-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, pnslsybg/34nfVnSPJYWYVRk1+B0YyjeF8o1YdkwtXpzPOxBm5Azz2Ji+0ZAH2BM JGfbOoa6JV81NI8/DMmkGA== 0000905718-95-000044.txt : 19950621 0000905718-95-000044.hdr.sgml : 19950621 ACCESSION NUMBER: 0000905718-95-000044 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950620 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMERSON RADIO CORP CENTRAL INDEX KEY: 0000032621 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 223285224 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07731 FILM NUMBER: 95548110 BUSINESS ADDRESS: STREET 1: NINE ENTIN RD STREET 2: PO BOX 430 CITY: PARSIPPANY STATE: NJ ZIP: 07054-0430 BUSINESS PHONE: 2018845800 FORMER COMPANY: FORMER CONFORMED NAME: MAJOR ELECTRONICS CORP DATE OF NAME CHANGE: 19770921 10-K 1 _____________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _______________________ FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended March 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-25226 EMERSON RADIO CORP. (Exact name of registrant as specified in its charter) Delaware 22-3285224 _______________________________ _______________________________ (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organzation) Number) Nine Entin Road, Parsippany, NJ 07054 _______________________________________ _____________________________ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (201) 884-5800 ______________ Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Shares, par value $.01 per share American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Series A Preferred Stock and Warrants. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirement for the past 90 days. [X] YES [ ] NO. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. Aggregate market value of the voting stock of the registrant held by non- affiliates of the registrant at June 15, 1995 (computed by reference to the last reported sale price of the Common Shares on the American Stock Exchange on such date): $26,042,103. Indicate by check mark whether the registrant has filed all documents and reports to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [X] YES [ ] NO. Number of Common Shares outstanding at June 15, 1995: 40,252,772 DOCUMENTS INCORPORATED BY REFERENCE: Proxy Statement for the 1995 Annual Meeting of Stockholders: Part III __________________________________________________________________________ PART I Item 1. BUSINESS General Emerson Radio Corp. ("Emerson" or the "Company"), one of the nation's largest volume consumer electronics distributors, directly and through subsidiaries, designs, sources, imports and markets a variety of video and audio consumer electronics and microwave oven products. The Company distributes its products primarily through mass merchants and discount retailers. The Company relies primarily on the strength of its "Emerson" trademark, a nationally recognized trade name in the consumer electronics industry. The trade name "Emerson Radio" dates back to 1912 and is one of the oldest and most well respected names in the consumer products industry. In addition, the Company offers a line of audio products for sale under the "H.H. Scott" brand name. Approximately $15 billion of factory sales are generated by the industry in the market segment in which the Company competes. In calendar year 1994, Emerson was among the top three brand names in unit sales volume of video cassette recorders ("VCRs") and TV/VCR combinations and among the top five brand names in unit sales volume of color televisions. The Company believes it possesses an advantage over its competitors due to (i) the Emerson brand recognition, (ii) its extensive distribution base and established relations with customers in the mass merchant and discount retail channels of distribution, (iii) its sourcing expertise and established vendor relations, and (iv) an infrastructure boasting personnel experienced in servicing and providing logistical support to the domestic mass merchant distribution channel. Emerson intends to leverage its key strengths to offer a broad variety of current and new consumer products to retail customers in developing markets worldwide. The Company intends to form joint ventures and enter into licensing agreements which will take advantage of the Company's trademarks and utilize the Company's logistical and sourcing advantages. The Company's core business consists of the distribution and sale of various low to moderately priced product categories, including black and white and color televisions, VCRs, video cassette players ("VCPs"), TV/VCR combination units, home stereo and portable audio products and microwave ovens. The majority of the Company's marketing and sales of these products is concentrated in the United States and, to a lesser extent, Canada and certain other international regions. Emerson's major competition in these markets are foreign-based manufacturers and distributors. See "Business - Competition." The Company successfully restructured its financial position (the "Restructuring") through a plan of reorganization, confirmed by the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"), pursuant to the provisions of Chapter 11 of the Bankruptcy Code on March 31, 1994 ("Plan of Reorganization"). Through the Restructuring, the Company reduced its institutional debt by approximately $203 million. Additionally, the Company increased its net sales by 34% in the fiscal year ended March 31, 1995, the fiscal year immediately following its emergence from bankruptcy, as compared to the prior fiscal year, and since the fiscal year ended March 31, 1993, has reduced its annual fixed operating costs by more than 50%. The Company was originally formed in the State of New York in 1956 under the name Major Electronics Corp. In 1977, the Company reincorporated in the State of New Jersey and changed its name to Emerson Radio Corp. On April 4, 1994, the Company was reincorporated in Delaware by merger of its predecessor into its wholly-owned Delaware subsidiary formed for such purpose. References to "Emerson" or the "Company" refers to Emerson Radio Corp. and its subsidiaries, unless the context otherwise indicates. The Company's principal executive offices are located at Nine Entin Road, Parsippany, New Jersey 07054-0430. The Company's telephone number in Parsippany, New Jersey, is (201) 884-5800. Company Products The Company directly and through subsidiaries designs, sources, imports and markets a variety of video and audio consumer electronics and microwave oven products, primarily on the strength of its "Emerson" trademark, a nationally recognized symbol in the consumer electronics industry. The Company's core business currently consists of the following video and audio product categories as well as microwave ovens: Video Products Audio Products Color Televisions Shelf systems Black and White Specialty Televisions CD stereo systems Color Specialty Televisions Portable audio, cassette and CD systems Color TV/VCR Combination Units AM/FM Bicycle radios Video Cassette Recorders Personal audio, cassette and CD systems Specialty Video Cassette Players Digital clock radios All of the Company's products offer various features. Specialty televisions include products with built-in stereo cassette players, AM/FM radios and/or AC/DC capabilities. Color television units range in screen size from 5 inches to 25 inches and specialty color televisions are offered in 5 inch and 9 inch units. Combination units range in screen size from 9 inches to 25 inches. Portable audio systems incorporate AM/FM radios and/or cassette and/or CD players in a variety of models. Microwave ovens range in size from 0.6 cubic feet to 1.2 cubic feet containing features such as turntables, key pad touch controls, auto defrost and multi-power levels. The Company is also introducing ready-to-assemble furniture and personal safety products to complement its current product line. Growth Strategy The Company believes that the "Emerson" trademark is widely recognized on a world-wide basis. A principal component of the Company's growth strategy is to utilize this brand name recognition together with the Company's reputation for quality and cost competitive products to aggressively promote its product lines within the United States and Canada and targeted geographic areas on an international basis. The Company's management believes that the Company will be able to compete more effectively in the highly competitive consumer electronics and microwave oven industries, domestically and internationally, by combining innovative approaches to the Company's current product line and augmenting its product line with complementary products. The Company intends to pursue such plans either on its own, or by forging new relationships, including through license arrangements, partnerships or joint ventures. The Company has successfully negotiated definitive licensing arrangements with its largest supplier, a distributor of consumer electronics accessories, and a manufacturer of clocks and watches, and the Franklin Mint. See "Business-Licensing". Further, the Company is currently involved in negotiations with different parties with respect to additional similar transactions. The Company's strategic focus is to: (i) develop and expand its distribution of consumer electronics products in the domestic marketplace to new customers and develop and distribute new products for its own account, such as ready-to-assemble furniture and personal safety products; (ii) capitalize on opportunities to license the "Emerson" and "H.H. Scott" trade names; (iii) leverage and exploit its sourcing capabilities, buying power and logistics expertise in the Far East either internally or on behalf of third parties; and (iv) expand international sales including not only core consumer electronic products but also other consumer products such as ready-to-assemble furniture and personal safety products. Sales and Distribution The Company has implemented an integrated system to coordinate the purchasing, sales and distribution segments of its operations. The Company is equipped to receive orders from its major accounts electronically or by the conventional modes of facsimile, telephone or mail. The Company does not have long-term contracts with any of its customers, but rather receives orders on an ongoing basis. Products imported by the Company (generally from the Far East) are shipped by ocean freight and then stored in contracted public warehouse facilities for shipment to customers. Products manufactured by a vendor in Indiana are stored in public warehouses on an interim basis until shipped to the Company's customers. All merchandise received by Emerson is automatically updated into the Company's on-line inventory system. As a purchase order is received and filled, warehoused product is labeled and prepared for outbound shipment to Company customers by common, contract or small package carriers. The Company also makes available to its customers (through subsidiaries) a direct import program, pursuant to which products are imported directly by the Company's customers. In the years ended March 31, 1995 and 1994 ("Fiscal 1995" and "Fiscal 1994", respectively), products representing approximately 68% and 52% of net sales, respectively, were imported directly from manufacturers to the Company's customers. If the Company experiences a decline in the percentage of sales effected through direct imports, its working capital and inventory requirements may be incrementally affected. See "Management's Discussion and Analysis of Results of Operations and Financial Condition". Domestic Marketing In the United States, the Company markets its products primarily through mass merchandisers and discount retailers. Wal-Mart Stores, Inc. ("Wal-Mart") accounted for approximately 53% and 34%, and Target Stores, Inc., accounted for approximately 10% and 12% of the Company's net sales in Fiscal 1995 and Fiscal 1994, respectively. Net sales to Wal-Mart include sales of certain video products which are subject to a license/supply arrangement with the Company's largest supplier, effective March 31, 1995. Net sales of these products to Wal-Mart accounted for approximately 47% and 21% of consolidated net sales in Fiscal 1995 and Fiscal 1994, respectively. See "Business-Licensing". No other customer accounted for more than 10% of the Company's net sales in either period. A portion of the Company's sales are made through sales representative organizations which receive sales commissions and work closely with Company sales personnel. The remainder of the Company's sales are made to retail customers serviced principally by Company sales personnel. The Company has six sales professionals based in the United States. The domestic sales force is based in the Company's New Jersey corporate headquarters, and in regional offices located in Georgia, Missouri and California. The sales representative organizations sell, in addition to the Company's products, allied, but generally non-competitive, products. In most instances, either party may terminate a sales representative relationship on 30 days' prior notice in accordance with customary industry practice. The Company utilizes approximately 30 sales representative organizations, including one through which approximately 10% of the Company's net sales were made in Fiscal 1995. No other sales representative organization accounted for more than 10% of the Company's net sales in Fiscal 1995. Foreign Marketing While the major portion of the Company's marketing efforts are directed toward the United States, approximately 7% of the Company's net sales in Fiscal 1995 were made to foreign customers in Canada, Central and South America, Spain and the Middle East. See Note M of Notes to Consolidated Financial Statements and "Management's Discussion and Analysis of Results of Operations and Financial Condition". The Company is expanding its marketing and sales activities in certain international geographic regions and has expanded such activities to cover other parts of Europe, South America, the Far East and Mexico. Licensing The Company has successfully concluded licensing agreements with (i) Otake Trading Co., Ltd. and certain affiliates ("Otake") for the sale of video products bearing the "Emerson" trademark to Wal-Mart locations in the United States and Canada, (ii) Jasco Products Co., Inc. ("Jasco"), the third largest domestic electronics accessory company, for distribution of electronic accessories in the United States, (iii) Herald Holding Limited ("Herald"), a publicly-traded Hong Kong Company, for the distribution of clocks and watches in the United States bearing the "Emerson" trademark and (iv) the Franklin Mint for distribution of classic Emerson Radio reproductions. The Company intends to pursue additional licensing opportunities and believes that such licensing activities will have a positive impact on net operating results by generating royalty income with minimal costs, if any, and without the necessity of utilizing working capital or accepting customer returns. See "Management's Discussion and Analysis of Results of Operations and Financial Condition". Design and Manufacturing The Company's design team is responsible for product development and operates closely with the Company's manufacturers. The Company's engineers determine the detailed cosmetic and option specifications for new products, which typically incorporate commercially available electronic parts to be assembled according to the Company's designs. Accordingly, the exterior designs and operating features of the Company's products reflect the Company's judgment of current styles and consumer preferences. The Company's designs are tailored to meet the needs of the local market, particularly in the case of international distribution, where products are generally introduced on a country-by-country basis. The majority of the Company's products are manufactured by original equipment manufacturers in accordance with the Company's specifications. The manufacturers are primarily located in Hong Kong, South Korea, Taiwan, China, Malaysia and Thailand. Certain of the Company's products are also assembled by a contract manufacturer in Indiana. During Fiscal 1995 and Fiscal 1994, approximately 89% and 84%, respectively, of the cost value of the Company's purchases consisted of imported finished goods. Otake, a manufacturer headquartered in Japan, supplied approximately 73% and 59%, respectively, of the Company's total purchases in Fiscal 1995 and Fiscal 1994. Approximately 52% and 30% of the cost value of the Company's purchases in Fiscal 1995 and Fiscal 1994, respectively, were video products purchased from Otake and sold to Wal- Mart. As a result of the license/supply arrangement with Otake, the Company expects to purchase a significantly lower proportion of its finished goods from Otake over the three-year term of the agreements. See "Business-Licensing". The license/supply arrangement also provides that Otake will supply the Company with certain video products for sale to other customers at preferred prices for a three-year term. Otake also sells a line of video products under its Orion trademark. Kong Wah, a manufacturer headquartered in Hong Kong, supplied approximately 10% of the Company's total purchases in Fiscal 1994. No other supplier accounted for more than 10% of the Company's total purchases in either period. The Company considers its relationships with its suppliers to be satisfactory and believes that, barring any unusual shortages or economic conditions, it could develop alternative sources for any of the products it currently purchases. Except with respect to the agreements with Otake, the Company does not have a contractual agreement with any of its suppliers and no assurance can be given that certain short-term shortages of product would not result if the Company were required to seek alternative sources of supply without adequate notice by the supplier or a reasonable opportunity to seek alternate production facilities and component parts. Warranties The Company offers its United States and Canadian consumers limited warranties comparable to those offered to consumers by its competitors and accepts returns from its customers in accordance with customary industry practices. Warranties for products sold internationally are, in certain cases, provided on a region-by-region basis through local entities retained by the Company. Refurbished Products The Company's customers return product to the Company for a variety of reasons, including liberal retailer return policies, damage to goods in transit and occasional cosmetic imperfections and mechanical failure. Effective April 1, 1994, the Company formed a partnership ("Partnership") with Hopper Radio of Florida, Inc. ("Hopper"). The Company and Hopper each own a 50% interest in the Partnership. The Partnership was formed to purchase (i) all returned consumer electronics products from the Company, refurbish them, if feasible, and sell them refurbished or "As-Is", on a worldwide basis in all countries where the Company has trademark rights and (ii) new consumer electronics products from manufacturers sourced through a subsidiary of the Company or through third parties, if such new products could be obtained on more favorable prices and terms, for sale exclusively in Mexico and Central and South America. The Partnership with Hopper has enabled the Company to control the costs associated with product returns, by providing a stable selling price for returned products and increased inventory turnover, by utilizing the distribution network of Hopper to sell products, and by potentially increasing the Company's sales of new products to Mexico and Central and South America. The Partnership's profits and losses are allocated evenly and the general managerial activities are under the control of Barry Smith, who is also the President of Hopper. The Company previously refurbished certain products which were either sold as refurbished or, if not refurbished, sold "As-Is". See "Management's Discussion and Analysis of Results of Operations and Financial Condition". In forming the Partnership, the Company contributed returned product to the Partnership equal in value to the amount of Hopper's initial cash contribution of $500,000. The Company also agreed to (i) sell additional returned products to the Partnership, pursuant to the terms of a sales agreement, (ii) license to the Partnership its "Emerson" trademark for sale of refurbished product worldwide and for sale of new products exclusively in Mexico, Central and South America, (iii) provide the Partnership with access to its vendors, (iv) relinquish its territories for refurbished merchandise and (v) lease to the Partnership the equipment to refurbish the returned merchandise. The Partnership agreement similarly provides that Hopper is required to provide the Partnership with (i) the set price list at which all merchandise shall be sold, to be approved in advance by both partners, (ii) financing on terms to be agreed to by both parties, and (iii) the physical location for refurbishing activities at a rental rate of $2.00 per square foot, or as otherwise agreed to by the parties. Backlog From time-to-time, the Company has substantial orders from customers on hand. Management believes, however, that backlog is not a significant factor in its operations. The ability of management to correctly anticipate and provide for inventory requirements is essential to the successful operation of the Company's business. Trademarks The Company owns the "Emerson", "H.H. Scott" and "Scott" trademarks for certain of its home entertainment and electronic products in the United States, Canada, Mexico and various other countries. Of the trademarks owned by the Company, those registered in the United States must be renewed at various times from 1996 to 2008 and those registered in Canada must be renewed at various times from 1995 to 2007. The Company's trademarks are also registered on a worldwide basis, which registrations must be renewed at various times. The Company intends to renew all such trademarks. The Company considers the "Emerson" trademark to be of material importance to its business. The Company also owns the "Electrophonic" trademark and is studying the introduction of this trademark on value priced audio products in fiscal year 1996. The Company owns several other trademarks, none of which is currently considered by the Company to be of material importance to its business. The Company has licensed certain applications of the "Emerson" trademark to Otake, Jasco, Herald and the Franklin Mint on a limited basis. See "Business - Licensing". Competition The market segment of the consumer electronics industry in which the Company competes generates approximately $15 billion of factory sales annually and is highly fragmented, cyclical and very competitive, supporting major American, Japanese and Korean companies, as well as numerous small importers. The industry is characterized by the short life cycle of products which requires continuous design and development efforts. Market entry is comparatively easy because of low initial capital requirements. The Company primarily competes in the low to medium-priced sector of the consumer electronics market. Management estimates that the Company has several dozen competitors, many of which are much larger and have greater financial resources than the Company. Emerson's major competitors are foreign-based manufacturers and distributors. The Company competes primarily on the basis of its products' reliability, quality, price and design, the "Emerson" trademark and service to retailers and their customers. The Company's products also compete at the retail level for shelf space and promotional displays, all of which have an impact on the Company's established and proposed distribution channels. See "Management's Discussion and Analysis of Results of Operations and Financial Condition". Government Regulation Pursuant to the Tariff Act of 1930, as amended, the Trade Act of 1974 and regulations promulgated thereunder, the United States government charges tariff duties, excess charges, assessments and penalties on many imports. These regulations are subject to constant change and revision by government agencies and by action by the United States Trade Representative and may have the effect of increasing the cost of goods purchased by the Company or limiting quantities of goods available to the Company from its overseas suppliers. A number of states have adopted statutes regulating the manner of determining the amount of payments to independent service centers performing warranty service on products such as those sold by the Company. Additional Federal legislation and regulations regarding the importation of consumer electronics products, including the products marketed by the Company, have been proposed from time-to-time and, if enacted into law, could adversely affect the Company's results of operations. Employees As of June 15, 1995, the Company had approximately 200 employees. The Company considers its labor relations to be generally satisfactory. Item 2. PROPERTIES The Company, directly and through its subsidiaries, leases warehouse and office space in New Jersey, California, Canada, Georgia, Missouri, the Far East and Spain under leases expiring at various times from calendar 1995 to 1998, at minimum aggregate rentals as follows: Year Ending March 31, (In Thousands) 1996 $1,507 1997 1,484 1998 1,071 1999 271 _____ $4,333 ====== In the past several years, the Company has closed substantially all of its leased or owned warehouse facilities in favor of utilizing public warehouse space as part of the Company's effort to convert fixed costs to variable costs. The cost for the public warehouse space is based on a fixed percentage of the Company's sales from each respective location. Such amounts are not included in the above table. Item 3. LEGAL PROCEEDINGS Bankruptcy Claims Pursuant to the Plan of Reorganization and the Bankruptcy Code, all claims against the Company existing as of September 29, 1993, were discharged, except as specifically set forth in the Plan of Reorganization. See "Management's Discussion and Analysis of Results of Operations and Financial Condition". The Plan of Reorganization provides that unsecured creditors other than the Company's bank group and the holders of the senior notes holding pre-petition claims which are allowed, will receive unsecured promissory notes in the principal amount equal to 18.3% of the allowed amount of the claim; the notes would bear interest at a rate based on the London Interbank Offered Rate ("LIBOR") for one year obligations and would be payable as follows: (i) 35% of the outstanding principal is due 12 months from the date of issuance, and (ii) the remaining balance would be due 18 months from the date of issuance. The Company is presently contesting claims submitted by several creditors. The largest claim was filed on July 25, 1994 in connection with the rejection of certain executory contracts with two Brazilian entities, Cineral Electronica de Amazonia Ltda. and Cineral Magazine Ltda. (collectively, "Cineral"). The contracts were executed in August 1993, shortly before the Company's filing for bankruptcy protection. The amount claimed was $93,563,457, of which $86,785,000 represents a claim for loss of profits and $6,400,000 for plant installation and the establishment of offices, which were installed and established prior to execution of the contracts. The claim was filed as an unsecured claim and, therefore, will be satisfied, to the extent the claim is allowed by the Bankruptcy Court, in the manner other allowed unsecured claims were satisfied. The Company believes the Bankruptcy Court will separately review the portion of the claim for lost profits from the substantially smaller claim for actual damages. The Company has objected to the claim, intends to vigorously contest such claim and believes it has meritorious defenses to the highly speculative portion of the claim for lost profits and the portion of the claim for actual damages for expenses incurred prior to the execution of the contracts. Additionally, the Company has instituted an adversary proceeding in the Bankruptcy Court asserting damages caused by Cineral. A motion filed by Cineral to dismiss the adversary proceeding has been denied. The adversary proceeding and claim objection have been consolidated into one proceeding. An adverse final ruling on the Cineral claim could have a material adverse effect on the Company, even though 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. Teletech Litigation In December 1990, an action entitled Emerson Radio (Hong Kong) Limited (a wholly owned subsidiary of the Company) and Teletech (Hong Kong) Limited was commenced in the Supreme Court of Hong Kong High Court (the "Teletech Action") by Emerson Radio (Hong Kong) Limited ("Emerson (H.K.)") against Teletech (Hong Kong) Limited ("Teletech"). The Statement of Claim (the "Claim"), filed and served in March 1991, alleges that Teletech breached its agreements to sell cordless telephones and telephone answering machines to Emerson (H.K.). The Claim seeks damages of approximately $1,000,000. In March 1991, Teletech filed a counterclaim that essentially denies the allegations and alleges that Emerson (H.K.) breached its agreement to purchase cordless telephones and telephone answering machines arising from wrongful cancellation of placed orders. The counterclaim seeks damages of approximately $1,700,000. In May 1991, Emerson (H.K.) filed a reply to the counterclaim denying the allegations in the counterclaim. Discovery is currently proceeding. This litigation was not affected by the bankruptcy proceedings. Tax Matters In June and October 1988, the Franchise Tax Board of the State of California issued Notices of Proposed Assessment to the Company proposing additional state income tax of approximately $501,000 in the aggregate, plus interest, for the fiscal years 1980, 1985 and 1986. In August and November 1988, the Company filed protests with the Franchise Tax Board taking exception to the Notices of Proposed Assessment. After disallowing the Company's protest, on July 24, 1992, the Franchise Tax Board issued a formal Notice of Action assessing a deficiency in the aggregate of approximately $664,000, which includes interest through July 24, 1992. On August 24, 1992, the Company filed an appeal with the California State Board of Equalization. The Franchise Tax Board filed a response on April 29, 1993, and the Company filed its reply on July 16, 1993. On March 9, 1994, the Company filed an adversary complaint with the Bankruptcy Court, to obtain a declaratory judgment against the Franchise Tax Board with regard to this matter. The Franchise Tax Board filed its response on April 6, 1994. Discovery is proceeding. The Franchise Tax Board moved to dismiss the adversary proceeding and requested the Bankruptcy Court to abstain. On October 19, 1994, the Bankruptcy Court entered an order of abstention which directed the parties to litigate in California. The Company has appealed. On February 15, 1994, the Franchise Tax Board issued Notices of Proposed Assessment to the Company proposing additional state income tax of approximately $382,000 in the aggregate, plus interest, for the fiscal years 1987, 1988 and 1989. The Company filed its protest with the Franchise Tax Board on April 15, 1994, taking exception to the Notices of Proposed Settlement. Management believes that adequate amounts of tax reserves have been provided for any adjustments which may result from the above assessments and any possible additional adjustments for years not currently under examination. Litigation Regarding Certain Outstanding Common Stock Subsequent to confirmation of the Plan of Reorganization, litigation arose among the principal shareholders of Fidenas Investment Limited ("FIL"), the Company's largest shareholder prior to confirmation of the Plan of Reorganization, with respect to various business relations and transactions entered into between the shareholders, certain affiliates and their principals, including Geoffrey Jurick, the Company's Chairman and Chief Executive Officer, and Donald Stelling, former Chairman of the Company. Mr. Stelling resigned on December 2, 1993 from the Company's Board of Directors creating uncertainty about the ability of FIL to honor its commitment to the Company and the Company's bank group to satisfy its obligations to infuse $75 million in funds for the purpose of financing the Restructuring. The $75 million commitment was made available by Mr. Jurick and related companies, which utilized approximately $15.2 million in funds which had been deposited by FIL into an escrow account for the purpose of securing the Company's Debtor-in-Possession financing obtained in connection with the Restructuring. Management believes that, as of the present date, Messrs. Jurick and Peter Bunger, directors of the Company, comprise the Board of Directors of FIL. The use of the $15.2 million has been challenged by various Stelling interests in three countries. Proceedings were commenced in the Commonwealth of Bahamas for the winding-up of FIL. The proceeding was brought by one of its shareholders, a Bahamian entity controlled by Petra Stelling, wife of Donald Stelling. The liquidator appointed by the Bahamian Court for the winding-up of FIL commenced litigation against Fidenas International Limited, L.L.C. ("Fidenas International"), presently the Company's largest stockholder, and Mr. Jurick with respect to claims arising from the acquisition of the Company's Common Stock by GSE Multimedia Technologies Corporation ("GSE") and Fidenas International. The liquidator commenced ancillary proceedings in the United States Bankruptcy Court pursuant to authorization granted by the Bahamian Court for the purposes of, among other things, (i) conducting discovery regarding the issuance of the shares of Common Stock to Fidenas International, GSE and Elision International, Inc. ("Elision") and utilization of the $15.2 million in funds which secured the Company's Debtor-in-Possession Financing and (ii) restraining the transfer, disposition or further encumbrance of any shares of the Company owned by Fidenas International, GSE, and Elision issued pursuant to the Plan of Reorganization. The ancillary proceeding was dismissed by the United States Bankruptcy Court on February 16, 1995. In addition to the litigation pending in the Bahamas and New York, the Stelling interests have pursued Mr. Jurick and certain business associates and affiliates in civil and criminal actions in Switzerland for various claims relating to their business relationships and transactions. Based on certain charges raised by the Stellings, the Swiss authorities have commenced investigations of Messrs. Jurick, Bunger and Jerome Farnum (also a director of the Company). In addition, the Swiss authorities have questioned Messrs. Jurick and Farnum as part of an investigation of possible violations by them of certain Swiss bank licensing laws. None of Messrs. Jurick, Farnum or Bunger has been charged or indicted by the Swiss authorities. The Federal Banking Commission of Switzerland has issued a decree purporting to determine that certain entities affiliated with Messrs. Jurick and Farnum are subject to Swiss banking laws and have engaged in banking activities without a license; the Commission has ordered (i) the liquidation of one affiliate and the assets of another, (ii) the appointment of a Swiss accounting firm to conduct the decreed liquidation and (iii) certain preliminary measures providing for the appointment of the Swiss accounting firm to act as an observer with special supervisory powers. The Company has been informed by counsel to those entities that an appeal has been filed with respect to the decree and that during the appeal, if timely filed, the provisions of the decree providing for the liquidation shall not be implemented. Though the Company is not a party to any of the proceedings in Switzerland or in the Commonwealth of Bahamas, the Company intends to monitor the litigation. The Company believes none of the litigation will have a material adverse effect on the Company or its assets although an order of a court of competent jurisdiction requiring the turnover of all or a substantial portion of the Common Stock may result in a default under the terms of the United States credit facility. Additionally, such a change in control could result in a second ownership change further limiting the Company's ability to use its net operating loss carryforwards ("NOLs") and tax credit carryovers ("TCCOs"). The Official Liquidator appointed in the Commonwealth of Bahamas for Fidenas International Bank Limited (which management believes to be a holder of approximately 18% of the shares of Elision and approximately 11% of the shares of GSE) has filed an action in the Bahamas concerning the ownership by Fidenas International of certain shares of Common Stock. Transfer of the stock has been enjoined by the Bahamian courts. The Liquidator has also filed an action in the United States District Court on behalf of Fidenas International Bank Limited with respect to certain shares of Common Stock issued to Fidenas International in conjunction with the Restructuring. As of the date hereof, the transfer of such shares has been restrained and discovery in the action has been commenced. Stelling Litigation The Company filed a suit in federal court in New Jersey on July 14, 1994, naming Mr. Stelling and his spouse as defendants alleging, among other things, breaches by Mr. Stelling of fiduciary duties and breaches of contract by Mr. Stelling, as agent, and Mrs. Stelling, as principal. The suit sets forth requests for monetary damages as well as declaratory judgments that the provisions of the Plan of Reorganization providing for releases do not apply to the Stellings and that they are estopped from claiming any interest in the Company. The Stellings have filed a motion to dismiss the suit. As of the date hereof, no ruling has been made with respect to such motion. Other Litigation The Company is involved in other legal proceedings and claims of various types in the ordinary course of business. While any litigation contains an element of uncertainty, management presently believes that the outcome of each such proceeding or claim which is pending or known to be threatened (including the actions noted above), or all of them combined, will not have a material adverse effect on the Company's consolidated financial position. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended March 31, 1995. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information The Company's Common Stock has traded on the American Stock Exchange since December 22, 1994 under the symbol MSN. The Common Stock began trading publicly on September 1, 1994 in the over-the-counter market. Prior thereto, there was no established public trading market for the Common Stock. Prior to confirmation of the Plan of Reorganization on March 31, 1994, there were approximately 4,500 shareholders of record of the Common Stock of the Company. The shares of such shareholders were terminated and cancelled on the effective date of the Plan of Reorganization. Such shares had been traded on the New York Stock Exchange until trading was suspended on October 6, 1993 and the shares delisted on April 15, 1994. The following table sets forth, for the fiscal quarters indicated, the range of high and low bid prices for the Company's Common Stock as reported by the National Quotations Bureau for the period September 1, 1994 through December 21, 1994 and the range of high and low sales prices as reported by the American Stock Exchange from December 22, 1994. Quarter Ended High Low September 30, 1994 $1-1/2 $1 December 31, 1994 2-7/8 15/16 March 31, 1995 3-3/8 2 The Series A Preferred Stock and Warrants outstanding are freely tradeable; however, there is no established trading market for either security. (b) Holders At June 15, 1995, there were approximately 500 shareholders of record of the Company's Common Stock, and 21 holders of record of the Series A Preferred Stock and 11 holders of the Warrants. (c) Dividends The Company's policy has been to retain all available earnings, if any, for the development and growth of its business. The Company has never paid cash dividends on its Common Stock. In deciding whether to pay dividends on the Common Stock in the future, the Company's Board of Directors will consider factors it deems relevant, including the Company's earnings and financial condition and its working capital and anticipated capital expenditures. The Company's United States credit facility contains certain dividend payment restrictions on the Company's Common Stock. Additionally, the Company's Certificate of Incorporation, defining the rights of the Series A Preferred Stock, prohibits Common Stock dividends unless the Series A Preferred Stock dividends are paid or put aside. The Series A Preferred Stock earns dividends, payable on a quarterly basis, at a 7% dividend rate through March 31, 1997, then declining by a 1.4% dividend rate each succeeding year until March 31, 2001 when no further dividends are payable. Item 6. SELECTED CONSOLIDATED FINANCIAL DATA The Company changed its fiscal year end from December 31 to March 31, commencing with the period ended March 31, 1992. Previously, the Company had changed its fiscal year end from March 31 to December 31, beginning with the period ended December 31, 1990. The following table sets forth selected consolidated financial data of the Company for the years ended March 31, 1995, 1994 and 1993, the three months ended March 31, 1992, the year ended December 31, 1991 and the nine months ended December 31, 1990. The selected consolidated financial data should be read in conjunction with the Company's consolidated financial statements, including the notes thereto, and "Management's Discussion and Analysis of Results of Operations and Financial Condition" set forth elsewhere in this Form 10-K.
Nine Three Months Year Months Year Year Year Ended Ended Ended Ended Ended Ended Dec. 31, Dec. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31, 1990 1991 1992 1993 1994 1995 (In thousands, except per share data) Summary of Operations: Net Sales: Core Business $528,809 $716,651 $169,936 $741,357 $487,390 $654,671 Personal Computers and Other 96,609 73,555 1,562 _______ _______ _______ ________ _______ _______ $625,418 $790,206 $171,498 $741,357 $487,390 $654,671 ======== ======== ======== ======== ======== ======== Net Earnings (Loss) (1): Before Extraordinary Gain $(37,463) $(60,746) $ (6,976) $(56,000) $(73,654) $ 7,375 Extraordinary Gain 129,155 ________ ________ ________ ________ _______ ______ $(37,463) $(60,746) $ (6,976) $(56,000) $ 55,501 $ 7,375 Balance Sheet Data at Period End: Total Assets $300,366 $226,131 $216,693 $194,510 $119,021 $113,969 Current Liabilities(2)232,220 218,504 215,069 249,307 76,083 59,782 Long-Term Debt (2) 60 130 157 151 227 214 Shareholders' Equity (Deficit) 65,139 4,550 (1,480) (57,895) 42,617 53,651 Working Capital (Deficit) 31,111 (29,503) (36,003) (89,949) 32,248 42,598 Current Ratio 1.1 to 1 0.9 to 1 0.8 to 1 0.6 to 1 1.4 to 1 1.7 to 1 Per Common Share: Net Earnings (Loss) Per Common Share (1) (3): Before Extraordinary Gain $(1.03) $( 1.60) $(0.18) $ (1.47) $ (1.93) $ 0.16 Extraordinary Gain 3.38 ______ _______ _______ _______ ______ _______ $(1.03) $( 1.60) $(0.18) $ (1.47) $ 1.45 $ 0.16 Weighted Average Number of Common and Common Equivalent Shares Outstanding 36,519 37,897 37,968 38,179 38,191 46,571 ====== ===== ====== ====== ====== ====== Common Shareholders' Equity (Deficit) (4) $ 1.78 $ 0.12 $(0.04) $(1.52) $ 0.98 $ 1.08 ====== ======= ======= ======= ======= ====== _____________________________ (1) The net earnings for the fiscal year ended March 31, 1994 include an extraordinary gain of $129,155,000, or $3.38 per common share, on the extinguishment of debt settled in the Plan of Reorganization. Accordingly, the Company recorded reorganization expenses of $17,385,000 relating primarily to the writedown of assets transferred to creditors under the Plan of Reorganization and professional fees and other related expenses incurred during the bankruptcy proceedings. The results of operations for the fiscal year ended March 31, 1993, the three months ended March 31, 1992 and the year ended December 31, 1991 include restructuring and other nonrecurring charges aggregating $35,002,000, $3,698,000 and $36,964,000, respectively. These charges represent the cost of discontinuing the personal computer business, professional fees and other expenses related to the Company's financial restructuring, and the up-front costs and writedowns of certain assets associated with implementing long-term cost reduction programs. Charges for the fiscal year ended March 31, 1993 also include costs related to the proxy contest settled in June 1992. The year ended December 31, 1991 also includes charges related to the discontinuance of the H.H. Scott domestic business. See Note C of Notes to Consolidated Financial Statements. (2) The aggregate outstanding principal balance of the Company's senior notes has been classified as current as of March 31, 1993 and 1992, and December 31, 1991 and 1990. See Note B of Notes to Consolidated Financial Statements. (3) Net earnings (loss) per common share for all periods, except the year ended March 31, 1995, are based on the weighted average number of old common shares outstanding during each fiscal year. Net earnings per common share for the year ended March 31, 1995 is based on the weighted average number of shares of new Common Stock and related common stock equivalents outstanding during the year. Common Stock equivalents include 9,081,000 shares assuming conversion of $10 million of Series A Preferred Stock at a price equal to 80% of the weighted average market value of a share of Common Stock, determined on a quarterly basis. Since the Series A Preferred Stock is not convertible into Common Stock until March 31, 1997, the number of shares issuable upon conversion may be significantly different. (4) Calculated based on common shareholders' equity (deficit) divided by actual shares of Common Stock outstanding. Common shareholders' equity at March 31, 1995 and 1994 is equal to total shareholders' equity less $10 million for the liquidation preference of the Series A Preferred Stock.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION General On March 31, 1994, the Company emerged from bankruptcy pursuant to the Plan of Reorganization which resulted in a net reduction of approximately $203 million in institutional debt, cancellation of the Company's old common stock and other equity, the issuance of 30 million shares of new common stock for $30 million and the issuance of certain equity securities to certain of the Company's former creditors. The Restructuring substantially reduced the Company's debt service costs and significantly improved the Company's financial condition. The Company experienced a significant improvement in its United States sales in Fiscal 1995 over Fiscal 1994. However, the Company expects sales for the fiscal year ending March 31, 1996 ("Fiscal 1996") to decline from Fiscal 1995 due to a license agreement entered into with the Company's largest supplier (as described below). Effective March 31, 1995, the Company entered into two mutually contingent agreements with its largest supplier which, among other things, provide to the supplier the right to sell certain video products under the "Emerson" trademark to the Company's largest customer (see "Liquidity and Capital Resources"). As a result, the Company will receive royalties attributable to such sales over the three-year term of the agreements in lieu of reporting the full dollar value of such sales and associated costs. Net sales of these products to this customer accounted for approximately 47% of consolidated net sales for Fiscal 1995. The Company expects to report lower sales in Fiscal 1996 as a result of these agreements, but no material impact is expected on its net operating results for such year. Exclusive of the licensed video sales, the Company expects its United States sales for the first quarter of Fiscal 1996 to remain comparable with or decline from the first quarter of Fiscal 1995. The sales outlook reflects the higher level of sales achieved in Fiscal 1995, increased price competition, retail stock levels and a slowdown in retail activity. Results of Operations -- Fiscal 1995 Compared with Fiscal 1994 Consolidated net sales for Fiscal 1995 increased $167,281,000 as compared to Fiscal 1994, resulting from a significant increase in unit sales of VCRs, VCPs and TV/VCR combination units, partially offset by a decline in unit sales of color televisions and audio products, as well as lower sales prices for such products. The sales increase for the VCR, VCP and TV/VCR product categories was attributable to significantly higher sales to the Company's two largest customers, resulting from an improved retail climate, low retail stock levels after the 1993 holiday season, and an improved perception of the Company by retailers since its emergence from bankruptcy. Net sales to the Company's largest customer approximated 53% of consolidated net sales for Fiscal 1995. The Company's Canadian operations experienced a decline in net sales for Fiscal 1995 due to declines in unit volume and sales prices (relating to a weak retail climate) and unfavorable foreign currency exchange rates. Cost of sales, as a percentage of consolidated sales, was approximately 92% for Fiscal 1995 as compared to approximately 100% for Fiscal 1994. Gross profit margins were favorably impacted by the allocation of fixed overhead costs over a significantly higher sales base, a decline in fixed overhead costs, reduced losses associated with product returns, the recognition of $9.9 million of purchase discounts from a supplier, $1.2 million of licensing income and reduced reserve requirements for sales returns due primarily to an agreement with the Company's largest supplier. See "Liquidity and Capital Resources". This improvement was partially offset by a 1% decline in gross profit margins attributable to lower sales prices in most product categories resulting from increased price competition, and a change in product mix. The Company's margins continue to be impacted by the pricing category of the consumer electronics market in which the Company competes. The Company's products are generally placed in the low-to-medium priced category of the market. These categories tend to be the most competitive and generate the lowest profits. The Company intends to focus on its higher margin products and is reviewing new product categories that can generate higher margins than the current business, either through license arrangements, joint ventures or on its own. Other operating costs and expenses declined $3,230,000 in Fiscal 1995 as compared to Fiscal 1994, primarily as a result of a decrease in compensation and other expenses incurred to process product returns, due to the Company's downsizing program and changes in the resale arrangement for product returns. See "Business - Refurbished Products". Selling, general and administrative expenses ("S,G&A"), as a percentage of sales, was 5% and 7% for Fiscal 1995 and Fiscal 1994, respectively. In absolute terms, S,G&A decreased $3,505,000 in Fiscal 1995. The decrease was primarily attributable to lower compensation expense relating to the Company's downsizing program, lower selling expenses, including decreases in promotional allowances granted to customers, and improved foreign currency results. The Company's exposure to foreign currency fluctuations, primarily in Canada and Spain, resulted in net foreign currency exchange gains aggregating $354,000 in Fiscal, 1995 as compared to net foreign currency exchange losses of $1,406,000 in Fiscal 1994. In Fiscal 1996, the Company intends to reduce its foreign currency exposure by conducting its Canadian and European business in U.S. dollars. The Company has implemented additional cost reductions in the first quarter of Fiscal 1996 by reducing the infrastructure of its foreign offices, which should improve the Company's operating results in Fiscal 1996. Interest expense decreased $7,361,000 in Fiscal 1995 as compared to Fiscal 1994. The decrease was attributable to the extinquishment of approximately $203 million of institutional debt in connection with the Restructuring, effective March 31, 1994, and a moratorium on interest accrued on pre-petition indebtedness during the pendency of the Company's bankruptcy proceedings in Fiscal 1994. In Fiscal 1994, the Company recorded reorganization costs of $17,385,000 relating to professional fees and related expenses incurred in the bankruptcy proceedings, and the writedown of certain assets transferred to a liquidating trust pursuant to the bankruptcy settlement. The Company recorded an extraordinary gain on extinguishment of debt of $129,155,000 in Fiscal 1994. This gain related to the settlement of the Company's pre-petition liabilities, as a result of the Company's emergence from bankruptcy. As a result of the foregoing factors, the Company earned $7,375,000 and $55,501,000 for Fiscal 1995 and Fiscal 1994, respectively. Results of Operations -- Fiscal 1994 Compared with Fiscal 1993 Consolidated net sales for Fiscal 1994 decreased $253,967,000 as compared to the fiscal year ended March 31, 1993 ("Fiscal 1993"), resulting from a significant decrease in unit sales of VCR/VCP and television products, as well as lower sales prices for the same product categories. The sales decline was attributable to the effect of the Restructuring and the Company's financial condition on the retailers' perception of the Company, a cautious outlook maintained by retailers over inventory levels, excess stock at the retail level and increased price competition in the Company's major product categories. Cost of sales, as a percentage of consolidated sales, was approximately 100% for Fiscal 1994 as compared to approximately 91% for Fiscal 1993. Gross profit margins were negatively impacted by a $6.3 million increase in the reserve for sales returns and were impacted further by the allocation of fixed overhead costs over a significantly lower sales base, sales price decreases which were in excess of price reductions received from suppliers, and significant costs and inventory writedowns associated with product returns. Additionally, gross margins earned by the Company's foreign operations were adversely impacted by a decline in the Canadian dollar and Spanish peseta of 9% and 16%, respectively, from March 31, 1993 to March 31, 1994. Although the Company entered into foreign currency contracts to minimize its exposure to foreign currency fluctuations in Europe, it lacked the necessary working capital to hedge all its foreign currency commitments. Other operating costs and expenses declined $7,025,000 in Fiscal 1994, as compared to Fiscal 1993, primarily as a result of a reduction in compensation costs relating to the Company's downsizing program and lower warranty expenses associated with the decline in the Company's net sales. S, G & A, as a percentage of sales, was 7% for Fiscal 1994 and Fiscal 1993. In absolute terms, S, G & A decreased by $14,956,000 in Fiscal 1994 as compared to Fiscal 1993. In terms of actual cost, the decrease in Fiscal 1994 was primarily attributable to lower variable selling expenses, including decreases in promotional allowances granted to customers, sales commissions, facility and compensation costs relating to the Company's downsizing program and a decrease in reserves against the Company's accounts receivable. Interest expense decreased by $8,014,000 in Fiscal 1994 as compared to Fiscal 1993. The decrease was attributable to the moratorium on interest accrued on pre-petition indebtedness for the six month period ended March 31, 1994. Interest expense was only accrued and paid on the Company's debtor-in-possession financing during the pendency of the bankruptcy proceedings. During Fiscal 1993, the Company recorded restructuring and other nonrecurring charges aggregating $35,002,000. The provision included $31.9 million of charges related to the Company's core business operations of consumer electronics products. These charges are primarily comprised of certain costs associated with the consolidation of facilities, severance of employees ($3,967,000 provision for termination of officers and other employees), the writedown of certain assets, a provision relating to a significant change in the resale arrangement for returned product, and professional fees and other charges related to the Company's proposed financial restructuring and to the proxy contest settled in June 1992. The provision also included $3.1 million in charges relating to the final wind-down of the Company's personal computer business. In Fiscal 1994, the Company recorded reorganization costs of $17,385,000 relating to professional fees and related expenses incurred in the bankruptcy proceedings, and the writedown of certain assets transferred to a liquidating trust pursuant to the bankruptcy settlement. The Company recorded an extraordinary gain on extinguishment of debt of $129,155,000 in Fiscal 1994. This gain related to the settlement of the Company's pre-petition liabilities, as a result of the Restructuring. As a result of the foregoing factors, the Company earned $55,501,000 for Fiscal 1994, compared to a net loss of $56,000,000 for Fiscal 1993. Liquidity and Capital Resources Net cash utilized by operating activities was $20,974,000 for Fiscal 1995. Cash was utilized to purchase inventory for sale which resulted in increased sales and accounts receivable. The increase in accounts receivable also reflects sales of returned product to a 50% owned joint venture that has a net payable to the Company of $15,283,000 at March 31, 1995. See "Business - Refurbished Products". Further, a reduction in accounts payable to the Company's largest supplier (as noted below) and a reduction of a large customer's credit balance, negatively impacted cash. Net cash provided by investing activities was $5,691,000 for Fiscal 1995. Investing activities consisted primarily of a redemption of pledged certificates of deposit, net of capital expenditures, primarily for new product molds. The redemption of the pledged certificates of deposit relates primarily to a draw-down of an $8 million standby letter of credit by the Company's largest supplier against a certificate of deposit for the same amount, fulfilling commitments made during the Restructuring. In Fiscal 1995, the Company's financing activities provided $10,680,000 of cash. The Company increased borrowings under its U.S. line of credit facility by $7,256,000 to finance the higher accounts receivable levels and reduce accounts payable. Additionally, the Company generated net proceeds of $5,692,000 from an initial public offering of Common Stock, as described below. On September 29, 1993, the Company and five of its U.S. subsidiaries filed voluntary petitions for relief under the reorganization provisions of Chapter 11 of the United States Bankruptcy Code and operated as debtors-in-possession under the supervision of the Bankruptcy Court while their reorganization case was pending. The precipitating factor for these filings was the Company's severe liquidity problems relating to its high level of indebtedness and a significant decline in sales from the prior year. Effective March 31, 1994, the Bankruptcy Court entered an order confirming the Plan of Reorganization. The Plan of Reorganization provided for the implementation of a recapitalization of the Company. In accordance with the Plan of Reorganization, the Company's pre-petition liabilities (of approximately $233 million) were settled with the creditors in the aggregate, as follows: I. The Company's bank group (the "Bank Lenders") received $70 million in cash and the right to receive the initial $2 million of net proceeds from the Company's anti-dumping duty receivable. II. The institutional holders of the Company's senior notes (the "Noteholders") initially received $2,650,000 in cash and warrants to purchase 750,000 shares of Common Stock for a period of seven years at an exercise price of $1.00 per share, provided that the exercise price shall increase by 10% per year commencing in year four, and further received $1 million, payable $922,498 in cash from the initial public offering of Common Stock and $77,502 in Common Stock calculated on the basis of $1.00 per share. III. The Bank Lenders and Noteholders received their pro rata percentage of the following: A. $2,350,000 in cash (however $350,000 of this amount was distributable to the holders of allowed unsecured claims); B. 10,000 shares of Series A Preferred Stock with a face value of $10 million (estimated fair market value of approximately $9 million at March 31, 1994); C. 4,025,277 shares of Common Stock, including 691,944 shares issued in February 1995 pursuant to an anti-dilution provision; D. The net proceeds from the sale of the Company's Indiana land and building; and E. The net proceeds to be received from the Company's anti-dumping duty receivable in excess of $2 million . IV. Holders of allowed unsecured claims received a pro-rata portion of the $350,000 distribution and interest bearing promissory notes equal to 18.3% of the allowed claim amount, payable in two installments over 18 months. See "Legal Proceedings". In accordance with the Plan of Reorganization, the Company completed an initial public offering of its Common Stock in September 1994 to shareholders of record as of March 31, 1994, excluding FIL. The Company sold 6,149,993 shares of Common Stock for $1.00 per share resulting in proceeds to the Company, net of issuance costs, of $5,692,000. The Company maintains an asset-based revolving credit facility with a U.S. financial institution (the "Lender"). The facility provides for revolving loans and letters of credit, subject to individual maximums which, in the aggregate, cannot exceed the lesser of $60 million or a "Borrowing Base" amount based on specified percentages of eligible accounts receivable and inventories. Credit extended under the line is secured by the U.S. and Canadian assets of the Company. The interest rate on these borrowings is 2.25% above the prime rate. At March 31, 1995, the weighted average interest rate on the outstanding borrowings was 11.25%. The facility is also subject to an unused line fee of 0.5% per annum. Pursuant to the terms of this credit facility, the Company is restricted from, among other things, paying cash dividends (other than on the Series A Preferred Stock), redeeming stock, and entering into certain transactions and is required to maintain certain working capital and equity levels (as defined). The Company is required to maintain a minimum net worth of $42,000,000, excluding net proceeds received by the Company from the sale of equity securities, which minimum will increase to $50,000,000, effective January 1, 1996. At March 31, 1995, there was $27,296,000 outstanding under the revolving loan facility, and $3,622,000 of outstanding letters of credit issued for inventory purchases. The Company's Hong Kong subsidiary maintains various credit facilities aggregating $114.3 million with a bank in Hong Kong consisting of the following: (i) a $12.3 million credit facility which is generally used for letters of credit for a foreign subsidiary's direct import business and affiliates' inventory purchases, (ii) a $2 million standby letter of credit facility, and (iii) a $100 million credit facility, for the benefit of a foreign subsidiary, which is for the establishment of back-to-back letters of credit with the Company's largest customer. At March 31, 1995, the Company's Hong Kong subsidiary had pledged $4 million in certificates of deposit to this bank to assure the availability of these credit facilities. At March 31, 1995, there were $5,974,000 and $8,415,000, respectively, of letters of credit outstanding under the $12.3 million and $100 million credit facilities. The Company's Hong Kong subsidiary secured an additional credit facility in Fiscal 1995 with another bank in Hong Kong. The facility provides for a $10 million line of credit for documentary letters of credit and a $10 million back-to-back letter of credit line, collateralized by a $5 million certificate of deposit. At March 31, 1995, the Company's Hong Kong subsidiary had pledged $5,041,000 in certificates of deposit to assure the availability of these credit facilities. At March 31, 1995, $3,871,000 of the letter of credit line was utilized. On February 22, 1995, the Company and Otake entered into two mutually contingent agreements (the "Agreements"). Effective March 31, 1995, the Company granted a license of certain trademarks to Otake for a three-year term. The license permits Otake to manufacture and sell certain video products under the "Emerson" trademark to Wal-Mart in the U.S. and Canada, and precludes Otake from supplying product to Wal-Mart other than under the "Emerson" or Orion trademarks. The Company will continue to supply other products to Wal-Mart directly. Further, the Agreements provide that Otake will supply the Company with certain video products for sale to other customers at preferred prices for a three-year term. Under the terms of the Agreements, the Company will receive non- refundable minimum annual royalties from Otake to be credited against royalties earned from sales of VCRs, VCPs and TV/VCR combination units and color televisions to Wal-Mart. In addition, effective August 1, 1995, Otake will assume responsibility for returns and after-sale and warranty services on all video products manufactured by Otake and sold to Wal-Mart, including video products sold by the Company prior to April 1, 1995. As a result of the Agreements, the Company's gross margins are expected to improve based on a change in mix to higher margin products and from a reduction in costs for product returns which have historically been higher for video products. Additionally, the Company expects to realize a more stable cash flow and reduce short-term borrowings used to finance accounts receivable and inventory, thereby reducing interest costs. Since the emergence of the Company from bankruptcy, management believes that it has been able to compete more effectively in the highly competitive consumer electronics and microwave oven industries in the United States and Canada by combining innovative approaches to the Company's current product line and augmenting its product line with complementary products. The Company also intends to undertake efforts to expand the international distribution of its products into areas where management believes low to moderately priced, dependable consumer electronics and microwave oven products will have a broad appeal. The Company has in the past and intends in the future to pursue such plans either on its own or by forging new relationships, including license arrangements, partnerships or joint ventures. In the past fiscal year, the Company successfully concluded licensing agreements for existing core business products and new products. The Company intends to pursue additional licensing opportunities and believes that such licensing activitites will have a positive impact on net operating results by generating royalty income with minimal costs, if any, and without the necessity of utilizing working capital or accepting customer returns. Short-Term Liquidity. At present, management believes that cash flow from operations and the institutional financing noted above will be sufficient to fund all of the Company's cash requirements for the next year. The Company's liquidity is also impacted by the seasonality of its business. The Company records the majority of its annual sales in the quarters ending September 30 and December 31. This requires the Company to open significantly higher amounts of letters of credit during the quarters ending June 30 and September 30, therefore significantly increasing the Company's working capital needs during this period. Additionally, the Company receives the largest percentage of customer returns in the quarter ending March 31. The high level of returns during this period adversely impacts the Company's collection activity during this period, and therefore its liquidity. The Company believes that its recent Agreements with Otake (as noted above) should favorably impact the Company's cash flow over the three-year term of the Agreements. Long-Term Liquidity. The revolving credit facility with the Lender imposes financial covenants on the Company that could materially affect its liquidity in the future. However, management believes that the financing noted above and cash flow from operations will provide sufficient liquidity to meet the Company's operating and debt service cash requirements on a long-term basis for its current core business. Inflation and Foreign Currency Except as disclosed above, neither inflation nor currency fluctuations had a significant effect on the Company's results of operations during Fiscal 1995, Fiscal 1994 or Fiscal 1993. The Company's exposure to currency fluctuations has been minimized by the use of U.S. dollar denominated purchase orders, and by sourcing production in more than one country. However, the strength of the Japanese Yen in 1995 is beginning to raise the costs of certain raw materials and subassemblies of the Company's suppliers which may be passed on to the Company in the form of price increases in Fiscal 1996. There can be no assurance that the Company will be able to recover such potential price increases from the selling price to its customers. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by this Item 8 are set forth at the pages indicated in Item 14(a) below. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS The information required is incorporated herein by reference to the Company's definitive Proxy Statement for the 1995 Annual Meeting of Shareholders. Item 11. EXECUTIVE COMPENSATION The information required is incorporated herein by reference to the Company's definitive Proxy Statement for the 1995 Annual Meeting of Shareholders. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required is incorporated herein by reference to the Company's definitive Proxy Statement for the 1995 Annual Meeting of Shareholders. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required is incorporated herein by reference to the Company's definitive Proxy Statement for the 1995 Annual Meeting of Shareholders. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENTS, STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) Financial Statements and Schedule: Report of Ernst & Young LLP F-1 Consolidated Statements of Operations for the years ended March 31, 1995, 1994 and 1993 F-2 Consolidated Balance Sheets at March 31, 1995 and 1994 F-3 Consolidated Statements of Changes in Shareholders' Equity for the years ended March 31, 1995, 1994 and 1993 F-4 Consolidated Statements of Cash Flows for the years ended March 31, 1995, 1994 and 1993 F-5 Notes to Consolidated Financial Statements F-6 Schedule VIII -- Valuation and Qualifying Accounts and Reserves F-26 ALL OTHER SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE OR THE REQUIRED INFORMATION IS SHOWN IN THE FINANCIAL STATEMENTS OR NOTES THERETO. (b) No reports on Form 8-K were filed by the Company during the last quarter of the fiscal year ended March 31, 1995. (c) Exhibits (2) Confirmation Order and Fourth Amended Joint Plan of Reorganization of Emerson Radio Corp. ("Old Emerson") and certain subsidiaries under Chapter 11 of the United States Bankruptcy Code, dated March 31, 1994 (incorporated by reference to Exhibit (2) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the Securities and Exchange Commission ("SEC") on August 9, 1994). (3) (a) Certificate of Incorporation of Emerson (incorporated by reference to Exhibit (3) (a) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (b) Certificate of Designation for Series A Preferred Stock (incorporated by reference to Exhibit (3) (b) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (c) Plan of Reorganization and Agreement of Merger by and between Old Emerson and Emerson Radio (Delaware) Corp. (incorporated by reference to Exhibit (3) (c) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (d) Certificate of Merger of Old Emerson with and into Emerson Radio (Delaware) Corp. (incorporated by reference to Exhibit (3) (d) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (e) 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). (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). (10) (a) Agreement, dated as of November 14, 1973, between National Union Electric Corporation ("NUE") and Emerson (incorporated by reference to Exhibit (10) (a) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (b) Trademark User Agreement, dated as of February 28, 1979, by and between NUE and Emerson (incorporated by reference to Exhibit (10) (b) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (c) Agreement, dated July 2, 1984, between NUE and Emerson (incorporated by reference to Exhibit (10) (c) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (d) Agreement, dated September 15, 1988, between NUE and Emerson (incorporated by reference to Exhibit (10) (d) of Emerson's Registration Statement on Form S-1, Registration No. 33- 53621, declared effective by the SEC on August 9, 1994). (10) (e) Form of Promissory Note issued to certain Pre-Petition Creditors (incorporated by reference to Exhibit (10) (e) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (f) Loan and Security Agreement, dated March 31, 1994, by and among Emerson, Majexco Imports, Inc. and Congress Financial Corporation ("Congress") (incorporated by reference to Exhibit (10) (f) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (g) Emerson Radio Corp. Stock Compensation Program (incorporated by reference to Exhibit (10) (i) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (h) Employment Agreement between Emerson and Eugene I. Davis (incorporated by reference to Exhibit 6(a)(4) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (i) Employment Agreement between Emerson and Albert G. McGrath, Jr. (incorporated by reference to Exhibit 6(a)(7) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (j) Employment Agreement between Emerson and Geoffrey P. Jurick (incorporated by reference to Exhibit 6(a)(6) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (k) Employment Agreement between Emerson Radio (Hong Kong) Ltd. and Geoffrey P. Jurick (incorporated by reference to Exhibit 6(a)(6) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (l) Employment Agreement between Emerson Radio International Ltd. (formerly Emerson Radio (B.V.I), Ltd.) and Geoffrey P. Jurick (incorporated by reference to Exhibit 6(a)(6) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (m) Lease Agreement dated as of March 26, 1993, by and between Hartz Mountain Parsippany and Emerson with respect to the premises located at Nine Entin Road, Parsippany, NJ (incorporated by reference to Exhibit (10) (ww) of Emerson's Annual Report on Form 10-K for the year ended December 31, 1992). (10) (n) Employment Agreement, dated July 13, 1993, between Emerson and Merle Eakins (incorporated herein by reference to Exhibit (10)(vv) to Emerson's Annual Report on Form 10-K for the year ended March 31, 1993). (10) (o) Employment Agreement, dated April 1, 1994, between Emerson and John Walker (incorporated herein by reference to Exhibit (10)(ee) of Emerson's Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (p) Liquidity Trust Agreement, dated as of March 31, 1994, by and among Emerson, Majexco Imports, Inc., H.H. Scott, Inc., and Stuart D. Gavsy, Esq., as Trustee (incorporated by reference to Exhibit (10) (ff) of Emerson's Registration Statement on Form S- 1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (q) Partnership Agreement, dated April 1, 1994, between Emerson and Hopper Radio of Florida, Inc.* (10) (r) Sales Agreement, dated April 1, 1994, between Emerson and E & H Partners.* (10) (s) Agreement, dated July 1, 1994, between Emerson and Alex Wijnen relating to termination of employment and agreement on consulting services.* (10) (t) Independent Consultant's Agreement, dated October 1, 1994, between Emerson Radio International Ltd. and Peter G. Bunger.* (10) (u) Independent Consultant's Agreement, dated October 1, 1994, between Emerson Radio Europe B.V. and Peter G. Bunger.* (10) (v) Employment Agreement, dated October 3, 1994, between Emerson and Andrew Cohan.* (10) (w) License Agreement, dated February 22, 1995, between Emerson and Otake (incorporated by reference to Exhibit 6(a)(1) of Emerson's Quarterly Report on Form 10-Q for quarter ended December 31, 1994). (10) (x) Supply Agreement, dated February 22, 1995, between Emerson and Otake (incorporated by reference to Exhibit 6(a)(2) of Emerson's Quarterly Report on Form 10-Q for quarter ended December 31, 1994). (10) (y) 1994 Non-Employee Director Stock Option Plan.* (11) Computation of Primary Earnings Per Share.* (21) Subsidiaries of the Company as of March 31, 1995.* (27) Financial Data Schedule for year ended March 31, 1995.* ___________________ * Filed herewith. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EMERSON RADIO CORP. By:/s/ Geoffrey P. Jurick ______________________ Geoffrey P. Jurick Chairman of the Board Dated: June 19, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Geoffrey P. Jurick __________________ Geoffrey P. Jurick Chairman of the Board, June 19, 1995 Chief Executive Officer /s/ Eugene I. Davis _________________ Eugene I. Davis President and Director June 19, 1995 /s/ Robert H. Brown, Jr. ____________________ Robert H. Brown, Jr. Director June 19, 1995 /s/ Peter G. Bunger ________________ Peter G. Bunger Director June 19, 1995 /s/ Jerome H. Farnum ________________ Jerome H. Farnum Director June 19, 1995 /s/ Colin G. Honess _______________ Colin G. Honess Director June 19, 1995 /s/ Raymond L. Steele _________________ Raymond L. Steele Director June 19, 1995 /s/ Peter Roggendorf Director June 19, 1995 ________________ Peter Roggendorf REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of Emerson Radio Corp. We have audited the accompanying consolidated balance sheets of Emerson Radio Corp. and Subsidiaries as of March 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years ended March 31, 1995, 1994 and 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Emerson Radio Corp. and Subsidiaries at March 31, 1995 and 1994 and the consolidated results of its operations and cash flows for the years ended March 31, 1995, 1994 and 1993, in conformity with generally accepted accounting principles. As discussed in Note H to the financial statements, in the year ended March 31, 1994, the Company changed its method of accounting for income taxes. ERNST & YOUNG LLP New York, New York May 24, 1995 EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Years Ended March 31, 1995 1994 1993 Net sales $ 654,671 $ 487,390 $741,357 Costs and expenses: _________ _________ ________ Cost of sales 604,329 486,536 674,855 Other operating costs and expenses 8,771 12,001 19,026 Selling, general and administrative expenses 31,047 34,552 49,508 Restructuring and other nonrecurring charges 35,002 _______ _______ _______ 644,147 533,089 778,391 _______ _______ ______ Operating profit (loss) 10,524 (45,699) (37,034) Interest expense 2,882 10,243 18,257 Earnings (loss) before ______ _______ _______ reorganization costs and taxes 7,642 (55,942) (55,291) Reorganization items: ______ ________ _______ Writedown of assets 12,914 Professional fees and other related expenses 4,545 Interest earned on accumulated cash (74) _____ _______ ______ - 17,385 - _____ _______ ______ Earnings (loss) before income taxes and extraordinary gain 7,642 (73,327) (55,291) Provision for income taxes 267 327 709 Earnings (loss) before _____ ________ ________ extraordinary gain 7,375 (73,654) (56,000) Extraordinary gain on extinguishment of debt 129,155 _______ _______ _________ Net earnings (loss) $ 7,375 $ 55,501 $(56,000) ======= ========= ======== Net earnings (loss) per common share: Before extraordinary gain $0.16 ($ 1.93) ($ 1.47) Extraordinary gain 3.38 _____ _________ _________ Net earnings (loss) $0.16 $ 1.45 ($ 1.47) _____ ________ __________ Weighted average number of common and common equivalent shares outstanding 46,571 38,191 38,179 ______ ______ ______ Pro Forma: Loss per common share $ (1.51) Weighted average number of _________ common shares outstanding 33,333 _________ The accompanying notes are an integral part of the consolidated financial statements. EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) March 31, ASSETS 1995 1994 Current Assets: Cash and cash equivalents $ 17,020 $ 21,623 Accounts receivable (less allowances of $9,350 and $6,442, respectively) 34,309 20,131 Inventories 35,336 45,980 Prepaid expenses and other current assets 15,715 20,597 _______ _______ Total current assets 102,380 108,331 Property and equipment, net 4,676 5,256 Other assets 6,913 5,434 _______ __________ Total Assets $ 113,969 $ 119,021 ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable $ 27,296 $ 20,040 Current maturities of long-term debt 508 1,498 Accounts payable and other current liabilities 18,982 37,378 Accrued sales returns 12,713 16,634 Income taxes payable 283 533 ______ ______ Total current liabilities 59,782 76,083 Long-term debt 214 227 Other non-current liabilities 322 94 Shareholders' Equity: Preferred stock -- $.01 par value, 1,000,000 shares authorized, 10,000 issued and outstanding 9,000 9,000 Common stock -- $.01 par value, 75,000,000 shares authorized; 40,252,772 and 33,333,333 shares issued and outstanding, respectively 403 333 Capital in excess of par value 107,969 103,427 Accumulated deficit (64,086) (70,761) Cumulative translation adjustment 365 618 ______ ______ Total shareholders' equity 53,651 42,617 Total Liabilities and Shareholders' ______ ______ Equity $113,969 $119,021 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands, except share data)
Common Shares Issued Capital Cumulative Preferred Number Par in Excess Accumulated Translation Stock of Shares Value of Par Value Deficit Adjustment Balance -- March 31, 1992 37,978,119 $ 3,798 $ 63,881 $(70,262) $ 1,103 Issuance of shares upon exercise of stock options and distribution of stock grants 59,333 6 113 Issuance of stock and warrants to Semi-Tech 153,847 15 (15) Redemption of stock purchase rights (271) Other 22 (285) Net loss (56,000) _______ __________ _____ ______ ________ Balance -- March 31, 1993 38,191,299 3,819 63,730 (126,262) 818 Cancellation of common stock (38,191,299) (3,819) 3,819 Issuance of common stock 30,000,000 300 29,700 Issuance of preferred and common stock and warrants pursuant to bankruptcy settlement $ 9,000 3,333,333 33 6,192 Other (14) (200) Net earnings 55,501 _____ __________ ___ _______ ________ Balance -- March 31, 1994 9,000 33,333,333 333 103,427 (70,761) 618 Issuance of common stock in public offering, net of expenses 6,149,993 62 5,630 Issuance of common stock to former creditors 769,446 8 (8) Payment to former creditors (922) Preferred stock dividends (700) Other (158) (253) Net earnings 7,375 _______ __________ _____ ________ __________ Balance -- March 31, 1995 $ 9,000 40,252,772 $ 403 $107,969 $ (64,086) $ 365 ======= ========== ===== ======== ========== The accompanying notes are an integral part of the consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands except share data) Years Ended March 31, 1995 1994 1993 Cash Flows from Operating Activities: Net earnings (loss) $ 7,375 $ 55,501 $(56,000) Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities: Depreciation and amortization 3,876 7,327 6,419 Extraordinary gain (129,155) Restructuring and other nonrecurring charges (237) (9,711) 16,350 Reorganization expenses 12,914 Asset valuation and loss reserves (2,031) 8,415 6,495 Other (969) 2,643 1,570 Changes in assets and liabilities: Accounts receivable (14,805) 12,081 26,769 Inventories 11,032 34,942 (28,884) Prepaid expenses and other current assets (5,598) 6,181 4,694 Other assets (605) 89 (498) Accounts payable and other current liabilities (18,633) 27,287 2,981 Income taxes payable (379) (924) (194) _______ _______ ______ Net cash provided (used) by operations (20,974) 27,590 (20,298) ________ ______ ________ Cash Flows from Investing Activities: Additions to property and equipment (2,874) (3,552) (4,859) Redemption of (investment in) certificates of deposit 8,455 (500) (4,000) Other 110 114 (134) Net cash provided (used) by _____ _______ _______ investing activities 5,691 (3,938) (8,993) _____ _______ _______ Cash Flows from Financing Activities: Net borrowings under line of credit facility 7,256 20,040 25,366 Proceeds from issuances of common stock 5,692 30,000 125 Retirement of long-term debt (500) (30) (600) Payment to former creditors (922) Payment of preferred stock dividends (525) Redemption of stock purchase rights (271) Payment of pre-petition obligations (75,000) Payment of debt costs (2,139) Other (321) (83) (49) _____ _______ _____ Net cash provided (used) by financing activities 10,680 (27,212) 24,571 Net decrease in cash and cash _______ ________ _______ equivalents (4,603) (3,560) (4,720) Cash and cash equivalents at beginning of year 21,623 25,183 29,903 Cash and cash equivalents at ________ ________ _________ end of year $ 17,020 $ 21,623 $ 25,183 ======== ======== ========= The accompanying notes are an integral part of the consolidated financial statements. EMERSON RADIO CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1995 Note A -- Significant Accounting Policies: (1) Basis of Presentation: The consolidated financial statements include the accounts of Emerson Radio Corp. and its majority-owned subsidiaries (the "Company"). All significant intercompany transactions and balances have been eliminated. A 50% ownership of a domestic joint venture is accounted for by the equity method (see Note N). Historical cost accounting was used to account for the plan of reorganization (the "Plan of Reorganization") (see Note B) since the transaction did not meet the criteria required for fresh-start reporting. Certain prior year information has been reclassified to conform with the current year presentation. (2) Cash and Cash Equivalents: Short-term investments with original maturities of three months or less at the time of purchase are considered to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value. (3) Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market. (4) Property and Equipment: Property and equipment, stated at cost, is being depreciated for financial accounting purposes on the straight-line method over its estimated useful life. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. Upon the sale or retirement of property and equipment, the costs and related accumulated depreciation are eliminated from the accounts. Any resulting gains or losses are included in income. The cost of repairs and maintenance is charged to expense as incurred. (5) Warranty Claims: The Company provides an accrual for future warranty costs when the product is sold. (6) Income Taxes: Deferred income taxes are accounted for on the liability method in accordance with Statement of Financial Accounting Standards No. 109. Provision is made for federal income tax which may be payable on earnings of foreign subsidiaries to the extent that the Company anticipates they will be remitted. (7) Earnings (Loss) per Share: Net earnings per common share for the year ended March 31, 1995 is based on the weighted average number of shares of Common Stock and common stock equivalents outstanding during the year. Common stock equivalents include shares issuable upon conversion of the Company's Series A Preferred Stock, exercise of stock options and warrants, and shares issued in the year ended March 31, 1995 primarily to satisfy an anti-dilution provision. The Series A Preferred Stock is not convertible into Common Stock until March 31, 1997, and the shares of Common Stock issuable upon conversion is dependent on the market value of the Common Stock at the time of conversion (See Note J(6)). Net earnings (loss) per common share for the years ended March 31, 1994 and 1993 are based on the weighted average number of shares of Common Stock outstanding prior to confirmation of the Plan of Reorganization (See Note B) and cancelled as a part thereof, and do not include common stock equivalents assumed outstanding since they were not dilutive. Pro forma loss per common share for the year ended March 31, 1994 gives effect to the bankruptcy restructuring and is based on the number of shares of Common Stock issued and outstanding at March 31, 1994. The pro forma loss per common share does not include common stock equivalents assumed outstanding since they are anti-dilutive. The pro forma loss per common share also gives effect to the following adjustments: (i) Elimination of extraordinary gain of $129,155,000 and reorganization expenses of $17,385,000; (ii) Reduction of $6,666,000 in interest expense to give effect to the reorganized debt structure. The pro forma interest expense is based on the maximum amount of borrowings ($45 million) permitted under the new credit facility at the interest rate that would have been in effect for the year ended March 31, 1994 (8.25%). Additionally, the amortization of closing fees on the credit facility is included in the pro forma interest expense above; (iii) Assumed dividends on the Series A Preferred Stock aggregating $700,000 for the year ended March 31, 1994. (8) Foreign Currency: The assets and liabilities of foreign subsidiaries have been translated at current exchange rates, and related revenues and expenses have been translated at average rates of exchange in effect during the year. Related translation adjustments are reported as a separate component of shareholders' equity. Gains and losses resulting from foreign currency transactions are included in the Consolidated Statements of Operations and amounted to a gain of $220,000 and losses of $1,489,000 and $1,073,000 for the years ended March 31, 1995, 1994 and 1993, respectively. The Company entered into foreign currency exchange contracts to hedge exposures related to foreign currency fluctuations for its European operations. Gains and losses were recognized in the same period as the transactions being hedged. At March 31, 1995, the Company has no forward exchange contracts outstanding. In the fiscal year ending March 31, 1996, the Company intends to reduce its foreign currency exposure by conducting its Canadian and European businesses in U.S. dollars. Note B -- Reorganization: On September 29, 1993, the Company and five of its U.S. subsidiaries filed voluntary petitions for relief under the reorganization provisions of Chapter 11 of the United States Bankruptcy Code and operated as debtors-in-possession under the supervision of the Bankruptcy Court while their reorganization cases were pending. The precipitating factor for these filings was the Company's severe liquidity problems relating to its high level of indebtedness and a significant decline in sales from the prior year. Effective March 31, 1994, the Bankruptcy Court entered an order confirming the Plan of Reorganization. The Plan of Reorganization provided for the implementation of a recapitalization of the Company. In accordance with the Plan of Reorganization, the Company's pre-petition liabilities (of approximately $233 million) were settled with the creditors in the aggregate, as follows: I. The Company's bank group (the "Bank Lenders") received $70 million in cash and the right to receive the initial $2 million of net proceeds from the Company's anti-dumping duty receivable (see Note I (3)). II. The institutional holders of the Company's senior notes (the "Noteholders") initially received $2,650,000 in cash and warrants to purchase 750,000 shares of Common Stock for a period of seven years at an exercise price of $1.00 per share, provided that the exercise price shall increase by 10% per year commencing in year four, and further received $1 million, payable $922,498 in cash from the initial public offering of Common Stock (see Note J(8)) and $77,502 in Common Stock calculated on the basis of $1.00 per share. III. The Bank Lenders and Noteholders received their pro rata percentage of the following: A. $2,350,000 in cash (however $350,000 of this amount was distributable to the holders of allowed unsecured claims); B. 10,000 shares of Series A Preferred Stock with a face value of $10 million (estimated fair market value of approximately $9 million at March 31, 1994); C. 4,025,277 shares of Common Stock, including 691,944 shares issued in February 1995 pursuant to an anti-dilution provision; D. The net proceeds from the sale of the Company's Indiana land and building; and E. The net proceeds to be received from the Company's anti-dumping duty receivable in excess of $2 million (see Note I (3)). IV. Holders of allowed unsecured claims received a pro-rata portion of the $350,000 distribution and interest bearing promissory notes equal to 18.3% of the allowed claim amount, payable in two installments over 18 months (see Note G). Pursuant to the provisions of the Plan of Reorganization, as of March 31, 1994, the equity of the Company's stockholders, and the equity interest of holders of stock options and warrants were cancelled. Based on the settlement of the Chapter 11 proceedings, the Company recognized an extraordinary gain of $129.2 million from the extinguishment of debt. Additionally, the Company recognized a writedown of $12.9 million to estimated fair market value on the assets transferred for the benefit of the Bank Lenders and Noteholders. Pursuant to the Plan of Reorganization, and in consideration for $30 million, the reorganized Company issued 30 million shares of Common Stock, currently held by the following parties: Number of Shares Fidenas International Limited L.L.C. ("Fidenas International") 16,400,000 Elision International, Inc. ("Elision") 1,600,000 GSE Multimedia Technologies Corporation ("GSE") 12,000,000 The Company's Chairman and Chief Executive Officer is an officer and beneficial owner of 40% of Fidenas Investment Limited ("FIL"), the Company's largest shareholder prior to confirmation of the Plan of Reorganization with an approximate 20% ownership interest. This officer has a controlling beneficial ownership interest in each of the three entities listed above which purchased the Company's Common Stock, and therefore holds an approximate 75% interest in the Company's outstanding Common Stock at March 31, 1995. Note C -- Restructuring and Other Nonrecurring Charges: During the year ended March 31, 1993, the Company recorded restructuring and other nonrecurring charges aggregating $35,002,000. The provision included $31.9 million of charges related to the Company's core business operations of consumer electronics products. These charges were comprised primarily of certain costs associated with the consolidation of facilities, severance of employees ($3,967,000 provision for termination of officers and other employees), the writedown of certain assets, a provision relating to a significant change in the resale arrangement for returned product, and professional fees and other charges related to the Company's proposed financial restructuring and to a proxy contest settled in June 1992. The provision also included $3.1 million in charges relating to the final wind-down of the Company's personal computer business. Note D -- Inventories: Inventories are comprised primarily of finished goods. Spare parts inventories, net of reserves, aggregating $2,763,000 and $4,140,000 at March 31, 1995 and 1994, respectively, are included in "Prepaid expenses and other current assets". Note E -- Property and Equipment: Property and equipment is comprised of the following: March 31, 1995 1994 (In thousands) Furniture and fixtures $ 5,854 $ 6,025 Molds and tooling 3,806 2,948 Machinery and equipment 1,847 2,509 Leasehold improvements 271 454 ______ ______ 11,778 11,936 Less accumulated depreciation and amortization 7,102 6,680 _____ ______ $ 4,676 $ 5,256 ======== ======== Depreciation and amortization of property and equipment amounted to $3,267,000, $6,679,000 and $5,062,000, for the years ended March 31, 1995, 1994 and 1993, respectively. Pursuant to the Plan of Reorganization, the Company transferred its land and building in Indiana to a liquidating trust established for the benefit of the Bank Lenders and Noteholders. In connection with this transfer, the Company recorded a writedown of approximately $2.3 million to reduce the carrying value to estimated fair market value at March 31, 1994. Note F -- Notes Payable: Effective March 31, 1994, the Company entered into a three year Loan and Security Agreement with a U.S. financial institution (the "Lender") providing for an asset-based revolving credit facility. The facility provides for revolving loans and letters of credit, subject to individual maximums and, in the aggregate, not to exceed the lesser of $60 million or a "Borrowing Base" amount based on specified percentages of eligible accounts receivable and inventories. All credit extended under the line of credit is secured by the U.S. and Canadian assets of the Company. The interest rate on these borrowings is 2.25% above the prime rate. At March 31, 1995 and 1994, the weighted average interest rate on the outstanding borrowings was 11.25% and 8.5%, respectively. The facility is also subject to an unused line fee of 0.5% per annum. Pursuant to the Loan and Security Agreement, the Company is restricted from, among other things, paying cash dividends (other than on the Series A Preferred Stock), redeeming stock, and entering into certain transactions and is required to maintain certain working capital and equity levels (as defined). At March 31, 1995, there was $27,296,000 outstanding under the revolving loan facility and approximately $3,622,000 of outstanding letters of credit issued for inventory purchases. The fair market value of the short-term notes payable to the Lender at March 31, 1995 and 1994 is estimated to be $27,296,000 and $20,040,000, respectively, which is the historical cost. During the pendency of the bankruptcy proceedings, the Company obtained debtor-in-possession financing ("DIP Financing") from the Lender. The terms of the DIP Financing provided for a revolving credit facility in an aggregate principal amount of $14.9 million and bore interest at the prime rate plus 0.5% per annum. Repayment of the proceeds was guaranteed by FIL. All principal and accrued interest on the DIP Financing was paid and the DIP Financing was terminated as of March 31, 1994. Cash paid for interest was $3,371,000, $11,251,000 and $20,108,000 for the years ended March 31, 1995, 1994 and 1993, respectively. In the six months ended March 31, 1994, interest expense was only accrued and paid on the Company's DIP Financing loan. No interest was accrued during the pendency of the bankruptcy proceedings on the debt owed to the Bank Lenders or the Noteholders. Had the contractual interest been accrued during this period, interest expense would have been approximately $10.2 million higher than the amount reported on the Consolidated Statement of Operations for the year ended March 31, 1994. Note G -- Long-Term Debt: Long-term debt consists of the following: March 31, 1995 1994 (In thousands) Notes payable to unsecured creditors $ 465 $ 842 Equipment notes and other 257 383 11 1/2% convertible subordinated note 500 ____ _____ 722 1,725 Less current obligations 508 1,498 ______ ______ $ 214 $ 227 ====== ====== Pursuant to the Plan of Reorganization, the holders of allowed unsecured claims received interest bearing promissory notes equal to 18.3% of the claim amount. The notes are due in two installments: 35% of the outstanding principal is due 12 months from the date of issuance, and the remaining balance is due 18 months from the date of issuance. The notes bear interest at the London Interbank Offered Rate in effect at the date of issuance for one year obligations. Note H -- Income Taxes: The income tax provision consists of the following: Years Ended March 31, 1995 1994 1993 (In thousands) Current: Federal $ 40 $215 Foreign, State and Other 227 $327 494 ____ ____ ____ $267 $327 $709 ==== ==== ==== The difference between the effective rate reflected in the provision for income taxes and the amounts determined by applying the statutory U.S. rate of 34% to earnings (loss) before income taxes are analyzed below: Years Ended March 31, 1995 1994 1993 (In thousands) Statutory tax (benefit) $ 2,598 $(24,931) $(18,799) Utilization of net operating loss carryforwards (632) U.S. and foreign net operating losses without tax benefit 1,675 24,975 20,752 Foreign income subject to foreign tax, not subject to U.S. tax (785) (1,431) Tax recognition of prior year book deductions (888) Rate differential on foreign income (1,959) 327 (638) Nondeductible bankruptcy expenses 137 1,545 Nondeductible debt restructuring expenses (1,540) 521 Other, net 121 (49) 304 ______ _______ ______ Total income tax provision $ 267 $ 327 $ 709 ====== ======= ====== Effective April 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," under which the liability method (rather than the deferred method) is used in accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. The change had no effect on the results of operations for the year ended March 31, 1994. Significant components of the Company's deferred tax assets and liabilities are as follows: March 31, 1995 1994 (In thousands) Deferred tax assets: Accounts receivable reserves $ 7,653 $8,287 Inventory reserves 1,188 1,394 Net operating loss carryforwards 10,588 11,550 Other 1,014 1,131 ______ ______ Total deferred tax assets 20,443 22,362 Valuation allowance for deferred tax assets (20,189) (22,011) ________ ________ Net deferred tax assets 254 351 Deferred tax liabilities: ________ ________ Other (254) (351) ________ ________ Total deferred tax liabilities (254) (351) ________ ________ Net deferred taxes $ -- $ -- ======== ======== Total deferred tax assets of the Company at March 31, 1995 represent the tax-effected annual limitation multiplied by the net operating loss carryforward period and tax-effected deductible temporary differences. The Company has established a valuation reserve against any expected future benefits. Cash paid for income taxes was $725,000, $946,000 and $453,000 for the years ended March 31, 1995, 1994 and 1993, respectively. Income before taxes of foreign subsidiaries was $3,786,000 and $5,334,000 for the years ended March 31, 1995 and 1993, respectively. Losses before taxes of foreign subsidiaries was $16,042,000 for the year ended March 31, 1994. Unremitted earnings of foreign subsidiaries which have been, or are intended to be permanently reinvested (and for which no Federal income tax has been provided) aggregated $3,396,000 and $1,086,000 at March 31, 1995 and 1994, respectively. As of March 31, 1995, the Company has a net operating loss carryforward of approximately $95,270,000, of which $31,692,000, $13,385,000 and $50,193,000 will expire in 2006, 2007 and 2009, respectively. This net operating loss carryforward reflects downward adjustments made in 1995 pursuant to IRS examinations completed for the years ended March 31, 1990 and 1989 totaling $20,346,000. As of March 31, 1995, foreign tax credit carryforwards of $929,000 are available and if not utilized, will expire in 1996. In addition, as of March 31, 1995, the Company has deductible temporary differences of approximately $26,003,000 principally attributable to accounts receivable reserves related to sales returns and inventory reserves. The utilization of these net operating losses and tax credits will be limited based on the effects of the Plan of Reorganization consummated on March 31, 1994. Pursuant to the Plan of Reorganization, the Bank Lenders, the Noteholders, Fidenas International, Elision and GSE initially received 100% of the Common Stock. As a result, an ownership change occurred with respect to the Company, and subjected the Company's net operating losses and tax credits to the limitation provided for in Section 382 and 383, respectively, of the Internal Revenue Code. Subject to special rules regarding increases in the annual limitation for the recognition of net unrealized built-in gains, the Company's annual limitation will be approximately $2.2 million. Note I -- Commitments, Contingencies and Related Party Transactions: (1) Leases: The Company leases warehouse and office space at minimum aggregate rentals as follows: Year Ending March 31, Amount (In thousands) 1996 $ 1,507 1997 1,484 1998 1,071 1999 271 2000 -- ______ $4,333 ====== Rent expense aggregated $2,731,000, $2,663,000 and $3,520,000 for the years ended March 31, 1995, 1994 and 1993, respectively. Rental income from the sublease of warehouse space aggregated $273,000, $89,000 and $201,000 in the years ended March 31, 1995, 1994 and 1993, respectively. The Company's previous headquarters was leased from a limited partnership, 51% of which was indirectly owned by four former executive officers of the Company. The lease, which was scheduled to expire in April 1995 (excluding renewal options), terminated in July 1993, as noted below. Rent expense related to this lease amounted to $491,000 and $1,575,000 for the years ended March 31, 1994 and 1993, respectively. In March 1993, the Company entered into an agreement with the general partner of the limited partnership under which the Company was released without penalty from its lease obligations with respect to the above location, effective July 1993, in consideration for executing a five year lease (commencing on the same date) for office space with an affiliate of the general partner. The new lease provides for the annual payment of rent of approximately $813,000, and that the Company pay for its proportionate share of increases in real estate taxes. (2) Letters of Credit: Outstanding letters of credit for the purchase of inventory, not reflected in the accompanying financial statements, aggregated $11,863,000 (including $3,622,000 issued under the Loan and Security Agreement -- see Note F) at March 31, 1995. The Company's Hong Kong subsidiary also maintains various credit facilities aggregating $114.3 million with a bank in Hong Kong consisting of the following: (i) a $12.3 million credit facility which is generally used for letters of credit for a foreign subsidiary's direct import business and affiliates' inventory purchases, (ii) a $2 million standby letter of credit facility, and (iii) a $100 million credit facility, for the benefit of a foreign subsidiary, which is for the establishment of back-to-back letters of credit with the Company's largest customer. At March 31, 1995, the Company's Hong Kong subsidiary had pledged $4 million in certificates of deposit to this bank to assure the availability of these credit facilities. At March 31, 1995, there were $5,974,000 and $8,415,000 of letters of credit outstanding under the $12.3 million and $100 million credit facilities, respectively. The Company's Hong Kong subsidiary secured an additional credit facility in the year ended March 31, 1995 with another bank in Hong Kong. The facility provides for a $10 million line of credit for documentary letters of credit and a $10 million back-to-back letter of credit line, collateralized by a $5 million certificate of deposit. At March 31, 1995, the Company's Hong Kong subsidiary had pledged $5,041,000 in certificates of deposit to assure the availability of these credit facilities. At March 31, 1995, $3,871,000 of the letter of credit line was utilized. The Company has discounted unmatured notes received from its European customers for payments of accounts receivable with various foreign banks. At March 31, 1995, $1,282,000 of discounted notes have not matured. (3) Anti-Dumping Duty Receivable: The Company was a participant in matters pending before the United States Customs Service and the United States Department of Commerce pertaining to the assessment and deposit of anti-dumping duties on importations of color televisions from both the Republic of Korea and Taiwan. Such deposits were based on U.S. Commerce Department deposit requirements in effect at the time and were deemed excessive based on the U.S. Commerce Department's determinations of anti-dumping margins; however, the deposits will not be refunded until litigation challenging the U.S. Commerce Department determination of anti-dumping margins is completed. Pursuant to the Plan of Reorganization, the Company transferred the anti-dumping duty deposits and related interest, net of anti-dumping duty liabilities, to a liquidating trust for the benefit of the Bank Lenders and Noteholders in exchange for a reduction in outstanding indebtedness. In preparation for the transfer, the Company reviewed the anti-dumping duty deposit records of the U.S. Customs Service and noted significant discrepancies between the Company's records and those of the U.S. Customs Service on anti-dumping duties eligible for refund. The Company believes that the U.S. Customs Service erroneously liquidated certain anti-dumping duty entries that should be suspended in accordance with court orders and misclassified certain anti-dumping duty deposits as regular duty payments. The magnitude of these differences, including interest accruing thereon, was estimated at $6.6 million. The net anti-dumping duty receivable was transferred to the liquidating trust at a fair market value of $4 million based on third-party analysis, resulting in a writedown of approximately $10.6 million (based on a book value of $14.6 million). (4) Other Matters: A law firm of which two officers of the Company (one of whom is a director) were members until July 1992 and August 1992, respectively, received fees of $541,000 in the year ended March 31, 1993, primarily as reimbursement of amounts incurred by FIL in a 1992 proxy contest. Another law firm which represented FIL in the proxy contest was paid fees aggregating $200,000 in the year ended March 31, 1993 by the Company in reimbursement of amounts incurred by FIL in the proxy contest. Upon settlement of the proxy contest, such law firm was retained as the Company's outside counsel and provided legal services to the Company for fees aggregating $737,000, $1,070,000 and $259,000 for the years ended March 31, 1995, 1994 and 1993, respectively. A family member of an officer of the Company joined such law firm, as of counsel, subsequent to its retention by the Company. Effective April 1, 1995, the Company's Canadian subsidiary entered into a series of three-year agreements with a company owned by a former employee of the Canadian subsidiary, and who is also the daughter of a former officer of the Canadian subsidiary. The agreements provide for this Canadian company to perform certain after sale services, act as the exclusive parts distributor for the Company's Canadian subsidiary and purchase all products returned by the Company's Canadian customers. In the year ended March 31, 1994, the Company paid $208,000 to a designee of FIL for expenses incurred relating to the DIP Financing and $187,000 to guarantee the DIP Financing. Additionally, the Company reimbursed Fidenas International $568,000 for various legal, accounting and filing fees relating to the capital infusion and debt restructuring in the year ended March 31, 1994. At March 31, 1994, the Company's Hong Kong subsidiary had $1 million on deposit with a bank that is an affiliate of Fidenas International. These funds were withdrawn shortly thereafter. The Company paid fees to a former executive officer of the Company, in accordance with a three-year consulting agreement, aggregating $204,000 and $490,000 for the years ended March 31, 1994 and 1993, respectively. In accordance with the employment contract of an officer of the Company, the Company has provided a non-interest bearing relocation bridge loan to the officer of $120,000, secured by the equity in the former personal residence of the officer. The maturity date of the loan has been extended and is due in the fiscal year ending March 31, 1996. The Company has employment agreements with certain of its officers, that expire at various dates through 1997, and provide for minimum payments aggregating $3,601,000. Note J -- Shareholders' Equity: (1) In connection with the settlement of shareholder litigation in 1991, the Company was required to redeem the common stock purchase rights (the "Rights") previously granted under the Company's 1989 Shareholder Rights Agreement at a redemption price of $.01 per Right. In the year ended March 31, 1993, the Company paid approximately $271,000 to holders of record on March 13, 1992 to redeem the Rights and granted additional rights which expired without exercise in July 1992. (2) In June 1991, the Company entered into a Securities Purchase Agreement (as amended, the "Securities Purchase Agreement") with a subsidiary of Semi-Tech (Global) Limited ("Semi-Tech") providing for the purchase of 10 million common shares and the issuance of stock purchase warrants. In April 1992, the Securities Purchase Agreement was terminated in exchange for payment by the Company of $500,000 in cash and the issuance of 153,847 common shares (then equal in value to $500,000). Concurrently, the Company and Semi-Tech entered into a three-year Supply Agreement (the "Supply Agreement"). Pursuant to the Supply Agreement, the Company issued to Semi-Tech a four-year warrant (valued at $600,000) to purchase 1 million common shares at $4.00 per share and a five-year warrant to purchase 500,000 common shares at $4.00 per share. The Supply Agreement and the warrants were cancelled pursuant to the Plan of Reorganization. (3) All stock options outstanding at March 31, 1994 under the 1987 Stock Option Plan and the 1980 Employees' Stock Participation Plan were cancelled pursuant to the Plan of Reorganization. (4) In July 1994, the Company's Board of Directors adopted, and the stockholders subsequently ratified, a Stock Compensation Program ("Program") intended to secure for the Company and its stockholders the benefits arising from ownership of the Company's Common Stock by those selected directors, officers, other key employees, advisors and consultants of the Company who are most responsible for the Company's success and future growth. The maximum aggregate number of shares of Common Stock available pursuant to the Program is 2,000,000 shares and the Program is comprised of 4 parts -- the Incentive Stock Option Plan, the Supplemental Stock Option Plan, the Stock Appreciation Rights Plan and the Stock Bonus Plan. A summary of transactions since the inception of the Program is as follows: Number of Price Aggregate Shares Per Share Price Granted 1,860,000 $1.00 - $1.10 $1,920,000 Cancelled (30,000) $1.00 (30,000) _________ _____________ __________ Outstanding -- March 31, 1995 1,830,000 $1.00 - $1.10 $1,890,000 ========= ========== The term of each option is ten years, except for options issued to any person who owns more than 10% of the voting power of all classes of capital stock for which the term is five years. Options may not be exercised during the first year after the date of the grant. Thereafter each option becomes exercisable on a pro rata basis on each of the first through third anniversaries of the date of the grant. The exercise price of options granted must be at least equal to the fair market value of the shares on the date of the grant, except that the option price with respect to an option granted to any person who owns more than 10% of the voting power of all classes of capital stock shall not be less than 110% of the fair market value of the shares on the date of the grant. (5) In October 1994, the Company's Board of Directors adopted, subject to stockholder approval, the 1994 Non-Employee Director Stock Option Plan. The maximum number of shares of Common Stock available under such plan is 300,000. A summary of transactions since inception of the plan is as follows: Number of Price Aggregate Shares Per Share Price Granted 175,000 $1.00 $175,000 _______ ________ Outstanding -- March 31, 1995 175,000 $1.00 $175,000 ======= ======== The provisions for exercise price, term and vesting schedule are the same as noted above for the Stock Compensation Program. (6) Pursuant to the Plan of Reorganization, on March 31, 1994, the Company issued Series A Preferred Stock with a face value of $10 million and an estimated fair market value of approximately $9 million. The preferred stock is convertible into Common Stock at any time during the period beginning on March 31, 1997 and ending on March 31, 2002; the preferred stock is convertible into Common Stock at a price per share of Common Stock equal to 80% of the market value of a share of Common Stock on the date of conversion. The preferred stock bears dividends commencing June 30, 1994 on a cumulative basis at the following rates: Dividend Rate Year 1 to 3 7.0% Year 4 5.6% Year 5 4.2% Year 6 2.8% Year 7 1.4% Thereafter None The preferred stock is non-voting. However, the terms of the preferred stock provide that holders shall have the right to appoint two directors to the Company's Board of Directors if the preferred stock dividends are in default for six consecutive quarters. (7) Pursuant to the Plan of Reorganization, the Noteholders received warrants for the purchase of 750,000 shares of Common Stock. The warrants are exercisable for a period of seven years from March 31, 1994 and provide for an exercise price of $1.00 per share for the first three years, escalating by $.10 per share per annum thereafter until expiration of the warrant. (8) In accordance with the Company's Plan of Reorganization, the Company completed an initial public offering of its Common Stock in September 1994 to shareholders of record (in those states in which the offering could be made) as of March 31, 1994, excluding FIL. The Company sold 6,149,993 shares of Common Stock for $1.00 per share resulting in proceeds to the Company, net of issuance costs, of approximately $5,692,000. Pursuant to the terms of the Plan of Reorganization, in January 1995, the Company paid approximately $922,000 to satisfy certain obligations owed to former creditors, and in February 1995 issued 691,944 and 77,502 shares of Common Stock to former creditors, primarily to satisfy an anti-dilution provision. The remainder of such funds were used for working capital and other corporate purposes. Note K -- License Agreements: (1) In February 1995, the Company and Otake Trading Co. Ltd. and certain affiliates ("Otake"), the Company's largest supplier, entered into two mutually contingent agreements (the "Agreements"). Effective March 31, 1995, the Company granted a license of certain trademarks to Otake for a three-year term. The license permits Otake to manufacture and sell certain video products under the "Emerson" trademark to Wal-Mart Stores, Inc. ("Wal- Mart"), the Company's largest customer, in the U.S. and Canada, and precludes Otake from supplying product to Wal-Mart other than under the Emerson or Orion trademarks. The Company will continue to supply other products to Wal-Mart directly. Further, the Agreements provide that Otake will supply the Company with certain video products for sale to other customers at preferred prices for a three-year term. Under the terms of the Agreements, the Company will receive non-refundable minimum annual royalties from Otake to be credited against royalties earned from sales of video cassette recorders and players, television/video cassette recorder and player combinations, and color televisions to Wal-Mart. In addition, effective August 1, 1995, Otake will assume responsibility for returns and after-sale and warranty services on all video products manufactured by Otake and sold to Wal-Mart, including video products sold by the Company prior to April 1, 1995. Additionally, the Company and Otake agreed on a series of purchase discounts, consistent with agreements and past practices between Otake and the Company. Through March 31, 1995, Otake has paid the Company $6.3 million against an aggregate $10.2 million of purchase discounts for product purchased from January 1, 1993 to March 31, 1995, and the balance of $3.9 million is due in September 1995. The Company recognized $9.9 million of discounts in the year ended March 31, 1995, of which $4.3 million of discounts were attributable to purchases prior to April 1, 1994. (2) In October 1994, the Company entered into a license agreement with Jasco Products Co., Inc., ("Jasco") whereby the Company granted a license of certain trademarks to Jasco for use on non-competing consumer electronic accessories. Under the terms of the agreement, the Company will receive minimum annual royalties through the life of the agreement, which expires on December 31, 1997, and the agreement is automatically renewable for three successive three-year periods based upon Jasco's compliance with the agreement. The Company recognized license fee income of approximately $1,125,000 in the year ended March 31, 1995. Note L -- Legal Proceedings: FIL Litigation: The 30 million shares of Common Stock issued to GSE, Fidenas International and Elision on March 31, 1994, pursuant to the Plan of Reorganization, are the subject of certain legal proceedings. Transfers of certain shares owned by Fidenas International have been enjoined by court orders issued in the United States Bankruptcy Court for the Southern District of New York and in the Commonwealth of Bahamas. The Company is not a party to any of the proceedings described herein; it is possible that a court of competent jurisdiction may order the turnover of all or a portion of the shares of Common Stock owned by such persons to a third party. A turnover of a substantial portion of the Common Stock could result in a "change of controlling ownership" prohibited pursuant to the terms of the Company's Loan and Security Agreement with its primary lender. Additionally, such a change in control could result in a second "ownership change" under Internal Revenue Code Section 382, which could affect the Company's ability to use its net operating loss and tax credit carryforwards. The Company does not believe the litigation or the results thereof will have a material adverse effect on the Company or on the Company's financial position. Bankruptcy Claims: The Company is presently engaged in litigation regarding several bankruptcy claims which have not been resolved since the restructuring of the Company's debt. The largest claim was filed July 25, 1994 in connection with the rejection of certain executory contracts with two Brazilian entities, Cineral Electronica de Amazonia Ltda. and Cineral Magazine Ltda. (collectively, "Cineral"). The contracts were executed in August 1993, shortly before the Company's filing for bankruptcy protection. The amount claimed was $93,563,457, of which $86,785,000 represents a claim for loss of profits and $6,400,000 for plant installation and establishment of offices, which were installed and established prior to execution of the contracts. The claim was filed as an unsecured claim and, therefore, will be satisfied, to the extent the claim is allowed by the Bankruptcy Court, in the manner other allowed unsecured claims were satisfied. The Company has objected to the claim and intends to vigorously contest such claim and believes it has meritorious defenses to the highly speculative portion of the claim for lost profits and the portion of the claim for actual damages for expenses incurred prior to the execution of the contracts. Additionally, the Company has instituted an adversary proceeding in the Bankruptcy Court asserting damages caused by Cineral. A motion filed by Cineral to dismiss the adversary proceeding has been denied. The adversary proceeding and claim objection have been consolidated into one proceeding. An adverse final ruling on the Cineral claim could have a material adverse effect on the Company, even though it would be limited to 18.3% of the final claim determined by a court of competent jurisdiction; however, with respect to the claim for lost profits, in light of the foregoing, the Company believes the chances for recovery for lost profits are remote. Other Litigation: The Company is involved in other legal proceedings and claims of various types in the ordinary course of business. While any litigation contains an element of uncertainty, management presently believes that the outcome of each such proceeding or claim which is pending or known to be threatened (including the actions noted above), or all of them combined, will not have a material adverse effect on the Company's consolidated financial position. Note M -- Business Segment Information and Major Customers: The consumer electronics business is the Company's only business segment. Operations in this business segment are summarized below by geographic area: Year Ended March 31, 1995 U.S. Foreign Eliminations Consolidated (In thousands) Sales to unaffiliated customers $ 608,717 $45,954 $ -- $ 654,671 Transfers between geographic areas 5,954 184 (6,138) -- ________ ______ ________ ________ Total net revenues $ 614,671 $46,138 $ (6,138) $ 654,671 ======== ====== ======== ========= Earnings (loss) before income taxes $ 12,238 $(4,596) $ -- $ 7,642 ======== ======= ======== ======== Identifiable assets $ 98,604 $15,470 $ (105) $ 113,969 ======== ====== ========= ======== Year Ended March 31, 1994 Sales to unaffiliated customers $ 433,495 $53,895 $ -- $ 487,390 Transfers between geographic areas 2,587 -- (2,587) -- ________ ______ _________ ________ Total net revenues $ 436,082 $53,895 $ (2,587) $ 487,390 Loss before reorganization ======== ====== ========= ========= costs and income taxes $ (50,718) $(5,224) $ -- $ (55,942) ========= ======= ========= ========= Identifiable assets $ 99,726 $19,295 $ -- $ 119,021 ======== ====== ========= ========= Year Ended March 31, 1993 Sales to unaffiliated customers $ 693,997 $47,360 $ -- $ 741,357 Transfers between geographic areas 3,803 -- (3,803) -- _________ ______ _________ _________ Total net revenues $ 697,800 $47,360 $ (3,803) $ 741,357 Loss before income taxes $ (53,279) $(2,012) $ -- $ (55,291) ========= ======= ========= ========== Identifiable assets $ 175,363 $19,147 $ -- $ 194,510 ======== ====== ========= =========
Transfers between geographic areas are accounted for on a cost basis. Identifiable assets are those assets used in operations in each geographic area. At March 31, 1995 and 1994, identifiable assets include $37,492,000 and $51,390,000, respectively, of assets located in foreign countries. The Company's net sales to one customer aggregated approximately 53%, 34% and 39%, of consolidated net sales for the years ended March 31, 1995, 1994 and 1993, respectively. At March 31, 1995 and 1994, the Company had a liability balance to this customer for product returns. The Company's net sales to another customer aggregated 10%, 12% and 11% for the years ended March 31, 1995, 1994 and 1993, respectively. Trade receivables from this customer approximated 10% and 11% of accounts receivable at March 31, 1995 and 1994, respectively, and are not collateralized. Note N -- Investment in Joint Venture The Company has a 50% investment in E & H Partners, a joint venture that purchases, refurbishes and sells all of the Company's product returns. The results of this joint venture are accounted for by the equity method. The Company's equity in the earnings of the joint venture is reflected as a reduction of cost of sales in the Company's Consolidated Statements of Operations. Summarized financial information relating to the joint venture is as follows: March 31, 1995 (In thousands) Accounts receivable from joint venture $15,283(a) Investment in joint venture 1,565 Condensed balance sheet: Current assets $26,749 Noncurrent assets 161 ______ Total $26,910 ====== Current liabilities $23,780 Partnership equity 3,130 ______ Total $26,910 ====== Year Ended March 31, 1995 (In thousands) Sales to joint venture $32,500 Condensed income statement: Net sales 24,760(b) Net earnings 2,130 ___________________ (a) Secured by a lien on the partnership's inventory. Such lien has been assigned to the Lender as collateral for the U.S. line of credit facility. (b) Includes sales to the Company of $3,796,000. EMERSON RADIO CORP. AND SUBSIDIARIES SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In thousands) Column A Column B Column C Column D Column E Balance at Charged to Balance beginning costs and at end of Description of year expenses Deductions year Allowance for doubtful accounts: Year ended: March 31, 1995 $ 1,639 $ 1,574 $ 280(A) $ 2,933 March 31, 1994 2,374 998 1,733(A) 1,639 March 31, 1993 2,390 2,043 2,059(A) 2,374 Inventory reserves: Year ended: March 31, 1995 $ 644 $ 251 $ 425(B) $ 470 March 31, 1994 1,559 6,619 7,534(B) 644 March 31, 1993 1,817 4,587 4,845(B) 1,559 (A) Accounts written off, net of recoveries. (B) Net realizable value reserve removed from account when inventory is sold. INDEX TO EXHIBITS PAGE NUMBER IN SEQUENTIAL NUMBERING EXHIBIT DESCRIPTION SYSTEM (2) Confirmation Order and Fourth Amended Joint Plan of Reorganization of Emerson Radio Corp. ("Old Emerson") and certain subsidiaries under Chapter 11 of the United States Bankruptcy Code, dated March 31, 1994 (incorporated by reference to Exhibit (2) of Emerson's Registration Statement on Form S-1, Registration No. 33- 53621, declared effective by the Securities and Exchange Commission ("SEC") on August 9, 1994). (3)(a) Certificate of Incorporation of Emerson (incorporated by reference to Exhibit (3) (a) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (b) Certificate of Designation for Series A Preferred Stock (incorporated by reference to Exhibit (3) (b) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (c) Plan of Reorganization and Agreement of Merger by and between Old Emerson and Emerson Radio (Delaware) Corp. (incorporated by reference to Exhibit (3)(c) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (d) Certificate of Merger of Old Emerson with and into Emerson Radio (Delaware) Corp. (incorporated by reference to Exhibit (3) (d) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (3) (e) 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). (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). (10) (a) Agreement, dated as of November 14, 1973, between National Union Electric Corporation ("NUE") and Emerson (incorporated by reference to Exhibit (10)(a) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (b) Trademark User Agreement, dated as of February 28, 1979, by and between NUE and Emerson (incorporated by reference to Exhibit (10) (b) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (c) Agreement, dated July 2, 1984, between NUE and Emerson (incorporated by reference to Exhibit (10) (c) of Emerson's Registration Statement on Form S-1, Registration No. 33- 53621, declared effective by the SEC on August 9, 1994). (10) (d) Agreement, dated September 15, 1988, between NUE and Emerson (incorporated by reference to Exhibit (10) (d) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (e) Form of Promissory Note issued to certain Pre-Petition Creditors (incorporated by reference to Exhibit (10) (e) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (f) Loan and Security Agreement, dated March 31, 1994, by and among Emerson, Majexco Imports, Inc. and Congress Financial Corporation ("Congress") (incorporated by reference to Exhibit (10) (f) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (g) Emerson Radio Corp. Stock Compensation Program (incorporated by reference to Exhibit (10) (i) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (h) Employment Agreement between Emerson and Eugene I. Davis (incorporated by reference to Exhibit 6(a)(4) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (i) Employment Agreement between Emerson and Albert G. McGrath, Jr. (incorporated by reference to Exhibit 6(a)(7) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (j) Employment Agreement between Emerson and Geoffrey P. Jurick (incorporated by reference to Exhibit 6(a)(6) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (k) Employment Agreement between Emerson Radio (Hong Kong) Ltd. and Geoffrey P. Jurick (incorporated by reference to Exhibit 6(a)(6) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (l) Employment Agreement between Emerson Radio International Ltd. (formerly Emerson Radio (B.V.I), Ltd.) and Geoffrey P. Jurick (incorporated by reference to Exhibit 6(a)(6) of Emerson's Quarterly Report on Form 10-Q for quarter ended June 30, 1992). (10) (m) Lease Agreement dated as of March 26, 1993, by and between Hartz Mountain Parsippany and Emerson with respect to the premises located at Nine Entin Road, Parsippany, NJ (incorporated by reference to Exhibit (10)(ww) of Emerson's Annual Report on Form 10-K for the year ended December 31, 1992). (10) (n) Employment Agreement, dated July 13, 1993, between Emerson and Merle Eakins (incorporated herein by reference to Exhibit (10)(vv) to Emerson's Annual Report on Form 10-K for the year ended March 31, 1993). (10) (o) Employment Agreement, dated April 1, 1994, between Emerson and John Walker (incorporated herein by reference to Exhibit (10)(ee) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (p) Liquidity Trust Agreement, dated as of March 31, 1994, by and among Emerson, Majexco Imports, Inc., H.H. Scott, Inc., and Stuart D. Gavsy, Esq., as Trustee (incorporated by reference to Exhibit (10) (ff) of Emerson's Registration Statement on Form S-1, Registration No. 33-53621, declared effective by the SEC on August 9, 1994). (10) (q) Partnership Agreement, dated April 1, 1994, between Emerson and Hopper Radio of Florida, Inc.* (10) (r) Sales Agreement, dated April 1, 1994, between Emerson and E & H Partners.* (10) (s) Agreement, dated July 1, 1994, between Emerson and Alex Wijnen relating to termination of employment and agreement on consulting services.* (10) (t) Independent Consultant's Agreement, dated October 1, 1994, between Emerson Radio International Ltd. and Peter G. Bunger.* (10) (u) Independent Consultant's Agreement, dated October 1, 1994, between Emerson Radio Europe B.V. and Peter G. Bunger.* (10) (v) Employment Agreement, dated October 3, 1994, between Emerson and Andrew Cohan.* (10) (w) License Agreement, dated February 22, 1995, between Emerson and Otake (incorporated by reference to Exhibit 6(a)(1) of Emerson's quarterly report on Form 10-Q for quarter ended December 31, 1994). (10) (x) Supply Agreement, dated February 22, 1995, between Emerson and Otake (incorporated by reference to Exhibit 6(a)(2) of Emerson's quarterly report on Form 10-Q for quarter ended December 31, 1994). (10) (y) 1994 Non-Employee Director Stock Option Plan.* (11) Computation of Primary Earnings Per Share.* (21) Subsidiaries of the Registrant as of March 31, 1995.* (27) Financial Data Schedule for year ended March 31, 1995.* ___________________ * Filed herewith. EX-10 2 PARTNERSHIP AGREEMENT OF E & H PARTNERS Effective as of April 1, 1994 PARTNERSHIP AGREEMENT OF E & H PARTNERS This Partnership Agreement effective as of April 1, 1994, by and among Emerson Radio Corp., a New Jersey corporation with its principal office located at 9 Entin Road, Parsippany, New Jersey 07054 ("Emerson") and Hopper Radio of Florida, Inc., a Florida corporation, with its principal office located at 7145 West 20th Avenue, Hialeah, Florida 33014 ("Hopper"). WHEREAS, the parties wish to form a general Partnership under the laws of the State of Delaware for the purposes hereinafter described; NOW, THEREFORE, in consideration of the mutual covenants herein set forth and other good and valuable consideration, the receipt of which is hereto hereby acknowledged, the parties hereby agree as follows: I. DEFINITIONS. Certain defined terms used in this Agreement are set forth in Exhibit A. II. ORGANIZATION. 2.1 Formation. The parties hereby form a general Partnership pursuant to the provisions of this Agreement and the laws of the State of Delaware. 2.2 Name. The name of the Partnership shall be E & H Partners. 2.3 Trade Name. The Partnership shall conduct its business under any trade name selected by the Partners. 2.4 Term. The term of the Partnership shall commence as of the date hereof and shall continue until terminated in accordance with the provisions of this Agreement. 2.5 Principal Office and Qualifications. 2.5-1 The principal office of the Partnership shall be located at 7145 West 20th Avenue, Hialeah, Florida 33014, or such other place as may from time to time be determined by the Partners. 2.5-2 The Partners shall use their best efforts to qualify the Partnership to do business in each jurisdiction where the activities of the Partnership make such qualification necessary. III. PURPOSE; LICENSES; OTHER BUSINESS. 3.1 Purposes. The Partnership is being organized for the following: 3.1-1. To purchase consumer electronics products from Emerson which products are returned to Emerson by its customers and are available for resale "AS-IS" ("Merchandise"), to refurbish such Merchandise, if feasible, and to sell such Merchandise as refurbished or "as is" worldwide in all countries in which Emerson has trademark rights to the Emerson brand name and trademark ("Merchandise Territory") in accordance with the Sales Agreement between Emerson and E & H Partners ("Sales Agreement") made as of the date hereof. 3.1-2. To purchase new consumer electronics products ("New Products") from manufacturers sourced through Emerson Radio International Ltd. upon the terms to be determined by the parties thereto, or through third party sources if such New Products can be obtained on more favorable prices and terms, and to sell the New Products solely in the countries of Mexico, Central and South America in which Emerson has trademark rights to the Emerson brand name and trademark and upon the terms to be determined by the Partners ("New Product Territory"). The Partners shall select an importer of record. 3.2. Licenses. Emerson agrees to license to the Partnership the trademark design and logo associated with the Emerson name in connection with the Partnership's purposes as specifically defined herein upon the terms to be agreed to by the Partners. 3.3 Other Business. In the event the Partnership performs a service for either Partner for their individual benefit and not for the benefit of the Partnership, the Partnership shall charge such Partner a fee for providing such services. However, prior to performing such services, the Partners must agree that the Partnership may perform such services and agree to the amount of fee to be charged. IV. INITIAL CAPITAL CONTRIBUTIONS. 4.1 Proportions. Unless otherwise agreed by all of the Partners, all Initial Capital Contributions ("Initial Contributions") from the Partnership shall be made as follows: 4.1-1 Emerson shall (a) contribute Merchandise to the Partnership equal to the amount of Hopper's Initial Cash Contribution including working capital for the first ninety (90) days of operation for including but not limited to costs of labor, rent, overhead, materials, refurbishing and sales expense which amount shall not exceed Five Hundred Thousand ($500,000) U.S. dollars; (b) sell the Merchandise to E & H Partners at the prices set forth in the Sales Agreement, as same may be amended; (c) license to the Partnership its trademark, design and logo upon terms to be agreed to by the Partners; (d) provide E & H Partners access to its vendors through Emerson, (e) relinquish the territories for refurbished Merchandise as set forth herein and in the Sales Agreement; and f) lease to the partnership the equipment to refurbish the Merchandise which Emerson currently owns at its facility located in Princeton, Indiana at a lease rate of $1.00/year which equipment Emerson represents is presently in good working condition. However E & H Partners shall be responsible for the repair and maintenance of such equipment. It is agreed by the Partners that Emerson's Initial Contribution shall constitute Emerson owning 50% Percentage Interest in the Partnership. 4.1.-2 Hopper shall (a) provide the set price list at which all Merchandise shall be sold which shall be approved in advance by the Partners. In order for Hopper to sell such Merchandise at prices below such approved price list, Hopper shall obtain Emerson's prior written approval, (b) provide E & H Partners with financing subject to both Partners agreeing to the terms of the financing; c) provide the physical location for the partnership to perform its refurbishing of merchandise at a rental rate of $2.00/ft. or as otherwise agreed to by the Partners; d) provide the employees for the Partnership and the overhead cost for the first ninety (90) days of operation including but not limited to costs of labor, rent, overhead, materials, refurbishing, sales expenses, initial purchase of Merchandise, which amounts in the aggregate shall not exceed Five Hundred Thousand ($500,000) U.S. dollars. It is agreed by the Partners that Hopper's Initial Contribution shall constitute Hopper owning 50% Percentage Interest in the Partnership. The Partners shall agree to the value to be assigned to each Partner's Initial Contribution. 4.2 Forfeiture. Each Partner hereby acknowledges and agrees that the Partnership and each of the Partners are relying upon the prompt performance in making all Initial Contributions. Accordingly, each Partner hereby pledges to the Partnership and each other Partner its Percentage Interest to secure its obligations to make all Initial Contributions pursuant to Section 4.1 hereof. If any Partner fails to make its Initial Contribution, it shall be deemed to be a Defaulting Partner and its Percentage Interest shall be subject to foreclosure and shall be extinguished as damages for such default. Each Partner acknowledges that if it is a Defaulting Partner, it shall lose its entire investment in the Partnership. 4.3 No Withdrawal of Interest. No Partner shall have the right to withdraw any part of its Initial Contribution or to receive any distribution, except in accordance with the provisions of this Agreement. No interest shall be paid on any Initial Contribution. 4.4 Advances by Partners. If any Partner shall advance funds to the Partnership other than as provided in this Article, the amount of such advance shall not be deemed a Capital Contribution unless the Partners expressly agree otherwise in writing. The amount of such advance shall be agreed to in advance by the Partners and shall be debt due from the Partnership to such Partner for all purposes and shall be evidenced by a promissory note of the Partnership payable to the order of the lending Partner. The lending Partner shall have all rights of a creditor against the Partnership for all purposes. The Partners may cause the Partnership to repay any advances to the Partnership in accordance with their terms out of available funds prior to any distributions to the Partners under any other provision of this Agreement. Any advance made by a Partner shall bear such interest and shall have such other terms as are determined by the Partners. 4.5 Services by Partners. In the event either Partner, in its individual capacity and not as a Partner of the Partnership, provides services to the Partnership for the Partnerships benefit, such Partner shall charge the Partnership a fee for such services. However, prior to the acceptance by the Partners of such services, the Partners must agree that the Partnership may accept such services and agree to the amount of fee to be charged. In accordance herewith, it is hereby agreed and understood that, except for the sales expense during the initial ninety (90) days of operation as defined in Section 4.1 hereof, in its capacity as selling agent for the Partnership, Hopper shall be paid a fee of gross sales payable as agreed to by the Partners. V. CAPITAL ACCOUNTS. An individual Capital Account shall be maintained for each Partner, and the Partner's Initial Contribution shall be credited to that account. Capital Accounts shall be maintained in accordance with section 1.704-1(b) (2) (iv) of the Regulations. In applying the preceding sentence, where any item may be treated in more than one manner under such Regulations, the decision as to which permissible manner is selected shall be made by the Partners. Notwithstanding anything herein to the contrary, consistent with section 1.704-1(b) (2) (iv) of the Regulations, the Capital Accounts of all Partners shall be adjusted to reflect the fair market value of the Partnership's assets (including intangible assets) in connection with (and to be effective immediately prior to) any contribution of capital to or distribution of property from the Partnership, other than a contribution or distribution which is pro rata among all Partners, or upon the liquidation of the Partnership. The Partners understand and acknowledge that the Capital Accounts as so maintained shall be the basis upon which the Partners' Percentage Interests in the Partnership are determined for all purposes hereunder. VI. ALLOCATION OF PROFITS AND LOSSES. 6.1 Allocations to be Pro Rata. Profits or Losses for any Accounting Period shall be allocated fifty percent (50%) to each Partner for that Accounting Period. 6.2 Definition of Profits and Losses. Profits or Losses shall mean, for each Accounting Period, the amount of net profit or net loss as shown of the financial statements of the Partnership (which financial statements shall be consolidated with those of any subsidiaries the Partnership may at any time own) for such Accounting Period prepared pursuant to Article XIII in accordance with generally accepted accounting principles, consistently applied ("GAAP"); provided, however, that for purposes of adjusting the Partner's Capital Accounts in accordance with Article V to reflect such Profits or Losses, the Profits or Losses determined in accordance with GAAP shall be adjusted as shall be deemed necessary by the Partners, in order to make such definition of Profits and Losses consistent with the principles set forth in section 1.704-1(b)(2) of the Regulations. Any elections or other decisions relating to the manner in which the income, deductions, gains, losses and credits of the Partnership shall be allocated for tax purposes among the Persons who were Partners during a given Accounting Period shall be made by the Partners in such manner as they deem equitable; provided that any such allocation shall be in accordance with the Code and the Regulations. VII. DISTRIBUTIONS. 7.1 Time and Amount of Distributions. Distributions of cash shall be made from the Partnership to the Partners on a quarterly basis or at such other times as the Partners may determine; provided, however, that for any calendar year the Partnership shall distribute cash no less than the "Tax Distribution Amount" (as defined in Section 7.3). The Partners shall make such minimum distributions at such times during the calendar year and during the 75 days following the end of the calendar year as shall enable the Partners to use such distributions to satisfy their estimated and final income tax liabilities for the calendar year. Further, the Partners shall cause the Partnership to make additional distributions to the Partners to the extent they, in their discretion, determine that the Partnership shall have excess cash flow which is not necessary for current and reasonably foreseeable future capital expenditures, lease obligations, operating expenses and working capital. 7.2 Distributions to be Pro Rata. All distributions to the Partners shall be made in proportion to the Partners' Percentage Interests at the time of distribution. 7.3 Tax Distribution Amount. For purposes of this Agreement, the "Tax Distribution Amount" for any calendar year shall be an amount equal to fifty percent (50%) of the aggregate taxable income taxed to the Partners for federal income tax purposes for such calendar year; provided, however, that if the maximum marginal federal individual income tax rate, including any surtax, shall increase beyond the rate applicable during 1993, or if at any time after 1993 the maximum marginal federal corporate income tax rate shall exceed the maximum marginal federal income tax rate (including any surtax), then an equitable adjustment to the Tax Distribution Amount shall be made. VIII REPRESENTATIONS AND WARRANTIES. 8.1 Representations and Warranties of Emerson Radio Corp. Emerson Radio Corp. hereby represents and warrants to the other Partner as follows: 8.1-1 It has been duly organized and is validly existing and in good standing under the laws of the State of New Jersey and has the requisite power and authority to carry on its business. 8.1-2 Subject to the approval of the United States Bankruptcy Court, it has the full right, power and authority to execute and deliver this Agreement and to perform each of its obligations hereunder and no consent from any third party is required for its execution, delivery and performance hereof. 8.1-3 Subject to the appropriate Bankruptcy Court order, the consummation of the transactions contemplated hereby will not violate, conflict with or result in a breach of any terms of any instrument or other agreement to which it is a party, nor to the best of its knowledge, will it conflict with any applicable law, regulation, ordinance or order. 8.1-4 Subject to the approval of the United States Bankruptcy Court, it has duly executed and delivered this Agreement and that all actions necessary to make this Agreement its valid and binding obligation have been taken and this Agreement is not subject to any restriction which prohibits or would be violated by the execution and delivery hereof or consummation of the transactions contemplated hereby. 8.1-5 It has reviewed the terms of and understands that the Partnership will be executing, delivering and performing pursuant to the terms of the Sales Agreement. 8.2 Representations and Warranties of Hopper. Hopper hereby represents and warrants to the other Partner as follows: 8.2-1 It has been duly organized and is validly existing and in good standing under the laws of the State of Florida and has the requisite power and authority to carry on its business. 8.2-2 It has the full right, power and authority to execute and deliver this Agreement and to perform each of its obligations hereunder and no consent of any third party is required for its execution, delivery and performance hereof. 8.2-3 The consummation of the transactions contemplated hereby will not violate, conflict with or result in a breach of any terms of any instrument or other agreement to which it is a party, nor to the best of its knowledge, will it conflict with any applicable law, regulation, ordinance or order. 8.2-4 It has duly executed and delivered this Agreement and all actions necessary to make this Agreement its valid and binding obligation have been taken and this Agreement is not subject to any restriction which prohibits or would be violated by the execution and delivery hereof or consummation of the transactions contemplated hereby. 8.2-5 It has reviewed the terms of and understands that the Partnership will be executing, delivering and performing pursuant to the terms of the Sales Agreement. IX. MANAGEMENT OF PARTNERSHIP; RIGHTS, POWERS AND DUTIES OF THE GENERAL MANAGER. 9.1 General Manager. Barry Smith of Hopper shall be General Manager of the Partnership ("General Manager") and shall have operational control of the day-to-day business of the Partnership and all transactions in the ordinary course of business, including but not limited to all matters pertaining to (i) the production, purchase, marketing and sale of the Partnership's Merchandise and New Products (ii) the retention and termination of employees of the Partnership; and (iii) all of the Partnership's administrative matters. Not- withstanding the above, the General Manager shall only operate the day-to-day business of the Partnership in accordance with operating budgets and forecasts as approved in advance by the Partners. If Barry Smith resigns as the General Manager, ceases to be a principal of Hopper, becomes insolvent or bankrupt, the Partners shall designate a new General Manager. 9.2 Specific Powers. In furtherance of the foregoing, the General Manager shall have all powers which are necessary to carry out the duties as specifically defined in section 9.1 herein. 9.3 Liability of The General Manager. The General Manager shall not be liable to the Partnership or to any Partner for (i) the performance of, or the omission to perform, any act if in good faith the General Manager determined that such conduct was in the best interest of the Partnership, in accordance with his duties as defined in section 9.1 and such conduct did not constitute fraud or reckless or intentional misconduct, (ii) the termination of the Partnership and this Agreement pursuant to the terms hereof, and (iii) the performance of, or the omission to perform, any act in good faith reliance on advice of legal counsel, accountants or other professional consultants to the Partnership 9.4 Indemnification of The General Manager. The Partnership, its receiver or its trustee shall indemnify, defend and hold the General Manager and his permitted successors and assigns harmless from and against any expense, loss, damage or liability incurred or connected with, or any claim, suit, demand, loss, judgment, liability, cost or expense (including reasonable attorneys' fees) arising from or connected with the Partnership or any act or omission of the General Manager (including claims, suits or demands by another Partner), and amounts paid in settlement of any of the foregoing, provided that the same were not the result of fraud or reckless or intentional misconduct on the part of the General Manager. The Partners, in their discretion, may advance to the General Manager the costs of defending any claim, suit or action against the General Manager connected with the Partnership or any act or omission by the General Manager if the General Manager undertakes to repay the advanced funds, with interest, if the General Manager is not entitled to indemnification under this Section 9.4. X. TRANSFER OF INTERESTS IN PARTNERSHIP. 10.1 Restrictions on Transfers. Except as otherwise permitted by this Agreement, no Partner shall Transfer all or any portion of its interest in the Partnership. 10.2 Permitted Transfers. A Partner shall only be permitted to Transfer all or any portion of its interest in the Partnership ("Partnership Interest") to a wholly owned subsidiary, or a wholly owned subsidiary of a wholly owned subsidiary, of the transferring Partner. 10.3 Conditions Precedent To Transfer. Notwithstanding any provision of Section 10.2, no Transfer shall be permitted, except in the case of a Transfer occurring involuntarily by operation of law, unless the transferor and transferee shall execute and deliver to the Partnership such opinions of counsel and documents and instruments of conveyance as may be necessary or appropriate in the opinion of counsel to the Partnership to effect such Transfer and to confirm the agreement of the transferee to be bound by the provisions of this Agreement (including this Article). 10.4 Effect of Disposition. Following any disposition of a Partner's entire Partnership Interest, the Partner shall have no further rights as a Partner in the Partnership (including any rights as a General Manager). 10.5 Transferee's Capital Account. In any interest in the Partnership is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest. XI. COVENANT AGAINST COMPETITION. Emerson hereby expressly acknowledges and agrees that, for a period of one (1) year following termination of this Agreement as provided herein, it will not directly or indirectly through its employees, agents or representatives, sell remanufactured products to or contact Hopper's existing customers as of the effective date of this Agreement, to the extent Hopper substantiates such customers were existing Hopper customers at such time and identifies such customers to Emerson in writing at time of termination, unless Emerson obtains Hopper's prior written consent. It is Hopper's option whether it will so identify customers at time of termination. XII. DISSOLUTION AND TERMINATION. 12.1 Events Causing Dissolution. The Partnership shall be dissolved and its affairs wound up upon the first to occur of the following: 12.1-1 a determination by the Partners to dissolve the Partnership; 12.1-2 the occurrence of the dissolution, insolvency, bankruptcy, death or incompetency of a Partner if such event leaves only one other Partner remaining as a Partner; 12.1-3 the entry of a judgment of dissolution by a court of competent jurisdiction; 12.1-4 if either Partner provides six (6) months' written notice to the other Partner that it wishes to dissolve the Partnership. 12.2 Liquidation. 12.2-1 Upon a dissolution of the Partnership requiring the winding-up of its affairs, the General Manager (which term for purposes of this Article XII shall mean a Person appointed by the Partners if the General Manager at time of dissolution cannot or will not then serve) shall wind up its affairs. The assets of the Partnership shall be sold within a reasonable period of time to the extent necessary to pay or provide for the payment of all debts and liabilities of the Partnership, and may be sold to the extent deemed practicable and prudent by the Partners. 12.2-2 The net assets of the Partnership remaining after satisfaction of all such debts and liabilities and the creation of any reserves under Subsection 12.2-4, shall be distributed to the Partners in accordance with their positive Capital Account balances as of the date of such distribution, after giving effect to all contributions, distributions and allocations for all periods, including the period during which such liquidation occurs. Any property distributed in kind in the liquidation shall be valued at fair market value. 12.2-3 Distributions to Partners pursuant to this Article XII shall be made by the end of the taxable year of the liquidation, or, if later, within ninety (90) days after the date of such liquidation in accordance with Regulation Section 1.704-1(b)(2)(ii)(g). 12.2-4 The Partners shall withhold from distribution under this Section 12.2 such reserves which are required by applicable law and such other reserves for subsequent computation adjustments and for contingencies, including contingent liabilities relating to pending or anticipated litigation or to Internal Revenue Service examinations. Any amount held as a reserve shall reduce the amount payable under this Section 12.2 and shall be held in a segregated interest-bearing account. The unused portion of any reserve shall be distributed with interest thereon pursuant to this Section 12.2 after the Partners shall have determined that the need therefore shall have ceased. 12.3 Partner's Deficit Capital Account. If the Partnership is "liquidated" within the meaning of Regulation Section 1.704-1(b)(2)(ii)(g), distributions shall be made only to Partners with positive Capital Accounts in compliance with Regulation Section 1.704-1(b)(2)(ii)(b)(2). If any Partner's Capital Account shall have a deficit balance after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs, that Partner shall contribute to the capital of the Partnership the amount necessary to restore such deficit balance to zero, in compliance with Regulation Section 1.704-1(b)(2)(ii)(b)(3), and if the Partnership is dissolving and being wound up pursuant to this Article XII the amount so contributed shall be treated as proceeds from the liquidation of Partnership assets for purposes of, and shall be distributed pursuant to, this Article XII. XIII. BOOKS AND REPORTS. 13.1 Maintenance of Records. The Partners shall appoint a third party accountant ("accountant") to maintain true and correct books and records of the Partnership in accordance with GAAP. Such books and reports shall be maintained at the accountant's offices or at such other location as agreed to by the Partners. Each Partner, and any duly authorized employee, agent or representative thereof, shall have the right to inspect, copy and make extracts or compilations from or, at such Partner's request, have the accountant send to such Partner copies of such books and reports. 13.2 Reports to Partners. As soon as practicable after the end of each Fiscal Year, the accountant (i) shall cause to be prepared and sent to each Partner a balance sheet and a statement of income of the Partnership which shall be audited by a certified public accountant, and (ii) shall cause to be prepared and sent to each Partner a report setting forth in sufficient detail all such information and data with respect to the Partnership for such fiscal Year as shall enable such Partner to prepare its Federal, state and local income tax returns in accordance with the laws, rules and regulations then prevailing. The accountant shall also cause to be prepared and filed all Federal, state and local tax returns required of the Partnership. All balance sheets, statements, reports and tax returns required pursuant to this Section 13.2 shall be prepared at the expense of the Partnership. XIV. PARTNERSHIP EXPENSES. The Partners agree that the Partnership shall pay the reasonable costs and expenses of the Partners incurred directly in connection with the business of the Partnership, provided such costs and expenses are approved in advance by the Partners. XV. AMENDMENT OF PARTNERSHIP AGREEMENT. This Agreement may be amended only by the written agreement of the Partners. XVI. NOTICES. All notices, consents, waivers, requests or other instruments or communications given pursuant to this Agreement shall be in writing, signed by the party giving the same, and shall be delivered by hand or sent by registered or certified United States mail, return receipt requested, postage prepaid, or by a recognized overnight delivery service, addressed, in the case of the Partnership, to the Partnership at its principal place of business, with a copy to each Partner, at the address set forth in the Partnership's books and records. Any Partner may, by notice to the Partnership and each other Partner given in the manner specified in this Article, specify any other address for the receipt of such notices, instruments or other communications. Any notice, instrument or other communication shall be deemed properly given when personally delivered, on the fifth day after being so mailed by certified or registered mail, or on the next business day after being so sent by overnight delivery service. XVII. (OMITTED) XVIII. MISCELLANEOUS. 18.1 Interpretations. 18.1-1 Article, Section and Subsection headings are not to be considered part of this Agreement, are included solely for convenience and are not intended to be full or accurate descriptions of the contents thereof. 18.1-2 The use of the terms ""herein", hereunder", "hereof" and like terms shall be deemed to refer to this entire Agreement and not merely to the particular provision in which the term is contained, unless the context clearly indicates otherwise. 18.1-3 The use of the word "including" or a like term shall be construed to mean "including but not limited to". 18.1-4 Exhibits and schedules to this Agreement are an integral part of this Agreement. 18-1-5 Words importing a particular gender shall include every other gender and words importing the singular shall include the plural and visa-versa, unless the context clearly indicates otherwise. 18.1-6 Any reference to a provision of the Code or Regulations shall be construed to be a reference to any successor provision thereof. 18-1-7 This Agreement is the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior written or oral agreements relating to such subject matter. Any matter concerning the Partnership or Partnership business which is not specifically set forth herein must be unanimously approved in writing by the Partners. 18.2 Severability. If any provision of this Agreement shall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Agreement shall not be affected thereby, and each provision hereof shall be valid and shall be enforced to the fullest extent permitted by law. 18.3 Counterparts. This Agreement may be executed in several counterparts, and as so executed shall constitute one agreement, binding on all of the parties hereto, notwithstanding that all the parties are not signatory to the original or to the same counterpart. 18.4 Benefits and Obligations. The covenants and agreements herein contained shall inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, administrators, legal representatives, successors and assigns. No provision of this Agreement shall inure to the benefit of, or be enforceable by, any creditors, contractors or other third parties. 18.5 Applicable Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware. 18.6 Consent to Jurisdiction; Service of Process. Each Partner, wherever resident or doing business, (i) hereby consents to the venue and jurisdiction of, and hereby waives any defense based upon the lack of jurisdiction or venue of, any Delaware court or the United States District Court for the District of Delaware in connection with any suit to enforce the rights of the parties hereunder or any right or action related to this Agreement, and (ii) hereby agrees that process may be served in any such action in any manner provided by the laws of the United States District Court for the District of Delaware or the State of Delaware for service of process or by mailing a copy of such process by certified mail, return receipt requested. 18.7 Waiver of Partition. Except as specifically set forth herein, each Partner irrevocably waivers any right that it may have to maintain any action for partition with respect to the property of the Partnership or to compel any sale or appraisal of Partnership assets. 18.8 Assumed Name and Amendments. The Partnership shall file a certificate of assumed name of the Partnership in accordance with Title 56 of the New Jersey statutes, as amended from time to time, or any similar provision of any other jurisdiction in which the Partnership does business, and amend the same to the extent required by applicable law. 18.9 Nonsolicitation. The Partners agree not solicit each others employees. 18.10 Non-Disclosure. The Partners hereby expressly acknowledge and agree that (unless required by applicable law or court order and except for disclosure to attorneys and accountants), without the prior consent of each Partner, they may not disclose to any person or entity (i) that the Partnership or this Agreement exists, (ii) any of the terms of the Partnership or this Agreement, or (iii) any non-public information regarding the Partnership or the operation of its business. In addition to and not in limitation of the foregoing, no Partner (including its Affiliates, employees and agents) may make any public statement or other disclosure regarding the Partnership or its affairs without the prior consent of each Partner. 18.11 No Third Party Beneficiaries. This Agreement and the rights, representations and obligations hereunder do not and shall not confer any rights to any third parties including, but not limited to, banks and any other financial lenders of the Partnership or either Partner, and no third parties shall have any rights under this Agreement. 18.12 Emergence from Bankruptcy The Partners hereby expressly acknowledge and agree that the effectiveness of this Agreement, and the rights and obligations hereunder, are conditioned upon 1) the emergence of Emerson from the bankruptcy action presently filed in the U.S. Bankruptcy Court of the District of New Jersey ("Bankruptcy"); and, 2) the emergence from Bankruptcy is due to the funding of the confirmed Plan of Reorganization by Fidenas Investment Limited or an affiliate thereof. 18.13 Attorneys Fees and Costs. It is agreed and acknowledged by the Partners that, in any suit by either Partner to enforce the rights under this Agreement, the prevailing Partner shall be entitled to receive from the other Partner the reasonable attorneys fees and costs incurred from such suit. IN WITNESS WHEREOF, each of the undersigned has executed this Agreement as a Partner as of the day first set forth above. HOPPER RADIO OF FLORIDA, INC. EMERSON RADIO CORP. By: /s/Barry Smith By:/s/ Eugene I. Davis ______________________ _______________________________ Barry Smith, President Eugene I. Davis, Executive Vice President EXHIBIT A - DEFINITIONS For purposes of this Agreement, the following terms shall have the following meanings: A.1 "Accounting Period" means the following fiscal periods: the initial Accounting Period shall commence on the first day of the term of the Partnership. Each subsequent Accounting Period shall commence immediately after the close of the next preceding Accounting Period. Each Accounting Period shall close at the close of business on the first to occur of (i) the last day of a Fiscal Year of the Partnership, (ii) the acceptance of a Capital Contribution from a new or existing Partner, other than a Capital Contribution which is pro rata among all existing Partners, (iii) the effective date of any withdrawal of a Partner, or (iv) the date of the Partnership's liquidation. A.2 "Affiliate" means with respect to any person or entity, a person or entity which directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such person or entity. A.3 "Agreement" means this Partnership Agreement, as amended and in effect from time to time. A.4 "Capital Account" means, with respect to any Partner, the amount of such Partner's Capital Contributions, increased or decreased as provided in this Agreement. A.5 "Capital Contribution" means, with respect to any Partner, the amount of money and the value of any property other than money contributed to the Partnership by the Partner. A.6 "Code" means the Internal Revenue Code of 1986, as amended from time to time. A.7 "Fiscal Year" means the calendar year; but, upon commencement of the Partnership, "Fiscal Year" means the period from the first day of the term of the Partnership to the next following December 31, and upon dissolution of the Partnership it shall mean the period from the end of the last preceding Fiscal Year to the date of such dissolution. A.8 "General Manager" means the person designated as the General Manager pursuant to Section 9.1. A.9 "Partner" means Emerson Radio Corp. and Hopper Radio of Florida, Inc. and any Person subsequently admitted as a Partner of the Partnership pursuant to the terms of this Agreement. A.10 "Partners" means Emerson Radio Corp. and Hopper Radio of Florida, Inc. collectively. A.11 "Partnership" means the general Partnership subject to this Agreement. A.12 "Percentage Interest" means, with respect to any Partner for any Accounting Period, the percentage obtained by dividing the balance in such Partner's Capital Account at the beginning of the Accounting Period by the aggregate balances in the Capital Accounts of all Partners at such time, as adjusted, if at all, in accordance with the provisions of Article V. A.13 "Person" means an individual, a corporation, an association, a Partnership, a joint venture, an estate, a trust, or any other legal entity. A.14 "Profits and Losses shall have the meaning set forth in Article VI of this Agreement. A.15 "Regulations" means the Income Tax Regulations promulgated under the Code, as such Regulations may be amended from time to time. A.16 "Territory" shall mean the territories as defined in Section III. A.17 "Transfer" shall mean, as a noun, any voluntary or involuntary transfer, sale, pledge, hypothecation, gift, or other disposition and, as a verb, voluntarily or involuntarily to transfer, sell, pledge, hypothecate, give or otherwise dispose of. SALES AGREEMENT This Agreement, effective as of April 1, 1994 is between Emerson Radio Corp. ("Seller or the "Company"), a New Jersey corporation, having its principal place of business at 9 Entin Road, Parsippany, New Jersey, 07054 and E & H Partners ("Partnership"), a Delaware Partnership, with executive offices at 7145 West 20th Avenue, Hialeah, Florida 33014. WHEREAS: A. The Seller directly and through affiliates distributes a variety of consumer electronics and microwave products under the Emerson brand name primarily in the United States of America, Mexico and Canada, but also, throughout the world; B. From time-to-time certain of such products are returned by Seller's customers in the United States to the Seller, some of which are reported to exhibit electronic, mechanical and/or cosmetic imperfections. Such products may be inspected and refurbished by or for the benefit of Seller and may be resold as refurbished or "AS IS"; and C. The Partnership desires to purchase from Seller products available for re-sale "AS-IS", refurbish such products for resale and resell such products and represents it has the capability, capacity, personnel and experience to refurbish and resell such products. NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration, the Seller and Partnership hereby mutually agree as follows: 1. TERM The terms set forth herein shall be effective commencing April 1, 1994 and continue through December 31, 1996 subject to earlier termination as set forth herein or renegotiation by the parties. 2. PURCHASE AND EXCLUSIVE SALE REQUIREMENTS Partnership agrees to purchase from Seller and Seller agrees to sell exclusively to Partnership all consumer electronics and microwave products returned by Seller's customers in the United States to Seller. Such products shall be referred to hereinafter as the "Merchandise". 3. NOTICE OF AVAILABILITY A. At least once a month, unless more frequently requested by the Partnership not to exceed four (4) times a month, Seller shall deliver to Partnership a schedule of the quantities of Merchandise to be sold to Partnership hereunder ("Notice of Availability"). After receipt of the Notice of Availability, Partnership shall take delivery of the Merchandise listed in the Notice of Availability within a reasonable amount of time not to exceed fifteen (15) business days of the Notice of Availability. A Notice of Availability may be given as frequently as determined by Seller in its own discretion. B. Partnership represents that it is aware that Seller is planning to enter into arrangements to sell consumer electronics products in geographic regions and countries where Seller does not presently distribute such products. The Partnership will not directly compete with Seller in Seller's distribution channels on any current line models. Notwithstanding the above, the Partnership may market the refurbished Merchandise in all areas of the U.S. 4. PRICING The price of the Merchandise to Partnership is set forth in the presently effective price list ("Price List"), a copy of which is annexed as Exhibit A. The Price List shall be subject to such increases or decreases, as may be mutually agreed to by the parties, considering current factory prices adjusted to percentage discounts against newest landed price for similar or like models or market situation warrants adjustment. Seller and Partnership agree to establish a price structure for discontinued non- current Merchandise not reflected on Exhibit A. 5. PAYMENT Due Date and Credit Hopper Radio of Florida, Inc. shall arrange a credit facility for payment by the Partnership to Emerson on terms to be agreed to by the Partnership and Emerson. 6. AVAILABILITY AND DELIVERY All of Partnership's purchases of Merchandise from Seller will be sold and delivered F.O.B. Seller's facilities or such facilities designated by Seller (the "Facilities"). Irrespective of any other provision hereof, Partnership shall bear all risk of loss or damage to the Merchandise upon Seller's delivery of the Merchandise to Partnership's agent at the Facilities. All shipping, packing, warehousing, insurance, demurrage, freight and other costs shall be borne by the Partnership. The Partnership shall select a method of conveyance conforming to the standard commercial practices of the Partnership. 7. SECURITY INTEREST Partnership hereby grants to Seller a security interest in unpaid Merchandise, and parts and accessories for same ("Collateral"), to secure all liabilities (including renewals, extensions and substitutions of same) of the Partnership to the Seller arising out of or relating to the purchase by Partnership of the Merchandise. The failure of Partnership to pay the purchase price of any Merchandise when due shall give the Seller the right, without liability, to repossess the Collateral with or without notice or demand and to avail itself of any legal or equitable remedy, with or without terminating this Agreement. Seller shall have all the rights of a secured party. Partnership agrees to execute and deliver a Security Agreement and related Financing Statement (UCC-1) consistent with the terms of this Agreement and take any and all other action as may be required in order to assist Seller in perfecting the security interest in the Collateral including execution and delivery of reasonably requested documentation. 8. INSPECTION, REPAIR AND REFURBISHING Upon receipt of the Merchandise, Partnership shall inspect each such Merchandise and, if feasible in Partnership's sole discretion, repair and refurbish same in accordance with applicable industry standards and applicable law for resale as refurbished product. Packaging by Partnership of the inspected and, if applicable, refurbished Merchandise shall plainly indicate that the Merchandise has either been refurbished or is to be resold "AS IS". Partnership agrees to employ sufficient and properly trained personnel and maintain all necessary facilities, tools, equipment, quality control and repair manuals and procedures necessary for the proper performance of the inspection and refurbishing services to be provided by Partnership. Upon reasonable notice, Partnership shall allow Seller to inspect its refurbishing facilities. Partnership shall maintain and make available to Seller such records, reports, samples and test results as shall be agreed upon by the parties hereto. 9. PARTS AND ACCESSORIES Seller agrees to sell and source for Partnership, and Partnership agrees to buy from Seller, parts and accessories for the Merchandise upon terms to be agreed upon by the parties unless the Partnership can obtain equivalent or better parts and accessories from third parties at more favorable prices and terms. Partnership agrees that no parts or accessory orders placed by or at the request of Partnership may be cancelled. 10. TERRITORY Partnership shall have the exclusive right to resell the Merchandise refurbished by the Partnership worldwide in all countries where Seller has trademark rights to the Emerson brand name and trademark ("Territory). Partnership agrees to and shall not resell the Merchandise in any place outside the Territory. 11. DUTY DRAWBACKS At Seller's cost and expense, Partnership shall cooperate with and take all actions reasonably necessary to afford Seller the benefit of and assist Seller in securing any applicable duty drawbacks or refunds to which it may be entitled from any governmental entity as a result of the sale of the Merchandise to Partnership. 12. TAXES/DUTIES Partnership will be responsible for and shall pay all applicable duties, taxes, fees or additional charges (including any interest and penalties thereon), if any, imposed by taxing authorities by direct reason of the sale and delivery of the Merchandise. These duties, taxes, fees or additional charges shall not include any taxes assessed on Seller's income. In the event Partnership is purchasing for resale, a duly executed resale certificate shall be delivered to Seller prior to delivery of Merchandise by Seller, or Partnership shall pay to Seller all applicable sales, excise or other applicable taxes which would have otherwise not been required to be collected by Seller. 13. PARTNERSHIP'S AUTHORITY Partnership hereby represents and warrants to Seller that: (a) Partnership is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. (b) Partnership has the full power and authority to execute and deliver this Agreement and to perform all of its obligations hereunder. (c) The execution and delivery of this Agreement has been duly authorized by all necessary action of Partnership and constitutes the valid and legally binding obligation of Partnership enforceable against Partnership in accordance with its terms. 14. SELLER'S AUTHORITY Seller hereby represents and warrants to Partnership that: (a) Seller is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. (b) Subject to Bankruptcy Court approval, Seller has the full power and authority to execute and deliver this Agreement and to perform all of its obligations hereunder. (c) The execution and delivery of this Agreement has been duly authorized by all necessary corporate action of Seller and, subject to Bankruptcy Court approval, constitutes the valid and legally binding obligation of Seller enforceable against Seller in accordance with its terms. 15. FORCE MAJEURE A. Neither party will have any liability to the other by reason of any failure or delay in performance of any provision of this Agreement, except for payment obligations, if and to the extent that such failure or delay is due to any occurrence (other than financial) beyond the reasonable control of the party failing or delaying to perform. "Beyond reasonable control" includes, but is not limited to, (i) acts of God, (ii) labor disputes, (iii) civil disturbances, (iv) fires, (v) floods, (vi) explosions, (vii) riots, war, rebellion or sabotage, (viii) transportation failure or delays or (ix) rules, regulations, orders, or directives of any governmental body (including any agency or subdivision thereof), provided that with respect to (ix), the party seeking relief has completed and made all requisite applications and paid all requisite fees, permits, imposts and taxes in a timely fashion. B. A party seeking relief shall, as soon as practicable after the impediment and its effects on its ability to perform become known, give written notice to the other party. Written notice shall also be given when the impediment ceases. Grounds of relief under this Section relieves the failing party from damages and/or penalties, but not from the duty to pay interest at the Prime Rate plus three percent (3%) per annum on monies due and owing to the other party. 16. TERMINATION A. If either party defaults on any material obligation required of it or breaches any material term or provision of this Agreement, then the other party may terminate this Agreement upon thirty (30) days prior written notice unless such default is cured within said thirty (30) day period. B. This Agreement shall terminate by its own force without notice from Seller in the event that (i) Partnership shall be dissolved or shall lose its authorization to do business by forfeiture or otherwise, or shall be adjudicated a bankrupt or insolvent, (ii) a trustee, liquidator or receiver shall be appointed for the Partnership or a material or substantial portion of its assets, subsidiaries or property, or any substantial parts thereof, (iii) any court or governmental agency shall have taken jurisdiction of the business or property of the Partnership or any substantial part thereof or (iv) any proceedings for the reorganization, dissolution, liquidation or winding up of the Partnership shall have been commenced by a third party, and any such event described in (i) through (iv) above has not been cured, dismissed or reversed within thirty (30) days from the date of occurrence. C. This Agreement shall terminate immediately by its own force, without notice from Seller in the event that (i) Partnership makes an assignment for the benefit of creditors, or a public admission of insolvency, (ii) Partnership shall file a voluntary petition in bankruptcy under any bankruptcy or insolvency law or any law providing for Partnership's reorganization, dissolution, liquidation or winding up, (iii) Partnership shall consent to the appointment of a receiver or trustee of itself or of its property or any substantial part thereof or (v) the Partnership is dissolved. D. In the event that the (i) Partnership has rendered or renders an incorrect, material representation in connection with the rights granted Partnership hereunder, (ii) Partnership commits intentional or negligent damage to Seller's business, reputation, client base, distribution channels or assets or the value of any of Seller's tradenames, trademarks, service marks, symbols, signs, good will or other distinctive marks (iii) Partnership fails to timely pay for the Merchandise (iv) Partnership registers or attempts to register in its own name, or the name of any affiliate, any trademark owned by the Seller or similar to a trademark owned by the Seller, (v) Partnership fails to timely purchase or accept delivery of all Merchandise required hereunder, (vi) Partnership breaches any of the representations and warranties set forth in Section 18 then, in addition to the rights granted, or available under law or in equity, Seller may, by written notice to Partnership, require such breach or event to be remedied and if such breach or event is not remedied within thirty (30) days after such notice, Seller shall have the right to terminate this Agreement and all of Seller's obligations hereunder forthwith by a further notice in writing, such termination to be effective upon receipt of such notice. 17. SELLER'S DISCLAIMER OF WARRANTIES SELLER SELLS THE MERCHANDISE AND ANY PARTS AND ACCESSORIES TO PARTNERSHIP, WITHOUT WARRANTY OF SELLER, ON AN "AS IS" BASIS ANY AND ALL WARRANTIES EITHER EXPRESS OR IMPLIED INCLUDING, BUT NOT LIMITED TO, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY EXCLUDED. SELLER SHALL NOT BE LIABLE TO PARTNERSHIP FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES OF ANY NATURE OR KIND WHATSOEVER, OR FOR LOST PROFITS. PARTNERSHIP SHALL UNDER NO CIRCUMSTANCE HAVE THE RIGHT TO RETURN THE MERCHANDISE TO SELLER, EXCEPT AS SPECIFICALLY AGREED TO IN WRITING BETWEEN THE PARTIES. HOWEVER, THIS DISCLAIMER OF WARRANTY SHALL NOT APPLY IF MERCHANDISE, UNALTERED BY THE PARTNERSHIP IN ANY WAY, AT ANY TIME IS HELD BY ANY GOVERNMENTAL AGENCY OR COURT JUDGMENT, ORDER OR RULING TO BE UNSAFE. 18. PARTNERSHIP'S REPRESENTATIONS, WARRANTIES AND OBLIGATIONS Partnership represents that: A. Partnership possesses all necessary registrations, licenses and permits to engage in the activities contemplated by this Agreement and Partnership and the Affiliates shall comply with all local laws, rules, ordinances and regulations applicable wherever the Merchandise is sold or resold relating to the activities to be performed hereunder, including, but not limited to, the importation, distribution, sale, servicing and marketing of the Merchandise. B. The Partners of the Partnership are experienced in and regularly deal with like merchandise and parts, are otherwise capable of evaluating and dealing with the same and accepts the Merchandise and parts and accessories without any warranty of Seller. Partnership shall conspicuously mark the Merchandise and all packaging and documentation for same to indicate that such Merchandise has been refurbished or is available for re-sale only on an "AS IS" basis. C. Partnership shall employ sufficient and properly trained personnel and maintain all necessary facilities, tools, equipment, quality control and procedures necessary for the proper performance of the obligations arising under the terms of this Agreement. D. Partnership and the Affiliates shall comply with any and all applicable national, federal, state or local statutes, codes, rules, regulations and laws, and all rules and regulations promulgated thereunder or otherwise relating to the packaging, marking, advertisement and/or identification of the Merchandise. E. Partnership shall ensure that all Merchandise that is sold is merchantable, commercially saleable and safe for use in the normal course. Partnership shall ensure that all advertising for the resale of the Merchandise clearly indicates that the Merchandise has been refurbished or is available on an "AS IS" basis. F. Partnership shall obtain all necessary listings, approvals and ratings for the Merchandise where such approvals or ratings are required by law or governmental regulations or customary industry practice wherever the Merchandise is sold or resold only if the Partnership alters the Merchandise. If the Partnership does not alter the Merchandise, the Seller is responsible to obtain all necessary listings, approvals and ratings. G. Partnership shall ensure that Merchandise sold to Partnership's customers contains only Partnership's warranty, if any, and that the Merchandise sold to Partnership's customers does not state or imply that any warranty is granted which may create or infer liability on Seller. H. Upon reasonable notice, the Partnership shall allow the Seller the right to inspect the Partnership's Merchandise held for resale and its facilities. I. Partnership shall furnish to Seller satisfactory evidence of Partnership's financial ability to perform the terms of this Agreement. J. Seller will have the right, at any time during the term of this Agreement, but at reasonable intervals, to receive from Partnership, at Seller's prior written request, representative Merchandise currently being sold, to assure that they conform to the terms of this Agreement. K. Partnership shall be fully responsible, including all costs therefore, for after-sales support for Merchandise. In the event that Partnership for any reason fails to fulfill its warranty obligation, Seller may, with reasonable notice and an opportunity to cure, assume such obligation on its behalf, in which event Partnership shall reimburse Seller for the reasonable and necessary costs of providing such service. 19. INDEMNIFICATION The Partnership agrees to indemnify and hold harmless the Seller, its subsidiaries, directors, officers and employees from and against any and all claims, demands, judgments, loss, liability, damages, costs and expenses of every nature and kind occurring anywhere in the world, including, but not limited to, counsel fees and legal expenses arising from or related to any action or omission of the Partnership, its Affiliates, its agents, servants and employees, in connection with the Partnership's operations or actions or obligations arising under this Agreement, or the resale of the Merchandise, including but not limited to the Partnership's failure to comply with the representations, warranties and obligations set forth herein unless the claims arise solely from manufacturers defect. 20. PRODUCT RECALL A. When Partnership has reason to believe that there is reliable information which reasonably supports the conclusion that a determined or undetermined number of items of Merchandise shipped by Partnership to Partnership's customers fail to meet any law or government regulation or standard, or contain defects or hazards which could cause death or serious bodily injury to any person, or property damage ("defects"), Partnership shall do whatever is requested by applicable governmental authorities and good business practice to safeguard the public and users of the Merchandise, including but not limited to locating, identifying and notifying customers and recalling such Merchandise. Upon recalling such Merchandise, if the Partnership through altering, remanufacturing, or selling, caused such defects, Partnership shall at its sole option repair or replace such Merchandise or otherwise discharge any obligations assessable upon a manufacturer or reseller of hazardous products under applicable law or government regulation or standard. Any costs incurred by Partnership in connection with complying with the requirements of this paragraph shall be borne by Partnership. B. If the Seller is subject to a product recall due to any defects or hazards of Merchandise, as a result of refurbishing or alteration by Partnership, shipped by Partnership to Partnership's customers, the Partnership agrees to promptly repair or replace such Merchandise or otherwise discharge promptly any obligations assessable upon the Seller. If any such product recall is as a result of the Actions performed by Partnership or if, Seller is subject to a product recall due to the failure of the Merchandise to meet any law or government regulation, Partnership agrees to bear all related costs and to indemnify the Seller for all costs and expenses, including attorney's fees, arising from such product recall borne by Seller, and to bear the cost of a reasonable advertising campaign to repair the damage done to Seller's name and goodwill. Partnership shall be required to take all such necessary action to assist Seller in complying with this provision. C. However, notwithstanding the above, if the defects are not caused by the Partnership's refurbishing, altering or selling of the Merchandise, all costs for recalling, repairing or replacing the Merchandise shall be borne by Seller. 21. STATUS OF THE PARTIES The relationship between the Seller and the Partnership created by this Agreement shall be one of an independent contractor and neither is to be deemed an agent or employee of the other for any purpose. Neither the Seller nor the Partnership has the authority to bind the other to any third person or otherwise unless expressly agreed to in writing by both parties. This Agreement does not constitute a contract of employment, franchise, partnership, agency or joint venture with respect to the Partnership or employees of the Partnership. In no event shall the Partnership or its employees, directly or indirectly, represent that they are employees or agents of the Seller. 22. INSURANCE The Partnership shall purchase and maintain insurance satisfactory to the Seller of the kinds and in the amounts as agreed to by the parties or in amounts required by law, whichever is greater, and furnish the Seller with certificates of insurance (naming Seller as beneficiary) as evidence thereof, in the prescribed form prior to the commencement of services, and annually thereafter not less than thirty (30) days prior to the expiration dates of said policies. Seller shall be named on all policies of insurance procured by Partnership covering the same or similar losses and each policy shall require that Seller shall be provided with a least 30 days prior written notice in the event the policy is changed or cancelled. 23. NEW PRODUCTS Seller reserves the right to introduce new categories of products, at any time. In the event Seller does introduce such new products, it shall so advise Partnership of the types, prices and quantities of new products returned to Seller by its customers ("returned, new product") available for sale "AS IS" ("Notice of Returned New Products"). Within five (5) days following receipt of the Notice of Returned New Products, Partnership shall advise Seller if it is interested in purchasing such returned, new products. If it so elects, said returned, new products will be deemed "Merchandise" under the terms of this Agreement and the terms of this Agreement shall apply to the sale of such returned, new product. In the event Partnership does not so elect to purchase the returned, new products, Seller may sell such returned, new products to other third parties without any liability to Partnership and without waiving any of its rights hereunder. 24. ENTIRE AGREEMENT This Agreement constitutes the entire Agreement between Seller and Partnership with respect to the purchase and sale of the Merchandise and no representation or statement not contained herein shall be binding upon Seller or Partnership as a warranty or otherwise unless in writing and executed by both parties hereto. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. 25. ASSIGNMENT This Agreement may not be transferred or assigned by either party, nor may either party delegate or subcontract any of its duties hereunder, without the express prior written consent of the other party, in each instance, which either party may grant or withhold in its sole discretion. For the purposes of this Agreement, the term "assigned" shall be deemed to include, but not be limited to all transfers of control, whether accomplished by means of (a) a transfer of stock, voting trust, or otherwise to any person or entity not in control immediately prior to such transfer; or (b) corporate merger, consolidation, combination or reorganization; or (c) other means. Notwithstanding the above, Seller may assign this Agreement without Partnership's consent to a majority shareholder, subsidiary or a parent or successor entity. 26. ACCEPTANCE AND GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts executed and to be performed in Delaware, including matters of construction, validity, performance and enforcement, but excluding the choice of law rules. The Seller and Partnership agree to the exclusive jurisdiction of the State of Delaware to settle any dispute arising from this Agreement. 27. SEVERABILITY AND COUNTERPARTS If any provision of this Agreement is prohibited by or deemed unlawful or unenforceable under any applicable law of any jurisdiction, such decision shall not affect the validity of the remaining provisions nor shall such decision invalidate such provision in any other jurisdiction. This Agreement may be executed in counterparts and each such counterpart shall for all purposes constitute one Agreement binding on the parties hereto notwithstanding that both parties are not signatory to the same counterpart. 28. SECTION HEADINGS Section headings are inserted for convenience only and shall not affect any construction or interpretation of this Agreement. All reference herein to sections, paragraphs, clauses and other subdivision of this Agreement and the words "herein" "hereof" "hereto" "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular section, paragraph, clause or other subdivision hereof. 29. NOTICES Any notice or other communication which shall be given to either party in connection with this Agreement shall be in writing (including telex or facsimile transmission) and shall be effective when received by such party at the office designated herein or at any other office as notified in writing. 30. AMENDMENT; WAIVER No provision of this Agreement may be amended, waived or otherwise modified except by an instrument in writing signed by the parties hereto. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. IN WITNESS WHEREOF, the parties hereto have executed this Agreement below to be effective the day and year first above written. For Seller: For Partnership: EMERSON RADIO CORP. HOPPER RADIO OF FLORIDA, INC. By:/s/ Eugene I. Davis /s/ Barry Smith _______________________ ___________________________ Eugene I. Davis Barry Smith Executive Vice President President AGREEMENT THIS AGREEMENT, dated as of July 1, 1994, (the "Effective Date") is made by and between ALEX WIJNEN, having an address at 14 Independence Court, Madison, New Jersey 07940 ("Wijnen"), and EMERSON RADIO CORP., a Delaware corporation having an address at Nine Entin Road, Parsippany, New Jersey 07054 (the "Company"). W I T N E S S E T H WHEREAS, Wijnen and the Company entered into an Employment Agreement (the "Employment Agreement") dated as of July 7, 1992; and WHEREAS, Wijnen has performed services pursuant to the Employment Agreement and the Company has compensated Wijnen for such services; and WHEREAS, Wijnen and the Company desire to modify the relationship contemplated by the Employment Agreement in accordance with the terms hereof; and WHEREAS, the parties hereby mutually agree that the Employment Agreement and all obligations thereunder shall be and hereby are terminated effective June 30, 1994, in accordance with the terms and conditions hereof; and WHEREAS, the parties wish to set forth the terms and conditions of the relationship between Wijnen and the Company commencing as of July 1, 1994 (the "Effective Date") and continuing thereafter for a period of eighteen (18) months until December 31, 1995 (the "Term"); and WHEREAS, the parties desire to protect the Company's proprietary and confidential business information and other lawful business interests; NOW THEREFORE, in consideration of the mutual obligations set forth herein, receipt of which is hereby acknowledged, the parties agree as follows: 1. Definitions. The following capitalized words and phrases shall have the meanings specified when used in this Agreement, unless the context clearly indicates otherwise: 1.1. "Agreement" means this Agreement, as it may from time to time be amended or modified. 1.2. "Company" shall mean Emerson Radio Corp. and any of its divisions, subsidiaries, parents, affiliates, successors-in-interests, predecessors-in-interests, benefit plans or assigns thereof, and any officer, director, managing agent, employee, administrator, fiduciary, agent or other representative of any of the foregoing. 2. Termination of Employment Agreement and Agreement to Provide Consulting Services. 2.1. The Employment Agreement and employment of Wijnen as an officer of the Company and any other employment Wijnen has or had with the Company shall be and hereby is terminated by mutual consent as of the close of business on June 30, 1994 and he shall be paid his salary and receive all benefits under the Employment Agreement up to June 30, 1994. All duties and obligations of Wijnen under the Employment Agreement and in respect of any such employment are ended as of June 30, 1994, and all duties and obligations of the Company to Wijnen in respect thereof are terminated at such time, except as otherwise provided herein. 2.2. Wijnen hereby resigns, without any further action required, from all offices of the Company, effective at the close of business of June 30, 1994. Wijnen also waives any claim or right to reinstatement. The Company hereby accepts such resignation from such offices. Subject to the provisions of Section 9.3, the Company acknowledges that upon the execution of this Agreement by Wijnen, all of Wijnen's affirmative obligations under the Employment Agreement will have been performed in full. 2.3. Wijnen agrees to provide to the Company consulting services during the Term from time to time at the direct request of the Company's President, Chief Executive Officer, Chief Financial Officer or General Counsel provided that the furnishing of such services does not unduly interfere with the performance by Wijnen with any duties required of him by his employer or by self employment. 3. Payments to Wijnen. 3.1 In consideration of whatever consulting services are referred to in Section 2.3 and the other consideration provided herein, the Company agrees to pay Wijnen in the ordinary course of business the aggregate sum of Two Hundred Eighty Thousand and no/100 dollars ($280,000) to be paid in equal bi-weekly installments for a period of twelve (12) months commencing on the Effective Date in accordance with the Company's present payroll practice (the "Consulting Payments"). In the event that the Company's present payroll practice is changed, the bi-weekly installments shall be changed to conform with such payroll policy for any Consulting Payments remaining due during the Term. 3.2. The Company may deduct or withhold from any payment required to be made to Wijnen hereunder an amount as may be necessary to satisfy the Company's obligation with respect to any applicable income and employment tax withholding under applicable federal and state laws. 4. Additional Compensation to Wijnen. Wijnen and the Company acknowledge the validity of indebtedness owed by Wijnen to the Company in the amount of $130,000.00 and agree that Wijnen shall be available to provide consulting services in the manner contemplated by Section 2.3 for the period July 1, 1995 through December 31, 1995 for and in consideration of the forgiveness of such indebtedness, such forgiveness to be made in the ordinary course of business pro rata over 13 bi-weekly periods, commencing July 1, 1995 and ending December 31, 1995, for so long as Wijnen provides such services. In addition to the pro rata forgiveness of debt conditioned upon the performance by Wijnen of such consulting services as are referred to in Section 2.3 the Company shall pay to Wijnen the aggregate sum of $10,000 to be paid, subject to any requirements contemplated by Section 3.2, in equal bi-weekly installments commencing July 1, 1995 and ending December 31, 1995. 5. Vacation Benefits. 5.1. The parties agree that any accrual of vacation benefits by Wijnen shall and does permanently cease as of the close of business on June 30, 1994. 5.2. Wijnen acknowledges that he has used and the Company has fully compensated him for any accrued vacation benefits and no payment for vacation benefits is due or owing or will be due and owing hereunder. 6. Pension Benefits. Wijnen shall be entitled to continue to participate in and remain eligible for the Company's Employee Savings Plan during the term provided that the Company shall have no obligation whatsoever to pay or otherwise provide for any contributions whatsoever. Nothing herein is intended or should be construed as changing, rescinding or modifying any vested rights to pension benefits or the Company's Employee Savings Plan benefits Wijnen may have under any such pension benefits or Employee Savings Plan as of the Effective Date. 7. Health, Life and Disability Insurance Plans. 7.1 Wijnen understands and agrees that the Company will continue at its expense his existing coverage under the Company's health, dental, life and disability insurance plans during the Term to the extent legally permissible under the Company's health, life and disability insurance plans and applicable federal and state law; provided that Wijnen fulfill such requirements as may be reasonably requested by the Company's insurers. 7.2. If Wijnen secures full-time employment before the completion of the Term and becomes covered under any other employer's plan to at least the same extent as the existing health, life and disability coverage provided to Wijnen by the Company, he understands that coverage under the Company's health, life and disability insurance plans shall end upon the date of such coverage by the new employer's plan. 7.3. To the extent permissible by the Company's insurers and applicable federal and state law, if Wijnen's health insurance coverage terminates solely because of a change in insurance carrier, Wijnen shall be accorded the right to participate at the Company's expense in and receive benefits under and in accordance with the provisions of any Company plan relating to medical insurance or reimbursement to the extent such plan is in existence from time to time for the benefit of executives of the Company. Wijnen shall then be entitled to participate in such medical plan to the same extent as persons holding comparable positions in the Company from time to time. The Company may discontinue any such plan at any time or times, without any liability to Wijnen. The parties agree that under no circumstances shall the Company be required to make any payments other than insurance premiums. 7.4. For purpose of COBRA, 29 U.S.C. 1161-1168, Wijnen's termination is denominated as of December 31, 1995. 8. Full Satisfaction. Wijnen agrees that the payments and credits described in this Agreement shall be in full satisfaction of any and all claims against the Company for payment of any nature whatsoever, including but not limited to all forms of compensation, benefits, stock options (whether or not vested), severance pay, salary, bonuses and perquisites that Wijnen has or may have against the Company, whether matured or unmatured and whether known or unknown, arising out of the Employment Agreement, Wijnen's employment relationship, status as an officer, the termination of Wijnen's status as an officer of the Company or any other agreement or promise, whether oral or written, which Wijnen may have with the Company. 9. Releases. 9.1. Except as set forth below, in consideration of the provisions of this Agreement and for other good and sufficient consideration, receipt of which is hereby acknowledged, Wijnen hereby fully and forever releases and discharges the Company from all actions, causes of actions, suits, covenants, contracts, controversies, agreements, promises, claims, and demands in law or equity, (regardless of whether or not known at present), which Wijnen ever had, now has, or hereafter may have against the Company, including, but not limited to (a) claims related to the payment of compensation and benefits, (b) claims for breach of the Employment Agreement, (c) claims for wrongful discharge, (d) rights and claims alleging a violation of the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. 621 et seq., as of the date this Agreement is executed, (e) claims pursuant to any federal, state or local law regarding discrimination based on race, color, creed, age, sex, religion, marital status, affectational or sexual orientation, disability, atypical hereditary or cellular blood traits, ancestry, national origin, draft liability or veteran status, (f) claims for alleged violation of any other local, state, or federal law, regulations, ordinances or public policy having any bearing whatsoever on the terms or conditions of Wijnen's employment with the Company or the termination of such employment, (g) claims pursuant to common law under tort, contract or any other theories now or hereafter recognized, (h) claims related in any way to the stock options of the Company and (i) any other claims arising directly or indirectly by any reason whatsoever out of Wijnen's employment relationship or the termination of Wijnen's employment relationship with the Company. 9.2. In consideration of the provisions of this Agreement and for other good and sufficient consideration, receipt of which is hereby acknowledged, the Company hereby fully and forever releases and discharges Wijnen from all actions, causes of actions, suits, covenants, contracts, controversies, agreements, promises, claims, and demands in law or equity, (regardless of whether or not known at present), which the Company ever had, now has, or, excluding breaches of this Agreement, hereafter may have against Wijnen. 9.3. Notwithstanding the provisions of Section 9.1, any claims by Wijnen (a) for indemnification and defense under any provisions of the Company's and its successors' and/or assigns' charter, By-laws, and any applicable policy, or by law and (b) relating solely to events arising subsequent to the effective date of this Agreement or from any breaches of this Agreement, shall not be released. 9.4. Wijnen understands that there are various state and federal laws that prohibit employment discrimination on the basis, of age, sex, race, color, national origin, religion, disability and other categories, and that these laws are enforced by the courts and various government agencies. Wijnen intends to give up any rights he may have under these laws or any other laws with respect to his employment with the Company, or the termination of that employment. 10. Protection of Confidential Information. 10.1. Except as otherwise provided by law or judicial order and notwithstanding the fact that the parties hereby agree to terminate effective June 30, 1994 the non-compete covenant in paragraph 6 (c) of the Employment Agreement and of the application to Wijnen of any other Company policies regarding non-competition, Wijnen whether directly or indirectly, either alone or jointly with any person, firm or corporation and whether as a principal, servant or agent, shall not at any time make, use for his own purposes or divulge to any person, firm or corporation any information or fact (excluding information which is generally available to the public or which the Company has previously made publicly available and excluding such information as is required to be divulged to a government agency or pursuant to lawful process) relating to the management, business (including prospective business), finances, inventions, technologies or technical processes of the Company or its customers, or the terms of any contracts between the Company and any of its customers, which have come to the knowledge of Wijnen during his employment by the Company which is confidential, provided that nothing in this paragraph shall prevent Wijnen from using his own skill in business in which he may lawfully be engaged. Wijnen agrees that he will not during the Term accept employment with or furnish services for, directly or indirectly, Otake Corp., Orion Sales Corp. Grand Prix or Sanyo Corp. or any of their respective affiliates. 10.2. Concurrently with the execution of this Agreement, Wijnen represents that he has surrendered to the Company any and all documents, memoranda, records, files, letters, specifications or other papers, computer disks or other affairs of Company (the "Confidential Material"). 10.3. "Confidential Material" shall mean all information of any kind or nature pertaining to the Company which is not generally available to the public, including, but not limited to, information relating to the Company's agreements, proprietary rights, research, developments, inventions, know-how, trade secrets, patents, patent applications, environmental matters, documents of any kind and manuals, technical advances, commercial arrangements, manufacture, engineering, products, accounting, sales, strategies, tax returns, financial records and statements, marketing, customers or customers lists, dealings with government agencies, and any information of a like nature furnished to or obtained by Wijnen from the Company during his employment by the Company relating to activities of third parties which said third party or parties have transmitted to the Company under any agreement or arrangement to hold the same secret or confidential. 10.4. The Company shall cause to be returned to Wijnen all of Wijnen's personal property that is in the possession of the Company and Wijnen shall cause to be returned to the Company all of the Company's equipment that is in the possession of Wijnen. 10.5. Wijnen hereby covenants with the Company that he will not, for any reason whatsoever and whether directly or indirectly, either alone or jointly with any person, firm or corporation and whether as principal, servant or agent in any way make any negative comment about the Company to third parties or disparage its business capabilities, products, plans or management to any supplier, vendor, contractor, creditor, shareholder, media, subcontractor, competitor or customer of the Company. 10.6. The Company hereby covenants with Wijnen that its executive officers, board members and public relations firm will not, for any reason whatsoever and whether directly or indirectly, either alone or jointly with any person, firm or corporation and whether as principal, servant or agent in any way make any negative comment about Wijnen to third parties. 11. Confidentiality. 11.1. Except as provided in Sections 11.2 and 11.3 hereof and as otherwise provided by law or judicial order, the parties agree that the terms and conditions of this Agreement shall remain confidential between them and shall not be disclosed to any other person. 11.2. Notwithstanding the provision of Section 11.1, nothing in this Agreement shall prevent Wijnen from discussing this Agreement in confidence with his attorneys, financial advisers or members of his immediate family or with any federal or state taxing authority; provided, however, that before disclosing any such information to any such person, Wijnen shall advise such person that the terms of the Agreement are confidential. 11.3. Notwithstanding the provision of Section 11.1, the Company shall be entitled to make any disclosure which it deems necessary in order to comply with any applicable securities statutes and regulations and securities exchange rules. 12. Miscellaneous. 12.1. This Agreement contains the entire Agreement of the parties with respect to its subject matter hereof and supersedes all prior negotiations and agreements among them. 12.2. This Agreement may be modified, altered or terminated only upon the express written consent of the parties hereto, which consent must be signed by the parties. 12.3. In the event a court of competent jurisdiction determines there exists any default or breach by the Company of this Agreement, (i) all of Wijnen's obligations to the Company with respect to the $130,000 loan described in Section 4 shall be deemed to have been fulfilled and the Company's right to collect any further payments shall be waived and (ii) Wijnen's release under Section 9 shall be void and he shall be free to pursue any claims which existed prior to execution of this Agreement. 12.4. The parties mutually warrant that they: (a) have negotiated and consulted with counsel with respect to the terms hereof, (b) have read this Agreement, (c) understand all the terms and conditions hereof, (d) are not incompetent or had a guardian, conservator or trustee appointed for them and (e) entered into this Agreement of their own free will and volition. 12.5. The waiver of any party of a breach of any provision hereof shall not operate or be construed as a waiver of any subsequent breach by any party. 12.6. The article headings contained herein are for convenience only and shall not in any way affect the interpretation, construction or enforceability of any provision of this Agreement. 12.7. This Agreement shall be construed and enforced in accordance with the laws of the State of New Jersey, exclusive of any choice of law rules. 12.8. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same Agreement. 12.9. This Agreement shall not be assignable by Wijnen, but it shall be binding upon, and shall inure to the benefit of, his heirs, executors, administrator, devises and legal representatives. 12.10. Wijnen acknowledges and agrees that he is entitled to at least twenty-one days within which to consider this Agreement and that the Company advised him to consult an attorney prior to executing this Agreement. 12.11. Wijnen's waiver of claims, if any, alleging a violation for the Age Discrimination in Employment Act of 1967, as amended, shall become effective and enforceable on the eighth day after execution by Wijnen. The parties understand and agree that Wijnen may revoke his waiver of claims under the Age Discrimination in Employment Act of 1967, as amended, after having executed this Agreement by so advising the Company in writing, provided such writing is received by the Company at the address listed below for notices to the Company no later than 11:59 p.m. on the seventh day after Wijnen's execution of this Agreement. 12.12. All notices, requests, demands and other communications hereunder shall be sent to the following by certified mail, return receipt requested. Notices to Wijnen: Mr. Alex G. Wijnen 14 Independence Court Madison, New Jersey 07940 and a copy to: David H. Ben-Asher, Esq. Rabner, Allcorn, Baumgart, Ben-Asher & Tucker 52 Upper Montclair Plaza P.O. Box 890 Upper Montclair, New Jersey 07043 Notices to the Company: Mr. Eugene I. Davis Executive Vice President Emerson Radio Corp. Nine Entin Road P.O. Box 430 Parsippany, New Jersey 07054-0430 and a copy to: Jeff Davis, Esq. Lowenstein, Sandler, Kohl, Fisher & Boylan A Professional Corporation 65 Livingston Avenue Roseland, New Jersey 07068 Any party may designate other addresses and recipients at any time by sending written notice of such changes to the other party hereto. 12.13. WIJNEN ACKNOWLEDGES AND AGREES THAT HE HAS READ AND FULLY UNDERSTANDS THE MEANING OF EACH PROVISION OF THIS AGREEMENT, INCLUDING SPECIFICALLY THE RELEASES CONTAINED HEREIN. WIJNEN FURTHER ACKNOWLEDGES AND AGREES THAT HE HAS BEEN ADVISED IN WRITING BY THE COMPANY TO CONSULT COUNSEL, THAT HE HAS HAD THE OPPORTUNITY TO CONSULT WITH AN ATTORNEY CONCERNING THIS AGREEMENT AND THAT HE FREELY AND VOLUNTARILY ENTERS INTO IT. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. WITNESS: ____________________________ /s Alex Wijnen ___________________ Alex Wijnen ATTEST: EMERSON RADIO CORP. ____________________________ /s/ Eugene I. Davis _________________________ Eugene I. Davis Executive Vice President EMERSON RADIO INTERNATIONAL, LTD Citco Building Wickhams Cay P.O. Box 662, Road Town Tortola British Virgin Island Peter G. Bunger Rosa Maris 29, Avenue des Papalins MC 9800 Monaco Re: Independent Consultant's Agreement Dear Peter: This letter, when signed by you (referred to herein as "you") and returned to Emerson Radio International Limited ("Emerson" or "us"), shall confirm your acceptance of our offer to engage you as an independent consultant for Emerson on the following terms: 1. You are being retained to consult with the Board of Directors of Emerson or any other officer, employee or agent of Emerson as designated by the Board on (i) evaluation of opportunities to generate of sourcing and/or licensing fees, (ii) identification and evaluation of international markets for existing and new products under the "Emerson" name, and (iii) development of activities in international markets (hereinafter collectively referred to as "Services"). 2. The term of this Agreement (the "Term") commences as of October 1994, and, subject to paragraph 4, ends on September 30, 1996. For all services rendered by you during the Term, you shall receive annual compensation in the aggregate amount of $40,000, payable in equal monthly installments. 3. You hereby agree that all ideas, written materials, and other developments or improvements conceived and creation of any work ("Work") by you, alone or with others, during the term of this Agreement, including but not limited to all programs, strategies, or promotions, etc., whether in progress or completed that are within the scope of the Services of this Agreement are for the sole benefit and the sole and exclusive property of Emerson and that any and all trademarks, patents, copyrights, trade secrets and Work shall be owned by and belong to Emerson absolutely. You agree to assist Emerson, at its expense, to obtain copyrights, trademarks, patents or any other applicable proprietary rights ("rights") on any such Work and agree to execute all documents and do anything necessary to obtain such rights in the name of Emerson as requested by Emerson. You agree that to the extent that any Work is deemed by a Court in any competent jurisdiction not to be the property of Emerson, you shall fully and exclusively assign all rights, title and interest to the Work to Emerson including but not limited to full and complete copyrights, trademarks, patents and the right to copyright all Work. You shall cause your agents to be bound by the terms of this paragraph 3. 4. During the Term, either party may terminate this Agreement by reason of a breach hereof upon thirty (30) days written notice after giving a written notice of default with seven (7) days to cure. If during the term of this Agreement Emerson discontinues operating its present business or you become incapacitated and cannot perform the Services for a period of thirty (30) non-consecutive days during any calendar year, this Agreement shall terminate immediately; provided however, that you shall be entitled to receive all fees and reimbursements properly payable hereunder in the event Emerson discontinues operating its present business. 5. You shall make periodic reports to Emerson on your Services as requested by Emerson from time to time (but no less frequently than monthly), shall retain all records regarding your Services for a period of at least six (6) years and shall permit Emerson or its representatives access to such records upon reasonable notice. 6. You shall pay your own taxes (regardless of the origin of the taxing authority) with respect to all payments made to you hereunder and agree to hold Emerson harmless from and against any claim by any governmental taxing authority (i) that Emerson should have withheld any sums from your compensation or otherwise made any payment on your behalf or (ii) resulting from your engagement hereunder. 7. 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, you shall not render any services which would conflict with your responsibilities hereunder or create a conflict of interest. 8. During the course of your engagement, you will, at the absolute discretion of the Board of Emerson, have access to certain confidential information relating to the business, methods and practices of Emerson, its plans for new products, its pricing policies, and its relationships with its customers, accounts, directors, officers and employees. You acknowledge that all of the foregoing is confidential, and that the use (other than for the Services herein), disclosure or threatened disclosure of any of such confidential and proprietary information would have a material adverse effect upon Emerson's business and prospects. Accordingly, you agree to keep confidential and not to use (other than for the Services herein), disclose all or any part of the foregoing information during the term and for a period of 3 years thereafter. Unless such information becomes part of the public domain. Should you violate or threaten to violate the provisions of this paragraph or those of paragraphs 7 and 21, you acknowledge that Emerson could be irreparably injured and that it will not have an adequate remedy at law. Accordingly, you agree that in any such event, Emerson 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. 9. Your status under this Agreement shall be that of an independent contractor and, except as specifically provided in this Agreement, you, alone, shall bear all costs and expenses incurred by you or any person engaged by you in performing your duties hereunder. Emerson shall, upon presentation of appropriate documentation and in accordance with customary Emerson procedures, reimburse you for all reasonable travel (via business class) and other expenses incurred by you in the performance of the Services which expenses and amounts are incurred with the prior written approval of the Board or other authorized person as designated by the Board. 10. You shall have no authority to enter into any agreements or commitments on behalf of Emerson, nor shall you represent or hold yourself out to any person, firm or corporation as having any such authority. 11. 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 the negligent performance of, or omission to perform, the Services. 12. 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) which may arise out of or resulting from its misconduct or negligence. 13. This Agreement supersedes and replaces any and all prior agreements and understandings between you and Emerson and 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. The failure by 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. The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provision. 14. Any notice or other communication required or permitted by this Agreement shall be sufficiently given or sent if delivered personally, sent by telegram, or mailed by certified or registered mail, postage prepared to the addresses set forth herein, or to such other address as may be furnished in writing by either party to the other. All such notices and communications shall be deemed to have been given as of the date received if delivered personally, or the date so sent or so deposited in overnight express mail (Federal Express or DHL) if otherwise given. 15. This Agreement shall be binding upon and inure to the benefit of the parties and their legal representatives, successors and assigns. 16. This Agreement shall be governed by the laws of the British Virgin Islands. The parties consent to the non-exclusive jurisdiction of the Courts of the British Virgin Islands for the resolution of any and all claims or disputes relating to this Agreement. 17. This Agreement is nonassignable unless agreed to in writing by the parties. 18. Each party agrees to comply with all laws, rules and regulations in its performance under this Agreement. 19. This Agreement does not confer any rights upon third parties. 20. Paragraphs 6, 8, and 11 shall survive termination or expiration of this Agreement. 21. You shall use your own name in performance of the Services herein and may not use the trademarks, tradenames or rights to use same belonging to Emerson and/or its subsidiaries or affiliates without Emerson's prior written consent in each instance. If the above terms conform with your understanding, kindly sign this letter in the appropriate space below. Very truly yours, EMERSON RADIO INTERNATIONAL LIMITED By: /s/ Geoffrey P. Jurick _____________________________ Geoffrey P. Jurick Director AGREED AND ACCEPTED AS OF THE FIRST DAY OF OCTOBER, 1994 By: /s/ Peter C. Bunger ______________________ Peter G. Bunger EMERSON RADIO EUROPE B.V. Drentastraat 20 1083 HK Amsterdam Netherlands Peter G. Bunger Mythenquai 26 CH 8002 Zurich Re: Independent Consultant's Agreement Dear Peter: This letter, when signed by you (referred to herein as "you") and returned to Emerson Radio Europe B.V. ("Emerson" or "us"), shall confirm your acceptance of our offer to engage you as an independent consultant for Emerson on the following terms: 1. You are being retained to consult with the Board of Directors of Emerson or any other officer, employee or agent of Emerson as designated by the Board on (i) evaluation of opportunities to generate of sourcing and/or licensing fees, (ii) identification and evaluation of international markets for existing and new products under the "Emerson" name, and (iii) development of activities in international markets (hereinafter collectively referred to as "Services"). 2. The term of this Agreement (the "Term") commences as of October 1994, and, subject to paragraph 4, ends on September 30, 1996. For all services rendered by you during the Term, you shall receive annual compensation in the aggregate amount of $100,000, payable in equal monthly installments. 3. You hereby agree that all ideas, written materials, and other developments or improvements conceived and creation of any work ("Work") by you, alone or with others, during the term of this Agreement, including but not limited to all programs, strategies, or promotions, etc., whether in progress or completed that are within the scope of the Services of this Agreement are for the sole benefit and the sole and exclusive property of Emerson and that any and all trademarks, patents, copyrights, trade secrets and Work shall be owned by and belong to Emerson absolutely. You agree to assist Emerson, at its expense, to obtain copyrights, trademarks, patents or any other applicable proprietary rights ("rights") on any such Work and agree to execute all documents and do anything necessary to obtain such rights in the name of Emerson as requested by Emerson. You agree that to the extent that any Work is deemed by a Court in any competent jurisdiction not to be the property of Emerson, you shall fully and exclusively assign all rights, title and interest to the Work to Emerson including but not limited to full and complete copyrights, trademarks, patents and the right to copyright all Work. You shall cause your agents to be bound by the terms of this paragraph 3. 4. During the Term, either party may terminate this Agreement by reason of a breach hereof upon thirty (30) days written notice after giving a written notice of default with seven (7) days to cure. If during the term of this Agreement Emerson discontinues operating its present business or you become incapacitated and cannot perform the Services for a period of thirty (30) non-consecutive days during any calendar year, this Agreement shall terminate immediately; provided however, that you shall be entitled to receive all fees and reimbursements properly payable hereunder in the event Emerson discontinues operating its present business. 5. You shall make periodic reports to Emerson on your Services as requested by Emerson from time to time (but no less frequently than monthly), shall retain all records regarding your Services for a period of at least six (6) years and shall permit Emerson or its representatives access to such records upon reasonable notice. 6. You shall pay your own taxes (regardless of the origin of the taxing authority) with respect to all payments made to you hereunder and agree to hold Emerson harmless from and against any claim by any governmental taxing authority (i) that Emerson should have withheld any sums from your compensation or otherwise made any payment on your behalf or (ii) resulting from your engagement hereunder. 7. 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, you shall not render any services which would conflict with your responsibilities hereunder or create a conflict of interest. 8. During the course of your engagement, you will, at the absolute discretion of the Board of Emerson, have access to certain confidential information relating to the business, methods and practices of Emerson, its plans for new products, its pricing policies, and its relationships with its customers, accounts, directors, officers and employees. You acknowledge that all of the foregoing is confidential, and that the use (other than for the Services herein), disclosure or threatened disclosure of any of such confidential and proprietary information would have a material adverse effect upon Emerson's business and prospects. Accordingly, you agree to keep confidential and not to use (other than for the Services herein), disclose all or any part of the foregoing information during the term and for a period of 3 years thereafter. Unless such information becomes part of the public domain. Should you violate or threaten to violate the provisions of this paragraph or those of paragraphs 7 and 21, you acknowledge that Emerson could be irreparably injured and that it will not have an adequate remedy at law. Accordingly, you agree that in any such event, Emerson 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. 9. Your status under this Agreement shall be that of an independent contractor and, except as specifically provided in this Agreement, you, alone, shall bear all costs and expenses incurred by you or any person engaged by you in performing your duties hereunder. Emerson shall, upon presentation of appropriate documentation and in accordance with customary Emerson procedures, reimburse you for all reasonable travel (via business class) and other expenses incurred by you in the performance of the Services which expenses and amounts are incurred with the prior written approval of the Board or other authorized person as designated by the Board. 10. You shall have no authority to enter into any agreements or commitments on behalf of Emerson, nor shall you represent or hold yourself out to any person, firm or corporation as having any such authority. 11. 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 the negligent performance of, or omission to perform, the Services. 12. 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) which may arise out of or resulting from its misconduct or negligence. 13. This Agreement supersedes and replaces any and all prior agreements and understandings between you and Emerson and 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. The failure by 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. The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provision. 14. Any notice or other communication required or permitted by this Agreement shall be sufficiently given or sent if delivered personally, sent by telegram, or mailed by certified or registered mail, postage prepared to the addresses set forth herein, or to such other address as may be furnished in writing by either party to the other. All such notices and communications shall be deemed to have been given as of the date received if delivered personally, or the date so sent or so deposited in overnight express mail (Federal Express or DHL) if otherwise given. 15. This Agreement shall be binding upon and inure to the benefit of the parties and their legal representatives, successors and assigns. 16. This Agreement shall be governed by the laws of The Netherlands. The parties consent to the non-exclusive jurisdiction of the Courts of The Netherlands for the resolution of any and all claims or disputes relating to this Agreement. 17. This Agreement is nonassignable unless agreed to in writing by the parties. 18. Each party agrees to comply with all laws, rules and regulations in its performance under this Agreement. 19. This Agreement does not confer any rights upon third parties. 20. Paragraphs 6, 8, and 11 shall survive termination or expiration of this Agreement. 21. You shall use your own name in performance of the Services herein and may not use the trademarks, tradenames or rights to use same belonging to Emerson and/or its subsidiaries or affiliates without Emerson's prior written consent in each instance. If the above terms conform with your understanding, kindly sign this letter in the appropriate space below. Very truly yours, EMERSON RADIO EUROPE B.V. By: /s/ Geoffrey P. Jurick ___________________ Geoffrey P. Jurick Director AGREED AND ACCEPTED AS OF THE FIRST DAY OF OCTOBER, 1994 By: /s/ Peter G. Bunger ____________________ Peter G. Bunger EMPLOYMENT AGREEMENT, dated as of October 3, 1994, between EMERSON RADIO CORP., a Delaware corporation (the "Company"), and Andrew Cohan ("Employee"). Employee is willing to serve as Vice President - Merchandising and Special Projects of the Company and the Company desires to retain the Employee in such capacity on the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the Company and the Employee hereby agree as follows: 1. EMPLOYMENT (a) The Company agrees to employ Employee and Employee agrees to serve the Company and its affiliates during the period beginning with the date of this Agreement and ending October 3, 1997 (the "Employment Period" or "Term"). (b) Employee shall serve as a Vice President - Merchandising and Special Projects of the Company and shall serve in such other capacities and offices in the Company or its affiliates as the Board of Directors or the Chief Executive Officer may reasonably request given Employee's skills and abilities. (c) The term "Company" as used in this Agreement shall be deemed to include any and all present and future subsidiaries and affiliates of the Company. 2. DEVOTION OF TIME During the Employment Period, Employee shall expend all of his working time for the Company, shall devote his best efforts, energy and skill to the services of the Company and the promotion of its interests, and shall not take part in activities detrimental to the best interests of the Company. 3. COMPENSATION For all services rendered by the Employee in any capacity required hereunder during the Term, including, without limitation, services as an executive, officer, director, or member of any committee of the Company, or any subsidiary, affiliate or division thereof, the Executive shall be compensated as follows: (a) Base Salary. The Company shall pay the Employee an initial salary of $140,000 per annum or such higher annual amount as is being paid from time to time pursuant to the terms hereof ("Base Salary"). The Base Salary shall be reviewed from time to time and subject to such periodic increases as the Board of Directors shall deem appropriate in accordance with the Company's customary procedures and practices regarding the salaries of officers of the Company. Base Salary shall be payable in accordance with the customary payroll practices of the Company, but in no event less frequently than monthly. (b) Bonus. The Employee shall be entitled to receive an annual formula bonus equal to an amount up to thirty percent (30%) of the Base Salary upon attainment of objectives identified by the Board of Directors consistent with general policies adopted by the Board with respect to executive and sales personnel. The Employee may also receive an additional annual performance bonus to be recommended by the Compensation and Personnel Committee of the Board of Directors and established and to be payable from time to time at the sole discretion of the Board of Directors. (c) Stock Option. Subject to approval of the Compensation and Personnel Committee, the Company will grant the Employee, as of the effective date of this Agreement, options to purchase 30,000 shares of the Company's common stock, par value $0.10 per share (the "Stock"), at an exercise price per share established by the Compensation and Personnel Committee. One third of the shares subject to this option shall become vested and exercisable upon each anniversary of the effective date of the Agreement. If the outstanding shares of common stock are increased or decreased, or are changed into or exchanged for a different number of or kind of shares or securities, as a result of one or more reorganizations, recapitalization, stock splits reverse stock splits, stock dividends or the like, appropriate adjustments shall be made in the number of shares for the unexercised portions of the option and appropriate adjustment shall be made for the exercise price. (d) Additional Benefits. Except as modified by this Agreement, the Employee shall be entitled to participate in all compensation or employee benefit plans or programs, and to receive all benefits, perquisites and emoluments, for which any salaried employees of the Company are eligible under any plan or program now or hereafter established and maintained by the Company for senior officers, to the fullest extent permissible under the general terms and provisions of such plans or programs and in accordance with the provisions thereof, including group hospitalization, health, dental care life or other insurance, tax- qualified pension, savings, thrift and profit-sharing plans, termination pay programs, sick-leave plans, travel or accident insurance, disability insurance, automobile allowance or automobile lease plans, and executive contingent compensation plans, including, without limitation, capital accumulation programs and stock purchase, restricted stock and stock option plans. Notwithstanding the foregoing, nothing in this Agreement shall preclude the amendment or termination of any such plan or program, provided that such amendment or termination is applicable generally to the senior officers of the Company or any subsidiary or affiliate. (e) Perquisites. The Company also will furnish the Employee, without cost to him, with perquisites consistent with those afforded other officers holding positions with the Company comparable to the position held by the Employee, including the following: (i) an allowance for the use of an automobile; (ii) reimbursement of out-of-pocket expenses incurred in the discharge of the Employee's duties pursuant to this Agreement at the request of the Company; and (iii) three weeks paid vacation. 4. EFFECT OF TERMINATION OF EMPLOYMENT. (a) Certain Terminations. In the event the Employee's employment hereunder terminates due to either Permanent Disability, a Without Cause Termination or a Constructive Discharge, the Company shall, as liquidated damages or severance pay, or both, continue, subject to the provisions of Section 5 below, to pay the Employee's Base Salary as in effect at the time of such termination as such payments would otherwise become due and payable until the expiration of the Term (the "Severance Period") and the other benefits and qualified stock options provided hereunder shall continue to vest pursuant to the terms hereof during the Severance Period, provided, that in the case of Permanent Disability, such payments shall be offset by any amounts otherwise paid to the Employee under the Company's disability program generally available to other employees. In addition, earned but unpaid Base Salary as of the date of termination of employment shall be payable in full. Group hospitalization, health, dental care, life or other insurance, travel or accident insurance and disability insurance shall continue through the end of the Severance Period. (b) Other Terminations. In the event that the Employee's employment hereunder terminates due to a Termination for Cause or the Employee unilaterally severs the employment relationship or terminates employment with the Company for reason other than a Constructive Discharge or Permanent Disability, earned but unpaid Base Salary as of the date of termination of employment shall be payable in full and vested qualified stock options will remain vested in the Employee. However, no other payments of any nature whatsoever, including unearned Base Salary, shall be made, or benefits provided, by the Company under this Agreement except for stock options to the extent already vested and exercisable hereunder, benefits vested and payable under any retirement plan and benefits that have already become vested under the terms of employee benefit programs maintained by the Company or its affiliates of its employees. All options not vested shall be canceled as of the date of termination. (c) Definitions. For purposes of this Agreement, the following terms have the following meanings: (i) The term "Termination for Cause" means, to the maximum extent permitted by applicable law, (x) a termination of the Employee's employment by the Company because the Employee has breached or failed to perform his duties under this Agreement, applicable law or the by- laws of the Company, including the unreasonable neglect or refusal to perform duties assigned by the Board of Directors or Executive Committee, (x) abuse of office or malfeasance by Employee, (y) conviction of the Employee of a felony which the Board reasonably deems to be an "abuse of office" or a crime of moral turpitude or (z) a breach of any representation contained in this Agreement. (ii) The term "Constructive Discharge" means a termination of the Employee's employment by the Employee due to a failure of the Company or its successors without the prior consent of the Employee to fulfill the obligations under this Agreement in any material respect. (iii) The term "Without Cause Termination" means termination of the Employee's employment by the Company, upon 30 days' notice to the Employee, other than due to (v) Permanent Disability, (x) retirement, (y) expiration of the Term, or (z) Termination for Cause. (iv) The term "Permanent Disability" means the inability of the Employee, as determined by the Board and confirmed by competent medical evidence, to work for a period of three continuous full calendar months or 90 non-consecutive days during any twenty-four consecutive calendar months due to illness or injury of a physical or mental nature. To determine issues of disability, the Executive agrees to submit himself for appropriate medical examination to physicians reasonably acceptable to the Company and the Employee. 5. OTHER DUTIES OF EMPLOYEE DURING AND AFTER TERM. (a) Confidential Information. The Employee recognizes and acknowledges that all information pertaining to the affairs, business, clients, customers, vendors, plans or prospects of the Company or any of its subsidiaries or affiliates (any or all of such entities being hereinafter referred to as the "Business"), as such information may exist from time to times, other than information that the Company has previously made publicly available, is confidential information and is a unique and valuable asset of the Business, access to and knowledge of which are essential to the performance of the Employee's duties under this Agreement. The Employee shall not, except to the extent reasonably necessary in the performance of his duties under this Agreement, divulge to any person, firm, association, corporation, or governmental agency, any information concerning the affairs, business, clients, customers, vendors, plans or prospects of the Business (except such information as is required by law to be divulged to a government agency or pursuant to lawful process) or make use of any such information for his own purposes or for the benefit of any person, firm, association or corporation (except the Business) and shall use his reasonable best efforts to prevent the disclosure of any such information by others. All records, memoranda, letters, books, papers, reports, accounting, experience or other data, and other records and documents relating to the Business, whether made by the Employee or otherwise coming into his possession, are confidential information and are, shall be and shall remain the property of the Business. No copies thereof shall be made which are not retained by the Business, and the Employee agrees, on termination of his employment or on demand of the Company, to deliver the same to the Company. (b) Patents. Any methods, developments, inventions and/or improvements, whether patentable or unpatentable, which Employee may conceive or make along the lines of the Company's business while in its employ, shall be and remain the property of the Company. Employee further agrees on request to execute patent applications based on such methods, developments, inventions and/or improvements, including any other instruments deemed necessary by the Company for the prosecution of such patent application or the acquisition of Letters Patent of this and any foreign country. (c) Non-Compete/Non-Solicitation. Employee shall have access to and shall be directly or indirectly responsible for the Company's customer lists, pricing, policies, projections, product development, trade secrets and other privileged and confidential information essential to the Company's business. During the term of this Agreement and the Severance Period, if applicable, the Employee shall not without express prior written approval of the Company's Board, directly or indirectly, own or hold any proprietary interest in, or be employed by or receive remuneration from, any corporation, partnership, sole proprietorship or other entity engaged in competition with the Company or any of its affiliates (a "Competitor"), other than severance-type or retirement-type benefits from entities constituting prior employers of the Employee. The Employee also agrees that he will not solicit for the account of any Competitor, any vendor, customer or client of the Company or its affiliates, or, in the event of the Employee's termination of employment, any entity or individual that was such a customer or client during the 12-month period immediately preceding the Employee's termination of employment. The Employee also agrees not to act on behalf of any Competitor to interfere with the relationship between the Company or its affiliates and their employees. For purposes of the preceding paragraph, (i) the term "proprietary interest" means legal or equitable ownership, whether through stockholding or otherwise, of an equity interest in a business, firm or entity other than ownership of less than 5 percent of any class of equity interest in a publicly held business, firm or entity and (ii) an entity shall be considered to be "engaged in competition" if such entity is, or is a holding company for, an entity engaged in the consumer electronics business. (d) Remedies. The Company's obligation to make payments, deliver shares of Stock or provide for any benefits under this Agreement (except to the extent vested or exercisable) shall cease upon a violation of the preceding provisions of this section. The Employee's agreement as set forth in this Section 5 shall survive the Employee's termination of employment with the Company. Employee acknowledges and agrees that, in the event he violates any of the restrictions of this Section 5, the Company will be without adequate remedy at law and will therefore be entitled to enforce such restrictions by temporary or permanent injunctive or mandatory relief obtained in an action or proceeding instituted in the courts of the State of New Jersey or any other court of competent jurisdiction without the necessity of proving damages and without prejudice to any other remedies which it may have at law or in equity, and Employee hereby consents to the jurisdiction of such court for such purpose, provided that reasonable notice of any proceeding is given, it being understood that such injunction shall be in addition to any remedy which the Company may have by law or otherwise. 6. WITHHOLDING TAXES. The Company may directly or indirectly withhold from any payments made under this Agreement all Federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 7. CONSOLIDATION, MERGER, OR SALE OF ASSETS. Nothing in this Agreement shall preclude the Company or its subsidiaries or affiliates from consolidation or merging into or with, or transferring all or substantially all their or its assets, to, another corporation which assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation, merger or transfer of assets assumption, the term "Company" as used herein shall mean such other corporation and this Agreement shall continue in full force and effect. 8. NOTICES. All notices, requests, demands and other communications required or permitted hereunder shall be given in writing and shall be deemed to have been duly given if delivered or mailed, postage prepaid, by same day or overnight mail as follows: (a) To the Company: Emerson Radio Corp. 9 Entin Road Parsippany, New Jersey 07054 Attn: Chief Executive Officer (b) To the Employee: C/O Emerson Radio Corp. 9 Entin Road Parsippany, New Jersey 07054 or such other address as either party shall have previously specified in writing to the other. 9. RIGHTS TO PAYMENTS. Employee shall not under any circumstances have any option or right to require payments hereunder otherwise than in accordance with the terms of this Agreement. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect; provided, however, that nothing in this Section 9. shall preclude the assumption of such rights by executors, administrators or other legal representatives of the Employee or his estate and their assigning any rights hereunder to the person or persons entitled thereto. 10. SOURCE OF PAYMENT. All payments provided for under this Agreement shall be paid in cash from the general funds of the Company. The Company shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if the Company shall make any investments to aid it in meeting its obligations hereunder, the Employee shall have no right, title or interest whatever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and the Employee or any other person. To the extent that any person acquires a right to receive payments from the Company hereunder, such right, without prejudice to rights which employees may have, shall be no greater than the right of an unsecured creditor of the Company. 11. REPRESENTATIONS. (a) Employee hereby represents that, as of the day hereof, neither his resume nor any other information relating to his employment history or work experience that he has provided to the Company, whether written or oral, contains any untrue statement or omission necessary to make the statements contained therein not misleading. Employee undertakes to immediately advise the Company of any change relating to such information. Failure to comply with the terms of this Section 11 shall be deemed to be a material breach of this Agreement. (b) You represent and warrant to the Company that you are not now under any obligations to any business, firm, corporation, association, venture or other entity or person, and have no other interest which is inconsistent or in conflict with this Agreement, or which would prevent, limit or impair, in any way, the performance by you any of your covenants or agreements contained herein, or any duties of your employment. You further represent that you have not brought and will not bring or use in the performance of your duties at the Company any proprietary or Confidential Information (whether or not in writing) of a former employer without that employer's written authorization. If the Company is made a party to any proceedings in connection with any alleged violations of any alleged agreements or contracts as represented herein, you agree to indemnify and hold the Company harmless from and against any and all liabilities and expenses, costs and attorneys fees of counsel chosen by the Company which it may incur or sustain arising out of any claims, actions or demands or proceedings for any such alleged violations. 12. RELOCATION EXPENSES Employee shall permanently relocate his residence to the location of the Company's principle office as soon as practicable. Company shall provide to Employee such relocation expenses as are authorized pursuant to the Company's relocation practice, a copy of which has been furnished to Employee. Further, Employee shall be reimbursed for reasonable overnight expenses incurred Monday through Thursday of each week through June 1995. 13. BINDING AGREEMENT. Expect as otherwise expressly provided herein, this Agreement shall be binding upon, and shall inure to the benefit of, the Company, its successors and assigns. This Agreement, as it relates to the Employee, is a personal contract and the rights and interest of the Employee hereunder may not be sold, transferred, assigned, pledged or hypothecated except as expressly provided herein. 14. GOVERNING LAW. The validity, interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of New Jersey. 15. ADDITIONAL DOCUMENTS. Executive shall execute and deliver to the Company the Employee Confidentiality and Non-Disclosure Policy and Inventions Policy, copies of which are attached as Exhibits "A" and "B". It is intended that such policies shall be supplemental to the obligations of the Employee set forth herein. 16. SIGNING BONUS. Upon execution of this Agreement by the Company, the Employee shall be entitled to receive a signing bonus of $15,000 payable in 3 equal installments commencing on the date of execution of this Agreement and continuing thereafter on the first day of the third and sixth month thereafter. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Employee has signed this Agreement, all as of the first date above written. EMERSON RADIO CORP. a Delaware Corp. By: /s/ Eugene I. Davis ____________________________ Name: Eugene I. Davis Title: Executive Vice-President EMPLOYEE /s/ Andrew Cohan ______________________________ Andrew Cohan EMERSON RADIO CORP. 1994 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN 1. Purpose of the Plan. The purpose of this Stock Option Plan ("Plan"), to be known as the "Emerson Radio Corp. 1994 Non-Employee Director Stock Option Plan" is to attract and retain qualified personnel to accept and continue in positions of responsibility as outside directors with Emerson Radio Corp., a Delaware corporation ("Company"). 2. Definitions. As used in the Plan, unless the context requires otherwise, the following terms shall have the following meanings: (a) "Anniversary Date" shall mean, for each Outside Director, the later of (x) the first day subsequent to the expiration of one year following the date on which such Outside Director is first elected to serve on the Board or (y) the Effective Date. (b) "Board" shall mean the Board of Directors of the Company. (c) "Certificate" shall mean the Certificate of Incorporation on file with the Secretary of State of Delaware. (d) "Committee" shall mean a committee of the Board designated by the Board and consisting solely of members of the Board who are not Outside Directors. (e) "Common Stock" shall mean the Company's common stock, par value $0.01 per share, authorized for issuance pursuant to the Certificate or if, pursuant to the adjustment provisions of Section 11 hereof, another security is substituted for the Common Stock, such other security. (f) "Effective Date" shall mean the date the Plan is adopted by the Board. (g) "Fair Market Value" shall mean the fair market value of the Common Stock on the Anniversary Date. If on such date (or, if such date is not a business day, on the next business date next succeeding such date) the Common Stock is listed on a stock exchange or is quoted on the automated quotation system of NASDAQ, the Fair Market Value shall be the closing sale price (or if such price is unavailable, the average of the high bid price and low asked price) on such date. If no such closing sale price or bid and asked prices are available, the Fair Market Value shall be determined in good faith by the Committee in accordance with generally accepted valuation principles and such other factors as the Committee reasonably deems relevant. (h) "Option" shall mean the right, granted pursuant to Section 7 of the Plan, to purchase one or more shares of Common Stock. (i) "Optionee" shall mean a person to whom an option has been granted under the Plan. (j) "Outside Director" shall mean any member of the Board who, on such person's Anniversary Date, shall not have served as an employee of the Company or any of the Company's subsidiaries during the twelve months proceeding such Anniversary Date. 3. Stock Subject to the Plan. There will be reserved for issuance upon the exercise of Options granted from time to time under the Plan an aggregate of 300,000 shares of Common Stock, subject to adjustment as provided in Section 11 hereof. The Committee shall determine from time to time whether all or part of such 300,000 shares shall be authorized but unissued shares of Common Stock or issued shares of Common Stock which shall have been reacquired by the Company and which are held in its treasury. If any Option granted under the Plan should expire or terminate for any reason without having been exercised in full, the unpurchased shares shall become available for the grant of Options under the Plan. 4. Administration of the Plan. The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the Committee shall have full discretion: (a) To determine the exercise price of Option granted hereunder in accordance with Section 7(b) hereof; (b) To interpret the Plan; (c) To promulgate, amend and rescind rules and regulations relating to the Plan, provided, however, that no such rules or regulations shall be inconsistent with any of the terms of the Plan; (d) To subject any Option to such additional restrictions and conditions (not inconsistent with the Plan) as may be specified when granting the Option; and (e) To make all other determinations in connection with the administration of the Plan. 5. Eligibility. The only persons who shall be eligible to receive Options under the Plan shall be persons who, on their applicable Anniversary Date, constitute Outside Directors. 6. Term. No Option shall be granted under the Plan more than ten years after the date that the Plan is first adopted by the Board. 7. Grant of Stock Options. The following provisions shall apply with respect to Options granted hereunder: (a) Grant. At the close of business on the Anniversary Date of each Outside Director during the term of the Plan, the Company shall grant an option to purchase twenty five thousand (25,000) shares of Common Stock (subject to adjustment pursuant to Section 11 hereof), to such director and an additional option to purchase twenty five thousand (25,000) shares of Common Stock to each Outside Director who, as of the close of business on the Anniversary Date applicable to such Outside Director, is chairman of a duly constituted committee of the Board, it being understood that no person shall be entitled to receive Options covering more than 50,000 shares of Common Stock (subject to adjustment pursuant to Section 11 hereof) pursuant to the Plan. (b) Option Price. The price at which shares of Common Stock shall be purchased upon exercise of an Option shall be established by the Committee in its sole discretion at a price not to exceed the Fair Market Value of such shares on the Anniversary Date. (c) Expiration. Except as otherwise provided in Section 10 hereof, each option shall cease to be exercisable ten years after the date on which it is granted. 8. Exercise of Options. Unless the exercise date of an Option is accelerated pursuant to Section 12 hereof, the following provisions shall apply, subject to the restrictions set forth in Section 10 with respect to the exercise of Options: (a) during the first year after the Anniversary Date, such Option shall not be exercisable; and (b) during the second year after the Anniversary Date, such Option may only be exercised as to up to 33% of the shares of Common Stock initially covered thereby; and (c) during the third year after the Anniversary Date, such Option may only be exercised as to up to 66 2/3% of the shares of Common Stock initially covered thereby; and (d) an Option may be exercised in its entirety or as to any portion thereof at any time during the fourth year after the Anniversary Date and thereafter until the term of such Option expires or otherwise ends. 9. Method of Exercise. To the extent permitted by Section 8 hereof, Optionees may exercise their Options from time to time by giving written notice to the Company. The date of exercise shall be the date on which the Company receives such notice. Such notice shall be on a form furnished by the Company and shall state the number of shares to be purchased and the desired closing date, which date shall be least fifteen days after the giving of such notice, unless an earlier date shall have been mutually agreed upon. At the closing, the Company shall deliver to the Optionee (or other person entitled to exercise the Option) at the principal office of the Company, or such other place as shall be mutually acceptable, a certificate or certificates for such shares against payment in full of the Option price for the number of shares to be delivered, such payment to be by a certified or bank cashier's check and/or, if permitted by the Committee of capital stock of the Company having a Fair Market Value (as determined pursuant to Section 2(f)) on the date of exercise equal to the excess of the purchase price for the shares purchased over the amount (if any) of the certified or bank cashier's check. If the Optionee (or other person entitled to exercise the Option) shall fail to accept delivery of any or pay for all or any part of the shares specified in his notice when the Company shall tender such shares to him, his right to exercise the Option with respect to such unpurchased shares may be terminated. 10. Termination of Board Status. In the event that an Optionee ceases to serve on the Board for any reason other than death or disability, such Optionee's Options shall automatically terminate three months after the date on which such service terminates, but in any event not later than the date on which such Options would terminate pursuant to Section 7(c) hereof. In the event that an Optionee is removed from the Board by means of a resolution which recites that the Optionee ceases to serve on the Board by reason of death or disability, an Option exercisable by him shall terminate one year after the date of death or disability of the Optionee, but in any event not later than the date on which such Options would terminate pursuant to Section 7(c) hereof. During such time after death, an option may be executed only by the Optionee's personal representative, executor or administrator, as the case may be. No exercise permitted by this Section 10 shall entitle an Optionee or his personal representative, executor or administrator to exercise any portion of any Option beyond the extent to which such Option is exercisable pursuant to Section 8 hereof on the date such Optionee ceases to serve on the Board. 11. Changes in Capital Structure. In the event that, by reason of a stock dividend, recapitalization, reorganization, merger, consolidation, reclassification, stock split-up, combination of shares, exchange of shares or comparable transaction occurring on a date subsequent to the Effective Date, the outstanding shares of Common Stock of the Company are hereafter increased or decreased, or changed into or exchanged for a different number or kind of shares or other securities of the Company or of any other corporation, then appropriate adjustments shall be made by the Committee to the number and kind of shares reserved for issuance under the Plan upon the grant and exercise of Options and the number and kind of shares subject to the automatic grant provisions of Section 7(a) hereof. In addition, the Board shall make appropriate adjustments to the number and kind of shares subject to outstanding Options, and the purchase price per share under outstanding Options shall be appropriately adjusted consistent with such change. In no event shall fractional shares be issued or issuable pursuant to any adjustment made under this Section 11. The determination of the Committee as to any such adjustment shall be final and conclusive. 12. Mandatory Exercise. Notwithstanding anything to the contrary set forth in the Plan, in the event that (x) the Company should adopt a plan of reorganization pursuant to which (i) it shall merge into, consolidate with, or sell substantially all of its assets to, any other corporation or entity or (ii) any other corporation or entity shall merge into the Company in a transaction in which the Company shall become a wholly-owned subsidiary of another entity, or (y) the Company should adopt a plan of complete liquidation, then (I) all Options granted hereunder shall be deemed fully vested and (II) the Company may give an Optionee written notice therefor requiring such Optionee either (a) to exercise his or her Options within thirty days after receipt of such notice, including all installments whether or not they would otherwise be exercisable at the date, (b) in the event of a merger or consolidation in which shareholders of the Company will receive shares of another corporation, to agree to convert his or her Options into comparable options to acquire such shares, (c) in the event of a merger or consolidation in which shareholders of the Company will receive cash or other property (other than capital stock), to agree to convert his or her Options into such consideration (in an amount representing the appreciation over the exercise price of such Options) or (d) to surrender such Options or any unexercised portion thereof. 13. Option Grant. Each grant of an option under the Plan will be evidenced by a document in such form as the Committee may from time to time approve. Such document will contain such provisions as the Committee may in its discretion deem advisable, including without limitation additional restrictions or conditions upon the exercise of an Option, provided that such provisions are not inconsistent with any of the provisions of the Plan. The Committee may require an Optionee, as a condition to the grant or exercise of an Option or the payment therefor, to make such representations and warranties and to execute and deliver such notices of exercise and other documents as the Committee may deem consistent with the Plan or the terms and conditions of the option agreement. Not in limitation of any of the foregoing, in any such case referred to in the proceeding sentence the Committee may also require the Optionee to execute and deliver documents (including the investment letter, described in Section 14), containing such representations, warranties and agreements as the Committee or counsel to the Company shall deem necessary or advisable to comply with any exemption from registration under the Securities Act of 1993, as amended, any applicable State securities laws, and any other applicable law, regulation or rule. 14. Investment Letter. If required by the Committee, each Optionee shall agree to execute a statement directed to the Company, upon each and every exercise by such Optionee of any Options, that shares issued thereby are being acquired for investment purposes only and not with a view to the redistribution thereof, and containing an agreement that such shares will not be sold or transferred unless either (1) registered under the Securities Act of 1933, as amended, or (2) exempt from such registration in the opinion of Company counsel. If required by the Committee, certificates representing shares of Common Stock issued upon exercise of Options shall bear a restrictive legend summarizing the restrictions on transferability applicable thereto. 15. Requirements of Law. The granting of Options, the issuance of shares upon the exercise of an Option, and the delivery of shares upon the payment therefor shall be subject to compliance with all applicable laws, rules, and regulations. Without limiting the generality of the foregoing, the Company shall not be obligated to sell, issue or deliver any shares unless all required approvals from governmental authorities and stock exchanges shall have been obtained and all applicable requirements of governmental authorities and stock exchanges shall have been complied with. 16. Tax Withholding. The Company, as and when appropriate, shall have the right to require each Optionee purchasing or receiving shares of Common Stock under the Plan to pay any federal, state, or local taxes required by law to be withheld. 17. Nonassignability. No Option shall be assignable or transferable by an Optionee except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended (the "Code"), or Title I of the Employee Retirement Income Security Act ("ERISA") or the rules thereunder, in which event the terms of this Plan, including all restrictions and limitations set forth herein, shall continue to apply to the transferee. Except as otherwise provided in the immediately preceding sentence, during an Optionee's lifetime, no person other than the Optionee may exercise his or her Options. 18. Optionee's Rights as Shareholder and Board Member. An Optionee shall have no rights as a shareholder of the Company with respect to any shares subject to an Option until the Option has been exercised and the certificate with respect to the shares purchased upon exercise of the Option has been duly issued and registered in the name of the Optionee. Nothing in the Plan shall be deemed to give an Optionee any right to a continued position on the Board nor shall it be deemed to give any person any other right not specifically and expressly provided in the Plan. 19. Termination and Amendment. The Board may at any time terminate or amend the Plan as it may deem advisable, except that (i) the provisions of this Plan relating to the amount of shares covered by Options, the exercise price of Options or the timing of Option grants or exercises shall not be amended more than once every six months, other than to comport with changes in the Code, ERISA or the rules thereunder, (ii) no such termination or amendment shall adversely affect any Optionee with respect to any right which has accrued under the Plan in regard to any Option granted prior to such termination or amendment, and (iii) no such amendment shall be effective without approval of the stockholders of the Company if the effect of such amendment is to (a) materially increase the number of shares of Common stock authorized for issuance pursuant to the Plan (otherwise than pursuant to Section 11), (b) increase the number of shares of Common Stock subject to Options, (c) reduce the exercise price of Options, (d) materially modify the requirements as to eligibility for participation in the Plan or (e) materially increase the benefits accruing to participants under the Plan. 20. Sunday or Holiday. In the event that the time for the performance of any action or the giving of any notice is called for under the Plan within a period of time which ends or falls on a Sunday or legal holiday, such period shall be deemed to end or fall on the next date following such Sunday or legal holiday which is not a Sunday or legal holiday. 21. Stockholder Approval. This Plan shall be presented to the Company's stockholders for their ratification and approval by vote of a majority of such stockholders present or represented on the date of the meeting of the stockholders at which this Plan is presented for approval. Options may be granted prior to stockholder approval of this Plan. EX-11 3 EXHIBIT 11 Emerson Radio Corp. and Subsidiaries Exhibit to Form 10-K Computation of Primary Earnings Per Share (in thousands, except per share data) Years Ended March 31, 1995 1994 1993 Net earnings (loss) $ 7,375 $55,501 ($56,000) ______ ______ ______ Weighted average number of actual shares outstanding 36,530 38,191 38,179 Additional shares assuming conversion or exercise of: Preferred stock (a) 9,081 Stock options and warrants 960 _____ _______ ________ Weighted average number of common and common equivalent shares outstanding 46,571 38,191 38,179 ______ ______ ______ Primary earnings per share $ 0.16 $ 1.45 ($ 1.47) ======== ======== ====== ___________________________ (a) Based on the assumed conversion of $10 million of Series A Preferred Stock into Common Stock at a price per share equal to 80% of the weighted average market value of a share of Common Stock, determined on a quarterly basis. Since the Series A Preferred Stock is not convertible into Common Stock until March 31, 1997, the number shares issuable upon conversion may be significantly different then noted above. EX-21 4 EXHIBIT 21 Emerson Radio Corp. and Subsidiaries Exhibit to Form 10-K Subsidiaries of the Registrant Name of Subsidiary Jurisdiction of Percentage of Incorporation Ownership Emerson Radio (Hong Kong) Ltd. Hong Kong 100%* Emerson Radio International Ltd. British Virgin Islands 100% Emerson Radio Canada Ltd. Canada 100% * One share is owned by a resident director pursuant to local law. EX-27 5 ART. 5 FDS FOR 10-K WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 YEAR MAR-31-1995 MAR-31-1995 17,020 0 34,309 4,150 35,336 102,380 11,778 7,102 113,969 59,782 0 403 0 9,000 44,248 113,969 654,671 654,671 604,329 604,329 38,244 1,574 2,882 7,642 267 7,375 0 0 0 7,375 .16 .16 /TABLE>
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