeking, inter alia, injunctive relief as well as monetary judgments against Elision and MaxCom. WHEREAS, on September 7, 1995, the Massachusetts Court issued a preliminary injunction, which has continued in effect to date, enjoining Elision from conveying any assets of the corporation. WHEREAS, Emerson is a reporting company under the Securities Exchange Act of 1934, as amended, whose common stock is listed on the American Stock Exchange and which has 40,252,772 shares of such stock issued and outstanding as of the date hereof. WHEREAS, pursuant to a Stipulation and Order among Emerson and the parties to the New Jersey Proceedings so ordered by the Court on March 10, 1995, FIN deposited with the Clerk of the Court certificates for 15,030,000 shares of Emerson common stock that had been issued in the name of FIN pursuant to the Emerson Plan (together with any shares issued in respect of, in substitution or in exchange for any such shares, the "New Jersey Shares"). WHEREAS, the New Jersey Shares remain in the custody of the Court and 14,122,542 shares of Emerson common stock are being held in Zurich, Switzerland, in connection with pending bank regulatory and other investigations (together with any shares issued in respect of, in substitution or in exchange for any such shares, the "Zurich Shares" and, together with the New Jersey Shares, the "Emerson Shares"). WHEREAS, the Bahamian Liquidators, Barclays and the Jurick Group have filed claims with the Zurich Bankruptcy Office concerning their rights with respect to the Zurich Shares and have requested that the Zurich Shares be delivered to the Court. WHEREAS, Barclays, Stelling, the FIL Liquidator, the FIBANK Liquidator, Jurick, FIN, Elision, GSE and Emerson have agreed to enter into a global settlement upon the terms and conditions set forth herein in order to resolve all claims described above, and, except as specifically provided herein, all other pending litigation and all potential claims by, between and among the parties described in the recitals hereof and the parties listed on Exhibit B hereto. NOW, THEREFORE, IT IS HEREBY STIPULATED, CONSENTED, AGREED AND ORDERED, that: 1. Payment. (a) The Settlement Amount. In full satisfaction of all claims described above (including, without limitation, those which are the subject of pending litigation) and all potential claims by, between and among the parties described in the recitals hereof and the parties listed on Exhibit B hereto, except as specifically provided herein, Jurick, FIN, Centralinvest S.A. ("Centralinvest") and Pentland Finance Limited ("Pentland") shall be jointly and severally liable to the FIBANK Liquidator, Stelling and Barclays (together, the "Creditors") for the payment of the aggregate sum of US$49.5 million (the "Settlement Amount"), in accordance with Exhibit A hereto. In addition, to the extent set forth in the Consent Judgments described in paragraph 9(a) hereof, GSE shall be jointly and severally liable with the foregoing entities to Barclays for the payment of US$1,835,423.26. Subject to the other provisions of this Stipulation and Order, Jurick shall be paid the sum of US$3.5 million, in accordance with Exhibit A hereto, solely from the proceeds of the sale of the Emerson Shares (the "Jurick Payment" and, together with the Settlement Amount, the "Aggregate Amount"). The Emerson Shares are comprised of 29,152,542 shares of Emerson common stock. On the Effective Date (as defined in paragraph 5(b) hereof), all Emerson Shares which are not on that date registered in FIN's name on Emerson's books and records shall be transferred to and registered on Emerson's books and records in FIN's name by the registered owners of such shares; provided, however, that all of the 29,152,542 Emerson Shares shall remain in the custody of the Court or be transferred to the Settlement Agent (as defined in paragraph 3(b) hereof) pursuant to paragraph 1(b) hereof. Following receipt by the Court of the Zurich Shares, any required transfer and registration of any of the Emerson Shares into FIN's name on Emerson's books and records and the delivery of certificates with respect to any of the Emerson Shares to the Settlement Agent or the Court, as the case may be, the Emerson Shares shall be divided into two pools. (b) Pool A Shares. According to calculations performed by Emerson on the date of execution hereof, the first pool shall consist of (i) initially, 15,286,172 Emerson Shares, and (ii) thereafter, shall also include such additional number of Emerson Shares that the Settlement Agent or the Court shall determine, from time to time, are not to be held in custody by the Court pursuant to paragraph 1(c) hereof (the "Pool A Shares"). All New Jersey Shares shall be Pool A Shares. Following the appointment of the Settlement Agent, whether by agreement among the Creditors, Jurick and Emerson (collectively, the "Lead Parties") or by the Court, the Pool A Shares shall be delivered to the Settlement Agent, together with stock powers in blank and certificates in denominations requested by the Settlement Agent. (c) Pool B Shares. The second pool shall consist solely of the number of Emerson Shares with respect to which Jurick must retain beneficial ownership of voting power in order to avoid an event of default arising out of a Change of Control (as defined in the Indenture referred to in this paragraph 1(c)) under that certain Indenture, dated as of August 17, 1995, between Emerson and Bank One, Columbus, N.A., as Trustee, as in effect on the Effective Date (the "Indenture") and that certain Loan and Security Agreement, dated March 31, 1994, as amended, among Emerson, certain of its affiliates and Congress Financial Corporation as in effect on the Effective Date (the "Senior Credit Agreement") unless such event of default has been waived in accordance with the terms of the applicable instrument as then in effect (the "Pool B Shares"). The Pool B Shares shall be held in custody by the Court and shall neither be subject to foreclosure under the Pledge Agreement (as defined in paragraph 2(a) hereof) nor available for sale or release from the custody of the Court absent further order of the Court; provided, however that, if at any time it becomes unnecessary (whether as a result of waiver, amendment, modification, payment, redemption or otherwise) for the Court to hold any or all of the Pool B Shares in custody, then such shares will (i) immediately be delivered to the Settlement Agent, together with stock powers in blank and certificates in denominations requested by the Settlement Agent, and (ii) become part of the Pool A Shares. The Settlement Agent shall provide the Lead Parties with at least five (5) Business Days (as defined below) prior written notice of any such transfer of Pool B Shares to Pool A Shares, which notice shall set forth the calculations with respect to such transfer, and any of the Lead Parties may apply to the Court for appropriate relief in connection therewith. The term "Business Day" shall mean any day (other than a day which is a Saturday, Sunday or legal holiday in the State of New York) on which banks are open for business in New York City. (2) Security for Payment (a) The parties hereto agree that all of the Emerson Shares (including, without limitation, any dividends paid thereon, in cash or in kind, any additional shares by virtue of stock splits or stock distributions and any proceeds of any of the foregoing (collectively, "Proceeds")) shall secure the payment of the Settlement Amount to the Creditors on a first priority basis and, on a subordinated basis and subject to the other provisions of this Stipulation and Order, shall secure the payment of the Jurick Payment to Jurick. Accordingly, effective on the Effective Date (as defined in paragraph 5(b) hereof), FIN hereby (x) pledges to the Settlement Agent, as collateral agent for the Creditors and Jurick (in such capacity, the "Collateral Agent"), all of its right, title and interest in and to the Emerson Shares (including, without limitation, any Proceeds) to secure the payment of the Settlement Amount and the Jurick Payment; and (y) agrees to take all steps necessary to effect the pledge of the Emerson Shares, including, but not limited to, the execution and delivery to the Collateral Agent (with an original counterpart for each Creditor and Emerson), in accordance with paragraph 9 hereof, of a pledge agreement in form and substance consistent with the provisions of this Stipulation and Order and containing such other customary or appropriate provisions not inconsistent with the provisions of this Stipulation and Order as the Creditors may require and as Jurick may require with respect to his subordinated interest (the "Pledge Agreement"). A copy of the Pledge Agreement will be attached hereto as Exhibit C. The Collateral Agent shall have an enforceable perfected, first priority security interest in and lien upon all of the Emerson Shares, including, without limitation, the Pool A Shares to be held by the Collateral Agent, the Pool B Shares to be held in custody by the Court and any Proceeds securing (i) the payment of the Settlement Amount for the benefit of the Creditors and (ii) the Jurick Payment. Each of Jurick, Elision and GSE acknowledges and consents to the pledge granted by FIN hereunder and to the terms of the Pledge Agreement. (b) Each member of the Jurick Group, for itself and on behalf of each of its affiliates (whether present or future), other than Emerson, hereby represents, warrants and covenants that, (i) as of the Effective Date, FIN will hold the Emerson Shares free and clear of all mortgages, pledges, security interests, liens, encumbrances or charges of any kind whatsoever (except for (x) the security interest granted hereunder and the claims of the Creditors, (y) the restrictions on the exercise of voting power with respect to such shares set forth in the Indenture and the Senior Credit Agreement, and (z) all other similar restrictions, all of which are set forth on Schedule I hereto); (ii) FIN will not assign, pledge, hypothecate or transfer, or create any lien upon, the Emerson Shares, other than pursuant hereto, and agrees to take all steps necessary to prevent the same from occurring; and (iii) it will, from time to time, do such further acts and things and promptly execute and deliver all such additional conveyances, assignments, instruments, agreements and documents, and take all further action, that may be necessary or desirable or that the Collateral Agent or the Creditors may reasonably request, in order to perfect and protect the security interest and lien granted pursuant to this Stipulation and Order, the Pledge Agreement and the Approval Order (as hereinafter defined) or to enable the Collateral Agent or the Creditors to exercise and enforce any of their rights under this Stipulation and Order or the documents contemplated hereunder with respect to any of the Emerson Shares (including, without limitation, any Proceeds). (c) For purposes of perfecting the security interest and lien granted hereunder and pursuant to the Pledge Agreement and the Uniform Commercial Code, (i) the Collateral Agent shall acknowledge, upon its retention, that it holds, and will continue to hold, the Pool A Shares as Collateral Agent, (ii) the Office of the Clerk of the Court shall acknowledge that it holds, and will continue to hold, the Pool B Shares as the Collateral Agent's bailee for such purposes, and (iii) the receipt by the Collateral Agent and the Office of the Clerk of the Court of this Stipulation and Order shall constitute written notification of the security interest in and lien upon the Emerson Shares (including, without limitation, any Proceeds) granted by FIN hereunder and pursuant to the Pledge Agreement. (d) The Emerson Shares shall automatically be released from the security interest and lien granted hereunder and under the Pledge Agreement, without the need for further action, upon (i) the sale of all or any portion thereof to a third party in accordance with the terms of this Stipulation and Order, the Pledge Agreement or a subsequent order of the Court, or (ii) the payment of the Aggregate Amount and the reimbursement of any amounts paid by Emerson in accordance with paragraph 3(g) hereof. 3. Advisor and Settlement Agent (a) Appointment/Selection of Advisor. By no later than the execution of this Stipulation, Emerson shall submit to the Creditors and Jurick a list of five (5) proposed institutional financial advisors, which have no written or oral agreements or understandings with Emerson or any member of the Jurick Group concerning their proposed retention hereunder or the subject matter thereof. Each of the Lead Parties shall consider Emerson's nominees and shall use its best efforts to agree, by no later than twenty-one (21) days after the execution of this Stipulation, with respect to the selection of a financial advisor (the "Advisor") to formulate the Marketing Plan described in paragraph 3(c) hereof. If the Lead Parties reach agreement within twenty-one (21) days after the execution of this Stipulation, such Person (as defined in the Indenture), upon approval of the Court, shall be the Advisor, shall perform the functions set forth herein, and shall consult with and report to the Lead Parties. If the Lead Parties are unable to so agree within twenty-one (21) days after the execution of this Stipulation, the Lead Parties shall submit to the Court a joint list of proposed financial advisors, containing no more than one nominee by each Creditor, Jurick, and Emerson, which list shall be accompanied by full written disclosure of all previous retentions of each such nominee by any of the Lead Parties or any agreements between or among each nominee and any such party or the parties identified on Exhibit B hereto relating to the Emerson reorganization, the Emerson Shares or any of the proceedings described in the recitals hereto, and the Court will, after conferring with the Lead Parties, either select the Advisor from the joint list or select a third party to serve as the Advisor. Any successor Advisor shall be selected by agreement of the Lead Parties or appointed by the Court, in accordance with the procedures described in this paragraph 3(a). (b) Appointment/Selection of Settlement Agent. The Lead Parties shall use their best efforts to agree, with the advice of the Advisor, within fourteen (14) days after the appointment of the Advisor, with respect to the appointment of an administrator (the "Settlement Agent"), which may be a division or affiliate of the Advisor and which will hold the Pool A Shares and administer the distribution of proceeds of the sale of the Emerson Shares as provided herein. If the Lead Parties reach agreement within fourteen (14) days after the appointment of the Advisor, such Person, upon approval of the Court, shall be the Settlement Agent, shall perform the functions set forth herein, and shall consult with and report to the Lead Parties. If the Lead Parties are unable to so agree within fourteen (14) days after the appointment of the Advisor, the Lead Parties and the Advisor shall submit to the Court a joint list of proposed administrators, containing no more than one nominee by each Creditor, Jurick, Emerson, and the Advisor, which list shall be accompanied by full written disclosure of all previous retentions of each such nominee by any of the Lead Parties or any agreements between or among each nominee and any such party or the parties identified on Exhibit B hereto relating to the Emerson reorganization, the Emerson Shares or any of the proceedings described in the recitals hereto, and the Court will, after conferring with the Lead Parties and the Advisor, either select the Settlement Agent from the joint list or select a third party to serve as the Settlement Agent. Any successor Settlement Agent shall be selected by agreement of the Lead Parties or appointed by the Court in accordance with the procedures described in this paragraph 3(b). (c) The Marketing Plan. The Advisor shall formulate and from time to time amend, as necessary or appropriate, a plan or plans (the "Marketing Plan") for marketing the Emerson Shares designed to meet the goal of generating proceeds sufficient to pay the Aggregate Amount as quickly as possible consistent with the intent, interests and purposes of this Stipulation and Order. The Advisor shall provide each of the Lead Parties and the Settlement Agent with a written report setting forth the initial Marketing Plan as soon as practicable after its appointment. In formulating the Marketing Plan, the Advisor shall take into account the interests of all of the Lead Parties, including the interests of Emerson's minority shareholders. The Lead Parties shall use their best efforts to resolve any objections to the Marketing Plan within twenty-one (21) days of its delivery. If, within twenty-one (21) days of the delivery of the Marketing Plan, the Lead Parties agree on the Marketing Plan, upon approval of the Court, the Advisor and the Settlement Agent shall implement the Marketing Plan. If, however, within twenty-one (21) days of the delivery thereof, the Lead Parties are unable to agree with respect to any aspect of the Marketing Plan, a hearing shall be held before the Court, on notice to all Lead Parties, the Settlement Agent and the Advisor, to consider all objections of any Lead Party thereto. Any amendment to any Marketing Plan shall be approved by the Lead Parties or the Court in accordance with the procedures described in this paragraph 3(c). The Advisor shall, in formulating the Marketing Plan, consider and, not less than semi-annually, report to the Court and the Lead Parties with respect to (i) its progress in making the payments required pursuant to Exhibit A, (ii) all of its efforts under this Stipulation and Order, (iii) all available options for disposing of the Emerson Shares, and (iv) its best recommendations with respect to the disposition of the Emerson Shares so as to generate proceeds to pay the Aggregate Amount as quickly as possible and to accomplish the other purposes set forth in this Stipulation and Order (each report, a "Payment Progress Report"). The Advisor shall supplement the Payment Progress Reports from time to time, as necessary or appropriate, including, subject to approval of the Court after notice to all Lead Parties, the Advisor and the Settlement Agent, by amending the Marketing Plan or creating a new Marketing Plan. (d) Objections After Implementation of Marketing Plan. Following the approval of the Marketing Plan or any amendment thereto, any Lead Party that becomes dissatisfied with the progress of the Advisor in implementing, or the Settlement Agent in administering, the Marketing Plan or with the provisions of the Marketing Plan or with other matters related thereto may, upon notice to each other Lead Party, the Settlement Agent and the Advisor, apply to the Court for appropriate relief (based on the totality of circumstances) with respect to such progress, implementation, administration or other matters related thereto. (e) Notice of Proposed Sales. Subject to paragraph 3(h) hereof, the Settlement Agent, in accordance with a Court-approved Marketing Plan or any Court-approved amendment thereto, may, without further Court approval, (i) sell Emerson Shares pursuant to a registered offering; provided, that the purchase price for each share sold is not less than 90% of the average of the three most recent Closing Prices (as defined in the Indenture), or (ii) sell up to one percent (1%) of the issued and outstanding common stock of Emerson per quarter as otherwise allowed under the Securities Act of 1933 (including pursuant to SEC Rule 144); provided that the purchase price for each share sold is not less than 90% of the average of the three most recent Closing Prices. With respect to all other proposed sales of Emerson Shares, the Settlement Agent and the Advisor shall promptly provide each of the Lead Parties with five (5) Business Days prior written notice (the "Notice Period") of any such proposed sale and the proposed terms thereof. If there is no objection to the proposed sale prior to the expiration of the Notice Period, the Settlement Agent may proceed with such sale. If any Lead Party objects to the proposed sale, such Lead Party shall, upon notice to each other Lead Party, the Advisor and the Settlement Agent, request that the Court conduct an expedited hearing prior to the closing of such sale and, in that event, no sale may close prior to the hearing and the disposition of the matter by the Court. (f) Distribution of Sale Proceeds. Upon receipt, the Settlement Agent shall place the proceeds of all sales of the Emerson Shares, net of the reasonable and customary expenses incurred in connection with such sales and the reimbursement of any amounts payable to Emerson under paragraph 3(g) hereof ("Net Proceeds"), in an interest bearing account and shall, on at least a monthly basis (and, in the event that a sale of Emerson Shares generates Net Proceeds in excess of US$1 million, as soon as practicable following receipt thereof by the Settlement Agent), account for all proceeds received from sales of the Emerson Shares and distribute the Net Proceeds of all such sales, pro rata to the Creditors and Jurick, in accordance with the applicable percentages set forth on Exhibit A hereto and subject to the other provisions of this Stipulation and Order, including but not limited to paragraph 11 hereof, provided, however, that, in accordance with Exhibit A hereto, (i) neither any Creditor nor Jurick shall be paid any portion of any payment subsequent to the First Payment (as used in Exhibit A hereto), unless and until each Creditor and Jurick have been paid their respective portions of the First Payment in full; (ii) neither any Creditor nor Jurick shall be paid any portion of any payment subsequent to the Second Payment (as used in Exhibit A hereto), unless and until each Creditor and Jurick have been paid their respective portions of the Second Payment in full; (iii) neither any Creditor nor Jurick shall be paid any portion of any payment subsequent to the Third Payment (as used in Exhibit A hereto), unless and until each Creditor and Jurick have been paid their respective portions of the Third Payment in full; and (iv) Barclays shall not be paid any portion of the Final Payment (as used in Exhibit A hereto), unless and until each Creditor and Jurick have been paid their respective portions of the Balance (as used in Exhibit A hereto) in full. (g) Fees and Expenses. (i) All reasonable fees and expenses of the Settlement Agent (including reasonable fees and expenses incurred in its capacity as the Collateral Agent) and the Advisor (including reasonable attorneys' fees) incurred in connection with the retention of the Settlement Agent and the Advisor and the formulation of the Marketing Plan and any amendment(s) thereto shall be funded and advanced as necessary by Emerson up to a maximum amount of $250,000. Emerson shall be reimbursed for such amounts from the proceeds, if any, of the first sale(s) of the Emerson Shares prior to the payment of any portion of the Aggregate Amount. (ii) In addition, from time to time, following the full reimbursement to Emerson of its initial expense payments made pursuant to paragraph 3(g)(i) hereof, Emerson shall pay, on a revolving basis, additional expenses incurred by the Settlement Agent (including reasonable fees and expenses incurred in its capacity as the Collateral Agent) or the Advisor in connection with the implementation of the Marketing Plan and any amendment(s) thereto, which expenses shall in no event exceed, at any one time outstanding, $75,000. Emerson shall be reimbursed for such amounts from the proceeds, if any, of the first sale(s) of Emerson Shares following the advance of any portion of the $75,000 (after payment of the reasonable and customary expenses incurred in connection with such sales). (iii) To the extent not reimbursable pursuant to, and following payment of all outstanding amounts required to be reimbursed under, paragraph 3(g)(ii) hereof, customary and reasonable fees and expenses incurred by Emerson in connection with any registration of the Emerson Shares shall be reimbursed from the first proceeds of the sale(s) of such shares (after payment of the reasonable and customary expenses incurred in connection with such sales). (h) Special Committee. In the event of an offer to purchase Emerson Shares that would result in a Change of Control of Emerson, the offeror shall be required to meet with Emerson directors Brown, Steele and Eugene Davis, or their successors (the "Special Committee") and provide such information as the Special Committee may reasonably request in order to evaluate the offer. Within ten days of such meeting and disclosure, the Special Committee shall determine whether to approve such offer in the exercise of the directors' fiduciary duties under applicable Delaware law. In the event that the Special Committee shall not approve such offer within such period, then any Lead Party other than Emerson may initiate litigation pursuant to paragraph 8(a)(ii)(F) hereof. 4. Voting FIN, or the member of the Jurick Group that beneficially owns or controls the voting power with respect to the Emerson Shares, shall retain the right to vote with respect to all of the Emerson Shares remaining either with the Settlement Agent or in the custody of the Court but shall provide each of the Creditors with at least ten (10) Business Days prior written notice of (i) the date and time of any vote; (ii) each issue with respect to which a vote is required; and (iii) the manner in which any of the Emerson Shares will be voted with respect to each such issue. Each Creditor shall be free to apply to the Court for an expedited hearing to compel FIN or the applicable member(s) of the Jurick Group to vote such shares in accordance with the Court's direction. In the event that Jurick is directed by the Court to vote against any proposal of the Emerson Board, the Emerson Board may withdraw and not solicit any vote of its shareholders with respect to such proposal. Upon the sale of any Emerson Shares to a third party in accordance with this Stipulation and Order, the voting rights shall be transferred to the purchaser of such shares without such restriction. In the event that the Emerson Board decides to recommend to its shareholders that any actions be approved by the shareholders, Emerson shall promptly provide each of the Creditors with a courtesy copy of the notice to be provided to its shareholders with respect to any such proposed action. Upon receipt of such notice, each Creditor shall be free to apply to the Court for appropriate relief (based on the totality of the circumstances) and the Court shall hear and determine any such application within three (3) Business Days of the filing thereof. This provision shall not affect, in any way, the Emerson Board's ability to manage the business and affairs of Emerson pursuant to the business judgment rule. 5. Conditions to Effectiveness (a) It is a condition to the effectiveness of this Stipulation and Order that: (i) the Zurich Shares shall have been received by the Court; (ii) after notice and a hearing, the Court shall have so ordered this Stipulation and Order and shall have entered an order, substantially in the form to be attached hereto as Exhibit D (the "Approval Order"); (iii) the Bahamas Court shall have entered an order or orders confirming, and authorizing the delivery of, this Stipulation by the Bahamian Liquidators and all documents delivered hereunder (the "Bahamas Orders") and dissolving the Mareva Injunctions; (iv) all of the documents listed in paragraphs 9 and 10 hereof shall have been deposited with the Court and the other actions described in paragraphs 9 and 10 shall have been taken; and (v) (A) the representations and warranties contained herein or otherwise made in writing in connection herewith shall be true and correct as of the date hereof, (B) each party hereto shall have received from each other party hereto, a certificate dated as of the Effective Date (as defined in paragraph 5(b) hereof) certifying that such representations and warranties are true and correct as of the Effective Date, and (C) each Creditor shall have received from Jurick a certificate dated as of the Effective Date certifying that the initial Sworn Statement provided in accordance with paragraph 12 hereof is true and correct as of the Effective Date or setting forth any amendments thereto, provided however, that the Creditors may waive the foregoing requirements of this subparagraph (a)(v) with respect to Jurick or Emerson. (b) The Bahamas Orders shall be filed with the Court (or its designee) by the parties which obtained such orders, on notice to all other parties hereto, within five (5) Business Days after they are entered by the Bahamas Court. The Court (or its designee) will notify each party hereto when the conditions to effectiveness set forth in paragraphs 5(a)(i), (ii), (iii) and (iv) hereof have been satisfied and, within three Business Days of receipt of such notification, each party shall provide each other party with the certificates described in paragraph 5(a)(v) hereof. The term "Effective Date" shall mean the date on which each of the conditions set forth in paragraph 5(a) hereof has been satisfied and each of the parties hereto has received the notice from the Court referred to in this paragraph 5(b) and the certificates referred to in paragraph 5(a)(v) hereof. (c) Notwithstanding anything to the contrary contained in this Stipulation and Order, if by December 31, 1996 (x) the Effective Date shall not have occurred, or (y) all of the Zurich Shares have not been delivered to the Court, then any Lead Party may apply to the Court, on notice to each other Lead Party, for an order declaring that this Stipulation and Order is withdrawn or granting other appropriate relief, based on the totality of the circumstances, including permission to pursue some or all available methods to cause the delivery of the Zurich Shares to the Court or to otherwise satisfy the conditions to the effectiveness of this Stipulation and Order. 6. Representations and Warranties (a) All Parties. Each party hereto represents and warrants to each other party hereto that: (i) Due Authority. Such party has all the requisite authority and capacity to enter into this Stipulation and the documents delivered hereunder and all corporate authorizations and approvals necessary or required (other than the Bahamas Orders and the Approval Order) have been duly and effectively obtained; and (ii) Binding Obligation. This Stipulation and Order constitutes a legal, valid and binding obligation of such party, enforceable against such party and his, her or its estate, heirs, successors and assigns in accordance with its terms. (b) Emerson Representations and Warranties. Emerson represents and warrants to each other party hereto that: (i) Indenture and Senior Credit Agreement. It has provided the Creditors with a single copy of each of the (and there are no other) amendments or modifications to the Indenture and the Senior Credit Agreement; and (ii) Encumbrances on Emerson Shares. To its knowledge, after reasonable inquiry, except for (v) the security interest granted hereunder and the claims of the Creditors, (w) the Mareva Injunctions, (x) the current restrictions on the transfer of the Emerson Shares resulting from the pending Swiss bank regulatory proceeding (or other investigation by the Zurich District Attorney), (y) the restrictions on the exercise of voting power with respect to such shares set forth in the Indenture and the Senior Credit Agreement, and (z) all other similar restrictions, all of which are set forth on Schedule I hereto, there exists no mortgage, pledge, security interest, lien, encumbrance or charge of any kind whatsoever on or affecting the Emerson Shares. (c) Creditors Representations and Warranties. Each of the Creditors represents and warrants to each other party hereto that, except as referred to herein, it has not commenced any action or proceeding and has not filed any complaint against any member of the Jurick Group or Emerson. 7. Affirmative Covenants (a) All Parties. Each party hereto covenants and agrees with each other party hereto that, from and after the date hereof to and including the date on which the Aggregate Amount has been paid in full: (i) Further Assurances. It will take all steps reasonably necessary to effectuate the purposes of this Stipulation and Order, including the execution of all documents contemplated hereunder and any other documents reasonably necessary to effectuate the purposes of this Stipulation and Order. (ii) Assets and Releases. It will use its best efforts to obtain Releases from other interested parties in accordance with paragraph 9(c) hereof and to locate the assets listed in paragraph 9(d) hereof, provided, however, that this provision shall not apply to Emerson. (b) Emerson Covenants. Emerson covenants and agrees with each other party hereto that, from and after the date hereof to and including the date on which the Aggregate Amount has been paid in full, unless the Creditors unanimously agree and otherwise consent in writing: (i) Meetings With Court. The President of Emerson (or, in the event that no one is acting as President of Emerson, then any Chief Operating Officer of Emerson) will (A) meet in person with the Court at least once each month, subject to the Court's availability, and provide the Court with an update as to Emerson's business and operations; (B) provide the Court, at least five (5) Business Days in advance (or such shorter period as may be practicable and which shall be acceptable to the Court) with the agenda for each meeting (whether to be held in person or telephonically) of the Emerson Board or any committee thereof (each a "Committee"); (C) provide the Court with telephonic notice of any modifications to any such agenda; (D) provide the Court with copies of the minutes of all meetings of the Emerson Board and its Committees and such other information as the Court may require; and (E) keep the Court fully apprised of the discussions, deliberations and actions or other proceedings at any meeting of the Emerson Board or any Committee not previously reported to the Court. The Court may, in its discretion, direct an appropriate person promptly to notify the Creditors of any actions (including the actions described in paragraph 7(b)(viii)) to be taken by the Emerson Board or any Committee or may itself notify the Creditors of any such proposed actions. Upon receipt of such notice, each Creditor shall be free to apply to the Court for an order prohibiting any such action, and the Court shall hear and determine any such application within three (3) Business Days of the filing thereof. In determining whether or not to grant such an application, the Court shall: (I) apply the business judgment rule; (II) make it clear that Emerson is not operating under Court supervision; (III) permit Emerson to operate its business in the ordinary course; and (IV) determine whether Emerson's proposed action will have any adverse impact upon the ability to achieve the objectives and purposes of this Stipulation and Order. The Court will not issue any order prohibiting any proposed action by the Emerson Board or any Committee unless it determines that such action would materially interfere with the objectives and purposes of this Stipulation and Order. (ii) Jurick Compensation. Jurick's total compensation from Emerson and all of its Subsidiaries and affiliates (including salary, bonuses, employee benefits (other than insurance policies or benefits generally provided to Emerson's senior management) and any other compensation in any form whatsoever) shall not exceed the sum of $750,000 until the Settlement Amount has been paid in full; and, until the Settlement Amount has been paid in full, Jurick will not receive any stock options, warrants, stock appreciation rights or other similar non-cash compensation. Jurick shall continue to receive reasonable housing while located in the Far East and reimbursement of reasonable and necessary expenses in connection with the conduct of Emerson's business or that of its Subsidiaries or affiliates. (iii) Registration. The Advisor, in the Marketing Plan or any Court-approved amendment thereto, shall determine if, when and how many Pool A Shares shall be registered in accordance with the Securities Act (as defined in the Indenture) and any applicable "Blue Sky" laws and shall provide notice thereof to each Lead Party. Emerson shall use its best efforts to register the offer and sale of such Pool A Shares as set forth in the Marketing Plan or any Court-approved amendment thereto. Any such registration shall be subject to the provisions of a registration rights agreement to be attached hereto as Exhibit E (the "Registration Rights Agreement"). (iv) Compliance with Indenture. Emerson shall comply with Sections 1005, 1006, 1011, 1012 and 1029 of the Indenture. For purposes of this Stipulation and Order with respect to Section 1012 of the Indenture, the term "Affiliate," as defined in the Indenture, shall include, in addition, (x) any entity directly or indirectly controlled by any member of the Jurick Group; (y) any entity which is owned directly or indirectly in whole or in part by any member of the Jurick Group, other than an entity that is traded on the American Stock Exchange, the New York Stock Exchange or the NASDAQ National Market System; or (z) any entity that is traded on the American Stock Exchange, the New York Stock Exchange or the NASDAQ National Market System, more than 5% of which is owned, directly or indirectly, by any member of the Jurick Group. (v) SEC Rule 144 Information. Emerson shall use its best efforts to make available adequate "current public information" to the extent required by SEC Rule 144 (or any successor rule), in order to enable the Settlement Agent to sell the Emerson Shares in compliance with such rule and, in any event, to the extent such information is made available, will deliver a courtesy copy of all such "current public information" to the Creditors, the Settlement Agent, the Advisor and the Court. (vi) Financial Reports, Notices, etc. Emerson shall furnish each Creditor and the Advisor with courtesy copies of all documents, information, materials and other notices required to be distributed pursuant to Sections 1025 and 1027 of the Indenture (within the relevant time frames) to the extent not duplicative of other information or materials required to be provided hereunder. (vii) Access to Books and Records. Emerson shall, at the Advisor's request, provide the Advisor and its representatives and such other Persons as the Advisor reasonably deems appropriate in connection with the Marketing Plan or any Court- approved amendment thereto (subject to appropriate confidentiality agreements) access to all of its books and records and to any of its properties or assets upon reasonable notice and during regular business hours, at reasonable intervals. (viii) Reporting to the Court. The President of Emerson (or, in the event that no one is acting as President of Emerson, then any Chief Operating Officer of Emerson) shall give the Court prior notice of Emerson's intention (or that of any Subsidiary) to take any of the following actions: (1) implementation of any further restrictions on the transfer of the securities of Emerson beyond those existing on the date hereof, as set forth on Schedule I hereto, including, but not limited to, restrictions permitted by Sections 202 or 203 of the Delaware General Corporation Law, or the grant of any provision in any employment, consulting or other similar contract or the adoption of any policy pursuant to which an officer, director, employee, agent or independent contractor will become entitled to receive compensation as a result of a change in the ownership or control of Emerson or any Subsidiary, a merger of Emerson or any Subsidiary, or a sale of Emerson's or any Subsidiary's assets, a recapitalization of Emerson or any Subsidiary or other similar or dissimilar corporate combination or transaction of Emerson or any Subsidiary (regardless of whether the employment or other relationship between Emerson or its Subsidiary and such officer, director, employee, agent or independent contractor must be terminated as a condition to the receipt of such compensation) or any other arrangement customarily referred to as a "golden parachute"; (2) the grant of any rights or options to subscribe for or to purchase any shares of Emerson's capital stock or securities convertible into or exchangeable for any shares of Emerson's capital stock or other securities; (3) any assignment, pledge, hypothecation or creation of any lien upon, the Emerson Shares; (4) any recapitalization or reorganization; (5) any amendment of its Certificate of Incorporation or its By-Laws or any change to its State of Incorporation; (6) any merger or consolidation with any other entities (whether for cash, securities or other property); and (7) any dissolution, liquidation or winding up, whether voluntarily or involuntarily. (ix) Emerson Further Assurances. Emerson shall, from time to time, do such further acts and things and promptly execute and deliver all such additional instruments, agreements and documents and take all further action, that may be necessary or desirable or that the Collateral Agent or the Creditors may reasonably request in order to perfect and protect the security interest in and lien upon the Emerson Shares granted hereunder and pursuant to the Pledge Agreement. 8. Negative Covenants (a) All Parties. Each party hereto covenants and agrees with each other party hereto that, from and after the date hereof to and including the date on which the Aggregate Amount has been paid in full: (i) Non-Interference. It will not take any action that would prevent, preclude or materially interfere with the consummation of the transactions contemplated by this Stip- ulation and Order or the performance by any other party of its obligations under this Stipulation and Order. (ii) No Further Litigation. It (and in addition, in the case of Stelling, each other member of the Stelling Group and, in the case of Jurick, each other member of the Jurick Group) will not, directly or indirectly, commence, continue, request or finance or in any way participate in (except, on notice to the Court, such participation as may be required pursuant to legal process with notice, unless legally prohibited, to the Lead Parties) any civil, criminal or administrative proceedings (x) against any other party or any member of the Stelling Group or any member of the Jurick Group, or (y) with respect to any dispute or transaction arising out of or relating to this Stipulation and Order, the Approval Order, the Emerson Shares, any Marketing Plan or any amendment thereto or other action or advice of the Advisor, other than (A) by application to the Court as provided for in this Stipulation and Order to enforce or to facilitate the transactions contemplated hereby or to avail itself of rights provided for under this Stipulation and Order, the terms hereof or any documents delivered hereunder or the Approval Order or with respect to the Emerson Shares or with respect to any provisions of the Marketing Plan or any amendment thereto or any other action or advice by the Advisor; (B) in connection with enforcement in any jurisdiction of any Consent Judgment or the Swiss Judgment (as each is hereinafter defined); (C) in connection with pursuit by Barclays, FIL and MBT of their claims filed in FIBANK's compulsory liquidation proceedings in the Bahamas Court in accordance with paragraph 13 hereof; (D) the Malpractice Action (as defined in paragraph 15 hereof); (E) actions reasonably required for the continuance of the Zurich Civil Proceedings pending entry of the Swiss Judgment; and (F) litigation by any Lead Party, other than Emerson, to review, under applicable Delaware Law, any actions of the Special Committee in connection with an offer described in paragraph 3(h) hereof. This covenant and agreement (other than clause (F)) shall survive the termination of this Stipulation and Order. (b) Jurick Options. Jurick covenants and agrees with each other party hereto that, from and after the date hereof to and including the date on which the Aggregate Amount has been paid in full, unless the Creditors unanimously agree and otherwise consent in writing, (i) Jurick will not exercise any options, warrants or conversion rights which he now owns, directly or indirectly, to purchase any capital stock or any other securities of Emerson or any of its Subsidiaries or affiliates, provided, however, that Jurick may retain and, upon prior written notice to the Advisor, may exercise his existing vested options to purchase 200,000 shares of Emerson common stock unless the Advisor determines that such exercise will have a material adverse effect upon the Marketing Plan; (ii) Jurick will cancel or otherwise terminate all other such options, warrants or conversion rights as the Advisor may reasonably determine could have a material adverse effect upon the value of the Emerson Shares or the implementation of any Marketing Plan (and the Advisor shall provide written notice of such determination to each of the Lead Parties and any Lead Party may apply to the Court for appropriate relief with respect to the Advisor's determinations); and (iii) if the Advisor does not require the cancellation or termination of such other options, warrants or conversion rights, Jurick will hold and not exercise such other options, warrants or conversion rights until the Settlement Amount has been paid in full. 9. Documents to Be Executed and Deposited With the Court And Other Actions to Be Taken Following Execution of This Stipulation and Order Within ten (10) days of the execution of this Stipulation, or as soon as practicable thereafter, each of the Lead Parties, Donald K. Stelling, Bunger and the Official Liquidators of FIL and MBT will take the following actions and execute and/or obtain, as appropriate, the following documents and deposit them with the Court (or its designee), on notice to all parties to this Stipulation and Order, for disposition in accordance with paragraph 11 hereof: (a) Consent Judgments. Stipulations, Orders and Judgments against Jurick, FIN, GSE, Centralinvest and Pentland, substantially in the form to be annexed hereto as Exhibit F (hereinafter the "Consent Judgments") shall be deposited with the Court (or its designee); provided, however, that the Consent Judgment against GSE in favor of Barclays shall be in the aggregate amount of US$1,835,423.26. (b) Swiss Judgment. Swiss counsel for Stelling and Swiss counsel for Jurick will execute on or before July 10, 1996 a settlement agreement providing that upon the Effective Date the parties shall apply for the entry of a judgment for US$21 million against Jurick in the Zurich Civil Proceedings (the "Swiss Judgment"), provided that (i) pursuant to agreement between such counsel the Swiss Judgment shall be duplicative, for all purposes, of the Consent Judgment in favor of Stelling in this action and such amount shall be subject to offset in respect of payments to Stelling under this Stipulation and Order, and (ii) Stelling shall take no action to enforce such judgment pending termination of this Stipulation and Order. (c) Releases. Five duplicate originals of each of the appropriate releases, in substantially the form annexed hereto as Exhibits G (the "Limited Releases") and H (the ("General Releases" and, together with the Limited Releases, the "Releases") shall be deposited with the Court (or its designee). Each party hereto shall also use its best efforts to secure the execution of the Releases required to be executed by Persons not parties to this Stipulation and to obtain and deposit five duplicate originals of such Releases with the Court. A list of the parties hereto primarily responsible for obtaining the Releases is annexed hereto as Exhibit B. No Person will be given a Release by any party hereto who does not provide a reciprocal Release in favor of such party. With respect to Gulf-American Finance Limited ("Gulf-American"), each of the Stelling Group, Jurick and the FIBANK Liquidator shall use its or their reasonable efforts to execute such documents and take such other actions to achieve the termination of the liquidation of Gulf- American or to take such action to permit the delivery of Releases consistent with this subparagraph. (d) Other Assets. The assets listed below, to the extent that they may be located through the parties' best efforts, accompanied by executed stock powers or quitclaim deed each in a form to be attached hereto (containing no representations or warranties other than a representation that the depositing party has not assigned, pledged, hypothecated, transferred, encumbered or granted any security interest or lien with respect thereto) shall be deposited with the Court (or its designee); provided, however, that with respect to any listed asset held by a liquidator on behalf of a bankrupt estate, the asset need not be deposited with the Court until such time as the liquidator has completed any necessary accounting and determined that the estate, rather than any creditor of (or other party claiming against) the estate, has title to the asset. Jurick undertakes to use his best efforts to provide assistance reasonably necessary to permit a liquidator to obtain from the issuers of any of the listed assets new stock certificates in names and denominations necessary and appropriate to accomplish the purposes hereof. So long as the following assets are deposited with the Court, the depositing party or Jurick, as the case may be, will retain any power to vote with respect to such assets which it has on the date hereof, but the depositing parties will, at Jurick's request, consult with him before voting the shares. (i) All common and preferred shares of GSE (or its predecessor entity). (ii) All common shares and warrants of Elision. (iii) All common shares of MaxCom. (iv) All common shares and warrants of Draco Corporation. (v) All common shares and warrants of International Sensor Technologies Inc. (vi) All common shares of Ficap Investments Limited. (vii) All common shares of Rainbow Fund Inc. (viii) All common shares of Crandall Finance Corporation (formerly Calix Corporation). (ix) All rights of FIBANK arising under or in respect of loans to, and obligations and indebtedness of, Thalos Treuhand AG. (x) All rights of FIBANK arising under or in respect of loans to, and obligations and indebtedness of, Marnlac Limited. (xi) All rights of FIBANK arising under or in respect of loans to, and obligations and indebtedness of, Elision International Limited. (xii) All rights of FIBANK arising under or in respect of loans to, and obligations and indebtedness of, MaxCom. (xiii) All rights of FIBANK arising under or in respect of loans to, and obligations and indebtedness of, Gulf-American. (xiv) All rights of FIBANK arising under or in respect of loans to, and obligations and indebtedness of, Mercedes Limited. (xv) All rights of FIBANK arising under or in respect of loans to, and obligations and indebtedness of, Rainbow Fund Inc. (xvi) All rights of FIBANK arising under or in respect of loans to, and obligations and indebtedness of, ST Sensor Technik AG. (xvii) All rights of FIBANK arising under or in respect of loans to, and obligations and indebtedness of, Cubix AG. (a) Pledge Agreement. Six duplicate originals of the Pledge Agreement shall be deposited with the Court (or its designee). (b) District Attorney Letter. An original, executed letter to the Zurich District Attorney, in the form attached hereto as Exhibit I (the "District Attorney Letter") shall be deposited with the Court (or its designee). The District Attorney Letter will be forwarded by the Court (or its designee) only upon the Effective Date pursuant to paragraph 10(j) hereof). (c) Acknowledgement. Four duplicate originals of the acknowledgement executed by the Official Liquidators of MBT in the form attached as Exhibit J hereto (the "Acknowledgement") shall be deposited with the Court (or its designee). (d) GSE Preferred Shares. The GSE preferred shares issued to FIL in connection with Emerson Plan shall be deposited with the Court (or its designee). (e) FIL Shares. All shares of FIL in the custody or control of Jurick (20%) and the FIBANK Liquidator (20%), together with executed stock powers and other documents acceptable in form to counsel for Stelling (the "FIL Shares") shall be deposited with the Court (or its designee). (f) Approval Order. The Lead Parties shall use their best efforts to agree upon the terms of the Approval Order. In the event that the Lead Parties are unable to so agree, the Court shall resolve all disputes concerning the Approval Order at the hearing with respect to the application for an order approving this Stipulation and Order. (g) Board Resolutions. Each of GSE, Elision and FIN shall deposit with the Court (or its designee) corporate resolutions of each of their respective boards of directors, certified by their respective corporate secretaries, duly authorizing such entity to enter into and perform all of its obligations thereunder. (h) Registration Rights Agreement. The form of the Registration Rights Agreement shall be deposited with the Court (or its designee). In the event that the Effective Date does not occur and this Stipulation and Order is withdrawn in accordance with paragraph 5(c) hereof, each of the items listed in this paragraph 9 shall be returned to the depositing party. 2. Actions to Be Taken on or After the Effective Date (a) The FIBANK Liquidator and Jurick shall file an executed Stipulation and Order, to be so ordered by the Court, dismissing Eric F. Gebaide from the New Jersey Proceedings. (b) The FIBANK Liquidator shall deposit with the Court a Stipulation and Order dismissing the New Jersey Proceedings with prejudice and without costs (the "Dismissal Order"). (c) FIL shall file an executed Stipulation, to be so ordered by the Court, dismissing the FIL Action with prejudice and without costs. (d) Emerson shall file an executed Stipulation, to be so ordered by the Court, dismissing the Stelling Proceedings with prejudice and without costs. (e) Barclays shall file an executed Stipulation, to be so ordered by the Massachusetts Court, dismissing the Massachusetts Proceedings with prejudice and without costs and vacating the preliminary injunction issued therein. (f) Barclays shall deliver to Jurick executed satisfactions of the New York Judgment. (g) FIL shall file an executed Stipulation and Order dismissing the civil suit against Jurick commenced by FIL in the Bahamas with prejudice and without costs. (h) The FIL Shares shall be delivered to Stelling, and Bunger shall have performed his obligation to deliver his shares of FIL to Stelling as provided in the agreement between Swiss counsel for Stelling and Swiss counsel for Bunger, dated June 10, 1996, to be filed in the Swiss litigation pending between Bunger and Stelling. (i) In the event that Jurick or Farnum receive from the law enforcement authorities in Zurich, Switzerland the return of any of the funds previously deposited by FIBANK to secure the appearance of Jurick and Farnum, such funds shall be returned immediately to FIBANK. (j) The original District Attorney Letter shall be forwarded to the Zurich District Attorney. (k) All Emerson Shares which are not on that date registered in FIN's name on Emerson's books and records shall be transferred and registered on Emerson's books and records in FIN's name by the registered owners of such shares in accordance with paragraph 1(a) hereof and delivered to the Settlement Agent or the Court, as the case may be. (l) The GSE preferred shares issued to FIL in connection with the Emerson Plan shall be cancelled. (m) The parties thereto shall execute the Pledge Agreement and an original shall be forwarded to each of the Creditors and the parties thereto. (n) One original Acknowledgment shall be forwarded to each of the Creditors and Jurick. (o) One original of each Limited Release deposited with the Court pursuant to paragraph 9(c) hereof shall be forwarded to each Lead Party. (p) The parties thereto shall execute the Registration Rights Agreement and one original shall be forwarded to each of the Lead Parties, FIL, FIN, the Advisor and the Settlement Agent. (q) Emerson shall pay or cause to be paid the sum of US$100,000 to Donald K. Stelling. On or after the Effective Date, if required by Jurick or Emerson, U.S. counsel for Stelling shall send a letter to the Division of Enforcement of the Securities and Exchange Commission indicating that Stelling no longer has any interest in pursuing the allegations set forth in the report delivered to the Division of Enforcement by Stelling on June 21, 1995. Such letter shall be satisfactory to each of the Lead Parties. 3. Termination Upon Payment In Full or Upon Order of the Court After the Effective Date (a) Termination Upon Payment of Aggregate Amount. Upon the payment in full of the Aggregate Amount and reimbursement of amounts paid pursuant to paragraph 3(g) hereof, the Lead Parties shall jointly request that the Court (or its designee) dispose of the documents remaining in its custody or in the custody of the Collateral Agent in the following manner: (i) Consent Judgments, Swiss Judgment and Dismissal Order. The Court (or its designee) shall deliver the original Consent Judgments to Jurick and shall at that time enter the Dismissal Order. The status of the Swiss Judgment shall be resolved as provided for in the agreement to be entered into pursuant to paragraph 9(b). (ii) Releases. One original of each and every General Release shall be delivered to each Lead Party. (iii) Other Assets. All assets referred to in paragraph 9(d) above shall be delivered to Jurick or his designee. (iv) Emerson Shares. Any remaining Emerson Shares, together with any remaining proceeds of Emerson Shares shall be delivered to FIN by the Collateral Agent and/or the Office of the Clerk of the Court, as the case may be, and the security interest in and lien upon such shares granted pursuant to paragraph 2 hereof and the Pledge Agreement shall be deemed released. (a) Termination Upon Order of the Court. In the event (i) of a bankruptcy, insolvency or similar proceeding as specified in Sections 501(8) and 501(9) of the Indenture, (ii) of a default under the Indenture, the Senior Credit Agreement or other similar material financing agreement or any refinancing or replacement thereof, which has not been cured or waived, (iii) that there is a delisting of the Emerson Shares from the American Stock Exchange, unless the Emerson Shares are listed on the New York Stock Exchange or the NASDAQ National Market System within seven (7) days of such delisting, (iv) of a material breach hereof by Jurick or Emerson, or (v) that there is no reasonable prospect that the goals contemplated by this Stipulation and Order can be achieved, then any Creditor may apply to the Court, on notice to all other Lead Parties, for an order from the Court declaring that the Stipulation and Order is terminated. After a hearing, at which any Lead Party may participate, the Court, in its discretion, based on the totality of the circumstances, including, without limitation, evidence with respect to the then- current Marketing Plan or other advice or opinions of the Advisor and the value of the remaining Emerson Shares, if any, and the available ways and means of realizing such value, shall determine whether to order the termination of this Stipulation and Order on the grounds that its goals and purposes are not reasonably likely to be realized. (b) Effect of Termination Prior to Payment in Full. When, and if, (x) the Court terminates this Stipulation and Order, as provided in subparagraph (b) above, or (y) all of the Emerson Shares have been sold and the Net Proceeds of such sales have been paid in accordance with the provisions hereof but the Settlement Amount has not been paid in full, then the parties shall take the following actions and shall request that the Court (or its designee) dispose of the documents deposited with it in the following manner: (i) Consent Judgments and Swiss Judgment. Within five (5) Business Days of either (x) the entry of an order terminating this Stipulation and Order or (y) the date on which all of the Emerson Shares have been sold and the Net Proceeds of such sales have been paid in accordance with the provisions hereof and any portion of the Settlement Amount remains unpaid, the Creditors shall consult with Jurick with respect to the amount of the Consent Judgments to be entered and the amount of the Swiss Judgment, after giving appropriate credit to the Jurick Group for any payments previously made pursuant to paragraph 1 hereof, provided, however, the Consent Judgment against GSE shall be reduced by an amount equal to twenty-seven percent (27%) of the amounts paid to Barclays pursuant to Exhibit A hereof. Following a determination by the Creditors, which determination shall be made in their sole discretion, of the appropriate reduced amount of the Consent Judgments and the Swiss Judgment, the Creditors shall request that, within ten (10) Business Days, Jurick cause each judgment debtor to deliver to them executed Consent Judgments, in form acceptable to counsel for the Creditors, in the reduced amounts (collectively, the "Restated Consent Judgments"). If the Restated Consent Judgments are delivered, the Creditors will then request, on notice to each of the other Lead Parties, that the Court enter the Restated Consent Judgments. Upon the entry by the Court of the Restated Consent Judgments, the original Consent Judgments shall be returned to the judgment debtors. If all of the Restated Consent Judgments are not delivered or any proposed judgment debtor seeks to be heard in any respect concerning the amount or form of any Restated Consent Judgment, then the Court will enter the original Consent Judgments (in the amount of US$1,835,423.26 against GSE and $49.5 million against Jurick and each other judgment debtor). Following the entry of the original Consent Judgments or the Restated Consent Judgments, the Creditors may take any action permitted by law to execute upon their Consent Judgments to collect the unpaid balance, and Stelling may take such actions with respect to the Swiss Judgment. (ii) Other Assets. All assets referred to in paragraph 9(d) above shall be returned to the party which deposited the asset with the Court (or its designee). 2. Jurick Sworn Statements. (a) Within twenty-one (21) days of the execution of this Stipulation, and thereafter, subject to paragraph 5(a)(v)(B) hereof, annually within forty-five (45) days of the end of each calendar year until the Jurick Group has discharged all of its obligations under this Stipulation and Order, Jurick shall file with the Court under seal, a statement, sworn to under penalty of perjury, including a balance sheet (the "Sworn Statements"), sub stantially in the form annexed hereto as Exhibit K, which shall be acceptable to counsel for each of the Creditors, in their judgment reasonably exercised. Simultaneously with the filing of the initial and each subsequent Sworn Statement, Jurick shall provide each of the Creditors with an unsigned, uncertified document containing all of the information set forth in such Sworn Statement but which shall not contain any references to Jurick's name. The initial Sworn Statement shall contain a full and complete list of all assets (other than assets having an aggregate fair market value which is less than US$100,000) held by Jurick directly or indirectly as of the date thereof and shall be accompanied by a quitclaim deed, in form acceptable to counsel for the Creditors, executed by Jurick in favor of the Collateral Agent conveying all property owned by Jurick which is not listed but is required to be listed on such Sworn Statement (a "Deed"). Each subsequent annual Sworn Statement shall contain a full and complete list of all assets (other than assets having an aggregate fair market value which is less than US$100,000) held by Jurick directly or indirectly as of the end of the year to which it relates and shall be accompanied by a Deed dated as of the date of such sworn statement. By delivery of a Deed, Jurick shall not be deemed to have conceded the existence of any such property. (b) In the event that, following the delivery of any Sworn Statement but prior to the payment in full of the Settlement Amount, it is discovered that Jurick held, as of the date thereof, assets of any kind whatsoever not disclosed in such Sworn Statement but which were required to be listed in such Sworn Statement (the "Undisclosed Assets"), the Creditors shall request, on notice to all Lead Parties, that the Court release the applicable Deed(s) so that such assets may be quitclaimed to the Settlement Agent and liquidated by the Settlement Agent for the benefit of the Creditors. The proceeds of any Undisclosed Assets shall be distributed to the Creditors in addition to the Settlement Amount in accordance with the following percentages: Creditor Percentage Barclays 13.13% Stelling 42.43% FIBANK 44.43% The Court and the other parties hereto shall rely upon the initial Sworn Statement in approving and entering into this Stipulation and Order. (a) Following the Effective Date but prior to the payment in full of the Settlement Amount, if Jurick holds liquid assets of any kind whatsoever having an aggregate value which exceeds US$2,000,000 from any source whatsoever (other than the Jurick Payment, the compensation permitted to be paid to Jurick in accordance with paragraph 7(b)(ii) hereof and the stock options to be retained by Jurick in accordance with paragraph 8(b) hereof), such amounts in excess of US$2,000,000 (the "Excess Assets") shall be offset against any unpaid portion of the Jurick Payment and, with respect to any portion of the Jurick Payment that has been paid, the Excess Assets shall be transferred to the Settlement Agent for distribution in accordance with paragraph 3(f), excluding any payments to Jurick. To the extent that, following the Effective Date, Jurick's net worth (exclusive of the value of the Emerson Shares, the Jurick Payment, the compensation permitted to be paid to Jurick in accordance with paragraph 7(b)(ii) hereof and the stock options to be retained by Jurick in accordance with paragraph 8(b) hereof) exceeds US$5,000,000, any Creditor may apply to the Court, on notice to each other Lead Party, for appropriate relief. 2. Compromise of Claims Between and Among Certain Parties Related to the FIBANK Liquidation. (a) In exchange for the agreements by the FIL Liquidator and the Official Liquidators of MBT that are set forth in paragraphs 13(b) and 13(c) below and to be acknowledged in Exhibit J hereto, and in consideration of this entire Stipulation and Order, the FIBANK Liquidator shall not assert any claim on behalf of FIBANK against the estate of either FIL or MBT. (b) In exchange for the agreement by the FIBANK Liquidator that is set forth in paragraph 13(a) above, and in consideration of this entire Stipulation and Order, the FIL Liquidator shall waive all claims exceeding US$1,240,303.62 previously asserted on behalf of FIL in the liquidation proceedings of FIBANK and shall not assert (i) any priority with respect to such amount, or (ii) any additional claims. (c) In exchange for the agreement by Hackett that is set forth in paragraph 13(a) above, and in consideration of this entire Stipulation and Order, the Official Liquidators of MBT shall waive all claims exceeding US$3,510,058.24 previously asserted on behalf of MBT in the liquidation proceedings of FIBANK and shall not assert (i) any priority with respect to such amount, or (ii) any additional claims. (d) In consideration of this entire Stipulation and Order, Barclays shall waive all claims exceeding US$7,711,331.83 previously asserted in the liquidation proceedings of FIBANK and shall not assert (i) any priority with respect to such amount, or (ii) any additional claims. (e) Each member of the Jurick Group, for itself and on behalf of each of its affiliates (whether present or future) agrees to waive all claims in the liquidation proceedings of FIBANK except for net deposits reflected on the books and records of FIBANK not to exceed US$200,000 in the aggregate. 3. Stelling Personal Jurisdiction. By entering into and performing under this Stipulation and Order, Stelling shall not be deemed to have in any respect consented to her being or caused her to be subject to personal jurisdiction in New Jersey or any other part of the United States, except solely with respect to the implementation and enforcement of this Stipulation and Order and the transactions contemplated hereby. 4. The Malpractice Action. (a) The Court has been duly notified of the action brought in this Court by FIL against FIL's former U.S. counsel (the "Malpractice Action"), arising out of alleged legal malpractice in connection with the Emerson Plan and other matters. Notwithstanding the provisions of this Stipulation and Order, FIL may proceed with the Malpractice Action, provided, however, that the Malpractice Action shall be dismissed in the event of a determination by the Court upon a motion by defendants therein that Emerson or Jurick must participate therein as a third party defendant. (b) The proceeds of the Malpractice Action, if any, whether by way of settlement, judgment or otherwise, net of legal fees (contingent or otherwise) and expenses incurred in the Malpractice Action to obtain such proceeds plus an additional $300,000 of other fees incurred in connection therewith, shall be paid to Stelling and credited against the last payment(s) owing to Stelling pursuant to Exhibit A hereof. 5. Confidentiality. The parties hereto agree (which agreement shall survive the termination of this Stipulation and Order) that (a) all documents filed with the Court under seal in connection with this Stipulation and Order, including but not limited to the Sworn Statements, (b) any documents which at the time of receipt are clearly labeled as confidential, and (c) all documents designated by the Court as confidential, shall be treated as confidential by the receiving party and each party agrees to use its best efforts to ensure that such information is not published, disclosed or otherwise divulged to anyone other than employees or officers of such party, its counsel and agents, the Settlement Agent and any potential nominees for such position, the Advisor and any potential nominees for such position and the Court and the Bahamas Court, provided, however, that it is understood that the foregoing shall not apply to: (i) disclosure made with the prior written authorization of the party from whom the material was received; (ii) disclosure of (A) information (other than information received on a confidential basis prior to the Effective Date of this Stipulation and Order) already known by, or in the possession of the receiving party without restrictions on the disclosure thereof at the time such information is supplied or (B) information also furnished by a third party not having any similar duty of confidentiality; (iii) disclosure of information which is required by or appropriate pursuant to applicable law or to any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body having supervisory authority over any party hereto; (iv) disclosure of information in connection with the execution of this Stipulation or any suit, action or proceeding in connection with the implementation of this Stipulation and Order or enforcement of rights hereunder or under any document delivered hereunder; or (v) disclosure of information that prior to such disclosure is or has become publicly available through no violation of this Stipulation and Order. 6. Notices. Notices and other communications provided for herein shall be in writing and shall be delivered, if to the Court, by hand or overnight courier service and, if to any other party, by telex, facsimile transmission or other telegraphic communication equipment of the sending party and by First Class mail, as follows: If to the Court: The Honorable Nicholas H. Politan United States District Court Judge United States District Court for the District of New Jersey The Martin Luther King, Jr. Federal Building 50 Walnut Street Newark, New Jersey 07102 If to Barclays: Mr. Michael B. Nash Senior Vice President Mr. Ronald Spitzer Vice President Barclays Bank PLC 75 Wall Street New York, New York 10265 FAX: (212) 412-5661 with a copy to: Margot B. Schonholtz, Esq. Zalkin, Rodin & Goodman LLP 750 Third Avenue New York, New York 10017 FAX: (212) 682-6331 If to the FIBANK Liquidator: Mr. Thomas Hackett Price Waterhouse Providence House East Hill Street P.O. Box N-3910 Nassau, Bahamas FAX: (809) 326-7308 with a copy to: James Tolan, Esq. Nancy Prahofer, Esq. Dechert, Price & Rhoads 477 Madison Avenue New York, New York 10022 FAX: (212) 308-2041 If to Stelling: Mrs. Petra Stelling IM Berghof 5 8700 Kusnacht Switzerland FAX: 011-411-910-7861 with copies to: Dr. Peter Hafter Lenz & Staehelin Bleigherweg 58 CH-8027 Zurich, Switzerland FAX: 011-411-204-1200 and Thomas P. Ogden, Esq. Davis, Polk & Wardwell 450 Lexington Avenue New York, New York 10017 FAX: (212) 450-5986 and David H. Wollmuth, Esq. Crummy, DelDeo, Dolan, Griffinger & Vechione One Riverfront Plaza Newark, New Jersey 07102-5497 FAX: (201) 639-6236 If to the Jurick Group: Mr. Geoffrey P. Jurick c/o Emerson Radio Corp. 9 Entin Road Parsippany, New Jersey 07054 FAX: 011-85-22-956-1322 with a copy to: Herbert S. Edelman, Esq. Kaye, Scholer, Fierman, Hays & Handler 425 Park Avenue New York, New York 10022 FAX: (212) 836-8689 If to Emerson: Emerson Radio Corp. 9 Entin Road Parsippany, New Jersey 07054 Att: Chief Operating Officer FAX: (201) 428-2022 with copies to: Jeffrey M. Davis, Esq. Wolff & Samson 5 Becker Farm Road Roseland, New Jersey 07068 FAX: (201) 740-1407 and William S. Katchen, Esq. Lowenstein, Sandler, Kohl, Fisher & Boylan 65 Livingston Avenue Roseland, New Jersey 07068 FAX: (201) 992-5820 If to the FIL Liquidator: Mr. Wayne J. Aranha Coopers & Lybrand P.O. Box N 596 2nd Floor Charlotte Charlotte Street Nassau, Bahamas FAX: with a copy to: Thomas P. Ogden, Esq. Davis, Polk & Wardwell 450 Lexington Avenue New York, New York 10017 FAX: (212) 450-4800 All notices and other communications given to any party hereto in accordance with the provisions of this Stipulation and Order shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telex, facsimile transmission or other telegraphic communication equipment of the sender, in each case delivered or sent and mailed (properly addressed) to such party as provided in this paragraph 17 or in accordance with the latest unrevoked direction from such party given in accordance with this paragraph 17. 2. Withdrawal of the Reference. The reference of the Emerson bankruptcy proceedings is hereby withdrawn pursuant to 18 U.S.C. Section 157(d) solely with respect to and to the extent necessary to resolve issues relating to (a) the pending or threatened litigation, proceedings and disputes described above concerning ownership of Emerson common stock issued pursuant to the Emerson Plan, which litigation, proceedings and disputes fall within the retained jurisdiction of the New Jersey Bankruptcy Court, as provided in the Emerson Plan, and (b) the enforcement of this Stipulation and Order and the documents delivered hereunder, the Approval Order and the administration of the transactions contemplated hereby or made necessary hereunder. 3. Continuing Jurisdiction. (a) The Court shall retain continuing jurisdiction over these proceedings for the purposes of enforcing this Stipulation and Order and the documents delivered hereunder and administering the transactions contemplated hereby or made necessary hereunder, including without limitation any litigation, proceedings or disputes arising out of or relating to this Stipulation and Order, the Approval Order, the Emerson Shares, any Marketing Plan or any amendment thereto or other action or advice of the Advisor. (b) Except as otherwise specifically provided herein, the administration and implementation of this Stipulation and Order shall be within the sound discretion of the Court. 4. Transfer of Obligations; Parties in Interest. Whenever in this Stipulation and Order any of the parties hereto is referred to, such reference shall be deemed to include the successors, assigns, heirs and legatees of such party; provided, however, that neither Emerson nor Jurick may assign its rights hereunder without the prior written consent of the other Lead Parties. No party hereto will transfer any of its rights or obligations under this Stipulation and Order unless the transferee agrees in writing to be bound by the terms of this Stipulation and Order to the same extent as its transferor. 5. Admissability. If this Stipulation and Order does not by its terms become, or is not declared, effective, then the provisions of this Stipulation and Order shall be given no probative value in any action or proceeding before any court by any party hereto or any of the parties listed on Exhibit B hereto, and any evidence of any conduct or statements made in connection with the negotiations of this Stipulation and Order shall not be admissible for any purpose in any such action or proceeding. Dated: June 11, 1996 STIPULATED AND AGREED, _/s/ Thomas Hackett___________ THOMAS HACKETT, OFFICIAL LIQUIDATOR OF FIDENAS INTERNATIONAL BANK LIMITED _/s/ Petra Stelling_________ PETRA STELLING BARCLAYS BANK PLC _/s/ Ronald E. Spitzer________ By: RONALD E. SPITZER Title: VICE PRESIDENT __/s/ Wayne J. Aranha_________ WAYNE J. ARANHA, OFFICIAL LIQUIDATOR OF FIDENAS INVESTMENT LIMITED _/s/ Geoffrey P. Jurick_______ GEOFFREY P. JURICK FIDENAS INTERNATIONAL LIMITED L.L.C __/s/ Geoffrey P. Jurick______ By: GEOFFREY P. JURICK Title: MANAGER ELISION INTERNATIONAL, INC. __/s/ Geoffrey P. Jurick______ By: GEOFFREY P. JURICK Title: CHAIRMAN GSE MULTIMEDIA TECHNOLOGIES, INC., F/K/A GSE ELECTRONIC SYSTEMS, INC. _/s/ Geoffrey P. Jurick_______ By: GEOFFREY P. JURICK Title: CHAIRMAN EMERSON RADIO CORP. __/s/ Eugene I. Davis_________ By: EUGENE I. DAVIS Title: PRESIDENT EX-27 4
5 1,000 YEAR MAR-31-1996 MAR-31-1996 16,133 1,872 25,107 1,524 35,292 85,314 7,923 4,422 96,576 35,008 20,750 0 9,000 403 30,979 96,576 241,258 245,667 231,455 231,455 23,556 744 3,275 (13,363) 26 (13,389) 0 0 0 (13,389) (0.35) (0.35)
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