LITE DEPALMA GREENBERG & RIVAS, LLC Joseph J....

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LITE DEPALMA GREENBERG & RIVAS, LLC Joseph J. DePalma (JD-7697) Susan D. Pontoriero (SP-0463) Two Gateway Center, 12 th Floor Newark, New Jersey 07102 Plaintiffs’ Co-Liaison Counsel (Additional Counsel on Signature Page) UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY IN RE EMERSON RADIO CORP. SECURITIES LITIGATION Civil Action No. 03-cv-4201 (JLL) AMENDED CONSOLIDATED COMPLAINT Lead Plaintiffs, Clark E. Niss and Jeffrey Hoffman (“Plaintiffs”), by and through their attorneys, allege the following based upon, inter alia, the investigation of their attorneys, including without limitation: (a) review and analysis of public filings made by Emerson Radio Corporation (“Emerson” or the “Company”) with the Securities and Exchange Commission ("SEC"); (b) review and analysis of securities analysts' reports concerning Emerson; (c) review and analysis of press releases, transcripts of investor conference calls and other publications disseminated by or on behalf of Emerson; (d) review and analysis of news articles concerning Emerson; (e) interviews with former employees of Emerson; and (f) review and analysis of other publicly available information about Emerson. SUMMARY OF THE ACTION 1. Plaintiffs bring this class action alleging violations of the Securities Exchange Act of 1934, 15 U.S.C. § 78, et seq., (the "Exchange Act") against Emerson as well as current executives, Geoffrey P. Jurick (“Jurick”), Kenneth A. Corby (“Corby”), John. J. Raab (“Raab”), and director Jerome H. Farnum (“Farnum”) (collectively the “Individual Case 2:03-cv-04201-JLL-RJH Document 21-1 Filed 03/29/2004 Page 1 of 52

Transcript of LITE DEPALMA GREENBERG & RIVAS, LLC Joseph J....

LITE DEPALMA GREENBERG & RIVAS, LLC Joseph J. DePalma (JD-7697) Susan D. Pontoriero (SP-0463) Two Gateway Center, 12th Floor Newark, New Jersey 07102 Plaintiffs’ Co-Liaison Counsel (Additional Counsel on Signature Page)

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY IN RE EMERSON RADIO CORP. SECURITIES LITIGATION

Civil Action No. 03-cv-4201 (JLL)

AMENDED CONSOLIDATED COMPLAINT

Lead Plaintiffs, Clark E. Niss and Jeffrey Hoffman (“Plaintiffs”), by and through their

attorneys, allege the following based upon, inter alia, the investigation of their attorneys,

including without limitation: (a) review and analysis of public filings made by Emerson

Radio Corporation (“Emerson” or the “Company”) with the Securities and Exchange

Commission ("SEC"); (b) review and analysis of securities analysts' reports concerning

Emerson; (c) review and analysis of press releases, transcripts of investor conference calls

and other publications disseminated by or on behalf of Emerson; (d) review and analysis of

news articles concerning Emerson; (e) interviews with former employees of Emerson; and (f)

review and analysis of other publicly available information about Emerson.

SUMMARY OF THE ACTION

1. Plaintiffs bring this class action alleging violations of the Securities Exchange

Act of 1934, 15 U.S.C. § 78, et seq., (the "Exchange Act") against Emerson as well as current

executives, Geoffrey P. Jurick (“Jurick”), Kenneth A. Corby (“Corby”), John. J. Raab

(“Raab”), and director Jerome H. Farnum (“Farnum”) (collectively the “Individual

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Defendants”) on behalf of a proposed class and subclass of persons who purchased or

acquired Emerson common stock on the open market or otherwise from January 29, 2003

through August 12, 2003, inclusive (the “Class Period”) and who suffered economic

damages, as defined below.

JURISDICTION AND VENUE

2. The claims asserted herein arise under and pursuant to Sections 10(b), 20(a)

and 20(A) of the Exchange Act and Rule 10b-5 promulgated thereunder by the SEC [17

C.F.R. § 240.10b-5].

3. This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. § 1331 and Section 27 of the Exchange Act.

4. Venue is proper in this District pursuant to Section 27 of the Exchange Act

and 28 U.S.C. § 1391(b). Many of the acts charged herein, including the preparation and

dissemination of materially false and misleading information, occurred in substantial part in

this District and Emerson maintains its principal place of business in this District.

5. In connection with the acts alleged in this complaint, Defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including, but not

limited to, the mails, interstate telephone communications and the facilities of the national

securities markets.

PARTIES

6. Plaintiffs, Clark E. Niss and Jeffrey Hoffman, each purchased the common

stock of Emerson, as set forth in their certifications attached as exhibits to their respective

motions for appointment as lead plaintiffs, at artificially inflated prices during the Class

Period and suffered economic damages. Each purchased Emerson common stock without

knowledge of the falsity of the Company's reported financial results and other public

representations, as specified herein, and the fact that the price of the Company's common

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stock was artificially inflated by these misrepresentations. Plaintiffs relied upon Emerson’s

public reports, press releases, filings with the SEC and other public statements, more fully

described below, and that the Company's common stock was fairly priced and upon the

integrity of the market for its securities.

7. Defendant Emerson is a Delaware corporation with its principal executive

offices located at 9 Entin Road, Township of Parsippany-Troy Hills, Morris County, New

Jersey 07054. Emerson designs, markets and licenses, throughout the world, full lines of

televisions, and other video products, microwave ovens, clocks, radios, audio and home

theater products. Its 53.2% owned subsidiary, Sport Supply Group, Inc. (“SSG”) is a direct

marketer of sports-related equipment and leisure products to the institutional market,

including schools, colleges, universities, government agencies, military facilities, athletic

clubs, athletic teams and dealers, youth sports leagues and recreational organizations.

8. Defendant Jurick is, and was during all relevant times, Emerson’s President,

Chief Executive Officer, and Chairman of the Board of Directors. Jurick is also SSG’s Chief

Executive Officer and Chairman of the Board of Directors. During the Class Period,

defendant Jurick was a controlling person of Emerson within the meaning of §20(a) of the

Exchange Act and caused Emerson to file Registration Statements with the SEC so that

Jurick could sell over 4.8 million shares of his personally owned Emerson stock. Jurick

planned to use the bulk of the proceeds of the sale to satisfy a judgment against him of more

than $16.5 million. Defendant Jurick signed and certified numerous financial statements that

contained material misstatements and omissions throughout the Class Period.

9. Defendant Corby is, and was during all relevant times, Emerson’s Chief

Financial Officer and Executive Vice President -- Finance. During the Class Period,

defendant Corby was a controlling person within the meaning of §20(a) of the Exchange Act.

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Defendant Colby certified and signed numerous financial statements that contained material

misstatements and omissions throughout the Class Period.

10. Defendant Raab first became an officer of Emerson in 1995. He has served as

Chief Operating Officer and Senior Executive Vice President - International since May 2003,

Executive Vice President - International from June 2000 to May 2003, Senior Vice President

- International from October 1997 to June 2000 and Senior Vice President-Operations from

October 1995 to October 1997. In July 2000, the Company’s Board of Directors granted

stock options to Mr. Raab to purchase 50,000 shares of common stock, at an exercise price of

$1.00 per share. Effective September 1, 2001, Mr . Raab entered into a three-year

employment agreement with the Company, providing for an annual compensation of

$250,000, which was increased to $257,500, effective April 1, 2002, and $275,000, effective

April 1, 2003. In addition to his base salary, Mr. Raab also receives an additional annual

performance bonus recommended by the Compensation and Personnel Committee of the

Company’s Board of Directors, subject to the final approval of the Board of Directors.

During the Class Period, Mr. Raab, as the COO of the Company, was a controlling person

within the meaning of § 20(a) of the Exchange Act. Further, during the Class Period, Mr.

Raab sold 100,000 shares of Emerson common stock -- all of his holdings in the Company - -

for proceeds of $632,096.00, including the sale of 20,966 shares on July 28, 2003, alone.

11. Defendant Farnum is, and was at all relevant times, a director of Emerson

since 1992, and reviewed and signed several of the Company’s SEC filings during the Class

Period including Emerson’s Form 10-K for the fiscal year ended March 31, 2003, as well as

the Company’s Form S-3 and Amendment filed on March 14, 2003 and June 16, 2003,

respectively. Defendant Farnum sold over $150,000 worth of Emerson stock over the course

of less than one week in late July, 2003, only two weeks before Emerson announced its

sharply disappointing results for the first quarter of fiscal year 2004, including the sale of

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10,000 shares on July 28th alone. During Fiscal 2003, Mr. Farnum served as chair of the

Company’s Audit Committee, served on the Compensation and Personnel Committee, and

was a member of the Executive Committee. Mr. Farnum, as Chair of Emerson’s Audit

Committee, was a controlling person within the meaning of § 20(a) of the Exchange Act.

Emerson’s Proxy Statement filed on July 29, 2003, sets forth the duties of Emerson’s Audit

Committee in detail.

12. It is appropriate to treat the Individual Defendants as a group for pleading

purposes and to presume that the false or misleading information conveyed in the Company's

public filings, and statements in press releases and other publications, as alleged herein, are

the collective actions of this narrowly defined group of defendants. Each of the Individual

Defendants by virtue of his executive, managerial, or directorship positions with the

Company, directly participated in the daily management of the Company, was directly

involved in the day-to-day operations of the Company at the highest level, and was privy to

confidential proprietary information concerning the Company and its business and

operations, and revenue streams. The Individual Defendants were involved or participated in

drafting, producing, reviewing, and/or disseminating the false and misleading statements

alleged herein.

13. The statements made by the Individual Defendants, as outlined below, were

materially false or misleading when made. The true financial and operating condition of the

Company, which was known or recklessly disregarded by the Individual Defendants,

remained concealed from the investing public. The Individual Defendants, who were under a

duty to disclose those facts, instead misrepresented or concealed them during the relevant

period herein.

14. The Individual Defendants, as officers and/or directors of a publicly-held

company, had a duty to promptly disseminate truthful and accurate information with respect

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to Emerson and to promptly correct any public statements issued by or on behalf of the

Company that had become false or misleading.

CRITICAL ISSUES SURROUNDING THE LITIGATION

Goodbye to Hello Kitty®

15. On December 6, 2002, Emerson reported over the Business Wire, that the

Company appointed Patrick Murray President of the Company’s consumer products division,

effective November 22, 2002. The Company further reported that Mr. Murray assumed the

responsibilities previously held by Marino Andriani, who resigned, effective December 4,

2002, “to pursue other interests.” Mr. Andriani had served as president of the Emerson

subsidiary that owned the Company’s popular and profitable licensed Hello Kitty® product

line.

16. Hello Kitty® was created by a Japanese company, Sanrio Corp., in 1974 as a

greeting card character. Its popularity soared and eventually could be found on everything

from T-shirts to portable stereo systems. This beloved, whimsical character that has no

mouth because “it speaks from the heart,” however, lies at the heart of one of this action’s

core allegations.

17. According to Emerson’s Form 10-Q filed on February 11, 2003, the Hello

Kitty® license generated over $20 million in net sales for the nine months ending December

31, 2002, alone. Hello Kitty® was by far, the largest revenue generating license for the

Company. It was through Mr. Andriani that Emerson first obtained the Hello Kitty® license

in July, 1999, whereby Emerson placed the little kitten on its electronics products. Over the

next three years, Mr. Andriani expanded the license with Sanrio to include lighting, personal

care products, and small electronics.

18. Emerson’s Hello Kitty® license, however, was scheduled to expire on

December 31, 2002. According to a confidential source who had both a personal and

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professional relationship with Mr. Andriani during and after Mr. Andriani’s tenure with the

Company, and who was employed by Emerson during the relevant time period as a national

sales director, and who remained in contact with Emerson personnel after he/she departed

from the Company (“CW-1”)1, Emerson knew by at least December 2002, that Sanrio would

not renew the license and that Sanrio was actively pursuing a new North American licensing

partner. Emerson failed to disclose that once the Hello Kitty® license expired, the Company

did not have a replacement license in its pipeline that could recoup these lost revenues.

19. CW-1 also stated that by December 2002, Emerson knew that Mr. Andriani

would be awarded the license, assuming he started his own company. Importantly, CW-1

stated that Emerson knew that the loss of Hello Kitty® would be extremely detrimental to the

Company’s revenues going-forward and that the Company did not possess a product or

license in the pipeline capable of generating sufficient revenues to offset the loss of Hello

Kitty® license revenue.

20. As detailed below, the Company sought to enjoin Mr. Andriani after he

resigned from Emerson, from taking the license with him on the grounds that Mr. Andriani

negotiated the transfer of the license to his own company while still employed by Emerson

and that Mr. Andriani utilized Emerson’s proprietary information while he was employed by

Emerson to wrestle away the license. Emerson ultimately obtained the injunction against Mr.

Andriani in March 2004, but nevertheless, the Hello Kitty® license was lost and with it a

valuable revenue stream that the Company was unable to replace with its then-existing line of

products.

21. The action between Emerson and Mr. Andriani is pending in New Jersey

Superior Court before Judge Kenneth C. Mac Kenzie and the case file remains under seal.

News reports, however, including a March 31, 2003 Associated Press wire story reported that 1 Former employees who provide details that are alleged in the Complaint are referred to herein as “CW- _.”

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on March 31, 2003, Judge Mac Kenzie ruled in part for Emerson, finding that Emerson would

suffer irreparable harm if Mr. Andriani marketed the same products that Emerson was still

able to sell. Accordingly, though the complaint for injunctive relief remains under seal, it

must allege that Mr. Andriani’s conduct and the loss of the Hello Kitty® line, including

competition from Mr. Andriani, would prove so detrimental to Emerson that the issuance of

extraordinary relief in the form of an injunction was warranted -- such order having been

entered on March 31, 2003.

22. Upon learning in late 2002 that Sanrio would not renew the license, Emerson

immediately represented to the public that it had a replacement for Hello Kitty®. In this

regard, on January 13, 2003, Emerson announced over the Business Wire that it was

“replacing its licensed Hello Kitty® product line with its proprietary GirlPower™ branded

product line.” The Company also announced it had sued Mr. Andriani, as discussed in ¶¶ 20,

21 above. Concerning GirlPower's™ launch, Mr. Jurick stated:

Our proprietary GirlPower ™ brand has shown sales growth exceeding all previously introduced themed product line launches in its first year of introduction. We are very encouraged by these strong results and look to focus our resources on additional product and sales development of this highly promising category.

23. In its Form 10-Q for the quarter ending December 31, 2002, Defendants

represented that the Hello Kitty® revenue stream could be replaced:2

Our license for the Hello Kitty brand expired on December 31, 2002. Through the promotion of our proprietary Girl Power branded theme products launched earlier this fiscal year, representing 3.8% of the nine month revenues in fiscal 2003, together with other future licensing opportunities, we believe the revenues earned form the sale of products subject to the Hello Kitty license agreement, representing 9.4% of the nine month revenues in fiscal 2003, can be replaced.

2 Emerson’s fiscal year ended March 31, 2003.

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Retailer Woes

24. The Emerson Radio brand name was established in approximately 1912 and

remains one of the oldest and most widely recognized logos in the $100 billion consumer

electronics/small appliances industry. According to published reports, Emerson competes

within a rough and tumble $50 billion sector of this industry through licensing agreements

and by selling its own products. The Company purportedly flourished by focusing on the

distribution of popular and competitively priced products to a growing base of mass retail

merchandisers (e.g., Wal-Mart, K-Mart, and Target). Prior to the start of the Class Period,

Emerson acknowledged its dependence on a small number of key customers. As reported in

the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2002:3

Wal-Mart Stores accounted for approximately 22% and 41% and Target Stores accounted for approximately 19% and 14% of our consolidated net revenues in fiscal 2002 and 2001, respectively. No other customer accounted for more than 10% of our consolidated revenues in either period. Management believes that a loss of either of these customers would have a material adverse effect on our business and results of operations.

25. The 10-K’s risk disclosure section further states that among the key factors

that would cause the Company’s results to “differ materially” is the:

. . . ability of the consumer electronics segment to continue selling products to two of its largest customers whose net revenues represented 22% and 19% of fiscal 2002 consolidated net revenues;

26. The Company’s dependence on its major retailers continued through the Class

Period. The Company’s Form S-3, filed on March 14, 2003 concerning Mr. Jurick’s offering

of his personal holdings in Emerson, stated the following:

We are highly dependent upon sales of our consumer electronics products to certain of our customers, including Wal-Mart, Target and K-Mart. During our fiscal years ended March 31, 2002 and 2001, Wal-Mart stores accounted for approximately 22% and 41% respectively, Target stores accounted for approximately 19% and 14%, respectively, and K-Mart accounted for less than 10% of our consolidated net revenues for such periods. Although no other customer in either of our operating segments accounted for greater than 10%

3 Filed on July 15, 2002, with the SEC.

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of our consolidated net revenues during these periods, other customers may account for more than 10% of our consolidated net revenues in future periods. All purchases of our products by customers in both of our operating segments are made through purchase orders and we do not have any long-term contracts with any of our customers. The loss of customers such as Wal-Mart, Target or K-Mart or any of our customers to which we sell a significant amount of our products or any significant portion of orders from Wal-Mart, Target or K-Mart or such other customers or any material adverse change in the financial condition of such customers could materially adversely affect our business, results of operations and financial condition.

27. By its own admission, Emerson did not enter into long term contracts with its

retailer customers. Emerson, instead, sold merchandise to retailers pursuant to purchase

order agreements. Therefore, it was imperative that Emerson continually succeed in

obtaining new purchase orders from retailers in order for Emerson to sell its products.

Accordingly, a disruption in the receipt of purchase orders would have an immediate

downward effect on the Company’s revenues.

28. Prior to the commencement of the Class Period, defendants knew that there

were substantial problems with Emerson’s relationships with the big three retailers.

Specifically, according to CW-1, defendants knew by early 2003, that Target intended to and

did scale back its purchases of Emerson products. For example, in 2002, Target conducted an

online auction among manufacturers to select the brands it would place on its shelves during

2003.

29. CW-1’s account of the Target auction is corroborated by CW-4, an Emerson

employee during the relevant time period who served as a representative/agency

representative to Target through the mid-summer of 2003.

30. CW-4 stated that in 2002, Target began to use an online auction as part of an

online e-sourcing procurement effort. Target issued specifications for products to Emerson

and other manufacturers. Specifically, Target stated that it wanted a microwave with

functions A, B, and C but would not buy it from the manufacturer unless it was $X or less.

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Manufacturers placed bids to produce a compliant product at a proposed price. Emerson,

however, lost these procurement auctions.

31. In contracting with Target in the past, Emerson was traditionally the lowest

bidder and handily won the contract year-after-year. The 2002 auction, however, designed to

stock the 2003 shelves, saw Emerson lose to Asian bidders. Ultimately, in 2002, Target

started to scale back the number of Emerson products on Target’s shelves and Emerson’s

revenues and margins concomitantly suffered.

32. CW-1 also reported that in the first half of 2003, Emerson’s largest customers

for microwaves, Wal-Mart and Target, significantly cut back on orders and began to actively

shop for alternative brands from other manufacturers to place on their shelves for sale. While

Emerson’s microwaves were not entirely excluded from Target and Wal-Mart, this

competition cut deeply into Emerson’s revenues. According to CW-1, during his tenure,

microwave sales accounted for approximately $80 million in annual revenue.

33. CW-1’s assessment of revenues attributable to the sales of microwaves is

supported by analyst reports estimating that between 25% and 30% of Emerson’s product

revenues came from the sales of microwaves.

34. There were also very serious problems with Emerson’s business relationship

with K-Mart. These problems resulted in K-Mart ordering substantially less merchandise

from Emerson, and senior managers at Emerson expressed concern over whether Emerson’s

business relationship with K-Mart was coming to an end.

35. CW-1 reported that K-Mart had previously “kicked out” Emerson as a

supplier. The relationship, however, was temporarily salvaged when K-Mart assigned a new

Vice President to the Emerson account and subsequently K-Mart elected to resume

purchasing Emerson merchandise. Emerson’s public filings noted that K-Mart accounted for

approximately 14% of Emerson’s net revenues for the nine months ended December 31,

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2002. However, according to CW-1, when the new Vice President left K-Mart in early 2003,

K-Mart again significantly reduced the volume of its purchases from Emerson.

36. CW-2, who was an administrative assistant to an Emerson Vice President

during the relevant time period, reported that both the Vice President he/she worked for and

other senior managers were concerned over lost revenues from K-Mart. In fact, according to

CW-2, by the time he/she left the Company in February 2003, Emerson’s managers learned

that the loss of K-Mart’s orders would seriously deplete Emerson’s 2003 revenues and they

did not view K-Mart as being a long-term customer going-forward. Further, K-Mart had

been a large seller of the Hello Kitty® line and the loss of the license, and the closing of K-

Mart’s stores also presented permanent downside pressure on Emerson’s revenues during

2003.

37. Accordingly, as detailed below, defendants knew prior to, and throughout the

Class Period, that the Company’s revenues would significantly decline because the Company

lacked a product capable of replacing the popular Hello Kitty® line and that the Company’s

largest customers had scaled back their orders of Emerson products. That Defendants had

knowledge of these facts during the relevant time period is premised on information supplied

by confidential sources with first-hand knowledge and defendants’ own post-Class Period

admissions evidencing their Class Period awareness of the issues plead herein.

38. Defendants’ conduct further violated Generally Accepted Accounting

Principles (“GAAP”) because defendants failed to disclose known negative business trends

with respect to Emerson’s problems with its major customers and the irreplaceable loss of the

Hello Kitty revenues, as required by Item 303 of Regulation S-K. See ¶¶ 103, 107.

39. Finally, apart from defendants’ conscious misbehavior evidencing their intent

to commit securities fraud, defendants possessed substantial and concrete economic motives

to commit fraud, including the sale of Company stock at inflated levels and to prime the

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market for a massive stock sale by Mr. Jurick to fund the settlement of a long-standing

business dispute and multi-million dollar judgment pending against him stemming from it.

40. Defendants repeatedly made false positive statements throughout the Class

Period, and as a result, Emerson’s common stock price continued to climb. Attached as

Exhibit A, is a chart illustrating Emerson’s stock price from January 1, 2002, through

December 31, 2003. Defendants Jurick, Raab and Farnum used this artificially inflated stock

price to their advantage. Mr. Jurick filed a Registration Statement with the SEC in March

2003, in an effort to sell 4.8 million of his personally owned shares of Emerson stock.

Meanwhile, Defendant Raab unloaded all of his Emerson holdings, and Defendant Farnum

sold more than $150,000 worth of Emerson shares, just two weeks before the Company

shocked investors on August 12, 2003, announcing that the Company experienced a

whopping 44% decline in revenues in its Consumer Electronics Unit for the first quarter of

fiscal year 2004.

CLASS PERIOD MISREPRESENTATIONS AND OMISSIONS

41. The Class Period commences on January 29, 2003, when Emerson released its

financial and operational results for the third quarter of fiscal year 2003, ended December 31,

2002, announcing “strong revenue growth” and “substantial operating income improvement”.

The press release stated, in pertinent part, as follows:

Emerson’s consolidated balance sheet remains strong with substantial cash and liquidity available through its lending arrangements. Major aspects of each segment continue to show continued strength. On-going business development measures recently resulted in the signing of a letter of intent with a major Chinese based retailer, which should offer Emerson significant new revenue opportunities beginning in the next fiscal year. Cultivating this and other international markets combined with the continued focus on the domestic market leads us to believe fiscal 2004 will be another strong year.

42. The January 29, 2003 press release touted a 35.8% increase in revenues for the

Consumer Electronics Unit, “primarily due to increases in licensing revenues and unit sales

of audio and themed products . . .” and noted that:

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Licensing revenues have continued to move strongly ahead of last year’s levels. As such, year to date operating margins and earnings continue to run ahead of prior levels as operating income increased to $20.5 million (9.2% of net revenues) from $13.2 million (7.1% of net revenues).

43. Emerson’s President and CEO, Mr. Jurick, commented on the results, stating:

We are pleased to report that Emerson performed exceptionally well for this quarter again due to the continued success of our various license arrangements and solid sales growth in our core products. Additionally, themed product revenues continued to expand with a wider array of product placements being made available through our recently introduced Girl Power branded products.

44. The January 29, 2003, press-release reporting third quarter 2003 results

contained several falsities and omitted material information.

45. Specifically, by this time, the Company had lost the Hello Kitty® license and

was promoting the Company’s new proprietary GirlPower™ line (See ¶¶ 18-23). Defendants

knew that GirlPower™, based on information provided by CW-1, would not generate

sufficient revenue to offset the revenue lost on the expiration of the Hello Kitty® license (See

¶¶ 18-19). The impact of the loss of the Hello Kitty® license was so severe that it gave rise to

Emerson seeking injunctive relief against Mr. Andriani (See ¶¶ 20-21) to stop him from

selling the same products as Emerson. This action was commenced on January 13, 2003 --

16 days prior to the January 29, 2003 press-release -- but no mention was made of it by the

Company in the press release. Mr. Jurick, instead, falsely stated:

Cultivating this and other international markets combined with the continued focus on the domestic market leads us to believe fiscal 2004 will be another strong year.

46. Mr. Jurick possessed no reasonable basis for this statement premised on the

fact defendants knew that GirlPower™ would not generate enough revenue to offset the loss

of Hello Kitty®. In fact, as disclosed in the Company’s own Form 10-Q, Girl Power

generated substantially less than half of the revenues Hello Kitty did in the nine months

ending December 31, 2002.

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47. The scope of Emerson’s problems with its licensing revenues is further

evidenced by a lawsuit commenced by Sanrio against Emerson following the termination of

the Hello Kitty® license. The suit was filed on April 29, 2003, and was case number

BC294834, in the Superior Court of the State of California, County of Los Angeles. The

complaint alleged that Emerson breached its contract with Sanrio and owed Sanrio back

royalties for the calendar period of October 2002 through December 2002, (Emerson’s 3rd

quarter fiscal 2003) and damages stemming from Emerson’s refusal to cease manufacturing

and selling new Hello Kitty® products after the termination of the license. Sanrio sought

damages in excess of $1.4 million dollars for royalties, as well as a temporary restraining

order and injunction against Emerson. The lawsuit was settled and a dismissal was filed on

June 30, 2003, the last day of Emerson’s 1st quarter, fiscal year 2004.

48. CW-3, the head of licensing at Sanrio and responsible for the Emerson

relationship stated that Sanrio withdrew the lawsuit after Emerson acquiesced to all of

Sanrio’s demands, namely payment of back royalties, withdrawal of merchandise from

shelves, and Emerson returning certain inventory to Sanrio.

49. Moreover, the January 29, 2003 press release was false in that it omitted to

disclose or detail the then existing problems Emerson was experiencing with retail customers,

namely Wal-Mart, Target, and K-Mart.

50. As detailed in ¶¶ 28-32, both CW-1 and CW-4 detailed that Target, by the

beginning of 2003, had scaled back on purchasing products from Emerson, and that Emerson

had fared poorly in Target’s new e-procurement bidding process. (See ¶¶ 30-31). Similarly,

as detailed in ¶¶ 34-36, the loss of Emerson’s key contact at K-Mart was causing Emerson’s

relationship to suffer.

51. The press release was followed by a conference call with analysts and

investors on January 31, 2003 where the Company credited its 36% revenue growth in the

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Consumer Electronics Unit on continued expanded product placement, including growth of

sales to Wal-Mart and Target. Both Mr. Jurick and Mr. Corby were on the conference call.

52. Emerson’s CFO, Mr. Corby spoke on the conference call and touted the

profitability of Emerson’s licensing arrangements and expanded “product placement” but,

again, failed to disclose the pressure Emerson was feeling from Wal-Mart, Target and K-

Mart. Specifically, Mr. Corby stated:

. . . specialty product sales grew to about 19% of revenues from 7.5% [of] revenues as the Girl Power products launched reflected our strongest introduction ever of such product, together with Mary Kaye (sic) and Ashley (phonetic) branded products, contributing solid growth.

* * *

Worldwide Emerson branded product sales increased to $694 million from $433 million for the comparative nine-month period. Gross margin improved year-over-year on across the board increases in core product categories, reduced product return rates and continue (sic) to expand the licensing revenues.

* * *

Revenues grew 36 percent on continued expanded product placement. Essentially, successful was the growth of sales of audio and specialty branded products to our core account which is Wal-Mart and Target and recently entered accounts. Overall, gross margin slightly declined to 18 percent from 19 percent, primarily related to lowering licensing revenues, more than offsetting across the board improvement on our major core product categories.

* * *

Again, audio products and specialty branded product sales strengthened, thus more than compensating for a decline in unit sales of microwave ovens.

53. The statements contained in the conference call were false and misleading for

the reasons detailed in ¶¶ 28-32, and because they omitted material information concerning

the reasons behind the decline in microwave oven sales. Specifically, as detailed by CW-1

and CW-4, Target had redirected substantial business away from Emerson during this time

period. (See ¶ 28.) That Emerson had been chosen to fill Target’s prior orders was no longer

relevant given that Emerson had not been selected by Target following an e-procurement

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auction. Similarly, with the loss of Emerson’s key contact at K-Mart, that relationship was

also suffering. (See ¶¶ 34-36.) Accordingly, Mr. Corby omitted material information

concerning known trends with respect to declining revenue streams.

54. Following the January 29, 2003 press release and accompanying conference

call, analysts issued research reports regarding Emerson’s quarterly results and commented

favorably on the Company’s positive earnings announcement. For example, on January 30,

2003, Ferris, Baker Watts, Inc. rated Emerson a “Buy” and increased its target price by $3 to

$10, based on Emerson’s strong third quarter performance. Ferris Baker Watts reported that:

Even in a lukewarm economic environment, we believe Emerson’s management had the most efficient strategy for expanding lines, growing share and entering new markets by leveraging the Emerson trademark either by private branding of existing products or entering into licensing agreements for new products.

55. On February 10, 2003, the Company filed with the SEC its Form 10-Q for the

third-quarter of fiscal 2003, ended December 31, 2002. The Form 10-Q reported the

financial information related by the Company in the January 27th press release, and

accordingly, was false and misleading for the same reasons as those detailed in ¶¶ 18, 19, 28-

32, 34-36 and 50, above.

The Form 10-Q also stated:

Our license for the Hello Kitty brand expired on December 31, 2002. Through the promotion of our proprietary Girl Power branded theme products launched earlier this fiscal year, representing 3.8% of the nine month revenues in fiscal 2003, together with other future licensing opportunities, we believe the revenues earned form the sale of products subject to the Hello Kitty license agreement, representing 9.4% of the nine month revenues in fiscal 2003, can be replaced.

* * *

Gross profit margins continue to be subject to competitive pressures arising from pricing strategies associated with the product categories in which Emerson competes. Emerson’s products are generally placed in the low-to-medium priced category of the market, which is highly competitive.

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56. The above statements concerning the ability of Girl Power ™ branded items to

replace the revenues from the popular Hello Kitty® license line were also false for the

reasons detailed in ¶¶18-20, 45-47, above. Moreover, the Company’s statements concerning

it being “subject to competitive pressure” omitted material information concerning Target’s

and Wal-Mart’s decisions made as early as 2002, to scale back on Emerson products, as well

as problems with K-Mart. (See ¶28-32, 34-36, 50).

57. Defendants Jurick and Corby signed the Form 10-Q and each executed

certifications pursuant to Section 302 of the Sanbane-Oxley Act of 2002 (“Sox Certification”)

attesting to the accuracy of the information detailed in the document. Defendant Farnum also

signed the Form 10-Q.

58. On March 14, 2003, the Company filed with the SEC a Registration Statement

on Form S-3 that concerned Mr. Jurick’s proposed sale of 4.8 million shares of Company

stock, reducing his stake in the Company to 21 %. According to the Registration Statement,

Mr. Jurick intended to use the proceeds of the sale to satisfy a judgment entered against him

in the amount of $16.5 million, as a result of long standing litigation with a business partner

relating to Mr. Jurick’s takeover of Emerson approximately ten years prior.

59. The Registration Statement was signed by defendants Jurick, Corby, and

Farnum. Defendant Raab, premised on his senior position as the Chief Operating Officer,

was almost certainly directly involved with the drafting of the document and approving its

content, and was privy to information concerning the accuracy of the statements detailed in

the document.

60. The Prospectus attached to the Registration Statement stated the following:

In January 2003, we replaced our Hello Kitty® product line with our proprietary GirlPower ™ branded product line. Launched early last year, GirlPower ™ is aimed to meet the needs of the rapidly expanding teen girl’s marketplace. Through the promotion of our proprietary GirlPower ™ branded theme products launched earlier this fiscal year, together with future licensing,

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we believe the revenues earned from the sale of products subject to the Hello Kitty ® license agreement can be replaced.

61. The statements concerning Girl Power’s ™ ability to replace the Hello Kitty®

revenue stream were false for the reasons detailed in ¶18, 20, 45-47, 56, above.

62. The Registration Statement and Prospectus, as amended on June 16, 2003,

further detailed Emerson’s relationship with Target, K-Mart, and Wal-Mart. Under the

“Business Related Risks” section of the filing, the Company stated the following:

We are highly dependent upon sales of our consumer electronics products to certain of our customers, including Wal-Mart, Target and K-Mart. During our fiscal years ended March 31, 2002 and 2001, Wal-Mart stores accounted for approximately 22% and 41% respectively, Target stores accounted for approximately 19% and 14%, respectively, and K-Mart accounted for less than 10% of our consolidated net revenues for such periods. Although no other customer in either of our operating segments accounted for greater than 10% of our consolidated net revenues during these periods, other customers may account for more than 10% of our consolidated net revues in future periods. All purchases of our products by customers in both of our operating segments are made through purchase orders and we do not have any long-term contracts with any of our customers. The loss of customers such as Wal-Mart, Target or K-Mart or any of our customers to which we sell a significant amount of our products or any significant portion of orders from Wal-Mart, Target or K-Mart or such other customers or any material adverse change in the financial condition of such customers could materially adversely affect our business, results of operations and financial condition.

63. The above statement was false and misleading for the reasons detailed in ¶¶

28-32, 34-36, 50, 56.

64. The falsity of the statements in the Registration Statement and the Amended

Statement (collectively “S-3”) is further evidenced by CW-1’s and CW-4’s information

concerning Target’s decision - - well before the filing date of the S-3-- to scale back on

Emerson merchandise and that Emerson had been outbid by an Asian concern and,

accordingly, Emerson’s sales of microwave ovens would be materially slower in subsequent

quarters.

65. The S-3 is misleading in additional respects. It states that the Company is not

party to long-term contracts with customers like Wal-Mart, Target, or K-Mart; indeed, the S-

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3 states the Company sells its products to retailers pursuant to purchase orders. As a result,

the loss of one of the three big retailers as a customer, or any significant limitation in the

relationship, would have an almost immediate negative impact on the Company’s earnings.

Thus, the Company’s failure to disclose Target’s decision to scale back on Emerson

merchandise was both a material omission and a failure to disclose a known downward

business trend. Specifically, the S-3 misleadingly states that the Company might suffer if it

lost one of its major retailing customers. In fact, the Company’s relationship with one of

these customers - - Target - - had already suffered and the negative effect would be

immediately significant given that there was no-fixed term contract with Target for Emerson

to fall back on for several fiscal quarters until a replacement customer could be found.

66. The S-3 also failed to disclose that Emerson’s business relationship with K-

Mart was severely harmed in early 2003, when the K-Mart Vice President who previously

purchased goods from Emerson, left the Company. After the Vice-President’s departure, K-

Mart significantly reduced the volume of its purchases from K-Mart. See ¶¶ 34-36.

67. Ferris Baker Watts, the analysts who raised their target price on Emerson’s

stock following its third quarter 2003 earning announcement (¶ 54), is listed on the

Registration Statement as the underwriter for the Offering.

68. On March 18, 2003, Dow Jones Newswire published an article entitled “Risky

Business: Past Static, Emerson Radio Crystal Clear.” The articled touted the Company’s

prospects and attributed certain positive statements concerning the Company to Mr. Corby.

With respect to GirlPower’s ™ ability to offset lost revenues, the articled stated:

Hello Kitty had under $20 million a year in sales, [analyst Stevens] Monte says and Emerson’s new proprietary GirlPower line is doing great, so losing Hello Kitty isn’t a worry. CFO Corby says GirlPower was the most successful themed-product launched in its history, and he sees it at least being as big for it as was the cute, 30 year old cat.

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With respect to relations with Wal-Mart, K-Mart, and Target:

Corby says relationships with the three are sound and it hopes to increase total sales to them, but it hopes their businesses represent smaller portions of overall sales in the future.

69. Mr. Corby’s statements concerning the GirlPower™ revenue stream and

relations with the major retailers were false for the reasons detailed above in ¶¶ 18-20, 28-32,

34-36, 45-47, 50, 56, 61, 63.

70. On March 31, 2003, the Associated Press reported that Judge Mac Kenzie

issued an order barring Mr. Andriani from selling any Hello Kitty® products. As reported in

the Newark Star Ledger on April 1, 2003, Judge Mac Kenzie held:

Since Andriani has apparently used a significant degree of proprietary and confidential information in both obtaining and exploiting the “Hello Kitty” license, it is fair to conclude that Andriani would continue to use the same, absent intervention from the court.

71. On June 16, 2003, the Company filed Amendment No. 1 to Form S-3,

originally filed on March 14, 2003 with the SEC, concerning the sale of Mr. Jurick’s four

million shares of Company stock. The Amended Form S-3 contained the same information

concerning the significance of the GirlPower™ line and the Company’s relations with K-

Mart, Wal-Mart, and Target. Accordingly, these statements were false and misleading for the

same reasons detailed in ¶¶ 18-20, 28-32, 34-36, 45-47, 50, 53, 56, 61, 63. The Amended S-3

was signed by, among others, defendants Jurick, Corby, and Farnum. Mr. Raab’s

responsibilities for the contents of this and similar documents is detailed at ¶ 59.

72. Emerson’s fiscal year ended on March 31, 2003, however, the Company

announced that its filing of its 10-K would be delayed, and was not announced until July 14,

2003. When the Company finally announced its 2003 year end results on July 14th, the first

quarter of fiscal year 2004 had already closed two weeks earlier.

73. On July 14, 2003, the Company published its results for the fourth quarter and

fiscal 2003 year-end results over the Business Wire. The Company’s fiscal year ended March

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31, 2003. Emerson reported “continued strength in consumer electronics segment” and “solid

margin improvement” in both its Consumer Electronics and Sporting Goods segments.

74. Mr. Jurick commented on the announcement, stating in pertinent part as

follows:

This has been a successful year for Emerson on several fronts. A combination of efforts focused on increasing revenues through expanded offerings of core and themed products, additional retail store placements and strengthening our licensee network have provided solid top line results. We are pleased with the performance of the consumer electronics business in several key areas. Gross margins continued expanding through the introduction of new models and the use of several inward license agreements. Additionally, outward licensing revenues continue to grow significantly on several fronts domestically and internationally. (emphasis added)

We are pleased that our continued progress was favorably noted by a number of financial institutions during the course of last year leading to a substantial increase in the market value of our company.

75. Defendant Corby also commented on the announcement, stating in relevant

part as follows:

Emerson’s consolidated results reflect solid performance in several fundamental financial measurements. Annual branded revenues exceeded $900 million globally, representing a 45% improvement over last year’s already solid growth. More and more product is being placed into retailers and directly marketed, utilizing various media, to consumers, thus creating continued and growing brand awareness. Themed products performed well and we look towards fiscal 2004 with the intent to fully leverage Girl Power™ and the newly entered license agreement with Nickelodeon featuring several of the related popular characters.

Looking forward, in the June quarter we expect June revenues to be slightly below last year’s strong performance due to several factors . . . . In spite of this, we still believe that the full year revenue on a consolidated basis will remain strong. (emphasis added)

76. That same day, Emerson filed its 2003 Annual Report on Form 10-K for fiscal

year 2003 with the SEC, repeating the previously announced financial results.

77. Defendants Jurick and Corby signed the Form 10-K and each executed a Sox

Certification attesting to the accuracy of the document. Defendant Farnum also signed the

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Form 10-K. Mr. Raab’s responsibility for the accuracy of the Annual Report’s content is

detailed in ¶ 59.

78. The 2003 Form 10-K repeated certain statements, detailed above, concerning

the Company’s relationships with Target, Wal-Mart, and K-Mart:

Wal-Mart Stores accounted for approximately 23% and 21%; Target Stores accounted for approximately 17% and 19%; and K-Mart accounted for approximately 11% and 6% of our consolidated net revenues in fiscal 2003 and 2002, respectively. No other customer accounted for more than 10% of our consolidated net revenues in either period Management believes that a loss of any one of the three customers listed above would have a material adverse effect on our business and results of operations.

* * *

The loss of any of our key customers, including Wal-Mart, Target and K-Mart, could negatively affect our revenues and could decrease our earnings.

We are highly dependent upon our sales of our consumer electronic products to certain of our customers, including Wal-Mart, Target and K-Mart. During our fiscal years ended March 31, 2003 and 2002, Wal-Mart stores accounted for approximately 23% and 21%, respectively, Target Stores accounted for approximately 17% and 19%, respectively, and K-Mart accounted for approximately 11% and 6%, respectively. Although no other customer in either of our operating segments accounted for greater than 10% of our consolidated net revenues during these periods, other customers may account for more than 10% of our consolidated net revenues in future periods. All purchases of our products by customers in both of our operating segments are made through purchase orders and we do not have any long-term contracts with any of our customers. The loss of customers such as Wal-Mart, Target and K-Mart or any of our other customers to which we sell a significant amount of our products or any significant portion of orders from Wal-Mart, Target or K-Mart or such other customers or any material adverse change in the financial condition of such customers could negatively affect our revenues and decrease our earnings.

The failure to maintain our relationships with our licensees and distributors or the failure to obtain new licensees or distribution relationships could negatively affect our revenues and decrease our earnings.

79. The statements in the 2003 Form 10-K, filed on July 14, 2003 were false and

misleading for the reasons detailed in ¶¶ 28-32, 34-36, 50, 56, 61, 63. In addition, according

to CW-1, by early 2003, Emerson was told by Wal-Mart and Target that they were

significantly cutting back on orders, especially within the microwave section and that these

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retailers were actively seeking new strategic partners. According to CW-1, microwave sales

accounted for nearly $80 million annual revenues with approximately $60 million stemming

from Wal-Mart sales and $20 million from Target. CW-4 also stated that Target was

responsible for approximately $20 million annually in microwave sales. Again, the 10-K

stated that “all purchasers” of our products are pursuant to purchase orders, not long-term

contracts. Premised on CW-1’s information, by early 2003, Wal-Mart and Target had cut

back on purchasing Emerson products. Accordingly, the effect on earnings was immediate

and the Annual Report’s failure to disclose this rendered it false.

80. In addition, the statements about K-Mart were false and misleading because,

as described in ¶¶ 34-36, the Company already knew as of early 2003, that it lost a large

portion of its K-Mart sales due to the loss of its key contact at K-Mart.

81. The same day Emerson management held a conference call to elaborate on

their earnings announcement and annual report. This conference call concerning year end

2003 results, took place after the close of the first quarter of fiscal year 2004 (June 30).

Defendants Jurick and Corby both participated on the call. Mr. Corby addressed the growth

of both Emerson’s in-licensing and out licensing revenues:

JIM WINDLE, ANALYST, FOTHER LANE ASSET MANAGEMENT: Ken I wondered if you could give a little more detail about the licensing revenue, how much was inbound, how much was outbound, and what’s the over the year the growth and SKUs and in things like the NASCAR and the Mary Kate and Ashley lines were?

KENNETH CORBY: On an outbound licensing basis our licensing revenues increased to about $10.3m this year versus $7.4m last year. In the branded products associated with it, increased from about $325m last year to just north of $600m this year. So the shelf space that we’re gaining indirectly through these various licensing agreements primarily from our video license agreement with Funi(ph) which covers Televisions and VCR’s and DVD’s, combo units, flat screen television, the traditional CRT television sets, are all benefiting us in a significant manner. Additionally we have a license agreement in Europe for our H.H. Scott brand name that we saw a 62% increase in product placements. So we’re seeing nice growth in last year’s outbound licensing agreement both in a license fee as well as the [additional] product placement.

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* * * *

On an inbound license agreement, basis, this past year Nascar, we did approximately $3m worth of brand and product sales and Mary Kate and Ashley dealt exclusively through Wal-Mart, we did a little more than $7m. . . .

82. Mr. Jurick fielded questions from analysts regarding the Company’s revenue

outlook for the remainder of the year:

MICHAEL DURINSKY: I’m wondering if you can provide a little bit more color to your revenue outlook for the rest of the year. Do you expect that you’ll be able to more than make up for the June drop-off that have year over year increasers[sic]? Or how do you see that playing out over the year?

GEOFFREY JURICK: I do believe that we have about six to eight different programs that could be quite dynamic over the next eight months or so. Some of them are very close, some of them are not that certain yet. But I do hope that we can do better this year than we did last year. . . . I’m quite optimistic that we’ll do better than this year –last year. I see -- but I cannot tell you exactly where we’re to be in a year from now.

* * * *

GEOFFREY JURICK: Yes, we’re facing a down quarter here which to some extent exactly what we put in our press release mainly that you are dealing with a sluggish economy. You are dealing with a lot of demands by retailers to deliver just in time, which means more domestic shipments . . . . So we’ve had a push back, but I’m pretty confident we’ll make it up in the course of the year.

JEFF OPHEL: Alright.

GEOFFREY JURICK: So I’m not negative at all. It’s just that this quarter has to be seen as a you know deferral quarter.

83. Mr. Corby also responded to questions about the Company’s upcoming June,

1st Quarter fiscal year ’04 earnings:

RICHARD WISENT, ANALYST, ATLAS CAPITAL: [Y]ou mentioned how revenues for the June quarter would be down versus last year. What were earnings last year for the June quarter and what’s your guesstimate on how the June quarter earnings this year may stack up versus that?

KENNETH CORBY: Well, June quarter year we did approximately $83m in revenues and our earnings per share after giving effect to the (inaudible) for the goodwill would be a negative 10 cents for June of ’02. That being said, we certainly don’t expect our net income last year was $2.7m before the write off of our goodwill.

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That being said, I think it is important to understand somebody that actually works on these deferrals that are going on. We first saw this in December of 2000 where the buyers at the major retailers really ranged back the working capital, really pushed down very heavily on inventory levels and subsequently, in the March of ’01 quarter due to stock outs that underselling and the loss of sale in the December quarter because of under-buying, we’ve saw a big influx of buyer request come in from the retailers.

We’re seeing that - -now we’re seeing that delay happen again, we’re seeing a mass of push down working capital levels coming back from the retailers. This year, we’re not seeing that benefit in the March quarter but certainly now we’re seeing it- - I’m sorry, we’re not seeing the June quarter but we certainly are receiving a lot of pressure from the retailers now to ramp up inventories because of stock out situations etc. So, we are very confident that the revenues will recover in the September quarter but on the full year - - but for a dollar target, I really don’t want to get into that right now and I don’t want to look beyond that except to say, as Mr. Jurick iterated earlier, you know, we are very confident that we just are going to continue to have another strong year.

84. These positive statements concerning the Company and its prospects were

false and misleading for the reasons detailed in ¶¶ 18-20, 28-32, 34-36, 45-47, 50, 56, 61, 63,

above.

85. In addition, Corby’s comments about the contribution of revenues from the

Mary Kate and Ashley license, as well as the NASCAR license were also misleading because

Mr. Corby failed to make any mention of the fact that less than one month later Emerson

planned to terminate both licenses. Significantly, Messrs. Corby and Junick issued these

statements concerning 1st quarter results (the quarter ended June 30) after the quarter had

already been over for 14 days.

86. Within two weeks after Emerson’s upbeat conference call on July 14th,

Defendants Raab and Farnum began unloading thousands of their personally held shares of

Emerson common stock on the unsuspecting market.

87. Defendant Raab embarked on a selling spree beginning July 23, 2003 and

continued over the next four trading days, when he dumped all of his shares in less than one

week, including a sale of 20,966 shares on July 28, 2003, alone.

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88. Defendant Farnum went on a similar selling spree beginning July 23, 2003

where he sold over 24,000 shares of his Emerson stock in less than one week, including

10,000 shares on July 28th, alone.

89. Plaintiff Niss purchased 18,000 shares of Emerson common stock on July 28,

2003, just as Defendants Raab and Farnum sold their shares, and only two weeks before

Emerson would announce its shocking quarterly earnings.

THE TRUTH IS REVEALED

90. On August 12, 2003, one month after the conference call where defendant

Corby stated Emerson would “continue to have another strong year,” Emerson shocked the

investing public when it released its financial and operational results for the first quarter of

fiscal year 2004, ended June 30, 2003, announcing a 44.3% decline in revenue in its

Consumer Electronics segment and a 20% decline in licensing revenue, year-over-year.

91. The press release stated, in pertinent part, as follows:

Consumer Electronics Segment - Revenue Decline

Net Revenues decreased 44.3% to $31.6 million from $56.8 million due to a decline in revenues in all product categories, a decline in licensing revenues and increases in product returns. Gross margins decreased to 15.9% in the current quarter from 18.1% in the same year over year period associated with gross margin improvements in audio products more than offset by declines in microwave oven products and the decline in sales of higher margin themed products. A net loss of $506,000 was incurred for the three month period as compared to net income of $2.5 million for the same year ago period.

Geoffrey P. Jurick, Chairman & Chief Executive Officer of Emerson Radio, stated, “Our consumer electronics segment was impacted by the prolonged slow down in consumer spending in our industry. Store closures by K mart negatively affected revenues compared to last year’s levels with fewer sell through locations for our products. This, combined with reductions in inventory levels maintained by some of our larger accounts in a shift to more just-in-time stocking further contributed to the revenue decline. Additionally, uncertainties concerning of the Iraq war and the SARS outbreak affected our business domestically as well as internationally.”…

Mr. Corby concluded, “It is too difficult to comment on the full year due to the uncertainties being brought about by prolonged and continued economic pull back in consumer spending and by continued conservative retailer buying patterns. Recent statistical data suggest tax cuts, tax refund checks and cautious

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spending by consumers on lower priced products is beginning to look positive. We expect September quarter revenues to be lower than last year’s same period strong revenues due to these various factors.”

92. Investor reaction was swift and unequivocal, with Emerson’s common stock

falling more than 49% on August 12, 2003, on heavy volume.

93. In a conference call held later on August 12, 2003 analysts and investors

vented their anger that none of the bad news was hinted at in a call just one month ago, after

the June ’03 quarter had already closed. Both defendants Jurik and Corby were on the

call.

“[Y]ou basically have dropped a bomb this morning, the stock price reflects that” said Mark D. Cooper, president of the investment firm Benson Associates in Portland, Ore.

Besides the problems with the income statement, Cooper said growing inventories and negative cash flow made the company appear to “rapidly becoming cash-poor and that is not a good sign” despite rising total assets.

94. Stevens Monte an analyst from Sky Capital also voiced his concerns about the

faltering of Emerson’s highly touted out-licensing revenues:

STEVE MONTY (ph): How much merchandise was sold by others who were licensees of the Emerson brand name and how does that compare with the year ago quarter?

KENNETH CORBY: A year ago the volume that the brands that were sold is actually up very slightly. It’s up very, very slightly. The licensing revenues associated with it are down slightly.

And again, competitive pricing issues primarily in the video category which includes the televisions, the VCRs and DVD type entities, is where the slight decline is coming from.

STEVE MONTY (ph): I’m a little confused, in your year end press release there was a comment in there about the out (INAUDIBLE) licensing revenue continues to grow significantly on several fronts domestically and internationally. Now a month later or less than a month later you are telling us that there was a slight increase?

95. Mr. Monte also questioned when Emerson first became aware that the SARS

epidemic would materially impact the Company’s revenues.

STEVE MONTY (ph): When did you become aware of the impact of SARS?

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GEOFFREY JURICK: It was -- we did not know the impact -- we could not judge how long it would take and the overall impact it was just one of those -- it was an act of God problem.

STEVE MONTY (ph): When did you become aware of this impact?

GEOFFREY JURICK: We knew that the SARS was a problem already in March.

STEVE MONTY (ph): Certainly didn’t come across that way in the July 14th conference call.

96. Mark Cooper of Benson Associates also noted that on the previous conference

call on July 14th, the Company was very upbeat and did not disclose that it was terminating

both its NASCAR and Mary Kate and Ashley product lines.

97. The August 12th conference call was also the first time Emerson disclosed that

the K-Mart store closures made in early 2003 affected Emerson’s revenues and the Company

would continue to see that effect through the September quarter.

98. Analysts and investors alike were frustrated with the Company’s lack of

transparency about its current earnings, and demanded a sense of what to expect for the

upcoming September, fiscal ’03 quarter:

MARK COOPER (ph): Look, let me ask you this, Ken. We are here in the middle of August right now. So you should have a pretty good idea of what your September quarter is going to look like.

KENNETH CORBY: We do have a good understanding of what our September quarter looks like.

And last year we did approximately $115 million of revenues in the September quarter. And this year we were looking at a range of about 25% less for consolidated revenues for our September quarter.

99. The frustration expressed by investors and analysts during the August 12th

conference call was summed up in Mark Cooper’s final questions to Emerson management:

MARK COOPER: It’s difficult to take your last comments in the context that the last conference call was in the middle of July, which, unless your systems are extremely slow, and based on what you told me they are not, you pretty much had a good idea of what this revenue shortfall was going to be. And looking at the transcripts of the last call, there were a number of questions about the level of the drop-off that we would be anticipating. And it just

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seems to me that, you know, 45% reduction in sales is probably something that we would have expected to have highlighted to some extent, especially given the momentum that the company had developed.

* * * *

If you just start putting the pieces together, one can come up with something that has the appearance, of some, of less than transparency, especially given those auction sales that appeared post the conference call when the third quarter or this quarter sales should have been fairly well-known internally, at least.

And those things just ultimately spell bad decision making in terms of communicating with your shareholders. I would just encourage you to be more transparent because the results are what happens today with the stock price now. Credibility of your communications has been damaged to some extent. And the odds are, the odds are that this is not the first shoe to drop. I hope that you buck that trend.

100. Defendants Jurick and Corby’s comments made during the July 14th

conference call are made even more misleading by the fact that Emerson’s management

admitted in their August 12th call that they have a good understanding of what a quarter looks

like a month and a half prior to the quarter’s end. Yet, Corby and Jurick’s comments made

on the July 14th call, regarding the June quarter, which closed two weeks earlier were falsely

positive and inaccurate.

101. Analysts and investors also were angered by the fact that some of the

Company’s top officers had exercised options and sold large amounts stock after the upbeat

July conference call, when the tenor of impending bad news should have been known inside

the Company.

102. After the disastrous August 12th conference call analysts were quick to pounce

on the conduct of Emerson’s management. For example, Ferris, Baker Watts’s August 21,

2003 report stated the following:

We believe the loss of the [Hello Kitty®] license and its effect on revenue does not reflect well on the Emerson team; the license was cancelled by the licensor and assigned to an executive that departed the company. The sale of stock by an officer and director of the company is indefensible. Misstatements on investor conference calls, which required an 8-K filing to clarify, did not

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help their cause. Finally, the magnitude of the first quarter revenue decline is cause for concern. (emphasis added).

103. Analysts blamed the loss of consumer product revenues on Emerson’s audio

and microwave product fall-offs, the loss of the Hello Kitty® license, and the consolidation

of K-Mart, which resulted in a significant decline in orders from one of Emerson’s largest

customers.

Emerson’s Financial Statements Violated GAAP

104. The Company’s Class Period Financial Statements were not prepared in

accordance with GAAP because they failed to disclose known negative trends that would

materially impact the Company’s revenues. Specifically, as detailed above, on August 12,

2003, Defendants shocked the market by announcing that the Company’s Fiscal 2004 First

Quarter financial results were going to be well below what investors had been led to believe.

A component of the disclosure that caused the decline in the Company’s stock price was that

Emerson’s revenues in their Consumer Electronics segment were being adversely impacted

by the Company’s relationship with K-Mart.

105. That same day, Emerson held a conference call addressing the issues

contained in the August 12, 2003 press release. On that call, defendant Corby stated that

“store closures made by K-Mart earlier this year are expected to affect us through the

September quarter” and in conflicting fashion, that “K-Mart, as we mentioned, their store

closures last year affected us and we continue to see that [e]ffect through the September

quarter.” (emphasis added).

106. However, as described above in ¶¶ 34-36 above, the main reason for the

decline of sales to K-Mart was not K-Mart’s store closings, but rather because Emerson lost

its key relationship partner at K-Mart in early 2003 and with him, a large portion of K-Mart’s

purchase orders.

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107. Emerson’s Form S-3 filed with the SEC on March 14, 2003 and Form 10-K

filed with the SEC on July 11, 2003 for the fiscal year ended March 31, 2003, list K-Mart as

Emerson’s third largest customer. Yet the August 12, 2003 press release and conference call

were the first discussions by Emerson of any problems with K-Mart and its impact on the

Emerson’s revenues – despite their admitted knowledge of the problem “last year.”

Furthermore, Emerson’s August 12th disclosures did not even disclose the primary reason for

the decline in sales to K-Mart, loss of a key vice-president, knowledge that Company

management had since at least early 2003.

108. Known business trends of this nature that will prove detrimental to the

Company must be disclosed. For example, under Item 303 of Regulation S-K, promulgated

by the SEC under the Exchange Act, there is a duty to disclose in periodic reports filed with

the SEC “known trends or any known demands, commitments, events or uncertainties” that

are reasonably likely to have a material impact on a company’s sales revenues, income or

liquidity, or cause previously reported financial information not to be indicative of future

operating results." 17 C.F.R. § 229.303(a)(1)-3(3) and Instruction 3.

109. Similarly, SEC Staff Accounting Bulletin No. 101 - Revenue Recognition in

Financial Statements, 17 C.F.R. 211, premised in part on Item 303 of Regulation S-K, states,

in revelant part:

Management's Discussion and Analysis (MD&A) requires a discussion of liquidity, capital resources, results of operations and other information necessary to an understanding of a registrant's financial condition, changes in financial condition and results of operations. This includes unusual or infrequent transactions, known trends or uncertainties that have had, or might reasonably be expected to have, a favorable or unfavorable material effect on revenue, operating income or net income and the relationship between revenue and the costs of the revenue. Changes in revenue should not be evaluated solely in terms of volume and price changes, but should also include an analysis of the reasons and factors contributing to the increase or decrease. The Commission stated in Financial Reporting Release (FRR) 36 that MD&A should "give investors an opportunity to look at the registrant through the eyes of management by providing a historical and prospective analysis of the registrant's financial condition and results of operations, with a particular

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emphasis on the registrant's prospects for the future." Examples of such revenue transactions or events that the staff has asked to be disclosed and discussed in accordance with FRR 36 are:

* * *

Changing trends in shipments into, and sales from, a sales channel or separate class of customer that could be expected to have a significant effect on future sales or sales returns. (footnotes omitted).

110. In addition to the periodic reports required under the Exchange Act,

management of a public company has a duty promptly “to make full and prompt

announcements of material facts regarding the company’s financial condition.” Timely

Disclosure of Material Corporate Developments, Exchange Act Release No. 34-8995, 17

C.F.R. § 241.8995 (1970). The SEC has emphasized that “[i]nvestors have legitimate

expectations that public companies are making, and will continue to make, prompt disclosure

of significant corporate developments.” Report of Investigation in the Matter of Sharon Steel

Corp. as it Relates to Prompt Corporate Disclosure, Exchange Act Release No. 34-18271,

[1981-1982 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 83,049, at 84,618.

111. Moreover, SEC Regulation SX requires that financial statements filed with the

SEC conform with GAAP. Financial statements filed with the SEC which are not prepared in

conformity with GAAP are presumed to be misleading or inaccurate. 17 C.F.R. §

210.401(a)(1).

112. The Company’s financial statements that were disseminated to the investing

public during the Class Period, and represented that the Company’s financial position and

results of operations were prepared in conformity with GAAP, were false and misleading

because they constituted an extreme departure from GAAP -- the Company expected to lose

much of its sales to K-Mart, its third biggest customer, and had known of this loss in

purchase orders since the Vice President of K-Mart left in early 2003, yet failed to disclose

this material information to investors.

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113. Moreover, in violation of GAAP, the MD&A section in the Company’s Form

10-K, filed July 14, 2003, failed to disclose this known, adverse trend. Instead, elsewhere in

the Form 10-K there is a perfunctory statement about the business related risks of a potential

loss of K-Mart as a customer:

BUSINESS RELATED RISKS

The loss of any of our key customers, including Wal-Mart, Target and K-Mart, could negatively affect our revenues and could decrease our earnings.

We are highly dependent upon sales of our consumer electronic products to certain of our customers, including Wal-Mart, Target and K-Mart. During our fiscal years ended March 31, 2003 and 2002, Wal-Mart stores accounted for approximately 23% and 21%, respectively, Target stores accounted for approximately 17% and 19%, respectively, and K-Mart accounted for approximately 11% and 6%, respectively. Although no other customer in either of our operating segments accounted for greater than 10% of our consolidated net revenues during these periods, other customers may account for more than 10% of our consolidated net revenues in future periods. All purchases of our products by customers in both of our operating segments are made through purchase orders and we do not have any long-term contracts with any of our customers. The loss of customers such as Wal-Mart, Target or K-Mart or any of our other customers to which we sell a significant amount of our products or any significant portion of orders from Wal-Mart, Target or K-Mart or such other customers or any material adverse change in the financial condition of such customers could negatively affect our revenues and decrease our earnings.

114. This statement was false and misleading, and in violation of GAAP, because,

inter alia, it (i) describes the loss of K-Mart’s business as a potential risk rather than a present

actuality; (ii) fails to make any reference to the departure of the key executive K-Mart and the

resultant order loss, as well as the expected impact on the Company’s revenues; and (iii) fails

to disclose that by no later than February 2003, management at Emerson considered K-Mart’s

prospects as a future revenue generator to be poor and believed that K-Mart was not likely to

be a long-term customer in the future.

115. Emerson failed to identify other known trends that negatively impacted the

Company’s revenues. For example, the Company failed to identify that the loss of the Hello

Kitty® license in December, 2002, would result in a loss of licensing revenues beginning in

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the fourth quarter of fiscal year 2003, and carry over into fiscal year 2004, and failed to

classify it as a known negative trend in any of its financial statements filed during the Class

Period.

116. Emerson’s 10-Q for the third quarter of fiscal year 2003, filed on February 10,

2003, briefly mentions the loss of the Hello Kitty® license in its MD&A section:

Our license for the Hello Kitty brand expired on December 31, 2002. Through the promotion of our proprietary Girl Power branded theme products launched earlier this fiscal year, representing 3.8% of the nine month revenues in fiscal 2003, together with other future licensing opportunities, we believe the revenues earned form the sale of products subject to the Hello Kitty license agreement, representing 9.4% of the nine month revenues in fiscal 2003, can be replaced.

117. This disclosure failed to address the fact that Emerson had no alternative

license in its pipeline at the time that could replace the revenues brought in by Hello Kitty®,

and therefore it was very likely that the Company would face a significant shortfall in

licensing revenues in the quarters to come.

118. Similarly, the Form S-3 filed on March 14, 2003 noted the loss of the Hello

Kitty® line but again filed to disclose that this caused and would continue to cause a shortfall

in licensing revenues:

In January 2003, we replaced our Hello Kitty® product line with our proprietary Girl Power ™ branded product line. Launched early last year, Girl Power ™ is aimed to meet the needs of the rapidly expanding teen girl’s marketplace. Through the promotion of our proprietary Girl Power ™ branded theme products launched earlier this fiscal year, together with future licensing, we believe the revenues earned from the sale of products subject to the Hello Kitty ® license agreement can be replaced.

119. Finally, Emerson’s Form 10-K for the fiscal year 2003 touted the success of

the Girl Power™ license, but again failed to disclose that the revenues generated from Girl

Power were not nearly enough to compensate for the loss of revenues from Hello Kitty®.

120. Emerson’s financial statements were false and misleading, and in violation of

GAAP because, inter alia: (i) the statements failed to describe the loss of a significant

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amount of in-licensing revenues due to the Company’s loss of the Hello Kitty® line as a

present and continuing reality; and (ii) failed to disclose that management knew as early as

December, 2002, that this loss of revenues would affect the Company’s earnings through at

least the next four quarters.

121. Emerson also failed to disclose a known negative trend regarding the

Company’s continued loss of revenues from its sale of microwave products. As of March 31,

2003, microwave sales were estimated to account for 25-30% of Emerson’s product revenues.

122. In 2002, Emerson lost their e-procurement bid to manufacture microwaves for

Target stores in the year 2003. As a result, Target significantly scaled back the number of

models it ordered from Emerson for the year 2003.

123. Throughout the Class Period, Emerson’s financial statements disclosed only

that there was a slight decrease in revenues from microwave sales.

124. For example in the MD&A section of the Company’s 10-Q for the 3rd quarter

of fiscal year 2003, disclosed that:

increases in unit sales of audio products and sales of inward licensed products more than offset [ ] a slight decrease in unit sales of microwave over products.

125. Similarly, Emerson’s Form 10-K for fiscal year ending March 31, 2003, noted

only that “… unit sales of audio and themed products offset by a reduction in unit sales of

microwave oven products.”

126. These statements were false and misleading and in violation of GAAP,

because inter alia, (i) they describe the decline in revenues as a one-time occurrence, rather

than a known trend that would continue into the foreseeable future, (ii) they make no

reference to the fact that as early as 2002, Emerson management knew Emerson lost the e-

procurement bid for Target stores for 2003, and as a result there would be a significant

reduction of orders from Target; and (iii) since microwave sales accounted for up to 30% of

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the Company’s product revenues this would have a significant negative impact on the

Company’s revenues in the upcoming quarters.

127. In light of the foregoing, Emerson’s Class Period financial statements were

false and misleading and violated GAAP.

ADDITIONAL SCIENTER ALLEGATIONS

Insider Sales

128. In addition, Defendants’ scienter is further evidenced by defendants Raab’s

and Farnum’s sales of Emerson common stock. The following chart details the relevant

trading data:

Name Date(s) Number Sold % Beneficial Holdings Sold

$/Share Proceeds ($)

Raab 7/29/2003 16,667 100 6.30 105,002 7/28/2003 20,966 56 6.40 134,182 7/25/2003 19,000 48 6.30 119,700 7/24/2003 30,000 43 6.30 189,000 7/23/2003 13,367 16 6.30 84,212 Raab Total 100,000 632,096 Farnum 7/30/2003 4,000 34 6.25 25,000 7/28/2003 10,000 46 6.38 63,800 7/24/2003 5,000 19 6.31 31,550 7/23/2003 5,000 16 6.30 31,500 2/14/2003 10,000 23 6.40 64,000 Farnum Total 34,000 215,850

129. Defendant Raab’s sales were suspicious in both timing and amount. At the

time of these sales, Defendant Raab had been an officer of Emerson for more than 8 years,

yet he had never once sold any shares of Emerson. Then, over the course of less than a week

in late July, 2003, he sold over six hundred thousand dollars worth of Emerson stock -- the

entirety of his holdings. This is particularly suspicious in timing in that Raab’s sales

preceded the Company’s shocking disclosure on August 12, 2003 by a mere two weeks.

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Further, Raab’s sales followed the Company’s glowing announcement of its Fourth Quarter

and Annual 2003 financial results on July 14, 2003 by less than two weeks.

130. Defendant Farnum, a director of the Company, had substantial sales that are

suspicious in both timing and amount, and as such, are indicative of scienter. In particular,

Farnum had been a director of the Company for more than 11 years, yet had never once sold

shares of Emerson. Then, over the course of less than a week in late July, 2003, he sold over

one hundred fifty thousand dollars worth of Emerson stock. This is particularly suspicious in

timing in that Farnum’s sales preceded the Company’s shocking disclosure on August 12,

2003 by a mere two weeks. Further, Farnum’s sales followed the Company’s glowing

announcement of its Fourth Quarter and Annual 2003 financial results on July 14, 2003 by

less than two weeks. As detailed at ¶ 86, Plaintiff Niss purchased Emerson stock on the same

day the defendants Raab and Farnum sold their holdings in the Company.

131. Not surprisingly, after Emerson’s shocking disclosures on August 12, 2003,

during the Company’s earnings conference call, analyst Jeff Ophel of Alias Capital criticized

Raab’s and Farnum’s sales stating “[o]ne thing that’s troubling to me and some other

investors is all the insider sales….” In response, defendant Corby issued a blanket denial that

while “there may be a view that there were (sic) some sort of inside information, that is

simply not the case.” Unconvinced by Corby’s flat denial, analyst Mark Cooper of Benson

Associates chastised Corby, stating that based on the proximity of the Company’s July 14,

2003 call to the insider sales that “you pretty much had a good idea of what this revenue

shortfall was going to be. … And it just seems to me that, you know, 45% reduction in sales

is probably something that we would have expected to have [seen] highlighted to some

extent…” In closing, analyst Mark Cooper stated that as a result of the defendants conduct

that the “[c]redibility of your communications has been damaged to some extent.”

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132. Even more damning, is the August 21, 2003 analyst report of Ferris, Baker

Watts, Inc., the underwriter for defendant Jurick’s offering of common stock. In response to

Raab’s and Farnum’s sales of stock, FBW stated that the “sale of stock by an officer and

director of the company is indefensible” and accused defendants of “[m]isstatements on

investor conference calls.” (emphasis added).

The Jurick Offering

133. In May, 2002, a partial settlement of longstanding litigation4 involving Mr.

Jurick and several of his personal outside creditors was announced. Then, in March, 2003,

with respect to the remaining claims in the action, the United States District Court for the

District of New Jersey, entered judgment against Mr. Jurick and certain of his affiliates, in the

amount of $16.5 million. As such, as of March, 2003, it was known to defendants that Mr.

Jurick was liable for $16.5 million.

134. Because of Mr. Jurick’s staggering liability arising out of the aforementioned

judgment against him, it was necessary for Mr. Jurick to raise the funds to satisfy the

judgment. As such, Mr. Jurick and Emerson planned to conduct a public offering of Emerson

stock by Mr. Jurick. To that end, on March 17, 2003, Emerson announced the filing of a

Registration Statement on Form S-3 with the SEC relating to a public offering and sale of

shares by Jurick (the “Jurick Offering”). According to the Company’s Form S-3/A filed with

the SEC on June 16, 2003 (the S-3/A), the Jurick Offering covers a total of 4,817,321 shares

held personally by Jurick, including a 628,346 option granted to the underwriter, Ferris,

Baker Watts, to cover over-allotments.

135. According to the S-3/A, the proceeds from the Jurick Offering will be used to

satisfy the $16.5 million, as well as an additional $2.5 million in litigation expenses incurred

by Jurick and Emerson. The Jurick Offering has not yet been completed.

4 Emerson Radio Corp. v. Stelling, et al, No. 2:94-cv-03393-NHP (D.NJ)

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136. Jurick stated during the July 14, 2003 conference call that, in connection with

the filing of the Registration Statement, the SEC began a full review of the Registration

Statement and of Emerson itself.

137. The drop in stock price on August 12, 2003, along with the Company’s

contemporaneous announcement of a significant revenue shortfall, appeared to have signaled

the end of Mr. Jurick’s attempt to sell his shares, and no further word has been heard

regarding the offering. To date, Emerson has not filed any further updated Registration

Statements or completed the Jurick Offering.

138. An additional development in connection with the litigation and the Jurick

Offering was revealed on December 11, 2003. Since Jurick had not yet been able to

consummate the offering, and is bereft of funds to satisfy the judgment, United States District

Judge, Joel A. Pisano for the District Court of New Jersey, issued an order attaching Jurick’s

wages. Under the terms of the attachment Emerson is obligated to deduct and transmit to the

District Court a portion of Jurick’s wages before they are paid to him.

139. While the Jurick Offering was not successfully completed during the Class

Period, it is still indicative of Defendants’ scienter because, inter alia, Defendants had a

financial interest in ensuring that the Jurick Offering was rendered effective at the highest

possible price that the market would bear. To that end, Defendants knowingly concealed, or

recklessly disregarded the undisclosed adverse information set forth in detail above.

Post Class Period Actions Further Supporting The Claims

140. Defendants’ actions after the Class Period further evidence that their

statements were false and misleading, and that they acted with scienter. First, Emerson’s

revenues continued to be sharply down. For the quarter ending September 30, 2003,

revenues for Emerson’s consumer electronics segment declined 37% compared to the same

quarter one year earlier. Second, despite during the Class Period having filed both a

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Registration Statement and an Amended Registration Statement for Jurick to sell more than 4

million shares of Emerson stock to satisfy the judgment against him, the Defendants have not

filed a final Registration Statement or completed the registration process. Finally, and most

telling, in response to the analysts statements and criticism during the August 12, 2003

conference call about the Company’s lack of transparency and damaged credibility, the

Defendants responded in a November 14, 2003 press release (with Emerson’s financial

results for the quarter ending September 30, 2003), by stating “* * SCHEDULED

CONFERENCE CALL WILL NOT BE CONDUCTED * *” and that the Company is

“reevaluating its prior policy regarding such calls.”

CLASS ACTION ALLEGATIONS AND THE FRAUD-ON-THE-MARKET PRESUMPTION OF RELIANCE

141. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of all persons who purchased the common stock of

Emerson during the Class Period and who were damaged thereby (the “Class”). Plaintiff

Niss also brings this action for violations of Section 20A of the Exchange Act on behalf of a

subclass of all persons and entities who purchased Emerson common stock

contemporaneously with the sales of Emerson stock by the defendants Raab and Farnum

during the Class Period at the particular dates specified herein (the "Subclass"). The Class

and the Subclass are collectively referred to as the “Classes” where it is appropriate to do so.

142. Excluded from the Classes are Defendants, the officers and/or directors of the

Company, at all relevant times, members of their immediate families and their legal

representatives, heirs, successors or assigns and any entity in which Defendants have or had a

controlling interest.

143. Plaintiff Niss also bring this action on behalf of the Subclass of all persons or

entities who purchased Emerson stock during the Class Period on the same day(s) that the

Individual Defendants sold their stock. As discussed in ¶ 87, Plaintiff Niss purchased 18,000

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shares of Emerson stock on July 28, 2003, the same day defendants Raab and Farnum sold

their shares.

144. The members of the Classes are so numerous that joinder of all members is

impracticable. Throughout the Class Period, Emerson common shares were actively traded on

the AMEX. According to the Proxy filed by Emerson with the SEC on July 29, 2003, the

Company had 27,562,860 shares of common stock outstanding. While the exact number of

Class members is unknown to Plaintiffs at this time and can only be ascertained through

appropriate discovery, Plaintiffs believe that there are hundreds or thousands of members in

the proposed Classes. Record owners and other members of the Classes may be identified

from records maintained by Emerson or its transfer agent and may be notified of the

pendency of this action by mail, using the form of notice similar to that customarily used in

securities class actions.

145. Plaintiffs’ claims are typical of the claims of the members of the Classes as all

members of the Class are similarly affected by Defendants’ wrongful conduct in violation of

federal law that is complained of herein.

146. Plaintiffs will fairly and adequately protect the interests of the members of the

Classes and have retained counsel competent and experienced in class and securities

litigation.

147. Common questions of law and fact exist as to all members of the Classes and

predominate over any questions solely affecting individual members of the Classes. Among

the questions of law and fact common to the Classes are:

(a) whether the federal securities laws were violated by

Defendants’ acts as alleged herein;

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(b) whether statements made by Defendants to the investing public

during the Class Period misrepresented material facts about the business and

operations of Emerson; and

(c) to what extent the members of the Classes have sustained

damages and the proper measure of damages.

148. A class action is superior to all other available methods for the fair and

efficient adjudication of this controversy since joinder of all members is impracticable.

Furthermore, as the damages suffered by individual Class members may be relatively small,

the expense and burden of individual litigation make it impossible for members of the Classes

to individually redress the wrongs done to them. There will be no difficulty in the

management of this action as a class action.

149. At all relevant times, the market for Emerson’s securities was efficient for the

following reasons, among others:

(a) Emerson’s stock met the requirements for listing, and was

listed and actively traded on the AMEX, a highly efficient and automated market;

(b) As a regulated issuer, Emerson filed periodic public reports

with the SEC and the AMEX;

(c) Emerson regularly communicated with public investors via

established market communication mechanisms, including through regular

disseminations of press releases on the national circuits of major newswire services

and through other wide-ranging public disclosures, such as communications with the

financial press and other similar reporting services; and

(d) Emerson was followed by several securities analysts employed

by major brokerage firms who wrote reports, which were distributed to the sales force

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and certain customers of their respective brokerage firms. Each of these reports was

publicly available and entered the public marketplace.

150. As a result of the foregoing, the market for Emerson’s securities promptly

digested current information regarding Emerson from all publicly available sources and

reflected such information in Emerson’s stock price. Under these circumstances, all

purchasers of Emerson’s securities during the Class Period suffered similar injury through

their purchase of Emerson’s securities at artificially inflated prices and a presumption of

reliance applies.

INAPPLICABILITY OF THE STATUTORY SAFE HARBOR

151. The statutory safe harbor provided for forward-looking statements under

certain circumstances does not apply to any of the allegedly false statements pleaded in this

complaint. Many of the specific statements pleaded herein are not forward-looking

statements. To the extent there were any forward-looking statements, there were no

meaningful cautionary statements identifying important factors that could cause actual results

to differ materially from those in the purportedly forward-looking statements. Alternatively,

to the extent that the statutory safe harbor does apply to any forward-looking statements

pleaded herein, Defendants are liable for those false forward-looking statements because at

the time each of those forward-looking statements was made, the particular speaker knew that

the particular forward-looking statement was false, and/or the forward-looking statement was

authorized and/or approved by an executive officer of Emerson who knew that those

statements were false when made.

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COUNT I

Violation Of Section 10(b) Of The Exchange Act Against And Rule 10b-5

Promulgated Thereunder Against All Defendants

152. Plaintiffs repeat and reallege each and every allegation contained above as if

fully set forth herein.

153. During the Class Period, Emerson and the Individual Defendants, and each of

them, carried out a plan, scheme and course of conduct which was intended to and,

throughout the Class Period, did: (a) deceive the investing public, including Plaintiffs and

other Class members, as alleged herein; (b) artificially inflate and maintain the market price

of Emerson’s securities; and (c) cause Plaintiffs and other members of the Classes to

purchase Emerson’s securities at artificially inflated prices. In furtherance of this unlawful

scheme, plan and course of conduct, Defendants, and each of them, took the actions set forth

herein.

154. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made

untrue statements of material fact and/or omitted to state material facts necessary to make the

statements not misleading; and (c) engaged in acts, practices, and a course of business which

operated as a fraud and deceit upon the purchasers of the Company’s securities in an effort to

maintain artificially high market prices for Emerson’s securities in violation of Section 10(b)

of the Exchange Act and Rule 10b-5. All Defendants are sued either as primary participants

in the wrongful and illegal conduct charged herein or as controlling persons as alleged below.

155. In addition to the duties of full disclosure imposed on Defendants as a result of

their making of affirmative statements and reports, or participation in the making of

affirmative statements and reports to the investing public, Defendants had a duty promptly to

disseminate, truthful information that would be material to investors in compliance with the

integrated disclosure provisions of the SEC as embodied in SEC Regulation S-X (17 C.F.R.

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Sections 210.01 et seq.) and Regulation S-K (17 C.F.R. Sections 229.10 et seq.) and other

SEC regulations, including accurate and truthful information with respect to the Company’s

operations, financial condition and earnings so that the market price of the Company’s

securities would be based on truthful, complete and accurate information.

156. Emerson and the Individual Defendants, individually and in concert, directly

and indirectly, by the use, means or instrumentalities of interstate commerce and/or of the

mails, engaged and participated in a continuous course of conduct to conceal adverse material

information about the business, operations and future prospects of Emerson as specified

herein.

157. These Defendants employed devices, schemes and artifices to defraud, while

in possession of material adverse non-public information and engaged in acts, practices, and a

course of conduct as alleged herein in an effort to assure investors of Emerson’s value and

performance and continued substantial growth, which included the making of, or the

participation in the making of, untrue statements of material facts and omitting to state

material facts necessary in order to make the statements made about Emerson and its business

operations and future prospects in the light of the circumstances under which they were

made, not misleading, as set forth more particularly herein, and engaged in transactions,

practices and a course of business which operated as a fraud and deceit upon the purchasers

of Emerson’s securities during the Class Period.

158. The Individual Defendants’ primary liability and controlling person liability,

arises from the following facts: (a) the Individual Defendants were high-level executives and

directors at the Company during the Class Period; (b) the Individual Defendants were privy to

and participated in the creation, development and reporting of the Company’s internal

budgets, plans, projections and/or reports; and (c) the Individual Defendants were aware of

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the Company’s dissemination of information to the investing public which they knew or

recklessly disregarded was materially false and misleading.

159. The Defendants had actual knowledge of the misrepresentations and omissions

of material facts set forth herein, or acted with reckless disregard for the truth in that they

failed to ascertain and to disclose such facts, even though such facts were available to them.

Such Defendants’ material misrepresentations and/or omissions were done knowingly or

recklessly and for the purpose and effect of concealing Emerson’s operating condition and

future business prospects from the investing public and supporting the artificially inflated

price of its securities. As demonstrated by Defendants’ overstatements and misstatements of

the Company’s business, operations and earnings throughout the Class Period, Defendants, if

they did not have actual knowledge of the misrepresentations and omissions alleged, were

reckless in failing to obtain such knowledge by deliberately refraining from taking those steps

necessary to discover whether those statements were false or misleading.

160. As a result of the dissemination of the materially false and misleading

information and failure to disclose material facts, as set forth above, the market price of

Emerson’s securities was artificially inflated during the Class Period. In ignorance of the fact

that market prices of Emerson’s publicly-traded securities were artificially inflated, and

relying directly or indirectly on the false and misleading statements made by Defendants, or

upon the integrity of the market in which the securities trade, and/or on the absence of

material adverse information that was known to or recklessly disregarded by Defendants but

not disclosed in public statements by Defendants during the Class Period, Plaintiffs and the

other members of the Classes acquired Emerson securities during the Class Period at

artificially high prices and were damaged thereby.

161. At the time of said misrepresentations and omissions, Plaintiffs and other

members of the Classes were ignorant of their falsity, and believed them to be true. Had

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Plaintiffs and the other members of the Classes and the marketplace known of the true

financial condition and business prospects of Emerson, which were not disclosed by

Defendants, Plaintiffs and other members of the Classes would not have purchased or

otherwise acquired their Emerson securities, or, if they had acquired such securities during

the Class Period, they would not have done so at the artificially inflated prices which they

paid.

162. By virtue of the foregoing, Defendants have violated Section 10(b) of the

Exchange Act, and Rule 10b-5 promulgated thereunder.

163. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiffs

and the other members of the Classes suffered damages in connection with their respective

purchases and sales of the Company’s securities during the Class Period.

COUNT II

Violation Of Section 20(a) Of The Exchange Act Against The Individual Defendants

164. Plaintiffs repeat and reallege each and every allegation contained above as if

fully set forth herein.

165. The Individual Defendants acted as a controlling person of Emerson within the

meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level

positions, and their ownership and contractual rights, participation in and/or awareness of the

Company’s operations and/or intimate knowledge of the statements filed by the Company

with the SEC and disseminated to the investing public, the Individual Defendants had the

power to influence and control and did influence and control, directly or indirectly, the

decision-making of the Company, including the content and dissemination of the various

statements which Plaintiffs contends are false and misleading. The Individual Defendants

were provided with or had unlimited access to copies of the Company’s reports, press

releases, public filings and other statements alleged by Plaintiffs to be misleading prior to

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and/or shortly after these statements were issued and had the to prevent the issuance of the

statements or cause the statements to be corrected.

166. In particular, the Individual Defendants had direct and supervisory

involvement in the day-to-day operations of the Company and, therefore, are presumed to

have had the power to control or influence the particular transactions giving rise to the

securities violations as alleged herein, and exercised the same.

167. As set forth above, Emerson and the Individual Defendants each violated

Section 10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint. By

virtue of their positions each as a controlling person, the Individual Defendants are liable

pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of

Emerson’s and the Individual Defendants’ wrongful conduct, Plaintiffs and other members of

the Classes suffered damages in connection with their purchases of the Company's securities

during the Class Period.

COUNT III

Violation Of Section 20A Of The Exchange Act Against The Individual Defendants Raab and Farnum

168. Plaintiffs repeat and reallege each and every allegation above as if set forth in

full herein.

169. This claim is asserted against defendants Raab and Farnum pursuant to

Section 20A of the Exchange Act (15 U.S.C. 78t-l(a)) by plaintiff Niss and members of the

Subclass who purchased Emerson common stock contemporaneously with sales of the

Company's common stock by defendants Raab and Farnum.

170. During the Class Period, defendants Raab and Farnum were privy to

confidential information concerning the Company, its operations and business prospects,

including the material adverse information alleged herein. Notwithstanding their duty to

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refrain from trading in Emerson securities unless they disclosed the foregoing material

adverse facts, on July 28, 2003 Defendants Raab and Farnum, either directly or indirectly,

sold, in the aggregate, approximately $197,982.00, while in possession of material, adverse

non-public information as set forth above.

171. Defendants Raab and Farnum sold their shares of Emerson common stock as

alleged herein, at market prices artificially inflated by the nondisclosures and/or

misrepresentations of such materially adverse facts in the public statements released during

the Class Period.

172. Defendants Raab and Farnum knew that they were in possession of such

materially adverse information that had not been disclosed to the investing public, including

plaintiffs and members of the Subclass who purchased Emerson stock contemporaneously

with the sales by Messrs. Raab and Farnum. Before selling their stock to the public,

defendant Raab and Farnum were obligated to publicly disclose the known, material adverse

information.

173. By reason of the foregoing, defendants Raab and Farnum directly and

indirectly, by use of the means or instrumentalities of interstate commerce, the mails, and the

facilities of the national securities exchanges, employed devices, schemes, and artifices to

defraud, and engaged in acts and transactions and a course of business which operated as a

fraud or deceit upon members of the investing public who purchased Emerson stock

contemporaneously with the sales of the Company's stock by defendants Raab and Farnum.

174. As a result of Plaintiffs’ and the Subclass purchases of Emerson common

stock contemporaneously with defendants Raab’s and Farnum's sales of stock, such Plaintiffs

and the members of the Subclass suffered recoverable damages. Under Section 10(b) and

20A of the Exchange Act, these defendants are liable to plaintiffs, and all members of the

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Subclass who made contemporaneous transactions, for all profits gained and/or losses

avoided by them as a result of such transactions.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs pray for relief and judgment, as follows:

A. Determining that this action is a proper class action and

certifying Plaintiffs and the Class Representatives;

B. Awarding compensatory damages in favor of Plaintiffs and the

other Class members against all defendants, jointly and severally, for all damages

sustained as a result of defendants' wrongdoing, in an amount to be proven at trial,

including interest thereon;

C. Awarding Plaintiffs and the Classes their reasonable costs and

expenses incurred in this action, including counsel fees and expert fees; and

D. Such other and further relief as the Court may deem just and

proper.

JURY DEMAND

Plaintiffs hereby demand a trial by jury.

Dated: March 29, 2004 LITE DEPALMA GREENBERG & RIVAS, LLC

By: S/ Joseph J. DePalma Joseph J. DePalma (JD-7697) Susan D. Pontoriero (SP-0463) Two Gateway Center, 12th Floor Newark, New Jersey 07102 Telephone: (973) 623-3000 Facsimile: (973) 623-0858

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EPSTEIN, FITZSIMMONS, BROWN, GIOIA, JACOBS & SPROULS, P.C.

Andrew R. Jacobs (AJ-6271) 245 Green Village Road P.O. Box 901 Chatham Township, New Jersey 07928-0901 Telephone: (973) 593-4900 Facsimile: (973) 593-0179

Plaintiffs’ Co-Liaison Counsel

WOLF HALDENSTEIN ADLER

FREEMAN & HERZ LLP Gregory Mark Nespole (GN-6820)

David L. Wales (DW-6912) Stacey T. Kelly (SK-3339) 270 Madison Avenue New York, New York 10016 Telephone: (212) 545-4600 Facsimile: (212) 545-4758

SCHIFFRIN & BARROWAY, LLP Gregory Castaldo (GC-3322) Christopher L. Nelson (CN-9002) Three Bala Plaza East, Suite 400 Bala Cynwyd, PA 19004 Telephone: (610) 667-7706 Facsimile: (610) 667-7056

Plaintiffs’ Co-Lead Counsel

LAW OFFICES OF MARC S. HENZEL Marc. S. Henzel 273 Montgomery Avenue, Ste. 202 Bala Cynwyd, PA 19004 Telephone: (610) 660-8000 Facsimile: (610) 660-8080

G:\DePalma\D1820\0303\Pleadings\Amended Complaint.DOC

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EXHIBIT A

Case 2:03-cv-04201-JLL-RJH Document 21-2 Filed 03/29/2004 Page 1 of 2

MSN Emerson Radio Corp. 3/29/2004 9:53 AM

Last: Change: Open: High: Low: Volume:

0.04 3.48 3.49 3.48 3,500 Percent Change: Yield: P/E Ratio: 52 Week Range: 3.49

1.16% n/a 9.69 2.47 to 7.88

Case 2:03-cv-04201-JLL-RJH Document 21-2 Filed 03/29/2004 Page 2 of 2