-----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, LkvG4NCDH9emsBWkHOmX9HHmtHGya8zVfBY7g9dU1/69Q25bltEdmbuiK5QsebnE 0LEQXEHewlT2xi1Hbd2hBw== 0000032621-97-000050.txt : 19971117 0000032621-97-000050.hdr.sgml : 19971117 ACCESSION NUMBER: 0000032621-97-000050 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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-Q SEC ACT: SEC FILE NUMBER: 001-07731 FILM NUMBER: 97722145 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 incorporation or organization) Identification No.) 9 Entin Road Parsippany, New Jersey 07054 (Address of principal executive offices) (Zip code) (973)884-5800 (Registrant's telephone number, including area code) (Former name, former address, and former fiscal year, if changed since last report) 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 requirements for the past 90 days. [X] Yes [ ] No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 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 APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of common stock as of November 13, 1997: 45,739,099. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts)
Six Months Ended Three Months Ended September 30, September 30, 1997 1996 1997 1996 Net revenues . . . . . . . . . . . $ 75,543 $101,656 $45,100 $60,509 Costs and expenses: Cost of sales . . . . . . . . . 67,186 96,536 38,787 57,752 Other operating costs and expenses 1,503 1,624 637 689 Selling, general & administrative expenses. . . . . . . . . . . . 7,154 9,705 3,552 4,342 Restructuring and other nonrecurring charges . . . . . . . . . . . . 52 2,734 0 2,734 75,895 110,599 42,976 65,517 Operating profit (loss). . . . . . . (352) (8,943) 2,124 (5,008) Equity in earnings of affiliate. . . 1,089 - 553 - Interest expense . . . . . . . . . . 1,399 1,657 658 845 Earnings (loss) before income taxes. . . (662) (10,600) 2,019 (5,853) Provision for income taxes . . . . . . 41 166 0 190 Net earnings (loss). . . . . . . . . $ (703) $(10,766) $ 2,019 $(6,043) Net earnings (loss) per common share $ (.02) $ (.28) $ .03 $ (.15) Weighted average number of common and common equivalent shares outstanding 41,487 40,274 59,684 40,295 The accompanying notes are an integral part of the interim consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands of dollars)
Sept. 30, March 31, 1997 1997 (Unaudited) ASSETS Current Assets: Cash and cash equivalents . . . . . . . . . $ 2,726 $ 2,640 Accounts receivable (less allowances of $4,591 and $6,001, respectively) . . . . . 8,165 12,452 Inventories . . . . . . . . . . . . . . . . 12,643 13,329 Prepaid expenses and other current assets . 8,140 6,497 Total current assets . . . . . . . . . . . 31,674 34,918 Property and equipment - (at cost less accumulated depreciation and amortization of $3,342 and $3,521, respectively). . . . . 1,721 2,130 Investment in unconsolidated affiliate . . . . 17,022 16,033 Other assets . . . . . . . . . . . . . . . . . 5,319 5,687 Total Assets . . . . . . . . . . . . . . . $ 55,736 $ 58,768 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable . . . . . . . . . . . . . . . $ 3,830 $ 5,689 Current maturities of long-term debt . . . . 86 85 Accounts payable and other current liabilities . . . . . . . . . . . . . . . 12,800 13,053 Accrued sales returns . . . . . . . . . . . 3,094 2,730 Income taxes payable . . . . . . . . . . . . 90 103 Total current liabilities . . . . . . . . 19,900 21,660 Long-term debt . . . . . . . . . . . . . . . . 20,804 20,856 Other non-current liabilities . . . . . . . . 201 223 Shareholders' Equity: Preferred stock - $.01 par value, 10,000,000 shares authorized, 8,016 and 10,000 shares issued and outstanding, respectively . . . . 7,214 9,000 Common stock - $.01 par value, 75,000,000 shares authorized, 44,091,698 and 40,335,642 shares issued and outstanding, respectively. 441 403 Capital in excess of par value . . . . . . . . 110,769 109,278 Accumulated deficit . . . . . . . . . . . . . (103,791) (102,843) Cumulative translation adjustment . . . . . . 198 191 Total shareholders' equity . . . . . . . 14,831 16,029 Total Liabilities and Shareholders' Equity $ 55,736 $ 58,768 The accompanying notes are an integral part of the interim consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands of dollars)
Six Months Ended September 30, 1997 1996 Cash Flows from Operating Activities: Net cash provided by operating activities . . . . . . . . . . . . . . . . $ 2,005 $ 3,322 Cash Flows from Investing Activities: Purchases of investment securities. . . . . . - $ (2,256) Other. . . . . . . . . . . . . . . . . . . . 13 (56) Net cash provided (used) by investing activities . . . . . . . . . . . . . . . . 13 (2,312) Cash Flows from Financing Activities: Net repayments under line of credit facility . . . . . . . . . . . . . . . . . (1,859) (1,965) Other. . . . . . . . . . . . . . . . . . . . (73) (176) Net cash used by financing activities . . . . . . . . . . . . . . . . (1,932) (2,141) Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . 86 (1,131) Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . . . . 2,640 16,133 Cash and cash equivalents at end of period . . $ 2,726(a) $15,002(a) Supplemental disclosure of cash flow information: Interest paid . . . . . . . . . . . . . . . $ 1,399 $ 1,661 Income taxes paid . . . . . . . . . . . . . $ 31 $ 15 (a) The balances at September 30, 1997 and 1996 include $1.7 million and $4.0 million, respectively, of cash and cash equivalents pledged to assure the availability of certain letter of credit facilities. The accompanying notes are an integral part of the interim consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 These unaudited interim consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of Emerson Radio Corp.'s (the "Company" or "Emerson") consolidated financial position as of September 30, 1997 and the results of operations for the three and six month periods ended September 30, 1997 and 1996. The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and accordingly do not include all of the disclosures normally made in the Company's annual consolidated financial statements. It is suggested that these unaudited interim consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto for the year ended March 31, 1997, included in the Company's annual report on Form 10-K. The consolidated financial statements include the accounts of the Company and all of its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of the unaudited interim consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Due to the seasonal nature of the Company's consumer electronics business, the results of operations for the three and six month periods ended September 30, 1997 are not necessarily indicative of the results of operations that may be expected for the full year ending March 31, 1998. NOTE 2 Net earnings per common share for the three months ended September 30, 1997 is based on the weighted average number of shares and related common stock equivalents outstanding during the period. Common Stock equivalents include 17,312,000 shares assuming conversion of $8.0 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. Net loss per common share for the three and six month periods ended September 30, 1996 and the six month period ended September 30, 1997 are based on the net loss and deduction of preferred stock dividend requirements and the weighted average number of shares of common stock outstanding during each period. These per share amounts do not include common stock equivalents assumed outstanding since they are anti-dilutive. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" ("FAS 128"), which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact of FAS 128 on the calculation of primary earnings per share is not expected to be material. NOTE 3 The provision for income taxes for the three and six month periods ended September 30, 1997 and 1996 consist primarily of taxes related to international operations. The Company did not recognize tax benefits for losses incurred by its domestic operations during the three months ended June 30, 1997 or the three and six month periods ended September 30, 1996. NOTE 4 Spare parts inventories, net of reserves, aggregating $1,259,000 and $1,469,000 at September 30, 1997 and March 31, 1997, respectively, are included in "Prepaid expenses and other current assets." NOTE 5 On December 10, 1996, the Company purchased from Sport Supply Group, Inc. ("SSG") 1,600,000 shares of newly issued common stock, $.01 par value per share (the "SSG Stock"), for aggregate consideration of $11.5 million, or approximately $7.19 per share. In addition, the Company purchased, for an aggregate consideration of $500,000, five-year warrants (the "SSG Warrants") to acquire an additional 1,000,000 shares of SSG Stock at an exercise price of $7.50 per share, subject to standard anti-dilution adjustments, pursuant to a Warrant Agreement. Prior to such purchase, the Company beneficially owned approximately 9.9% of the outstanding shares of SSG Stock which it had purchased for $4,228,000 in open market transactions. Based upon the Company's purchase of the SSG Stock as set forth above, and SSG's open market repurchases of SSG Stock through August 1, 1997, the Company owns approximately 28% of SSG's issued and outstanding shares of Common Stock. If the Company exercises all of the SSG Warrants, it will beneficially own approximately 36% of SSG's issued and outstanding Common Stock. In addition, the Company has arranged for foreign trade credit financing of $2 million for the benefit of SSG to supplement SSG's existing credit facilities. In connection with such purchase, SSG appointed the Company's designees to become the majority of the members of its Board of Directors and the Company's management is directly involved in SSG's day-to-day operations. In March 1997, SSG's stockholders elected Emerson's nominees as a majority of the members of its Board of Directors. The investment in, and results of operations of, SSG are accounted for by the equity method. SSG's fiscal year end was October 31; therefore, the Company's equity in earnings (losses) of SSG has been recorded on a two-month delay basis. SSG subsequently changed its year end to September 30, therefore, the Company's equity in earnings (losses) of SSG will be recorded on a three- month delay basis. The Company's investment in SSG includes goodwill of $3,967,000 which is being amortized on a straight line basis over 40 years. Equity in earnings of SSG was $553,000 and $1,089,000 for the three and six month periods ended September 30, 1997. At September 30, 1997, the aggregate market value quoted on the New York Stock Exchange of Emerson's shares of SSG Common Stock was approximately $17,730,000. Summarized financial information derived from SSG's financial reports to the Securities and Exchange Commission was as follows (in thousands): (Unaudited) As of August 1, 1997 Current assets $34,112 Property, plant and equipment and other assets 18,491 Current liabilities 7,149 Long-term debt 6,414 (Unaudited) For the nine months ended August 1, 1997 Net revenues $66,117 Gross Profit 26,144 Earnings from continuing operations 3,580 Loss from discontinued operations (2,574) Net earnings 21
NOTE 6 Long-term debt consists of the following: (In thousands of dollars)
Sept. 30, March 31, 1997 1997 8 1/2% Senior Subordinated Convertible Debentures Due 2002 (the "Debentures"). . . . . . . $20,750 $20,750 Other . . . . . . . . . . . . . . 140 191 20,890 20,941 Less current obligations. . . . . 86 85 $20,804 $20,856
NOTE 7 Pursuant to the Company's bankruptcy restructuring plans on March 31, 1994, 30 million shares of the Company's Common Stock were issued to GSE Multimedia Technologies Corporation ("GSE"), Fidenas International Limited, L.L.C. ("FIN") and Elision International, Inc. ("Elision"). GSE, FIN and Elision (the "Affiliated Entities") are all affiliates of Geoffrey P. Jurick, the Company's Chairman of the Board, Chief Executive Officer and President. On June 11, 1996, a Stipulation of Settlement and Order (the "Settlement Agreement") was executed, which settles various legal proceedings in Switzerland, the Bahamas and the United States. The Settlement Agreement provides for, among other things, the payment by Mr. Jurick and his Affiliated Entities of $49.5 million to various claimants of Mr. Jurick and the Affiliated Entities (the "Creditors"), to be paid from the proceeds of the sale of certain of the 29,152,542 shares of Emerson common stock (the "Settlement Shares") owned by the Affiliated Entities. In addition, Mr. Jurick is to be paid the sum of $3.5 million from the sale of the Settlement Shares. The Settlement Shares are to be sold over an indeterminate period of time by a financial advisor, initially TM Capital (the "Advisor"). The Advisor is formulating a marketing plan taking into consideration (i) the interests of Emerson's minority stockholders, and (ii) the goal of generating sufficient proceeds to pay the Creditors and Mr. Jurick as quickly as possible. The Settlement Shares have been divided into two pools. The Pool A Shares currently consist of 15,286,172 shares of Emerson's common stock. The Pool B Shares currently consist of the number of Emerson shares with respect to which Mr. Jurick must retain beneficial ownership of voting power to avoid an event of default arising out of a change of control pursuant to the terms of the Company's Loan and Security Agreement with a U.S. financial institution (the "Lender") and/or the indenture governing the Company's 8 1/2% Senior Subordinated Convertible Debentures Due 2002 (the "Debentures"). Sales may be made of the Settlement Shares 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 sales are subject to the consent of the Company, Mr. Jurick, the Creditors, and, if necessary, the United States District Court in Newark, New Jersey. All of the Settlement Shares secure payment of the $49.5 million owed to the Creditors on a first priority basis. Any Creditor may apply to the Court for an order to terminate the Settlement Agreement if certain events occur. Such events include, without limitation, delisting of the Settlement Shares from a national securities exchange or a determination that there is no reasonable prospect that the goals contemplated by the Settlement Agreement can be achieved. If the Court enters an order terminating the Settlement Agreement, the Creditors may take any action permitted by law to execute the Consent Judgments given to them in connection with the Settlement Agreement to collect the unpaid balance (including, without limitation, foreclosing on the Settlement Shares). Such termination of the Settlement Agreement and execution of the Consent Judgments would likely result in a change of ownership control of the Company which is an event of default under the Company's borrowing facilities. Such default entitles the holders, in certain circumstances, to accelerate payment of all such indebtedness. Any such acceleration would have a material adverse effect on the Company. 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. 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 $2,453,000, together with interest thereon, attorneys' fees, and certain other 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. 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 amount currently claimed is for $93,563,000, of which $86,785,000 represents a claim for lost profits. The claim will be satisfied, to the extent the claim is allowed by the Bankruptcy Court, in the manner other allowed unsecured claims were satisfied. The Company has objected to the claim and intends to vigorously contest such claim and believes it has meritorious defenses to the highly speculative portion of the claim for lost profits and the portion of the claim for actual damages for expenses incurred prior to the execution of the contracts. An adverse final ruling on the Cineral claim could have a material adverse effect on the Company, even though it would be limited to 18.3% of the final claim determined by a court of competent jurisdiction; however, with respect to the claim for lost profits, in light of the foregoing, the Company believes the chances for recovery for lost profits are remote. On September 24, 1997, pursuant to the terms of his Employment Agreement, as amended, Eugene I. Davis, former Vice Chairman of the Company, was requested to resign as a director. On September 25, 1997 the Company terminated Mr. Davis' employment. The circumstances surrounding such termination of employment are the subject of two proceedings filed in the Superior Court of the State of New Jersey ("Superior Court"). The Company filed an action in the Chancery Division of the Superior Court against Mr. Davis on October 2, 1997, seeking injunctive and other relief arising from claims of breach of contract, breach of good faith and fair dealing and breach of fiduciary duty. On or about October 1, 1997, Mr. Davis filed an action against the Company, its affiliate SSG and various unnamed "Johns Doe" in the Law Division of the Superior Court seeking damages against the Company, its affiliates and the unnamed "Johns Doe", jointly and severally, alleging breach of contract, tortious interference with contractual relationships and compelled defamation. The Company has filed and served an answer to Mr. Davis' claims and has counterclaimed for injunctive and declaratory relief, and money damages, arising from Mr. Davis' breaches of contract, fiduciary duty, conversion, tortious interference with contract and unjust enrichment. While the outcome of these actions are not certain at this time, the Company believes it has meritorious defenses against the claims made by Mr. Davis. In any event, the Company believes the results of the litigation should not have a material adverse effect on the financial condition of the Company or on its results of operations. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition This report contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company's actual results may materially differ from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report. See Other Information - Part II, Item 5. General In April 1997, Emerson executed a four-year agreement with Daewoo Electronics Co. Ltd. and its U.S. affiliate (collectively, "Daewoo"). This agreement provides that, subject to existing agreements relating to sales of certain products to Wal-Mart Stores, Inc. ("Wal-Mart"), Daewoo manufactures and sells television and video products bearing the Emerson and G-Clef trademark to all customers in the U.S. market. The Company arranges sales and provides marketing services and receives commissions for such services. Such commissions are recorded as licensing revenues. Sales of television and video products to Wal-Mart are currently subject to an existing license/supply agreement which expires on March 31, 1998. No assurance can be made that the Company will be able to renew, renegotiate or replace such license/supply agreements on terms favorable to it or if at all, the loss of which would result in a loss of the licensing revenues thereon and would have a material adverse effect on the financial condition of the Company. In June 1997, the Company entered into a non-exclusive license agreement with World Wide One, a Hong Kong corporation, for use of the Emerson and G-Clef trademark in connection with the sale of certain consumer electronics products and other products for sale exclusively to Makro International Far East Ltd. in China, Indonesia, Malaysia, Philippines, South Korea, Taiwan and Thailand. In November 1997, this agreement was amended to expand World Wide One's sales to two additional parties. The term is initially for 18 months, subject to a six month trial period. Emerson provides sourcing and inspection services for at least 50% of World Wide One's purchase requirements. The Company's operating results and liquidity are impacted by the seasonality of its business. The Company records the majority of its annual sales in the quarters ending September 30 and December 31 and receives the largest percentage of customer returns in the quarters ending March 31 and June 30. Therefore, the results of operations discussed below are not necessarily indicative of the Company's prospective annual results of operations. Results of Operations Consolidated net revenues for the three and six month periods ended September 30, 1997 decreased $15,409 (or 25%) and $26,113 (or 26%) as compared to the same periods in the fiscal year ended March 31, 1997 ("Fiscal 1997"), respectively. The decrease resulted primarily from decreases in unit sales of video cassette recorders, televisions and television/video cassette recorder combination units due to the Company's agreement with Daewoo described above. The decrease also resulted from decreases in unit sales of (i) audio products, due to increased demand on foreign suppliers which are producing at or near capacity and shortages of component parts, and (ii) car audio products, which were discontinued in the current year. Furthermore, the Company's Canadian and European sales decreased $1.4 and $4.1 million for the three and six month periods ended September 30, 1997, respectively, relating to the closure of these operations in favor of independent distributors. The reduced revenues were partially offset by increased sales of microwave ovens which was attributable to a broader product line and the introduction of the Company's new home theater product, CinemaSurround(trademark), into France, Germany, the UK and Switzerland, as well as the U.S. market. Revenues earned from the licensing of the Emerson and G-Clef trademark were $1,507,000 and $2,507,000 in the three and six month periods ended September 30, 1997 as compared to $1,001,000 and $2,002,000 in the same periods in Fiscal 1997, respectively. The Company reports royalty and commission revenues earned from its licensing arrangements, covering various products and territories, in lieu of reporting the full dollar value of such sales and associated costs. Consequently, the Company's future related revenues, as compared to pre-Fiscal 1997, are expected to be lower but the Company's gross profit margins should improve. Although the Company expects its United States sales for the quarter ending December 31, 1997 to be lower than the third quarter of Fiscal 1997 due to the Daewoo agreement, the Company expects its U.S. gross sales, excluding video products, to improve and its margins on such sales to also improve due to the change in product mix to higher margin products. Cost of sales, as a percentage of consolidated revenues, was 86% and 89% for the three and six month periods ended September 30, 1997 as compared to 95% for the same periods in Fiscal 1997, respectively. The significant improvement in gross profit margins for the three and six month periods ended September 30, 1997 as compared to the same periods in the prior year were primarily attributable to the change in product mix to higher margin products and the reduction of inventory overhead costs due to the Company's successful efforts to shift a higher proportion of its sales to its customers on a direct import basis. For the three and six month periods ended September 30, 1997, products representing approximately 83% and 86% of net revenues were directly imported from manufacturers to the Company's customers as compared to 60% and 51% for the same periods in the prior year, respectively. The Company's gross profit 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 which tend to be the most competitive and generate the lowest profits. The Company believes that the combination of the (i) arrangement with Daewoo, (ii) license agreement with Cargil, (iii) introduction of its new home theater product, CinemaSurround(trademark), and (iv) distributor agreements in Canada, Europe and parts of Southeast Asia will all have a favorable impact on the Company's gross profit margins. The Company continues to promote its direct import programs to reduce its inventory levels and working capital risks thereby reducing its inventory overhead costs. In addition, the Company continues to focus on its higher margin products and is reviewing new products which can generate higher margins than its current business, either through license arrangements, acquisitions, joint ventures or on its own. Other operating costs and expenses declined $52,000 and $121,000 in the three and six month periods ended September 30, 1997 as compared to the same periods in Fiscal 1997, respectively, primarily as a result of the closure of the Company's Canadian operations. Selling, general and administrative expenses ("S,G&A") as a percentage of revenues, was 8% and 9% for the three and six month periods ended September 30, 1997, as compared to 7% and 10% for the same periods in Fiscal 1997, respectively. In absolute terms, S,G&A decreased by $790,000 and $2,551,000 in the three and six month periods ended September 30, 1997 as compared to the same period in Fiscal 1997, respectively. In the three and six month periods ended September 30, 1997, the decrease was primarily attributable to a reduction in compensation expense relating to the Company's downsizing program in the U.S. The decrease was also favorably impacted by a reduction in professional fees for the six months ended September 30, 1997. The Company recorded restructuring and other nonrecurring charges of $52,000 and $2,734,000 in the six month periods ended September 30, 1997 and 1996, respectively. The charges recorded in the six months ended September 30, 1997 include costs for employee severances relating to further downsizing of the Company's U.S. operations. The charges recorded for the six months ended September 30, 1996 included (i) costs for employee severance, asset writedowns, and facility and equipment lease costs totaling $917,000 related to the closure of the Company's local Canadian office and distribution operations in favor of an independent distributor, and (ii) $1,817,000 of non-recurring charges related to the proposed but unsuccessful acquisition of International Jensen Incorporated. Equity in earnings of SSG amounted to $553,000 and $1,089,000 in the three and six month periods ended September 30, 1997, respectively. SSG reported two consecutive quarters of record earnings as compared to the same periods a year ago in its first two full quarters under Emerson's management. Interest expense decreased by $187,000 and $258,000 in the three and six month periods ended September 30, 1997 as compared to the same periods in Fiscal 1997, respectively. The decrease was attributable to lower average borrowings on the U.S. revolving line of credit facility. The average rate in effect on the credit facility for the three month periods ended September 30, 1997 and 1996 was approximately 9.75% and 9.50%, respectively. As a result of the foregoing factors, the Company generated net earnings of $2,019,000 for the three month period ended September 30, 1997 and incurred a net loss of $703,000 for the six month period ended September 30, 1997, as compared to a net loss of $6,043,000 and $10,766,000 for the same periods in Fiscal 1997, respectively. Liquidity and Capital Resources Net cash provided by operating activities was $2,005,000 for the six months ended September 30, 1997. Cash was provided by the decrease in accounts receivables partially offset by a decrease in accounts payable and other current liabilities. Net cash provided by investing activities was $13,000 for the six months ended September 30, 1997. In the six months ended September 30, 1997, the Company's financing activities utilized $1,932,000 of cash. The Company reduced its borrowings under its U.S. line of credit facility by $1,859,000 through the collection of accounts receivable. The Company maintains an asset-based revolving line of credit facility, as amended, with a U.S. financial institution (the "Lender") which expires on March 31, 1998. The facility provides for revolving loans and letters of credit, subject to individual maximums which, in the aggregate, cannot exceed the lesser of $30 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 September 30, 1997, there was approximately $3.8 million outstanding on the Company's revolving loan facility. At September 30, 1997, the Company's letter of credit facility was not utilized. Based on the "Borrowing Base" amount at September 30, 1997, $1.1 million of the credit facility was not utilized. Pursuant to the terms of the credit facility, as amended, the Company is required to maintain certain financial covenants. At September 30, 1997, the Company was in compliance with all such covenants. The Company plans to renegotiate or replace its asset-based revolving line of credit facility by March 31, 1998. No assurance can be made that the Company will be able to renegotiate or replace its credit facility with the Lender on terms favorable to it or if at all. Although the Company believes that its relationship with the Lender is good, failure by the Company to maintain an asset based lending facility would be an event of default pursuant to the terms of the Indenture governing the Debentures. Such a default, if not cured, would have a material adverse effect on the financial condition of the Company. The Company's Hong Kong subsidiary maintains various credit facilities, as amended, aggregating $30.0 million with a bank in Hong Kong consisting of the following: (i) a $3.5 million credit facility and a $1.5 million seasonal credit facility which expires on December 15, 1997, both of which are generally used for letters of credit for a foreign subsidiary's direct import business and affiliates' inventory purchases, and (ii) a $25 million credit facility for the benefit of a foreign subsidiary, which is for the establishment of back-to-back letters of credit with the Customer. At September 30, 1997, the Company's Hong Kong subsidiary had pledged $1.7 million in certificates of deposit to this bank to assure the availability of these credit facilities. At September 30, 1997, there were approximately $3.9 million and $12.3 million of letters of credit outstanding on the combined $5.0 million and $25 million credit facilities, respectively. The Hong Kong credit facilities are subject to an annual review in April 1998. No assurance can be made that the Company will be able to maintain these credit facilities. Although the Company believes that its relationship with its bank in Hong Kong is good, failure by the Company to renew, renegotiate or replace these credit facilities in April 1998 may have a material adverse effect on the financial condition of the Company or on its operations. The Company successfully concluded several licensing agreements for existing core business products and new products, and intends to pursue additional licensing opportunities. The Company believes that such licensing activities will have a positive impact on net operating results by generating royalty income with minimal costs, if any, and without the necessity of utilizing working capital or accepting customer returns. 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 twelve months. However, the adequacy of future cash flow from (i) operations is dependent upon the Company achieving its business plan and (ii) institutional financing is dependent upon the Company's ability to renegotiate, or refinance its credit facilities. The Company's results of operations were substantially in line with its business plan for the six months ended September 30, 1997. Current trends show that the Company's results of operations for the three months ended December 31, 1997, will be significantly improved as compared with the third quarter of Fiscal 1997. During Fiscal 1997, the Company reduced inventory levels approximately 62% and executed cost-reduction programs in both its U.S. and foreign offices. The Company intends to further reduce inventory levels and shift a higher proportion of its sales to direct import thereby reducing its inventory and its needs for working capital. In Fiscal 1997, products representing approximately 49% of net revenues were directly imported from manufacturers to the Company's customers. The Company's business plan includes an increase in this percentage to approximately 80% in Fiscal 1998 and was 86% for the six months ended September 30, 1997. This increase in the direct import portion of sales is critical in providing sufficient working capital to meet its sales and liquidity objectives. If the Company does not obtain these objectives, it may not have sufficient working capital to finance its operations. It may be necessary for the Company to reduce its investment in the SSG Stock to adequately finance the Company's operations. There can be no assurance that the Company will be able to successfully achieve its business plan in a time frame or manner that will permit the Company to fund current operations and other planned expenditures at current and expected sales volumes, if at all. Additionally, at September 30, 1997 the Company was in arrears on $727,000 of dividends on the Company's Series A Preferred Stock. 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 and at a price per share of common stock equal to 80% times the average of the daily market prices of a share of the Company's common stock for the 60 consecutive days immediately preceding the date of conversion. The preferred stock dividend rate for Fiscal 1998 is 5.6%. 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 Daewoo and Cargil, as discussed above, and the arrangements it has implemented over the past twelve months concerning returned merchandise, should favorably impact the Company's cash flow over their respective terms. The Company's liquidity could also be adversely affected by an adverse outcome of certain matters discussed in Note 7 to the Interim Consolidated Financial Statements included herein. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. EMERSON RADIO CORP. AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 1. Legal Proceedings. The information required by this item is included in Note 7 of Notes to Interim Consolidated Financial Statements filed in Part I of Form 10-Q for the quarter ended September 30, 1997, and is incorporated herein by reference. Please refer to Part 1 Item- 3-Legal Proceedings in the Company's most recent annual report on Form 10-K and Part III - Item 1 - Legal Proceedings in the Company's quarterly report on Form 10-Q for the quarterly period ended June 30, 1997. ITEM 2. Changes in Securities and Use of Proceeds. The Company's U.S. Senior Secured Credit Facility and the Indenture governing the Company's 8-1/2% Senior Subordinated Convertible Debentures due 2002 contain certain dividend payment restrictions on the Company's common stock. In addition, the Company's Certificate of Incorporation defining the rights of the Series A Preferred Stock prohibits payment of dividends on the common stock unless the Series A dividends are paid or put aside. The Series A Preferred Stock accrues dividends payable on a quarterly basis at a 7% dividend rate through March 31, 1997, then declining by a 1.4% dividend rate each succeeding year until March 31, 2001 when no further dividends are payable. The Company is currently in arrears on $727,000 of dividends on the Company's Series A Preferred Stock. The Series A Preferred Stock is convertible into shares of the Company's common stock at any time during the period beginning on March 31, 1997 and ending on March 31, 2002. The conversion rate is equal to 80% times the average of the daily market prices of a share of the Company's common stock for the 60 consecutive days immediately preceding the conversion date. During the three and six months ended September 30, 1997, the Company issued a total of 3,460,026 and 3,756,056 shares of the common stock, respectively, upon conversion of 1684 and 1984 shares of Series A Preferred Stock, respectively. No consideration was received by the Company for the issuance of the shares of common stock. The shares of common stock were issued by the Company to certain of its existing holders of Series A Preferred Stock where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange. The shares of common stock were issued pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended. ITEM 3. Preferred Stock Dividends. As of the date of this report, the Company was in arrears on $727,000 of dividends on its Series A Preferred Stock. ITEM 4. Not Applicable. ITEM 5. Other Information. (a) Certain statements in this quarterly report on Form 10- Q under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this quarterly report and in future filings by the Company with the Securities and Exchange Commission, constitute "forward looking statements" within the meaning of the Reform Act. Such forward looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Such factors include, among others, the following: product supply and demand; general economic and business conditions of the retail consumer electronics market; price competition and competition from companies with greater resources; success of operating initiatives and new product introductions, including CinemaSurround(trademark); operating costs including continuing the Company's cost reduction program and Company's return to vendor program; effects of foreign trade; effects of the reversion of Hong Kong to the sovereignty of the Peoples' Republic of China; advertising and promotional efforts; brand awareness; the existence or absence of adverse publicity; outcome of the events described in Note 7 to the Interim Consolidated Financial Statements which is incorporated by reference herein; success of the Company's acquisition strategy including results of SSG's operations; changes in business strategy or development plans; maintaining important agreements such as the agreement with Daewoo and the Management Services Agreement with SSG; success of management's strategy to finance or refinance the Company's operations; quality of management; success of licensing arrangements; business abilities and judgment of personnel; availability of qualified personnel; labor and employee benefit costs; changes in, or the failure to comply with, government regulations and other factors referenced in this quarterly report. ITEM 6. Exhibits and Reports on Form 8-K. (a) 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) 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) (b) 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) (c) 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) (d) Amendment No. 3 to Financing Agreements, dated as of August 20, 1996 (incorporated by reference to Exhibit (10) (b) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995). (10) (e) Amendment No. 4 to Financing Agreements, dated as of November 14, 1996 (incorporated by reference to Exhibit (10) (c) of Emerson's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996). (10) (f) Amendment No. 5 to Financing Agreements, dated as of February 18, 1997 (incorporated by reference to Exhibit (10) (e) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996). (10) (g) Amendment No. 6 to Financing Agreements, dated as of August 14, 1997.* (10) (h) 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) (i) 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) (j) Extension of Employment Agreement between Emerson and Eugene I. Davis dated April 16, 1997 (incorporated by reference to Exhibit (10)(n) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1997). (10) (k) 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) (l) 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) (m) 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) (n) Extension of Employment Agreement between Emerson and Geoffrey P. Jurick dated April 16, 1997 (incorporated by reference to Exhibit (10)(r) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1997). (10) (o) 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) (p) 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) (q) Amendment No. 1 to Employment Agreement between Emerson and John P. Walker dated April 16, 1997 (incorporated by reference to Exhibit (10)(u) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1997). (10) (r) Employment Agreement, dated January 29, 1996 between Emerson and Marino Andriani (incorporated herein by reference to Exhibit (10) (a) of Emerson's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996). (10) (s) 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) (t) 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) (u) 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) (v) 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) (w) 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) (x) License Agreement, dated as of August 23, 1996 between Emerson and REP Investment Limited Liability Company (incorporated by reference to Exhibit (10) (d) of Emerson's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996). (10) (y) Distribution Agreement, dated as of September 11, 1996 between Emerson, Emerson Radio Canada Ltd. and AVS Technologies Inc. (incorporated by reference to Exhibit (10) (e) of Emerson's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996). (10) (z) Stipulation of Settlement and Order dated June 11, 1996 by and among the Official Liquidator of Fidenas International Bank Limited, Petra Stelling, Barclays Bank PLC, the Official Liquidator of Fidenas Investment Limited, Geoffrey P. Jurick, Fidenas International Limited, L.L.C., Elision International, Inc., GSE Multimedia Technologies Corporation and Emerson. (10) (aa) Pledge Agreement dated as of February 4, 1997 by Fidenas International Limited, L.L.C. ("FIN") in favor of TM Capital Corp. (incorporated by reference to Exhibit (10) (a) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996). (10) (ab) Registration Rights Agreement dated as of February 4, 1997 by and among Emerson, FIN, the Creditors, FIL and TM Capital Corp. (incorporated by reference to Exhibit (10) (b) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996). (10) (ac) License and Exclusive Distribution Agreement with Cargil International Corp. dated as of February 12, 1997 (incorporated by reference to Exhibit (10) (c) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996). (10) (ad) Supply and Inspection Agreement with Cargil International Corp. dated as of February 12, 1996 (incorporated by reference to Exhibit (10) (d) of Emerson's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996). (10) (ae) Agreement dated April 10, 1997 between Emerson and Daewoo Electronics Co., Ltd. (incorporated by reference to Exhibit (10)(ak) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1997). (10) (af) Securities Purchase Agreement dated as of November 27, 1996, by and between Sport Supply Group, Inc. ("SSG") and Emerson (incorporated by reference to Exhibit (2)(a) of Emerson's Current Report on Form 8-K dated November 27, 1996). (10) (ag) Form of Warrant Agreement by and between SSG and Emerson (incorporated by reference to Exhibit (4)(a) of Emerson's Current Report on Form 8-K dated November 27, 1996). (10) (ah) Form of Registration Rights Agreement by and between SSG and Emerson (incorporated by reference to Exhibit (4)(b) of Emerson's Current Report on Form 8-K dated November 27, 1996). (10) (ai) Consent No. 1 to Financing Agreements among Emerson, certain of its subsidiaries, and Congress (incorporated by reference to Exhibit (10)(b) of Emerson's Current Report on Form 8-K dated November 27, 1996). (10) (aj) License Agreement dated as of June 16, 1997 by and between World Wide One Ltd. and Emerson (incorporated by reference to Exhibit (10)(ap) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1997). (10) (ak) Agreement dated as of July 2, 1997 by and between Hi Quality International (U.S.A.) Inc. and Emerson (incorporated by reference to Exhibit (10)(aq) of Emerson's Annual Report on Form 10-K for the year ended March 31, 1997). (10) (al) Form of Indemnification Agreement dated September 23, 1997 by and between the Company and Terrence M. Babilla.* (10) (am) Consulting Agreement effective as of July 1, 1997 by and between the Company and Jerome E. Ruzicka.* (11) Computation of Primary Earnings Per Share.* (27) Financial Data Schedule for the six months ended September 30, 1997.* (b) Reports on Form 8-K: (1) During the three month period ended September 30, 1997, no Form 8-K was filed. __________________ * Filed herewith. EMERSON RADIO CORP. AND SUBSIDIARIES PART II OTHER INFORMATION - CONTINUED SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EMERSON RADIO CORP. (Registrant) Date: November 14, 1997 /s/ Geoffrey P. Jurick Geoffrey P. Jurick Chairman, Chief Executive Officer and President Date: November 14, 1997 /s/ John P. Walker John P. Walker Executive Vice President and Chief Financial Officer EX-27 2
5 1000 6-MOS MAR-31-1998 SEP-30-1997 2,726 0 12,756 4,591 12,643 31,674 5,063 3,342 55,736 19,900 20,750 0 7,214 441 7,176 55,736 73,036 75,543 67,186 67,186 8,775 (66) 1,399 (662) 41 (703) 0 0 0 (703) .03 .03
EX-1 3 AMENDMENT NO. 6 TO FINANCING AGREEMENTS August 14, 1997 Emerson Radio Corp. Majexco Imports, Inc. 9 Entin Road Parsippany, New Jersey 07054 Gentlemen: Congress Financial Corporation ("Lender"), Emerson Radio Corp. ("Emerson") and Majexco Imports, Inc. ("Majexco; together with Emerson, individually and collectively, the "Borrower") have entered into certain financing arrangements pursuant to the Loan and Security Agreement, dated March 31, 1994, currently between Lender and Borrower, as amended by Amendment No. 1 to Financing Agreements, dated August 24, 1995, Amendment No. 2 to Financing Agreements, dated February 13, 1996, Amendment No. 3 to Financing Agreements, dated August 20, 1996, Amendment No. 4 to Financing Agreements, dated November 14, 1996 and Amendment No. 5 to Financing Agreements, dated February 18, 1997 (the "Loan Agreement"), together with various other agreements, documents and instruments at any time executed and/or delivered in connection therewith or related thereto (as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, collectively, the "Financing Agreements"). All capitalized terms used herein and not herein defined shall have the meanings given to them in the Financing Agreements. Borrower has requested that Lender agree to certain amendments to the Financing Agreements, and Lender is willing to agree to such amendments, subject to the terms and conditions set forth herein. In consideration of the foregoing, the mutual agreements and covenants contained herein and other good and valuable consideration, the parties hereto agree as follows: 1. ADJUSTED NET WORTH COVENANT. Section 9.14(a) of the Loan Agreement, as previously amended through Amendment No. 5 to Loan Agreement, shall be further amended by deleting the last sentence thereof and replacing it with the following, effective as of June 30, 1997: "As used herein, the `Base Amount' shall mean the amount of $15,000,000." 2. FEE. In consideration of Lender's entering into this Amendment, Borrower shall pay Lender a facility amendment fee in an amount equal to $5,000, payable simultaneously with the execution hereof, which fee is fully earned as of the date hereof. Such fee may, at Lender's option, be charged directly to any of Borrower's Revolving Loan accounts maintained by Lender under the Financing Agreements. 3. MISCELLANEOUS. (a) ENTIRE AGREEMENT; RATIFICATION AND CONFIRMATION OF THE FINANCING AGREEMENTS. This Amendment contains the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous term sheets, proposals, discussions, negotiations, correspondence, commitments and communications between or among the parties concerning the subject matter hereof. This Amendment may not be modified or any provision waived, except in writing signed by the party against whom such modification or waiver is sought to be enforced. Except as specifically modified pursuant hereto, the Financing Agreements are hereby ratified, restated and confirmed by the parties hereto as of the effective date hereof. To the extent of conflict between the terms of this Amendment and the Financing Agreements, the terms of this Amendment shall control. (b) GOVERNING LAW. This Amendment and the rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the laws of the State of New York. (c) BINDING EFFECT. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. (d) COUNTERPARTS. This Amendment may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. By the signatures hereto of each of their duly authorized officers, all of the parties hereto mutually covenant and agree as set forth herein. Very truly yours, CONGRESS FINANCIAL CORPORATION By: /s/ Kenneth G. Donahue Title: Vice President AGREED AND ACCEPTED: EMERSON RADIO CORP. By: /s/ John Walker Title: EVP & CFO MAJEXCO IMPORTS, INC. By: /s/ John Walker Title: CONSENTED TO AND AGREED: H.H. SCOTT, INC. EMERSON COMPUTER CORP. By: /s/ John Walker Title: EMERSON RADIO CANADA LTD. By: /s/ John Walker Title: EMERSON RADIO & TECHNOLOGIES N.V. By: /s/ John Walker Title: EX-2 4 as of July 1, 1997 Mr. Jerome E. Ruzicka 33 Adams Drive Stow, Massachusetts 01775 CONSULTING AGREEMENT ("AGREEMENT") Dear Mr. Ruzicka: This letter, when signed by you, will confirm, and set forth the terms of, the agreement between Emerson Radio Corp. ("Emerson" or "the Company") and you, effective as of July 1, 1997 ("effective date"), regarding the services you shall be performing for Emerson. Accordingly, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, Emerson and you mutually agree as follows: 1. Emerson engages you as a non-exclusive independent contractor to provide consulting services for the design, development, specification and marketing of products employing the proprietary technology ("Licensed Technology") to which Emerson has secured rights under the licensing agreement with REP Investment LLC, made as of August 23, 1996 ("License Agreement"). You agree to devote your best efforts, skills, abilities and such time as is necessary for the successful performance of the services as hereinafter defined, subject to the provisions set forth in this Agreement. 2. The objectives of the work to be performed shall be for you to assist Emerson and Emerson's engineering-manufacturing vendor personnel in establishing a profitable high-growth new business venture based on the Licensed Technology and to (1) devise variations of the Micro-10 product to prevent early saturation of sales by expanding into diverse markets, and (2) facilitate development of a comprehensive matrix of products, based on the Licensed Technology, to build and grow a profitable business over a multi-year horizon. Your duties shall include, but not be limited to, the following: A. Advise and assist Emerson's CinemaSurround(Trademark) product line manager (presently Gene Rissetto, Vice President - Product Development of Emerson Radio Consumer Products Corporation) in matters relating to audio technology, engineering application and product design and evaluation, working in collaboration with Emerson's designated engineering- manufacturing vendor(s) (presently known to be ATLM). Such duties may include on-site consulting at Emerson's, or its vendor's(s'), engineering- production facilities, including those in the Far East. B. Provide general technical support, product line conceptual design, feature and benefit recommendations, application engineering assistance, prototype evaluation and trouble shooting, design defect identification and product improvement design recommendations. It is understood by the parties that the services to be provided under this agreement are to be performed as needed by the market and development status of the Licensed Technology and, therefore, shall not generally be delivered uniformly over time. Periods of both high and low demands are anticipated. However, it is agreed that generally you shall provide the services on an average of three (3) days per week. Moreover, notwithstanding any provision of this Agreement to the contrary, you shall not be required to provide services on more than one hundred fifty-six (156) days, with not more than twenty (20) days outside the continental United States, during the term of this Agreement. Travel time and time spent in preparing reports shall be included for purposes of such time limits. All services to be provided under this agreement are collectively referred to hereinafter as "Services". 3. You represent that to the best of your knowledge you are not aware of any certificates or licenses which you are required to obtain in order to perform the Services. You agree that you will use reasonable efforts to keep current on any such requirements and will so comply when, and if, necessary. You also agree to comply with all applicable International, Federal, State and Local laws, rules and regulations of which you are aware, in performing the Services, and to confirm such compliance upon request by Emerson. You further warrant that in performing your Services you shall not violate or in any way infringe upon any third party's property, contractual, employment, trade secrets, proprietary information, non-disclosure, trademark, copyright or patent rights of which you have knowledge. 4. In the performance of your Services, you shall cooperate fully with all officers, employees and agents of Emerson as Emerson's Chief Executive Officer, Board of Directors, President of Emerson Radio Consumer Products Corporation or Vice President - Product Development of Emerson Radio Consumer Products Corporation may direct. Emerson shall designate from time to time a representative to serve as your primary contact with Emerson. You may rely upon any instructions or information given to you by such representative. In the event you receive any conflicting instructions or information given by such representative, officers, employees or agents of Emerson, you shall advise such representative of the conflict and such representative shall resolve same internally with the Company and advise you of the final instructions. The representative initially designated by Emerson is Gene Rissetto, Vice President- Product Development of Emerson Radio Consumer Products Corporation. The representative may be changed from time to time by written notice to you from the Chairman of the Board of Directors of Emerson or the President of Emerson Radio Consumer Products Corporation. 5. You agree that the relationship between you and Emerson under this Agreement is one of independent contractor. In performance of the Services, you shall have no authority, and shall not represent or hold yourself out as having such authority, to enter into any agreement on behalf of Emerson or bind or commit Emerson in any way unless otherwise agreed to in writing between Emerson and you. Your engagement under this agreement is limited solely to providing the Services as set forth herein. Since you are not an employee, you shall not be entitled to receive any employee benefits or be entitled to participate in any medical, health or other plan available to employees of the Company. 6. The term of this agreement commenced as of July 1, 1997 and it shall be in full force and effect for a period of one year (1) from the effective date. During the six (6) month period commencing as of the effective date of this agreement, either party may terminate this agreement if the other party breaches this agreement and such breach is not cured within thirty (30) days after written notice and demand. After such six (6) month period, either party may terminate this agreement at any time for any reason or no reason upon giving the other party thirty (30) days' prior written notice. Upon expiration or termination of this agreement, you shall promptly return to Emerson all inventory, reports, documents, catalogs, literature, materials and tangible property (whether in electronic, paper or any other format or medium) supplied by Emerson or created or supplied by you or third parties arising from the Services and any other confidential information in your possession, custody or control related to the Services. Paragraphs 6, 7B, 7C, 7E, 7H, 9, 14, 16, 17, 19, 20 and 22 shall survive any termination or expiration of this agreement. 7. [redacted] 8. You represent that you are not subject to any restrictions (contractual or otherwise) which prevent you from accepting this engagement. You covenant and agree that, provided Emerson is not in default under the terms of this agreement, for the period you are receiving payments under Paragraph 7.A, you shall not render any services to any third parties which would conflict with any of your responsibilities hereunder or create a conflict of interest. In addition, for the period you are receiving payments as set forth in Paragraph 7.A, you also agree that you shall not represent, consult to, or become a principal or owner in any entity attempting to develop or sell products incorporating the Licensed Technology, whether directly or indirectly, alone or as a member of a partnership or as an officer or stockholder of any corporation or as an employee or agent thereof be engaged in or concerned with any business engaged in such activities during such period, in any such case without Emerson's prior written approval. Your interest in REP Investment Limited Liability Company, your representation of its interests under the License Agreement and your supervision of its activities shall not be deemed to conflict with your obligations under this Agreement. 9. You shall use diligent efforts to perform the Services in accordance with prevailing industry standards and you agree to indemnify, defend and hold Emerson harmless from and against all demands, claims, damages, losses and defenses (including reasonable costs, fees of attorneys, accountants and expert witnesses) arising out of or resulting from your performance of, or omission to perform, the Services due to gross negligence or willful misconduct. No settlement shall be made without Emerson's prior written consent. Emerson acknowledges that you are not warranting the achievement of any particular results. Emerson agrees to indemnify, defend and hold you harmless from and against all demands, claims, damages, losses and defenses (including reasonable costs, fees of attorneys, accountants and expert witnesses) for any claims arising out of or resulting from the Services other than those based upon your gross negligence or willful misconduct. 10. In the event any provisions contained in the License Agreement with respect to rights to, or obligations in respect of, the Licensed Technology are inconsistent with the provisions of this agreement, the terms of the License Agreement shall govern. 11. This agreement is the complete agreement between the parties regarding the Services. This agreement may not be changed orally but only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. 12. The failure of either party to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such terms, covenants or conditions, nor shall any waiver or relinquishment of any right or power hereunder at any one time or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 13. The invalidity or unenforceability of any provision of this agreement shall in no way affect the validity or enforceability of any other provisions. 14. Any notice or process shall be in writing and shall be deemed to have been duly given to you if the same is 1.) delivered personally; 2.) received by overnight delivery service; 3.) received by registered or certified mail, return receipt requested; or, 4.) received by facsimile, with a copy to Jaffe, Raitt, Heuer & Weiss, Professional Corporation, One Woodward Avenue, Detroit, Michigan 48226, Attention Joel J. Morris, to the location set forth above or to such other location as you may designate by a notice given in like manner. In the case of notice or service of process to Emerson, it shall be duly given if same is 1.) delivered personally; 2.) received by overnight delivery service; 3.) received by registered or certified mail, return receipt requested; or 4.) received by facsimile, to the President, Emerson Radio Consumer Products Corporation, with a copy to the Company's Law Department, at Nine Entin Road, Parsippany, New Jersey 07054 or to such other location as it may designate by a notice given in like manner. Notices by counsel on behalf of a party shall be effective as if given by the party. 15. This agreement shall be binding upon and inure to the benefit of the parties, their heirs, legal representatives, successors and assigns. 16. This agreement shall be deemed to have been made, executed and delivered in and shall be governed by and enforced in accordance with the laws of, the State of New Jersey, United States of America. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be governed by and enforced in accordance with the laws of the State of New Jersey regardless of the choice of law rules and conflict of law principles. Any dispute arising as to the legal nature of this agreement shall be settled in the courts of the State of New Jersey, in Morris County, which shall have exclusive jurisdiction over all controversies that may arise under or in relation to this Agreement, especially with respect to its validity, execution, interpretation, enforcement, or compliance, the parties hereby consenting to service, jurisdiction, and venue of such courts for any litigation arising from this agreement and waiving any other venue to which they may be entitled to by virtue of domicile, residence, or otherwise. 17. The Company may periodically request various reports from you on the Services during the term of this Agreement. You agree to submit the reports within the specified time provided by Emerson, which timing shall be reasonable. You also agree to keep and maintain all records of your Services for not less than six (6) years following expiration or earlier termination, as provided herein, of this agreement and to permit any duly authorized employee, agent or representative of the Company to inspect and copy any and all such books and records upon telephone notice. 18. This agreement is non-assignable unless agreed to in writing by the parties. 19. You shall use your own name in all dealings and may not use any trademarks or tradenames or rights to use same belonging to the Company and/or its subsidiaries or affiliates ("Brand Names and Marks") without the Company's prior written consent in each instance. To the extent the Company gives such consent, you may use such trademarks only in connection with the performance of its Services. The Company may withdraw such consent at anytime. Thereafter, no advertising or other use of the Brand Names and Marks may be made by you without the Company's prior written approval in each instance. All use of the Brand Names and Marks and all goodwill associated therewith shall inure to the benefit of the Company. You shall have no interest in or rights to the Brand Names or Marks or any of them nor shall you have or accrue any interest in or to the goodwill associated therewith. Upon expiration or earlier termination of this agreement, you shall discontinue all use of the Brand Names or Marks in advertising or otherwise, and shall remove all signs and displays relating thereto and shall return to the Company at the Company's expense, all signs, displays and other writings and materials relating thereto. You are not and this agreement does not constitute you as being a holder of a license or permit to use the Brand Names or Marks nor shall this Agreement be deemed to make you a franchisee. 20. All ideas, written materials, and other developments or improvements conceived by you, alone or with others, during the term of this agreement, that are within the scope of the Services of this agreement and are for the Company, are the exclusive property of the Company, subject to the terms of the License Agreement. You agree to use reasonable efforts to assist the Company, at its expense, to obtain copyrights or any other applicable proprietary rights ("rights") on any such ideas, written materials, and other developments, and you agree to execute such documents and to take such actions at no cost to you as the Company may reasonably request in order to obtain such rights in its name. Nothing in this Paragraph 20 or elsewhere in this Agreement shall affect the rights of REP Investment Limited Liability Company under the License Agreement. 21. This agreement and the rights and obligations hereunder do not and shall not confer any rights to any third parties and no third parties shall have any rights under this Agreement. 22. During the course of your engagement, you will have access to confidential information relating to the business, methods and practices of the Company, including its rights to and efforts to sell, products with the Licensed Technology, its plans for new products, its pricing policies, and its relationships with vendors, accounts, customers, employees, etc. You acknowledge that all the foregoing is confidential and that disclosure or threatened disclosure of any of such confidential and proprietary information would have a material adverse effect upon the business and prospects of the Company. Accordingly, you agree to keep confidential and not to disclose all or any part of the foregoing information. Should you violate or threaten to violate the terms of this paragraph or those of paragraphs 5, 19 and 20, you acknowledge that the Company could be irreparably injured and that it will not have an adequate remedy at law. Accordingly, you agree that in any such event, the Company may seek and obtain a temporary restraining order, injunction or other appropriate equitable relief without proof of actual damages or the posting of a bond or other security. If the above terms conform with your understanding, kindly sign this letter in the appropriate space below. Very truly yours, Emerson Radio Consumer Products Corporation by: /s/ Marino Andriani President Acknowledged, agreed and accepted this 16th day of October, 1997 Emerson Radio Corp. by: /s/ Elizabeth J. Calianese /s/ Jerome E. Ruzicka Vice President Jerome E. Ruzicka EX-3 5 INDEMNIFICATION AGREEMENT This Agreement is made effective as of September 23, 1997, by and between Emerson Radio Corp., a Delaware corporation (the "Company"), and Terrence M. Babilla ("Employee"). W I T N E S S E T H: WHEREAS, in order to induce Employee to serve the Company, the Company has agreed to provide Employee with the benefits contemplated by this Agreement; NOW, THEREFORE, in consideration of the promises, conditions, representations, and warranties set forth herein, the Company and Employee hereby agree as follows: 1. DEFINITIONS. The following terms, as used herein, shall have the following respective meanings: "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act")), other than Geoffrey P. Jurick or a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the total voting power represented by the Company's then outstanding voting securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease, for any reason, to constitute a majority of the Board of Directors, (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for sale or disposition by the Company of all or substantially all of the Company's assets. "Claim" means any threatened, pending, or completed action, suit, or proceeding, or any inquiry or investigation, whether conducted by or on behalf of the Company or any other party, that Employee in good faith believes might lead to the institution of any such action, suit, or proceeding, whether civil, criminal, administrative, investigative, or other. "Covered Act" means any breach of duty, neglect, error, misstatement, misleading statement, omission, or other act done or wrongfully attempted by Employee or any of the foregoing alleged by any claimant or any event or occurrence related to the fact that Employee is or was a director, officer, employee, agent, or fiduciary of the Company or is or was serving at the request of the Company as a director, officer, employee, trustee, agent, or fiduciary of another corporation, partnership, joint venture, trust, or other entity. "Determination" means a determination, based on the facts known at the time, by: (i) A majority vote of a quorum of disinterested directors; (ii) Special, independent legal counsel in a written opinion prepared at the request of a majority of a quorum of disinterested directors or pursuant to Section 4(a); (iii) A majority of the disinterested stockholders of the Company; or (iv) A final adjudication by a court of competent jurisdiction. "Determined" shall have a correlative meaning. "Excluded Claim" means any Claim: (i) Based upon or attributable to Employee gaining in fact any personal profit or advantage to which Employee is not entitled; (ii) For the return by Employee of any remuneration paid to Employee without the previous approval of the stockholders of the Company which is illegal; (iii) Resulting from Employee's knowingly fraudulent, dishonest, or willful misconduct; or (iv) Any claim for which indemnification is prohibited by applicable law. "Expenses" means any expense incurred by Employee as a result of a Claim or Claims made against him for Covered Acts including, without limitation, attorneys' fees and all other costs, expenses, and obligations paid or incurred in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing to defend, be a witness in, or participate in any Claim relating to any Covered Act, but shall not include Fines. "Fines" means any fine, penalty or, with respect to an employee benefit plan, any excise tax or penalty assessed with respect thereto. "Losses" means any amount that Employee is legally obligated to pay as a result of a Claim or Claims made against him for Covered Acts including, without limitation, damages and judgments and sums paid in settlement of a Claim or Claims, but shall not include Fines. 2. MAINTENANCE OF DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. (a) The Company hereby covenants and agrees that, subject to the provisions of the Company's Certificate of Incorporation or Corporate By- Laws, as may be amended from time-to-time, regarding the Company's power and authority to purchase insurance or other arrangement for its directors or officers, so long as Employee shall continue to serve as an employee of the Company and thereafter so long as Employee shall be subject to any Claim for any Covered Act, the Company, subject to Section 2(c), shall purchase or maintain in full force and effect directors' and officers' liability insurance or other arrangement. (b) In all policies of directors' and officers' liability insurance or other arrangement maintained by the Company, Employee shall be named as an insured (to the extent permitted, if at all, by the Company's directors' and officers' liability insurance carrier or other arrangement provider) in such a manner as to provide Employee the same rights and benefits, subject to the same limitations, as are accorded to the Company's directors or officers most favorably insured by such policy. (c) The Company shall have no obligation to maintain directors' and officers' liability insurance or other arrangement if the Board of Directors of the Company determines not to purchase and maintain such insurance or other arrangement as set forth in the Company's Certificate of Incorporation or Corporate By-Laws, including but not limited to, a determination in good faith that such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount of coverage provided, or the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit. 3. INDEMNIFICATION. The Company shall indemnify Employee and hold him harmless from any and all Losses, Expenses, and Fines to the fullest extent authorized, permitted, or not prohibited (i) by the General Corporation Law of the State of Delaware (the "GCL"), or any other applicable law (including judicial, regulatory, or administrative interpretations or readings thereof), the Company's Certificate of Incorporation or Bylaws as in effect on the date hereof, or (ii) by any amendment thereof or other statutory provisions authorizing or permitting such indemnification that is adopted after the date hereof, subject to the further provisions of this Agreement. In the event that after the date hereof the Company provides any greater right of indemnification, in any respect, to any other person serving as an officer, director or employee of the Company, then such greater right of indemnification shall inure to the benefit of and shall be deemed to be incorporated in this Agreement. In the event the provisions of this Agreement are prohibited by the provisions of the Company's Corporate By-Laws or Certificate of Incorporation, the Company's Certificate of Incorporation and Corporate By-Laws shall prevail. 4. EXCLUDED COVERAGE. (a) The Company shall have no obligation to indemnify Employee for and hold him harmless from any Loss, Expense, or Fine which has been Determined to constitute an Excluded Claim, provided that in the event of a Change in Control, then with respect to all matters thereafter arising concerning the rights of Employee to indemnity payments and Expense advances under this Agreement, or any other agreements or bylaws now or hereafter in effect relating to Claims for Covered Acts, a Determination with respect to an Excluded Claim shall be made only by a court of competent jurisdiction or by special, independent legal counsel selected by Employee and approved by the Company (which approval shall not be unreasonably withheld), and who has not otherwise performed services for the Company or Employee. In the event that Employee and the Company are unable to agree on the selection of the special, independent legal counsel, such special, independent legal counsel shall be selected by lot from among at least five law firms designated by Employee, each in the State of Delaware, Essex and Morris Counties, New Jersey or Dallas, Texas, having more than thirty-five (35) attorneys and having a rating of "av" or better in the then current Martindale-Hubbell Law Directory. Such selection shall be made in the presence of Employee (and Employee's legal counsel or either of them, as Employee may elect). Such special, independent legal counsel, among other things, shall determine whether and to what extent Employee would be permitted to be indemnified under applicable law and shall render its written opinion to the Company and Employee to such effect. If there has been a Determination that the Company is not obligated to indemnify Employee as a result of an Excluded Claim (whether by special, independent legal counsel or otherwise), Employee shall have the right to commence litigation in any court in the States of Delaware, New Jersey or Texas having subject matter jurisdiction thereof, and in which venue is proper, challenging any such Determination; provided that the Company shall be entitled to be reimbursed by Employee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid with respect to such Excluded Claim (only upon a final judicial Determination that Employee is not entitled to indemnification made with respect thereto as to which all rights of appeal therefrom have been exhausted or lapsed) and the Company shall be obligated to indemnify or advance any additional amounts to Employee attributable to the defense of such Excluded Claim until such a judicial Determination has been made. (b) The Company shall use its best efforts to make the Determination contemplated herein promptly. Upon request by Employee, in connection with any matter for which indemnification or reimbursement may be sought hereunder, the Company agrees to promptly make a Determination whether such matter constitutes an Excluded Claim. In this connection, the Company agrees: (i) if the Determination is to be made by a majority of disinterested directors of the Company or a committee thereof, such Determination shall be made not later than fifteen (15) days after a written request for a Determination (a "Request") is delivered to the Company by Employee; (ii) if the Determination is to be made by special, independent legal counsel, such Determination shall be made not later than ninety (90) days after a Request is delivered to the Company by Employee; and (iii) if the Determination is to be made by the stockholders of the Company, such Determination shall be made not later than one hundred fifty (150) days after a Request is delivered to the Company by Employee. The failure to make a Determination within the above-specified time periods shall constitute a Determination approving full indemnification or reimbursement of Employee. All costs of making the Determination shall be borne solely by the Company. (c) The Company shall have no obligation to indemnify Employee and hold him harmless for any Loss, Expense, or Fine to the extent that Employee is actually and finally reimbursed for such Loss, Expense, or Fine by the Company pursuant to the Company's Certificate of Incorporation, Bylaws, or otherwise. (d) The Company shall have no obligation to indemnify Employee and hold him harmless for any Fines to the extent that such indemnification is prohibited by the GCL. 5. INDEMNIFICATION PROCEDURES. (a) Promptly after receipt by Employee of notice of the commencement of or the threat of commencement of any Claim, Employee shall, if indemnification with respect thereto is being sought from the Company under this Agreement, notify the Company of the commencement thereof, provided that failure to so notify the Company shall not relieve the Company from any liability that it may have to Employee under this Agreement unless such failure materially and adversely affects the rights of the Company thereunder. (b) Subject to the provisions of this Agreement if, at the time of the receipt of such notice, the Company has directors' and officers' liability insurance or other arrangement in effect, the Company shall give prompt and proper notice of the commencement of such Claim to the insurer or other arrangement provider. The Company shall thereafter take all necessary or desirable action to pay or to cause such insurer to pay, on behalf of Employee, all Losses, Expenses, and Fines payable as a result of such Claim in accordance with the terms of such policies. (c) To the extent the Company does not, at the time of the commencement of or the threat of commencement of such Claim, have applicable directors' and officers' liability insurance or other arrangement provider, or if the full amount of any Expenses arising out of such action, suit, or Claim will not be payable under such insurance then in effect, the Company shall be obligated to pay the Expenses relating to any such Claim in advance of the final disposition thereof and the Company, if appropriate, shall be entitled to assume the defense of such Claim, with counsel reasonably satisfactory to Employee, upon the delivery to Employee of written notice of its election so to do. After delivery of such notice, the Company will not be liable to Employee under this Agreement for any legal or other Expenses subsequently incurred by Employee in connection with such defense other than reasonable costs of investigation, provided that Employee shall have the right to employ its counsel in any such Claim but the fees and expenses of such counsel incurred after delivery of notice from the Company of its assumption of such defense shall be at the Employee's expense, provided further that if (i) the employment of counsel by Employee has been previously authorized by the Company, (ii) Employee shall have reasonably concluded that there may be a conflict of interest between the Company and Employee in the conduct of any such defense, or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such action, the reasonable fees and expenses of counsel shall be at the expense of the Company. (d) All payments on account of the Company's indemnification obligations under this Agreement shall be made promptly, but in any event within thirty (30) days of Employee's written request therefor, provided that all payments on account of the Company's obligations under Paragraph 5(c) of this Agreement prior to the final disposition of any Claim, shall be made within ten (10) days of Employee's written request therefor. (e) Employee agrees that he will reimburse the Company for all Losses, Expenses, and Fines paid by the Company on behalf of Employee in connection with any Claim against Employee in the event and only to the extent that a Determination shall have been made by a court in a final adjudication from which there is no further right of appeal that the Employee is not entitled to be indemnified by the Company for such amounts because the Claim is an Excluded Claim or because Employee is otherwise not entitled to payment under this Agreement. 6. FINAL DETERMINATION; SETTLEMENT. The Company shall pay all Losses or Fines for which Employee is indemnified hereunder upon final determination thereof. The Company shall have no obligation to indemnify Employee under this Agreement for any amounts paid in settlement of any Claim effected without the Company's prior written consent. The Company shall not settle any claim in any manner which would impose any Fine or any obligation on Employee without Employee's written consent. Neither the Company nor Employee shall unreasonably withhold their consent to any proposed settlement. 7. RIGHTS NOT EXCLUSIVE. The rights provided hereunder shall not be deemed exclusive of any other rights to which Employee may be entitled under any charter provision, bylaw, agreement, vote of stockholders or of disinterested directors or otherwise, both as to action in his official capacity and as to action in any other capacity by holding such office, and shall continue after Employee ceases to serve the Company as an employee. 8. ENFORCEMENT. (a) Employee's right to indemnification shall be enforceable by Employee only in the state courts of the States of Delaware, New Jersey and Texas, and shall be enforceable notwithstanding any adverse Determination. In any such action, if a prior adverse Determination has been made, the burden of proving that indemnification is required under this Agreement shall be on Employee. The Company shall have the burden of proving that indemnification is not required under this Agreement if no prior adverse Determination shall have been made. (b) In the event that any action is instituted by Employee under this Agreement, or to enforce or interpret any of the terms of this Agreement, Employee shall be entitled to be paid all court costs and expenses, including reasonable counsel fees, incurred by Employee with respect to such action, unless the court determines that each of the material assertions made by Employee as a basis for such action were not made in good faith or were frivolous. 9. SEVERABILITY. In the event that any provision of this Agreement is determined by a court to require the Company to do or to fail to do an act which is in violation of applicable law, such provision shall be limited or modified in its application to the minimum extent necessary to avoid a violation of law, and, as so limited or modified, such provision and the balance of this Agreement shall be enforceable in accordance with its terms. 10. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (AND NOT THE CHOICE OF LAW PROVISIONS) OF THE STATE OF DELAWARE. 11. CONSENT TO JURISDICTION. The Company and Employee each hereby irrevocably consent to the jurisdiction of the courts of the States of Delaware and Texas for all purposes in connection with any action or proceeding that arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the States of Delaware and Texas. 12. SUCCESSORS AND ASSIGNS. This Agreement shall be (i) binding upon all successors and assigns of the Company (including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law) and (ii) shall be binding on and inure to the benefit of the heirs, personal representatives, and estate of Employee. 13. AMENDMENT. No amendment, modification, termination, or cancellation of this Agreement shall be effective unless made in a writing signed by each of the parties hereto. 14. SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Employee, who shall execute all instruments required and shall do everything that may be necessary to secure such rights, including the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. IN WITNESS WHEREOF, the Company and Employee have executed this Agreement as of the day and year first above written. EMERSON RADIO CORP. By: Geoffrey P. Jurick Chairman of the Board, Chief Executive Officer and President Terrence M. Babilla Employee EX-11 6 EXHIBIT 11 Emerson Radio Corp. and Subsidiaries Exhibit to Form 10-Q Computation of Primary Earnings Per Share (in thousands, except per share data)
Six Months Ended Three Months Ended September 30, September 30, 1997 1996 1997 1996 Net earnings (loss) $ (703) $(10,766) $ 2,019 $(6,043) Preferred Stock dividends 245 350 N/A 175 Net earnings (loss) attributable to common shareholders $ (948) $(11,116) $ 2,019 $(6,218) Weighted average number of actual shares outstanding 41,487 40,274 42,372 40,295 Additional shares assuming conversion or exercise of: Preferred stock (a) - - 17,312 - Weighted average number of common and common equivalent shares outstanding 41,487 40,274 59,684 40,295 Primary earnings (loss) per share $ (0.02) $ (0.28) $ 0.03 $ (0.15) _________________________ (a) Based on the assumed conversion of $8 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.
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