-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BdrJgyhma8RTyrSqCT2E903/cAgDs6baOOX3U7MeyNEmh6icDgPQDv4onpDRPJRG Spr8eKhH15//4dlHw/E9Og== 0000032621-97-000005.txt : 19970222 0000032621-97-000005.hdr.sgml : 19970222 ACCESSION NUMBER: 0000032621-97-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970219 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMERSON RADIO CORP CENTRAL INDEX KEY: 0000032621 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 223285224 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07731 FILM NUMBER: 97538953 BUSINESS ADDRESS: STREET 1: NINE ENTIN RD STREET 2: PO BOX 430 CITY: PARSIPPANY STATE: NJ ZIP: 07054-0430 BUSINESS PHONE: 2018845800 FORMER COMPANY: FORMER CONFORMED NAME: MAJOR ELECTRONICS CORP DATE OF NAME CHANGE: 19770921 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-25226 EMERSON RADIO CORP. (Exact name of registrant as specified in its charter) DELAWARE 22-3285224 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9 Entin Road Parsippany, New Jersey 07054 (Address of principal executive offices) (Zip code) (201)884-5800 (Registrant's telephone number, including area code) (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [X] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of common stock as of December 31, 1996: 40,295,196. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts)
Nine Months Ended Three Months Ended December 31, December 31, 1996 1995 1996 1995 Net revenues . . . . . . . . . $151,284 $214,720 $49,628 $70,314 Costs and expenses: Cost of sales . . . . . . . 145,354 198,184 48,818 67,491 Other operating costs and expenses. 2,111 3,529 488 983 Selling, general & administrative expenses . 14,698 16,332 4,993 5,338 Restructuring and other nonrecurring charges. . . 2,811 - 77 - 164,974 218,045 54,376 73,812 Operating loss . . . . . . . . (13,690) (3,325) (4,748) (3,498) Interest expense . . . . . . . 2,525 2,322 867 1,029 Loss before income taxes . . . (16,215) (5,647) (5,615) (4,527) Provision (benefit) for income taxes . . . . . . . . . . . 194 26 28 (129) Net loss . . . . . . . . . . . $(16,409) $(5,673) $(5,643) $(4,398) Net loss per common share. . . $ (.42) $ (.15) $ (.14) $ (.11) Weighted average number of common shares outstanding. . 40,281 40,253 40,295 40,253
The accompanying notes are an integral part of the interim consolidated financial statements. EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands of dollars)
Dec. 31, March 31, 1996 1996 (Unaudited) ASSETS Current Assets: Cash and cash equivalents . . . . . . . $ 6,121 $ 16,133 Short-term investments. . . . . . . . . 155 1,872 Accounts receivable (less allowances of $4,531 and $6,139, respectively). . . 21,673 23,583 Inventories . . . . . . . . . . . . . . 23,917 35,292 Prepaid expenses and other current assets . . . . . . . . . . . . . . . 6,328 8,434 Total current assets . . . . . . . . 58,194 85,314 Property and equipment - (at cost less accumulated depreciation and amortization of $5,546 and $4,422, respectively) . . . . . . . . 2,455 3,501 Investment in unconsolidated affiliate . . . 15,884 - Other assets . . . . . . . . . . . . . . . 6,927 7,761 Total Assets . . . . . . . . . . . . $83,460 $ 96,576 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable . . . . . . . . . . . . . $14,733 $ 21,151 Current maturities of long-term debt. . 84 173 Accounts payable and other current liabilities. . . . . . . . . . . . . 19,574 10,391 Accrued sales returns . . . . . . . . . 4,097 3,091 Income taxes payable. . . . . . . . . . 177 202 Total current liabilities. . . . . . 38,665 35,008 Long-term debt . . . . . . . . . . . . . . 20,878 20,886 Other non-current liabilities. . . . . . . 258 300 Shareholders' Equity: Preferred stock - $.01 par value, 1,000,000 shares authorized, 10,000 shares issued and outstanding . . . . . . . . . . . . 9,000 9,000 Common stock - $.01 par value, 75,000,000 shares authorized, 40,295,196 and 40,252,772 shares issued and outstanding, respectively . . . . . . . . . . . . . 403 403 Capital in excess of par value . . . . . . 109,238 108,991 Accumulated deficit. . . . . . . . . . . . (95,109) (78,175) Cumulative translation adjustment. . . . . 127 163 Total shareholders' equity. . . . . . . 23,659 40,382 Total Liabilities and Shareholders' Equity. $83,460 $ 96,576
The accompanying notes are an integral part of the interim consolidated financial statements. EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands of dollars)
Nine Months Ended December 31, 1996 1995 Cash Flows from Operating Activities: Net cash provided (used) by operating activities . . . . . . . . . . . . $ 11,317 $(11,478) Cash Flows from Investing Activities: Investment in unconsolidated company (14,398) - Additions to property and equipment. (218) (1,490) Other. . . . . . . . . . . . . . . . 112 (385) Net cash used by investing activities . . . . . . . . . . . . (14,504) (1,875) Cash Flows from Financing Activities: Net repayments under line of credit facility . . . . . . . . . . . . . (6,418) (2,561) Net proceeds from private placement of Senior Subordinated Convertible Debentures . . . . . . . . . . . . - 19,220 Other . . . . . . . . . . . . . . . 407 (1,285) Net cash provided (used) by financing activities . . . . . . . . . . . . (6,825) 15,374 Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . (10,012) 2,021 Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . 16,133 17,020 Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $6,121(a) $19,041(a) Supplemental disclosure of cash flow information: Interest paid . . . . . . . . . . . $ 2,532 $ 2,751 Income taxes paid . . . . . . . . . $ 15 $ 153
(a) The balances at December 31, 1996 and 1995 include $4.0 million and $9.0 million, respectively, of cash and cash equivalents pledged to assure the availability of certain foreign letter of credit facilities. The accompanying notes are an integral part of the interim consolidated financial statements. EMERSON RADIO CORP. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 The unaudited interim consolidated financial statements reflect all adjustments that management believes necessary to present fairly the results of operations for the periods being reported. Certain prior year information has been reclassified to conform with the current year presentation. The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and accordingly do not include all of the disclosures normally made in the Emerson Radio Corp. (the "Company") annual consolidated financial statements. It is suggested that these unaudited interim consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto for the year ended March 31, 1996, included in the Company's annual Form 10-K filing. The preparation of the unaudited interim consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Due to the seasonal nature of the Company's consumer electronics business, the results of operations for the three and nine month periods ended December 31, 1996 are not necessarily indicative of the results of operations for the full year ending March 31, 1997. NOTE 2 Net loss per common share for the three and nine month periods ended December 31, 1996 and 1995 are based on the net loss and deduction of preferred stock dividend requirements and the weighted average number of shares of common stock outstanding during the periods. These per share amounts do not include common stock equivalents assumed outstanding since they are anti-dilutive. NOTE 3 The provision for income taxes for the three and nine month periods ended December 31, 1996 and 1995 consists primarily of taxes related to international operations. The Company did not recognize tax benefits for losses incurred by its domestic operations during the same periods. NOTE 4 On December 10, 1996, the Company purchased from Sport Supply Group, Inc. ("SSG") 1,600,000 shares of newly issued common stock, $.01 par value per share (the "Common Stock"), for aggregate consideration of $11.5 million, or approximately $7.19 per share. In addition, the Company purchased, for an aggregate consideration of $500,000, 5-year warrants (the "Warrants") to acquire an additional 1,000,000 shares of Common Stock at an exercise price of $7.50 per share, subject to standard anti-dilution adjustments, pursuant to a Warrant Agreement. Prior to such purchase, the Company beneficially owned approximately 9.9% of SSG's outstanding Common Stock which it had purchased for $4,228,000 in open market transactions. Based upon the purchase of the Common Stock as set forth above, the Company owns approximately 27.1% of the outstanding shares of the Common Stock. If the Company exercises all of the Warrants, it will beneficially own approximately 34.9% of the Common Stock. In addition, the Company has arranged for foreign trade credit financing of $2 million for the benefit of SSG to supplement SSG's existing credit facilities. In connection with such purchase, SSG appointed the Company's designees to become the majority of the members of its Board of Directors. Election of the Board of Directors is subject to a vote of SSG's stockholders at its next annual meeting of stockholders. The investment in, and results of operations, of SSG will be accounted for by the equity method. SSG's fiscal year end is October 31; therefore, the Company's equity in earnings (losses) of SSG will be recorded on a two-month delay basis. The Company's investment in SSG includes goodwill of $4,617,000 and is being amortized on a straight line basis over 40 years. Prior to the acquisition of the newly issued common stock, the Company accounted for its investment in SSG and currently accounts for other marketable securities as short-term investments in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Investment securities consist of equity securities which are classified as trading securities. Investments in trading securities are reported at fair value, with unrealized gains and losses included in earnings. Unrealized holding losses on trading securities for the nine months ended December 31, 1996 were approximately $51,000 and are included in the statement of operations. The cost of investments sold and related realized gains and losses are determined using the specific identification method. NOTE 5 Spare parts inventories, net of reserves, aggregating $1,668,000 and $2,042,000 at December 31, 1996 and March 31, 1996, respectively, are included in "Prepaid expenses and other current assets". NOTE 6 NOTES PAYABLE: The Company maintains a $30 million asset-based revolving line of credit facility with a U.S. financial institution (the "Lender"). Pursuant to the terms of the credit facility, as amended, effective December 31, 1996, the Company is required to maintain a minimum adjusted net worth, as defined, of $17,000,000 excluding certain restructuring and nonrecurring charges and working capital of $10,000,000. At December 31, 1996, the Company had an adjusted net worth, excluding such charges, of $26,441,000, and working capital of $19,529,000, and, therefore was in compliance with this covenant. LONG-TERM DEBT: Long-term debt consists of the following: (In thousands of dollars)
Dec. 31, March 31, 1996 1996 8 1/2% Senior Subordinated Convertible Debentures Due 2002. . . . . . . . . . . . $20,750 $20,750 Other . . . . . . . . . . . . . . 212 309 20,962 21,059 Less current obligations. . . . . 84 173 $20,878 $20,886
NOTE 7 SETTLEMENT OF LITIGATION REGARDING CERTAIN OUTSTANDING COMMON STOCK: The 30 million shares of Common Stock issued to affiliates of Geoffrey Jurick, the Chairman and Chief Executive Officer of the Company, on March 31, 1994, pursuant to the bankruptcy restructuring plan, were the subject of certain legal proceedings. On June 11, 1996, a Stipulation of Settlement and Order (the "Settlement Agreement") was executed, was approved by order of the Court on November 19, 1996, and became effective on February 4, 1997. The Settlement Agreement reflects the settlement of various legal proceedings in Switzerland, the Bahamas and the United States among Mr. Jurick, certain of his affiliated entities and certain of their creditors (the "Creditors") (together with the Company, the "Lead Parties"). The Settlement Agreement provides, among other things, for the payment by Mr. Jurick and such affiliated entities of $49.5 million to the Creditors, to be paid from the proceeds of the sale of certain of the 29,152,542 shares of Emerson common stock (the "Settlement Shares") owned by such affiliated entities of Mr. Jurick, all of which are being registered in the name of Fidenas International Limited ("FIN"). In addition, Mr. Jurick will be paid the sum of $3.5 million from the sale of Settlement Shares. The Settlement Shares will be sold over an indeterminate period of time by a financial advisor (the "Advisor"), initially TM Capital Corp. The Advisor is formulating a marketing plan taking into consideration (i) the interests of Emerson's minority stockholders, and (ii) the goal of generating sufficient proceeds to pay the Creditors and Mr. Jurick as quickly as possible. Sales may be made of the Settlement Shares pursuant to a registered offering if the sales price is not less than 90% of the average of the three most recent closing prices (the "Average Closing Price"), or, other than in a registered offering, of up to 1% of the Emerson common stock outstanding per quarter, if the sales price is not less than 90% of the Average Closing Price. Any other attempted sales are subject to the consent of the Company, Mr. Jurick, and the Creditors, or, if necessary, the Court. No assurance can be given that a sufficient number of Settlement Shares will be sold at prices which would or could result in the payment in full of the settlement amount. Further, sales of Settlement Shares, or the perception that such sales may occur, may adversely effect the prevailing market prices, if any, of the Common Stock and also create a potential large block of Settlement Shares coming into the market at substantially the same time. INTERNATIONAL JENSEN INCORPORATED LITIGATION: On May 10, 1996, International Jensen Incorporated ("Jensen") filed an action in the United States District Court for the Northern District of Illinois, Eastern Division, against the Company and its President, Eugene I. Davis, for violations of proxy solicitation rules and for breach of a confidentiality agreement with Jensen. On May 14, 1996, the Court entered a temporary restraining order against the Company and its President, which subsequently lapsed, enjoining them from (i) further solicitation of Jensen's stockholders or their representatives until the Company has filed a Proxy Statement with the Securities and Exchange Commission which complies with the provisions of Regulation 14A of the Securities Exchange Act of 1934; (ii) making further solicitation containing false and misleading or misleading statements of material fact or material omissions; and (iii) disclosing confidential information in violation of the confidentiality agreement. On May 20, 1996, the Company filed a counterclaim and third party complaint in this action, which has subsequently been amended to allege that Jensen and its Chairman, Chief Executive Officer and President, Robert G. Shaw, fraudulently induced the Company to enter into a confidentiality agreement and failed to negotiate with the Company in good faith and that Recoton Corporation ("Recoton"), the competing bidder for Jensen, aided in such actions. On October 22, 1996, Recoton filed a separate action alleging that Emerson tortiously interfered with the Jensen/Recoton transaction, which seeks damages of not less than $5 million. Such action is subject to a motion to dismiss filed by Emerson. The Company and its President intend to vigorously defend Jensen's and Recoton's claims against the Company and its President and to vigorously pursue its counterclaim against Jensen and its third party complaint against Mr. Shaw and Recoton. The Company believes that Jensen's and Recoton's claims are without basis, that it has meritorious defenses against Jensen's and Recoton's claims and that the litigation or results thereof will not have a material adverse effect on the Company's consolidated financial position. On July 30, 1996, the Company filed a complaint in the Court of Chancery of the State of Delaware against Jensen, all of its directors, William Blair Leverage Capital Fund, L.P., Recoton, and certain affiliates of the foregoing alleging violations of Delaware law involving Jensen's auction process, interference with prospective economic advantage, and aiding and abetting breaches of fiduciary duties. The Court held a hearing on motions for preliminary injunction on August 15, 1996. The Court denied the motions for preliminary injunction, and the Recoton/Shaw transactions with Jensen were consummated on or about August 28, 1996. OTAKE LITIGATION: On December 20, 1995, the Company filed suit in the United States District Court for the District of New Jersey against Orion Sales, Inc., Otake Trading Co. Ltd., Technos Development Limited, Shigemasa Otake, and John Richard Bond, Jr., (collectively, the "Otake Defendants") alleging breach of contract, breach of covenant of good faith and fair dealing, unfair competition, interference with prospective economic gain, and conspiracy in connection with certain activities of the Otake Defendants under certain agreements between the Company and the Otake Defendants. Mr. Bond is a former officer and sales representative of the Company, having served in the latter capacity until he began working for the other Otake Defendants. Certain of the other Otake Defendants have supplied the majority of the Company's purchases until the Company's most recent fiscal year ended March 31, 1996. The New Jersey Court has found that it has jurisdiction over all the defendants in this litigation. On December 21, 1995, Orion Sales, Inc. and Orion Electric (America), Inc. filed suit against the Company in the United States District Court, Southern District of Indiana, Evansville Division, alleging various breaches of certain agreements by the Company, including breaches of the confidentiality provisions, certain payment breaches, breaches of provisions relating to product returns, and other alleged breaches of those agreements, and seeking damages in the amount of $2,452,656, together with interest thereon, attorneys' fees, and certain other costs. While the outcome of the New Jersey and Indiana actions are not certain at this time, the Company believes it has meritorious defenses against the claims made by the plaintiffs in the Indiana action. In any event, the Company believes the results of that litigation should not have a material adverse effect on the financial condition of the Company or on its operations. BANKRUPTCY CLAIMS: The Company is presently engaged in litigation regarding several bankruptcy claims which have not been resolved since the restructuring of the Company's debt. The largest claim was filed July 25, 1994 in connection with the rejection of certain executory contracts with two Brazilian entities, Cineral Electronica de Amazonia Ltda. and Cineral Magazine Ltda. (collectively, "Cineral"). The contracts were executed in August 1993, shortly before the Company's filing for bankruptcy protection. The amount currently claimed is for approximately $86,785,000 which represents a claim for lost profits. The claim was filed as an unsecured claim and, therefore, will be satisfied, to the extent the claim is allowed by the Bankruptcy Court, in the manner other allowed unsecured claims were satisfied. The Company has objected to, and has vigorously contested, the claim and believes it has meritorious defenses to the highly speculative portion of the claim for lost profits. An adverse final ruling on the Cineral claim could have a material adverse effect on the Company, even though it would be limited to 18.3% of the final claim determined by a court of competent jurisdiction; however, in light of the foregoing, the Company believes the chances for recovery for lost profits are remote. NOTE 8 The Company recorded restructuring and other nonrecurring charges of $77,000 and $2,811,000 for the three and nine month periods ended December 31, 1996, respectively. The Company recognized $29,000 and $946,000 of restructuring charges over these periods, respectively, related to the closure of the Company's local Canadian office and distribution operations in favor of an independent distributor and downsizing of the Company's U.S. operations. The charges include costs for employee severance, asset write-downs, and facility and equipment lease costs. Additionally, the Company recognized $48,000 and $1,865,000 of nonrecurring charges over these periods, respectively, relating to the proposed but unsuccessful acquisition of Jensen. These costs primarily include investment banking, commitment and professional fees, including litigation costs, relating to the proposed acquisition. NOTE 9 The Company has a 50% investment in E & H Partners ("E&H"), a joint venture that was formed to purchase, refurbish and sell certain of the Company's product returns. Effective January 1, 1997, the partners of E&H mutually agreed to dissolve the joint venture and wind down its operations. The results of this joint venture are accounted for by the equity method. The Company's equity in the earnings of the joint venture is reflected as a reduction of cost of sales in the Company's unaudited interim Consolidated Statements of Operations. Summarized financial information relating to the joint venture is as follows (in thousands):
Nine Months Ended Three Months Ended December 31, December 31, 1996 1995 1996 1995 Income Statement data: Net sales (a) $24,837* $21,147 $6,371* $7,591 Net earnings (loss) 256* 240 330* (1,154) Sales by the Company to E&H Partners 5,742 14,095 1,049 2,407 _____________ (a) Sales to the Company by E&H Partners 7,058 3,731 988 1,932
Dec.31, March 31, 1996* 1996 Balance Sheet Data: Current assets (a) $15,995 $19,326 Noncurrent assets 147 162 Total Assets $16,142 $19,488 Accounts Payable to the Company (a) $ 6,205 $13,270 Other Current liabilities 7,151 3,688 Total Liabilities 13,356 16,958 Partnership Equity 2,786 2,530 Total Liabilities and Partnership Equity $16,142 $19,488 Equity of the Company in net assets of E&H Partners $ 1,460 $ 1,265
(a) Inventories of the Partnership had been assigned to the Lender as collateral for the U.S. line of credit facility. In April 1996, the Company agreed to equally share the lien on the partnership's inventory with the other party in the joint venture, in exchange for, among other things, a $5.0 million loan by such partner to the joint venture and a subsequent partial paydown of E&H Partners' obligation to the Company of the same amount. *Information was derived from the November 30, 1996 financial statements of E&H Partners. The financial statements for December 31, 1996 were not available as of the date of this report; however, based on discussions with the management of E&H Partners, the Company believes that the results for the month ended December 31, 1996 will not have a material effect on the Company's results of operations or financial position. EMERSON RADIO CORP. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION This report contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company's actual results may differ from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report. See Other Information - Part II, Item 5. RESULTS OF OPERATIONS Consolidated net revenues for the three and nine month periods ended December 31, 1996 decreased $20,686,000 (29%) and $63,436,000 (30%) as compared to the same periods in the fiscal year ended March 31, 1996 ("Fiscal 1996"), respectively. The decrease resulted from decreases in unit sales of video cassette recorders, televisions, television/video cassette recorder combination units and audio products (for nine month period only) due to higher retail stock levels, increased price competition in these product categories, weak consumer demand and a soft retail market. This was partially offset by increased sales of microwave ovens attributable to a broader product line, larger size units and increased SKU selections by customers, and by sales of home theater and car audio products which were not introduced until the second and third quarters of Fiscal 1996. Excluding the Company's video products, the Company's U.S. gross sales increased by approximately 18% and 12% for the three and nine month periods ended December 31, 1996, respectively. Revenues recorded from the licensing of the Emerson and G-Clef trademark were $1,005,000 and $3,007,000 for the three and nine month periods ended December 31, 1996 as compared to $1,152,000 and $3,553,000 in the same periods in Fiscal 1996, respectively. The decline in royalty income is attributable to lower aggregate sales reported by the licensees of Emerson and G-Clef brand products. However, the Company has not received the royalty report from the Company's largest licensee for the third quarter ended December 31, 1996, and therefore, recorded only the minimum royalties due pursuant to the applicable license agreement. Furthermore, the Company's Canadian net sales decreased $1,684,000 and $5,015,000 in the three and nine month periods ended December 31, 1996 as compared to the same periods in Fiscal 1996 relating to the continued weak Canadian economy and the closure of the Company's local office and Company-operated distribution operations in favor of an independent distributor. The Company expects its United States sales for the fourth quarter of the fiscal year ending March 31, 1997 ("Fiscal 1997") to be lower than the fourth quarter of Fiscal 1996 due to continuing weak consumer demand, a soft retail market, high retail stock levels and the increased level of price competition. Cost of sales, as a percentage of consolidated revenues, was 98% and 96% for the three and nine month periods ended December 31, 1996, respectively, as compared to 96% and 92%, respectively, for the same periods in Fiscal 1996. Gross profit margins in the three and nine month periods ended December 31, 1996 were unfavorably impacted by lower sales prices (primarily video products), a higher proportion of close-out sales, inventory write-downs, the allocation of reduced fixed costs over a lower sales base in the current fiscal year, and the recognition of income relating to reduced reserve requirements for sales returns for the same periods in the prior fiscal year. However, gross profit margins were favorably impacted by the introduction of higher margin products -- home theater and car audio products, and by a reduction in the costs associated with product returns related to the Company's agreements with a majority of its suppliers to return defective products and receive in exchange an "A" quality unit. Other operating costs and expenses declined $495,000 and $1,418,000 in the three and nine month periods ended December 31, 1996 as compared to the same periods in Fiscal 1996, respectively, primarily as a result of a decrease in after-sale service costs relating to the Company's licensing of its Emerson and G-Clef trademark to one of its suppliers (the "Supplier") for the sale of video products to its largest customer (the "Customer"). Selling, general and administrative expenses ("S,G&A") as a percentage of revenues, was 10% for both the three and nine month periods ended December 31, 1996, as compared to 8% for the same periods in Fiscal 1996. In absolute terms, S,G&A decreased by $345,000 and $1,634,000 in the three and nine month periods ended December 31, 1996 as compared to the same periods in Fiscal 1996, respectively. The decrease was primarily attributable to a reduction in fixed costs and compensation expense relating to the Company's continuing cost reduction program in both the U.S. and in its foreign offices and lower selling expenses attributable to the lower sales, partially offset by the reversal of accounts receivable reserves in the prior year periods due to a higher realization than anticipated on past-due accounts receivable. Additionally, the decrease for the nine months ended December 31, 1996 was mitigated by a reduction in foreign currency exchange gains. The increase in S,G&A as a percentage of revenues is due primarily to the allocation of fixed S,G&A costs over a lower sales base. The Company's exposure to foreign currency fluctuations, primarily in Canada and Spain, resulted in the recognition of net foreign currency exchange losses aggregating $21,000 in the three month period ended December 31, 1996 as compared to $174,000 in the same period in Fiscal 1996. However, the Company recognized net foreign currency exchange gains aggregating $7,000 in the nine month period ended December 31, 1996 as compared to $497,000 for the same period in Fiscal 1996. Interest expense decreased by $162,000 in the three month period ended December 31, 1996 as compared to the same period in Fiscal 1996. The decrease was attributable to lower average borrowings at lower interest rates on the U.S. revolving line of credit facility. The average rate in effect on the credit facility for the three month periods ended December 31, 1996 and 1995 was approximately 9.5% and 10.0%, respectively. However, interest expense increased by $203,000 in the nine month period ended December 31, 1996 as compared to the same period in Fiscal 1996 due to the interest expense incurred on the debentures issued in August 1995. The Company recorded restructuring and other nonrecurring charges of $77,000 and $2,811,000 for the three and nine month periods ended December 31, 1996. The Company recognized $29,000 and $946,000 of restructuring charges over these periods related to the closure of the Company's local Canadian office and distribution operations in favor of an independent distributor and the downsizing of the Company's U.S. operations. The charges include costs for employee severance, asset write-downs, and facility and equipment lease costs. Additionally, the Company recognized $46,000 and $1,865,000 of nonrecurring charges over these periods relating to the proposed but unsuccessful acquisition of International Jensen Incorporated. These costs primarily include investment banking, commitment and professional fees, including litigation costs, relating to the proposed acquisition. As a result of the foregoing factors, the Company incurred a net loss of $5,643,000 and $16,409,000 for the three and nine month periods ended December 31, 1996, compared to a net loss of $4,398,000 and $5,673,000 respectively, for the same periods in Fiscal 1996. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $11,317,000 for the nine months ended December 31, 1996. Cash was provided by decreases in accounts receivables and inventories and an increase in accounts payable and other current liabilities partially offset by a loss from operations. The decrease in accounts receivable was due primarily to a one-time receipt of $5.0 million from the Company's 50% owned joint venture (E & H Partners) in the first quarter of Fiscal 1997 as a partial paydown of the joint venture's obligation to the Company. The decrease in inventory is primarily due to a more cautious purchasing strategy focusing on reducing inventory levels and the associated carrying costs, and the closure of the Company's Canadian distribution operations. Further, accounts payable and other current liabilities increased due to extended term financing used for inventory purchases. Net cash used by investing activities was $14,504,000 for the nine months ended December 31, 1996. Cash was utilized primarily for the purchase of the Company's investment in Sport Supply Group, Inc. ("SSG"), as described below. In the nine months ended December 31, 1996, the Company's financing activities utilized $6,825,000 of cash. The Company reduced its borrowings under its U.S. line of credit facility by $6,418,000 through the collection of accounts receivable. The Company maintains an asset-based revolving line of credit facility, as amended, with a U.S. financial institution (the "Lender"). The facility, as amended through December 31, 1996, provides for revolving loans and letters of credit, subject to individual maximums and, in the aggregate, not to exceed the lesser of $30 million or a "Borrowing Base" amount based on specified percentages of eligible accounts receivable and inventories. All credit extended under the line of credit is secured by the U.S. and Canadian assets of the Company except for trademarks, which are subject to a negative pledge covenant. The interest rate on these borrowings is 1.25% above the stated prime rate. At December 31, 1996, there were approximately $14.7 million outstanding on the Company's revolving loan facility and approximately $1.6 million of letters of credit outstanding for inventory purchases. Based on the "Borrowing Base" amount at December 31, 1996, approximately $1.8 million of the credit facility was not utilized. Pursuant to the terms of the credit facility, as amended, effective December 31, 1996, the Company is required to maintain a minimum adjusted net worth, as defined, of $17,000,000 excluding certain restructuring and nonrecurring charges and working capital of $10,000,000. At December 31, 1996, the Company had an adjusted net worth, excluding such charges, of $26,441,000, and working capital of $19,529,000, and therefore, was in compliance with these covenants. The Company's Hong Kong subsidiary maintains various credit facilities aggregating $59.1 million with a bank in Hong Kong consisting of the following: (i) a $9.1 million credit facility generally used for letters of credit for a foreign subsidiary's direct import business and affiliates' inventory purchases, and (ii) a $50 million credit facility, for the benefit of a foreign subsidiary, which is for the establishment of back-to-back letters of credit with the Customer. At December 31, 1996, the Company's Hong Kong subsidiary had pledged $4 million in certificates of deposit to this bank to assure the availability of these credit facilities. At December 31, 1996, there were approximately $11.7 million and $2.2 million of letters of credit outstanding on the $9.1 million and $50 million credit facilities, respectively. The over extension of $2.6 million on the $9.1 million letter of credit facility at December 31, 1996 was due to timing of letter of credit payments and new issuances. Effective, January 1, 1997, the Company and its partner in E&H Partners ("E&H") mutually agreed to dissolve this joint venture and wind down its operations. As a result, E&H's obligation to purchase the Company's product returns terminated as of such date. Accordingly, the Company is negotiating the sale of product returns with other parties and anticipates finalization of such negotiations shortly. The Company expects such negotiations will result in an arrangement which should improve the Company's cash flows from the sale of product returns as compared to its previous arrangement with E&H. On December 10, 1996, the Company purchased from Sport Supply Group, Inc. ("SSG") 1,600,000 shares of newly issued common stock, $.01 par value per share (the "Common Stock"), for aggregate consideration of $11.5 million, or approximately $7.19 per share. In addition, the Company purchased, for an aggregate consideration of $500,000, 5-year warrants (the "Warrants") to acquire an additional 1,000,000 shares of Common Stock at an exercise price of $7.50 per share, subject to standard anti-dilution adjustments, pursuant to a Warrant Agreement. Prior to such purchase, the Company beneficially owned approximately 9.9% of SSG's outstanding Common Stock which it had purchased for $4,228,000 in open market purchases. Based upon the purchase of the Common Stock as set forth above, the Company owns approximately 27.1% of the outstanding shares of the Common Stock. If the Company exercises all of the Warrants, it will beneficially own approximately 34.9% of the Common Stock. In addition, the Company has arranged for foreign trade credit financing of $2 million for the benefit of SSG to supplement SSG's existing credit facilities. In connection with such purchase, SSG appointed the Company's designees to become the majority of the members of its Board of Directors. Election of the Board of Directors is subject to a vote of SSG's stockholders at its annual meeting of stockholders. The $12 million purchase price paid by the Company was obtained by the Company from the Lender, under the terms of its existing credit facility, and in accordance with the terms of the consent obtained from such lender. Pursuant to a Pledge and Security Agreement dated December 10, 1996, the Company has pledged to the Lender the Common Stock and Warrants acquired on December 10, 1996. The investment in SSG is part of management's plan to develop the Company's business through diversification from the Company's core business of consumer electronics. SSG sells its products at margins higher than the Company's core business and to an institutional market which does not require the significant after-market servicing costs typical of the Company's core business. The Company has also recently executed a licensing/supply arrangement for Central and Latin American markets with Cargil International Corp. ("Cargil"), a leading distributor of consumer products in Latin America. The transaction is for an initial five-year term, subject to renewals, and provides for Cargil to license the Emerson trademark for certain consumer electronics products and to source no less than 75% of the value of such product through the Company's Hong Kong sourcing and supply operations. Under the terms of the agreements, the Company will receive minimum annual royalties through the life of the agreement, which expires on March 31, 2002, and will receive a separate fee for sourcing and inspection services. The Company intends to pursue additional licensing opportunities and believes that such licensing activities will have a positive impact on net operating results by generating royalty income with minimal costs, if any, and without the necessity of utilizing working capital or accepting customer returns. The Company's strategic goals include growth through acquisitions and through additions of higher margin consumer product lines which complement the Company's business. The Company also intends to market distribution, sourcing and other services to third parties. In addition, the Company intends to further expand the international distribution of its products into areas where management believes low to moderately priced, dependable consumer electronics and microwave oven products will have a broad appeal. The Company has in the past and intends in the future to pursue such plans either on its own or by forging new relationships, including license arrangements, partnerships, joint ventures or strategic mergers and acquisitions of companies in similar or complementary businesses. Based on the operating losses reported for the first nine months of Fiscal 1997, the continuing soft consumer electronics retail market and the trend in sales of the Company's products, management believes that future cash flow from operations and the institutional financing described above may not be sufficient to fund all of the Company's cash requirements for the next twelve months. Additionally, the Company is currently in arrears on $469,000 of dividends on the Company's Series A Preferred Stock. Management plans to take the necessary steps to adequately finance the Company's operations which may include one or more of the following steps: 1. Reviewing strategic alternatives for its North American video business not covered under the license agreement with the Supplier; 2. Reducing inventory levels and purchasing higher margin products for inventory; 3. Shifting a higher proportion of sales to direct import; 4. Negotiating with the Lender to amend the U.S. revolving credit facility to ensure continued compliance with all covenants; 5. Continuing cost reduction programs in both the U.S. and foreign offices; 6. Selling non-operating or underperforming assets; and 7. Selling equity and/or debt securities, either privately or through a registered offering. There can be no assurance that the Company will be able to successfully implement any of these steps in a time frame or manner that will permit the Company to fund current operations and other planned expenditures at current and expected sales volumes, if at all. The Company's liquidity is impacted by the seasonality of its business. The Company records the majority of its annual sales in the quarters ending September 30 and December 31. This requires the Company to open significantly higher amounts of letters of credit during the quarters ending June 30 and September 30, thereby significantly increasing the Company's working capital needs during these periods. Additionally, the Company receives the largest percentage of its customer returns in the quarter ending March 31. The higher level of returns during this period adversely impacts the Company's collection activity during this period, and therefore its liquidity. The Company believes that the licensing of the Emerson and G-Clef trademark should favorably impact the Company's cash flow over the respective terms of the agreements. EMERSON RADIO CORP. AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 1. Legal Proceedings. The information required by this item is included in Note 7 of Notes to Interim Consolidated Financial Statements filed in Part I of Form 10-Q for the quarter ended December 31, 1996, and is incorporated herein by reference. ITEM 3. Preferred Stock Dividends. As of the date of this report, the Company was in arrears on $469,000 of dividends on its Series A Preferred Stock. ITEM 4. Submission of Matters to a Vote of Security Holders. (a) An Annual Meeting of Stockholders was held on December 18, 1996. (b) The following directors were elected at the Annual Meeting of Stockholders and constituted the entire Board of Directors following the Meeting: Robert H. Brown, Jr. Peter G. Bunger Raymond L. Steele Jerome H. Farnum Geoffrey P. Jurick Eugene I. Davis (c) Other matters voted at Annual Meeting: (i) Election of Directors: For Against Robert H. Brown, Jr. 37,359,900 171,244 Peter G. Bunger 37,359,900 171,244 Raymond L. Steele 37,359,900 171,244 Jerome H. Farnum 37,359,900 171,244 Geoffrey P. Jurick 37,358,900 172,244 Eugene I. Davis 37,358,900 172,244 EMERSON RADIO CORP. AND SUBSIDIARIES PART II OTHER INFORMATION - CONTINUED (ii) Appointment of Ernst & Young LLP to audit financial statements of the Company for the fiscal year ending in 1997 - 37,421,161 shares for, 81,083 shares against and 28,900 shares abstained. ITEM 5. Other Information. Certain statements in this quarterly report on Form 10-Q under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this quarterly report and in future filings by the Company with the Securities and Exchange Commission, constitute "forward looking statements" with the meaning of the Reform Act. Such forward looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Such factors include, among others, the following: product supply and demand; general economic and business conditions and condition of the retail consumer electronics market; price competition and competition from companies with greater resources; success of operating initiatives and new product introductions; operating costs including continuing the Company's cost reduction program and Company's return to vendor program; effects of foreign trade; advertising and promotional efforts; brand awareness; the existence or absence of adverse publicity; success of the Company's acquisition strategy including results of SSG's operations; changes in business strategy or development plans; success of management's strategy to finance the Company's operations; quality of management; success of licensing arrangements; availability, use and terms of capital and compliance with debt covenants; business abilities and judgment of personnel; availability of qualified personnel; labor and employee benefit costs; changes in, or the failure to comply with, government regulations and other factors referenced in this quarterly report. EMERSON RADIO CORP. AND SUBSIDIARIES PART II OTHER INFORMATION - CONTINUED ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 10(a) Pledge Agreement dated as of February 4, 1997 by Fidenas International Limited, L.L.C. ("FIN") in favor of TM Capital. 10(b) Registration Rights Agreement dated as of February 4, 1997 by and among Emerson Radio Corp., FIN, the Creditors, FIL and TM Capital Corp. 10(c) License and Exclusive Distribution Agreement with Cargil International Corp. 10(d) Supply and Inspection Agreement with Cargil International Corp. 10(e) Amendment No. 5 to Financing Agreements, dated as of February 18, 1997, among Emerson, Majexco Imports, Inc. and Congress Financial Corporation. (27) Financial Data Schedule for nine months ended December 31, 1996. (b) Reports on Form 8-K: (1) Current Report on Form 8-K dated November 27, 1996, reporting matters under Item 5. (2) Current Report on Form 8-K dated December 10, 1996, reporting matters under Items 2 and 7. EMERSON RADIO CORP. AND SUBSIDIARIES PART II OTHER INFORMATION - CONTINUED SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EMERSON RADIO CORP. (Registrant) Date: February 19, 1997 /s/ Eugene I. Davis Eugene I. Davis President Date: February 19, 1997 /s/ John P. Walker John P. Walker Executive Vice President, Chief Financial Officer EX-1 2 PLEDGE AGREEMENT PLEDGE AGREEMENT, dated as of February 4, 1997, by Fidenas International Limited, L.L.C., a New Jersey limited liability company (the "Pledgor") in favor of TM Capital Corp., a Delaware corporation, the Settlement Agent (as defined in that certain Stipulation of Settlement and Order (the "Stipulation"), approved pursuant to an Order of the United States District Court for the District of New Jersey, Honorable Nicholas H. Politan (the "Court"), dated November 19, 1996 (a copy of the Stipulation is annexed hereto as Exhibit A)), acting as collateral agent hereunder (in such capacity, the "Collateral Agent") in the manner and to the extent described in the Stipulation for the benefit of Petra Stelling, a German citizen residing in Switzerland, Thomas Hackett, as Official Liquidator of Fidenas International Bank Limited, a Bahamian banking company, Barclays Bank PLC, a corporation organized under the laws of the United Kingdom ("Barclays" and, collectively, the "Creditors") and Geoffrey P. Jurick, a German citizen residing in Hong Kong ("Jurick"). W I T N E S S E T H: WHEREAS, the Pledgor, Jurick, Emerson Radio Corp., a Delaware Corporation ("Emerson"), the Creditors, Elision International, Inc., a Utah corporation ("Elision"), GSE Multimedia Technologies, Inc. (formerly known as GSE Electronic Systems, Inc.), a Delaware corporation ("GSE") and Wayne J. Aranha, as Official Liquidator of Fidenas Investment Limited, a Bahamian company, are parties to the Stipulation; WHEREAS, pursuant to paragraph 1(a) of the Stipulation, (i) Jurick, the Pledgor, Centralinvest S.A. and Pentland Finance Limited are jointly and severally liable to the Creditors for the payment of the aggregate sum of $49.5 million (the "Settlement Amount"), in accordance with the terms thereof; (ii) to the extent set forth in the Consent Judgments described in the Stipulation, GSE is jointly and severally liable to Barclays for the payment of $1,835,423.26; and (iii) subject to the provisions of the Stipulation, Jurick will be paid the sum of $3.5 million solely from the proceeds of the sale of the Emerson Shares (as defined in the Stipulation) (the "Jurick Payment" and, together with the Settlement Amount, the "Aggregate Amount"); WHEREAS, pursuant to the terms of the Stipulation, some or all of the Emerson Shares shall be sold and the proceeds shall be applied to, among other things, the payment of the Aggregate Amount; WHEREAS, in accordance with paragraph 2 of the Stipulation, the Emerson Shares shall secure the payment of the Settlement Amount to the Creditors on a first priority basis, and, on a subordinated basis and subject to the provisions of the Stipulation, shall secure the payment of the Jurick Payment to Jurick; WHEREAS, in order to induce the Creditors to execute and deliver the Stipulation, the Pledgor has agreed to the pledge of the Emerson Shares as collateral security for the Pledge Obligations and the Subordinated Pledge Obligations (each as defined below); WHEREAS, the Stipulation requires that the Pledgor execute and deliver to the Collateral Agent this Pledge Agreement; and WHEREAS, the Pledgor desires to execute this Pledge Agreement to satisfy the requirement described in the preceding paragraph and to induce the Creditors to accept the payment of the Settlement Amount in order to resolve all claims described in the Stipulation and, except as specifically provided therein, all other pending litigation among the parties thereto and all potential claims by, between and among the parties described therein and in Exhibit B thereto. NOW, THEREFORE, in consideration of the foregoing, the Pledgor hereby covenants and agrees with the Collateral Agent as follows: SECTION 1. DEFINITIONS. Except as otherwise provided herein, all terms used herein which are defined in the Stipulation shall have the same meanings herein as therein defined. As used in this Pledge Agreement, the following terms shall have the following meanings, such meanings to be equally applicable to both the singular and plural forms of the terms defined: "Collateral" shall have the meaning assigned to such term in Section 2 hereof. "Pledge Agreement" shall mean this Pledge Agreement, as the same may be modified, supplemented or amended from time to time. "Pledge Obligations" shall have the meaning assigned to such term in Section 3 hereof. "Pledged Stock" shall mean and include all of the Emerson Shares, and any and all shares, stock certificates, options, dividends or rights paid or issued by Emerson in respect of, in substitution of or in exchange for any such shares, and any and all proceeds thereof, whether now or hereafter owned or acquired. "Subordinated Pledge Obligations" shall have the meaning assigned to such term in Section 3 hereof. SECTION 2. PLEDGE. To secure the payment of the Pledge Obligations and the Subordinated Pledge Obligations in accordance with the Stipulation, the Pledgor hereby pledges to the Collateral Agent, and grants to the Collateral Agent a security interest in the Pledged Stock owned by the Pledgor and registered in the name of the Pledgor on Emerson's books and records and all certificates representing such Pledged Stock and all dividends, distributions, cash, instruments and other property or payments from time to time received, receivable or otherwise distributed in payment of, in respect of or in exchange for any or all of the Pledged Stock (collectively, the "Collateral"). SECTION 3. SECURITY FOR OBLIGATIONS. The Collateral secures the payment in full of the Settlement Amount on a first priority basis (the "Pledge Obligations") and, on a subordinated basis as set forth in paragraph 2(a) of the Stipulation and subject to the provisions of the Stipulation, the Collateral also secures the payment in full of the Jurick Payment (the "Subordinated Pledge Obligations"). SECTION 4. DELIVERY OF PLEDGED COLLATERAL; PERFECTION. (a) All certificates or instruments representing or evidencing the Pool A Shares shall be delivered to and held by the Collateral Agent pursuant to the Stipulation and this Pledge Agreement and shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent. All certificates or instruments representing or evidencing the Pool B Shares shall be delivered to and held by the Office of the Clerk of the Court, as the bailee and agent of the Collateral Agent, and shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent. Pursuant to paragraph 1 of the Stipulation, if at any time it becomes unnecessary (whether as a result of waiver, amendment, modification, payment or redemption or other change in circumstances with respect to the Indenture or the Senior Credit Agreement) for the Court to hold any or all of the Pool B Shares in custody, then it is the intention of the parties that, in accordance with the Stipulation, such shares will (i) immediately be delivered to the Collateral Agent, together with duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent, and (ii) become part of the Pool A Shares. (b) For purposes of perfecting the security interest and lien granted hereunder and pursuant to the Stipulation and the Uniform Commercial Code, the Collateral Agent acknowledges that (i) it holds, and will continue to hold, the Pool A Shares as Collateral Agent, (ii) the Office of the Clerk of the Court holds, and will continue to hold, the Pool B Shares as the Collateral Agent's bailee and agent for such purposes, and (iii) each has received a copy of the Stipulation, which constitutes written notification of such security interest in and lien upon the Collateral granted by the Pledgor to the Collateral Agent hereunder and pursuant to the Stipulation. SECTION 5. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and warrants as follows: (a) It is a limited liability company, validly existing and in good standing under the laws of the jurisdiction of the State of New Jersey and has all requisite power and authority, corporate or otherwise, to conduct its business and to own its properties and to execute and deliver, and to perform all of its obligations under, this Pledge Agreement; (b) The execution, delivery and performance of this Pledge Agreement have been duly authorized by all necessary action on the part of the Pledgor, and do not and will not (i) require any other consent or approval of its members, (ii) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to it, (iii) result in a breach of, result in a mandatory prepayment or acceleration of any indebtedness evidenced or secured by, or constitute a default under, any indenture or loan or credit agreement, or any other agreement, lease or instrument to which the Pledgor is a party or by which its properties may be bound or affected; and the Pledgor is not in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument, or (iv) result in (except as contemplated by this Pledge Agreement and the Stipulation) or require the creation or imposition of any lien or security interest of any nature upon or with respect to any of the properties or assets now owned or hereafter acquired by the Pledgor; (c) The Pledged Stock has been duly authorized and validly issued and is fully paid and non-assessable; (d) As of the Effective Date, the Pledgor will be the legal and beneficial owner of the Collateral free and clear of all mortgages, pledges, security interests, liens, encumbrances or charges of any kind whatsoever except for (i) the security interest granted pursuant to the Stipulation and this Pledge Agreement, (ii) the restrictions on the exercise of voting power with respect to such shares set forth in the Indenture, and the Senior Credit Agreement, and (iii) all other similar restrictions, all of which are set forth on Schedule I to the Stipulation (collectively, the "Permitted Liens"); (e) Assuming that the Collateral Agent has received no notice of any adverse claim with respect to the Pledged Stock, then the execution and delivery of this Pledge Agreement and the delivery to, and possession of, the Pledged Stock by the Collateral Agent (or its bailee) will result in the creation and perfection of a valid first priority security interest in the Collateral, securing (i) the payment of the Pledge Obligations and (ii) on a subordinated basis as set forth in paragraph 2 of the Stipulation and subject to the provisions of the Stipulation, the payment of the Subordinated Pledge Obligations; (f) No authorization, consent, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (i) for the pledge by the Pledgor of the Collateral pursuant to this Pledge Agreement or for the execution, delivery or performance of this Pledge Agreement by the Pledgor or (ii) for the exercise (upon the termination of the Stipulation pursuant to paragraph 11(b) thereof, unless the Court otherwise directs, in accordance with Section 7(c) hereof) by the Collateral Agent of the voting or other rights provided for in this Pledge Agreement or the remedies in respect of the Collateral pursuant to this Pledge Agreement (except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally); and (g) The Pledged Stock is comprised of 29,152,542 shares of the 40,252,772 shares of the issued and outstanding Emerson common stock and, except for Jurick's existing options to purchase shares of Emerson common stock described in paragraph 8(b) of the Stipulation, and as reflected in the quarterly and annual reports filed by Emerson in accordance with the Securities Act, no rights exist in favor of any party, including the Pledgor, to acquire any other equity securities of Emerson. All representations, warranties and covenants of the Pledgor contained in this Pledge Agreement shall survive the execution, delivery and performance of this Pledge Agreement. SECTION 6. FURTHER ASSURANCES. The Pledgor agrees that from time to time, at its expense, the Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be reasonably necessary or desirable, or that the Collateral Agent may request in its discretion reasonably exercised, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Collateral Agent to exercise and enforce any of its rights and remedies hereunder with respect to any Collateral. SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC. (a) So long as all or any portion of the Pledge Obligations or the Subordinated Pledge Obligations remain unpaid and (x) any Pool A Shares are held by the Collateral Agent or any Pool B Shares are in the custody of the Court, and (y) the Stipulation has not been terminated pursuant to paragraph 11(b) thereof: (i) The Pledgor shall retain the right to vote with respect to all of the Emerson Shares, subject to the provisions of paragraph 4 of the Stipulation; and (ii) Any and all dividends and other distributions paid in respect of the Collateral shall be, and shall be forthwith delivered to the Collateral Agent to hold as, Collateral and shall, if received by the Pledgor, be received in trust for the benefit of the Collateral Agent, be segregated from the other property or funds of the Pledgor, and be forthwith delivered to the Collateral Agent as Collateral in the same form as so received (with any necessary endorsement). (b) Upon the sale of any Emerson Shares to a third party in accordance with this Pledge Agreement, the Stipulation or a subsequent order of the Court, the voting rights shall be transferred to the purchaser of such shares without the restrictions set forth in paragraph 4 of the Stipulation and the security interest and lien granted hereunder shall terminate and attach to the proceeds thereof. (c) In the event that the Stipulation is terminated pursuant to paragraph 11(b) thereof prior to the payment in full of the Pledge Obligations and the Subordinated Pledge Obligations, unless the Court otherwise directs, (i) all rights of the Pledgor to exercise the voting rights with respect to the Pool A Shares which it would otherwise be entitled to exercise pursuant to Section 7(a)(i) hereof shall automatically and immediately cease and all such rights shall thereupon become vested in the Collateral Agent who shall thereupon have the sole right to exercise such voting rights in accordance with written instructions signed by each of the Creditors; and (ii) all such voting rights of the Pledgor with respect to the Pool B Shares shall cease and become vested in the Collateral Agent who shall exercise such voting rights in accordance with written instructions signed by each of the Creditors only upon order of the Court. SECTION 8. TRANSFERS AND OTHER LIENS. The Pledgor agrees that it will not (i) sell, transfer, assign or otherwise dispose of, or grant any option with respect to, any of the Collateral, or (ii) create or permit to exist any mortgages, pledges, security interests, liens, encumbrances or charges of any kind whatsoever with respect to the Collateral, except for Permitted Liens. SECTION 9. RELEASE OF PLEDGED STOCK. The Pledged Stock (or the relevant portion thereof, as the case may be) shall be automatically released from pledge hereunder upon the earlier to occur of (i) the sale thereof, in whole or in part, to a third party in accordance with this Pledge Agreement, the Stipulation or a subsequent order of the Court, and (ii) the payment in full of the Pledge Obligations, the Subordinated Pledge Obligations and reimbursement of any amounts paid by Emerson in accordance with paragraph 3(g) of the Stipulation. The proceeds of any sale of any Emerson Shares to a third party shall be distributed in accordance with paragraphs 3(f) and (g) of the Stipulation. Upon payment in full of the Pledge Obligations and the Subordinated Pledge Obligations to the Creditors and Jurick (subject to the provisions of the Stipulation) and reimbursement of amounts paid by Emerson in accordance with paragraph 3(g) of the Stipulation, any Pledged Stock or other Collateral remaining in the possession of the Collateral Agent or in the custody of the Court, including any proceeds of the Emerson Shares in excess of the Pledge Obligations, the Subordinated Pledge Obligations and any such amounts to be reimbursed, shall be returned to the Pledgor or its designee, unless otherwise required by law, by the Collateral Agent and/or the Office of the Clerk of the Court, as the case may be. The security interest and lien granted pursuant hereto and pursuant to the Stipulation shall be deemed released upon such payment in full. SECTION 10. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby irrevocably appoints the Collateral Agent its attorney-in-fact (which appointment shall be irrevocable while the Pledge Obligations and the Subordinated Pledge Obligations remain outstanding and shall be deemed coupled with an interest), with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, to take any action not inconsistent with this Pledge Agreement and the Stipulation and to execute any instrument which the Collateral Agent may deem necessary or advisable to accomplish the purposes of this Pledge Agreement or the Stipulation, PROVIDED, however, that, unless the Court otherwise directs, the Collateral Agent will not exercise any of its rights under Section 12 hereof except upon the termination of the Stipulation pursuant to paragraph 11(b) thereof prior to the payment in full of the Pledge Obligations and the Subordinated Pledge Obligations. SECTION 11. COLLATERAL AGENT'S DUTIES. The powers conferred on the Collateral Agent hereunder are solely to protect the interests of the Collateral Agent in the Collateral and shall not impose any duty upon it insofar as concerns the Pledgor to exercise any such powers. The Collateral Agent shall neither be responsible nor liable to the Pledgor for any shortage, discrepancy, damage, loss or destruction of any part of the Collateral wherever the same may be located regardless of the cause thereof unless the same shall happen through gross negligence or willful misconduct of the Collateral Agent. The Collateral Agent shall not, under any circumstances or any event whatsoever, have any liability to the Pledgor for any error or omission or delivery of any kind made in the settlement, collection or payment of any of the Collateral or any instrument received in payment therefor or for any damage resulting therefrom other than as a result of such gross negligence or willful misconduct. SECTION 12. REMEDIES. If the Stipulation is terminated pursuant to paragraph 11(b) thereof prior to the payment in full of the Pledge Obligations and the Subordinated Pledge Obligations, unless the Court otherwise directs: (a) The Collateral Agent may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code (subject to applicable securities laws) and may without notice, except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as may be commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days' notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of any of the Collateral by reason of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) All cash proceeds received by the Collateral Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral under this Section 12 shall be applied, in whole or in part, by the Collateral Agent, unless the Court otherwise directs, as follows: FIRST, to the payment to the Creditors of any and all amounts owed to the Creditors in respect of the Pledge Obligations; and SECOND, to the payment to Jurick of any and all amounts owed to Jurick in respect of the Subordinated Pledge Obligations. Any surplus of such cash or cash proceeds held by the Collateral Agent and remaining after payment in full of the Pledge Obligations and the reimbursement of expenses incurred by Emerson shall be paid over to the Pledgor or its designee, unless otherwise required by law. SECTION 13. SECURITIES LAWS; REGISTRATION RIGHTS. (a) In the event that the Stipulation is terminated pursuant to paragraph 11(b) thereof prior to the payment in full of the Pledge Obligations and the Subordinated Pledge Obligations, the Court shall make a determination, based on the totality of the circumstances, as to the extent to which the provisions of this Section 13 shall apply and, to the extent that the Court determines that the provisions of this Section 13 shall apply in such an event, such provisions shall, to the extent inconsistent therewith, supersede the provisions of the Registration Rights Agreement attached as Exhibit E to the Stipulation with respect to any sale of the Pledged Stock pursuant to this Pledge Agreement. (b) The Pledgor understands that questions under the Securities Act may arise from the sale by the Collateral Agent of the Pledged Stock pursuant to the terms of this Section 13. The Pledgor further understands that compliance with the Securities Act may require strict limitations as to what the Collateral Agent could do if it were to attempt to dispose of all or any part of the Pledged Stock pursuant to this Section 13 and may also limit the extent to which or the manner in which any subsequent transferee of any Pledged Stock may dispose of the same. Similarly, there may be other legal restrictions or limitations affecting the Collateral Agent in any attempt to dispose of all or any part of the Pledged Stock under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect. The Pledgor further understands that, in the absence of an agreement to the contrary, the Collateral Agent may be held to have certain general duties and obligations to the Pledgor to make some effort toward obtaining a fair price even though the Pledge Obligations may be paid in full through realization of a lesser price. Because the Pledgor clearly understands that the Collateral Agent is not to have any such general duty and obligations, the Pledgor has agreed, and does hereby agree, that, under circumstances in which the Collateral Agent is entitled to sell all or any part of the Pledged Stock pursuant to this Section 13, the Pledgor shall not attempt to hold it responsible for selling all or any part of the Pledged Stock at an inadequate price even if the Collateral Agent accepts the first offer received or does not approach more than one possible purchaser. Without limiting the generality of the foregoing, this agreement would apply if, for instance, the Collateral Agent were to place all or any part of the Pledged Stock for private placement with an investment banking firm, or if such investment banking firm purchased all of any part of such securities for its own account, or if the Collateral Agent placed all or any part of such securities privately with a purchaser or purchasers. (c) The Pledgor and Emerson each agree that, upon the termination of the Stipulation pursuant to paragraph 11(b) thereof prior to the payment in full of the Pledge Obligations and the Subordinated Pledge Obligations, if for any reason the Collateral Agent desires to sell any securities constituting Collateral at a public or private sale, to the extent that the Court so directs, Emerson will (consistent with its obligations under the provisions of the Stipulation, including (without limitation) paragraph 7(b)(v) thereof and Exhibit E thereto): (i) use its best efforts to cause such securities to be registered under the provisions of the Securities Act, and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of counsel for the Collateral Agent or the Advisor in accordance with a Court-approved Marketing Plan or any Court-approved amendment thereto, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (ii) indemnify, defend and hold harmless the Collateral Agent and the Advisor and any underwriter acting on behalf of any of them from and against all losses, liabilities, expenses, costs, reasonable fees and disbursements of counsel, and claims (including the reasonable costs of investigation) which they may incur insofar as such loss, liability, expense or claim arises out of or is based upon any alleged untrue statement of a material fact contained in any prospectus (or any amendment or supplement thereto) or in any notification or offering circular, or arises out of or is based upon any alleged omission to state a material fact required to be stated therein or necessary to make the statements in any thereof not misleading, except insofar as the same may have been caused by any untrue statement or omission based upon information furnished in writing to Emerson by the Collateral Agent, the Advisor or the underwriter expressly for use therein; (iii) use its best efforts to qualify such securities under any applicable state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of such securities, as requested by the Collateral Agent; (iv) if necessary, use its best efforts to make available to its security holders, as soon as practicable, an earnings statement which will satisfy the provisions of Section 11(a) of the Securities Act; and (v) use its best efforts to do or cause to be done all such other acts and things as may be necessary to make such sale of securities or any part thereof valid and binding and in compliance with applicable law. Nothing in this paragraph (c) shall in any way alter the rights of the Collateral Agent or the agreements of the Pledgor under paragraph (b) above. The Pledgor acknowledges that there is no adequate remedy at law for its failure to comply with the provisions of this Section 13 and that such failure would not be adequately compensable in damages, and therefore agrees that its agreement contained in this Section 13 may be specifically enforced. (d) In the event of a registration of any of the Pledged Collateral pursuant to the provisions hereof, each of the Lead Parties (other than Emerson), the Advisor and/or the Settlement Agent (each an "Indemnifying Person") will severally, and not jointly, indemnify and hold harmless Emerson from and against all losses, liabilities, expenses, costs, reasonable fees and disbursements of counsel, and claims to which Emerson may become subject under the Securities Act, the Exchange Act (each as defined in the Indenture) or otherwise, but only insofar as such losses, liabilities, expenses, costs, counsel fees and disbursements and claims arise directly out of or are based solely upon any untrue statement or alleged untrue statement of a material fact contained or incorporated by reference in any registration statement or prospectus with respect to the Pledged Collateral and any amendment or supplement thereto or any document incorporated by reference therein, or arise directly out of or are based solely upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission has been made or incorporated therein in reliance upon and in conformity with written information furnished to Emerson by such Indemnifying Person specifically stating that it is for use in the preparation thereof. SECTION 14. ACTION BY THE COLLATERAL AGENT. (a) The Collateral Agent may carry out any of its duties under this Pledge Agreement by or through its agents, officers or employees. Neither the Collateral Agent nor any of its agents, officers or employees shall be (i) liable to the Pledgor or the Creditors or Jurick for any action taken or omitted to be taken by it or them in good faith, (ii) responsible for the consequence of any oversight or error of judgment or (iii) answerable for any loss unless any of the foregoing shall happen through its or their gross negligence or willful misconduct. (b) Whenever the Collateral Agent may deem it necessary or prudent in order either to conform to any law of any jurisdiction in which all or any part of the Collateral shall be situated or to exercise any of its rights under this Pledge Agreement, the Pledgor shall execute and deliver a supplemental agreement and all other instruments and agreements necessary or proper to constitute another bank or trust company to act hereunder, in any such case with such powers as may be provided in such supplemental agreement, and to vest in such bank or trust company any property, title, right or power of the Collateral Agent deemed necessary or advisable by the Collateral Agent. SECTION 15. SECURITY INTEREST ABSOLUTE. All rights of the Collateral Agent, the security interest hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional, irrespective of any circumstance which might constitute a defense available to, or a discharge of, any guarantor or other obligor in respect of the Pledge Obligations or the Subordinated Pledge Obligations. SECTION 16. AMENDMENTS; ETC. No amendment or waiver of any provision of this Pledge Agreement, nor any consent to any departure by the Pledgor herefrom, shall in any event be effective unless the same shall be in writing and signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 17. ADDRESSES FOR NOTICES. All notices and other communications provided for hereunder shall be in writing (including telecopy communication) and shall be given in the manner and to the parties set forth in paragraph 17 of the Stipulation with the addition of: TM Capital Corp. One Battery Park Plaza, 35th Floor New York, New York 10004 Attn: Mr. Gregory Robertson FAX: (212) 809-1450 with a copy to: Pepper, Hamilton & Scheetz 3000 Two Logan Square Eighteenth and Arch Streets Philadelphia, Pennsylvania 19103 Attn: James Epstein, Esq. FAX: (215) 981-4750 SECTION 18. CONTINUING SECURITY INTEREST. This Pledge Agreement shall create a continuing security interest in the Collateral as herein provided and shall (i) remain in full force and effect until payment in full of the Pledge Obligations and the Subordinated Pledge Obligations, (ii) be binding upon the Pledgor, its heirs, successors and assigns, and (iii) inure, together with the rights and remedies of the Collateral Agent, its successors, transferees and assigns. Upon the payment in full of the Pledge Obligations and the Subordinated Pledge Obligations, the security interest and lien granted hereby shall terminate and all rights to the Collateral shall revert to the Pledgor or its designee, unless otherwise required by law. The Pledgor shall be entitled to the return of the Collateral, to the extent not sold or otherwise applied pursuant to the terms hereof, against its receipt and upon its payment of the reasonable expenses of the Collateral Agent in connection therewith. Upon any such termination, the Collateral Agent will, at the Pledgor's expense, execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination but without recourse to or warranty by the Collateral Agent. SECTION 19. EFFECTIVE DATE; GOVERNING LAW. THIS PLEDGE AGREEMENT SHALL BECOME EFFECTIVE ON THE EFFECTIVE DATE AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW JERSEY. SECTION 20. WAIVER OF JURY TRIAL. It is the intention of the parties that, to the fullest extent permitted by law, any action or proceeding arising out of or relating to this Pledge Agreement, the Stipulation or the other documents contemplated thereunder, or for recognition or enforcement of any judgment, shall be submitted to and heard by the Court sitting without a jury. Notwithstanding the foregoing, the Pledgor hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this Pledge Agreement or the Stipulation or the other documents or the transactions contemplated thereby whether or not such litigation shall be heard by the Court. Each party hereto (a) certifies that no representative, agent or attorney of any other party would, in the event of litigation, seek to enforce the foregoing waiver, and (b) acknowledges that it and the other parties hereto have been induced to enter into this Pledge Agreement and the Stipulation and the other documents contemplated thereunder, as applicable, by, among other things, the mutual waivers and certifications contained in this Section 20. SECTION 21. SEVERABILITY. In the event any one or more of the provisions contained in this Pledge Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 22. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) The Pledgor hereby irrevocably and unconditionally submits, for itself and its property to the fullest extent it may legally and effectively do so, to the exclusive jurisdiction of the Court, and any appellate court therefrom, in any action or proceeding arising out of or relating to this Pledge Agreement, the Stipulation or the other documents contemplated thereunder, or for recognition or enforcement of any judgment, and hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such court. The Pledgor hereby agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) The Pledgor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Pledge Agreement or the Stipulation or the other documents contemplated thereunder in the Court. The Pledgor hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) The Pledgor irrevocably consents to service of process in the manner provided for notices in Section 17 hereof. Nothing in this Pledge Agreement will affect the right of any party to this Pledge Agreement to service process in any other manner permitted by law. SECTION 24. GOVERNING DOCUMENTS. In the event of a conflict between the provisions of this Pledge Agreement and the provisions of the Stipulation, such conflict shall be governed by the terms of the Stipulation. SECTION 25. HEADINGS. Section headings in this Pledge Agreement are included herein for the convenience of reference only and shall not constitute a part of this Pledge Agreement for any other purpose. IN WITNESS WHEREOF, the Pledgor, the Collateral Agent and Emerson have caused this Pledge Agreement to be duly executed and delivered as of the date first above written. FIDENAS INTERNATIONAL LIMITED, L.L.C. /s/ Geoffrey P. Jurick By: Geoffrey P. Jurick Title: TM CAPITAL CORP. /s/ W. Gregory Robertson By: W. Gregory Robertson Title: President Emerson Radio Corp. acknowledges receipt of a copy of this Pledge Agreement and agrees to be bound by the provisions of Section 13 hereof. EMERSON RADIO CORP. /s/ Eugene I. Davis By: Eugene I. Davis Title: Each of the undersigned acknowledges receipt of a copy of this Pledge Agreement and confirms that the terms thereof are acceptable to it. /s/ Thomas Hackett THOMAS HACKETT, OFFICIAL LIQUIDATOR OF FIDENAS INTERNATIONAL BANK LIMITED /s/ Thomas P. Ogden PETRA STELLING, by Thomas P. Odgen, Attorney-In-Fact BARCLAYS BANK PLC /s/ Ron Spitzer By: Ron Spitzer Title: VP /s/ Geoffrey P. Jurick GEOFFREY P. JURICK ELISION INTERNATIONAL, INC. /s/ Geoffrey P. Jurick By: Geoffrey P. Jurick Title: GSE MULTIMEDIA TECHNOLOGIES, INC., F/K/A GSE ELECTRONIC SYSTEMS, INC. By: Title: EX-2 3 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of February 4, 1997, by and among EMERSON RADIO CORP., a Delaware corporation (the "Company" or "Emerson"), FIDENAS INTERNATIONAL LIMITED, L.L.C., a New Jersey limited liability company ("FIN"), the Creditors (as hereinafter defined), FIL (as hereinafter defined) TM CAPITAL CORP., a Delaware corporation (the "Advisor" or the "Settlement Agent"). W I T N E S S E T H: RECITALS A. On June 11, 1996, Emerson, Thomas Hackett, Official Liquidator of Fidenas International Bank Limited ("FIBANK"), Barclays Bank PLC ("Barclays"), Wayne J. Aranha, Official Liquidator of Fidenas Investment Limited ("FIL"), Geoffrey P. Jurick ("Jurick"), FIN, Elision International, Inc. ("Elision"), GSE Multimedia Technologies, Inc. ("GSE") and certain other persons as to certain sections thereof entered into a Stipulation of Settlement and Order ("Stipulation") which represented a global settlement of matters and disputes in accordance with its terms. B. The Stipulation provides, among other things, that, in full satisfaction of all claims described or listed in the Stipulation, Jurick, FIN, Elision and GSE shall pay to FIBANK, Petra Stelling and Barclays (together, the "Creditors") the aggregate sum of $49.5 Million (the "Settlement Amount"), in accordance with Exhibit A to the Stipulation; and that, subject to the other provisions of the Stipulation, Jurick shall be paid the sum of $3.5 million, also in accordance with Exhibit A to the Stipulation, solely from the proceeds of the sale of the shares of Common Stock of Emerson hereinafter described (the "Jurick Payment" and, together with the Settlement Amount, the "Aggregate Amount") C. The Stipulation further contemplates that the primary source of funds for the payment of the Aggregate Amount will be the proceeds of the sale of shares of the common stock, $.01 par value per share, of the Company (the "Emerson Shares") originally registered in the names of FIN, GSE and Elision, certain of which were transferred to and registered in the name of FIN pursuant to the Stipulation. D. Pursuant to the Stipulation, the Creditors, Jurick and Emerson (collectively, the "Lead Parties") selected the Advisor to formulate the Marketing Plan for the Emerson Shares as contemplated by the Stipulation, and the Settlement Agent was appointed pursuant to the Stipulation. E. The Marketing Plan may provide in part for the sale of the Emerson Shares in circumstances which require the registration thereof under the Securities Act of 1933, as amended and applicable state blue sky laws. F. To implement and facilitate the Stipulation, Emerson has agreed to use its best efforts, from time to time, to register the Emerson Shares under the Securities Act and to cause the Registration Statements relating thereto to become and remain effective. NOW, THEREFORE, in order to implement the Stipulation and for the benefit of the Creditors and Jurick and in consideration of the mutual covenants hereinafter set forth, the parties, intending to be legally bound, hereby agree as follows: SECTION 1. DEFINITIONS. (a) DEFINED TERMS. Terms defined in the title to this Agreement or in the Recitals contained herein shall have the meanings ascribed to them in the title or Recitals as the case may be. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Stipulation. The following additional capitalized terms when used in this Agreement, including its Recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "AGREEMENT" means this Registration Rights Agreement as in effect on the Effective Date and as hereafter amended, supplemented, restated, or otherwise modified. "BUSINESS DAY" means a day, other than a Saturday or Sunday, on which commercial banks in New York City are open for the general transaction of business. "COMMON STOCK" means the common stock of Emerson. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations adopted by the SEC thereunder. "HOLDERS" shall mean FIN and its successors. Unless the context otherwise requires, no Creditor or FIL shall be deemed a Holder under this Agreement. "INDEMNIFIED PERSON" is defined in Section 4(a). "INDEMNIFYING PERSON" is defined in Section 4(a). "NASD" means the National Association of Securities Dealers, Inc. "PERSON" means an individual, partnership, corporation, joint stock company, unincorporated organization or association, trust or joint venture or a governmental agency or political subdivision thereof. "REGISTRABLE SECURITIES" shall mean the Emerson Shares excluding the Emerson Shares that have been (i) disposed of under a Registration Statement, Shelf Registration Statement or any other effective registration statement, (ii) distributed to the public pursuant to Rule 144 under the Securities Act or (iii) otherwise sold or transferred to a Person to satisfy, or with the proceeds from the sale thereof used to satisfy, a portion of the Aggregate Amount. "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations adopted by the SEC thereunder. "SEC" means the Securities and Exchange Commission. "Shelf Prospectus" shall mean the Prospectus included in a Shelf Registration Statement, including any preliminary prospectus, and any amendment or supplement thereto, including any supplement relating to the terms of the offering of any portion of the Registrable Securities covered by the Shelf Registration Statement, and in each case including all material incorporated by reference therein. "SHELF REGISTRATION" shall mean a registration required to be effected pursuant to Section 2 hereof. "SHELF REGISTRATION STATEMENT" shall mean a registration statement of the Company that covers Registrable Securities to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all related Prospectuses, amendments (including post-effective amendments), and supplements to such registration statement, and all exhibits thereto and materials incorporated by reference therein. (b) CROSS-REFERENCES. Unless otherwise specified, references in this Agreement to any Article or Section are references to such Article, or Section of this Agreement, and unless otherwise specified, references in any Article, Section, or definition to any clause are references to such clause of such Section, Article, or definition. SECTION 2. SHELF REGISTRATION. (a) FILING OF SHELF REGISTRATION STATEMENTS. Promptly after the date hereof, the Company shall cause to be filed an amendment to a Shelf Registration Statement providing for the sale by the Holders in accordance with the terms hereof of the number of Registrable Securities as determined by the Advisor to be sold in accordance with a Marketing Plan or any amendment thereto. Following or in anticipation of the completion of the sale or disposition of the Registrable Securities included in such Shelf Registration Statement or any other Shelf Registration Statement filed by the Company pursuant hereto, the Company shall promptly cause to be filed additional Shelf Registration Statements providing for the sale by the Holders in accordance with the terms hereof, the number of Registrable Securities, as determined by the Advisor in accordance with a Marketing Plan or any amendment. The Company will use its best efforts to cause each such Shelf Registration Statement to be declared effective by the SEC and to keep a Shelf Registration Statement with respect to the Registrable Securities continuously effective so long as (i) the Aggregate Amount and expenses to be reimbursed as set forth in the Stipulation have not been paid in full, (ii) such Registrable Securities have not been sold, and (iii) any Holder holds Registrable Securities and has not received an opinion of counsel to the Company (which opinion and counsel shall be satisfactory to the Advisor and the Holder in their judgment reasonably exercised) to the effect that such Holder is permitted under Rule 144 or otherwise to dispose of all of its Registrable Securities within no more than three months without such registration. The Company further agrees to amend the Shelf Registration Statement if and as required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or any rules and regulations thereunder. The Company, however, shall have no obligation to cause more than one such Shelf Registration Statement to be effective at any one time. (b) SHELF REGISTRATION PROCEDURES. In connection with the obligations of the Company with respect to the Shelf Registration Statements contemplated by this Section 2, the Company shall use its best efforts to effect each such registration to permit the sale of the Registrable Securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto it will, as expeditiously as possible: (i) at least five days prior to filing a Shelf Registration Statement or Shelf Prospectus or any amendments or supplements thereto, furnish to the Holders of the Registrable Securities covered by such Shelf Registration Statement, the Advisor, the Settlement Agent, each Creditor and the underwriter(s), if any, copies of all such documents proposed to be filed, and the Company will consider any comments thereon by any of the foregoing and will not file any Shelf Registration Statement or amendment thereto or any Shelf Prospectus or any supplement thereto to which the Holders of the Registrable Securities covered by such Shelf Registration Statement, the Creditors, the Advisor, the Settlement Agent or the managing underwriter(s), if any, shall reasonably object; (ii) in accordance with (i) above, promptly thereafter prepare and file with the SEC, any such Shelf Registration Statement, which Shelf Registration Statement (a) shall be available for the sale of the Registrable Securities covered thereby in accordance with the intended method or methods of distribution by the selling Holders thereof and (b) shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith; (iii) (a) prepare and file with the SEC such amendments to such Shelf Registration Statement as may reasonably be requested by any Holder of Registrable Securities, the Advisor, the Settlement Agent or the managing underwriter(s), if any, or as may be required by the Securities Act, the Exchange Act or by the rules, regulations or instructions applicable to the registration form utilized by the Company or as may otherwise be necessary to keep such Shelf Registration Statement effective for the applicable period; (b) cause the Shelf Prospectus to be amended or supplemented as may reasonably be requested by the Settlement Agent, the Advisor, or the managing underwriter(s), if any, or as may be required by the Securities Act, the Exchange Act or by the rules, regulations or instructions applicable to the registration form utilized by the Company or as may otherwise be necessary to keep such Shelf Registration Statement effective for the applicable period; (c) cause the Shelf Prospectus as so amended or supplemented to be filed pursuant to Rule 424 (or any successor rule) under the Securities Act; (d) respond as promptly as reasonably practicable to any comments received from the SEC with respect to the Shelf Registration Statement or any amendment thereto; and (e) comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Shelf Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof; (iv) promptly notify the selling Holders of Registrable Securities, the Creditors, the Advisor and the Settlement Agent and the managing underwriter(s), if any, and if requested by any such Person, confirm such advice in writing: (a) of the filing of the Shelf Prospectus or any supplement to the Shelf Prospectus and of the effectiveness of the Shelf Registration Statement and/or any post-effective amendment, (b) of any request by the SEC for amendments or supplements to the Shelf Registration Statement or the Shelf Prospectus or for additional information, (c) of the issuance by the SEC of any stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of any proceedings for that purpose, and (d) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threat of any proceeding for such purpose. (v) make reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of any Shelf Registration Statement or any qualification referred to in paragraph (iv)(d) at the earliest possible moment; (vi) if reasonably requested by the managing underwriter(s) or the Holders of Registrable Securities being sold in connection with an underwritten offering, promptly incorporate in a supplement to the Shelf Prospectus or post-effective amendment to the Shelf Registration Statement such information as the managing underwriter(s) or the Holders of the Registrable Securities being sold reasonably request to have included therein relating to the plan of distribution with respect to such Registrable Securities, including, without limitation, information with respect to the amount of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and any other terms of the underwritten (or best-efforts underwritten) offering of the Registrable Securities to be sold in such offering; and make all required filings of such supplement to the Shelf Prospectus or post-effective amendment to the Shelf Registration Statement reasonably promptly after being notified of the matters to be incorporated in such supplement to the Shelf Prospectus or post-effective amendment to the Shelf Registration Statement; (vii) promptly furnish to each selling Holder of Registrable Securities, the Advisor, the Settlement Agent, each Creditor and each managing underwriter, if any, at least one signed copy of the Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference); (viii) promptly deliver to each Creditor one courtesy copy and to each Holder of Registrable Securities, the Advisor, the Settlement Agent, and the managing underwriter(s), if any, as many copies of the Shelf Registration Statement, each Shelf Prospectus and any amendment or supplement thereto (in each case including all exhibits), as such Persons may reasonably request, and such other documents as such selling Holder may reasonably request in order to facilitate the disposition of its Registrable Securities; and, in connection therewith, the Company confirms that it consents to the use of the Shelf Prospectus and any amendment or supplement thereto by each such Holder of Registrable Securities and the underwriter(s), if any, in connection with the offering and sale of the Registrable Securities covered by the Shelf Prospectus or amendment or supplement thereto; (ix) prior to the time the Shelf Registration Statement is declared effective by the SEC, register or qualify the Registrable Securities covered thereby or reasonably cooperate with the Settlement Agent, the Advisor, selling Holders, the underwriter(s), if any, and their respective counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any selling Holder, the Advisor, the Settlement Agent or managing underwriter(s), if any, reasonably request(s), keep each such registration or qualification effective during the period such Shelf Registration Statement is required to be kept effective, and do any and all other acts or things necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by the Shelf Registration Statement; (x) cooperate with the selling Holders of Registrable Securities and the managing underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any legends restricting the transfer thereof; and enable such Registrable Securities to be in such denominations and registered in such names as the selling Holders, Settlement Agent, or the managing underwriters may request at least two Business Days prior to any sale of Registrable Securities; (xi) upon execution and delivery of such mutually acceptable confidentiality agreements as the Company may reasonably request, make available to any underwriter participating in any disposition pursuant to such Shelf Registration Statement, and any attorney or accountant retained by such underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such underwriter, attorney or accountant in connection with the registration, at such time or times as the Person requesting such information shall reasonably determine; (xii) otherwise use its best efforts to comply with the Securities Act, the Exchange Act, all applicable rules and regulations of the SEC and all applicable state blue sky and other securities laws, rules and regulations, and make generally available to its security holders, as soon as practicable, an earnings statement satisfying the provisions of Section 11(a) of the Securities Act; (xiii) cooperate and assist in any filings required to be made with the NASD; and (xiv) enter into such customary agreements (including, if such Shelf Registration Statement relates to an underwritten offering, an underwriting agreement) and take all such other customary actions in connection therewith in order to expedite or facilitate the disposition of such Registrable Securities and, in such connection, if the registration is in connection with an underwritten offering, (a) make such representations and warranties to the underwriters in such form, substance, and scope as are customarily made by issuers to underwriters in underwritten offerings and confirm the same if and when requested; (b) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions in form, scope, and substance shall be satisfactory to the underwriters in their judgment reasonably exercised) addressed to the underwriters covering the matters of the type customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such underwriters; (c) obtain "cold comfort" letters and updates thereof from the Company's accountants addressed to the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters by underwriters in connection with underwritten offerings; (d) set forth in full in any underwriting agreement entered into the indemnification provisions and procedures of Section 4 hereof with respect to all parties to be indemnified pursuant to said Article; and (e) deliver such documents and certificates as may reasonably be requested by the underwriters to evidence compliance with clause (a) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company; the above shall be done at each closing under such underwriting or similar agreement or as and to the extent required hereunder. (c) COVENANTS OF HOLDERS AND CREDITORS. In connection with and as a condition to the Company's obligations with respect to Shelf Registration Statements required to be filed by the Company pursuant to this Agreement, each Holder, the Advisor, the Settlement Agent, each Creditor, FIL, and the underwriters, if any, covenant and agree that (i) upon receipt of any notice from the Company of the existence of any fact (the substance of which need not be disclosed to the Holder, the Advisor, the Settlement Agent, FIL, or any Creditor or underwriter) which, in the good faith opinion of the Company results in any Shelf Registration Statement or Shelf Prospectus containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading, neither such Holder nor any underwriter shall offer or sell any Registrable Securities pursuant to such Shelf Registration Statement until such Holder and underwriter receive copies of a supplemented or amended Shelf Prospectus and receive notice that any post-effective amendment has become effective, and, if so directed by the Company, such Holder and underwriter and all Creditors, FIL, the Advisor, and the Settlement Agent will deliver to the Company all copies in its possession, other than permanent file copies then in such person's possession, of the Shelf Prospectus as amended or supplemented at the time of receipt of such notice; (ii) such Holder, Creditor, FIL, Advisor, Settlement Agent, and any of their respective officers, directors or affiliates, if any, will comply with the provisions of Rule l0b-6 and l0b-7 under the Exchange Act as applicable to them in connection with sales of Registrable Securities pursuant to the Shelf Registration Statement; and (iii) such Holder and each underwriter and all Creditors, FIL, the Advisor, and the Settlement Agent and any of their respective officers, directors or affiliates, if any, will comply with the prospectus delivery requirements of the Securities Act as applicable to them in connection with sales of Registrable Securities pursuant to the Shelf Registration Statement. The Company covenants and agrees that it will supplement the Shelf Prospectus or file and cause its best efforts to have declared effective a post-effective amendment to the Shelf Registration Statement, as the case may be, within thirty days of providing the notice to cease sales contemplated by this Section 2(c). (d) MECHANICS OF SHELF REGISTRATION. Each registration effected pursuant to this Section 2 shall be effected by the filing of a Shelf Registration Statement on such Form as shall be determined by the Company and which is then eligible for use by the Company in connection with sale of the Emerson Shares by the Holders of the Registrable Securities, the Advisor, and the Settlement Agent in accordance with their intended method of disposition. (e) BLACKOUT PERIOD. The Company shall be entitled to (i) postpone for a reasonable period of time, but not in excess of 45 days, the filing of any Shelf Registration Statement otherwise required to be prepared and filed by the Company hereunder, or (ii) elect that any Shelf Registration Statement not be usable, for a reasonable period of time, but not in excess of 45 days (a "Blackout Period"), if the Company (x) determines in good faith that the registration and distribution of Registrable Securities (or the use of any such Shelf Registration Statement or related Shelf Prospectus) would interfere with any pending material financing, acquisition or corporate reorganization or similar transaction involving, or the resolution of any other material business or commercial issue by, the Company or any of its subsidiaries, to the extent permitted under the Stipulation, because it would require premature disclosure thereof and (y) promptly gives the Holders of Registrable Securities, the Advisor and each Creditor written notice of such determination, containing a general statement of the reasons for such postponement or restriction on use and an approximation of the anticipated delay; PROVIDED, HOWEVER, that the aggregate number of days included in all Blackout Periods during any consecutive 12 months shall not exceed 90 days. (f) HOLDBACK AGREEMENT. If (i) the Company shall file a registration statement (other than in connection with the registration of securities issuable pursuant to an employee stock option, stock purchase or similar plan or pursuant to a merger, exchange offer or a transaction of the type specified in Rule 145(a) under the Securities Act to the extent permitted under the Stipulation) with respect to its Common Stock and (ii) with reasonable prior notice, the managing underwriter or underwriters advises the Company in writing (in which case the Company shall notify the Holders), the Advisor, the Settlement Agent and each Creditor that a public sale or distribution of Registrable Securities would adversely impact such offering, then each Holder of Registrable Securities and any underwriter, if any, shall, to the extent not inconsistent with applicable law, refrain from effecting any public sale or distribution of Registrable Securities during the 10-day period prior to, and during the 135-day period beginning on, the effective date of such registration statement. (g) REGISTRATION EXPENSES. All expenses incident to the Company's performance of or compliance with its obligations under this Agreement (excluding underwriting discounts, selling commissions and brokerage fees which shall be paid out of the proceeds of the sale of Registrable Securities) will be paid by the Company, subject to reimbursement, in the manner and on the terms provided in Section 3(g) of the Stipulation. SECTION 3. CONDITIONS TO REGISTRATION. Each Holder's right to have Registrable Securities included in any Shelf Registration Statement filed by the Company in accordance with the provisions of Section 2 shall be subject to the following conditions: (a) The Advisor, the Settlement Agent, each Creditor, FIL, and the Holders on whose behalf such Registrable Securities are to be included shall be required to furnish the Company in a timely manner with all information required by the applicable rules and regulations of the SEC concerning the proposed method of sale or other disposition of such securities, the identity of and compensation to be paid to any proposed underwriters to be employed in connection therewith, and such other information as may be reasonably required by the Company properly to prepare and file such Registration Statement or Shelf Registration Statement in accordance with applicable provisions of the Securities Act; (b) If any such Holder intends to sell and distribute Registrable Securities over a period of time, or from time to time, at then prevailing market prices, then any such Holder, each Creditor, FIL, the Advisor, and the Settlement Agent shall execute and deliver to the Company such written undertakings as the Company and its counsel may reasonably require in order to assure full compliance with relevant provisions of the Securities Act and the Exchange Act; (c) In the case of any underwritten offering on behalf of the Company, such Holders, the Advisor and the Settlement Agent will enter into such agreements (including lock-up agreements not inconsistent with the terms of this Agreement) as the managing underwriters shall reasonably request not to exceed the period set forth in Section 2(f) and as are customary in similar circumstances. SECTION 4. INDEMNIFICATION. (a) INDEMNIFICATION BY THE COMPANY. In the event of the registration of any Registrable Securities under the Securities Act pursuant to the provisions hereof and the receipt by the Company prior to the effective date of a Shelf Registration Statement of an opinion of counsel to the effect that, in connection with such distribution, the Advisor and/or Settlement Agent may be an "underwriter" for purposes of the Securities Act, the Company will indemnify and hold harmless the Advisor, the Settlement Agent, and the Holders, their respective partners, directors, officers, employees and agents, and each other Person, if any, who controls the Advisor or Settlement Agent within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each such Person being hereinafter sometimes referred to as an "Indemnified Person", provided that for purposes of clauses (b), (c) and (d) of this Section 4 "Indemnified Person" shall include the Company, its partners, directors, officers, employees and agents, and each other Person, if any who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act) from and against any losses, claims, damages, liabilities or expenses, joint or several, to which such Indemnified Person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained or incorporated by reference in any Shelf Registration Statement or Shelf Prospectus or any amendment or supplement thereto, or any document incorporated by reference therein, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such Indemnified Person for any legal or other expenses reasonably incurred by such Indemnified Person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability (i) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made or incorporated by reference in the Shelf Registration Statement or Shelf Prospectus or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by any Holder of Registrable Securities, any Creditor, FIL, the Advisor, the Settlement Agent, or such Indemnified Person for use in preparation thereof or (ii) arises out of the use of any Shelf Prospectus by the Holder of Registrable Securities, any underwriter or an Indemnified Party after the Company has provided such Indemnified Party with the notice and referred to in Section 2(c) if such Shelf Prospectus is the subject of such notice. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Person and shall survive the transfer of such Registrable Securities by any Holder of Registrable Securities. (b) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES AND OTHERS. In the event of the registration of any Registrable Securities under the Securities Act pursuant to the provisions hereof, each Holder on whose behalf such Registrable Securities shall have been registered and each Creditor, FIL, the Advisor, and/or the Settlement Agent (together with the Company (in the case of paragraph 4(a) only), each an "Indemnifying Person") will indemnify and hold harmless each and every Indemnified Person against any losses, claims, damages or liabilities, joint or several, to which such Indemnified Person may become subject under the Securities Act, the Exchange Act or otherwise, only insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) arise directly out of or are based solely upon any untrue statement or alleged untrue statement of a material fact contained or incorporated by reference in any Shelf Registration Statement or Shelf Prospectus or any amendment or supplement thereto or any document incorporated by reference therein, or arise directly out of or are based solely upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission has been made or incorporated therein in reliance upon and in conformity with written information furnished to the Company by such Indemnifying Person specifically stating that it is for use in the preparation thereof. Each Indemnifying Person will reimburse each such Indemnified Person for any legal and other expenses reasonably incurred by such Indemnified Person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the liability of each such person hereunder shall be limited to the proceeds received by such person from the sale of Registrable Securities covered by such Shelf Registration Statement. (c) PROCEDURE. Promptly after receipt by an Indemnified Person of notice of the commencement of any action (including any governmental investigation or inquiry), such Indemnified Person will, if such Indemnified Person intends to make a claim in respect thereof against an Indemnifying Person pursuant to paragraph 4(a) or (b) hereof, give written notice to such Indemnifying Person of the commencement thereof, but the omission so to notify the Indemnifying Person shall not relieve the Indemnifying Person from any of its obligations pursuant to the provisions of this Section 4 except to the extent that the Indemnifying Person is actually prejudiced by such failure to give notice. In case any such action is brought against any Indemnified Person and it notifies an Indemnifying Person of the commencement thereof, the Indemnifying Person shall be entitled to participate in, and to the extent that it may wish, jointly with any other Indemnifying Person similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such Indemnified Person. After notice from the Indemnifying Person to such Indemnified Person that the Indemnifying Person shall assume the defense, the Indemnifying Person shall not, except as hereinafter provided, be responsible for any legal or other expenses subsequently incurred by such Indemnified Person in connection with the defense thereof. No Indemnifying Person will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Person of a release from all liability in respect of such claim or litigation. Such Indemnified Person shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be the expense of such Indemnified Person unless (a) the Indemnifying Person has agreed to pay such fees and expenses or (b) the Indemnifying Person shall have failed to assume the defense of such action or proceeding or has failed to employ counsel reasonably satisfactory to such Indemnified Person in any such action or proceeding or (c) the named parties to any such action or proceeding (including any impleaded parties) include both such Indemnified Person and the Indemnifying Person and such Indemnified Person shall have been advised by counsel that representation of both parties by the same counsel would be inappropriate due to actual or potential material differing interests between them (in which case, if such Indemnified Person notifies the Indemnifying Person in writing that it elects to employ separate counsel at the expense of the Indemnifying Person, the Indemnifying Person shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnifying Person). The Indemnifying Person shall not be liable for any settlement of any such action or proceeding effected without its written consent, which consent shall not unreasonably be withheld, delayed or conditioned, but if settled with its written consent or if there is a final judgment for the plaintiff in any such action or proceeding, the Company agrees to indemnify and hold harmless such Indemnified Persons from and against any loss or liability by reason of such settlement or judgment. (d) CONTRIBUTION. If the indemnification provided for in this Section 4 is unavailable to a party that would have been an Indemnified Person under this Section 4 in respect of any losses, claims, damages, liabilities or expenses (or actions in respect thereof) referred to herein, then each party that would have been an Indemnifying Person thereunder shall, in lieu of indemnifying such Indemnified Person, contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages, liabilities or expenses (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Person on the one hand and the Indemnified Person on the other in connection with the statement or omission which resulted in such losses, claims, damages, liabilities or expenses (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission of a material fact relates to information supplied by the Indemnifying Person or the Indemnified Person and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 4(c), any legal or other fees or expenses reasonably incurred by such party in connection with the investigation or defense of any action or claim. The Company and each Holder of Registrable Securities, each Creditor, FIL, the Advisor, and the Settlement Agent agree that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 4. Notwithstanding the provisions of this Section 4(d), no Holder of Registrable Securities, no Creditor, FIL, the Advisor, or the Settlement Agent shall be required to contribute any amount in excess of the amount by which the total proceeds from the sale of Registrable Securities received by it exceeds the amount of any damages which such person otherwise has been required to pay by reason of such untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. SECTION 5. NOTICES. All notices, consents, approvals, agreements and other communications provided hereunder shall be in writing and shall be delivered by hand or overnight courier service or mailed certified or registered mail, or sent by telex, facsimile or other telegraphic communication equipment of the sending party, as follows: If to a Party to the Stipulation: As provided in Section 15 of the Stipulation If to the Advisor or the Settlement Agent: TM Capital Corp. One Battery Park Plaza 35th Floor New York, New York 10004 Attn: W. Gregory Robertson, President Telecopier: (212) 809-1450 with a copy to: Pepper, Hamilton & Scheetz 3000 Two Logan Square Eighteenth and Arch Streets Philadelphia, Pennsylvania 19103-2799 Telecopier: (215) 981-4750 or at any such other address as any party may designate to any other party by written notice. All notices and other communications given to any party hereto shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telex, facsimile transmission or other telegraphic communication equipment of the sender, or on the date five (5) Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 5 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 5. SECTION 6. ENTIRE AGREEMENT. The parties hereto agree that this Agreement and the Stipulation and the documents executed thereunder (to the extent expressly referred to herein) constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings between them as to such subject matter; and there are no restrictions, agreements, arrangements, oral or written, between any or all of the parties relating to the subject matter hereof which are not fully expressed or referred to herein or therein. SECTION 7. WAIVERS AND FURTHER AGREEMENTS. Any waiver of any terms or conditions of this Agreement shall not operate as a waiver of any other breach of such terms or conditions or any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof; provided, however, that no such written waiver unless it by its own terms explicitly provides to the contrary, shall be construed to effect a continuing waiver of the provision being waived and no such waiver in any instance shall constitute a waiver in any other instance or for any other purpose or impair the right of the party against whom such waiver is claimed in all other instances or for all other purposes to require full compliance with such provision. SECTION 8. AMENDMENTS. This Agreement may not be amended nor shall any waiver, change, modification, consent or discharge be effected except by an instrument in writing executed by or on behalf of the party hereto or parties against whom enforcement of any amendment, waiver, change, modification, consent or discharge is sought. No failure or delay by any party in exercising any right or remedy hereunder shall operate as a waiver thereof, and a waiver of a particular right or remedy on one occasion shall not be deemed a waiver of any other right or remedy or a waiver of the same right or remedy on any subsequent occasion. SECTION 9. ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, legal representatives, successors and permitted assigns, including, without limitation, any Holders, of the Registrable Securities; provided, however, that any purchasers of Registrable Securities under a Shelf Registration Statement shall not be bound or effected by the terms and conditions of this Agreement. SECTION 10. SEVERABILITY. If any provision of this Agreement shall be held or deemed to be, or shall in fact be, invalid, inoperative or unenforceable as applied to any particular case in any jurisdiction or jurisdictions, or in all jurisdictions or in all cases, because any provision conflicts with any constitution, statute, rule or public policy, or for any other reason, such circumstance shall not have the effect of rendering the provision or provisions in question, invalid, inoperative or unenforceable in any other jurisdiction or in any other case or circumstance or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to the extent that such other provisions are not themselves actually in conflict with such constitution, statute, rule or public policy, but this Agreement shall be reformed and construed in any such jurisdiction or case as if such invalid, inoperative or unenforceable provision had never been contained herein and such provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted in such jurisdiction or in such case. SECTION 11. COUNTERPARTS. This Agreement may be executed in two or more counterparts (each of which need not be executed by each of the parties), each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and in pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one such counterpart. SECTION 12. SECTION HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. SECTION 13. GENDER; USAGE. Whenever used herein the singular number shall include the plural, the plural shall include the singular, and the use of any gender shall include all genders. The words "hereof," "herein" and "hereunder," and words of similar import, when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. SECTION 14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY OTHER THAN THE CONFLICTS OF LAWS PRINCIPLES THEREOF. SECTION 15. TERMINATION. The rights of any Holder under Section 2 of this Agreement shall terminate as to any Registrable Securities when (i) the Aggregate Amount and expenses to be reimbursed as set forth in the Stipulation have been paid in full, (ii) such Registrable Securities have been effectively registered under the Securities Act and sold pursuant to a Shelf Registration Statement covering such Registrable Securities or (iii) each Holder of Registrable Securities receives an opinion of counsel to the Company (which opinion and counsel shall be satisfactory to the Advisor and the Holder in their judgment reasonably exercised) to the effect that such Holder is permitted under Rule 144 or otherwise to dispose of all of its Registrable Securities within three months without registration of the Registrable Securities under the Securities Act. The indemnification and contribution provisions of Sections 4 shall survive any termination of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. EMERSON RADIO CORP. By: /s/ Eugene I. Davis Authorized Officer FIDENAS INTERNATIONAL LIMITED, L.L.C. By: /s/ Geoffrey Jurick Authorized Officer TM CAPITAL CORP. By: /s/ W. Gregory Robertson Authorized Officer FIDENAS INTERNATIONAL BANK LIMITED By: /s/ Thomas Hackett Thomas Hackett, Official Liquidator /s/ Thomas P. Ogden Petra Stelling, by Thomas P. Ogden, Attorney-In-Fact BARCLAYS BANK PLC By: /s/ Ron Spitzer Authorized Officer EX-3 4 LICENSE AND EXCLUSIVE DISTRIBUTION AGREEMENT This Agreement, dated effective as of December 31, 1996 (the "Effective Date"), is by and between EMERSON RADIO CORP., a Delaware corporation, having a place of business at Nine Entin Road, Parsippany, New Jersey 07054 and CARGIL INTERNATIONAL CORP., a Florida corporation, having a place of business at 6812 N.W. 77th Court, Miami, Florida 33166. Licensor (as hereinafter defined), directly and through affiliates, distributes a variety of consumer electronics products and microwave ovens in numerous countries throughout the world. Licensor is the owner of certain valuable and well-known trademarks, and the goodwill associated therewith; Licensee (as hereinafter defined) desires to obtain a license of certain of Licensor's trademarks in connection with the manufacturing, marketing, sale and exclusive distribution of certain consumer electronics and other products as specifically set forth on Exhibit A annexed hereto, together with replacement parts which may bear the trademarks (collectively referred to herein as the "Goods"); Licensee desires to sell the Goods bearing the trademarks in the geographic regions set forth in Exhibit B ("Territory") and use certain of Licensor's trademarks in conjunction therewith; Licensor is agreeable to license the use of certain of its trademarks with respect to the manufacturing, marketing, exclusive distribution and sale of the Goods by Licensee in the Territory, subject to the terms and conditions of this Agreement. In consideration of the foregoing premises and the mutual agreements contained herein, the following is agreed to: 1. DEFINITIONS 1.1 "Affiliate" means a person or entity who directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a specified person or entity. 1.2 "Confidential Information" means any and all information, data, specifications, customer lists, products and services information, sales and marketing information, vendor data, and information regarding either Licensor, Licensee or their respective Affiliates (collectively, the "Information") except: (a) Information which at the time of disclosure is in the public domain; (b) Information which, after disclosure, through no fault of the party receiving same, is published or otherwise becomes part of the public domain; (c) Information which the receiving party can document as having been in its possession prior to the time of disclosure to it by the other party; (d) Information which the receiving party can document as having been received by it on a non-confidential basis from a third party; or (e) Data, specifications, customer lists, products and services information and vendor data which the receiving party created on its own or through independent third parties without use of the Information. 1.3 "Contract Year" means, (i) as to the first Contract Year, the period commencing on the Effective Date of this Agreement and ending on March 31, 1998; and (ii) each immediately subsequent full year during the term of this Agreement commencing April 1, 1998. 1.4 "Contract Quarter" means each calendar quarter or part thereof within each of the Contract Years. 1.5 "Goods" means those first quality new "A" stock consumer electronics and other goods as specifically set forth on Exhibit A annexed hereto, which Exhibit may be amended from time to time by mutual agreement to reflect additions to or the obsolescence of one or more of the Goods. 1.6 "Sale" means sale, lease, rental, transfer, exchange or other disposition of the Goods by Licensee. A Sale will be deemed to have occurred when the Goods are shipped or are invoiced, whichever occurs first. 1.7 "Trademarks" means the Emerson and G-Clef design in the form set forth on Exhibit C and all future form(s) of same adopted by Licensor. 1.8 "Licensor" means Emerson Radio Corp. 1.9 "Licensee" means Cargil International Corp. 2. GRANT 2.1 (a) Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee an exclusive (to the extent contemplated by Section 8.1) non-transferable license to utilize the Trademarks solely upon and in connection with the manufacturing, sale, marketing and distribution of the Goods in the Territory. (b) In the event Licensor is desirous of introducing into the Territory a new category of products not previously offered to Licensee under the terms of this Agreement ("New Product(s)"), Licensor hereby grants to Licensee a right of first refusal with respect to the manufacture, sale, marketing and distribution of such New Product(s) in the Territory. In such event, Licensor shall furnish Licensee with a description of the New Product(s) and related specifications. Licensee shall have 30 days after receipt of such notice to advise Licensor in writing whether it is interested in acquiring an exclusive license for such New Product(s) for the Territory, which shall be in accordance with the terms of this Agreement, pursuant to such notice; if Licensee is interested in acquiring such a license, it shall include with the written notice of its interest a.) reasonable and realistic monthly sales projections for the 12 month period beginning with product availability; b.) a market study; and c.) detailed assumptions supporting the projections, all of which must be in a form acceptable to Licensor. In the event Licensor accepts the market study, related sales projections and the assumptions underlying same, Licensor shall provide Licensee with written confirmation that the New Product(s) is added to the list of Products set forth on Exhibit A and subject to the terms of this Agreement. Should Licensee (i) refuse such offer or (ii) fail to exercise its rights hereunder by providing Licensor with written notice and an acceptable market study, sales projection or underlying assumptions within the prescribed time period, then, in any such event, Licensee's rights hereunder with respect to such New Product(s) shall be waived and Licensor, in its sole discretion, shall be free to sell or grant distribution or trademark license rights with respect to such New Product(s) within the Territory. 2.2 Licensee shall not use the Trademarks, or purport to give consent to the use of the Trademarks, in any manner or on any product, items or services, except as specifically set forth in this Agreement. 2.3 Licensee agrees that the Goods bearing the Trademarks shall not, directly or indirectly, be distributed, sold, or otherwise transferred or disposed of outside of the Territory by the Licensee. Licensee shall inform its customers and distributors that the Goods cannot be distributed, sold or otherwise disposed of outside of the Territory. Licensee agrees that it shall not sell the Goods to any customer or distributor that may distribute, sell or otherwise dispose of the Goods outside of the Territory. Notwithstanding the above and Licensor's right to terminate this Agreement as set forth in Section 10.2 in the event Goods are sold or otherwise disposed outside of the Territory, Royalties (as hereafter defined) shall be due on any and all such sales of Goods. 3. TERM Subject to the earlier expiration or termination of this Agreement as provided in Section 10 or otherwise herein, this Agreement shall be effective as of the Effective Date and expire as of the close of business on March 31, 2002 (the "Initial Term"), but shall be automatically renewed for successive five (5)-year periods provided (i) Licensee has paid to Licensor all Royalties (as hereinafter defined) payable for each Contract Year as set forth herein in a timely manner and in accordance with the payment schedule, and (ii) Licensee has satisfied and/or complied with all of its obligations hereunder. Each successive five-year period shall hereinafter be referred to as a "Renewal Term." "Initial Term" and "Renewal Term" shall collectively be referred to as the "Term." 4. GOODS 4.1 Licensee shall maintain and comply with the quality standards for the Goods as set forth in Exhibit D hereto. However, it is understood by the parties that Licensor shall be performing quality control services for the Goods it sources as set forth in the Supply and Inspection Agreement executed by the parties simultaneously with this Agreement and that as to such Goods sourced and inspected by Licensor, the quality standard of such Goods shall be acceptable under this Agreement. 4.2 To assure Licensor that the provisions of this Agreement are being observed, Licensee shall allow Licensor either itself or, if Licensor elects in its sole discretion, by a third party, to take any and all action necessary for the purpose of inspecting or otherwise ensuring the quality of the Goods. [It is understood by the parties that Licensor shall be performing quality control services for the Goods it sources as set forth in the Supply and Inspection Agreement executed by the parties simultaneously with this Agreement and that as to such Goods sourced and inspected by Licensor, the quality standard of such Goods shall be acceptable under this Agreement.] If said quality standards are not being maintained at any time during the Term or the Termination Period, then upon written notice from Licensor, Licensee shall immediately discontinue the sale and distribution of the Goods that do not meet said quality standards. Any Goods which are defective or dangerous and fall below the quality standards shall immediately be removed from sale and if already sold, recalled. Goods, in inventory or elsewhere, not meeting quality standards shall not be distributed or sold. Licensee shall take the above actions at its own expense. Since monetary damages would not be sufficient to remedy a breach of this covenant, Licensor shall be entitled to an immediate temporary restraining order and/or preliminary injunction, without bond or security, to prevent Licensee from violating the terms hereof. Licensee shall promptly reimburse Licensor for the costs of such legal action, including costs and attorneys' fees. 4.3 Licensee shall ensure that the manner of sale, distribution and/or exploitation by Licensee shall in no manner reflect adversely upon the good name or value of Licensor or any of the Trademarks. 4.4 Licensee shall comply with all applicable laws and regulations relating to the manufacture, use, sale and distribution of the Goods throughout the Territory (and, if applicable, where the Goods are manufactured), whether foreign, federal, state or local, including but not limited to those of the FCC, Underwriters Laboratory and CSA, as required. Such requirements shall include, but not be limited to, obtaining all necessary regulatory and/or governmental approvals, as well as any registrations, permits or licenses that may be required. Upon request, Licensee shall provide Licensor with copies of all such approvals, registrations, permits or licenses. In any license, registration or request for government or regulatory approval, Licensor shall be identified as the owner of the Trademarks. 4.5 Licensee shall, promptly after its initial commercial production of the Goods (or earlier, if available, but in no event later than sixty (60) days prior to Licensee's first sale of any of the Goods) deliver to Licensor (without cost to Licensor) at its facilities in Parsippany, New Jersey, U.S.A., or such other location designated by Licensor, or to Licensor's facilities in Hong Kong following written approval by Licensor permitting Licensee to submit same to such facilities, 3 representative samples of each of the Goods or particular Goods bearing the Trademarks as well as the related packaging, advertising, labels, promotional or any other printed material used in conjunction with the sale of the Goods. Licensor, at its sole discretion, may disapprove of the use of any of the Goods, the quality of which is not consistent with the quality standards set forth in this Section 4 or Goods which fail to comply with proper usage of the Trademarks as defined herein. Licensor's approval shall be deemed given if Licensor does not notify Licensee of Licensor's disapproval of any Goods within 15 days after receipt of same. 4.6 All of the Goods, and all advertising, promotion, packaging or any written material distributed by or through Licensee will, unless otherwise specifically agreed to in writing by Licensor, bear the following legend: "EMERSON AND THE G-CLEF LOGO ARE REGISTERED TRADEMARKS OF EMERSON RADIO CORP., PARSIPPANY, NEW JERSEY, U.S.A." 4.7 In all cases where Licensee desires artwork involving Goods to be prepared, the cost of such artwork and the time for the production thereof shall be borne by Licensee. All artwork and designs involving the Trademarks, or any reproduction thereof, shall be and remain the property of Licensor. 5. ROYALTIES TO LICENSOR 5.1 [redacted] 5.2 (a) Licensee shall also pay to Licensor as royalties ("Royalties") a sum equal to the royalty rate for the particular category of Goods on Exhibit E hereto multiplied by the "Gross Sales Value" of the Goods sold by Licensee for each particular category of Goods. The term "Gross Sales Value" shall mean the gross invoice price of the applicable Goods, as translated into U.S. Dollars using an average monthly exchange rate based upon the exchange rate as listed in the Wall Street Journal. Licensee shall be required to pay certain minimum royalties for each Contract Year as set forth on Exhibit F. Such Royalties shall be non-refundable and paid in accordance with the minimum royalty payment schedule set forth on Exhibit G. If the Royalties paid to Licensor for any payment period do not equal or exceed the minimum Royalty for the period as set forth on Exhibit G, Licensee shall pay to Licensor as Royalties the difference between the Royalties actually paid for the period and the minimum Royalty for the period, upon delivery of the quarterly report delivered pursuant to Section 5.5 for the Contract Quarter of the Contract Year. If Licensee does not pay any particular minimum Royalty when due, Licensor shall have the right to terminate this Agreement pursuant to Section 10.2. (b) All costs and expenses incurred in the manufacture, sale, distribution or exploitation of the Goods, or otherwise incurred by Licensee, and all taxes, duties, levies and assessments, including sales, value added and use taxes, pertaining to the sale of the Goods, except for taxes on the net income realized by Licensor under this Agreement, shall be paid by Licensee. No such costs, expenses or taxes shall be deducted from, or diminish in any way, or result in the reduction of, any Royalties payable to Licensor. Licensee shall be responsible for completing in a timely manner all documentation necessary to (i) permit Licensor to refrain from collecting taxes or assessments it would otherwise be obligated to collect in the Territory or (ii) to assist Licensor in deriving duty drawbacks. Licensee shall pay any such taxes and file any reports, forms or tax returns required under the income or value added tax laws of the jurisdictions or countries within the Territory in a timely manner. Licensee shall provide Licensor with copies of all duly executed reports, forms or tax returns, and proof of payment of any such taxes, within 45 days after such reports, forms or tax returns are due. 5.3 If any sale of products is made at a special price to any of Licensee's subsidiaries or to any other person, firm or corporation affiliated in any manner with Licensee or its officers, directors or major stockholders, there shall be a royalty paid on such sales based upon the price generally charged the trade by Licensee, provided that no further royalties shall be paid on the re-sale of such products. 5.4 Royalties are payable for each Contract Quarter, and shall be due on the 30th day of the month following the end of each Contract Quarter during the Term of this Agreement. Payment of Royalties shall accompany the quarterly statements required to be delivered by Section 5.5 below. The acceptance by Licensor of any of the statements furnished pursuant to this Agreement or of any Royalties paid hereunder shall not preclude Licensor from questioning the accuracy thereof at any time during the Term or within one (1) year after the termination of this Agreement; provided that Licensor must question the accuracy of a statement within two (2) years after the date of receipt or its right to challenge same shall thereafter be waived. 5.5 Within fifteen (15) days after the end of each month, Licensee shall furnish to Licensor a Monthly Royalty Statement in the form attached as Schedule 5.5, certified to be accurate by Licensee, providing all of the information required by such Schedule. Within thirty (30) days after each Contract Quarter, Licensee shall furnish to Licensor complete and accurate statements in the form attached as Schedule 5.5, certified to be accurate by Licensee, describing the Goods distributed and/or sold by Licensee during the preceding Contract Quarter. All of the foregoing statements shall be furnished to Licensor whether or not any of the Goods have been sold during the month or Contract Quarter in question. On an annual basis, within 90 days after the close of Licensee's fiscal year, Licensee will provide Licensor with Licensee's financial statements, audited by the regularly retained independent certified public accountants of Licensee, and prepared in accordance with generally accepted accounting principles, consistently applied. Within 90 days after the end of each Contract Year, Licensee shall furnish to Licensor an Annual Royalty Statement in the form annexed as Schedule 5.5, certified to be accurate by a national independent Certified Public Accounting firm. 5.6 Licensee shall keep, maintain and preserve accurate books of account and records including without limitations those covering all transactions relating to the license hereby granted, and Licensor and its duly authorized representatives shall have the unqualified right during each Contract Year to conduct two (2) examinations of all books and records of Licensee; an examination shall be permitted to take place at all reasonable hours of the day, to examine, copy and extract said books of account and records and of all other documents and materials in the possession or under the control of Licensee with respect to the subject matter and terms of this Agreement. The books of account and records for Licensee's then current and prior fiscal year shall be kept available for inspection by Licensor, and the books of account and records for all prior fiscal years shall be available, following 30 days written notice from Licensor, for six years after the annual audit of such books and records. If Licensor's duly authorized representatives shall discover a discrepancy of 5% or more pursuant to any such examination, in addition to payment of the discrepancy as set forth in Section 5.7, Licensee shall pay to Licensor the cost of such examination or audit upon presentation of documentation appropriate to evidence such discrepancy. 5.7 Royalties found to be due as a result of Licensor's examination of (a) any statement provided pursuant to Paragraph 5.6 above or (b) Licensee's books of accounts and records, shall be paid immediately in good funds. Any and all late payments of Royalties shall bear interest, commencing on the date originally due and payable pursuant to the terms hereof, at an annual interest rate equal to the prime rate as listed in the Wall Street Journal, plus three percent (3%). 6. LIMITATION OF USE AND AUTHORITY 6.1 This Agreement does not grant Licensee any right of ownership, title or interest in the Trademarks, nor does this Agreement authorize Licensee to use the Trademarks except for the purpose of manufacturing, marketing, selling and distributing in accordance with this Agreement the Goods in the Territory and for advertising and promotional purposes as described herein. The Trademarks, all rights therein and the goodwill pertaining thereto, whether developed by the Licensor or the Licensee, shall inure to the benefit of and be the exclusive property of Licensor. Licensee shall not register or attempt to register the Trademarks in its own name or the name of any third party. If applicable, Licensee shall assign to Licensor all the Trademarks and incidental rights created by their use, together with the goodwill relating to that part of the business in connection with which the Trademarks are used. Licensee shall execute and deliver to Licensor such documents as Licensor requires to register Licensee as a registered or permitted user thereof, in accordance with any applicable laws, rules, requirements or regulations of any of the jurisdictions in the Territory. 6.2 Neither Licensee nor any of its Affiliates will directly or indirectly sell, manufacture or distribute any goods whatsoever under a mark similar to the Trademark. Licensee will not register or attempt to register in its name or that of any other person or entity affiliated with it any name or mark, corporate name or any designation of any kind, in any language, which is the same as, similar to or a derivative of, or otherwise utilizing any portion of the trademarks or trade names of Licensor or any of its Affiliates. Licensee acknowledges that it does not have and has not acquired any rights in or to the Trademark, product names, likenesses or any derivations of the foregoing. Licensee shall not incorporate or form any corporation or use any name which is the same as, or which is likely to cause confusion or mistake with, any corporate name of Licensor or of any of its Affiliates or subsidiaries. The Trademark shall be displayed by Licensee, without alteration, on all Goods sold by Licensee and all use of such Trademark shall inure directly to the benefit of Licensor. Licensee shall not re-label any of the Goods. Any copyright which may be created in any article, design, label or the like, bearing any Trademark shall be subject to the prior approval before use, and be the property of Licensor. Licensee shall not use any trademark, brand or trade dress which is the same as, or which is likely to cause confusion or mistake with any trademark, brand or trade dress of Licensor. 6.3 Licensee shall provide Licensor with the date of the first use of the Trademarks on the Goods in commerce in each jurisdiction of the Territory and provide Licensor with all necessary documents or information which Licensor may request for the purpose of perfecting Licensor's title to any Trademark registrations. 7. TRADEMARK INFRINGEMENT; INDEPENDENT CONTRACTOR 7.1 Licensee will notify Licensor promptly of any of the following that may come to Licensee's knowledge: (a) Any alleged infringement by Licensor or Licensee of the rights of any third parties arising out of the activities undertaken in connection with this Agreement; (b) Any alleged infringement of any of the Trademarks of Licensor; or (c) Any other factors or events which reasonably may be expected to have a material adverse effect on the promotion of the Goods under any of the Trademarks or on Licensor's rights and interests in any of the Trademarks. 7.2 Except with respect to Licensor's warranty that it has good title to the Trademarks as set forth in Paragraph 14(b), if any third party files a lawsuit, claim or any other type of proceeding against Licensee claiming that the use by Licensee of the Trademarks infringes upon a valid intellectual property right belonging to such third party, Licensee shall defend such actions at its own expense and hold Licensor harmless against the valid claims of any such third party. Licensor may choose to settle such lawsuit, claim or other proceeding and Licensee shall cooperate to effect any such settlement provided that such settlement does not materially affect Licensee's rights hereunder. Should any of the Goods covered by this Agreement become or in Licensor's opinion be likely to become the subject of such a claim, Licensor may, at its option, either procure for Licensee the right to continue selling or using such product, or replace or modify the product so that it becomes non-infringing. Notwithstanding the foregoing, Licensor shall have no right to admit any liability on behalf of Licensee or to create any kind of duty, obligation or promise concerning the future sale of the product on behalf of Licensee without Licensee's prior written consent, which shall not be unreasonably withheld or delayed. However, to the extent that any settlement, judgment or decree prohibits or restricts Licensor's right to sell the goods covered hereby, it shall be released and discharged from any duty to Licensee to supply the same. Notwithstanding the foregoing, Licensee shall be responsible for costs and expenses associated with any such lawsuit, claim or proceeding. Licensor will promptly notify Licensee of, and provide details concerning, any condition, of which it learns or becomes aware, affecting use of the Trademarks on the Goods in the Territory, including any regulation, ordinance, law, treaty, international agreement or other governmental act or edict. 7.3 If, in the opinion of Licensor, it becomes desirable to enforce any of the Trademarks against a third party, Licensor may use reasonable efforts to do so. If Licensor fails to enforce such Trademarks, Licensee may bring an action against such third party in its own name or in the name of Licensor. Any such action or other proceedings shall be at Licensee's sole expense and any monetary relief or monetary award obtained as a result thereof shall be apportioned between the parties to the extent of their respective losses. Licensor, however, shall at any time have the right to take over the prosecution of any such action and, in such event, any monetary relief or monetary award shall inure to the benefit of Licensor. If Licensor takes over the prosecution of such action initiated by Licensee, Licensor shall reimburse Licensee for reasonable expenses incurred by Licensee in prosecution of such action. 7.4 Licensee shall furnish all reasonable assistance, at Licensor's request or direction, to enable Licensor to assert and prosecute any claims or defend against any action arising in connection with or related to the Trademarks and the matters described in Sections 7.1 through 7.3 above. Such assistance shall include, but not be limited to: monitoring and reporting to Licensor any improper or unauthorized use of the Trademarks, signing documents, giving testimony, joining such action and asserting claims with respect to the licensed Trademarks against third parties. 7.5 Licensee shall not use the name or credit of Licensor in any manner whatsoever, nor incur any obligation in Licensor's name. Nothing herein contained shall be construed to constitute the parties joint venturers, nor shall any similar relationship be deemed to exist between them. Nothing herein contained shall be construed as constituting Licensee as Licensor's agent or as authorizing Licensee to incur financial or other obligations in Licensor's name without Licensor's specific authorization in writing. Under no circumstances shall any power be granted, or be deemed to be granted to Licensee, be deemed to be a power coupled with an interest. The rights and powers retained by Licensor to supervise or otherwise intervene in Licensee's activities, all as hereinabove provided, are retained because of the necessity of protecting Licensor's copyrights, trademarks, properties and property rights generally, and specifically to conserve the goodwill and good name of Licensor and of the Trademarks. 8. EXCLUSIVITY 8.1 Subject to Cargil's right of first refusal set forth in Section 2.1, nothing in this Agreement shall be construed to prevent Licensor from using or granting any other licenses for the use of the Trademarks or from utilizing the Trademarks in any manner whatsoever, except that Licensor shall not use nor grant any other license of the Trademarks effective during the Term of this Agreement within the Territory in connection with the sale of the Goods listed in Exhibit A prior to any breach of this Agreement by Licensee or termination of this Agreement, excluding the Termination Period, as hereinafter defined. 8.2 Licensor agrees that it shall not knowingly sell Goods to any customers if it has actual knowledge that such customers intend to ship such Goods into the Territory, and it will take reasonable steps to ensure that its distributors do not breach this covenant, in each such case so long as the actions of the Licensor are in compliance with applicable laws, treaties and international agreements relating to free trade and commerce among nations. However, Licensee acknowledges that it is aware that one of Licensor's customers, Wal-Mart Stores, Inc., maintains facilities in various countries in the Territory to which various product sold to Wal-Mart Stores, Inc. may be transferred from time to time. Licensee agrees that these sales shall not be considered a breach of this Agreement. 9. GOODWILL Licensee recognizes the great value of the goodwill associated with the Trademarks and that the Trademarks have a secondary meaning in the mind of the public. Licensee further recognizes, acknowledges and agrees that a breach by Licensee of any of its covenants, agreements or undertakings hereunder will cause Licensor irreparable damage, which cannot be readily remedied in damages in an action at law, and may, in addition thereto, constitute an infringement of Licensor's copyrights or trademarks, and agrees that, as a result, Licensor shall be entitled to equitable remedies, costs and attorneys' fees. 10. TERMINATION 10.1 This Agreement shall immediately terminate by its own force without notice from Licensor upon the occurrence of any one or more of the following events: (i) an assignment by Licensee for the benefit of creditors; (ii) a public admission by Licensee of its insolvency; (iii) dissolution of Licensee or loss of its charter by forfeiture or otherwise; (iv) adjudication of Licensee as bankrupt or insolvent; (v) appointment of a trustee, liquidator or receiver for the Licensee or a material or substantial portion of its assets, subsidiaries or property; (vi) exercise by any court or governmental agency of jurisdiction over the property or business of the Licensee or any substantial part thereof; (vii) the commencement of any proceedings for the reorganization, dissolution, liquidation or winding up of the Licensee not dismissed within 60 days; (viii) the filing by Licensee of a voluntary petition in bankruptcy under any bankruptcy or insolvency law or any law providing for Licensee's reorganization, dissolution, liquidation or winding up, or (ix) consent by Licensee to the appointment of a receiver or trustee of itself or of its property or any substantial part thereof. 10.2 If Licensee: (i) without prior written consent of Licensor sells, or permits or has reason to believe a party to whom it sells Goods shall sell, any Goods outside the Territory bearing the Trademarks; (ii) has intentionally or negligently rendered or renders an incorrect, material representation or report in connection with the rights granted to Licensee hereunder; (iii) commits intentional or negligent material damage or omits or fails to take steps within its power to prevent such damage to Licensor's business, reputation, vendor relationships, customers or client base, distribution channels or assets or the value of any of Licensor's tradenames, trademarks, service marks, symbols, signs, or other distinctive marks, or the goodwill associated therewith; (iv) fails to provide insurance substantially in accordance with the terms of Section 17; (v) fails to pay any Royalties set forth in Section 5 when due; (vi) registers or attempts to register in its own name or the name of a third party a Trademark or any other trademark owned by the Licensor or similar to such a trademark, or any name or mark, corporate name or any designation of any kind which is the same as, similar to or a derivative of, or otherwise utilizing any portion of the Trademark or trade names of Licensor or any of its Affiliates; (vii) assigns or transfers this Agreement, including by operation of law, without the prior written consent of Licensor; or (viii) breaches any of its obligations hereunder, then, in addition to the rights available under law or in equity, Licensor may notify Licensee in writing that Licensee is in default under the terms of the Agreement. If such default is not remedied within 15 days after the delivery of such notice, Licensor shall have the right to terminate this Agreement effective upon delivery to Licensee of notice that the Agreement is terminated. However, if Licensee disputes such default following receipt of notice of termination by Licensor, Licensee shall provide Licensor with immediate written notice that Licensee intends to arbitrate such dispute within thirty (30) days. Following such notice, the dispute shall be immediately submitted for arbitration to be held within such thirty days to a panel of arbitrators before the American Arbitration Association to be held in New Jersey. Each party shall be entitled to select one arbitrator each and both parties shall mutually agree upon the third arbitrator. The decision of such arbitrators shall be binding on both parties as to Licensee's default. In this instance, each party shall be liable for its own costs of such arbitration. In the event that it is determined by the arbitrators that Licensee has defaulted under this Agreement, Licensor shall have the right to terminate this Agreement upon immediate written notice to Licensor. 10.3 Upon termination of this Agreement, Licensor shall have the right to retain all monies paid hereunder to date, to receive all monies to which it is entitled and to avail itself of any legal or other remedy or relief available to it including, but not limited to, equitable relief to enjoin the use of the Trademarks and the manufacture, sale and distribution of Goods utilizing the Trademarks. Licensee shall be responsible for all costs of such enforcement. All remedies available to Licensor hereunder are cumulative, and Licensor may exercise any one or more remedies or rights available to it cumulatively. The termination of this Agreement shall be without prejudice to the rights and remedies of either party with respect to any obligation incurred or breach committed prior to such termination, including the right to recover for damages caused by the other party's breach. 10.4 Upon termination of this Agreement, Licensee shall promptly deliver to Licensor any and all property of the Licensor in the possession, custody or control of Licensee, including all promotional material, original artwork, product manuals and any other material bearing the Trademarks in the possession of Licensee, subject to the provisions of Section 10.6. 10.5 Within ten (10) days of the termination of this Agreement, a statement showing the number and description of Goods on hand or in process shall be delivered by Licensee to Licensor. Licensor shall have the right to take a physical inventory to ascertain or verify such statement, and refusal by Licensee to submit to such physical inventory to Licensor shall forfeit Licensee's right to dispose of such inventory as provided in Section 10.6 hereof. 10.6 In the event of termination by Licensor by reason of any cause contained in Section 10.1 or 10.2 or as set forth on Exhibit F, Licensee, its receivers, representatives, trustees, agents, administrators and successors shall have no further right to sell, exploit or in any way deal in or with any advertising matter, packing material, boxes, cartons or other documentation relating thereto bearing the Trademarks, without the express written consent of Licensor; provided, however, Licensee shall be entitled (subject to the obligation to timely pay all Royalties, including the Guaranteed Minimum Royalties as set forth on Exhibit F) to dispose of Goods on hand or on order at the date of termination bearing the Trademark for a period of 15-months from the date of termination. This 15-months period shall be referred to herein as the "Termination Period". Nothing contained herein shall be deemed to permit the manufacture of any Goods for Licensee during the Termination Period, or the sale of any such improperly manufactured Goods during the Termination Period. 11. DISTRIBUTION OF GOODS 11.1 Licensee shall use its best efforts to achieve the total gross sales projections set forth on Exhibit H. Licensee shall, during the Term, diligently and continuously market, manufacture (or cause to be manufactured), distribute and sell the Goods and shall make and maintain adequate arrangements for their distribution throughout the Territory. 11.2 Licensee acknowledges that its failure to cease (or cause to cease) the marketing, manufacture, assembly and packaging, sale or distribution of Goods or any class or category thereof using the Trademark at the termination of this Agreement, other than as set forth in Section 10.6, will result in immediate and irreparable damage to Licensor and to the rights of any subsequent licensee. Licensee acknowledges and admits that there is no adequate remedy at law for such failure and that, in the event of such failure, Licensor shall be entitled to equitable relief by way of temporary and permanent injunctions and such other further relief as any court with jurisdiction may deem just and proper and Licensee shall be responsible for all costs thereof. 12. SUBCONTRACTORS The Licensee shall obtain satisfactory written evidence from any subcontractor that is retained by Licensee that such subcontractor will not use the Trademarks in any manner not permitted under this Agreement, in the form set forth on Schedule 12.1, in those instances where the subcontractor furnishes Goods or packaging for the Goods bearing the Trademarks. Licensee shall use its best efforts to assist and cooperate with Licensor with respect to any action by Licensor to enforce its rights to the Trademarks against any one or more of Licensee's subcontractors. 13. SERVICE AND SPARE PARTS Licensee shall establish and monitor such independent service agents and centers in the Territory as may be necessary to the service of Goods. Licensee shall maintain a sufficient inventory of spare parts for the Goods taking into account any order lead, requiring same, during the Term and the Termination Period. During the Term and subsequent to the expiration or termination of this Agreement, Licensee shall provide for after sales warranty service, if required, and maintain a sufficient inventory of spare parts for the Goods for the respective periods required by applicable federal or local law or Licensee's warranty in the particular countries or regions throughout the Territory. 14. REPRESENTATIONS AND WARRANTIES OF LICENSOR Licensor hereby represents and warrants to Licensee that: (a) Licensor is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. (b) Licensor has the full power and authority to execute and deliver this Agreement and to perform all of its obligations hereunder. Licensor has good right, title and interest in and to the Trademarks, and has not entered into any agreements or commitments which are inconsistent with or conflict with the rights granted to Licensee herein. To the best of Licensor's knowledge, Licensee shall be entitled to use the Trademarks in accordance with the terms of this Agreement without disturbance from the material claims of third persons. (c) The execution and delivery of this Agreement has been duly authorized by all necessary corporate action of Licensor and constitutes the valid and legally binding obligation of Licensor enforceable against Licensor in accordance with it terms. (d) This Agreement shall be binding on the successors, assigns and legal representatives of Licensor. 15. REPRESENTATIONS AND WARRANTIES OF LICENSEE 15.1 Licensee hereby represents and warrants to Licensor that: (a) Licensee is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. (b) Licensee has the full power and authority to execute and deliver this Agreement and to perform all of its obligations hereunder and entry into this Agreement and the performance of its obligations hereunder do not and shall not contravene, conflict with or result in a breach of its certificate of incorporation, by-laws, or any other agreement to which Licensee is a party. (c) The execution and delivery of this Agreement has been duly authorized by all necessary action of Licensee and constitutes the valid and legally binding obligation of Licensee enforceable against Licensee in accordance with its terms. (d) This Agreement shall be binding on the successors, assigns and legal representatives of Licensee, if any. 16. DISCLAIMER AND INDEMNIFICATION 16.1 Licensee shall not and does not grant any warranty or guaranty binding Licensor or creating any liability for Licensor. Licensee will make no statements or representations whatsoever to any third parties which, expressly or impliedly, states or suggests that Licensor is making any warranties with respect to the Goods. Licensor expressly disclaims any implied warranties, including the implied warranties of merchantability and fitness for a particular purpose. 16.2 Except as set forth herein and in the Supply and Inspection Agreement, Licensor shall have no liability or responsibility to Licensee or any other person and/or entity arising out of or relating to the rights granted to Licensee pursuant to this Agreement. Each party shall defend, indemnify and hold harmless the other party, its employees, officers, directors, stockholders, licensees, representatives, successors and assigns from and against any and all claims, demands, judgments, liabilities, damages, losses, costs and expenses of any nature (including attorneys' fees and expenses), including without limitation, death, personal injury, bodily injury, sickness, disease, property damage, loss of use of property or product liability arising from or related to any (i) claim, action or omission of such party, its agents, employees or their families, affiliates, distributors or subcontractors arising under this Agreement and/or the Supply & Inspection Agreement executed by the parties simultaneously herewith, (ii) such party's failure to comply with its obligations set forth herein, (iii) such party's misrepresentation of any warranties or representations, or (iv) any action or omission arising out of the operation of the such party's business. 17. INSURANCE Prior to the distribution or sale of any Goods, Licensee shall purchase and maintain or cause to be maintained, at its own cost, insurance reasonably satisfactory to Licensor of the kinds and in the amounts specified in Schedule 17 or in amounts required by law, whichever is greater, and furnish Licensor with certificates of insurance as evidence thereof, in the prescribed form prior to the commencement of distribution of the Goods and annually thereafter not less than thirty (30) days prior to the expiration dates of said policies. No change shall be made in the certificate of insurance without Licensor's prior written approval. Licensor shall receive copies of all insurance policies. 18. CONFIDENTIALITY 18.1 Each party will use the Confidential Information received by the other party solely for the purpose of carrying out this Agreement. Further, neither party will disclose the Confidential Information to third parties without the express written consent of an officer of the other party, unless compelled by law, required by applicable securities rules or regulations or, in the written opinion of counsel such disclosure is required by law. In such event, each party shall inform the other party as far in advance as possible prior to making any such disclosure. Notwithstanding the foregoing, Licensor shall not be required to inform or obtain the consent of Licensee for the issuance of any press release which utilizes, refers to or discloses sales or royalty information relating to this Agreement. 18.2 Each party shall cause each of their respective officers, directors, agents or employees to whom a disclosure of Confidential Information is made or any subcontractor, including the manufacturer(s) of the Goods, to adhere to the terms and conditions of this Section 18 as if, and to the same extent as if, he or she were a party to this Agreement. 18.3 Upon expiration or termination of this Agreement, each party shall return to the other party all copies of the Confidential Information of the other party in its possession or control, except that Licensor shall not be required to return Confidential Information provided by Licensee which has become a part of Licensor's books and records and which pertains to historical sales and royalty information. 19. FORCE MAJEURE 19.1 Neither party will have any liability to the other by reason of any failure or delay in performance of any provision of this Agreement, if and to the extent that such failure or delay is due to any occurrence (other than financial) beyond the reasonable control of the party failing or delaying to perform. "Beyond reasonable control" shall mean acts of God, civil disturbances, fires, floods, explosions, or riots, war, rebellion or sabotage. The provisions of this paragraph shall not apply to payment obligations under this Agreement. 19.2 A party seeking relief pursuant to this Section 19 shall, as soon as practicable after the impediment and its effect on such party's ability to perform become known, give written notice to the other party. Written notice shall also be given when the impediment ceases. In any event, either party may cancel this Agreement if the impediment continues for a period of 120 consecutive days. 20. LICENSOR'S LINE OF BUSINESS Licensee acknowledges that Licensor is presently in the business of selling consumer electronic products, microwave ovens and other consumer products and is seeking alliances, joint venture partners and/or licensees with the goal of distributing other consumer products throughout the world. Licensee acknowledges that marketing and distribution of the foregoing (as well as any other products which Licensor may distribute) with the Trademarks, excluding the sale of Goods in the Territory covered by this Agreement and subject to the provisions of this Agreement, shall not constitute a breach of this Agreement. 21. ASSIGNMENT AND SUBLICENSING 21.1 The license herein granted is personal to Licensee and may not be assigned, transferred, sub-licensed, pledged, mortgaged or otherwise encumbered by Licensee in whole or in part without Licensor's prior written consent. For the purposes of this Section 21.1, the term "assigned" shall include without limitation, transfers of (i) control, whether by merger, consolidation, reorganization or change of management and (ii) ownership of fifty percent (50%) or more of the outstanding securities of Licensee. It is understood by Licensor that, in the event Licensee goes public with an offering of securities on a Nationally recognized securities exchange, such offering shall not constitute a prohibited assignment, solely on the condition that 1) the present shareholders of Licensee shall retain at least twenty-five per cent (25%) of the ownership of securities of Licensee for which they shall have sole voting power for such shares and for which there shall be no voting agreement in effect; and 2) the present shareholders of Licensee shall retain a majority of the seats on or the power to appoint a majority of the seats of the Board of Directors of Licensee. Notwithstanding the foregoing, the sale of Products by the Licensee to unaffiliated third parties, or unaffiliated third party distributors, for resale in the Territory (either at wholesale or retail) shall not be considered such assignment, transfer, or sublicense in violation of this Agreement. In the event of appointment of such unaffiliated third party distributors, Licensee shall obtain from each such distributor satisfactory written evidence that such party shall not use the Trademarks in any manner not permitted under this Agreement, in the form set forth in Schedule 12.1. Appointment of any unaffiliated third party distributors shall not affect any of Licensee's obligations to Licensor under this Agreement, including the payment of any Royalties hereunder. 21.2 Notwithstanding the restriction set forth in Section 21.1 above, Licensee shall notify Licensor in writing prior to any proposed change in control or transfer of ownership of fifty percent (50%) or more of the outstanding securities of Licensee. If Licensee is interested in continuing the terms of this Agreement, Licensor shall have fifteen (15) business days from the date of receipt of all due diligence materials required by Licensor concerning the proposed transfer of control or ownership to determine whether Licensor will approve, in its sole discretion, such change of ownership or control. Such materials shall be provided by Licensee and include without limitation (i) organizational documents of the transferee, (ii) audited financial statements of the transferee for the preceding three fiscal years, (iii) interim financial statements for the period subsequent to the date of the latest annual financial statement, (iv) recent public filings, if applicable, for the preceding three years, (v) tax returns of the transferee for the preceding three years, and (vi) such other materials as Licensor may reasonably request. Any proposed transferee must be financially sound, knowledgeable of the type of business of Licensee, not a competitor of Licensor, committed to quality and positioned to grow the business. Upon Licensor's approval in its sole discretion, control may be transferred. If Licensor does not approve such proposed change in control or transfer of ownership, and the proposed change in control or transfer of ownership occurs, this Agreement may terminate upon a date established at Licensor's sole discretion. 22. MISCELLANEOUS 22.1 No provision of this Agreement may be changed, amended or waived, except in a writing signed by both parties. 22.2 Any waiver on the part of any party of any right or interest hereunder shall not imply the waiver of any subsequent breach or the waiver of any other rights. No waiver by either party of a breach hereof or a default hereunder shall be deemed a waiver by such party of a subsequent breach or default of like or similar nature. 22.3 Should any provision of this Agreement prove to be invalid or unenforceable under existing or future law, the remaining provisions of the Agreement will remain in force in all other respects. 22.4 All notices will be in writing and in English and will be served personally or by registered or certified mail, return receipt requested, or by overnight courier or by facsimile transmission to each other party at its address herein set forth, or at such other address as each party may provide to the other in writing from time to time: (a) If to Licensor: Emerson Radio Corp. Nine Entin Road Parsippany, NJ 07054 Attention: Eugene I. Davis President [Facsimile No. (201) 428-2019] With a copy to: Wolff & Samson, P.A. 5 Becker Farm Road Roseland New Jersey 07068 Attention: Jeffrey Davis, Esq. [Facsimile No. (201) 740-1407] (b) If to Licensee: Cargil International Corp. 6812 N.W. 77th Court Miami, Florida 33166 Attention: Giraldo Leyva President [Facsimile No. (305) 718-0707] With a copy to: Baker & McKenzie 701 Brickell Avenue Suite 16 Miami, Florida 33131 Attention: Charles Lea Hume, Esq. [Facsimile No. (305) 789-8953] Any such notice will be effective upon actual receipt or three (3) days after it is deposited in the mail, postage prepaid, properly addressed and certified, whichever occurs first. 22.5 Together with the Supply and Inspection Agreement executed by the parties simultaneously herewith, this Agreement is the entire and sole agreement and understanding of both parties and supersedes all other agreements, understandings and communications, whether oral or written, regarding the subject matter hereof. 22.6 This Agreement may be executed in any number of counterparts or by facsimile, but all counterparts and facsimiles hereof will together constitute but one agreement. In proving this Agreement, it will not be necessary to produce or account for more than one counterpart executed by both parties. 22.7 All disputes between the parties concerning this Agreement will be resolved under the laws of the State of New Jersey, U.S.A., excluding the conflicts of laws provisions thereof, and, except as otherwise set forth in Section 10.2, the courts of New Jersey will have sole and exclusive jurisdiction over the parties in any such dispute and venue shall lie exclusively in Morris County, New Jersey. However, it is expressly understood that this Section and Section 10.2 shall not preclude Licensor's right to make application for, and seek enforcement of, injunctive relief in any court having jurisdiction. 22.8 Licensee shall strictly and fully comply with all export controls imposed by the United States or any country or organization of nations within whose jurisdiction Licensee operates or does business. 22.9 The respective indemnities, agreements, representations, warranties and other statements of each of the parties hereto and the undertakings set forth in or made pursuant to this Agreement will remain in full force and effect, and will survive the termination of this Agreement. 22.10 Licensee shall not disseminate any press release or other announcement relating to the transaction contemplated by this Agreement without Licensor's prior written consent as to the contents thereof. 22.11 All payments shall be made directly by Licensee to Licensor and shall be in U.S. Dollars. 22.12 The parties have requested that this Agreement be drawn up and interpreted in the English language. IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized representative of each party effective as of the date set forth above. EMERSON RADIO CORP. A Delaware Corporation By: /s/ Eugene I. Davis Eugene I. Davis President CARGIL INTERNATIONAL CORP. A Florida Corporation By: /s/ Giraldo Leyva Giraldo Leyva President EX-4 5 SUPPLY AND INSPECTION AGREEMENT This Agreement, dated effective as of December 31, 1996, is by and between EMERSON RADIO CORP., a Delaware corporation, having a place of business at Nine Entin Road, Parsippany, New Jersey 07054 (hereinafter "Emerson"), and Cargil International Corp., a Florida corporation, having a place of business at 6812 N.W. 77th Court, Miami, Florida 33166 (hereinafter "Cargil"). Emerson, directly and through affiliates, distributes a variety of consumer electronics products and microwave oven products in various countries throughout the world. Emerson is the owner of certain valuable and well-known trademarks throughout the world and the goodwill associated therewith; Cargil, directly and through affiliates, distributes consumer electronics and other products in various countries throughout the world; Emerson and Cargil have entered into a License and Exclusive Distribution Agreement of even date herewith (the "License Agreement") providing for the specified use by Cargil of the "Emerson and G-Clef" trademark in connection with the distribution in the territories of Central America, South America and the Caribbean ("the Territory" as defined in the License Agreement), of televisions (color and black and white), video cassette recorders, color television/video cassette recorder combinations, camcorders, microwave ovens, boom boxes, shelf systems, clock radios, car radios, telephones, business equipment and accessories for telephone (including cellular), computer, audio and video products [more particularly described in the License Agreement and referred to herein as "the Goods"]. Cargil desires, and the parties have agreed that Cargil shall, as set forth herein, source through Emerson, for sale and distribution within the Territory, certain of the Goods which are the subject of the License Agreement, together with other products to be agreed upon in advance by the parties in writing and replacement parts for all of the foregoing (collectively referred to herein as "the Products"); Emerson and Cargil desire to set forth their respective agreements to provide for, among other things, the sourcing and inspection of Products for Cargil by Emerson or its affiliates, and the payment of a fee to Emerson by Cargil for these services, as set forth herein; In consideration of the foregoing premises and mutual agreements set forth herein, the following is agreed to: 1. DEFINITIONS 1.1 "Affiliate" will mean a person or entity who directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a specified person or entity. 1.2 "Confidential Information" will mean any and all information, data, specifications, customer lists, products and services information, sales and marketing information, vendor data, and proprietary information regarding Emerson, Cargil or their respective Affiliates (collectively, the "Information") except: (a) Information which at the time of disclosure is in the public domain; (b) Information which, after disclosure, through no fault of the party receiving same, is published or otherwise becomes part of the public domain; (c) Information which the receiving party can document as having been in its possession prior to the time of disclosure to it by the other party; (d) Information which the receiving party can document as having been received by it on a non-confidential basis from a third party; or (e) Data, specifications, customer lists, products and services information and vendor data which the receiving party created on its own or through independent third parties without use of the Information. 1.3 "Emerson" means Emerson Radio Corp. and its Affiliates. 1.4 "Subsidiaries" will mean all direct and indirect subsidiaries of a party. 2. SUPPLY/SOURCING OF PRODUCTS BY EMERSON 2.1 Emerson, directly or through its Affiliates, shall source for Cargil (subject to force majeure as defined at Section 13 and timely payment pursuant to Section 4), Products ordered by Cargil, from time to time, from the date hereof until the expiration or termination of the License Agreement executed by the parties simultaneously herewith, or other termination as set forth herein, in which case Emerson shall be relieved of its obligations as set forth herein. Cargil shall source through Emerson or its Affiliates not less than 75% of Cargil's purchase requirements under the License Agreement with Emerson or an Affiliate of Emerson. Cargil shall use its best efforts to achieve the total gross sales projections set forth on Appendix A hereto. 2.2 In furtherance of this Agreement and the License Agreement, Cargil shall submit to Emerson from time to time its written request for purchase information setting forth the details of its request for Products, including a description of the Products, the quantity of Products desired by Cargil, the delivery date desired for the Products, the delivery address and such other terms as the parties shall agree upon. 2.3 Emerson shall then solicit from manufacturers, suppliers and vendors terms and conditions for the purchase by and sale to Cargil of such Products. 2.4 Thereafter, Emerson shall, in addition to other services set forth herein, assist Cargil in establishing pricing and confirming purchase and delivery requests. Emerson shall then use its best efforts to confirm the purchase price and delivery date to Cargil. 2.5 Following confirmation of the purchase price and delivery date to Cargil by Emerson, Cargil shall issue a purchase order to the manufacturer, supplier or vendor. Simultaneously with the provision of a purchase order to the manufacturer, supplier or vendor, Cargil shall provide copies of each purchase order to Emerson and Emerson shall use reasonable efforts to have such manufacturer, supplier or vendor execute and deliver to Cargil a copy of Cargil's General Buying Conditions Agreement in the form [to be supplied by Cargil, and reviewed and approved by Emerson] annexed as Appendix B. Notwithstanding Emerson's ability to obtain the agreement to or signature on the General Buying Conditions Agreement, Cargil shall, notwithstanding any agreement entered into with a manufacturer, vendor or supplier of Products, whether oral or written, be required to make the payments to Emerson as set forth herein, and shall require such manufacturer, supplier or vendor, in any such agreement, to indemnify Cargil and its agents, including Emerson expressly, for any claims made as a result of the sale of the Products to Cargil. Such agreement shall include the language set forth on Appendix C. Cargil shall not enter into any such agreement with a manufacturer, supplier or vendor which conflicts with the provisions of this Agreement. 2.6 The purchase price of all Products ordered by, for the benefit of, or at the direction of Cargil which are sourced by Emerson from the manufacturers, vendors or suppliers, shall be paid directly by Cargil to the manufacturer, vendor or supplier. All other costs related to the sourcing and supply of Products, including, but not limited to, applicable freight, insurance and tax charges and expenses, shall be borne solely by Cargil which shall pay such costs directly to the manufacturer, supplier or vendor. 2.7 Short Term Product Needs. See Schedule 2.7. 3. INSPECTION OF PRODUCTS BY EMERSON. In addition to the services to be performed by Emerson as set forth above, Emerson shall perform the following sourcing and inspection services: - supply plans for the production of Products and availability of samples - provide quality control services, including testing inspection and quality assurance audits in accordance with industry standards - provide logistical services and support for the scheduling of deliveries and transportation of the Products - assist in the cosmetic design of goods and packaging engineering - identify manufacturers - investigate manufacturer's ability to manufacture to Cargil's specifications, including adequacy of manufacturer's facilities, equipment and knowledge - ensure that manufacturer has suitable testing equipment and personnel - ensure manufacturer has adequate internal quality control procedures - obtain information pertaining to the financial stability of manufacturer - investigate manufacturer's reputation and ability to ship on a timely basis - assist in production scheduling and coordinating with the manufacturer for the expedition of shipments after order placed by Cargil - provide Emerson quality control inspectors to inspect product, including on manufacturer's premises (Emerson's China personnel) - provide the assistance of Emerson quality assurance group to inspect product to AQL levels (including samples and inspection by Emerson's Hong Kong and China personnel) - perform quality control life test procedures (including the performance by Emerson Hong Kong personnel) The above shall be performed by Emerson with respect to Products sourced by Emerson and to be purchased by Cargil, provided, however, that in each instance Cargil shall provide Emerson with all information in the possession of Cargil necessary or desirable to accomplish the foregoing. 4. COMPENSATION. 4.1 [redacted] 4.2 [redacted] 5. INSURANCE. Cargil shall cause to be maintained in full force and effect, at its own cost, insurance for the benefit of Emerson, in accordance with Schedule 17 of the License Agreement executed by the parties simultaneously herewith, and furnish Emerson with certificates of insurance evidencing the requisite insurance coverage. Cargil shall defend, indemnify and hold harmless Emerson, its Affiliates and the employees, agents, officers and directors of each of Emerson and its Affiliates from and against any and all claims, demands, judgments, liability, damages, losses, costs and expenses of any nature (including attorneys' fees and expenses), including, without limitation, death, personal injury, property damage or product liability arising from the manufacture, assembly, packaging and transportation of the Products sold under the terms hereof, which operations shall be performed by the manufacturer, supplier or vendor. 6. CONFIDENTIALITY. 6.1 The parties recognize that by reason of this Agreement, a party and its representatives (including the auditors of a party) may acquire Confidential Information. Each party will use the Confidential Information received from the other party solely for the purpose of carrying out this Agreement. Each party recognizes that all such Confidential Information acquired from the other party is the property of such other party and that the recipient and its representatives (including auditors) shall not, during the term of this Agreement or thereafter, directly or indirectly, use, publish, disseminate or otherwise disclose any Confidential Information obtained in connection with this Agreement without the express written consent of a duly authorized officer of the other party, unless compelled by law or required by applicable securities rules and regulations or in the written opinion of counsel is required by law to be disclosed. In such case, each party shall inform the other party as far in advance as possible prior to making any such disclosure. 6.2 Each party shall cause each of their respective officers, directors, agents, auditors or employees to whom a disclosure of Confidential Information is made, or any subcontractor, including the manufacturer(s), vendor(s) or supplier(s) of the Products, to adhere to the terms and conditions of this Section 6 as if, and to the same extent as if, he or she were a party to this Agreement. 6.3 Upon expiration or termination of this Agreement, each party shall return to the other party all copies of Confidential Information provided by the other party then in its possession or control and destroy memoranda or other documents created using Confidential Information and confirm such destruction to the other party upon such party's written request. Notwithstanding the above, Emerson shall not be required to return or destroy financial or other information relating to the sales and royalties pertaining to this Agreement or the License Agreement entered into simultaneously herewith, which has become or becomes a part of Emerson's books and records. 7. INDEPENDENT CONTRACTOR. Emerson will be considered, for all purposes, an independent contractor and it will not, directly or indirectly, act as an agent, servant or employee of Cargil or make any commitments or incur any liabilities on behalf of Cargil without its prior written consent other than in accordance with the terms of this Agreement. All personnel assigned by Emerson to perform the services hereunder will be employees of Emerson, which shall pay all salaries and expenses of, and all applicable payroll, withholding or other taxes relating to such employees. 8. NON-SOLICITATION. So long as Emerson is acting as supply agent under the terms hereof and for a period of two (2) years following the termination of this Agreement, Cargil shall not, unless it pays to Emerson all fees described herein as if Emerson were performing as supply agent, solicit any manufacturers, suppliers or vendors which sold, manufactured or otherwise distributed the Products to, for the benefit of, or at the direction of Cargil and as to which Emerson has acted as supply agent, provided such manufacturers, suppliers and vendors have not, prior to the effective date of this Agreement, done business in any way with Cargil concerning the Products. 9. TERM. Subject to the provisions of Section 10, the term of this Agreement shall continue for a period of 5 years from the effective date of this Agreement, unless otherwise renewed or terminated by Emerson in conjunction with the renewal or termination by Emerson of the License Agreement executed by the parties simultaneously herewith. 10. TERMINATION. If either party defaults in performing its material obligations under this Agreement and fails to cure that default within thirty (30) days after receiving from the first party a written notice specifying the default, the first party may terminate this Agreement upon written notice to the other. Upon termination of this Agreement Cargil shall be liable for all payments due to Emerson through the date of termination in accordance with this Agreement. Notwithstanding any termination of this Agreement, Cargil shall be required to fulfill its obligations pursuant to the License Agreement executed by the parties simultaneously herewith, unless such License Agreement is otherwise terminated by Emerson as set forth therein. 11. NO WARRANTY. EXCEPT THAT EMERSON WARRANTS THAT ANY COSMETIC DESIGN CREATED FOR THE PRODUCTS BY EMERSON AND USE BY CARGIL OF THE EMERSON TRADEMARKS ON THE PRODUCTS (IN ACCORDANCE WITH, AND AS IS MORE SPECIFICALLY SET FORTH IN, THE TERMS OF THE LICENSE AND EXCLUSIVE DISTRIBUTION AGREEMENT EXECUTED SIMULTANEOUSLY HEREWITH BY THE PARTIES HERETO), SHALL NOT INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF A THIRD PARTY, EMERSON MAKES NO WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, CONCERNING THE PRODUCTS, OR THE MERCHANTABILITY OR FITNESS THEREOF FOR ANY PURPOSE OR USE. THE LIMITED WARRANTY PROVIDED FOR HEREIN IS FOR THE SOLE BENEFIT OF CARGIL AND CARGIL SHALL NOT EXTEND SUCH WARRANTY. In no event shall Emerson be liable for any incidental, consequential, special or indirect damages of any nature or kind whatsoever, or for lost profits, in connection with the transport, storage, sale or use of the Products and for any claim originating from the sale, marketing, distribution or use of the Products Cargil shall go directly to the manufacturer, supplier or vendor of Products. Cargil is not authorized to issue any warranty binding on Emerson. Emerson shall not be liable for any canceled orders, delayed or non-conforming shipments or any claims or damages flowing therefrom. Emerson shall have no liability for products ordered directly by Cargil. In the event that the Products fail to conform to Cargil's specifications, Emerson shall use its best efforts to assist Cargil in Cargil's efforts to recover from the manufacturer any additional costs incurred by Cargil as a result of such failure. Emerson shall also provide reasonable assistance in enforcing the manufacturer's warranty. 12. INDEMNIFICATION. With the exclusion of any claim arising solely from the cosmetic design of Emerson-designed products, Cargil hereby represents and warrants to Emerson that the Products will not infringe upon or otherwise conflict with the intellectual property rights of any person. Except as otherwise set forth herein, Cargil shall, at its own expense, defend Emerson in any and all actions or suits alleging that any Product infringes another person's intellectual property rights and shall indemnify and hold Emerson harmless from all loss, damage, liability and cost and expense incurred by Emerson on account of the sale, marketing, distribution or use of the Products including any alleged infringement. Emerson may, at its option, elect to participate in any defense of any action in which it may be a named party. Emerson shall have the right, with respect to infringement of cosmetic designs only, to cure any such infringement with respect to a Product by substituting parts in, or otherwise modifying, such Product or by paying a royalty to the person claiming such infringement. In the event Cargil refuses or cannot defend any such action or suit, whether following receipt of notice from Emerson or a third party, Emerson may defend such action or suit and Cargil shall indemnify Emerson for all costs and expenses related thereto. Emerson shall notify Cargil promptly in writing upon receipt by Emerson of any notice of any oral or written claim or demand, or any suit, alleging infringement of any person's intellectual property right or any claim in connection with the Products and shall permit Cargil to defend, and shall cooperate fully with Cargil in the defense of, any such action, provided that Cargil shall reimburse Emerson for its expenses of such cooperation. Emerson shall not take any action or make any statement which acknowledges infringement of any intellectual property rights not owned or licensed by Cargil without Cargil's prior written consent. 13. FORCE MAJEURE. If any party is rendered wholly or partially unable by Force Majeure (other than financial) to carry out its obligations under this Agreement, and if that party gives prompt written notice and details of such Force Majeure to the other party, the notifying party shall be excused from performance of its obligations under this Agreement during the continuance of any inability so caused and for a period thereafter that is reasonably necessary, taking into account all relevant circumstances, to permit that party to recommence performance of its obligations. Such cause shall be remedied by the notifying party as far as possible with reasonable speed and effort, but neither party shall have any obligation to settle any labor dispute. For the purposes of this Agreement, "Force Majeure" shall mean acts of God, industrial disputes, acts of public enemies or terrorists, war, other military conflicts, blockades, insurrections, riots, epidemics, quarantine restrictions, landslides, lightning, earthquake, fires, storms, floods, washouts, arrests, civil disturbances, restraints by or actions of any governmental authority (including export or security restrictions on information, material, personnel, equipment or otherwise), breakdowns of plant or machinery, inability to obtain transport or supplies, and any other acts or events whatsoever, whether or not similar to the foregoing, not within the reasonable control of the party claiming excuse from performance, which by the exercise of due diligence and best reasonable efforts said party shall not have been able to overcome or avoid without unreasonable expense. The provisions of this paragraph shall not apply to payment obligations under this Agreement. In any event, either party may cancel this Agreement, upon written notice, if the Force Majeure continues for a period of 120 consecutive days. 14. MISCELLANEOUS. 14.1 NO ASSIGNMENT. This Agreement may not be assigned by either party without the prior written consent of the other party. 14.2 GOVERNING LAW AND JURISDICTION. This Agreement will be governed by and construed in accordance with the laws of New Jersey and Cargil irrevocably submits to the exclusive jurisdiction of the courts of New Jersey, and venue shall lie exclusively in Morris County, New Jersey. However, it is expressly understood that this Section shall not preclude Emerson's right to make application for, and seek enforcement of, injunctive relief in any court having jurisdiction. 14.3 NO AMENDMENT. This Agreement may not be changed, amended or modified except by an instrument in writing executed by each of the parties. 14.4 NO WAIVER. Any waiver on the part of any party of any right or interest hereunder shall not imply the waiver of any subsequent breach or the waiver of any other rights. No waiver by either party of a breach hereof or a default hereunder shall be deemed a waiver by such party of a subsequent breach or default of like or similar nature. 14.5 SEVERABILITY. Should any provision of this Agreement prove to be invalid or unenforceable under existing or future law, the remaining provisions of the Agreement will remain in force in all other respects. 14.6 SURVIVAL. All obligations of the parties set forth in paragraphs 5, 6, 7, 8, 11, 12 and 14 of this Agreement shall survive the expiration or termination of this Agreement. 14.7 NOTICE. All notices will be in writing and in English and will be served personally or by registered or certified mail, return receipt requested, or by overnight courier or by facsimile transmission to each party at its address herein set forth, or at such other address as each party may provide to all parties hereto in writing from time to time: (A) If to Emerson: Emerson Radio Corp. Nine Entin Road, P.O. Box 430 Parsippany, New Jersey 07054-0430 Attn: Eugene I. Davis, President [Facsimile No. (201) 428-2019] With a copy to: Wolff & Samson, P.A. 5 Becker Farm Road Roseland, NJ 07068 Attn.: Jeffrey M. Davis, Esq. [Facsimile No. (201) 740-1407] (B) If to Cargil: Cargil International Corp. 6812 N.W. 77th Court Miami, FL 33166 Attn.: Giraldo Leyva [Facsimile No. (305) 718-0707] With a copy to: Baker & McKenzie 701 Brickell Avenue Suite 16 Miami, Florida 33131 Attention: Charles Lea Hume, Esq. [Facsimile No. (305) 789-8953] Any such notice will be effective upon actual receipt or three (3) days after it is deposited with the United States Postal Service, postage prepaid, properly addressed and certified, whichever occurs first. 14.8 ENTIRE AGREEMENT. Together with the License Agreement executed by the parties simultaneously herewith, all documents referenced therein, and all documents annexed thereto, this Agreement and exhibits hereto shall constitute the entire and sole agreement and understanding of all parties hereto and supersede all other agreements, understandings, and communications, whether oral or written, regarding the subject matter hereof and of the License Agreement. 14.9 EXECUTION. This Agreement may be executed in any number of counterparts, and by facsimile, but all counterparts and facsimiles hereof will together constitute but one agreement. In proving this Agreement, it will not be necessary to produce or account for more than one counterpart executed by all of the parties. 14.10 PRESS RELEASES. Cargil shall not disseminate any press release or other announcement relating to the transactions contemplated by this Agreement without Emerson's prior written consent as to the contents thereof. 14.11 PAYMENTS. All payments to be made pursuant to the terms of this Agreement shall be made directly by Cargil to Emerson, or a designated affiliate of Emerson, and shall be made in U.S. dollars. 14.12 ENGLISH LANGUAGE. The parties have requested that this Agreement be drawn up and interpreted in the English language. IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized representative of each party effective as of the date set forth above. EMERSON RADIO CORP. CARGIL INTERNATIONAL CORP. By: /s/ Eugene I. Davis By: /s/ Giraldo Leyva Name: Eugene I. Davis Name: Giraldo Leyva Title: President Title: President EX-5 6 AMENDMENT NO. 5 TO FINANCING AGREEMENTS February 18, 1997 Emerson Radio Corp. Majexco Imports, Inc. 9 Entin Road Parsippany, New Jersey 07054 Gentlemen: Congress Financial Corporation ("Lender"), Emerson Radio Corp. ("Emerson") and Majexco Imports, Inc. ("Majexco; together with Emerson, individually and collectively, the "Borrower") have entered into certain financing arrangements pursuant to the Loan and Security Agreement, dated March 31, 1994, currently between Lender and Borrower, as amended by Amendment No. 1 to Financing Agreements, dated August 24, 1995, Amendment No. 2 to Financing Agreements, dated February 13, 1996, Amendment No. 3 to Financing Agreements, dated August 20, 1996 and Amendment No. 4 to Financing Agreements, dated November 14, 1996 (the "Loan Agreement"), together with various other agreements, documents and instruments at any time executed and/or delivered in connection therewith or related thereto (as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, collectively, the "Financing Agreements"). All capitalized terms used herein and not herein defined shall have the meanings given to them in the Financing Agreements. Borrower has requested that Lender agree to certain amendments to the Financing Agreements, and Lender is willing to agree to such amendments, subject to the terms and conditions set forth herein. In consideration of the foregoing, the mutual agreements and covenants contained herein and other good and valuable consideration, the parties hereto agree as follows: 1. WORKING CAPITAL COVENANT. Section 9.13 of the Loan Agreement shall be deleted in its entirety and replaced with the following, effective as of December 31, 1996: "9.13 WORKING CAPITAL. Emerson shall, as of the end of each fiscal quarter of Emerson, maintain, on a consolidated basis with its subsidiaries, Working Capital of not less than $10,000,000." 2. ADJUSTED NET WORTH COVENANT. Section 9.14(a) of the Loan Agreement, as previously amended through Amendment No. 4 to Loan Agreement, shall be further amended by deleting the last sentence thereof and replacing it with the following, effective as of December 31, 1996: "As used herein, the `Base Amount" shall mean the amount of $17,000,000." 3. FEE. In consideration of Lender's entering into this Amendment, Borrower shall pay Lender a facility amendment fee in an amount equal to $25,000, payable simultaneously with the execution hereof, which fee is fully earned as of the date hereof. Such fee may, at Lender's option, be charged directly to any of Borrower's Revolving Loan accounts maintained by Lender under the Financing Agreements. 4. MISCELLANEOUS. (a) ENTIRE AGREEMENT; RATIFICATION AND CONFIRMATION OF THE FINANCING AGREEMENTS. This Amendment contains the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous term sheets, proposals, discussions, negotiations, correspondence, commitments and communications between or among the parties concerning the subject matter hereof. This Amendment may not be modified or any provision waived, except in writing signed by the party against whom such modification or waiver is sought to be enforced. Except as specifically modified pursuant hereto, the Financing Agreements are hereby ratified, restated and confirmed by the parties hereto as of the effective date hereof. To the extent of conflict between the terms of this Amendment and the Financing Agreements, the terms of this Amendment shall control. (b) GOVERNING LAW. This Amendment and the rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the laws of the State of New York. (c) BINDING EFFECT. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. (d) COUNTERPARTS. This Amendment may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. By the signatures hereto of each of their duly authorized officers, all of the parties hereto mutually covenant and agree as set forth herein. Very truly yours, CONGRESS FINANCIAL CORPORATION By: /s/ Kenneth G. Donahue Title: Vice President AGREED AND ACCEPTED: EMERSON RADIO CORP. By: /s/ John Walker Title: EVP & CFO MAJEXCO IMPORTS, INC. By: /s/ John Walker Title: CONSENTED TO AND AGREED: H.H. SCOTT, INC. EMERSON COMPUTER CORP. By: /s/ John Walker Title: EMERSON RADIO CANADA LTD. By: /s/ John Walker Title: EMERSON RADIO & TECHNOLOGIES N.V. By: /s/ John Walker Title: EX-27 7
5 1,000 9-MOS MAR-31-1997 DEC-31-1996 6,121 155 26,204 4,531 23,917 58,194 8,001 5,546 83,460 38,665 20,750 0 9,000 403 14,256 83,460 151,284 151,284 145,354 145,354 18,825 795 2,525 (16,215) 194 (16,409) 0 0 0 (16,409) (.42) (.42)
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