-----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, G2b9k2btURooXvFTT5Rnnyn7qQ+sQxvUARGAkLbvnhyqZ+ivUzoG4LNxk9QbvjL3 2rVHaRZSZIFgKi/woRpnvA== 0000032621-96-000006.txt : 19960928 0000032621-96-000006.hdr.sgml : 19960928 ACCESSION NUMBER: 0000032621-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960821 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: 96618430 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 10-Q THIS DOCUMENT IS A COPY OF THE FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 FILED ON AUGUST 20, 1996 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION. 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 June 30, 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 June 30, 1996: 40,252,772. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts) Three Months Ended June 30 1996 1995 Net revenues . . . . . . . . . . . . . $41,147 $ 57,058 Costs and expenses: Cost of sales . . . . . . . . . . . 38,784 50,886 Other operating costs and expenses . 934 1,617 Selling, general & administrative expenses . . . . . . . . . . . . . 5,364 5,242 45,082 57,745 Operating loss . . . . . . . . . . . . (3,935) (687) Interest expense . . . . . . . . . . . 812 622 Loss before income taxes . . . . . . . (4,747) (1,309) Provision (benefit) for income taxes . (24) 92 Net loss . . . . . . . . . . . . . . . $ (4,723) $ (1,401) Net loss per common share. . . . . . . $ (.12) $ (.04) Weighted average number of common shares outstanding . . . . . . 40,253 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) June 30, March 31, 1996 1996 (Unaudited) ASSETS Current Assets: Cash and cash equivalents . . . . . . . . . $ 17,508 $ 16,133 Accounts receivable (less allowances of $4,426 and $6,139, respectively) . . . . . 17,908 23,583 Inventories . . . . . . . . . . . . . . . . 31,682 35,292 Prepaid expenses and other current assets . 9,979 10,306 Total current assets . . . . . . . . . . . 77,077 85,314 Property and equipment - (at cost less accumulated depreciation and amortization of $4,838 and $4,422, respectively) . . . . . 3,137 3,501 Other assets . . . . . . . . . . . . . . . . . 8,336 7,761 Total Assets . . . . . . . . . . . . . . . $ 88,550 $ 96,576 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable . . . . . . . . . . . . . . . $ 17,436 $ 21,151 Current maturities of long-term debt . . . . 138 173 Accounts payable and other current liabilities . . . . . . . . . . . . . . . 11,533 10,391 Accrued sales returns . . . . . . . . . . . 2,672 3,091 Income taxes payable . . . . . . . . . . . . 187 202 Total current liabilities . . . . . . . . 31,966 35,008 Long-term debt . . . . . . . . . . . . . . . . 20,872 20,886 Other non-current liabilities . . . . . . . . 278 300 Shareholders' Equity: Preferred stock - $.01 par value, 10,000,000 shares authorized, 10,000 shares issued and outstanding . . . . .. . . . . . . . . 9,000 9,000 Common stock - $.01 par value, 75,000,000 shares authorized, 40,252,772. . . . . . . . shares issued and outstanding. . . . . . . . 403 403 Capital in excess of par value . . . . . . . . 108,986 108,991 Accumulated deficit . . . . . . . . . . . . . (83,073) (78,175) Cumulative translation adjustment . . . . . . 118 163 Total shareholders' equity . . . . . . . 35,434 40,382 Total Liabilities and Shareholders' Equity $ 88,550 $ 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) Three Months Ended June 30, 1996 1995 Cash Flows from Operating Activities: Net cash provided by operating activities . . . . . . . . . . . . . . . . $ 5,308 $ 1,428 Cash Flows from Investing Activities: Net cash provided (used) by investing activities . . . . . . . . . . . . . . . 45 (1,177) Cash Flows from Financing Activities: Net repayments under line of credit facility. . . . . . . . . . . . . . (3,715) (2,077) Other . . . . . . . . . . . . . . . . . . . (263) (720) Net cash used by financing activities . . . . . . . . . . . . . . . . (3,978) (2,797) Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . 1,375 (2,546) Cash and cash equivalents at beginning of year. . . . . . . . . . . . . . . . . . . 16,133 17,020 Cash and cash equivalents at end of period . . $ 17,508(a) $14,474 (a) Supplemental disclosure of cash flow information: Interest paid . . . . . . . . . . . . . . . $ 815 $ 884 Income taxes paid . . . . . . . . . . . . . $ 15 $ 114
(a) The balances at June 30, 1996 and 1995, include $9.0 million and $9.1 million of cash and cash equivalents, respectively, pledged to assure the availability of certain letter of credit facilities. The accompanying notes are an integral part of the interim consolidated financial statements. EMERSON RADIO CORP. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 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. 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 months ended June 30, 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 month periods ended June 30, 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 each period. The net loss per share for both periods does not include common stock equivalents assumed outstanding since they are anti- dilutive. NOTE 3 The provision for income taxes for the three months ended June 30, 1995 consists primarily of taxes related to international operations. The benefit for income taxes for the three months ended June 30, 1996 consists primarily of domestic tax refunds received. The Company did not recognize tax benefits for losses incurred by its domestic operations during the three months ended June 30, 1996 and 1995. NOTE 4 Spare parts inventories, net of reserves, aggregating $1,920,000 and $2,042,000 at June 30, 1996 and March 31, 1996, respectively, are included in "Prepaid expenses and other current assets." NOTE 5 Long-term debt consists of the following: (In thousands of dollars) June 30, March 31, 1996 1996 8 1/2% Senior Subordinated Convertible Debentures Due 2002 . . . . . . $20,750 $20,750 Other . . . . . . . . . . . . . . 260 309 21,010 21,059 Less current obligations. . . . . 138 173 $20,872 $20,886
NOTE 6 The 30 million shares of Common Stock issued to GSE Multimedia Technologies Corporation ("GSE"), Fidenas International Limited, L.L.C. ("FIN") and Elision International, Inc. ("Elision") 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, which settles various legal proceedings in Switzerland, the Bahamas and the United States among Mr. Jurick, Emerson's Chairman and Chief Executive Officer, and his affiliated entities and certain of their creditors (the "Creditors"). The Settlement Agreement provides, among other things, for the payment by Mr. Jurick and his 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 affiliated entities of Mr. Jurick. In addition, Mr. Jurick will be paid the sum of $3.5 million from the sale of such stock. The Settlement Shares will be sold over an extended, but indeterminate, period of time by a financial advisor (the "Advisor") to be proposed by Emerson and selected in consultation with Mr. Jurick and the Creditors. Such Advisor will formulate a marketing plan taking into consideration (i) the interests of Emerson's minority stockholders, and (ii) the goal of generating sufficient proceeds to pay the Creditors and Mr. Jurick as quickly as possible. The Settlement Shares will be divided into two pools. The Pool A Shares initially will consist of 15,286,172 Emerson shares. The Pool B Shares will consist of the number of Settlement Shares with respect to which Mr. Jurick must retain beneficial ownership of voting power to avoid an event of default arising out of a change of control pursuant to the terms of the Company's Loan and Security Agreement with a U.S. financial institution (the "Lender") and/or the indenture governing the Company's 8 1/2% Senior Subordinated Convertible Debentures Due 2002 (the "Debentures"). Sales may be made of the Settlement Shares pursuant to a registered offering if the sales price is not less than 90% of the average of the three most recent closing prices (the "Average Closing Price"), or, other than in a registered offering, of up to 1% of the Emerson common stock outstanding per quarter, if the sales price is not less than 90% of the Average Closing Price. Any other attempted sales are subject to the consent of the Company, Mr. Jurick and the Creditors, or, if necessary, the Court. The Settlement Agreement will only become effective after, among other things, receipt by the Court of certain share certificates currently held in foreign jurisdictions and all documents required in the Settlement Agreement. 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 alleging that Jensen and its Chairman, Chief Executive Officer and President, Robert G. Shaw, fraudulently induced the Company to enter into a confidentiality agreement and failed to negotiate with the Company in good faith. In its counterclaim and third party complaint, the Company requests such other equitable or other relief as the Court finds proper and an award of attorneys' fees and expenses. On July 2, 1996, the Company amended its third party complaint to include Recoton Corporation ("Recoton"), the competing bidder for Jensen, and William Blair Leveraged Capital Fund, L.P. ("Blair") for conspiring in the actions of Jensen and Mr. Shaw. The Company voluntarily dismissed Blair, without prejudice, on August 2, 1996. On August 8, 1996, the Company filed a Second Amended Counterclaim and Third Party Complaint with the Chicago Federal Court alleging that disclosures and omissions in Jensen's proxy materials consitituted violations of the antifraud provisions of the federal proxy rules and seeking a temporary restraining order to enjoin Jensen from holding its August 28, 1996 Special Meeting of Stockholders to approve the Recoton/Shaw transactions and from utilizing any proxies solicited pursuant to such allegedly materially misleading proxy materials. Jensen has sought to have the Court abstain from deciding this matter. The Court has not yet ruled on whether it will abstain. The Company and its President intend to vigorously defend Jensen'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 claims are without basis, that it has meritorious defenses against Jensen's claim and that the litigation or results thereof will not have a material adverse effect on the Company's consolidated financial position. 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, Blair, 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. In particular, the complaint seeks an order enjoining the consummation of the Jensen/Recoton merger and the sale of Jensen's Original Equipment Manufacturing business to Mr. Shaw. The complaint also seeks to require Jensen and its Board of Directors to provide relevant due diligence materials to the Company and to engage in good faith negotiations with the Company by asking the Court to order Jensen and its Board of Directors to conduct a fair auction on a level playing field. The Company is also requesting the Court to award damages and further relief as would be just and equitable. The Court ordered expedited discovery and held a hearing on the matter and on a motion for preliminary injunction filed on behalf of Jensen's stockholders on August 15, 1996. The Court has not yet rendered its decision. On December 20, 1995, the Company filed suit in the United States District Court for the District of New Jersey against Orion Sales, Inc., Otake Trading Co. Ltd., Technos Development Limited, Shigemasa Otake, and John Richard Bond, Jr., (collectively, the "Otake Defendants") alleging breach of contract, breach of covenant of good faith and fair dealing, unfair competition, interference with prospective economic gain, and conspiracy in connection with certain activities of the Otake Defendants under certain agreements between the Company and the Otake Defendants. Mr. Bond is a former officer and sales representative of the Company, having served in the latter capacity until he became involved working for the other Otake Defendants. Certain of the other Otake Defendants have supplied the majority of the Company's purchases until the Company's most recent fiscal year ended March 31, 1996. 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. The Company is presently engaged in litigation regarding several bankruptcy claims which have not been resolved since the restructuring of the Company's debt. The largest claim was filed July 25, 1994 in connection with the rejection of certain executory contracts with two Brazilian entities, Cineral Electronica de Amazonia Ltda. and Cineral Magazine Ltda. (collectively, "Cineral"). The contracts were executed in August 1993, shortly before the Company's filing for bankruptcy protection. The amount claimed was $93,563,457, of which $86,785,000 represents a claim for lost profits and $6,400,000 for plant installation and establishment of offices, which were installed and established prior to execution of the contracts. The claim was filed as an unsecured claim and, therefore, will be satisfied, to the extent the claim is allowed by the Bankruptcy Court, in the manner other allowed unsecured claims were satisfied. The Company has objected to and has vigorously contested the claim and believes it has meritorious defenses to the highly speculative portion of the claim for lost profits and the portion of the claim for actual damages for expenses incurred prior to the execution of the contracts. Additionally, on or about September 30, 1994, the Company instituted an adversary proceeding in the Bankruptcy Court asserting damages caused by Cineral and seeking declaratory relief and replevin. A motion filed by Cineral to dismiss the adversary proceeding has been denied. The adversary proceeding and claim objection have been consolidated into one proceeding an discovery commenced. This action has been stayed since June 1995 by order of the Bankruptcy Court pending settlement negotiations. An adverse final ruling on the Cineral claim could have a material adverse effect on the Company, even though it would be limited to 18.3% of the final claim determined by a court of competent jurisdiction; however, with respect to the claim for lost profits, in light of the foregoing, the Company believes the chances for recovery for lost profits are remote. NOTE 7 The Company has a 50% investment in E & H Partners, a joint venture that purchases, refurbishes and sells certain of the Company's product returns. The results of this joint venture are accounted for by the equity method. The Company's equity in the earnings 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): Three Months Ended June 30, 1996 1995 Income Statement data: Net Sales (a) $10,405 $ 7,274 Net Earnings 580 919 Sales by the Company 2,819 7,989 to E&H Partners June 30, March 31, 1996 1996 Balance Sheet Data: Current assets (b) $17,121 $19,326 Noncurrent assets 181 162 Total Assets $17,302 $19,488 Accounts Payable to the Company (b) $ 6,471 $13,270 Other Current liabilities 7,721 3,688 Total Liabilities 14,192 16,958 Partnership Equity 3,110 2,530 Total Liabilities and Partnership Equity $17,302 $19,488 Equity of the Company in net assets of E&H Partners $ 1,555 $ 1,265
(a) Includes sales to the Company of $3,971,000 and $1,425,000, respectively. (b) 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. 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. GENERAL Effective March 31, 1995, the Company and one of its suppliers and certain of its affiliates (collectively, the "Supplier"), entered into two mutually contingent agreements (the "Agreements"). The Company granted a license of certain trademarks to the Supplier for a three-year term. The license permits the Supplier to manufacture and sell certain video products under the Emerson trademark to the Company's largest customer (the "Customer"), in the U.S. and Canada. As a result, the Company is receiving royalties attributable to such sales over the three-year term of the Agreements in lieu of reporting the full dollar value of such sales and associated costs. The Company continues to supply other products to the Customer directly. Further, the Agreements provide that the Supplier will supply the Company with certain video products for sale to other customers at preferred prices for a three-year term. Under the terms of the Agreements, the Company will receive non-refundable minimum annual royalties from the Supplier to be credited against royalties earned from sales of video cassette recorders and players, television/video cassette recorder and player combination units, and color televisions to the Customer. In addition, effective August 1, 1995, the Supplier assumed responsibility for returns and after-sale and warranty services on all video products manufactured by the Supplier and sold to the Customer, including video products sold by the Company prior to August 1, 1995. As a result, the impact of sales returns on the Company's operating results have been significantly reduced, effective with the quarter ended September 30, 1995. The Company has reported lower direct revenues in the quarters ended June 30, 1996 and 1995 as a result of the Agreements, but its net operating results for such periods have not been impacted negatively. The Company has realized and expects to continue to realize a more stable cash flow over the three-year term of the Agreements, as well as reduced short-term borrowings necessary to finance accounts receivable and inventory, thereby reducing interest costs. Additionally, the Company's gross margins are expected to improve as the change in mix to higher margin products and a reduction in costs for product returns (which have historically been higher for certain video products) take hold. The Company and the Supplier are currently involved in litigation over certain matters concerning the terms of the Agreements. The Company's operating results and liquidity are impacted by the seasonality of its business. The Company records the majority of its annual sales in the quarters ending September 30 and December 31 and receives the largest percentage of customer returns in the quarters ending March 31 and June 30. Therefore, the results of operations discussed below are not necessarily indicative of the Company's prospective annual results of operations. RESULTS OF OPERATIONS Consolidated net revenues for the three month period ended June 30, 1996 decreased $15,911,000 (28%) as compared to the same period in the fiscal year ended March 31, 1996 ("Fiscal 1996"). The decrease resulted from decreases in unit sales of video cassette recorders, televisions and television/video cassette recorder combination units, audio products and microwave ovens 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 sales of home theater and car audio products which were not introduced until the second half of Fiscal 1996. Revenues earned from the licensing of the Emerson Radio trademark were $1,002,000 and $1,044,000 in the three month periods ended June 30, 1996 and 1995, respectively. Furthermore, the Company's Canadian sales decreased $2.5 million relating to the continued weak Canadian economy, partially offset by an increase in European sales to the Company's new distributor in Spain. Although the Company expects its United States sales for the quarter ending September 30, 1996 to be lower than the second quarter of Fiscal 1996 due to continuing weak consumer demand and the increased level of price competition, the Company is focusing on improving its margins on such sales by emphasizing higher margin products. Cost of sales, as a percentage of consolidated revenues, was 94% for the three month period ended June 30, 1996 as compared to 89% for the same period in Fiscal 1996. Gross profit margins in the three month period ended June 30, 1996 were unfavorably impacted by a change in product mix, lower sales prices (primarily video products), 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 in the first quarter of Fiscal 1996. However, gross profit margins were favorably impacted 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 $683,000 in the three month period ended June 30, 1996 as compared to the same period in Fiscal 1996, primarily as a result of a decrease in expenses formerly incurred to process product returns which are now subject to the Agreements with the Supplier. Selling, general and administrative expenses ("S,G&A") as a percentage of revenues, was 13% for the three month period ended June 30, 1996, as compared to 9% for the same period in Fiscal 1996. In absolute terms, S,G&A increased by $122,000 in the three month period ended June 30, 1996 as compared to the same period in Fiscal 1996. The increase was primarily attributable to a decrease in foreign currency exchange gains, unrealized losses incurred on investment securities and an increase in advertising incentives to stimulate sales, partially offset by a reduction in fixed costs and compensation expense relating to the Company's downsizing program in both the U.S. and in its foreign offices, and lower selling expenses attributable to the lower sales. The increase in the 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. Additionally, the Company's exposure to foreign currency fluctuations, primarily in Canada and Spain, resulted in the recognition of net foreign currency exchange gains aggregating $14,000 and $432,000 in the three month periods ended June 30, 1996 and 1995, respectively. Interest expense increased by $190,000 in the three month period ended June 30, 1996 as compared to the same period in Fiscal 1996. The increase was attributable to the interest expense associated with the Debentures issued in August 1995, partially offset by the 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 June 30, 1996 and 1995 was approximately 9.5% and 11.25%, respectively. As a result of the foregoing factors, the Company incurred a net loss of $4,723,000 for the three month period ended June 30, 1996, compared to a net loss of $1,401,000 for the same period in Fiscal 1996. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $5,308,000 for the three months ended June 30, 1996. Cash was provided by decreases in accounts receivables and inventories 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 current quarter as a partial paydown of 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. Net cash provided by investing activities was $45,000 for the three months ended June 30, 1996. In the three months ended June 30, 1996, the Company's financing activities utilized $3,978,000 of cash. The Company reduced its borrowings under its U.S. line of credit facility by $3,715,000 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 provides for revolving loans and letters of credit, subject to individual maximums and, in the aggregate, not to exceed the lesser of $60 million or a "Borrowing Base" amount based on specified percentages of eligible accounts receivable and inventories. All credit extended under the line of credit is secured by the U.S. and Canadian assets of the Company except for trademarks, which are subject to a negative pledge covenant. The interest rate on these borrowings is 1.25% above the stated prime rate. At June 30, 1996, there were approximately $17.4 million outstanding on the Company's revolving loan facility. At June 30, 1996, the Company's letter of credit facility was not utilized. Based on the "Borrowing Base" amount at June 30, 1996, $7,085,000 of the credit facility was not utilized. Pursuant to the terms of the credit facility, as amended, effective June 30, 1996, the Company is required to maintain a minimum adjusted net worth, as defined, of $30,000,000. At June 30, 1996, the Company had an adjusted net worth of $35,434,000. The Company's Hong Kong subsidiary maintains various credit facilities aggregating $62.1 million with a bank in Hong Kong consisting of the following: (i) a $12.1 million credit facility 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 June 30, 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 June 30, 1996, there were approximately $7.7 million and $9.0 million of letters of credit outstanding on the $12.1 million and $50 million credit facilities, respectively. The Company's Hong Kong subsidiary maintained an additional credit facility with another bank in Hong Kong. The facility provided for a $10 million line of credit for documentary letters of credit and a $10 million back-to-back letter of credit line collateralized by a $5 million certificate of deposit. At June 30, 1996, the Company's Hong Kong subsidiary had pledged $5.0 million in certificates of deposit to assure the availability of this credit facility. At June 30, 1996, this credit facility was not utilized. The Company recently terminated such facility. Since the emergence of the Company from bankruptcy, management believes it has been able to compete more effectively in the highly competitive consumer electronics and microwave oven industries in the United States and Canada by combining innovative approaches to the Company's current product line, such as value-added promotions, and augmenting its product line with higher margin complementary products. The Company also intends to engage in the marketing of distribution, sourcing and other services to third parties. In addition, the Company intends to undertake efforts to expand the international distribution of its products into areas where management believes low to moderately priced, dependable consumer electronics and microwave oven products will have a broad appeal. The Company has in the past and intends in the future to pursue such plans either on its own or by forging new relationships, including license arrangements, partnerships, joint ventures or strategic mergers and acquisitions of companies in similar or complementary businesses. In prior years, the Company successfully concluded licensing agreements for certain business products and intends to pursue additional licensing opportunities and believes that such licensing activities will have a positive impact on net operating results by generating royalty income with minimal costs, if any, and without the necessity of utilizing working capital or accepting customer returns. The Company is also considering strategic alternatives for its North American video business not covered under the license agreement with the Supplier. Management believes that future cash flow from operations and the institutional financing described above will be sufficient to fund all of the Company's cash requirements for the next year. The Company's liquidity is impacted by the seasonality of its business. The Company records the majority of its annual sales in the quarters ending September 30 and December 31. This requires the Company to open significantly higher amounts of letters of credit during the quarters ending June 30 and September 30, therefore significantly increasing the Company's working capital needs during these periods. Additionally, the Company received the largest percentage of customer returns in the quarter ending March 31. The higher level of returns during this period adversely impacts the Company's collection activity during this period, and therefore its liquidity. The Company believes that the Agreements with the Supplier (as noted above) and the "return-to- vendor" agreements should favorably impact the Company's cash flow over their respective terms. EMERSON RADIO CORP. AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 1. Legal Proceedings. The information required by this item is included in Notes 6 and 7 of Notes to Interim Consolidated Financial Statements filed in Part I of Form 10-Q for the quarter ended June 30, 1996, and is incorporated herein by reference. ITEM 5. Other Information. (a) Certain statements in this quarterly report on Form 10- Q under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this quarterly report and in future filings by the Company with the Securities and Exchange Commission, constitute "forward looking statements" 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: general economic and business conditions; competition; success of operating initiatives; operating costs; advertising and promotional efforts; brand awareness; the existence or absence of adverse publicity; changes in business strategy or development plans; quality of management; availability, terms and deployment of capital; 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. (b) The Company and Starr Securities, Inc. ("Starr") entered into a one-year consulting agreement dated as of August 1, 1996. Pursuant to the consulting agreement, Starr agreed to provide financial consulting services in exchange for $5,000 per month and stock purchase warrants to be issued to Starr, and/or representatives of Starr it so designates (see Exhibits 10b, 10c and 10d below). The stock purchase warrants were issued to Starr and two of its representatives and entitles the holders thereof to purchase an aggregate of 250,000 shares of the Company's common stock at an exercise price of $4.00 per share, and expire on August 1, 2001. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 10(a) Consulting Agreement, dated as of August 1, 1996 between Emerson Radio Corp. ("Emerson") and Starr Securities, Inc. 10(b) Common Stock Purchase Warrant Agreement to purchase 125,000 shares of Common Stock, dated as of August 1, 1996 between Emerson and Starr Securities, Inc. 10(c) Common Stock Purchase Warrant Agreement to purchase 110,000 shares of Common Stock, dated as of August 1, 1996 between Emerson and Arthur Stern, III. 10(d) Common Stock Purchase Warrant Agreement to purchase 15,000 shares of Common Stock, dated as of August 1, 1996 between Emerson and Arthur Stern, IV. (b) Reports on Form 8-K: (1) During the three month period ended June 30, 1996, no Form 8-K was filed. 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: August 20, 1996 /s/ Eugene I. Davis Eugene I. Davis President Date: August 20, 1996 /s/ Eddie Rishty Eddie Rishty Senior Vice President - Controller and Logistics (Chief Accounting Officer) EX-27 2
5 0000032621 EMERSON RADIO CORP. 1,000 3-MOS MAR-31-1997 JUN-30-1996 17,508 1,683 17,979 1,155 31,682 77,076 7,976 4,838 88,550 31,966 20,750 0 9,000 403 26,031 88,550 40,145 41,147 38,784 38,784 6,175 123 812 (4,747) (24) (4,723) 0 0 0 (4,723) (.12) (.12)
EX-1 3 EXHIBIT 10(A) CONSULTING AGREEMENT This Consulting Agreement, dated as of August 1, 1996 is between Emerson Radio Corp., a Delaware corporation ("Company"), and Starr Securities, Inc., a New York corporation ("Consultant"). WITNESSETH: WHEREAS, Company desires to contract with Consultant for certain consulting services, and Consultant is willing to render such services as hereinafter more fully set forth; NOW, THEREFORE, in consideration of the mutual agreements and covenants set forth in this Agreement, the parties hereto hereby agree as follows: 1. ENGAGEMENT OF CONSULTANT. Company hereby engages and retains Consultant to render to Company the consulting services described in Section 2 hereof (the "Consulting Services") for the period commencing on the date hereof and ending on the first anniversary hereof (the "Consulting Period"). Consultant represents and warrants that it is a corporation incorporated and organized under the laws of the State of New York, is qualified to do business in all jurisdictions where required and is in good standing in its state of incorporation and all other jurisdictions in which it is required to qualify to do business and has full corporate power and authority to enter into this Agreement and to comply with its obligations hereunder. Consultant also represents and warrants that it is duly licensed by and is a member in good standing with the National Association of Securities Dealers, Inc., and is duly licensed as a broker or dealer in all states in which it will conduct business under this Agreementis required to be so licensed. 2. DESCRIPTION OF CONSULTING SERVICES. The Consulting Services rendered by Consultant hereunder will consist of consultations with management of Company as such management may from time to time require during the term of this Agreement. Such consultation will be with respect to the operation and financing of Company's business, Company's relations with its securities holders and such other matters as may be agreed upon between Company and Consultant. In addition to such consultation, Company may request that Consultant attend meetings of Company's Board of Directors, or review, analyze, and report on proposed investment policies and/or public and private financing. Consultant acknowledges and agrees that its employees or consultants may be required to travel out of the New York City metropolitan area but only if Company has given Consultant oral or written notice to do so a reasonable time prior to such required travel. 3. COMPENSATION FOR SERVICES RENDERED. As compensation for the Consulting Services provided for herein, Company agrees to pay to Consultant the sum of $5,000 per month for the term of this Agreement and to deliver to Consultant and/or employees of or consultants of to Consultant (hereinafter, collectively "Consultant") designated by Consultant upon execution and delivery of this Agreement, a stock warrant agreement or agreements ("Warrants") substantially in the form attached hereto as Exhibit A. Such Warrant(s) will grant to Consultant or its permitted designees the right to purchase an aggregate of 250,000 shares of Company's Common Stock at a price of $4.00 per share during a period of five years after the date hereof. The Warrants will vest and be exercisable, pro rata to Consultant and its permitted designees, if any, on the basis of the number of shares of Common Stock subject to the Warrants when originally granted to Consultant and such designees, for the following aggregate amount of shares in accordance with the following schedule: (i) the Warrants will vest and may be exercised after six months from the date hereof to purchase 125,000 shares and (ii) the Warrants will vest and may be exercised after the first anniversary of this Agreement to purchase an additional 125,000 shares. Company also agrees to reimburse Consultant for its reasonable expenses in complying with its obligations under this Agreement, but subject to the prior written approval of Company in accordance with its customary practices and procedures. 4. NONEXCLUSIVITY OF THIS AGREEMENT. Company expressly understands and agrees that Consultant will not be prevented or barred from rendering services of the same nature as or a similar nature to those described herein, or of any nature whatsoever, for or on behalf of any person, firm, corporation or entity other than Company. Consultant understands and agrees that Company will not be prevented or barred from retaining other persons or entities to provide services of the same nature as or similar nature to those described herein or of any nature whatsoever. Consultant may also perform services for Company other than those contained in this Agreement for such compensation and under such terms and conditions as may be agreed upon in writing by Company and Consultant. 5. CONFIDENTIALITY. Consultant acknowledges that certain information provided to Consultant by Company may be of a confidential nature which Company has developed for its own internal use ("Confidential Information"). Such Confidential Information, if disclosed to Consultant, will be disclosed on a confidential basis subject to the following terms and conditions: (a) Consultant recognizes and acknowledges (i) the competitive value and confidential nature of the Confidential Information and the damage that could result to Company if information contained therein is disclosed to any unauthorized third party, (ii) that, by virtue of its knowledge of the Confidential Information, Consultant may be deemed an "insider" as that term is defined or utilized under state and or federal securities laws and (iii) that the disclosure of Confidential Information by Consultant may violate state and federal securities laws. The Confidential Information will be used solely for providing Consulting Services hereunder and will not be used by Consultant in any way detrimental to Company. (b) The Confidential Information will be revealed only to those persons whose knowledge of the information is required to allow Consultant to perform its duties hereunder. (c) During the Consulting Period and for a period of three years after its termination, Consultant will not proceed with, cause or assist in any manner any transaction or offer looking to the acquisition directly or indirectly by purchase or otherwise of Company or any interest in or asset of Company except if the Company so requests in writing. (d) Notwithstanding anything to the contrary set forth herein, if Consultant is requested or becomes legally compelled to disclose any of the Confidential Information hereunder or to take any other action prohibited hereby, Consultant will provide Company with prompt written notice so that Company may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. If such protective order or other remedy is not obtained or Company waives in writing compliance with provisions of this Agreement, Consultant will furnish only that portion of the Confidential Information that is legally required to be furnished. (e) Consultant will be responsible for any breach of the provisions hereof by Consultant (including its employees, affiliates and consultants) or any other person to whom Consultant makes disclosures unless disclosure to such other person was authorized by the Company prior to such disclosure. (f) It is agreed and understood that Confidential Information does not include information 1.) which Consultant can establish was or becomes generally available to the public other than as a result of a disclosure by the Consultant, (including its employees, affiliates and consultants) or any other person to whom Consultant makes disclosures in accordance with the provisions of this Agreement or 2.) was or becomes available to Consultant from a source other than the Company, provided that such source is not, to the best of Consultant's knowledge, subject to a confidentiality agreement with the Company. 6. DISCLAIMER OF RESPONSIBILITY FOR ACTS OF COMPANY. The obligations of Consultant described in this Agreement consist solely of the furnishing of information and advice to Company. Consultant's status hereunder is that of independent contractor and in no event will Consultant be required or permitted by this Agreement to act as the agent or employee of Company or otherwise to represent or make decisions for Company. All final decisions with respect to acts of Company or its affiliates, whether or not made pursuant to or in reliance on information or advice furnished by Consultant hereunder, will be those of Company or such affiliates and Consultant will under no circumstances be liable for any claims, costs, expenses, damages or causes of action incurred or suffered by Company or its affiliates or agents as a consequence of such decisions. Similarly, Company will under no circumstances be liable for any expense incurred or loss suffered by Consultant, its affiliates, or agents as a result of actions taken by Consultant hereunder or for any claims, costs, expenses, damages or causes of action arising out of any actions or omissions of Consultant which are beyond the scope of Consultant's authority hereunder. In acting pursuant to this Agreement, Consultant agrees to comply with all applicable laws, including the Securities Act of 1933, the Securities Exchange Act of 1934, state securities laws and the rules and regulations thereunder. 7. AMENDMENT. No amendment to this Agreement will be valid unless such amendment is in writing and is signed by authorized representatives of all the parties to this Agreement. 8. WAIVER. Any of the terms and conditions of this Agreement may be waived at any time and from time to time in writing by the party entitled to the benefit thereof, but a waiver in one instance will not be deemed to constitute a waiver in any other instance. A failure to enforce any provision of this Agreement will not operate as a waiver of the provision or of any other provision hereof. 9. SEVERABILITY. If any provision of this Agreement will be held to be invalid, illegal or unenforceable in any circumstances, the remaining provisions will nevertheless remain in full force and effect and will be construed as if the unenforceable portion or portions were deleted. 10. GOVERNING LAW. This agreement will be governed by and construed and enforced in accordance with the laws of the State of New Jersey, without regard to the conflict of law provisions thereof. 11. CHOICE OF FORUM. The parties hereto agree that should any suit, action or proceeding arising out of this Agreement be instituted by any party hereto (other than a suit, action or proceeding to enforce or realize upon any final court judgment arising out of this Agreement), such suit, action or proceeding will be instituted only in a state or federal court in Essex County, New Jersey. Each of the parties hereto consents to the personal jurisdiction of any state or federal court in Essex County, New Jersey and waives any objection to the venue of any such suit, action or proceeding. The parties hereto recognize that courts outside Essex County, New Jersey may also have jurisdiction over suits, actions or proceedings arising out of this Agreement, and in the event that any party hereto will institute a proceeding involving this Agreement in a jurisdiction outside Essex County, New Jersey, the party instituting such proceeding will indemnify any other party hereto for any losses and expenses that may result from the breach of the foregoing covenant to institute such proceeding only in a state or federal court in Essex County, New Jersey, including without limitation any additional expenses incurred as a result of litigating in another jurisdiction, such as reasonable fees and expenses of local counsel and travel and lodging expenses for parties, witnesses, experts and support personnel. 12. SERVICE OF PROCESS. Service of any and all process that may be served on any party hereto in any suit, action or proceeding arising out of this Agreement may be made in the manner and to the address set forth in Section 13 and service thus made will be taken and held to be valid personal service upon such party by any party hereto on whose behalf such service is made. 13. NOTICES. All notices, requests, payments, instructions, claims or other communications hereunder will be in writing and will be deemed to be given or made when delivered by first-class, registered or certified mail to the following address or addresses or such other address or addresses as the parties may designate in writing in accordance with this Section: If to Company: Emerson Radio Corp. Nine Entin Road Parsippany, New Jersey 07054-0430 Attn: President If to Consultant: Starr Securities, Inc. 19 Rector Street New York, New York 10006 Attn: President 14. ASSIGNMENT. This Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This Agreement contemplates personal services and may not be assigned by Consultant without the prior written consent of Company. 15. EXECUTION IN COUNTERPARTS. This Agreement may be executed by the parties in separate counterparts, each of which when so executed and delivered will be deemed to be an original and all of which when taken together will constitute one and the same agreement. STARR SECURITIES, INC. EMERSON RADIO CORP. By: /s/ Martin Vegh, President By: /s/ Eugene I. Davis (Name) (Title) Eugene I. Davis, President EX-2 4 EXHIBIT 10(B) THE GRANT OF THIS WARRANT AND THE PURCHASE OF THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. COMMON STOCK PURCHASE WARRANT AGREEMENT This COMMON STOCK PURCHASE WARRANT AGREEMENT (the "Warrant Agreement") is entered into effective as of the 1st day of August, l996, by and between EMERSON RADIO CORP., a Delaware corporation (the "Company"), and STARR SECURITIES, INC., a New York corporation ("Starr" or "Holder"). WHEREAS, on even date herewith, the Company and Starr entered into that certain Consulting Agreement (the "Consulting Agreement") whereby the Company engaged Starr to render to the Company certain consulting services more particularly described in Section 2 thereof (the "Consulting Services"); and WHEREAS, in consideration for the Consulting Agreement and for the Consulting Services to be provided thereunder, the Company has agreed to issue to Starr, and/or employees or consultants of Starr designated by it upon its execution and delivery of the Consulting Agreement, Common Stock Purchase Warrants (the "Warrants") to purchase an aggregate of 250,000 shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), pursuant to the requirements relating to the exercise thereof set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth and for the purpose of defining the terms and provisions of the Warrants and the respective rights and obligations thereunder, the parties hereto agree as follows: 1. GRANT OF WARRANTS. For value received, the Company hereby grants Holder, subject to the terms and conditions hereinafter set forth, the right to purchase up to a maximum of 125,000 shares of the Common Stock of the Company (the "Shares"), subject to adjustment as set forth herein. 2. EXERCISE OF WARRANTS. The Warrants will vest and may be exercised by the Holder as to (i) 50% of the Shares covered hereby at any time after February 1, 1997, and (ii) all or any part of the Shares covered hereby at any time after August 1, 1997, in either event until August 1, 2001, when such Warrants shall expire, at an exercise price of $4.00 per share ("Warrant Exercise Price"). The Holder shall deliver to the Company written notice of Holder's intent to exercise the Warrants at Nine Entin Road, Parsippany, New Jersey 07054-0430, or at such other address as the Company shall designate in writing to the Holder, together with this Warrant Agreement and a check payable to the order of the Company for the aggregate purchase price of the Shares so purchased. Upon exercise of the Warrants as aforesaid, the Company shall as promptly as practicable, and in any event within 10 days thereafter, execute and deliver to the Holder a certificate or certificates in the name of the Holder for the total number of whole Shares for which the Warrants are being exercised. If the Warrants shall be exercised with respect to less than all of the Shares, the Holder shall be entitled to receive a similar warrant of like tenor and date covering the number of Shares in respect of which the Warrants were not exercised. The Warrants covered by this Warrant Agreement shall lapse and be null and void if not exercised by the Holder on or before 5:00 p.m., New York City time, on August 1, 2001. 3. COVENANTS OF THE COMPANY. The Company covenants and agrees that all the Shares which may be issued upon the exercise of the Warrants represented by this Warrant Agreement will, upon issuance, be fully paid and nonassessable and free from all taxes, liens, and charges with respect to the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). The Company further covenants and agrees that during the period within which the Warrants represented by this Warrant Agreement may be exercised, the Company will at all times have authorized and reserved a sufficient number of Shares to provide for the exercise of the Warrants represented by this Warrant Agreement. 4. ADJUSTMENTS OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES. (a) If the Company shall, without the payment of new value, at any time declare a stock dividend on its outstanding shares of Common Stock or effectuate a stock split or reverse stock split, by subdivision or consolidation in any manner, regarding the number of shares of the Common Stock then outstanding into a different number of shares of the Common Stock, with or without par value, then thereafter the number of Shares which the holder shall have the right to purchase (calculated immediately prior to such change), shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease in the number of shares of the Common Stock of the Company issued and outstanding by reason of such dividend or change, and the Warrant Exercise Price of the Shares after such change shall in the event of an increase in the number of shares of the Common Stock be proportionately reduced, and in the event of a decrease in the number of shares of the Common Stock be proportionately increased. (b) Notwithstanding anything herein to the contrary, for purposes of this Section 4, the Holder agrees that no adjustment shall be made to the Warrant Exercise Price or the number of Shares issuable upon the exercise of this Warrant Agreement upon issuance of Common Stock (or any other securities) of the Company for any purposes other than as set forth in Sections 4(a) and 5 herein. 5. SURVIVAL IN THE EVENT OF MERGERS AND REORGANIZATIONS. In the event of the reclassification or change in the outstanding Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision, combination or stock dividend), or in the event of a sale of all or substantially all of the assets of the Company, or in the event of any consolidation of the Company with, or merger of the Company into, another corporation, the Company, or such successor corporation, as the case may be, shall provide that, the Holder shall thereafter be entitled to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, sale, or merger by a holder of the number of Shares which this Warrant Agreement entitled the holder thereof to purchase immediately prior to such reclassification, change, consolidation, sale, or merger. Such corporation, which thereafter shall be deemed to be the Company for purposes of this Warrant Agreement, shall provide for adjustments, if any, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant Agreement. 6. SALE OF ASSETS, DISSOLUTION. In the event of a sale of all or substantially all the assets of the Company, or in the event of any distribution of all or substantially all of its assets in dissolution or liquidation, or in the event of any other distribution or dividend (other than cash dividends), the Company shall mail notice thereof by registered mail to the Holder and shall make no distribution to the stockholders of the Company until the expiration of 10 days from the date of mailing of the aforesaid notice; provided, however, that in any such event, if the Holder shall not exercise the Warrants within 10 days from the date of mailing such notice, all rights herein granted and not so exercised within such 10 day period shall thereafter become null and void. The Company shall not, however, be prevented from consummating any such merger, consolidation, sale or distribution without awaiting the expiration of such 10 day period, it being the intent and purpose hereof to enable the Holder, upon exercise of the Warrants, to participate in the distribution of the consideration to be received by the Company upon any such merger, consolidation, or sale or in the distribution of assets upon any dissolution or liquidation or in the event of any other distribution or dividend (as provided above). 7. NO FRACTIONAL SHARES. The number of Shares subject to issuance upon the complete exercise of the Warrants shall be rounded down to the nearest whole number of Shares so that no fractional Shares shall be issued upon the complete exercise of the Warrants. The Holder shall not be entitled to receive any compensation or property for such fractional Share to which it may have been entitled to in the absence of this provision. 8. NOTICES. If there shall be any adjustment in accordance with this Warrant Agreement, or if securities or property other than Shares of the Company shall become purchasable in lieu of Shares upon exercise of the Warrants, the Company shall forthwith cause written notice thereof to be sent by registered mail, postage prepaid, to the Holder at its address shown on the books of the Company, which notice shall be accompanied by a certificate of either independent public accountants of recognized standing or the Chairman, President, or any Vice President of the Company setting forth in reasonable detail the basis for the Holder becoming entitled to purchase such Shares and the number of Shares which may be purchased and the exercise price thereof, or the facts requiring any such adjustment, or the kind and amount of any such securities or property so purchasable upon the exercise of the Warrants, as the case may be. 9. TAXES. The issue of any stock or other certificate upon the exercise of the Warrant shall be made without charge to the Holder for any stamp, duty, excise, or similar tax (but not including the Holder's income or similar taxes) in respect of the issue of such certificate. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder, as the registered holder of this Warrant Agreement, and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 10. NON-TRANSFERABILITY OF WARRANTS. The Warrants shall be non- transferable without the express written consent of the Company. 11. WARRANT HOLDER NOT STOCKHOLDER. This Warrant Agreement does not confer upon the Holder any right to vote or to consent or to receive notice as a stockholder of the Company, as such in respect of any matters whatsoever, or any other rights or liabilities as a stockholder, prior to the exercise hereof as provided herein. 12. INVESTMENT REPRESENTATIONS. The Holder, by acceptance hereof, and with reference to the Warrants and the Shares issuable upon exercise of the Warrants, represents and warrants that: (a) The Holder is acquiring such securities for investment purposes only, for its own account, and not with a view toward resale or other distribution thereof, and has no present intention of selling or otherwise disposing of such securities. (b) The Holder is aware that the offer and sale of the securities have not been registered under the Securities Act of 1933, as amended ("Securities Act"), or any state securities law, that upon exercise of the Warrants, the Shares must be held indefinitely unless they are subsequently registered or an exemption from such registration is available and that the Company is under no obligation to register the offer and sale of the Shares under the Securities Act or any applicable state securities laws, except as otherwise set forth in Section 14 hereof. (c) The Holder acknowledges that the Warrants may not be made subject to a security interest, pledged, hypothecated, sold, or otherwise transferred in the absence of an effective registration statement for such Warrants under the Securities Act and such applicable state securities laws or there is an applicable exemption therefrom. The Holder further acknowledges that, unless the offer and sale of the Shares issuable upon exercise of the Warrants have been registered under the Securities Act, the Shares issued upon the exercise of the Warrants shall be restricted in the same manner and to the same extent as the Warrants and the certificates representing such Shares shall bear the following legend: "THE OFFER AND SALE OF THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED FOR THE PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD, OR TRANSFERRED UNTIL A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR THERE IS AN AVAILABLE EXEMPTION THEREFROM." In making the above representations and warranties, the Holder intends that the Company rely thereon and understands that, as the result of such reliance, such securities are not being registered under the Securities Act or any applicable state securities laws in reliance upon the applicability of certain exemptions relating to transactions not involving a public offering. 13. LOST WARRANTS. In case this Warrant Agreement shall be mutilated, lost, stolen, or destroyed, the Company will issue a new Warrant Agreement of like date, tenor, denomination and terms and conditions, and deliver the same in exchange and substitution for and upon surrender and cancellation of the mutilated Warrant Agreement, or in lieu of any Warrant Agreement lost, stolen, or destroyed, upon receipt of evidence satisfactory to the Company of the loss, theft, or destruction of such Warrant Agreement, and upon receipt of indemnity satisfactory to the Company. 14. REGISTRATION RIGHTS. (a) The Company agrees that if at any time hereafter the Company files with the Securities and Exchange Commission ("Commission") a registration statement ("Registration Statement") under the Securities Act on a form suitable for registering the Shares (including Form S-8, if available) issuable upon exercise of the Warrants (other than on Form S-4, (S-8 if unavailable), or comparable registration statement; other than any registration statement which has been declared effective by the Commission prior to the date hereof or has been filed with the Commission prior to the date hereof but has not yet been declared effective; and, other than any registration statement arising pursuant to the terms of that certain Stipulation of Settlement and Order, dated June 11, l996, entered in the United States District Court for the District of New Jersey, Hon. Nicholas H. Politan presiding, in the action entitled Emerson Radio Corp. v. Donald K. Stelling, et al., Civil Action No. 94-3393 (NHP) ), it will give written notice to such effect to the Holder, at least 30 days prior to such filing, and, at the written request of the Holder, made within 10 days after the receipt of such notice, will include therein at the Company's cost and expense (except for the fees and expenses of counsel to the Holder and underwriting discounts and commissions attributable to the Shares of Warrant Common Stock [as hereinafter defined] included therein) such of the Shares of Warrant Common Stock held by the Holder as it shall request. If the registration is an underwritten primary registration on behalf of the Company, and the managing underwriter(s) advise the Company in writing that in their good faith opinion, based upon market conditions, the number of securities requested to be included in such registration exceeds the number which can be sold in such offering, the Company will include in such registration (i) first, the securities the Company proposes to sell, (ii) second, the Warrant Common Stock (as hereinafter defined) requested to be included in such registration and other securities requested to be included in such registration pursuant to contractual arrangements between Company and such other security holders ("Registration Rights Holders"), pro rata among the holders of the Warrant Common Stock and the Registration Rights Holders on the basis of the number of securities requested to be included in such registration by such holders and the Registration Rights Holders, and (iii) third, other securities requested to be included in such registration. The Company, at its own expense, will use its best efforts to file and seek the effectiveness of such Registration Statement with the Commission and will cause the prospectus included in such Registration Statement to meet the requirements of the Securities Act necessary to effect the sale of the Shares included at the request of the Holder and keep such Registration Statement effective for a period of 180 days thereafter. The term "Warrant Common Stock" shall mean the Shares issuable and issued pursuant to this Warrant Agreement and all other Warrants originally granted to Starr and/or its employees or consultants as contemplated in the second recital hereof and pursuant to all Warrants issued upon transfer, division, or combination of, or in substitution for, any thereof. The rights of the Holder under this Section 14 shall apply to an unlimited number of offerings proposed by the Company. (b) The Company promptly shall notify the Holder, as a participating holder of Warrant Common Stock, of the occurrence of any event as a result of which any prospectus included in a registration statement filed pursuant to this Section 14 includes any misstatement of a material fact or omission of any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. (c) In addition, upon written demand received at any time on or before 5:00 p.m., New York City time, on August 1, 2001, from the Holder or other holders of a minimum of 50% or more of the Warrant Common Stock originally subject to the Warrants granted to Starr and/or its employees or consultants as contemplated in the second recital hereof, that the Holder contemplates the transfer of all or any of his or its Warrant Common Stock under such circumstances that registration under the Securities Act will be required, the Company shall, not more than once, at the expense of the Company, except for the fees and expenses of counsel to the Holder and other holders and underwriting discounts and commissions attributable to the Shares of Warrant Common Stock included therein, as promptly as possible after receipt of such notice, file a new registration statement or, if available, an offering statement under Regulation A under the Securities Act, with respect to the offering and sale or other disposition of the Warrant Common Stock with respect to which it shall have received such notice; provided, that the Company will only be required to file a registration statement or offering statement or amendment thereto no later than 135 days after any fiscal year end of the Company and at such time as it has available for utilization therein the audited consolidated financial statements of the Company as of the preceding fiscal year end. The Company must file a registration statement or offering statement if the Shares of Warrant Common Stock cannot be sold under Regulation A because of the limited exemption. The Company agrees as soon as reasonably practicable to cause the above filing to become effective. Within 10 days after receiving such notice, the Company shall give notice to the other holders of the Warrants and Warrant Common Stock advising that the Company is proceeding with such registration statement or offering statement and offering to include therein Warrant Common Stock of such Holder. The Company shall not be obligated to any such other Holder unless such other Holder shall accept such offer by notice in writing to the Company within 10 days thereafter. (d) The Company's obligations under this Section 14 with respect to the Holder, as the holder of Warrant Common Stock, are expressly conditioned upon the Holder promptly, completely, and accurately furnishing to the Company in writing such information concerning the Holder and the terms of the Holder's proposed offering as the Company shall request for inclusion in the Registration Statement. 15. INDEMNIFICATION BY COMPANY. The Company agrees that, in the event of the registration of the offer and sale of any of the Shares of Warrant Common Stock, the Company will indemnify and hold harmless the Holder, its directors, officers and each other person, if any, who controls the Holder against any losses, claims, damages, or liabilities, joint or several, to which the Holder or any such director, officer or controlling person may become subject under the Securities Act, or any similar federal statute, and state Blue Sky and securities laws, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of, or are based upon, any untrue statement or alleged untrue statement under which the offer and sale of the Shares of Warrant Common Stock were registered under such Securities Act or similar federal statute, any state Blue Sky or securities law, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, 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 any party indemnified hereunder for any legal or any other expenses reasonably incurred by such person in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that to the extent that any such loss, claim, damage, or liability arises out of, or is based upon, an untrue statement or alleged untrue statement or omission or alleged omission made in said registration statement, said preliminary prospectus or said final prospectus or any said amendment or supplement in reliance upon, and in conformity with, information furnished to the Company by the Holder, the Company will not be so liable to the Holder. 16. INDEMNIFICATION BY THE HOLDER. The Holder, by acceptance hereof, agrees to indemnify and hold harmless the Company, its directors and officers, and each other person, if any, who controls the Company, against any losses, claims, damages, or liabilities, joint or several, to which the Company or any such director or officer or any such person may become subject under the Securities Act, or any other statute or at common law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon the disposition by the Holder of the Warrants or the Shares issuable upon the exercise hereof in violation of the provisions of this Warrant Agreement or arises out of, or is based upon, an untrue statement or alleged untrue statement or omission or alleged omission made in any registration statement, any preliminary prospectus, or final prospectus, or any amendment or supplement thereto in reliance upon, and in conformity with, information furnished to the Company by the Holder. 17. APPLICABLE LAW. This Warrant Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the conflict of laws provisions thereof. IN WITNESS WHEREOF, the parties hereto have executed this Warrant Agreement effective as of the day and year first above written. EMERSON RADIO CORP. By: /s/ Eugene I. Davis Eugene I. Davis, President STARR SECURITIES, INC. By: /s/ Martin Vegh, President (Name) (Title) EX-3 5 EXHIBIT 10(C) THE GRANT OF THIS WARRANT AND THE PURCHASE OF THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. COMMON STOCK PURCHASE WARRANT AGREEMENT This COMMON STOCK PURCHASE WARRANT AGREEMENT (the "Warrant Agreement") is entered into effective as of the 1st day of August, l996, by and between EMERSON RADIO CORP., a Delaware corporation (the "Company"), and ARTHUR STERN, III and his heirs, legal representatives and permitted assigns ("Holder"), Mr. Stern being a Senior Vice President of STARR SECURITIES, INC., a New York corporation ("Starr"). WHEREAS, on even date herewith, the Company and Starr entered into that certain Consulting Agreement (the "Consulting Agreement") whereby the Company engaged Starr to render to the Company certain consulting services more particularly described in Section 2 thereof (the "Consulting Services"); and WHEREAS, in consideration for the Consulting Agreement and for the Consulting Services to be provided thereunder, the Company has agreed to issue to Starr, and/or employees or consultants of Starr designated by it upon its execution and delivery of the Consulting Agreement, Holder being so designated by the execution by Starr of this Warrant Agreement, Common Stock Purchase Warrants (the "Warrants") to purchase an aggregate of 250,000 shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), pursuant to the requirements relating to the exercise thereof set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth and for the purpose of defining the terms and provisions of the Warrants and the respective rights and obligations thereunder, the parties hereto agree as follows: 1. GRANT OF WARRANTS. For value received, the Company hereby grants Holder, subject to the terms and conditions hereinafter set forth, the right to purchase up to a maximum of 110,000 shares of the Common Stock of the Company (the "Shares"), subject to adjustment as set forth herein. 2. EXERCISE OF WARRANTS. The Warrants will vest and may be exercised by the Holder as to (i) 50% of the Shares covered hereby at any time after February 1, 1997, and (ii) all or any part of the Shares covered hereby at any time after August 1, 1997, in either event until August 1, 2001, when such Warrants shall expire, at an exercise price of $4.00 per share ("Warrant Exercise Price"). The Holder shall deliver to the Company written notice of Holder's intent to exercise the Warrants at Nine Entin Road, Parsippany, New Jersey 07054-0430, or at such other address as the Company shall designate in writing to the Holder, together with this Warrant Agreement and a check payable to the order of the Company for the aggregate purchase price of the Shares so purchased. Upon exercise of the Warrants as aforesaid, the Company shall as promptly as practicable, and in any event within 10 days thereafter, execute and deliver to the Holder a certificate or certificates in the name of the Holder for the total number of whole Shares for which the Warrants are being exercised. If the Warrants shall be exercised with respect to less than all of the Shares, the Holder shall be entitled to receive a similar warrant of like tenor and date covering the number of Shares in respect of which the Warrants were not exercised. The Warrants covered by this Warrant Agreement shall lapse and be null and void if not exercised by the Holder on or before 5:00 p.m., New York City time, on August 1, 2001. 3. COVENANTS OF THE COMPANY. The Company covenants and agrees that all the Shares which may be issued upon the exercise of the Warrants represented by this Warrant Agreement will, upon issuance, be fully paid and nonassessable and free from all taxes, liens, and charges with respect to the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). The Company further covenants and agrees that during the period within which the Warrants represented by this Warrant Agreement may be exercised, the Company will at all times have authorized and reserved a sufficient number of Shares to provide for the exercise of the Warrants represented by this Warrant Agreement. 4. ADJUSTMENTS OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES. (a) If the Company shall, without the payment of new value, at any time declare a stock dividend on its outstanding shares of Common Stock or effectuate a stock split or reverse stock split, by subdivision or consolidation in any manner, regarding the number of shares of the Common Stock then outstanding into a different number of shares of the Common Stock, with or without par value, then thereafter the number of Shares which the holder shall have the right to purchase (calculated immediately prior to such change), shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease in the number of shares of the Common Stock of the Company issued and outstanding by reason of such dividend or change, and the Warrant Exercise Price of the Shares after such change shall in the event of an increase in the number of shares of the Common Stock be proportionately reduced, and in the event of a decrease in the number of shares of the Common Stock be proportionately increased. (b) Notwithstanding anything herein to the contrary, for purposes of this Section 4, the Holder agrees that no adjustment shall be made to the Warrant Exercise Price or the number of Shares issuable upon the exercise of this Warrant Agreement upon issuance of Common Stock (or any other securities) of the Company for any purposes other than as set forth in Sections 4(a) and 5 herein. 5. SURVIVAL IN THE EVENT OF MERGERS AND REORGANIZATIONS. In the event of the reclassification or change in the outstanding Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision, combination or stock dividend), or in the event of a sale of all or substantially all of the assets of the Company, or in the event of any consolidation of the Company with, or merger of the Company into, another corporation, the Company, or such successor corporation, as the case may be, shall provide that, the Holder shall thereafter be entitled to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, sale, or merger by a holder of the number of Shares which this Warrant Agreement entitled the holder thereof to purchase immediately prior to such reclassification, change, consolidation, sale, or merger. Such corporation, which thereafter shall be deemed to be the Company for purposes of this Warrant Agreement, shall provide for adjustments, if any, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant Agreement. 6. SALE OF ASSETS, DISSOLUTION. In the event of a sale of all or substantially all the assets of the Company, or in the event of any distribution of all or substantially all of its assets in dissolution or liquidation, or in the event of any other distribution or dividend (other than cash dividends), the Company shall mail notice thereof by registered mail to the Holder and shall make no distribution to the stockholders of the Company until the expiration of 10 days from the date of mailing of the aforesaid notice; provided, however, that in any such event, if the Holder shall not exercise the Warrants within 10 days from the date of mailing such notice, all rights herein granted and not so exercised within such 10 day period shall thereafter become null and void. The Company shall not, however, be prevented from consummating any such merger, consolidation, sale or distribution without awaiting the expiration of such 10 day period, it being the intent and purpose hereof to enable the Holder, upon exercise of the Warrants, to participate in the distribution of the consideration to be received by the Company upon any such merger, consolidation, or sale or in the distribution of assets upon any dissolution or liquidation or in the event of any other distribution or dividend (as provided above). 7. NO FRACTIONAL SHARES. The number of Shares subject to issuance upon the complete exercise of the Warrants shall be rounded down to the nearest whole number of Shares so that no fractional Shares shall be issued upon the complete exercise of the Warrants. The Holder shall not be entitled to receive any compensation or property for such fractional Share to which it may have been entitled to in the absence of this provision. 8. NOTICES. If there shall be any adjustment in accordance with this Warrant Agreement, or if securities or property other than Shares of the Company shall become purchasable in lieu of Shares upon exercise of the Warrants, the Company shall forthwith cause written notice thereof to be sent by registered mail, postage prepaid, to the Holder at its address shown on the books of the Company, which notice shall be accompanied by a certificate of either independent public accountants of recognized standing or the Chairman, President, or any Vice President of the Company setting forth in reasonable detail the basis for the Holder becoming entitled to purchase such Shares and the number of Shares which may be purchased and the exercise price thereof, or the facts requiring any such adjustment, or the kind and amount of any such securities or property so purchasable upon the exercise of the Warrants, as the case may be. 9. TAXES. The issue of any stock or other certificate upon the exercise of the Warrant shall be made without charge to the Holder for any stamp, duty, excise, or similar tax (but not including the Holder's income or similar taxes) in respect of the issue of such certificate. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder, as the registered holder of this Warrant Agreement, and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 10. NON-TRANSFERABILITY OF WARRANTS. The Warrants shall be non- transferable without the express written consent of the Company. 11. WARRANT HOLDER NOT STOCKHOLDER. This Warrant Agreement does not confer upon the Holder any right to vote or to consent or to receive notice as a stockholder of the Company, as such in respect of any matters whatsoever, or any other rights or liabilities as a stockholder, prior to the exercise hereof as provided herein. 12. INVESTMENT REPRESENTATIONS. The Holder, by acceptance hereof, and with reference to the Warrants and the Shares issuable upon exercise of the Warrants, represents and warrants that: (a) The Holder is acquiring such securities for investment purposes only, for its own account, and not with a view toward resale or other distribution thereof, and has no present intention of selling or otherwise disposing of such securities. (b) The Holder is aware that the offer and sale of the securities have not been registered under the Securities Act of 1933, as amended ("Securities Act"), or any state securities law, that upon exercise of the Warrants, the Shares must be held indefinitely unless they are subsequently registered or an exemption from such registration is available and that the Company is under no obligation to register the offer and sale of the Shares under the Securities Act or any applicable state securities laws, except as otherwise set forth in Section 14 hereof. (c) The Holder acknowledges that the Warrants may not be made subject to a security interest, pledged, hypothecated, sold, or otherwise transferred in the absence of an effective registration statement for such Warrants under the Securities Act and such applicable state securities laws or there is an applicable exemption therefrom. The Holder further acknowledges that, unless the offer and sale of the Shares issuable upon exercise of the Warrants have been registered under the Securities Act, the Shares issued upon the exercise of the Warrants shall be restricted in the same manner and to the same extent as the Warrants and the certificates representing such Shares shall bear the following legend: "THE OFFER AND SALE OF THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED FOR THE PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD, OR TRANSFERRED UNTIL A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR THERE IS AN AVAILABLE EXEMPTION THEREFROM." In making the above representations and warranties, the Holder intends that the Company rely thereon and understands that, as the result of such reliance, such securities are not being registered under the Securities Act or any applicable state securities laws in reliance upon the applicability of certain exemptions relating to transactions not involving a public offering. 13. LOST WARRANTS. In case this Warrant Agreement shall be mutilated, lost, stolen, or destroyed, the Company will issue a new Warrant Agreement of like date, tenor, denomination and terms and conditions, and deliver the same in exchange and substitution for and upon surrender and cancellation of the mutilated Warrant Agreement, or in lieu of any Warrant Agreement lost, stolen, or destroyed, upon receipt of evidence satisfactory to the Company of the loss, theft, or destruction of such Warrant Agreement, and upon receipt of indemnity satisfactory to the Company. 14. REGISTRATION RIGHTS. (a) The Company agrees that if at any time hereafter the Company files with the Securities and Exchange Commission ("Commission") a registration statement ("Registration Statement") under the Securities Act on a form suitable for registering the Shares (including Form S-8, if available) issuable upon exercise of the Warrants (other than on Form S-4, (S-8 if unavailable), or comparable registration statement; other than any registration statement which has been declared effective by the Commission prior to the date hereof or has been filed with the Commission prior to the date hereof but has not yet been declared effective; and, other than any registration statement arising pursuant to the terms of that certain Stipulation of Settlement and Order, dated June 11, l996, entered in the United States District Court for the District of New Jersey, Hon. Nicholas H. Politan presiding, in the action entitled Emerson Radio Corp. v. Donald K. Stelling, et al., Civil Action No. 94-3393 (NHP) ), it will give written notice to such effect to the Holder, at least 30 days prior to such filing, and, at the written request of the Holder, made within 10 days after the receipt of such notice, will include therein at the Company's cost and expense (except for the fees and expenses of counsel to the Holder and underwriting discounts and commissions attributable to the Shares of Warrant Common Stock [as hereinafter defined] included therein) such of the Shares of Warrant Common Stock held by the Holder as it shall request. If the registration is an underwritten primary registration on behalf of the Company, and the managing underwriter(s) advise the Company in writing that in their good faith opinion, based upon market conditions, the number of securities requested to be included in such registration exceeds the number which can be sold in such offering, the Company will include in such registration (i) first, the securities the Company proposes to sell, (ii) second, the Warrant Common Stock (as hereinafter defined) requested to be included in such registration and other securities requested to be included in such registration pursuant to contractual arrangements between Company and such other security holders ("Registration Rights Holders"), pro rata among the holders of the Warrant Common Stock and the Registration Rights Holders on the basis of the number of securities requested to be included in such registration by such holders and the Registration Rights Holders, and (iii) third, other securities requested to be included in such registration. The Company, at its own expense, will use its best efforts to file and seek the effectiveness of such Registration Statement with the Commission and will cause the prospectus included in such Registration Statement to meet the requirements of the Securities Act necessary to effect the sale of the Shares included at the request of the Holder and keep such Registration Statement effective for a period of 180 days thereafter. The term "Warrant Common Stock" shall mean the Shares issuable and issued pursuant to this Warrant Agreement and all other Warrants originally granted to Starr and/or its employees or consultants as contemplated in the second recital hereof and pursuant to all Warrants issued upon transfer, division, or combination of, or in substitution for, any thereof. The rights of the Holder under this Section 14 shall apply to an unlimited number of offerings proposed by the Company. (b) The Company promptly shall notify the Holder, as a participating holder of Warrant Common Stock, of the occurrence of any event as a result of which any prospectus included in a registration statement filed pursuant to this Section 14 includes any misstatement of a material fact or omission of any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. (c) In addition, upon written demand received at any time on or before 5:00 p.m., New York City time, on August 1, 2001, from the Holder or other holders of a minimum of 50% or more of the Warrant Common Stock originally subject to the Warrants granted to Starr and/or its employees or consultants as contemplated in the second recital hereof, that the Holder contemplates the transfer of all or any of his or its Warrant Common Stock under such circumstances that registration under the Securities Act will be required, the Company shall, not more than once, at the expense of the Company, except for the fees and expenses of counsel to the Holder and other holders and underwriting discounts and commissions attributable to the Shares of Warrant Common Stock included therein, as promptly as possible after receipt of such notice, file a new registration statement or, if available, an offering statement under Regulation A under the Securities Act, with respect to the offering and sale or other disposition of the Warrant Common Stock with respect to which it shall have received such notice; provided, that the Company will only be required to file a registration statement or offering statement or amendment thereto no later than 135 days after any fiscal year end of the Company and at such time as it has available for utilization therein the audited consolidated financial statements of the Company as of the preceding fiscal year end. The Company must file a registration statement or offering statement if the Shares of Warrant Common Stock cannot be sold under Regulation A because of the limited exemption. The Company agrees as soon as reasonably practicable to cause the above filing to become effective. Within 10 days after receiving such notice, the Company shall give notice to the other holders of the Warrants and Warrant Common Stock advising that the Company is proceeding with such registration statement or offering statement and offering to include therein Warrant Common Stock of such Holder. The Company shall not be obligated to any such other Holder unless such other Holder shall accept such offer by notice in writing to the Company within 10 days thereafter. (d) The Company's obligations under this Section 14 with respect to the Holder, as the holder of Warrant Common Stock, are expressly conditioned upon the Holder promptly, completely, and accurately furnishing to the Company in writing such information concerning the Holder and the terms of the Holder's proposed offering as the Company shall request for inclusion in the Registration Statement. 15. INDEMNIFICATION BY COMPANY. The Company agrees that, in the event of the registration of the offer and sale of any of the Shares of Warrant Common Stock, the Company will indemnify and hold harmless the Holder against any losses, claims, damages, or liabilities to which the Holder may become subject under the Securities Act, or any similar federal statute, and state Blue Sky and securities laws, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of, or are based upon, any untrue statement or alleged untrue statement under which the offer and sale of the Shares of Warrant Common Stock were registered under such Securities Act or similar federal statute, any state Blue Sky or securities law, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, 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 the Holder for any legal or any other expenses reasonably incurred by the Holder in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that to the extent that any such loss, claim, damage, or liability arises out of, or is based upon, an untrue statement or alleged untrue statement or omission or alleged omission made in said registration statement, said preliminary prospectus or said final prospectus or any said amendment or supplement in reliance upon, and in conformity with, information furnished to the Company by the Holder, the Company will not be so liable to the Holder. 16. INDEMNIFICATION BY THE HOLDER. The Holder, by acceptance hereof, agrees to indemnify and hold harmless the Company, its directors and officers, and each other person, if any, who controls the Company, against any losses, claims, damages, or liabilities, joint or several, to which the Company or any such director or officer or any such person may become subject under the Securities Act, or any other statute or at common law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon the disposition by the Holder of the Warrants or the Shares issuable upon the exercise hereof in violation of the provisions of this Warrant Agreement or arises out of, or is based upon, an untrue statement or alleged untrue statement or omission or alleged omission made in any registration statement, any preliminary prospectus, or final prospectus, or any amendment or supplement thereto in reliance upon, and in conformity with, information furnished to the Company by the Holder. 17. APPLICABLE LAW. This Warrant Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the conflict of laws provisions thereof. IN WITNESS WHEREOF, the parties hereto have executed this Warrant Agreement effective as of the day and year first above written. EMERSON RADIO CORP. By: /s/ Eugene I. Davis Eugene I. Davis, President ARTHUR STERN, III /s/ Arthur Stern, III STARR SECURITIES, INC. By: /s/ Martin Vegh, President (Name) (Title) EX-4 6 EXHIBIT 10(D) THE GRANT OF THIS WARRANT AND THE PURCHASE OF THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. COMMON STOCK PURCHASE WARRANT AGREEMENT This COMMON STOCK PURCHASE WARRANT AGREEMENT (the "Warrant Agreement") is entered into effective as of the 1st day of August, l996, by and between EMERSON RADIO CORP., a Delaware corporation (the "Company"), and ARTHUR STERN, IV and his heirs, legal representatives and permitted assigns ("Holder"), Mr. Stern being a consultant of STARR SECURITIES, INC., a New York corporation ("Starr"). WHEREAS, on even date herewith, the Company and Starr entered into that certain Consulting Agreement (the "Consulting Agreement") whereby the Company engaged Starr to render to the Company certain consulting services more particularly described in Section 2 thereof (the "Consulting Services"); and WHEREAS, in consideration for the Consulting Agreement and for the Consulting Services to be provided thereunder, the Company has agreed to issue to Starr, and/or employees or consultants of Starr designated by it upon its execution and delivery of the Consulting Agreement, Holder being so designated by the execution by Starr of this Warrant Agreement, Common Stock Purchase Warrants (the "Warrants") to purchase an aggregate of 250,000 shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), pursuant to the requirements relating to the exercise thereof set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth and for the purpose of defining the terms and provisions of the Warrants and the respective rights and obligations thereunder, the parties hereto agree as follows: 1. GRANT OF WARRANTS. For value received, the Company hereby grants Holder, subject to the terms and conditions hereinafter set forth, the right to purchase up to a maximum of 15,000 shares of the Common Stock of the Company (the "Shares"), subject to adjustment as set forth herein. 2. EXERCISE OF WARRANTS. The Warrants will vest and may be exercised by the Holder as to (i) 50% of the Shares covered hereby at any time after February 1, 1997, and (ii) all or any part of the Shares covered hereby at any time after August 1, 1997, in either event until August 1, 2001, when such Warrants shall expire, at an exercise price of $4.00 per share ("Warrant Exercise Price"). The Holder shall deliver to the Company written notice of Holder's intent to exercise the Warrants at Nine Entin Road, Parsippany, New Jersey 07054-0430, or at such other address as the Company shall designate in writing to the Holder, together with this Warrant Agreement and a check payable to the order of the Company for the aggregate purchase price of the Shares so purchased. Upon exercise of the Warrants as aforesaid, the Company shall as promptly as practicable, and in any event within 10 days thereafter, execute and deliver to the Holder a certificate or certificates in the name of the Holder for the total number of whole Shares for which the Warrants are being exercised. If the Warrants shall be exercised with respect to less than all of the Shares, the Holder shall be entitled to receive a similar warrant of like tenor and date covering the number of Shares in respect of which the Warrants were not exercised. The Warrants covered by this Warrant Agreement shall lapse and be null and void if not exercised by the Holder on or before 5:00 p.m., New York City time, on August 1, 2001. 3. COVENANTS OF THE COMPANY. The Company covenants and agrees that all the Shares which may be issued upon the exercise of the Warrants represented by this Warrant Agreement will, upon issuance, be fully paid and nonassessable and free from all taxes, liens, and charges with respect to the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). The Company further covenants and agrees that during the period within which the Warrants represented by this Warrant Agreement may be exercised, the Company will at all times have authorized and reserved a sufficient number of Shares to provide for the exercise of the Warrants represented by this Warrant Agreement. 4. ADJUSTMENTS OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES. (a) If the Company shall, without the payment of new value, at any time declare a stock dividend on its outstanding shares of Common Stock or effectuate a stock split or reverse stock split, by subdivision or consolidation in any manner, regarding the number of shares of the Common Stock then outstanding into a different number of shares of the Common Stock, with or without par value, then thereafter the number of Shares which the holder shall have the right to purchase (calculated immediately prior to such change), shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease in the number of shares of the Common Stock of the Company issued and outstanding by reason of such dividend or change, and the Warrant Exercise Price of the Shares after such change shall in the event of an increase in the number of shares of the Common Stock be proportionately reduced, and in the event of a decrease in the number of shares of the Common Stock be proportionately increased. (b) Notwithstanding anything herein to the contrary, for purposes of this Section 4, the Holder agrees that no adjustment shall be made to the Warrant Exercise Price or the number of Shares issuable upon the exercise of this Warrant Agreement upon issuance of Common Stock (or any other securities) of the Company for any purposes other than as set forth in Sections 4(a) and 5 herein. 5. SURVIVAL IN THE EVENT OF MERGERS AND REORGANIZATIONS. In the event of the reclassification or change in the outstanding Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision, combination or stock dividend), or in the event of a sale of all or substantially all of the assets of the Company, or in the event of any consolidation of the Company with, or merger of the Company into, another corporation, the Company, or such successor corporation, as the case may be, shall provide that, the Holder shall thereafter be entitled to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, sale, or merger by a holder of the number of Shares which this Warrant Agreement entitled the holder thereof to purchase immediately prior to such reclassification, change, consolidation, sale, or merger. Such corporation, which thereafter shall be deemed to be the Company for purposes of this Warrant Agreement, shall provide for adjustments, if any, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant Agreement. 6. SALE OF ASSETS, DISSOLUTION. In the event of a sale of all or substantially all the assets of the Company, or in the event of any distribution of all or substantially all of its assets in dissolution or liquidation, or in the event of any other distribution or dividend (other than cash dividends), the Company shall mail notice thereof by registered mail to the Holder and shall make no distribution to the stockholders of the Company until the expiration of 10 days from the date of mailing of the aforesaid notice; provided, however, that in any such event, if the Holder shall not exercise the Warrants within 10 days from the date of mailing such notice, all rights herein granted and not so exercised within such 10 day period shall thereafter become null and void. The Company shall not, however, be prevented from consummating any such merger, consolidation, sale or distribution without awaiting the expiration of such 10 day period, it being the intent and purpose hereof to enable the Holder, upon exercise of the Warrants, to participate in the distribution of the consideration to be received by the Company upon any such merger, consolidation, or sale or in the distribution of assets upon any dissolution or liquidation or in the event of any other distribution or dividend (as provided above). 7. NO FRACTIONAL SHARES. The number of Shares subject to issuance upon the complete exercise of the Warrants shall be rounded down to the nearest whole number of Shares so that no fractional Shares shall be issued upon the complete exercise of the Warrants. The Holder shall not be entitled to receive any compensation or property for such fractional Share to which it may have been entitled to in the absence of this provision. 8. NOTICES. If there shall be any adjustment in accordance with this Warrant Agreement, or if securities or property other than Shares of the Company shall become purchasable in lieu of Shares upon exercise of the Warrants, the Company shall forthwith cause written notice thereof to be sent by registered mail, postage prepaid, to the Holder at its address shown on the books of the Company, which notice shall be accompanied by a certificate of either independent public accountants of recognized standing or the Chairman, President, or any Vice President of the Company setting forth in reasonable detail the basis for the Holder becoming entitled to purchase such Shares and the number of Shares which may be purchased and the exercise price thereof, or the facts requiring any such adjustment, or the kind and amount of any such securities or property so purchasable upon the exercise of the Warrants, as the case may be. 9. TAXES. The issue of any stock or other certificate upon the exercise of the Warrant shall be made without charge to the Holder for any stamp, duty, excise, or similar tax (but not including the Holder's income or similar taxes) in respect of the issue of such certificate. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder, as the registered holder of this Warrant Agreement, and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 10. NON-TRANSFERABILITY OF WARRANTS. The Warrants shall be non- transferable without the express written consent of the Company. 11. WARRANT HOLDER NOT STOCKHOLDER. This Warrant Agreement does not confer upon the Holder any right to vote or to consent or to receive notice as a stockholder of the Company, as such in respect of any matters whatsoever, or any other rights or liabilities as a stockholder, prior to the exercise hereof as provided herein. 12. INVESTMENT REPRESENTATIONS. The Holder, by acceptance hereof, and with reference to the Warrants and the Shares issuable upon exercise of the Warrants, represents and warrants that: (a) The Holder is acquiring such securities for investment purposes only, for its own account, and not with a view toward resale or other distribution thereof, and has no present intention of selling or otherwise disposing of such securities. (b) The Holder is aware that the offer and sale of the securities have not been registered under the Securities Act of 1933, as amended ("Securities Act"), or any state securities law, that upon exercise of the Warrants, the Shares must be held indefinitely unless they are subsequently registered or an exemption from such registration is available and that the Company is under no obligation to register the offer and sale of the Shares under the Securities Act or any applicable state securities laws, except as otherwise set forth in Section 14 hereof. (c) The Holder acknowledges that the Warrants may not be made subject to a security interest, pledged, hypothecated, sold, or otherwise transferred in the absence of an effective registration statement for such Warrants under the Securities Act and such applicable state securities laws or there is an applicable exemption therefrom. The Holder further acknowledges that, unless the offer and sale of the Shares issuable upon exercise of the Warrants have been registered under the Securities Act, the Shares issued upon the exercise of the Warrants shall be restricted in the same manner and to the same extent as the Warrants and the certificates representing such Shares shall bear the following legend: "THE OFFER AND SALE OF THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED FOR THE PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD, OR TRANSFERRED UNTIL A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR THERE IS AN AVAILABLE EXEMPTION THEREFROM." In making the above representations and warranties, the Holder intends that the Company rely thereon and understands that, as the result of such reliance, such securities are not being registered under the Securities Act or any applicable state securities laws in reliance upon the applicability of certain exemptions relating to transactions not involving a public offering. 13. LOST WARRANTS. In case this Warrant Agreement shall be mutilated, lost, stolen, or destroyed, the Company will issue a new Warrant Agreement of like date, tenor, denomination and terms and conditions, and deliver the same in exchange and substitution for and upon surrender and cancellation of the mutilated Warrant Agreement, or in lieu of any Warrant Agreement lost, stolen, or destroyed, upon receipt of evidence satisfactory to the Company of the loss, theft, or destruction of such Warrant Agreement, and upon receipt of indemnity satisfactory to the Company. 14. REGISTRATION RIGHTS. (a) The Company agrees that if at any time hereafter the Company files with the Securities and Exchange Commission ("Commission") a registration statement ("Registration Statement") under the Securities Act on a form suitable for registering the Shares (including Form S-8, if available) issuable upon exercise of the Warrants (other than on Form S-4, (S-8 if unavailable), or comparable registration statement; other than any registration statement which has been declared effective by the Commission prior to the date hereof or has been filed with the Commission prior to the date hereof but has not yet been declared effective; and, other than any registration statement arising pursuant to the terms of that certain Stipulation of Settlement and Order, dated June 11, l996, entered in the United States District Court for the District of New Jersey, Hon. Nicholas H. Politan presiding, in the action entitled Emerson Radio Corp. v. Donald K. Stelling, et al., Civil Action No. 94-3393 (NHP) ), it will give written notice to such effect to the Holder, at least 30 days prior to such filing, and, at the written request of the Holder, made within 10 days after the receipt of such notice, will include therein at the Company's cost and expense (except for the fees and expenses of counsel to the Holder and underwriting discounts and commissions attributable to the Shares of Warrant Common Stock [as hereinafter defined] included therein) such of the Shares of Warrant Common Stock held by the Holder as it shall request. If the registration is an underwritten primary registration on behalf of the Company, and the managing underwriter(s) advise the Company in writing that in their good faith opinion, based upon market conditions, the number of securities requested to be included in such registration exceeds the number which can be sold in such offering, the Company will include in such registration (i) first, the securities the Company proposes to sell, (ii) second, the Warrant Common Stock (as hereinafter defined) requested to be included in such registration and other securities requested to be included in such registration pursuant to contractual arrangements between Company and such other security holders ("Registration Rights Holders"), pro rata among the holders of the Warrant Common Stock and the Registration Rights Holders on the basis of the number of securities requested to be included in such registration by such holders and the Registration Rights Holders, and (iii) third, other securities requested to be included in such registration. The Company, at its own expense, will use its best efforts to file and seek the effectiveness of such Registration Statement with the Commission and will cause the prospectus included in such Registration Statement to meet the requirements of the Securities Act necessary to effect the sale of the Shares included at the request of the Holder and keep such Registration Statement effective for a period of 180 days thereafter. The term "Warrant Common Stock" shall mean the Shares issuable and issued pursuant to this Warrant Agreement and all other Warrants originally granted to Starr and/or its employees or consultants as contemplated in the second recital hereof and pursuant to all Warrants issued upon transfer, division, or combination of, or in substitution for, any thereof. The rights of the Holder under this Section 14 shall apply to an unlimited number of offerings proposed by the Company. (b) The Company promptly shall notify the Holder, as a participating holder of Warrant Common Stock, of the occurrence of any event as a result of which any prospectus included in a registration statement filed pursuant to this Section 14 includes any misstatement of a material fact or omission of any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. (c) In addition, upon written demand received at any time on or before 5:00 p.m., New York City time, on August 1, 2001, from the Holder or other holders of a minimum of 50% or more of the Warrant Common Stock originally subject to the Warrants granted to Starr and/or its employees or consultants as contemplated in the second recital hereof, that the Holder contemplates the transfer of all or any of his or its Warrant Common Stock under such circumstances that registration under the Securities Act will be required, the Company shall, not more than once, at the expense of the Company, except for the fees and expenses of counsel to the Holder and other holders and underwriting discounts and commissions attributable to the Shares of Warrant Common Stock included therein, as promptly as possible after receipt of such notice, file a new registration statement or, if available, an offering statement under Regulation A under the Securities Act, with respect to the offering and sale or other disposition of the Warrant Common Stock with respect to which it shall have received such notice; provided, that the Company will only be required to file a registration statement or offering statement or amendment thereto no later than 135 days after any fiscal year end of the Company and at such time as it has available for utilization therein the audited consolidated financial statements of the Company as of the preceding fiscal year end. The Company must file a registration statement or offering statement if the Shares of Warrant Common Stock cannot be sold under Regulation A because of the limited exemption. The Company agrees as soon as reasonably practicable to cause the above filing to become effective. Within 10 days after receiving such notice, the Company shall give notice to the other holders of the Warrants and Warrant Common Stock advising that the Company is proceeding with such registration statement or offering statement and offering to include therein Warrant Common Stock of such Holder. The Company shall not be obligated to any such other Holder unless such other Holder shall accept such offer by notice in writing to the Company within 10 days thereafter. (d) The Company's obligations under this Section 14 with respect to the Holder, as the holder of Warrant Common Stock, are expressly conditioned upon the Holder promptly, completely, and accurately furnishing to the Company in writing such information concerning the Holder and the terms of the Holder's proposed offering as the Company shall request for inclusion in the Registration Statement. 15. INDEMNIFICATION BY COMPANY. The Company agrees that, in the event of the registration of the offer and sale of any of the Shares of Warrant Common Stock, the Company will indemnify and hold harmless the Holder against any losses, claims, damages, or liabilities to which the Holder may become subject under the Securities Act, or any similar federal statute, and state Blue Sky and securities laws, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of, or are based upon, any untrue statement or alleged untrue statement under which the offer and sale of the Shares of Warrant Common Stock were registered under such Securities Act or similar federal statute, any state Blue Sky or securities law, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, 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 the Holder for any legal or any other expenses reasonably incurred by the Holder in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that to the extent that any such loss, claim, damage, or liability arises out of, or is based upon, an untrue statement or alleged untrue statement or omission or alleged omission made in said registration statement, said preliminary prospectus or said final prospectus or any said amendment or supplement in reliance upon, and in conformity with, information furnished to the Company by the Holder, the Company will not be so liable to the Holder. 16. INDEMNIFICATION BY THE HOLDER. The Holder, by acceptance hereof, agrees to indemnify and hold harmless the Company, its directors and officers, and each other person, if any, who controls the Company, against any losses, claims, damages, or liabilities, joint or several, to which the Company or any such director or officer or any such person may become subject under the Securities Act, or any other statute or at common law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon the disposition by the Holder of the Warrants or the Shares issuable upon the exercise hereof in violation of the provisions of this Warrant Agreement or arises out of, or is based upon, an untrue statement or alleged untrue statement or omission or alleged omission made in any registration statement, any preliminary prospectus, or final prospectus, or any amendment or supplement thereto in reliance upon, and in conformity with, information furnished to the Company by the Holder. 17. APPLICABLE LAW. This Warrant Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the conflict of laws provisions thereof. IN WITNESS WHEREOF, the parties hereto have executed this Warrant Agreement effective as of the day and year first above written. EMERSON RADIO CORP. By: /s/ Eugene I. Davis Eugene I. Davis, President ARTHUR STERN, IV /s/ Arthur Stern, IV STARR SECURITIES, INC. By: /s/ Martin Vegh, President (Name) (Title) -----END PRIVACY-ENHANCED MESSAGE-----