<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended December 31, 1994
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 1-6715
NATIONAL MEDIA CORPORATION
--------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2658741
- - - --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1700 Walnut Street, Philadelphia, PA 19103
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 772-5000
--------------
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.
Yes /X/ No / /
There were 14,191,332 issued and outstanding shares of the registrant's
common stock, par value $.01 per share, at January 31, 1995. In addition
there were 686,710 shares of treasury stock as of such date. There were
255,796 issued and outstanding shares of the registrant's series B
convertible preferred stock, par value $.01 per share, at January 31, 1995.
<PAGE> 2
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
--------------------------
INDEX
-----
Page
----
Facing Sheet....................................................... 1
Index.............................................................. 2
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at
December 31, 1994 and March 31, 1994................ 3
Condensed Consolidated Statements of Operations
Three months ended December 31, 1994 and 1993....... 4
Condensed Consolidated Statements of Operations
Nine months ended December 31, 1994 and 1993........ 5
Condensed Consolidated Statements of Cash Flows
Nine months ended December 31, 1994 and 1993........ 6
Notes to Condensed Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.......................................... 16
Part II. Other Information
Item 1. Legal Proceedings.................................... 24
Item 2. Changes in the Rights of the Company's
Security Holders..................................... 24
Item 4. Results of Votes of Security Holders ................ 24
Item 5. Other Information.................................... 24
Item 6. Exhibits and Reports on Form 8-K..................... 24
Signatures......................................................... 28
<PAGE> 3
Part 1. Financial Information
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
December 31, March 31,
1994 1994
------------ ---------
(Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................... $10,686 $ 1,595
Accounts receivable (net) .................................... 15,247 14,709
Inventories .................................................. 15,024 10,761
Prepaid cable and advertising costs .......................... 4,190 5,525
Deferred costs ............................................... 571 2,222
Prepaid expenses and other assets ............................ 1,343 833
Deferred income taxes ........................................ 1,204 1,204
------- -------
Total current assets ....................................... 48,265 36,849
Property and equipment (net) ................................... 4,533 4,809
Excess of cost over net assets of acquired businesses and
other intangible assets (net) ................................ 4,739 4,995
Other assets ................................................... 1,147 822
------- -------
Total assets ............................................... $58,684 $47,475
======= =======
Current liabilities:
Notes payable to bank ........................................ $ -0- $ 3,819
Accounts payable ............................................. 12,201 12,292
Accrued expenses ............................................. 14,750 15,826
Deferred revenue ............................................. 383 1,735
Deferred income taxes ........................................ 850 849
Current portion of long-term debt and capital lease
obligations .................................................. 182 951
------- -------
Total current liabilities .................................. 28,366 35,472
Long-term debt and capital lease obligation .................... 3,568 448
Deferred income taxes .......................................... 355 355
Other liabilities .............................................. 1,160 629
Shareholders' equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares;
issued 255,796 and -0- Series B Convertible Preferred
stock, respectively ......................................... 3 0
Common stock, $.01 par value; authorized 50,000,000 shares;
issued 14,878,042 and 14,338,042 shares, respectively ...... 149 144
Additional paid-in capital ................................... 32,096 19,026
Retained earnings ............................................ (724) 662
Treasury stock, 686,710 shares at cost ....................... (3,791) (3,791)
Notes receivable, directors, officers, employees,
consultants and others ..................................... (1,860) (4,504)
Foreign currency translation adjustment ...................... (638) (966)
------- -------
Total shareholders' equity ................................. 25,235 10,571
------- -------
Total liabilities and shareholders' equity ................. $58,684 $47,475
======= =======
</TABLE>
Note: The balance sheet at March 31, 1994 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
<PAGE> 4
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
Three months ended December 31,
--------------------------------------------------
1994 1993
------------------------ ---------------------
<S> <C> <C>
Revenues:
Product sales........................................................ $ 39,544 $ 36,597
Retail royalties..................................................... 976 1,928
Sales commissions and other revenues................................. 734 247
----------- -----------
Net revenues....................................................... 41,254 38,772
Operating costs and expenses:
Media purchases...................................................... 11,754 13,946
Direct costs......................................................... 23,219 21,811
Selling, general and administrative.................................. 4,673 5,447
Severance expense for former Chairman and
Chief Executive Officer.............................................. -0- -0-
Unusual charges...................................................... 1,192 1,984
Interest expense..................................................... 181 55
----------- -----------
Total operating costs and expenses................................. 41,019 43,243
----------- -----------
Income (loss) before income taxes...................................... 235 (4,471)
Income tax benefit..................................................... -0- 140
----------- -----------
Net income (loss)...................................................... $ 235 ($ 4,331)
=========== ===========
Net income (loss) per common and dilutive common equivalent
share.................................................................. $ .02 ($ .37)
=========== ===========
Weighted average number of common shares
outstanding ......................................................... 14,815,000 11,811,600
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 5
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
Nine months ended December 31,
--------------------------------------------------
1994 1993
------------------------ ---------------------
<S> <C> <C>
Revenues:
Product sales........................................................ $ 113,763 $ 125,700
Retail royalties..................................................... 4,454 2,752
Sales commissions and other revenues................................. 1,969 615
----------- -----------
Net revenues....................................................... 120,186 129,067
Operating costs and expenses:
Media purchases...................................................... 36,355 41,738
Direct costs......................................................... 65,876 70,711
Selling, general and administrative.................................. 14,513 15,458
Severance expense for former Chairman and
Chief Executive Officer.............................................. 2,650 -0-
Unusual charges...................................................... 1,768 4,449
Interest expense..................................................... 410 225
----------- -----------
Total operating costs and expenses................................. 121,572 132,581
----------- -----------
Loss before income taxes............................................... (1,386) (3,514)
Income taxes........................................................... -0- (6)
----------- -----------
Net loss .............................................................. ($ 1,386) ($ 3,520)
=========== ===========
Net loss per common and dilutive common equivalent share............... ($ .10) ($ .30)
=========== ===========
Weighted average number of common shares
outstanding ........................................................... 13,969,000 11,680,700
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 6
NATIONAL MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine months ended December 31,
--------------------------------------------------
1994 1993
------------------------ ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................................ ($ 1,386) ($3,520)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.................................... 1,203 1,265
Changes in operating assets and liabilities..................... ( 1,347) ( 302)
Other............................................................ 446 213
------- ------
Net cash used in operating activities.................................. ( 1,084) ( 2,344)
Cash flows from investing activities:
Additions to property and equipment.................................. ( 671) ( 1,002)
------- ------
Net cash used in investing activities.................................. ( 671) ( 1,002)
Cash flows from financing activities:
Net proceeds from issuance of investment units....................... 9,628 -0-
Payments on long-term debt .......................................... ( 909) ( 1,125)
Proceeds from borrowings............................................. 5,000 -0-
Net (repayments) borrowings under lines of credit.................... ( 3,819) 1,291
Exercise of stock options ........................................... 240 353
Payments received on notes receivable................................ 492 433
------- ------
Net cash provided by financing activities.............................. 10,632 952
Effect of exchange rate changes on cash and cash equivalents........... 214 ( 84)
------- ------
Net increase (decrease) in cash and cash equivalents................... 9,091 ( 2,478)
Cash and cash equivalents at beginning of period....................... 1,595 2,848
------- ------
Cash and cash equivalents at end of period............................. $10,686 $ 370
======= ======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 7
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
December 31, 1994
1.Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine month periods ended December 31, 1994 are
not necessarily indicative of the results that may be expected for the year
ending March 31, 1995. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended March 31, 1994.
2.Per Share Amounts
Net income (loss) per common and dilutive common equivalent share amounts
(primary earnings per share) have been computed based upon the weighted
average number of common shares and dilutive common equivalent shares
(stock options, warrants, and convertible preferred stock ("Preferred
Stock") using the "if converted method") outstanding. For the three months
ended December 31, 1994 the weighted average number of shares includes the
effect of Preferred Stock. For the three months ended December 31, 1993
and for the nine months ended December 31, 1994 and 1993, the effect of
stock options, warrants and Preferred Stock was antidilutive, as the
Company was in a loss position. The difference between primary and fully
diluted net income (loss) per common share and weighted average number of
shares outstanding was not significant or was antidilutive, and therefore,
is not shown separately.
3.Unusual Charges
Included in the unusual charges of $1,192,000 for the three months ended
December 31, 1994 is $1,100,000 in costs, including related legal fees
connected with the final settlement of a contractual dispute between the
Company and Direct Records, Inc. ("Direct Records dispute") and tentative
settlement of the Shareholders' Federal Class Action litigation
("Shareholders' Federal Class Action litigation"), as more fully described
in Note 4 (Contingent Matters) below. In addition, unusual charges for the
three months ended December 31, 1994 includes $70,000 in costs associated
with the Terminated Tender Offer and Merger Agreement with ValueVision
International, Inc. ("ValueVision Terminated Tender Offer") as discussed in
Note 4 (Contingent Matters) below and $22,000 of costs connected with
Salaman v. National Media Corporation ("Salaman litigation") as discussed
in Note 4 (Contingent Matters) below.
The nine months ended December 31, 1994 include unusual charges of
$1,768,000 consisting primarily of $1,135,000 in costs, including related
legal fees, connected with the final settlement of the Direct Records
dispute and a tentative settlement of the Shareholders' Federal Class
Action litigation; $448,000 in costs associated with the ValueVision
Terminated Tender Offer and $185,000 in costs connected with the Salaman
litigation.
<PAGE> 8
Included in unusual charges of $1,984,000 for the three months ended
December 31, 1993 is $784,000 for certain legal settlements, including
$550,000 related to litigation with Positive Response Television, Inc., an
infomerical producer, involving an alleged breach of contract and claims
related to ownership and rights to use of a service mark ("Positive
Response litigation"), $200,000 in legal fees associated with the
aforementioned settlements, as well as the Ronic litigation described below
and the Shareholders' Federal Class Action litigation; and $1,000,000
related to the relocation of the Company's fulfillment center to Phoenix,
Arizona.
Unusual charges for the nine months ended December 31, 1993 were
$4,449,000, the primary components of which were $2,284,000 connected with
certain legal settlements, including $1,500,000 related to the settlement
of litigation brought by Ronic, S.A., a supplier of the Company's Juice
Tiger product, for payment for merchandise ordered and received, parts
ordered to manufacture products allegedly ordered by the Company, and
damages for Ronic's entry into receivership among other things ("Ronic
litigation") and $550,000 related to the Positive Response litigation;
$738,000 in legal fees associated with the aforementioned Ronic, Positive
Response and Shareholders' Federal Class Action litigations; and
$1,000,000 related to the relocation of the Company's fulfillment center to
Phoenix, Arizona.
4.Contingent Matters
Salaman v. National Media Corporation
On August 1, 1994, the Company entered into an agreement with Abraham J.
Salaman, a former director of the Company, to settle litigation brought by
Mr. Salaman against the Company. Pursuant to the agreement, the Company
paid Mr. Salaman $500,000 and issued to Mr. Salaman 500,000 newly issued
shares of the Company's Common Stock (the "Shares"). The Company also
agreed to register the Shares under the Securities Act of 1933, as amended,
for resale by Mr. Salaman. A registration statement on Form S-3 with
respect to the Shares was filed by the Company with the Securities and
Exchange Commission on August 9, 1994. The Company recently filed an
amendment to this registration statement and the registration statement
became effective on February 10, 1995. The Settlement Agreement provides
that, upon the declaration of effectiveness of the registration statement,
the parties will cause the action to be dismissed with prejudice. The
Shares represent approximately 3.5% of the Company's outstanding shares of
Common Stock (after giving effect to the issuance of the Shares).
Shareholders' Federal Class Actions
On or about June 3, 1993, a class action complaint was filed in the United
States District Court for the Eastern District of Pennsylvania against the
Company, John J. Turchi, Jr. (former Chief Executive Officer and Chairman
of the Board of Directors) and Michael M. Hammond (former Chief Operating
Officer, President and a Director). The complaint alleges (i) violations
of sections 10 and 20 of the Securities Exchange Act of 1934, 15 U.S.C. **
78j(b) and 78t(a) and (ii) state law negligent misrepresentation. Five
similar lawsuits subsequently were filed in the same court. The six
actions were consolidated and an amended and consolidated complaint (the
"complaint") was filed on October 1, 1993. Named as defendants in the
complaint were the Company, Mr. Turchi, Mr. Hammond and Kevin Harrington, a
former executive vice president and director.
<PAGE> 9
The complaint alleges that from June 29, 1992, through May 27, 1993 (the
alleged class period), defendants depicted the Company's business and
prospects in a false and misleading manner. Specifically, the complaint
alleges that defendants issued public statements that misrepresented and
failed to disclose material facts concerning the nature and quality of
National Media's business relationship with Positive Response Marketing
Inc., and concerning the Company's rights to use the name and format of
Amazing Discoveries* for its direct marketing television advertising
programs. The complaint further alleges that the complaint filed in the
Positive Response litigation was material and should have been disclosed
publicly by the Company before May 28, 1993, when the action was reported
in a column published in The Wall Street Journal.
The complaint seeks unspecified monetary damages against the defendants on
behalf of all persons who bought the Company's stock during the alleged
class period on the purported ground that the market price of the Company's
common stock was artificially inflated during the alleged class period due
to the nondisclosure of the Positive Response litigation and related
matters.
On July 27, 1994, the Court denied in material part the Company's motion to
dismiss the complaint. Plaintiffs' motion for class certification, which
defendants oppose, is pending. On October 4, 1994, plaintiffs filed a
motion to amend the complaint to include a claim that the Company failed to
disclose timely the disputes underlying the Ronic litigation discussed in
the Company's annual report of Form 10-K for the year ended March 31, 1994.
The District Court granted plaintiff's motion to amend the complaint, and
an amended complaint was filed on November 23, 1994. Defendants have
answered the amended complaint, denying the material allegations of the
complaint and setting up various affirmative defenses.
On October 13, 1994, the Court imposed a discovery cut-off of February 1,
1995, and among other things, scheduled the trial of this action to begin
on April 10, 1995.
The parties have informally reached a tentative settlement of this action,
although certain terms remain to be finalized. Such settlement is subject
to the execution of a definitive settlement agreement and the receipt of
all necessary approvals from various parties to other agreements with the
Company and approval of the Court. Although the Company has no reason to
expect that a definitive settlement agreement will not be executed by all
of the parties, or that such approvals will not be received, there can be
no assurance that the settlement will be finalized and such approvals
received. In connection with the tentative settlement, the Company
recorded a charge of approximately $725,000 during the three months ended
December 31, 1994. This charge materially decreased the Company's net
income for the quarter but it is not expected to have a significant adverse
impact on future results of operations. Management of the Company believes
that the definitive settlement, if implemented on substantially the terms of
the tentative settlement, would not otherwise be likely to have a material
adverse effect on the financial position of the Company.
<PAGE> 10
Shareholders' Delaware Class Actions
The Company was served with complaints in four class actions during January
1994 by shareholders of the Company in the Court of Chancery of the State
of Delaware. These class actions allege, among other things, that the
Company and individual defendants who are officers and directors or former
officers and directors of the Company breached their obligations to the
Company's public shareholders by failing to maximize shareholder value by,
among other things, taking steps to ensure that the Company is sold to the
highest bidder in a public auction. Two of the complaints specifically
allege that the Company's directors breached their fiduciary duties by
adopting the Company's shareholder rights plan in January 1994. In
addition to seeking certification of the action as a class action, each of
these class actions seeks unspecified monetary and injunctive relief. On
March 10, 1994, a Memorandum of Understanding was executed by the parties
involved in these lawsuits. Pursuant to the Memorandum of Understanding,
the parties agreed to attempt to reach an appropriate Stipulation of
Settlement providing generally for a full and complete settlement,
dismissal with prejudice and release of all claims. In return, the
defendants in these lawsuits agreed not to oppose an application by the
plaintiff's counsel for fees and expenses which in the aggregate will not
exceed $325,000.
The Memorandum of Understanding was subject to, among other things, the
successful completion of the tender offer by ValueVision International,
Inc. (ValueVision) for all of National Media's common stock at a cash price
of $11.50 per share (the "Tender Offer"). ValueVision's termination of the
Tender Offer on April 21, 1994 resulted in the proposed settlement not
being consummated. In May 1994, the class plaintiffs served an amended
consolidated complaint alleging that the individual defendants breached
their fiduciary duties by failing to maximize value to shareholders,
failing to act with due care, and failing to deal with shareholders with
full and complete candor. The amended consolidated complaint also alleges
that to the extent Mr. Turchi recovers monetary damages from ValueVision in
the pending action brought by the Company and Mr. Turchi against
ValueVision those monies should be placed in a constructive trust for the
benefit of shareholders. The defendants have answered the amended
consolidated complaint, denying its material allegations. The Company
believes that the claims made in the amended consolidated complaint are
without merit and that the Company and other defendants have meritorious
defenses to the complaint. The Company intends to defend the class action
vigorously. As no monetary damages have been specified, the Company cannot
determine with accuracy the impact an adverse judgement in this matter
would have on the Company's results of operations and financial position.
Media Arts International, Ltd. v. SAS Marketing Group,Inc. and Ambassador
Factors, a division of Fleet Factors, Inc.
In November 1993 Media Arts filed a multi-count complaint against SAS
Marketing Group, Inc. ("SAS") and Ambassador Factors, a division of Fleet
Factors, Inc. ("Ambassador"), in federal court in Philadelphia. Media
Arts' complaint alleged breach of contract, conversion and other claims
against both defendants related to the Juice Tiger and Flying Lure
products. Both defendants answered the complaint and both answers included
counterclaims against Media Arts. The Ambassador counterclaims purported
to allege claims for breach of contract, breach of the covenant of good
faith, and intentional interference with contract, and sought unspecified
damages and counsel fees. The SAS counterclaims alleged, in essence,
breach of contract on the Juice Tiger and Flying Lure contracts. The SAS
counterclaims demanded in excess of ten million dollars in damages. The
parties have executed a confidential definitive settlement agreement
pursuant to which all claims and counterclaims of the parties have been
dismissed and mutual releases exchanged. The Company believes that the
settlement, which was implemented, did not have a material adverse effect
on the Company's results of operations or financial position.
<PAGE> 11
Consumer Product Safety Commission Investigation
On February 24, 1994, the staff of the Consumer Product Safety Commission
(CPSC) notified the Company that it had made a preliminary determination
that a particular model of the Company's Juice Tiger* product presents a
"substantial product hazard," under the Consumer Product Safety Act. The
CPSC staff requested the Company to take voluntary corrective action to
ameliorate such alleged product hazard. While the Company has disputed
that the model in question presents a substantial product hazard, the
Company and the CPSC staff are presently discussing the form and nature of
voluntary action proposed by the Company to assuage the CPSC staff's
concerns. The CPSC staff recently requested the Company to conduct
additional tests to help determine the most appropriate corrective action,
and the Company is in the process of complying with the staff's request.
The CPSC staff has also indicated that, upon agreement on the
implementation of a corrective action plan, it may investigate and assess
whether the Company failed to comply with reporting requirements under the
Consumer Product Safety Act such as to warrant imposition of a civil
penalty. Given the current status of the proceedings before the CPSC
staff, it is not yet possible to determine whether the cost of implementing
any such corrective action plan and the amount of any such civil penalty,
alone or together, would have a material adverse effect on the Company's
results of operations and financial position.
Federal Trade Commission Investigation
In April 1994, the Company was contacted by the staff of the Federal Trade
Commission (FTC) and advised that the FTC staff had completed an
investigation of certain practices said to have occurred between 1989 and
1991 involving the alleged improper disclosure of credit card information
to third parties through the sale of customer lists. The company
discontinued such practices in 1991. The Company and the FTC investigative
staff have reached a settlement involving acceptance of a consent decree
which does not include any admission that the Company violated any laws
administered by the FTC. As part of the settlement, the Company has agreed
to pay $175,000 in consumer redress to the FTC. Payment is expected to be
made by the end of February 1995. The FTC issued a press release dated
December 28, 1994 announcing the settlement.
<PAGE> 12
Terminated Tender Offer and Merger Agreement with ValueVision
International, Inc.
On April 21, 1994, the Company was notified by ValueVision that it had
terminated its amended tender offer for the Company's outstanding shares of
common stock and the associated Agreement and Plan of Merger to which the
Company, ValueVision, and ValueVision Acquisition I Corp. were parties
based on unspecified breaches of representation and warranties by the
Company. On April 22, 1994, the Company and its former chairman, Mr. John
J. Turchi, Jr., filed suit in the United States District Court for the
Eastern District of Pennsylvania against ValueVision for its termination of
the Amended Offer. On May 17, 1994, the Company filed an amended complaint
seeking damages in excess of $20 million, including payment of the $7
million termination fee expressly provided for in the Merger Agreement,
punitive damages of an unspecified amount, as well as violation of section
14 (e) of the Securities Act of 1934. John J. Turchi, Jr. is seeking
damages in excess of $5 million.
On May 26, 1994, ValueVision answered the amended complaint of the Company
and Mr. Turchi, as well as setting forth various counterclaims.
ValueVision requested the court to dismiss all counts of the amended
complaint and enter judgment in favor of the defendants. In addition,
ValueVision's counterclaims alleges that the Company made false statements
in public documents and used fraud to induce ValueVision to enter into the
Merger Agreement. The counterclaim seeks among other items damages,
including punitive damages, in an amount to be determined at trial, an
order rescinding and extinguishing the Merger Agreement, a declaratory
judgement declaring that National Media's Shareholder Rights Plan has been
triggered and requiring that the Rights owned by or distributable to
ValueVision be declared effective and that ValueVision be afforded the
right to acquire National Media stock having a value equal to twice the
exercise price of the Rights as of the date such Rights became exercisable
and for an injunction and order directing National Media and Mr. Turchi to
make prompt public disclosure of certain facts and documents. The Company
has replied to the counterclaims against it, denying their material
allegations. The Company believes that its claims are substantiated and
well grounded. In addition, the Company believes that defendant's answers
to the amended complaint and counterclaims alleged are without merit. The
Company intends to defend the counterclaims vigorously. If judgment were
to be entered against the Company on all or substantially all of
ValueVision's counterclaims in this litigation, such judgment would have a
material adverse effect on the Company's results of operations and
financial position. In addition, a determination that the Company's Rights
Plan was triggered could result in substantial dilution to the Company's
shareholders.
Barbra Shotel
Barbra Shotel, a former employee of the Company, filed a claim with the
Equal Employment Opportunity Commission ("EEOC") in December 1992. The
Company and Ms. Shotel have entered into a Settlement Agreement and Release
dated November 7, 1994, pursuant to which Ms. Shotel has waived and
released all claims against the Company arising from her employment with
the Company. The terms of such Settlement Agreement and Release did not
have a material effect on the Company's results of operations or financial
position.
<PAGE> 13
Lachance Federal Class Action
On July 19, 1994, Sandra Lachance filed a purported class action lawsuit in
the United States District Court for the Eastern District of Pennsylvania
on behalf of all persons and entities who purchased the Company's Common
Stock during the period beginning April 25, 1994 and ending July 15, 1994
against the Company, Mr. Turchi and two former directors and officers of
the Company. Ms. Lachance claims that the Company and the other defendants
engaged in a plan to inflate the market price of the Company's Common Stock
after the Company's proposed merger with ValueVision was terminated by
misstating and concealing material information concerning the Company's
financial condition, operations and prospects. The complaint alleges
violations of Section 10(b) of the Securities Exchange Act of 1934, as
amended, and Rule 10b-5 promulgated thereunder. The defendants have
answered the complaint, denying its material allegations. As no monetary
damages have been specified, the Company cannot determine with accuracy the
impact an adverse judgement in this matter would have on the Company's
results of operations and financial position.
Campbell v. National Media Corporation
On July 28, 1994, William H. Campbell filed a complaint in the United
States Court for the Eastern District of Pennsylvania against the Company
and Mr. Turchi. Mr. Campbell is a former officer of the Company. Mr.
Campbell alleges that the Company and Mr. Turchi fraudulently induced him
to purchase the Company's Common Stock through the exercise of stock
options and to forebear from selling his shares of Common Stock. Mr.
Campbell claims that Mr. Turchi controlled the Company and that the actions
of the Company and Mr. Turchi were designed to assist Mr. Turchi in
maintaining such control. Specifically, Mr. Campbell claims that the
Company and Mr. Turchi violated federal and state securities laws, made
negligent and fraudulent misrepresentations and breached agreements he had
with the Company. Mr. Campbell seeks to recover compensatory damages in
excess of $1.3 million and punitive damages and to rescind all alleged
debts owed by Mr. Campbell to the Company (approximately $238,000 at July
31, 1994). The Company and Mr. Turchi filed motions to dismiss and/or for
summary judgement, which motions were denied by the Court on November 3,
1994. The parties have informally reached a confidential settlement of
the action, and on December 9, 1994, the court dismissed the case with
prejudice. The court has retained jurisdiction of the case for 90 days,
however, in the event that any party seeks to have the dismissal vacated,
modified or stricken should the parties fail to execute and deliver a
definitive settlement agreement. Although the Company has no reason to
expect that such a definitive settlement agreement will not be executed by
all parties, there can be no assurance that the settlement will be so
finalized. Management of the Company believes that the definitive
settlement, if implemented on substantially the terms of the informal
settlement, would not be likely to have a material adverse effect on the
financial position or results of operations of the Company.
Efron and Cohen Class Action
In December, 1994, Bruce Efron and Phillip Cohen filed a purported class
action lawsuit in federal court against the Company and certain of its
former officers and directors on behalf of all persons and entities who
purchased Common Stock during the period beginning April 25, 1994 and
ending July 15, 1994. The allegations of this complaint are substantially
similar to those in the Lachance class action detailed above. No monetary
damages have been specified in the complaint. The Company timely filed an
answer to the complaint in January 1995 and intends to continue to
vigorously defend this action.
<PAGE> 14
Direct Records, Inc.
On December 21, 1994, the Company gave notice of the termination of an
agreement with Direct Records, relating to the production and marketing of
musical recordings through infomercials. Such termination was based on
certain disputes between the parties. The Company expected that Direct
Records would contest the termination and possibly commence an action
against the Company, including, without limitation, the assertion of claims
for substantial monetary damages. The Company and Direct Records have
definitively resolved the matter by entering into a settlement agreement on
February 3, 1995 containing mutual and general releases of the parties.
Under the terms of the settlement agreement, the Company paid $325,000 to
Direct Records, the charge for which is recorded in the three months ended
December 31, 1994.
The Wall Street Group, Inc.
In March 1994, the Wall Street Group, Inc. filed a demand for commercial
arbitration with the American Arbitration Association (the "AAA") in
connection with a 1990 agreement under which The Wall Street Group was to
provide financial public relations services to the Company. That agreement
was terminated in August, 1992. The arbitration demand seeks to recover
$26,837 in fees and expenses allegedly due The Wall Street Group for
services provided to the Company under such agreement (together with
interest and attorney's fees), plus an injunction requiring the Company to
recognize The Wall Street Group's alleged right to receive from the Company
options to purchase 158,973 shares of the Company's common stock for
$258,333. The Company disputes The Wall Street Group's claims and, in
particular, the number and exercise price per share of the options to which
The Wall Street Group claims it is entitled. The AAA is in the process of
appointing an arbitration panel for the proceeding, and the parties have
agreed to exchange documents and requested that the AAA schedule an
arbitration hearing; however, no dates have yet been set. The parties
have tentatively reached a confidential settlement of the action. Although
the Company has no reason to expect that a definitive settlement agreement
will not be executed by the parties, there can be no assurance that the
settlement will be so finalized. Management of the Company believes that
the definitive settlement, if implemented on substantially the terms of the
tentative settlement, would not be likely to have a material adverse effect
on the financial position or results of operations of the Company.
As noted above the Company is a party to significant legal proceedings and
regulatory investigations. An adverse judgement against the Company in one
or more of the above matters is likely to have a material adverse impact on
the Company's results of operations and financial position.
5.Cash Flow - Non-cash Financing Activities
During the nine month period ended December 31, 1994, the Company engaged
in certain non-cash financing activities which resulted in the reduction of
the Company's current liabilities in the approximate amount of $3,400,000.
Approximately $1,700,000 related to the issuance of 500,000 shares of the
Company's Common Stock in connection with the settlement of the Salaman
litigation discussed in Note 4 (Contingent Matters) herein. The remaining
$1,700,000 represents an offset of severance expense payable to the
Company's former Chairman and Chief Executive Officer ("CEO") as described
more fully in Note 6 (Commitments - Severance) herein, by amounts due the
Company by the former Chairman and CEO which were previously included in
Notes Receivable in the Shareholder's equity section of the balance sheet.
<PAGE> 15
6.Commitments - Severance
On September 12, 1994, John J. Turchi, Jr. resigned as Chairman of the
Board and Chief Executive Officer of the Company. The Company recorded
severance expense of $2,650,000, pursuant to a Letter Agreement executed in
connection with his resignation and the terms of his employment agreement,
which at the time of his resignation had a remaining term of approximately
four years and provided for an annual base salary of $600,000. On December
21, 1994, the date Mr. Turchi resigned as a member of the Company's Board
of Directors, the Company and Mr. Turchi entered into further agreements in
part amending the earlier separation agreement. Pursuant to such
agreements, the Company has agreed to (i) pay Mr. Turchi $50,000 per month
until March 31, 1995, (ii) forgive two notes made by Mr. Turchi, one in the
principal amount of $80,750 (the "1992 Note") and one in the principal
amount of $1,565,439 (the "1994 Note") in three installments of (a) $600,000
of unpaid principal and interest on such notes (applied first to the 1992
Note and then the 1994 Note) on January 2, 1995, (b) $600,000 of unpaid
principal and interest (applied first to interest and then to principal) on
January 2, 1996 and (c) the balance of outstanding interest and principal
on the 1994 Note, if any, on January 2, 1997, (iii) modify such notes to
provided that the note become due and payable on January 1, 1997 rather
than (a) the date Mr. Turchi terminates his employment with the Company or
(b) upon the sale of the Common Stock purchased in part with the proceeds
of such notes, (v) accelerate the vesting of 750,000 options to acquire
shares of the Company's Common Stock in accordance with the terms of his
employment agreement and (vi) retain Mr. Turchi as a consultant for a term
of 36 months.
Pursuant to the terms of Mr. Turchi's consulting agreement, Mr. Turchi will
hold himself available to perform consulting services for the Company as
requested by the Chairman or Vice Chairman of the Board for a maximum of 12
hours per month for a period of 36 months. The consulting services to be
provided by Mr. Turchi will involve every aspect of the Company's business,
including information and related matters about vendors and customers of
the Company. Mr. Turchi will be paid at the rate of $2,000 per month for
the period January 1995 - March 1995, $40,000 per month for the period
April 1995 - September 1995 and $2,000 per month for the period October
1995 until the termination of the agreement. Because Mr. Turchi will serve as
a consultant to the Company, he will continue to be eligible to participate
in the 1991 Option Plan and stock options granted to him under such plan,
but yet unexercised, will terminate 90 days after the termination of his
services as a consultant. The option agreements pursuant to which Mr.
Turchi was granted such stock options have been amended to provide that Mr.
Turchi may not pay the exercise price of such stock options by delivering a
promissory note.
7.Equity Investment
During the three months ended December 31, 1994, the Company raised a total
of approximately $9,605,000 (net of $655,000 of offering costs including
legal fees, fees due investment bankers, etc.) through the sale, in
privately negotiated transactions, of a total of 255,796 investment units
("Units"). As of December 31, 1994, the Company received payment for
244,546 Units with the payment for the remaining units being received in
early January 1995. Approximately $450,000 related to the remaining Units is
included in accounts receivable at December 31, 1994. Each Unit consists
of one share of Series B Convertible Preferred Stock, par value $.01 per
share (the "Preferred Stock"), of the Company and a warrant (the
"Warrants") to purchase twelve (12) shares (subject to adjustment) of
common stock, par value $.01 per share (the "Common Stock"), of the
Company. Each share of Preferred Stock is valued at $40 per share for
conversion purposes, is convertible into Common Stock at a price of $4.00
per common share (subject to adjustment) and carries no preferred dividend
right. The Warrants are exercisable at a price of $4.80 per share of
Common Stock, except for those applicable to 3,546 Units which are
exercisable at a price of $5.74 per share of Common Stock. The warrants
are exercisable as follows:
Units Warrants Date Exercisable Expiration Date
----- -------- ---------------- ---------------
32,250 387,000 October 5, 1995 October 5, 2004
223,546 2,682,552 December 19, 1995 December 19, 2004
<PAGE> 16
Certain executive officers and directors of the Company participated in the
aforementioned private placement acquiring 17,921 Units. The purchase price of
these Units was at the same prices as offered to other investors. The Company
has reserved 2,557,960 shares of Common Stock for issuance in connection with
the conversion of the aforementioned Preferred Stock and 5,319,552 shares of
Common Stock for issuance upon the exercise of the aforementioned warrants, as
well as, the 2,250,000 warrants issued to an investor in connection with the
Term Loan discussed in Note 8 below. Holders of the aforementioned Common
Stock issuable upon conversion of the Preferred Stock or upon exercise of the
Warrants and Loan Warrants have certain demand registration rights and
piggy-back registration rights with respect to such shares. The Preferred
Stock issued (on a common stock equivalent basis) represents approximately 15%
of the Company's current outstanding shares of Common Stock (after giving
effect to the issuance of such shares).
8.Debt Refinancing
During the quarter, the Company closed on a $5,000,000 five-year secured
term loan with an independent investor pursuant to a Note and Warrant
Purchase Agreement, dated as of October 19, 1994 ("the Term Loan").
Approximately $3.1 million of the proceeds of the loan have been used to
repay the Company's pre-existing bank credit facility. The balance of the
proceeds are being utilized for working capital purposes. The Company also
issued to the investor a warrant (the "Loan Warrants") to purchase
2,250,000 shares (subject to adjustment) of Common Stock. The Loan
Warrants are exercisable at a price of $4.80 per share of Common Stock at
any time from and after September 30, 1995 until September 30, 2004. Based
on a preliminary independent valuation analysis, the Company has valued the
Loan Warrants at approximately $1.8 million. The corresponding loan
discount is being amortized over the life of the loan (60 months) and is
included in interest expense.
The Term Loan bears interest on the unpaid principal amount at a floating rate
equal to the prime rate plus .5%, and is payable, monthly in arrears, on the
first day of each month, commencing November 1, 1994. The entire principal
amount of the Term Loan is payable on September 30, 1999. The Term Loan is
secured by a lien on all of the inventory, receivables, trademarks,
tradenames, service marks, copyright and all other assets of the Company and
its subsidiaries. Such lien on certain non-domestic assets of the Company is
subordinate to a lien held by Barclays Bank PLC. At present, the Company has
an overdraft line with Barclays Bank PLC in the amount of L200,000
(approximately $300,000). Under the Note and Warrant Purchase Agreement, the
Company is subject to certain restrictions, including the payment of
dividends, and must comply with covenants including the maintenance of
specific ratios.
9.Series B Convertible Preferred Stock
In October 1994, the Company authorized the issuance of a series of
preferred stock designated "Series B Convertible Preferred Stock", par
value $.01 per share, consisting of 400,000 shares, of which a total of
255,796 shares have been issued in connection with the private placements,
as described above in Note 7 (Equity Investment).
Each share of Series B Preferred Stock is valued at $40.00 per share for
conversion purposes and is presently convertible at the option of the
holder into shares of Common Stock at a price of $4.00 per share of Common
Stock (subject to adjustment). The holders of shares of Series B Preferred
Stock shall be entitled to receive dividends declared on the Common Stock
as if the shares of Series B Preferred Stock had been converted into shares
of Common Stock. Holders shall be entitled to receive a liquidation
preference in an amount equal to $40.00 per share of Series B Preferred
Stock. Except as to the election of directors, each share of Series B
Preferred Stock has voting rights equivalent to the total number of shares
of Common Stock into which the share of the Series B Preferred Stock is
convertible. The holders of the Series B Preferred Stock, voting as a
class, have the right to elect two directors; the holders of the Common
Stock, voting as a class, have the right to elect the remaining directors.
The Series B Preferred Stock right to elect two directors terminates under
certain circumstances.
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
The Company is engaged in the direct marketing of consumer products. Prior
to fiscal 1992, the Company derived substantially all of its net revenues
attributed to continuing operations from product sales in the United States
and Canada through the use of infomercials. The Company's operating results
continue to depend upon its ability to introduce and sell new products. The
Company is generally dependent on its most successful products to generate a
significant portion of its net revenue. In order to reduce the risk
associated with a limited number of successful products, the Company has
taken several actions since the end of fiscal 1991 designed to increase its
revenues and profitability. The Company has focused on expanding its product
sales internationally by introducing infomercials which have proven to have
consumer appeal in the United States. As a result of this initiative the
Company anticipates that a greater percentage of its revenues will be derived
from the international infomercial market, that air shows from the Company's
library, thus reducing the Company's dependence on new show production. The
Company has also begun to take advantage of the product awareness created by
infomercials by extending the sales life of its infomercial products through
non-infomercial distribution channels, such as retail arrangements and by
entering into agreements with manufacturers of consumer products in which the
Company's strategic partner will supply new products and retail distribution
channels for product sales.
Results of Operations
The following table sets forth the operating data of the Company as a
percentage of net revenues for the periods indicated below.
<TABLE>
<CAPTION>
Three months Ended Nine months Ended
December 31, December 31,
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues....................................... 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Media purchases................................. 28.5 36.0 30.3 32.3
Direct costs.................................... 56.3 56.2 54.8 54.8
Selling, general and administrative............. 11.3 14.0 12.1 12.0
Severance expense for former Chairman and
Chief Executive Officer......................... 2.2
Unusual charges................................. 2.9 5.1 1.5 3.4
Interest expense................................ .4 .2 .3 .2
----- ----- ----- -----
Total operating costs and expenses........... 99.4 111.5 101.2 102.7
----- ----- ----- -----
Income (loss) before income taxes.................. .6 (11.5) (1.2) (2.7)
----- ----- ----- -----
Net income (loss) ................................ .6% (11.2)% (1.2)% (2.7)%
===== ===== ===== =====
</TABLE>
<PAGE> 18
Three months ended December 31, 1994 compared to three months ended December
31, 1993
Net revenues
Net revenues were $41.3 million for the three months ended December 31, 1994
as compared to $38.8 million for the three months ended December 31, 1993, an
increase of $2.5 million or 6.4%.
Domestic net revenues. Domestic net revenues were $20.7 million for the
three months ended December 31, 1994 as compared to $27.8 million for the
three months ended December 31, 1993, a decrease of $7.1 million or 25.5%.
Domestic infomercial net revenues decreased by $5.5 million or 23.5% due to a
significant reduction in the number of airings during the three months ended
December 31, 1994 as compared to the three months ended December 31, 1993 and
the increased sale of media time during the current period as a result of the
Company's establishment of media brokerage activities. The Company
sells some time in lieu of airing its own shows when the sale of such time
is deemed to be more beneficial to the Company. Domestic net revenues
were also unfavorably impacted as a result of changes in the Company's sales
mix toward higher priced products, which products have historically
experienced a higher return rate. Returns as a percentage of gross revenues
increased from 7.9% in the prior three month period to 17.0% in the current
three month period. Non-infomercial net revenue decreased by $1.6 million.
Retail royalties declined from $1.9 million in the three months ended
December 31, 1993 to $1.0 million in the three months ended December 31, 1994
primarily due to strong royalties from the Jet Aire, Flying Lure and Tony
Little Target Training products in the 1993 period. Approximately 62% and
20% of the Company's current period domestic net revenues were generated from
sales of the Powerwalk Plus and Regal Ware Royal Diamond Cookware,
respectively.
The Company's relationship with Bruce and Kris Jenner, who have served as
spokespersons in infomercials for several of the Company's exercise
products, has changed. In consideration of the Company's agreement to
release the Jenners from their obligation of exclusivity to the Company in
the area of exercise and fitness products, the Company has been released from
its annual guaranteed royalty obligations to the Jenners. The Jenners are
under no further obligation to appear in infomercials produced by or for the
Company.
The Company recently announced the execution of a 3 year agreement with
Positive Response Television (PRT) concerning the distribution of new home
shopping infomercial programming. Under the agreement, the Company will
acquire certain domestic and international distribution rights for new
infomercials to be produced by PRT. The Company will have exclusive rights
to broadcast these infomercials, domestically on its proprietary air time on
TNN (The Nashville Network) and Home Team Sports while, for the rest of the
world excluding New Zealand, it will have exclusive rights to air the
infomercials and market the products in all channels of distribution. In
addition the Company also sold the Amazing Discoveries service mark to PRT for
$100,000. The Company will retain ownership of all Amazing Discoveries
infomercials produced prior to the date of this agreement. The new agreement
with PRT coupled with the Company's recent additions to its marketing staff
should allow the Company to compete more effectively in the area of product and
infomercial development. The Company has recently aired two new infomercials.
Preliminary results are encouraging.
<PAGE> 19
Foreign net revenues. Foreign net revenues were $20.6 million for the three
months ended December 31, 1994 as compared to $11.0 million for the three
months ended December 31, 1993, an increase of $9.6 million or 87.3%. This
increase was primarily due to the expansion of the Company's foreign
operations from 28 countries at December 31, 1993 to over 40 countries at
December 31, 1994. Of primary importance was the Company's successful airing
of infomercials in Japan. During the three months ended December 31, 1994,
the Company increased its presence in Japan through the addition of two new
broadcast stations. In addition, the Company has recently announced that an
additional eight new stations in Japan have agreed to air the Company's
infomercials. Preliminary results from the active new stations are
encouraging. Net revenues earned in Japan accounted for 34.9% of foreign net
revenues for the period. Other factors contributing to the increase were a
reduction in the rate of returns and undeliverable product as a percentage of
gross revenues from 16.6% in the three months ended December 31, 1993 to
15.4% in the three months ended December 31, 1994 and an increase in licensee
sales. Licensee sales represent the sale of products to a third party who
assumes full responsibility for fulfillment and distribution in a particular
area or country. Currently, foreign net revenues are not dependent on any
single product due to the Company's large show library.
Operating costs
Total operating costs and expenses were $41.0 million for the three months
ended December 31, 1994 as compared to $43.2 million for the three months
ended December 31, 1993, a decrease of $2.2 million or 5.1%.
Media purchases. Media purchases were $11.8 million (net of $4.1 million in
media sales) for the three months ended December 31, 1994 as compared to
$14.0 million (net of $2.0 million in media sales) for the three months ended
December 31, 1993, a decrease of $2.2 million or 15.7%. The ratio of media
purchases to net revenues decreased from 36.0% in the three months ended
December 31, 1993 to 28.5% in the three months ended December 31, 1994. This
decrease in the ratio of media purchases reflects the higher proportion of
international net revenues in the three month period ended December 31, 1994
as compared to December 31, 1993. International net revenues are generally
subject to lower rates. The increased availability of lower rate media time
served to further reduce the cost of international media costs during the
three months ended December 31, 1994. In addition, the Company's effective
management of its domestic media portfolio, especially through the sale of
media time during the holiday season, resulted in a significant improvement
in its domestic ratio of media purchases to net revenues during the three
months ended December 31, 1994.
Direct costs. Direct costs consist of the cost of materials, freight,
infomercial production, commissions and royalties, fulfillment, inbound
telemarketing, credit card authorization, and warehousing. Direct costs were
$23.2 million for the three months ended December 31, 1994 as compared to
$21.8 million for the three months ended December 31, 1993, an increase of
$1.4 million or 6.4%. This is reflective of the 6.4% increase in net
revenues during the three months ended December 31, 1994 as compared to the
three months ended December 31, 1993. The ratio of directs costs to net
revenues increased slightly from 56.2% in the three months ended December 31,
1993 to 56.3% in the three months ended December 31, 1994.
Domestically, direct costs declined as a percentage of net revenue as higher
material costs due to a change in product mix were more than offset by
reduced freight, production, telemarketing and commission costs.
Internationally, direct costs increased as a percentage of net revenues as a
result of increased telemarketing, COD processing and freight charges
associated with the Company's expansion into new countries, especially Japan.
<PAGE> 20
Selling, general and administrative
Selling, general and administration expenses decreased approximately 13.0%
from $5.4 million for the three months ended December 31, 1993 to $4.7
million for the three months ended December 31, 1994. Selling, general and
administrative expenses as a percentage of net revenues decreased from 14.0%
for the three month period ended December 31, 1993 to 11.3% for the three
month period ended December 31, 1994. This was a direct result of the
Company realizing the benefits of a significant increase in foreign revenue
(61.9%). International selling, general and administrative expenses
increased, but did so at a lower proportional rate. In addition, the Company
reduced domestic personnel costs by approximately $480,000 primarily as a
result of the Company's staff reductions enacted in late fiscal year 1994 and
early fiscal year 1995. Legal expenses (excluding amounts offset against the
Company's financing activities) declined during the period, however the
Company continues to be subject to a number of legal proceedings and
investigative actions and it is anticipated that the Company will continue to
incur significant legal fees.
Unusual charges
Included in the unusual charges of $1,192,000 for the three months ended
December 31, 1994 is $1,100,000 in costs, including related legal fees
connected with the settlement of the Direct Records dispute and the tentative
settlement of the Shareholders' Federal Class Action litigation, $70,000 in
costs associated with the ValueVision Terminated Tender Offer and $22,000 of
costs connected with the Salaman litigation.
Unusual charges for the three months ended December 31, 1993 were $1,984,000,
the primary components of which were $784,000 related to certain legal
settlements, including $550,000 related to the Positive Response litigation;
$200,000 in legal fees associated with the aforementioned settlements, as
well as the Ronic and Shareholder's Federal Class Action litigation; and
$1,000,000 related to the relocation of the Company's fulfillment center to
Phoenix, Arizona.
Interest expense
Interest expense was $181,000 for the three months ended December 31, 1994 as
compared to $55,000 for the three months ended December 31, 1993, an increase
of $126,000. This increase is due to an increase in the Company's average
outstanding debt balance and higher interest rates during the current period,
as well as, $60,000 of amortization related to the $1.8 million discount on
the Term Loan as discussed in Note 8 (Debt Refinancing) herein.
Income taxes
The effective tax rate of 0% for the three months ended December 31, 1994 is
a result of the Company's current loss position. The effective tax rate
(benefit) of (3.1%) for the three months ended December 31, 1993 is lower
than the statutory tax rate due to the utilization of net operating loss and
tax credit carry forwards.
Nine months ended December 31, 1994 compared to nine months ended December
31, 1993
Net revenues
Net revenues were $120.2 million for the nine months ended December 31, 1994
as compared to $129.1 million for the nine months ended December 31, 1993, a
decrease of $8.9 million or 6.9%.
Domestic net revenues. Domestic net revenues were $71.8 million for the nine
months ended December 31, 1994 as compared to $99.2 million for the nine
months ended December 31, 1993, a decrease of $27.4 million or 27.6%.
Domestic infomercial net revenues decreased by $22.0 million primarily due to
a reduction in the number of airings and a full nine months of media sales
verses only three months in the 1993 period. The Company initially began
selling media time in October 1993 primarily to allow the Company to more
effectively manage its domestic media portfolio. Non-infomercial activity
decreased by $5.4 million primarily as a result of the Company's decision to
receive royalties for certain products in lieu of full sales participation in
retail distribution. Despite the $5.4 million decline in non-infomercial net
revenue, the Company realized approximately $.8 million of additional gross
profit from non-infomercial net revenues during the current nine month period
as compared to the prior nine month period. In addition, as a result of its
decision to shift away from owning inventory for retail sales in favor of
royalty arrangements with manufacturers, the Company has provided itself with
a more stable and steady stream of royalty revenue with limited associated
inventory risk. Approximately 57% and 15% of the Company's current period
domestic net revenues were generated from sales of the Powerwalk Plus and
Regal Ware Royal Diamond Cookware, respectively.
<PAGE> 21
Foreign net revenues. Foreign net revenues were $48.4 million for the nine
months ended December 31, 1994 as compared to $29.9 million for the nine
months ended December 31, 1993, an increase of $18.5 million or 61.9%. The
increase in net revenues from international sales is primarily due to the
expansion of the Company's foreign operations from 28 countries at December
31, 1993 to more than 40 countries at December 31, 1994, an increase in the
international show library, and increased licensee sales. Of significance
was the Company's airing of infomercials in Japan starting in late July 1994.
Japanese net revenues contributed approximately $10.7 million of the increase
in net revenues during the nine month period.
Operating costs
Total operating costs and expenses were $121.6 million for the nine months
ended December 31, 1994 as compared to $132.6 million for the nine months
ended December 31, 1993, a decrease of $11.0 million or 8.3%.
Media purchases. Media purchases were $36.4 million (net of $10.3 million in
media sales) for the nine months ended December 31, 1994 as compared to $41.7
million (net of $2.0 million in media sales) for the nine months ended
December 31, 1993, a decrease of $5.3 million or 12.7%. The ratio of media
purchases to net revenues decreased from 32.3% in the nine months ended
December 31, 1993 to 30.3% in the nine months ended December 31, 1994. This
decrease is a result of current period domestic media purchases being
favorably impacted by a more effective mix of media time utilized to air
Company products and media time sold. In addition, the media purchases to
net revenue ratio benefited from the increase in international net revenues
as a percentage of total net revenues. These net revenues are subject to a
lower rate. International media purchases also benefited from the increased
availability of lower cost media time and increased licensee revenues which
carry no direct media cost.
Direct costs. Direct costs consist of the cost of materials, freight,
infomercial production, commissions and royalties, fulfillment, inbound
telemarketing, credit card authorization, and warehousing. Direct costs were
$65.9 million for the nine months ended December 31, 1994 as compared to
$70.7 million for the nine months ended December 31, 1993, a decrease of $4.8
million or 6.8%. This decrease was primarily a result of the 6.9% decrease
in net revenues during the period. The ratio of direct costs to net revenues
remained constant at 54.8% for the nine months ended December 31, 1994
and December 31, 1993.
Domestically, higher infomercial product costs due to a change in product mix
were offset by the reduction in freight and telemarketing costs. The
Company's freight costs decreased from 6.4% of net revenues for the nine
months ended December 31, 1993 to 5.5% for the nine months ended December 31,
1994. This decrease reflected reduced freight rates available through the
use of a freight consolidator. Telemarketing declined as a percentage of net
revenues as a result of a change in product mix to higher priced items. A
significant reduction in non-infomercial direct costs was realized as a
result of the Company's decision to receive royalties for certain products in
lieu of full sales participation in retail.
Internationally, directs costs as a percentage of net revenues increased
approximately 6.4 percentage points primarily due to increased freight,
telemarketing and processing costs as a result of the Company's expansion
into new countries, especially Japan, and the effect of increased licensee
sales which carry a higher direct cost percentage.
<PAGE> 22
Selling, general and administrative
Selling, general and administrative expenses decreased from $15.5 million for
the nine month period ended December 31, 1993 to $14.5 million for the nine
month period ended December 31, 1994. Selling, general and administrative
expenses as a percentage of net revenues increased slightly from 12.0% for
the nine month period ended December 31, 1993 to 12.1% for the nine month
period ended December 31, 1994. The percentage increase is directly
attributable to the 6.9% decline in net revenues in the nine month period
ended December 31, 1994 as compared to the nine month period ended December
31, 1993. Significant fluctuations in selling, general and administrative
expenses included a decrease in domestic personnel costs of $1,026,000 and a
$251,000 foreign currency exchange rate gain which were partially offset by
an increase in bad debt expense of $640,000. The increased provision
primarily relates to an increased reserve against royalties due from a single
customer.
The decrease in domestic personnel costs of $1,026,000 was a result of the
Company's staff reductions in late fiscal year 1994, early fiscal year 1995.
Legal expenses (excluding amounts classified as unusual charges and amounts
offset against the Company's financing activities) were approximately
$900,000 for the nine month periods ended December 31, 1994 and December 31,
1993. The Company continues to be subject to a number of legal proceedings
and investigative actions and it is anticipated that the Company will
continue to incur significant legal fees.
Severance expense for former Chairman and Chief Executive Officer
Severance expense of $2.65 million relates to the resignation of the
Company's former Chairman and Chief Executive Officer. See Note 6
(Commitments - Severance) herein for further discussion.
Unusual charges
The nine months ended December 31, 1994 includes unusual charges of
$1,768,000 comprised primarily of $1,135,000 in costs, including legal fees
connected with the settlement of the Direct Records dispute and the tentative
settlement of the Shareholders' Federal Class Action litigation, $448,000 in
costs associated with the ValueVision Terminated Tender Offer and $185,000 of
costs connected with the Salaman litigation.
Unusual charges for the nine months ended December 31, 1993 were $4,449,000,
the primary components of which were $2,284,000 connected with certain legal
settlements, including $1,500,000 for the Ronic litigation and $550,000 for
the Positive Response litigation; $738,000 in legal fees associated with the
aforementioned Ronic, Positive Response and the Shareholders' Federal Class
Action litigation and $1,000,000 related to the relocation of the Company's
fulfillment center to Phoenix, Arizona.
Interest expense
Interest expense was $410,000 for the nine months ended December 31, 1994 as
compared to $225,000 for the nine months ended December 31, 1993, an increase
of $185,000. This increase was due to an increase in the Company's average
outstanding debt balance and higher interest rates during the current period
and the aforementioned $60,000 amortization of the debt discount applicable
to the new Term Loan.
Income taxes
The effective tax rate of 0% for the nine months ended December 31, 1994 and
1993 is a result of the Company's continuing loss position.
<PAGE> 23
Liquidity and Capital Resources
The Company's working capital was $19.9 million at December 31, 1994 compared
to $1.4 million at March 31, 1994, an increase of $18.5 million. The
Company's working capital was favorably impacted as a result of the Company's
financing activities completed during the period.
On October 5, 1994 and December 19, 1994, the Company sold in private
placement transactions 255,796 investment units ("Units") resulting in a
total capital infusion of $9,605,000 after offering costs of $655,000. Each
Unit consisted of one share of Series B Convertible Preferred Stock of the
Company and a warrant (the "Warrants") to purchase twelve (12) shares
(subject to adjustment) of common stock of the Company. Each share of
Preferred Stock is valued at $40.00 per share for conversion purposes and is
convertible into shares of Common Stock at a price of $4.00 per common share
(subject to adjustment). The Preferred Stock carries no preferred dividend
right. The majority of the Warrants are exercisable at a price of $4.80 per
share of Common Stock at any time from and after October 5, 1995 or December
19, 1995 until October 5 or December 19, 2004.
The October 5, 1994 private placement involved the sale of 32,250 Units to
various individuals including 9,375 Units to members of management. The
December 19, 1994 private placement involved the sale of 223,546 Units under
two separate security purchase agreement. Approximately 88,750 Units were
sold to a group comprised of Safeguard Scientifics (Delaware), Inc.,
("Safeguard") and various related entities and individuals including Company
directors, Ira M. Lubert and Charles L. Andes. Another 6,046 Units were sold
to members of management.
Prior to the December 19, 1994 private placement, the Board carefully
evaluated the current and projected financial position of the Company,
including its liquidity needs. The Audit Committee of the Board expressly
authorized the Company to make an application to the New York Stock Exchange
to consummate the transactions without seeking shareholder approval because,
in the Audit Committee's opinion, the delay necessary in securing shareholder
approval would seriously jeopardize the Company's financial viability.
Without such authorization from the New York Stock Exchange, under the New
York Stock Exchange rules (but not under Delaware state corporate law),
shareholder approval of such transactions would have otherwise been required.
In reaching this conclusion, the Audit Committee noted that the report of the
Company's independent auditors included in the Company's Form 10-K for the
fiscal year ended March 31, 1994 makes reference to the need for additional
liquidity to ensure the Company's viability. The New York Stock Exchange has
accepted this application.
On October 19, 1994, the Company entered into a Note and Warrant Purchase
Agreement (the "Agreement") with an investor pursuant to which it obtained a
$5 million five year interest only term loan (the "Term Loan"). The loan
bears interest at a rate equal to the prime rate plus .5%, payable monthly
commencing on November 1, 1994. This loan provides a significant benefit to
the Company due to its long term nature and beneficial interest rate as
compared to the Company's previous bank credit facility. The loan is secured
by a lien on substantially all of the assets of the Company and its
subsidiaries. Approximately $3.1 million of the proceeds were used to repay
the Company's pre-existing bank debt. The investor received a warrant to
purchase 2,250,000 shares (subject to adjustment) of the Company's common
stock at $4.80 per share at any time from and after September 30, 1995 until
September 30, 2004 as part of the Agreement. The investor paid $22,500 for
these warrants.
The remainder of the Term Loan proceeds, as well as the proceeds from the
private placement Units are being used for working capital purposes including
repayment of certain key vendors, production of new shows, purchase of media
time and purchase of inventory to support international expansion into new
marketplaces, especially Japan, Singapore and Spain. Subsequent to December
31, 1994, the Company has made approximately $4.5 million in payments to
vendors relating to prior periods.
<PAGE> 24
The Company's inventory increased by $4.3 million or 40.2% from $10.7 million
at March 31, 1994 to $15.0 million at December 31, 1994. Domestic
inventories decreased $1.1 million, and international inventories increased
$5.4 million. Domestic inventories were reduced as a result of the Company's
decision to pursue a significant portion of its non-infomercial sales through
its strategic partners. In these relationships, the strategic partners are
responsible for non-infomercial inventory. The increase internationally is
primarily attributable to the Company's need to support its continued
international expansion, especially into Japan, as is evidenced by the 61.9%
growth in foreign net revenues during the nine months ended December 31,
1994.
As a result of the above, the Company's operating activities for the period
ended December 31, 1994 resulted in a use of cash of $1.1 million as compared
to $2.3 million for the period ended December 31, 1993 and $2.2 million for
the year ended March 31, 1994. The Company's working capital and cash flow
from operations during the nine months ended December 31, 1994 were favorably
impacted by certain non-cash financing transactions as discussed in Note 5
(Cash Flow - Non-Cash Financing Activities) herein, and the Company's working
capital also benefited from the repayment of its short term line of credit
bank debt with proceeds from the aforementioned Term Loan.
Subsequent to December 31, 1994, the Company settled the Direct Records
dispute and tentatively settled the Shareholders' Federal Class Action
litigation for $325,000 and an estimated $725,000, respectively. The current
quarter's statement of operations reflects the charges for these items. The
$325,000 due Direct Records has been paid while the estimated $725,000
settlement for the Shareholders' Federal Class Action litigation will have a
future effect on the Company's liquidity and capital resources.
As noted in its annual report for the period ending March 31, 1994, the
Company's ability to continue as a going concern was stated to be dependent
on its ability to implement its plans to effect certain cost reductions, to
generate significant revenues from the sale of existing inventories in the
international marketplace, to arrange new credit facilities, to resolve
successfully current outstanding litigation and regulatory investigations
and/or to obtain additional capital through the sale of securities or
otherwise. During the three months ended December 31, 1994, the Company
implemented two principal components of the foregoing plans by replacing its
former credit facility with a five-year $5,000,000 term loan and obtaining in
excess of $10,000,000 in additional capital through the sale of securities as
more fully described above. The Company's financial position shows
significant improvement as a result of its recent financing activities. The
Company is continuing to attempt to implement other elements of the plans
referred to above. However, no assurances can be given that the Company's
actions will be successful. In addition, issuance of any shares of Common
Stock upon the conversion of shares of the Preferred Stock or the exercise of
the Warrants and Loan Warrants referred to above would have a dilutive effect
upon existing shareholders. The majority of Warrants and Loan Warrants are
exercisable at $4.80 share.
Pursuant to a previously announced agreement executed by the Company, Buckeye
Communications, Inc. ("Buckeye") and Mark Hershhorn when Mr. Hershhorn became
president of the Company in August, 1994 (the "Agreement") concerning among
other things, the release of Mr. Hershhorn by Buckeye from his employment-
related obligations to Buckeye, and as a result of the Company's success in
consummating the above-referenced private securities sales, the Company
recently consummated several transactions with Buckeye. Those transactions
included the reimbursement of certain expenses of Buckeye, the issuance to
Buckeye of options to purchase 75,000 shares of the Company's common stock
and the purchase from Buckeye of a block of common stock of Positive Response
Television, Inc. (26,596 shares at $17.00 share). In addition, as
contemplated by the Agreement, the Company will begin negotiations with
Buckeye concerning a potential joint venture regarding certain rights held by
Buckeye with respect to Major League Baseball Properties.
<PAGE> 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- - - -------------------------
The information contained in Note 4 (Contingent Matters) to the Condensed
Consolidated Financial Statements in Part I of this report beginning on page
8 is incorporated herein by reference. All of these matters, except for the
Efron and Cohen Class Action and Direct Records, Inc., referred to in Note 4
(Contingent Matters) have been the subject of disclosure in prior quarterly
reports on Form 10-Q.
Other Matters
The Company in the normal course of its business is a party to litigation
relating to trademark and copyright infringement, product liability,
contract-related disputes, and other actions. It is the Company's policy to
vigorously defend all such claims and to enforce its rights in these areas.
Except as disclosed herein, the Company does not believe any of these actions
either individually or in the aggregate, will have a material adverse effect
on the Company's results of operations or financial condition.
Item 2. Changes in the Rights of the Company's Security Holders
- - - ---------------------------------------------------------------
During the three month period ended December 31, 1994, the Company authorized
and issued a series of preferred stock, the Series B convertible preferred
stock (the "Preferred Stock"). At the present time, the holders of the
Preferred Stock have the right, as a class, to elect two directors to the
Company's Board of Directors in addition to the directors elected by the
holders of Common Stock. If the number of the Company's Board is increased
to 15, the holders of the Preferred Stock will get to elect 3 directors.
Item 4. Results of Votes of Security Holders
- - - --------------------------------------------
See additional discussion in the Liquidity and Capital Resource section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations, herein regarding the Board of Directors decision to authorize the
Company to make an application to the New York Stock Exchange to consummate
the December 1994 private placement transactions without seeking shareholder
approval because, in the Audit Committee of the Board of Director's opinion,
the delay necessary in securing shareholder approval would seriously have
jeopardized the Company's financial viability.
Item 5. Other Information
- - - -------------------------
Note Receivable from Former Officer
The Company is continuing negotiations with Kevin Harrington, a former
executive officer and director of the Company, regarding notes receivable
totaling $1,356,000 related to the exercise of stock options. These notes
are past due and payable as a result of Mr. Harrington's sale of a portion of
such stock and the termination of his employment with the Company effective
June 30, 1994. Mr. Harrington has recently initiated repayment efforts.
<PAGE> 26
Item 6. Exhibits and Reports on Form 8-K
- - - ----------------------------------------
(a) The following exhibits are included herein:
10.1 Employment Agreement between Registrant and Brian McAdams dated as
of January 5, 1995.
10.2 Employment Agreement between Registrant and Constantinos I. Costalas
dated as of January 5, 1995.
10.3 Marketing, Distribution and Service Mark Agreement dated as of
October 19, 1994 made by and among National Media Corporation, Media
Arts International, Ltd., and Positive Response Television, Inc.
* 10.4 Securities Purchase Agreement dated as of September 30, 1994 entered
into between Registrant and, the persons executing, or causing to be
executed, the signature page thereof.
* 10.5 Note and Warrant Purchase Agreement dated as of October 19, 1994 by
and among National Media Corporation, Media Arts International, Ltd.,
Quantum International Limited and Safeguard Scientifics (Delaware),
Inc.
** 10.6 Securities Purchase Agreement entered into between Registrant and,
the persons executing, or causing to be executed, the signature page
thereof.
*** 10.7 Agreement between the Registrant, Buckeye Communications, Inc. and
Mark Hershhorn, dated August 26, 1994.
* Incorporated by reference to Registrant's Report on Form 8-K dated
October 5, 1994.
** Incorporated by reference to Registrant's Report on Form 8-K dated
December 8, 1994.
*** Incorporated by reference to Registrant's Report on Form 8-K dated
January 13, 1995.
(b) The Company filed the following reports on Form 8-K:
Form 8-K dated October 5, 1994
Item 5. Other Events - Announcement by the Company of the following:
sale on October 5, 1994, of 32,250 investment units for an aggregate
purchase price of $1,290,000 pursuant to a Securities Purchase
Agreement dated as of September 30, 1994 and consummation of a $5,000,000
five year secured term loan with Safeguard Scientific (Delaware), Inc.
("Safeguard") pursuant to a Note and Warrant Purchase Agreement, dated
as of October 19, 1994. In connection with the loan transaction the
Company also issued Safeguard a warrant to purchase 2,250,000 shares
(subject to adjustment) of Common Stock and announced that Charles L.
Andes, was proposed for election to the Company's Board of Directors.
<PAGE> 27
Form 8-K dated December 8, 1994
Item 5. Other Events - Announcement of Company's execution of a
Securities Purchase Agreement with Safeguard Scientific (Delaware), Inc.
("Safeguard"), Technology Leaders II LP., Technology Leaders II
Offshore C.V., CIP Capital L.P. and a number of individuals, certain
of which are associated with Safeguard and the other named
institutional investors for the sale of an aggregate of 134,500
investment units for an aggregate purchase price of approximately $5.4
million and its intention to enter into additional agreements for the
sale of 94,250 investment units for a purchase price of approximately
$3.8 million. The Company also announced that Ira M. Lubert had been
elected to the Company' Board of Directors.
Form 8-K dated December 19, 1994
Item 5. Other Events - Announcement by Company of the following: sale
on December 19, 1994 of 134,500 investment units for an aggregate
purchase price of approximately $5.4 million to various investors,
including Safeguard pursuant to a Securities Purchase Agreement dated
November 30, 1994 and sale of an additional 74,296 investment units
for an aggregate purchase price of approximately $3.2 million to
individual investors pursuant to a number of separate Securities
Purchase Agreements; termination of an agreement with Direct Records,
Inc.; signing of three year infomercial distribution agreement with
Positive Response TV; and FTC's announcement of settlement of
litigation with the Company as discussed in Note 4 (Contingent
Matters).
Form 8-K dated January 13, 1995
Item 5. Other Events - Announcement of the Company's consummation of
several transactions with Buckeye Communication, Inc. ("Buckeye") in
accordance with an August 1994 agreement by and among the Company,
Buckeye and Mark Hershhorn as a result of the Company's success in
consummating private sales of its equity securities in the aggregate
amount of approximately $10,260,000.
<PAGE> 28
Index to Exhibits
-----------------
Exhibit No.
-----------
10.1 Employment Agreement between Registrant and Brian McAdams dated as
of January 5, 1995.
10.2 Employment Agreement between Registrant and Constantinos I. Costalas
dated as of January 5, 1995.
10.3 Marketing, Distribution and Service Mark Agreement dated as of
October 19, 1994 made by an among National Media Corporation, Media
Arts International, Ltd., and Positive Response Television, Inc.
* 10.4 Securities Purchase Agreement dated as of September 30, 1994 entered
into between Registrant and, the persons executing, or causing to be
executed, the signature page thereof.
* 10.5 Note and Warrant Purchase Agreement dated as of October 19, 2994 by
and among National Media Corporation, Media Arts International, Ltd.,
Quantum International Limited and Safeguard Scientifics (Delaware),
Inc.
** 10.6 Securities Purchase Agreement entered into between Registrant and,
the persons executing, or causing to be executed, the signature page
thereof.
*** 10.7 Agreement between the Registrant, Buckeye Communications, Inc. and
Mark Hershhorn, dated August 26, 1994.
* Incorporated by reference to Registrant's Report on Form 8-K dated
October 5, 1994.
** Incorporated by reference to Registrant's Report on Form 8-K dated
December 8, 1994.
*** Incorporated by reference to Registrant's Report on Form 8-K dated
January 13, 1995.
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL MEDIA CORPORATION
Registrant
/s/ Mark P. Hershhorn
---------------------------
Mark P. Hershhorn
President
Chief Operating Officer
/s/ John J. Sullivan
---------------------------
John J. Sullivan
Vice President
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
Date: February 14, 1995
<PAGE> 30
011295
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") made and entered as of November 30,
1994 by and between NATIONAL MEDIA CORPORATION (the "Company"), a Delaware
corporation and BRIAN McADAMS (the "Executive").
Background
The Company desires to employ Executive as its Chairman and Chief
Executive Officer, and Executive desires to accept such employment. The parties
further desire to set forth herein the terms and conditions of the Executive's
employment by the Company in an Employment Agreement. Accordingly, in
consideration of the mutual covenants and agreements set forth herein and the
mutual benefits to be derived herefrom, and intending to be legally bound
hereby, the Company and the Executive agree as follows:
1. Employment.
(a) Duties. The Company shall employ the Executive, on the
terms set forth in this Agreement, as its Chairman and Chief Executive Officer.
The Executive accepts such employment with the Company and shall perform and
fulfill such duties as are reasonably assigned to him hereunder by the Board of
Directors of the Company (the "Board"), devoting his best efforts and profes-
sional time and attention to the performance and fulfillment of his duties and
to the advancement of the interests of the Company, subject only to the
direction, approval, control and directives of the Board of Directors. Nothing
contained herein shall be construed, however, to prevent the Executive from
trading in or managing, for his own account and benefit, in stocks, bonds,
securities, real estate, commodities or other forms of investments (subject to
law and Company policy with respect to trading in Company securities), or
serving on noncompetitive corporate boards.
(b) Place of Performance. In connection with his employment by
the Company, the Executive shall be based in the Philadelphia, Pennsylvania
metropolitan area, except for required travel on Company business. Company shall
furnish Executive with office space, stenographic assistance and such other
facilities and services as shall be suitable to Executive's position and suffi-
cient and satisfactory to the Executive for the performance of his duties as
Chairman and Chief Executive Officer.
2. Term.
The Executive's employment under this Agreement shall commence as
of December 1, 1994 (the "Commencement Date") and shall, unless sooner
terminated in accordance with the provisions hereof, continue uninterrupted for
an initial two year and one-month term expiring December 31, 1996 and thereafter
<PAGE> 31
shall be automatically renewed for successive two-year periods unless terminated
by either party upon six (6) months' written notice prior to the end of any
Term. As used herein, the "Term" shall refer to such initial term and any
renewal term then in effect. The term "first year" shall refer to the annual
period commencing on January 1, 1995, and ending on December 31, 1995. The term
"year" shall refer to each annual period after the first year.
3. Compensation.
(a) Salary. From December 1 through December 31, 1994, Executive
shall be paid $6,000. During the remainder of the Term, the Executive shall be
paid an annual salary of $275,000 (the "Base Salary") payable in installments at
such times as the Company customarily pays its other senior executive employees
(but in any event no less often than monthly). The Base Salary may be increased
from time to time by the Board of Directors as conditions warrant including, but
not limited to, Executive's performance as determined by the Board of Directors.
In no event shall Executive's Base Salary be less than $275,000 in any year
during the Term.
(b) Incentive Pay.
(1) In addition to the Base Salary provided for in Paragraph
3(a) above, it is expected that the Executive will participate in the Company's
1995 Management Incentive Plan, if approved by the Company's shareholders. If
Executive becomes a participant in the 1995 Management Incentive Plan, and if
this Employment Agreement is not renewed after December 31, 1996, so that
Executive is not a participant in the Plan on March 31, 1997, Executive shall
nevertheless be entitled to receive a cash payment pursuant to this Agreement
which is 75% of the total amount he would have received under the 1995
Management Incentive Plan had he remained employed until March 31, 1997. Such
payment shall be made to the Executive no later than April 30, 1997.
If the 1995 Management Incentive Plan is not approved by
shareholders, then Executive shall participate in the Company's annual incentive
plan in effect on the date of this Agreement. The amount of the bonus payable
under such plan shall be based on performance in accordance with the provisions
of the plan, as determined by the Compensation Committee of the Board of
Directors. A bonus payable under this subparagraph (b)(1) shall be paid at the
normal time for payment of executive bonuses.
(2) As an inducement to the Executive to increase
shareholder value, the Company will grant nonqualified stock options to the
Executive (the "Option") to purchase up to 90,000 shares (the "Shares") of the
Company's common stock, $.01 par value ("Common Stock") pursuant to a separate
stock option agreement made under and subject to the terms of the Company's 1991
Stock Option Plan, as amended (the "Plan"), with the exercise price under the
<PAGE> 32
Option to be the closing price of the Common Stock on the New York Stock
Exchange on January 5, 1995 (the "Date of Grant") of $4.625, and with 30,000
Shares exercisable under the Option on December 31, 1995, an additional 30,000
exercisable on December 31, 1996, and the remaining 30,000 exercisable on
December 31, 1997.
The Company and the Executive acknowledge that there may not be a
sufficient number of shares of Common Stock available under the Plan to cover
the Shares subject to the Option. The Company shall take steps at its next
annual meeting of stockholders to increase the number of shares available for
grant under the Plan so that the Shares subject to the Option will be covered by
the Plan. If, notwithstanding the Company's efforts, stockholder approval of
such increase in the number of available shares is not obtained at the 1995
Annual Meeting, then the Company and the Executive shall enter into alternative
arrangements reasonable satisfactory to both parties in lieu of the grant of the
Option as to such Shares.
(c) Health Insurance and Other Benefits. During the Term the
Executive shall receive all employee benefits offered by the Company to its
senior executives and key management employees, including, without limitation,
all pension, profit sharing, retirement, salary continuation, deferred
compensation, disability insurance, hospitalization insurance, major medical
insurance, medical reimbursement, survivor income, life insurance and any other
benefit plan or arrangement established and maintained by the Company, subject
to the rules and regulations then in effect regarding participation therein.
Unless such change is required by federal, state or local law, the Company shall
not make any changes in any employee benefit plan or arrangement that would
result in a disproportionately greater reduction in the rights of, or benefits
to, the Executive compared with any other senior executive of the Company.
(d) Club Membership. The Company shall pay Executive's annual
membership dues at a luncheon club in the Philadelphia metropolitan area chosen
by the Executive.
4. Life Insurance.
(a) Purchase. Provided that Executive is insurable at rates that
are comparable to those obtainable on other persons of similar age and position
in good health (if Executive is classified in a higher risk category he may
elect to pay the excess premium cost to obtain the coverage), during the Term
the Company shall provide the Executive, or at the option of the Executive, the
Executive's Life Insurance Trust, with a company-paid term life insurance policy
<PAGE> 33
in the face amount of $1,000,000. At the Executive's option, Executive may
obtain an insurance policy in lieu of a policy provided by the Company
hereunder, and the Company shall pay premiums therefor as set forth in invoices
presented to the Company; provided the Company shall not be required to pay
premiums in excess of the out-of-pocket costs it would otherwise have incurred
had it purchased such policy directly. The owner of such life insurance policy
shall be the Executive or the Executive's Life Insurance Trust, as directed by
the Executive.
(b) Payment of Premiums. The Company shall timely pay all
premiums for such life insurance whether provided by the Company for the
Executive or by the Executive's Life Insurance Trust for the Executive.
(c) Medical Examination. The Executive agrees to submit to all
medical examinations, supply all information and execute all documents required
by the insurance company in connection with the issuance of a policy for such
insurance as well as for any key man insurance the Company may desire to
maintain on Executive's life.
5. Reimbursement of Expenses. The Executive shall be reimbursed for
all items of travel, entertainment and miscellaneous expenses which the
Executive reasonably incurs in connection with the performance of his duties
hereunder, provided that the Executive shall submit to the Company such
statements and other evidence supporting said expenses as the Company may
reasonably require.
6. Automobile Allowance. The Company shall pay
Executive a monthly automobile allowance of $600.00.
7. Vacations. The Executive shall be entitled to the number of paid
vacation days in each calendar year determined by the Company from time to time
for its senior executive officers, but not less than three (3) weeks in any
calendar year (prorated in any calendar year during which the Executive is
employed hereunder for less than the entire year in accordance with the number
of days in such calendar year during which he is so employed). The Executive
shall also be entitled to all paid holidays given by the Company to its senior
executive officers.
8. Termination of Employment.
(a) Death or Total Disability. In the event of the death of the
Executive during the Term, this Agreement shall terminate as of the date of the
Executive's death, except for any unexercised stock options held by Executive.
In the event of the Total Disability (as that term is defined below) of the
Executive for one hundred eighty (180) days in the aggregate during any
consecutive twelve (12) month period during the Term, the Company shall have the
<PAGE> 34
right to terminate this Agreement by giving the Executive thirty (30) days'
prior written notice thereof, and upon the expiration of such thirty (30) day
period, the Executive's employment under this Agreement shall terminate. If the
Executive shall resume his duties within thirty (30) days after receipt of such
a notice of termination and continue to perform such duties for four (4)
consecutive weeks thereafter, this Agreement shall continue in full force and
effect, without any reduction in Base Salary, other compensation and other
benefits, and the notice of termination shall be considered null and void and of
no effect. Upon termination of this Agreement under this Section 8(a), the
Company shall have no further obligations or liabilities under this Agreement,
except to pay to the Executive's estate or the Executive, as the case may be,
the portion, if any, that remains unpaid of the Base Salary for the period prior
to termination.
The term "Total Disability," as used herein, shall mean a
mental or physical condition which in the reasonable opinion of an independent
medical doctor mutually selected by the Company and the Executive renders the
Executive unable or incompetent to carry out the material duties and
responsibilities of the Executive under this Agreement at the time the disabling
condition was incurred. Notwithstanding the foregoing, if the Executive is
covered under any policy of disability insurance under Paragraph 3(c), under
no circumstances shall the definition of Total Disability be different from the
definition of that term in such policy.
(b) Discharge for Cause. The Company may discharge the Executive
for Cause and thereby immediately terminate his employment under this Agreement.
For purposes of this Agreement the Company shall have "Cause" to terminate the
Executive's employment if the Executive, in the reasonable judgment of the
Company, (i) materially breaches any of his agreements, duties or obligations
under this Agreement and has not cured or commenced in good faith to cure such
breach within thirty days after notice; (ii) embezzles or converts to his own
use any funds of the Company or any client or customer of the Company; (iii)
converts to his own use or unreasonably destroys any property of the Company,
without the Company's consent; (iv) is convicted of a felony; (v) is adjudicated
as mentally incompetent; or (vi) is habitually intoxicated or is diagnosed by an
independent medical doctor to be addicted to a controlled substance or any drug
whatsoever. Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for Cause unless and until the Executive has received
thirty (30) days' prior written notice ("Dismissal Notice") of such termination.
In the event the Executive does not dispute such determination within thirty
(30) days after receipt of the Dismissal Notice, the Executive shall not have
the remedies provided herein pursuant to Section 8(e).
(c) Termination Prior to Expiration of Term. Either party may
terminate this Agreement upon sixty (60) days' prior written notice. Except as
provided in Paragraph 8(d) such termination shall be without liability to either
party.
<PAGE> 35
(d) Severance without Cause or for Good Reason.
(1) In the event that the Executive's employment is
terminated by the Company without Cause, as defined in Subparagraph 8(b) above,
or the Executive shall resign for "Good Reason," as defined in Paragraph
8(d)(2), then to the extent provided below the Company shall:
(i) pay the Executive in lieu of other damages, except
as specifically provided herein, an amount equal to the greater of one years'
Base Salary at the then current amount or the Base Salary payable during the
balance of the Term of this Agreement. Such amounts shall be payable in
installments equal to installments of Base Salary then payable to Executive as
provided herein until such amount is paid in full. During such period of
payments, the restrictions contained in Paragraph 11(a)(1) shall be applicable
to Executive except that Executive may accept employment he might not otherwise
accept under Paragraph 11(a)(1) in which event payment of salary received shall
be deducted from payments made herein; and
(ii) maintain in full force and effect, for the
continued benefit of the Executive for a period of six (6) months after
termination or for the balance of the Term, whichever is greater, all employee
benefit plans and programs, except option plans and except bonus plans to the
extent the Executive is not employed by the Company for all or a portion of the
period of measurement for the bonus, in which the Executive was entitled to
participate immediately prior to the Executive's discharge or resignation,
provided that the Executive's continued participation is possible under the
general terms and provisions of such benefit plans and programs, and provided
further that any Options unvested and unexercisable at the date of termination
shall then become vested and exercisable. In the event that the Executive's
participation in any such benefit plan or program is barred, the Company shall
arrange to provide the Executive with benefits substantially similar to those
which the Executive is entitled to receive under such plans and programs. At the
end of the period of coverage, the Executive shall have the option to have
assigned to him at no cost and with no apportionment of prepaid premiums any
assignable insurance policy owned by the Company which relates specifically to
the Executive. At the Company's expense, the Executive may elect at any time
during the period he is receiving payments on account of his termination of
employment to use the services of an outplacement firm of his choice.
(2) For purposes of this Section 8(d), "Good Reason" shall
mean the failure by the Company to comply with the material provisions of this
Agreement which failure is not cured within 30 days after notice.
<PAGE> 36
Notwithstanding the foregoing, the Executive shall not be
deemed to terminate this Agreement for Good Reason unless and until the Company
has received five (5) days' prior written notice of termination ("Notice of
Termination for Good Reason"). In the event the Company does not dispute such
termination within thirty (30) days after receipt of such Notice of
Termination for Good Reason, the Company shall not have the remedies provided
hereunder pursuant to Paragraph 8(e).
(e) Arbitration. In the event that the Executive disputes a
determination that Cause exists for terminating his employment hereunder
pursuant to Paragraph 8(b), or the Company disputes the termination that Good
Reason exists for Executive's termination of his Employment pursuant to
Paragraph 8(d)(2), either party disputing this determination shall serve the
other with written notice of such dispute ("Dispute Notice") within thirty (30)
days after receipt of the Dismissal Notice or Notice of Termination for Good
Reason. Within fifteen (15) days thereafter, the Executive or the Company, as
the case may be, shall, in accordance with the Rules of the American Arbitration
Association ("AAA"), file a petition with the AAA for arbitration of the
dispute, the costs thereof to be shared equally by the Executive and the Company
unless an order of the AAA provides otherwise and each party shall be
responsible for his or its legal fees. Such proceeding shall also determine all
other disputes between the parties relating to Executive's employment. The
parties covenant and agree that the decision of the AAA shall be final and
binding and hereby waive their rights to appeal therefrom.
(f) Nonrenewal by Company. If this Agreement is not renewed for
an additional two-year period because of notice given by the Company pursuant to
Paragraph 2, any Options unvested and unexercisable at the expiration of the
Term of this Agreement shall then become vested and exercisable.
9. Change in Control. Upon a Change in Control, as
hereinafter defined, notwithstanding anything in this Agreement to
the contrary, the following terms and provisions shall apply:
(a) If, within 30 days following the Change in Control, there is
a Termination of Employment (as defined below), then the following provisions
shall become applicable:
(1) The Executive shall receive an immediate lump sum
payment (within 30 days following the Termination of Employment), of three
years' Base Salary at the then current amount;
<PAGE> 37
(2) The Executive shall receive an immediate payment (within
30 days following the Termination of Employment) of the annual bonuses that the
Executive would be entitled to receive through the remainder of the Term of this
Agreement. For purposes of this Paragraph 9(a)(2), the annual bonus that the
Executive would be entitled to receive for each remaining year in the Term of
this Agreement shall be equal to the last bonus the Executive received prior to
the Change of Control;
(3) All allowances and benefits, as contained in Paragraphs
3(c)-(d) and 4 and 6, shall be continued for the full Term of this Agreement;
and
(4) All unvested and unexercised stock options
held by the Executive shall become immediately vested and exercisable
by the Executive.
(b) If a Termination of Employment does not occur within 30 days
following the Change in Control, then the Term of this Agreement shall be
automatically renewed for a two-year period commencing on the date of the Change
in Control, in which case all of the terms and conditions of this Agreement
shall remain in full force and effect until the end of such Term.
(c) As used in this Paragraph 9, "Termination of Employment"
shall mean termination of the Executive's employment (i) by the Company for any
reason, or (ii) by the Executive's death, Total Disability or resignation.
(d) As used in this Paragraph 9, a "Change in Control" shall be
deemed to have taken place if: (i) any "Person" (including any individual, firm,
corporation, partnership or other entity except the Executive, the Company or
any employee benefit plan of the Company or of any Affiliate or Associate (each
as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended),
and any Person or entity organized, appointed or established by the Company
for or pursuant to the terms of any such employee benefit plan), together with
all Affiliates and Associates of such Person, shall become the beneficial owner
in the aggregate of 20% or more of the Common Stock of the Company then
outstanding; or (ii) during the Term of this Agreement, individuals who at the
beginning of such Term constituted the Board cease for any reason to constitute
a majority thereof.
(e) It is the intention of the parties that the payments under
Paragraph 9(a) shall not constitute "excess parachute payments" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended.
Accordingly, notwithstanding anything in this Paragraph 9 to the contrary, if
any of the amounts otherwise payable under Paragraph 9(a) would constitute
"excess parachute payments," or if the independent accountants acting as
<PAGE> 38
auditors for the Company on the date of the Change of Control determine that
such payments may constitute "excess parachute payments," then the cash amounts
otherwise payable under Paragraph 9(a) shall be reduced to the maximum amounts
that may be paid without any such payments or other benefits under this
Paragraph 9 constituting, or potentially constituting, "excess parachute
payments."
10. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment or benefit provided for in this Agreement by seeking other
employment or otherwise nor, except as provided herein, shall the amount of any
payment provided for in this Agreement be reduced by any compensation earned by
the Executive as the result of his employment by another employer.
11. Restrictive Covenant.
(a) Competition.
(1) During (A) the Term of this Agreement; (B) for a period
of six (6) months after termination of this Agreement pursuant to Paragraph 8(a)
or 8(b); and (C) subject to Paragraph 8(d)(1)(i) for any period after
termination during which payments are made to Executive under Paragraph
8(d)(1)(i) with respect to termination by the Company or the Executive pursuant
to Paragraph 8(c) or 8(d), Executive undertakes and agrees that he will not
compete, directly or indirectly, or participate as a director, officer,
employee, consultant agent, consultant, representative or otherwise, or as a
stockholder, partner or joint venturer, or have any direct or indirect financial
interest, including, without limitation, the interest of a creditor, if any
business competing directly with the infomercial direct response business of
Company or any of its subsidiaries within any geographical area in which the
business of Company or its subsidiaries is being conducted during Executive's
employment.
(2) Executive further undertakes and agrees that during the
Term of this Agreement and for a period of six (6) months after the termination
or expiration or while payments are made pursuant to Paragraph 8(d)(1)(i) he
will not, directly or indirectly, employ, cause to be employed, or solicit for
employment any of Company's or its subsidiaries' employees.
(b) Trade Secrets. During the Term hereof and after termination
or expiration for any reason, Executive shall not disclose, divulge, copy or
otherwise use any trade secret of the Company or its subsidiaries other than any
knowledge or information already known to Executive prior to this Agreement, it
being acknowledged that all such new information and materials compiled or
obtained by or disclosed to Executive while employed by the Company or its
subsidiaries hereunder or otherwise are confidential and the exclusive property
of the Company and its subsidiaries.
<PAGE> 39
(c) Injunctive Relief. The parties hereto agree that the remedy
at law for any breach of the provisions of this Paragraph 11 will be inadequate
and that the Company or any of its subsidiaries or other successors or assigns
shall be entitled to injunctive relief without bond. Such injunctive relief
shall not be exclusive, but shall be in addition to any other rights and
remedies Company or any of its subsidiaries or their successors or assigns might
have for such breach.
(d) Scope of Covenant. Should the duration,
geographical area or range of prescribed activities in Subparagraph (a) above be
held unreasonable by any court of competent jurisdiction, then such duration,
geographical area or range of prescribed activities shall be modified to such
degree as to make it or them reasonable and enforceable.
12. Counsel Fees and Indemnification.
(a) In the event that it shall be necessary or desirable for the
Executive to retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any and all of his rights under this
Agreement, including participation in any proceeding contesting the validity or
enforceability of this Agreement and any arbitration proceeding pursuant to
Paragraph 8(e), the Executive shall be entitled to recover from the Company his
reasonable attorney's fees and costs and expenses in connection with the
enforcement of his rights. No fees shall be payable if the Company is successful
on the merits.
(b) The Company shall indemnify and hold Executive harmless to
the maximum extent permitted by law against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees incurred by
Executive, in connection with the defense of, or as a result of, any action or
proceeding (or any appeal from any action or proceeding) in which Executive is
made or is threatened to be made a party by reason of any act or omission of
Executive in his capacity as an officer, director or employee of the Company,
regardless of whether such action or proceeding is one brought by or in the
right of the Company, to procure a judgment in its favor. Expenses (including
attorneys' fees) incurred by the Executive in defending any civil, criminal,
administrative, or investigative action, suit or proceeding shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of the Executive to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Company as authorized in this Paragraph 12(b).
13. Miscellaneous.
(a) Notices. Any notice, demand or communication required or
permitted under this Agreement shall be in writing and shall either be
hand-delivered to the other party or mailed to the addresses set forth below by
registered or certified mail, return receipt requested or sent by overnight
<PAGE> 40
express mail or courier or facsimile to such address, if a party has a facsimile
machine. Notice shall be deemed to have been given and received when so
hand-delivered or after three business days when so deposited in the U.S. Mail,
or when transmitted and received by facsimile or sent by express mail properly
addressed to the other party. The addresses are:
To the Company:
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
FAX #: (215) 772-5018
Attn: Corporate Secretary
To the Executive:
Mr. Brian McAdams
117 Maple Avenue
Bala Cynwyd, PA 19004
The foregoing addresses may be changed at any time by notice given in the manner
herein provided.
(b) Integration; Modification. This Agreement dated the date
hereof constitutes the entire understanding and agreement between the Company
and the Executive regarding its subject matter and supersedes all prior
negotiations and agreements, whether oral or written, between them with respect
to its subject matter. This Agreement may not be modified except by a written
agreement signed by the Executive and a duly authorized officer of the Company.
(c) Enforceability. If any provision of this Agreement shall be
invalid or unenforceable, in whole or in part, such provision shall be deemed to
be modified or restricted to the extent and in the manner necessary to render
the same valid and enforceable, or shall be deemed excised from this Agreement,
as the case may require, and this Agreement shall be construed and enforced to
the maximum extent permitted by law as if such provision had been originally
incorporated herein as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be.
(d) Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties, including their respective heirs,
executors, successors and assigns, except that this Agreement may not be
assigned by the Executive.
<PAGE> 41
(e) Waiver of Breach. No waiver by either party of any condition
or of the breach by the other of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances shall
be deemed or construed as a further or continuing waiver of any such condition
or breach or a waiver of any other condition, or the breach of any other term or
covenant set forth in this Agreement. Moreover, the failure of either party to
exercise any right hereunder shall not bar the later exercise thereof.
(f) Governing Law and Interpretation. This
Agreement shall be governed by the internal laws of the Commonwealth of
Pennsylvania. Each of the parties agrees that he or it, as the case may be,
shall deal fairly and in good faith with the other party in performing,
observing and complying with the covenants, promises, duties, obligations, terms
and conditions to be performed, observed or complied with by him or it, as the
case may be, hereunder; and that this Agreement shall be interpreted, construed
and enforced in accordance with the foregoing covenant notwithstanding any law
to the contrary.
(g) Headings. The headings of the various sections and paragraphs
have been included herein for convenience only and shall not be considered in
interpreting this Agreement.
(h) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed by the Executive
and on behalf of the Company by its duly authorized officers and approved by its
Compensation Committee, as of the date first above written.
NATIONAL MEDIA CORPORATION
Attest:
By:_________________________________________
_____________________ Title:______________________________________
Secretary
____________________________________________
Brian McAdams
Executive
<PAGE> 42
APPROVED:
COMPENSATION COMMITTEE
By:__________________
Jon W. Yoskin, II
__________________
Frederick Hammer
__________________
James J. Gillen
Members
STEINBRP:MEDIA:EMPLOY-M.AGT
<PAGE> 43
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") made and entered as of
November 30, 1994 by and between NATIONAL MEDIA CORPORATION (the
"Company"), a Delaware corporation and CONSTANTINOS I. COSTALAS
(the "Executive").
Background
The Company desires to employ Executive as its Vice-Chairman, and
Executive desires to accept such employment. The parties further desire to set
forth herein the terms and conditions of the Executive's employment by the
Company in an Employment Agreement. Accordingly, in consideration of the mutual
covenants and agreements set forth herein and the mutual benefits to be derived
herefrom, and intending to be legally bound hereby, the Company and the
Executive agree as follows:
1. Employment.
(a) Duties. The Company shall employ the Executive, on the terms
set forth in this Agreement, as its Vice-Chairman. The Executive accepts such
employment with the Company and shall perform and fulfill such duties as are
reasonably assigned to him hereunder by the Chairman of the Board and the Board
of Directors of the Company (the "Board"), devoting his best efforts and
professional time and attention to the performance and fulfillment of his duties
and to the advancement of the interests of the Company, subject only to the
direction, approval, control and directives of the Chairman of the Board and the
Board of Directors. Nothing contained herein shall be construed, however, to
prevent the Executive from trading in or managing, for his own account and
benefit, in stocks, bonds, securities, real estate, commodities or other forms
of investments (subject to law and Company policy with respect to trading in
Company securities), or serving on noncompetitive corporate boards.
(b) Place of Performance. In connection with his employment by the
Company, the Executive shall be based in the Philadelphia, Pennsylvania
metropolitan area, except for required travel on Company business. Company shall
furnish Executive with office space, stenographic assistance and such other
facilities and services as shall be suitable to Executive's position and suffi-
cient and satisfactory to the Executive for the performance of his duties as
Vice-Chairman.
2. Term.
The Executive's employment under this Agreement shall commence as
of December 1, 1994 (the "Commencement Date") and shall, unless sooner
terminated in accordance with the provisions hereof, continue uninterrupted for
an initial two year and one-month term expiring December 31, 1996 and thereafter
<PAGE> 44
shall be automatically renewed for successive two-year periods unless terminated
by either party upon six (6) months' written notice prior to the end of any
Term. As used herein, the "Term" shall refer to such initial term and any
renewal term then in effect. The term "first year" shall refer to the annual
period commencing on January 1, 1995, and ending on December 31, 1995. The term
"year" shall refer to each annual period after the first year.
3. Compensation.
(a) Salary. From December 1 through December 31, 1994, Executive
shall be paid $10,000. During the remainder of the Term, the Executive shall be
paid an annual salary of $200,000 (the "Base Salary") payable in installments at
such times as the Company customarily pays its other senior executive employees
(but in any event no less often than monthly). The Base Salary may be increased
from time to time by the Board of Directors as conditions warrant including, but
not limited to, Executive's performance as determined by the Board of Directors.
In no event shall Executive's Base Salary be less than $200,000 in any year
during the Term.
(b) Incentive Pay; Stock Options.
(1) In addition to the Base Salary provided for in Paragraph
3(a) above, it is expected that the Executive will participate in the Company's
1995 Management Incentive Plan, if approved by the Company's shareholders. If
Executive becomes a participant in the 1995 Management Incentive Plan, and if
this Employment Agreement is not renewed after December 31, 1996, so that
Executive is not a participant in the Plan on March 31, 1997, Executive shall
nevertheless be entitled to receive a cash payment pursuant to this Agreement
which is 75% of the total amount he would have received under the 1995
Management Incentive Plan had he remained employed until March 31, 1997. Such
payment shall be made to the Executive no later than April 30, 1997.
If the 1995 Management Incentive Plan is not approved
by shareholders, then Executive shall participate in the Company's annual
incentive plan in effect on the date of this Agreement. The amount of the bonus
payable under such plan shall be based on performance in accordance with the
provisions of the plan, as determined by the Compensation Committee of the Board
of Directors. A bonus payable under this subparagraph (b)(1) shall be paid at
the normal time for payment of executive bonuses.
(2) As an inducement to the Executive to increase
shareholder value, the Company will grant nonqualified stock options to the
Executive (the "Option") to purchase up to 60,000 shares (the "Shares") of the
Company's common stock, $.01 par value ("Common Stock") pursuant to a separate
<PAGE> 45
stock option agreement made under and subject to the terms of the Company's 1991
Stock Option Plan, as amended (the "Plan"), with the exercise price under the
Option to be the closing price of the Common Stock on the New York Stock
Exchange on January 5, 1995 (the "Date of Grant") of $4.625, and with 20,000
Shares exercisable under the Option on December 31, 1995, an additional 20,000
exercisable on December 31, 1996, and the remaining 20,000 exercisable on
December 31, 1997.
The Company and the Executive acknowledge that there may not be a
sufficient number of shares of Common Stock available under the Plan to cover
the Shares subject to the Option. The Company shall take steps at its next
annual meeting of stockholders to increase the number of shares available for
grant under the Plan so that the Shares subject to the Option will be covered by
the Plan. If, notwithstanding the Company's efforts, stockholder approval of
such increase in the number of available shares is not obtained at the 1995
Annual Meeting, then the Company and the Executive shall enter into alternative
arrangements reasonably satisfactory to both parties in lieu of the grant of the
Option as to such Shares.
(c) Health Insurance and Other Benefits. During the Term the
Executive shall receive all employee benefits offered by the Company to its
senior executives and key management employees, including, without limitation,
all pension, profit sharing, retirement, salary continuation, deferred
compensation, disability insurance, hospitalization insurance, major medical
insurance, medical reimbursement, survivor income, life insurance and any other
benefit plan or arrangement established and maintained by the Company, subject
to the rules and regulations then in effect regarding participation therein.
Unless such change is required by federal, state or local law, the Company shall
not make any changes in any employee benefit plan or arrangement that would
result in a disproportionately greater reduction in the rights of, or benefits
to, the Executive compared with any other senior executive of the Company.
(d) Club Membership. The Company shall pay
Executive's annual membership dues at a luncheon club in the
Philadelphia metropolitan area chosen by the Executive.
4. Life Insurance.
(a) Purchase. Provided that Executive is insurable at rates that
are comparable to those obtainable on other persons of similar age and position
in good health (if Executive is classified in a higher risk category he may
elect to pay the excess premium cost to obtain the coverage), during the Term
the Company shall provide the Executive, or at the option of the Executive, the
Executive's Life Insurance Trust, with a company-paid term life insurance policy
in the face amount of $1,000,000. At the Executive's option, Executive may
<PAGE> 46
obtain an insurance policy in lieu of a policy provided by the Company
hereunder, and the Company shall pay premiums therefor as set forth in invoices
presented to the Company; provided the Company shall not be required to pay
premiums in excess of the out-of-pocket costs it would otherwise have incurred
had it purchased such policy directly. The owner of such life insurance policy
shall be the Executive or the Executive's Life Insurance Trust, as directed by
the Executive.
(b) Payment of Premiums. The Company shall timely pay all
premiums for such life insurance whether provided by the Company for the
Executive or by the Executive's Life Insurance Trust for the Executive.
(c) Medical Examination. The Executive agrees to submit to all
medical examinations, supply all information and execute all documents required
by the insurance company in connection with the issuance of a policy for such
insurance as well as for any key man insurance the Company may desire to
maintain on Executive's life.
5. Reimbursement of Expenses. The Executive shall be reimbursed for
all items of travel, entertainment and miscellaneous expenses which the
Executive reasonably incurs in connection with the performance of his duties
hereunder, provided that the Executive shall submit to the Company such
statements and other evidence supporting said expenses as the Company may
reasonably require.
6. Automobile Allowance. The Company shall pay
Executive a monthly automobile allowance of $600.00.
7. Vacations. The Executive shall be entitled to the number of paid
vacation days in each calendar year determined by the Company from time to time
for its senior executive officers, but not less than three (3) weeks in any
calendar year (prorated in any calendar year during which the Executive is
employed hereunder for less than the entire year in accordance with the number
<PAGE> 47
of days in such calendar year during which he is so employed). The Executive
shall also be entitled to all paid holidays given by the Company to its senior
executive officers.
8. Termination of Employment.
(a) Death or Total Disability. In the event of the death of the
Executive during the Term, this Agreement shall terminate as of the date of the
Executive's death, except for any unexercised stock options held by Executive.
In the event of the Total Disability (as that term is defined below) of the
Executive for one hundred eighty (180) days in the aggregate during any
consecutive twelve (12) month period during the Term, the Company shall have the
right to terminate this Agreement by giving the Executive thirty (30) days'
prior written notice thereof, and upon the expiration of such thirty (30) day
period, the Executive's employment under this Agreement shall terminate. If the
Executive shall resume his duties within thirty (30) days after receipt of such
a notice of termination and continue to perform such duties for four (4)
consecutive weeks thereafter, this Agreement shall continue in full force and
effect, without any reduction in Base Salary, other compensation and other
benefits, and the notice of termination shall be considered null and void and of
no effect. Upon termination of this Agreement under this Section 8(a), the
Company shall have no further obligations or liabilities under this Agreement,
except to pay to the Executive's estate or the Executive, as the case may be,
the portion, if any, that remains unpaid of the Base Salary for the period prior
to termination.
The term "Total Disability," as used herein, shall mean a
mental or physical condition which in the reasonable opinion of an independent
medical doctor mutually selected by the Company and the Executive renders the
Executive unable or incompetent to carry out the material duties and
responsibilities of the Executive under this Agreement at the time the disabling
condition was incurred. Notwithstanding the foregoing, if the Executive is
covered under any policy of disability insurance under Paragraph 3(c), under
no circumstances shall the definition of Total Disability be different from the
definition of that term in such policy.
(b) Discharge for Cause. The Company may discharge the Executive
for Cause and thereby immediately terminate his employment under this Agreement.
For purposes of this Agreement the Company shall have "Cause" to terminate the
Executive's employment if the Executive, in the reasonable judgment of the
Company, (i) materially breaches any of his agreements, duties or obligations
under this Agreement and has not cured or commenced in good faith to cure such
breach within thirty days after notice; (ii) embezzles or converts to his own
use any funds of the Company or any client or customer of the Company; (iii)
converts to his own use or unreasonably destroys any property of the Company,
without the Company's consent; (iv) is convicted of a felony; (v) is adjudicated
as mentally incompetent; or (vi) is habitually intoxicated or is diagnosed by an
independent medical doctor to be addicted to a controlled substance or any drug
whatsoever. Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for Cause unless and until the Executive has received
thirty (30) days' prior written notice ("Dismissal Notice") of such termination.
In the event the Executive does not dispute such determination within thirty
(30) days after receipt of the Dismissal Notice, the Executive shall not have
the remedies provided herein pursuant to Section 8(e).
<PAGE> 48
(c) Termination Prior to Expiration of Term. Either party may
terminate this Agreement upon sixty (60) days' prior written notice. Except as
provided in Paragraph 8(d) such termination shall be without liability to either
party.
(d) Severance without Cause or for Good Reason.
(1) In the event that the Executive's employment is
terminated by the Company without Cause, as defined in Subparagraph 8(b) above,
or the Executive shall resign for "Good Reason," as defined in Paragraph
8(d)(2), then to the extent provided below the Company shall:
(i) pay the Executive in lieu of other damages, except
as specifically provided herein, an amount equal to the greater of one years'
Base Salary at the then current amount or the Base Salary payable during the
balance of the Term of this Agreement. Such amounts shall be payable in
installments equal to installments of Base Salary then payable to Executive as
provided herein until such amount is paid in full. During such period of
payments, the restrictions contained in Paragraph 11(a)(1) shall be applicable
to Executive except that Executive may accept employment he might not otherwise
accept under Paragraph 11(a)(1) in which event payment of salary received shall
be deducted from payments made herein; and
(ii) maintain in full force and effect, for the
continued benefit of the Executive for a period of six (6) months after
termination or for the balance of the Term, whichever is greater, all employee
benefit plans and programs, except option plans and except bonus plans to the
extent the Executive is not employed by the Company for all or a portion of the
period of measurement for the bonus, in which the Executive was entitled to
participate immediately prior to the Executive's discharge or resignation,
provided that the Executive's continued participation is possible under the
general terms and provisions of such benefit plans and programs, and provided
further that any Options unvested and unexercisable at the date of termination
shall then become vested and exercisable. In the event that the Executive's
participation in any such benefit plan or program is barred, the Company shall
arrange to provide the Executive with benefits substantially similar to those
which the Executive is entitled to receive under such plans and programs. At the
end of the period of coverage, the Executive shall have the option to have
assigned to him at no cost and with no apportionment of prepaid premiums any
assignable insurance policy owned by the Company which relates specifically to
the Executive. At the Company's expense, the Executive may elect at any time
during the period he is receiving payments on account of his termination of
employment to use the services of an outplacement firm of his choice.
<PAGE> 49
(2) For purposes of this Section 8(d), "Good Reason" shall
mean the failure by the Company to comply with the material provisions of this
Agreement which failure is not cured within 30 days after notice.
Notwithstanding the foregoing, the Executive shall not be
deemed to terminate this Agreement for Good Reason unless and until the Company
has received five (5) days' prior written notice of termination ("Notice of
Termination for Good Reason"). In the event the Company does not dispute such
termination within thirty (30) days after receipt of such Notice of
Termination for Good Reason, the Company shall not have the remedies provided
hereunder pursuant to Paragraph 8(e).
(e) Arbitration. In the event that the Executive disputes a
determination that Cause exists for terminating his employment hereunder
pursuant to Paragraph 8(b), or the Company disputes the termination that Good
Reason exists for Executive's termination of his Employment pursuant to
Paragraph 8(d)(2), either party disputing this determination shall serve the
other with written notice of such dispute ("Dispute Notice") within thirty (30)
days after receipt of the Dismissal Notice or Notice of Termination for Good
Reason. Within fifteen (15) days thereafter, the Executive or the Company, as
the case may be, shall, in accordance with the Rules of the American Arbitration
Association ("AAA"), file a petition with the AAA for arbitration of the
dispute, the costs thereof to be shared equally by the Executive and the Company
unless an order of the AAA provides otherwise and each party shall be
responsible for his or its legal fees. Such proceeding shall also determine all
other disputes between the parties relating to Executive's employment. The
parties covenant and agree that the decision of the AAA shall be final and
binding and hereby waive their rights to appeal therefrom.
(f) Nonrenewal by Company. If this Agreement is not renewed for
an additional two-year period because of notice given by the Company pursuant to
Paragraph 2, any Options unvested and unexercisable at the expiration of the
Term of this Agreement shall then become vested and exercisable.
9. Change in Control. Upon a Change in Control, as
hereinafter defined, notwithstanding anything in this Agreement to
the contrary, the following terms and provisions shall apply:
(a) If, within 30 days following the Change in Control, there is
a Termination of Employment (as defined below), then the following provisions
shall become applicable:
(1) The Executive shall receive an immediate lump sum
payment (within 30 days following the Termination of Employment), of three
years' Base Salary at the then current amount;
<PAGE> 50
(2) The Executive shall receive an immediate payment (within
30 days following the Termination of Employment) of the annual bonuses that the
Executive would be entitled to receive through the remainder of the Term of this
Agreement. For purposes of this Paragraph 9(a)(2), the annual bonus that the
Executive would be entitled to receive for each remaining year in the Term of
this Agreement shall be equal to the last bonus the Executive received prior to
the Change of Control;
(3) All allowances and benefits, as contained in Paragraphs
3(c)-(d) and 4 and 6, shall be continued for the full Term of this Agreement;
and
(4) All unvested and unexercised stock options held by the
Executive shall become immediately vested and exercisable by the Executive.
(b) If a Termination of Employment does not occur within 30 days
following the Change in Control, then the Term of this Agreement shall be
automatically renewed for a two-year period commencing on the date of the Change
in Control, in which case all of the terms and conditions of this Agreement
shall remain in full force and effect until the end of such Term.
(c) As used in this Paragraph 9, "Termination of Employment"
shall mean termination of the Executive's employment (i) by the Company for any
reason, or (ii) by the Executive's death, Total Disability or resignation.
(d) As used in this Paragraph 9, a "Change in Control" shall
be deemed to have taken place if: (i) any "Person" (including any individual,
firm, corporation, partnership or other entity except the Executive, the Company
or any employee benefit plan of the Company or of any Affiliate or Associate
(each as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended), and any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such employee benefit plan),
together with all Affiliates and Associates of such Person, shall become the
beneficial owner in the aggregate of 20% or more of the Common Stock of the
Company then outstanding; or (ii) during the Term of this Agreement, individuals
who at the beginning of such Term constituted the Board cease for any reason to
constitute a majority thereof.
(e) It is the intention of the parties that the payments under
Paragraph 9(a) shall not constitute "excess parachute payments" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended.
Accordingly, notwithstanding anything in this Paragraph 9 to the contrary, if
any of the amounts otherwise payable under Paragraph 9(a) would constitute
"excess parachute payments," or if the independent accountants acting as
<PAGE> 51
auditors for the Company on the date of the Change of Control determine that
such payments may constitute "excess parachute payments," then the cash amounts
otherwise payable under Paragraph 9(a) shall be reduced to the maximum amounts
that may be paid without any such payments or other benefits under this
Paragraph 9 constituting, or potentially constituting, "excess parachute
payments."
10. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment or benefit provided for in this Agreement by seeking other
employment or otherwise nor, except as provided herein, shall the amount of any
payment provided for in this Agreement be reduced by any compensation earned by
the Executive as the result of his employment by another employer.
11. Restrictive Covenant.
(a) Competition.
(1) During (A) the Term of this Agreement; (B) for a period
of six (6) months after termination of this Agreement pursuant to Paragraph 8(a)
or 8(b); and (C) subject to Paragraph 8(d)(1)(i) for any period after
termination during which payments are made to Executive under Paragraph
8(d)(1)(i) with respect to termination by the Company or the Executive pursuant
to Paragraph 8(c) or 8(d), Executive undertakes and agrees that he will not
compete, directly or indirectly, or participate as a director, officer,
employee, consultant agent, consultant, representative or otherwise, or as a
stockholder, partner or joint venturer, or have any direct or indirect financial
interest, including, without limitation, the interest of a creditor, if any
business competing directly with the infomercial direct response business of
Company or any of its subsidiaries within any geographical area in which the
business of Company or its subsidiaries is being conducted during Executive's
employment.
(2) Executive further undertakes and agrees that during the
Term of this Agreement and for a period of six (6) months after the termination
or expiration or while payments are made pursuant to Paragraph 8(d)(1)(i) he
will not, directly or indirectly, employ, cause to be employed, or solicit for
employment any of Company's or its subsidiaries' employees.
(b) Trade Secrets. During the Term hereof and after termination
or expiration for any reason, Executive shall not disclose, divulge, copy or
otherwise use any trade secret of the Company or its subsidiaries other than any
knowledge or information already known to Executive prior to this Agreement, it
being acknowledged that all such new information and materials compiled or
obtained by or disclosed to Executive while employed by the Company or its
subsidiaries hereunder or otherwise are confidential and the exclusive property
of the Company and its subsidiaries.
<PAGE> 52
(c) Injunctive Relief. The parties hereto agree that the remedy
at law for any breach of the provisions of this Paragraph 11 will be inadequate
and that the Company or any of its subsidiaries or other successors or assigns
shall be entitled to injunctive relief without bond. Such injunctive relief
shall not be exclusive, but shall be in addition to any other rights and
remedies Company or any of its subsidiaries or their successors or assigns might
have for such breach.
(d) Scope of Covenant. Should the duration, geographical area or
range of prescribed activities in Subparagraph (a) above be held unreasonable
by any court of competent jurisdiction, then such duration, geographical area or
range of prescribed activities shall be modified to such degree as to make it or
them reasonable and enforceable.
12. Counsel Fees and Indemnification.
(a) In the event that it shall be necessary or desirable for the
Executive to retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any and all of his rights under this
Agreement, including participation in any proceeding contesting the validity or
enforceability of this Agreement and any arbitration proceeding pursuant to
Paragraph 8(e), the Executive shall be entitled to recover from the Company
his reasonable attorney's fees and costs and expenses in connection with the
enforcement of his rights. No fees shall be payable if the Company is successful
on the merits.
(b) The Company shall indemnify and hold Executive harmless to
the maximum extent permitted by law against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees incurred by
Executive, in connection with the defense of, or as a result of, any action or
proceeding (or any appeal from any action or proceeding) in which Executive is
made or is threatened to be made a party by reason of any act or omission of
Executive in his capacity as an officer, director or employee of the Company,
regardless of whether such action or proceeding is one brought by or in the
right of the Company, to procure a judgment in its favor. Expenses (including
attorneys' fees) incurred by the Executive in defending any civil, criminal,
administrative, or investigative action, suit or proceeding shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of the Executive to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Company as authorized in this Paragraph 12(b).
13. Miscellaneous.
(a) Notices. Any notice, demand or communication required or
permitted under this Agreement shall be in writing and shall either be
hand-delivered to the other party or mailed to the addresses set forth below by
<PAGE> 53
registered or certified mail, return receipt requested or sent by overnight
express mail or courier or facsimile to such address, if a party has a facsimile
machine. Notice shall be deemed to have been given and received when so
hand-delivered or after three business days when so deposited in the U.S. Mail,
or when transmitted and received by facsimile or sent by express mail properly
addressed to the other party. The addresses are:
To the Company:
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
FAX #: (215) 772-5018
Attn: Corporate Secretary
To the Executive:
Mr. Constantinos I. Costalas
224 Church Road
Devon, PA 19333
The foregoing addresses may be changed at any time by notice given in the manner
herein provided.
(b) Integration; Modification. This Agreement dated the date
hereof constitutes the entire understanding and agreement between the Company
and the Executive regarding its subject matter and supersedes all prior
negotiations and agreements, whether oral or written, between them with
respect to its subject matter. This Agreement may not be modified except by a
written agreement signed by the Executive and a duly authorized officer of the
Company.
(c) Enforceability. If any provision of this Agreement shall be
invalid or unenforceable, in whole or in part, such provision shall be deemed to
be modified or restricted to the extent and in the manner necessary to render
the same valid and enforceable, or shall be deemed excised from this Agreement,
as the case may require, and this Agreement shall be construed and enforced to
the maximum extent permitted by law as if such provision had been originally
incorporated herein as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be.
(d) Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties, including their respective heirs,
executors, successors and assigns, except that this Agreement may not be
assigned by the Executive.
<PAGE> 54
(e) Waiver of Breach. No waiver by either party of any condition
or of the breach by the other of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances shall
be deemed or construed as a further or continuing waiver of any such condition
or breach or a waiver of any other condition, or the breach of any other term or
covenant set forth in this Agreement. Moreover, the failure of either party to
exercise any right hereunder shall not bar the later exercise thereof.
(f) Governing Law and Interpretation. This Agreement shall be
governed by the internal laws of the Commonwealth of Pennsylvania. Each of the
parties agrees that he or it, as the case may be, shall deal fairly and in good
faith with the other party in performing, observing and complying with the
covenants, promises, duties, obligations, terms and conditions to be performed,
observed or complied with by him or it, as the case may be, hereunder; and that
this Agreement shall be interpreted, construed and enforced in accordance with
the foregoing covenant notwithstanding any law to the contrary.
(g) Headings. The headings of the various sections and paragraphs
have been included herein for convenience only and shall not be considered in
interpreting this Agreement.
(h) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed by the Executive
and on behalf of the Company by its duly authorized officers and approved by its
Compensation Committee, as of the date first above written.
NATIONAL MEDIA CORPORATION
Attest:
By:________________________________________
__________________________
Secretary Title:_____________________________________
___________________________________________
Constantinos I. Costalas
Executive
<PAGE> 55
APPROVED:
COMPENSATION COMMITTEE
By:__________________
Jon W. Yoskin, II
_________________
Frederick Hammer
_________________
James J. Gillen
Members
STEINBRP:MEDIA:EMPLOYC2.AGT
<PAGE> 56
MARKETING, DISTRIBUTION AND SERVICE MARK AGREEMENT
THIS MARKETING, DISTRIBUTION AND SERVICE MARK AGREEMENT
("Agreement") is dated as of _______________, 1994 and is made by and among
NATIONAL MEDIA CORPORATION, a Delaware corporation ("National"), MEDIA ARTS
INTERNATIONAL, LTD., a Delaware corporation ("Media Arts"; National and
Media Arts are hereinafter collectively referred to as "National Media"),
on the one hand, and POSITIVE RESPONSE TELEVISION, INC., a California
corporation ("Positive Response"), on the other hand.
R E C I T A L S
A. National Media and Positive Response are party to the following
agreements made December 13, 1993: Settlement Agreement and Full and Mutual
Release, Agreement Respecting Ownership and Use of Service Mark and
Production Agreement (the "1993 Agreements") which govern their rights and
duties relating to the service mark AMAZING DISCOVERIES (the "Service
Mark"), and the production and distribution of infomercials featuring the
Service Mark as the program and series title.
B. In addition to infomercials featuring the Service Mark ("Amazing
Discoveries Infomercials"), Positive Response produces infomercials and
spots not involving the Service Mark for (1) third parties desiring
Positive Response to produce and distribute an infomercial for a product
owned by the third party ("Third Party Product Infomercials") and (2)
products owned by Positive Response ("PRTV Product Infomercials").
C. The Amazing Discoveries Infomercials, Third Party
Product Infomercials and PRTV Product Infomercials are
collectively referred to hereinafter as the "Infomercials,"
<PAGE> 57
and the products promoted in such Infomercials are herein- after referred
to as the "Products".
D. Positive Response wants to amend the 1993 Agreements to provide for
the sale of the Service Mark by National Media to Positive Response.
E. National Media is willing to sell the Service Mark to Positive
Response if Positive Response will grant National Media the exclusive right
to distribute the Infomercials in limited United States television markets
and certain foreign countries.
F. Positive Response is willing to grant National Media the right to
distribute such Infomercials, provided National Media shares in the cost to
produce such Infomercials.
NOW, THEREFORE, in consideration of the mutual promises and
undertakings set forth herein, and intending to be legally bound hereby,
the parties agree as follows:
A G R E E M E N T
1. MARKETING AND DISTRIBUTION RIGHTS.
1.1 Grant of Rights. Subject to the terms and conditions of this
Agreement, Positive Response hereby grants to National Media the following
rights (collectively, the "Marketing and Distribution Rights"):
1.1.1 Television Marketing. The sole and exclusive right to
advertise, promote, market, sell and otherwise distribute the
Infomercials and the Products promoted in the Infomercials in the
Territories (defined in Paragraph 1.3.1), to the extent such
rights have been granted to or are owned by Positive Response, by
broadcast, cable, satellite and all other forms of television
transmission now existing or hereinafter developed by means of
such programming as National Media may determine, including,
without limitation, infomercials, spots, promos and television
shopping programs ("Television Marketing").
<PAGE> 58
1.1.2 Non-Television Marketing. The sole and exclusive right to
advertise, promote, market, sell and otherwise distribute the
Products promoted in the Infomercials in the Territories
(defined in Paragraph 1.3.2), to the extent such rights have
been granted to or are owned by Positive Response, by whatever
additional means and media other than Television Marketing as
National Media may choose, including, without limitation, radio,
all print media, direct mail solicitation, direct sales,
telemarketing, credit card syndication, catalog sales, retail
sales and wholesale sales ("Non-Television Marketing").
1.1.3 Use of Intellectual Property. In connection with the
exercise of the Marketing and Distribution Rights, the exclusive
right to use within the Territories any and all trade names,
trademarks, patents, and copyrights which Positive Response may
own or control with respect to the Products and the Infomercials
(hereinafter collectively referred to as "Intellectual
Property"). National Media shall only use the Intellectual
Property in the forms which they appear in the Infomercial or
Product packaging and literature, and National Media shall not
use, or authorize the use, of any abbreviated form of the
Intellectual Property. National Media shall notify Positive
Response of each country in which it intends to sell Products or
broadcast an Infomercial. National Media shall use its best
efforts to provide such notice to Positive Response at its
earliest opportunity in advance of airing so that Positive
Response may apply for Intellectual Property protection.
<PAGE> 59
1.1.4 Names, Likenesses and Endorsements. In connection with
the exercise of the Marketing and Distribution Rights, the right
to use the names, likenesses (including, without limitation,
photographs, illustrations, films and videotapes), endorsements
and testimonials of all endorsers and other persons which may
appear in the Infomercials.
1.1.5 Subdistributors. The right to appoint such
subdistributors, except in the United States and Canada, as
National Media may deem appropriate in order to market and
distribute the Products and Infomercials and the right to
sublicense its rights hereunder to such subdistributors.
1.1.6 Derivative Works. In connection with the Marketing and
Distribution Rights in countries other than the United States
and Canada, the right to make any and all translations,
adaptations or variations of the Infomercials as may be
necessary to conform with local custom, usage and regulation
("Derivative Works") except and excluding the right to reduce
the retail sales price below the then United States equivalent
of the price set forth in the Infomercial.
1.1.7 Packaging. The right to modify packaging labels,
disclosures and box designs to conform to territorial
requirements.
1.2 Effect of Exclusivity on Competitive Products or Infomercials.
Except as expressly limited by this Paragraph 1.2, National Media and
Positive Response may pursue such product development, advertising,
marketing, promotions and other business activities as they may desire,
including without limitation, the production and airing of infomer-
cials on national and international cable, broadcast and satellite
television without regard to whether or not such activities are directly
competitive with the Products or the Infomercials.
<PAGE> 60
1.2.1 Limitations on National Media. While National Media is
distributing a Product under this Agreement, National Media
shall not, without Positive Response's prior written consent (a)
directly or indirectly, either by itself or in participation
with any other person or entity, engage in marketing or
distribution (by any means or medium) of any of the Products, or
of any other products so similar in design, composition, content
or function to the Products as to be likely to cause confusion
or mistake among those persons and entities constituting the
market for the Products ("Confusingly Similar Products"); (b)
license or otherwise grant the right to any other person or
entity to engage in marketing or distribution (by any means or
medium) of any of the Products in the United States or Canada,
or of any Confusingly Similar Products in any of the
Territories; or (c) sell the Products in the United States or
Canada, or any Confusingly Similar Products in any of the
Territories, to any other person or entity for distribution or
resale. Nothing in this Paragraph 1.2.1 or otherwise in this
Agreement shall prevent National Media from marketing or
participating in the marketing of goods which, though not
Confusingly Similar Products, may compete with Products for
sales.
1.3 Territories Defined.
1.3.1 Television Marketing Territories. With respect to
Television Marketing, the term "Territories" shall mean all
countries in the world except and excluding the United States,
Canada and New Zealand (except as otherwise expressly permitted
in the next sentence). "Territories" shall include the United
States and Canada, but only to the extent of cable networks and
channels in such countries for which National Media, during the
Term of this Agreement, shall have (and for as long as it shall
maintain) an exclusive arrangement to air infomercials
(including, at the time of execution hereof and without
limitation, TNN, Americana and Home Team Sports). An exclusive
arrangement to air infomercials shall mean an agreement with a
channel or cable broadcaster to act as its exclusive agent
through which all time devoted to Infomercials is sold by the
channel or cable broadcaster.
<PAGE> 61
1.3.2 Non-Television Marketing Territories. With respect to
Non-Television Marketing, the term "Territories" shall mean all
countries in the world except and excluding the United States,
Canada and New Zealand.
1.4 Excluded Products. If Positive Response does not own or acquire
the rights to distribute an Infomercial product in all non-United States
and non-Canadian foreign markets, Positive Response shall not be obligated
to grant Marketing and Distribution Rights relating to said product to
National Media under Paragraph 1.1. Similarly, where such product
distribution rights are limited, National Media shall not be obligated to
pay one-half (1/2) of the Infomercial Production Costs relating to said
product pursuant to Paragraph 2.3. In such event, National Media and
Positive Response shall negotiate in good faith for a basis upon which
Positive Response will grant National Media the Marketing and Distribution
Rights to the extent such rights are controlled by Positive Response. To
the extent possible, such agreement shall follow the terms set forth in
this Agreement with the principal area of negotiation to be the extent to
which National Media shall share in the Infomercial Production Costs.
<PAGE> 62
2. INFOMERCIAL PRODUCTION.
2.1 Positive Response Infomercial Production. From time to time,
Positive Response shall develop and produce Infomercials designed to market
or sell Products. If Positive Response deems it appropriate, Positive
Response may advise National Media of its intention to produce an
Infomercial. However, National Media shall have no right to participate in
any aspect of the decision to develop or produce an Infomercial, except to
the limited extent provided in Paragraph 2.3. Positive Response intends
to continue its past rate of Infomercial production but its failure to do
so shall not be a basis for National Media to claim a breach of this
Agreement.
2.2 Product Selection. Positive Response shall be solely responsible
for the selection of goods or services suitable for acquisition or
development by Positive Response as a Product. If National Media deems it
appropriate, National Media may suggest a product for consideration by
Positive Response as being suitable for an Infomercial. However, National
Media is under no affirmative duty to locate suitable goods or services.
Positive Response intends to continue its past practice of locating
products and goods suitable for acquisition or development by Positive
Response as a Product, but its failure to do so shall not be a basis for
National Media to claim a breach of this Agreement.
2.3 National Media to Pay Half of Infomercial Production Costs. As
consideration for the right to receive Marketing and Distribution Rights
for future Products and Infomercials, National Media shall pay Positive
Response for one-half (1/2) of the Infomercial Production Costs (as defined
in Paragraph 2.3.1) which are incurred by Positive Response in connection
with the creation and production of each Infomercial during the Term of
this Agreement without regard to whether the Infomercial is or is not a
commercial success. National Media's direct liability for any one
Infomercial shall be limited to $125,000 (i.e., one-half of total
Infomercial Production Costs of $250,000). In the event the Infomercial
Production Costs exceed $250,000, the excess shall be the responsibility of
Positive Response.
<PAGE> 63
2.3.1 Infomercial Production Costs Defined. "Infomercial
Production Costs" shall mean expenses incurred for third party
talent and direction, studio rental costs, set costs, props,
equipment, film crews, location fees, travel expenses, computer
research services, music licensing fees, meals, courier services,
telephone, fax, filmstock, dubbing and duplicating costs,
Infomercial graphics, Product literature, graphic design for
Product packaging, attorneys' fees and costs related to
Infomercial compliance with appropriate governmental regulations,
and all other services and materials necessary to create, develop
and produce the Infomercial.
2.3.1.1 Costs Excluded from Infomercial Production Costs.
Infomercial Production Costs shall not include any costs or
expenses incurred in the acquisition of a Product, the
initial testing of the Infomercial, salaries of Positive
Response personnel, or Positive Response direct or indirect
overhead. To the extent materials or supplies are provided
for the Infomercial by Positive Response, all such items
shall be included as Infomercial Production Costs at
Positive Response's cost.
2.3.2 National Media's Share of Costs of New Amazing Discoveries
Set and Graphics. In addition to and not as part of the
Infomercial Production Costs, National Media shall pay Positive
Response for one-half (1/2) of the costs incurred by Positive
Response to improve and alter the Amazing Discoveries set and
graphics which will be used to produce Amazing Discoveries
Infomercials under this Agreement. National Media's total
liability for its one-half (1/2) share of such costs shall be
limited to Seventy-Five Thousand Dollars ($75,000.00) with any
amounts in excess of $150,000.00 being the sole responsibility of
Positive Response.
<PAGE> 64
2.4 National Media's Payment of Infomercial Production Costs. Positive
Response shall submit invoices to National Media from time to time
reflecting National Media's one-half share of Infomercial Production Costs
and National Media's one-half share of the new Amazing Discoveries set and
graphics. National Media shall promptly, within twenty (20) days of
submission, pay Positive Response for such invoiced amounts. At such time
as Positive Response shall invoice the Infomercial Production Costs
associated with a pending Infomercial, Positive Response shall assign a
project number to the Infomercial. Positive Response is under no obligation
to disclose to National Media the Product or any information relating to
the Infomercial. If National Media fails to pay Positive Response its share
of the Infomercial Production Costs within the twenty (20) days following
submission by Positive Response of its invoice, such failure to pay shall
be deemed National Media's conclusive and binding election to waive all of
its Marketing and Distribution Rights as they relate to the Infomercial
being produced.
2.5 Ownership of Product and Infomercial. Notwithstanding National
Media's payment of one-half of the Infomercial Production Costs, and
subject only to the rights expressly granted to National Media pursuant to
Paragraphs 1 and 10.2, Positive Response shall be the sole and absolute
owner, to the complete exclusion of National Media, of all right, title and
interest in and to the Product, the Infomercial (and all property purchased
in connection with the production thereof), Derivative Works and all
Intellectual Property related thereto.
<PAGE> 65
3. SUPPLY AND FULFILLMENT.
3.1 Product Sourced Solely Through Positive Response. All Products
sold by National Media pursuant to this Agreement shall be purchased by
National Media or its subdistributors solely from Positive Response.
Positive Response shall use its best efforts to cause its suppliers to
promptly ship such Product to such locations as National Media may
designate, in such quantities and times as National Media shall from time
to time specify as being necessary to complete the orders of National
Media's customers without unreasonable delay or interruption. Positive
Response shall not be liable for failure to ship any Product, nor for any
delay in shipment due to any cause, including, but not limited to, any
delays caused by conditions or circumstances within Positive Response's
reasonable control.
3.1.1 Foreign Product Duplication. In the event the Product
involves the sale of books, audiotapes or videotapes, National
Media and Positive Response shall mutually select an independent
supplier which either party shall have the right to audit. In the
event of any disagreement respecting the foreign duplication, the
decision of Positive Response shall control.
3.2 Warranty Policies. The warranties applicable to each Product shall
be determined by Positive Response at the time each such Infomercial is
produced. In the event such warranties are not expressly established, the
provisions of this Paragraph 3.2 shall control. The Products will be sold
to National Media with the understanding that they will be free of defect
in workmanship or material and conform to their stated specifications at
the time of sale. The foregoing warranty shall be for the benefit of
<PAGE> 66
National Media and all persons and entities purchasing Products by or
through National Media, all of whom shall be third-party beneficiaries of
such warranty. In the event that any such Product proves to be defective in
either workmanship or material at the time of sale, Positive Response will
provide a replacement Product, provided that National Media or its
subdistributor gives Positive Response notice of any loss or claim as soon
as practicable under the circumstances, and cooperates fully with Positive
Response in the handling of such claims. In no event shall Positive
Response be responsible for any incidental or consequential damages, for
lost profits, nor for any other damages. Positive Response's total
responsibility shall not exceed the value of the Product in question.
Positive Response expressly disclaims any implied warranties of
merchantability or fitness for a particular purpose.
3.3 National Media's Payment Responsibilities. Positive Response shall
be permitted to suspend any shipments, at its own discretion, in the event
National Media fails to promptly pay all amounts due Positive Response in
accordance with Paragraph 4.
4. PRODUCT PRICING AND PAYMENT TERMS.
Where the sale by National Media is to the ultimate consumer, the
price at which Positive Response shall sell all Products to National Media
during the Term of this Agreement ("Retail Product Purchase Price Per
Unit") shall be that percentage (as set forth in Paragraph 4.1.1) of
National Media's "Adjusted Net Revenues" (as defined in Paragraph 4.2) per
unit, but in no event shall the Retail Product Purchase Price Per Unit for
any given Product be less than National Media's "Adjusted Cost Per Unit"
(as defined in Paragraph 4.3) for such Product sales. Where the sale by
National Media is on a wholesale basis to an unrelated subdistributor and
not to the ultimate consumer, the price at which Positive Response shall
<PAGE> 67
sell all Products to National Media during the Term of this Agreement
("Wholesale Product Purchase Price Per Unit") shall be that percentage
(as set forth in Paragraph 4.1.2) of National Media's "Adjusted Gross
Profit" (as defined in Paragraph 4.4) per unit. Payment and shipping terms
shall be as described in Paragraph 4.5.
4.1 Product Pricing. National Media shall pay
Positive Response the following amounts for Product:
4.1.1 Retail Product Purchase Price Per Unit.
The Retail Product Purchase Price Per Unit for Products
purchased from Positive Response under this Agreement
shall be:
4.1.1.1 Foreign Sales. For all sales of
Product where the end buyer is outside of the
United States and Canada, the Retail Product
Purchase Price Per Unit of Product shall be equal
to twenty-five percent (25%) of the Adjusted Net
Revenues per unit sold.
4.1.1.2 Domestic Sales. For all sales of
Product where the end buyer is inside of the
United States or Canada, the Retail Product
Purchase Price Per Unit of Product shall be equal
to twenty-three percent (23%) of the Adjusted Net
Revenues per unit sold.
4.1.2 Wholesale Product Purchase Price Per Unit.
The Wholesale Product Purchase Price Per Unit for
Products purchased from Positive Response under this
Agreement shall be:
<PAGE> 68
4.1.2.1 40% Of Adjusted Gross Profit. For
all sales of Product where the sale by National
Media is outside of the United States and Canada
and on a wholesale basis to an unrelated subdis-
tributor and not to the ultimate consumer, the Wholesale
Product Purchase Price Per Unit of Product shall be forty
percent (40%) of the "Adjusted Gross Profit Per Unit", as
defined in Paragraph 4.4, plus the Invoiced Cost Per Unit,
as defined in Paragraph 4.3.1.
4.2 Adjusted Net Revenues Defined. "Adjusted Net Revenues" shall mean
the gross revenues from all sales of a Product by National Media and its
subdistributors less the following adjustments: (a) shipping and handling
revenue collected by National Media from television sales; (b) refunds,
credits or other allowances to customers on account of returned or rejected
goods; (c) uncollectible accounts due to credit card chargebacks, bad
checks, or other reasons of uncollectibility; and (d) sales and excise
taxes, value added tax (VAT), and other taxes imposed upon the sale.
4.3 Adjusted Cost Floor. In the event the Product being sold has a
high wholesale cost per unit relative to its retail price, the Retail
Product Purchase Price Per Unit of Product under Paragraph 4.1.1 shall not
be less than National Media's Adjusted Cost Per Unit, as defined in
Paragraph 4.3.1.
4.3.1 Adjusted Cost Per Unit Defined. The "Adjusted Cost Per
Unit" shall mean the "Invoiced Cost Per Unit" plus six percent
(6%) of the "Adjusted Net Revenues" per unit. "Invoiced Cost Per
Unit" shall be the price per unit of Product imposed at the time
of shipment, which shall be Positive Response's actual delivered
cost of goods per unit including freight, duties or other charges
advanced, if any, by Positive Response on behalf of
National Media.
<PAGE> 69
4.4 Adjusted Gross Profit Per Unit Defined. The "Adjusted Gross Profit
Per Unit" shall be the Adjusted Net Revenues per unit less the Invoiced
Cost Per Unit, freightin and applicable duties.
4.5 Purchase Orders, Shipment Terms and Payment Terms.
4.5.1 Purchase Orders. All Product purchase orders by National
Media shall be subject to and governed by this Agreement.
Additional terms appearing on the face or reverse side of a
National Media purchase order shall become part of the terms and
conditions of the purchase, and shall supplement this Agreement
until objected to by Positive Response. Upon objection, National
Media and Positive Response shall resolve their differences
respecting the additional terms. Terms which appear on the face
or reverse side of a National Media purchase order which differ
or alter the terms of this Agreement shall be of no force or
effect.
4.5.2 Shipment Terms. All Products will be shipped F.O.B. Origin
with freight collect or prepaid and added to the invoice as may
be specified on the individual purchase orders. If National Media
requests Positive Response to arrange the transportation of the
Products, Positive Response will ship in accordance with National
Media's instructions. In the absence of shipping instructions,
Positive Response will use its best efforts to select the least
expensive available carrier consistent with National Media's
purchase order and stated delivery requirements, but Positive
Response will not assume any liability for the shipment, nor
shall the carrier be construed as an agent of Positive Response.
4.5.3 Payment Terms For Domestic Markets. National Media shall
pay Positive Response or its supplier, as directed by Positive
Response, that portion of the Retail Product Purchase Price Per
Unit for the Products purchased equal to the Invoiced Cost Per
Unit for Products purchased within the United States for resale
within the United States or Canada, within ten (10) days after
receipt of the Products.
<PAGE> 70
4.5.4 Payment Terms for Foreign Markets. National Media shall
pay Positive Response or its supplier, as directed by Positive
Response, that portion of the Retail Product Purchase Price Per
Unit or Wholesale Product Purchase Price Per Unit, as the case
may be, for the Products purchased equal to the Invoiced Cost Per
Unit for Products purchased for resale outside of the United
States and Canada within thirty (30) days after receipt of the
Product. If the amount due for all unpaid purchase orders under
the previous sentence is expected to exceed $300,000 then not
less than ten (10) days before making the purchase order for
Product resulting in the credit exceeding $300,000, National
Media shall establish with a bank acceptable to Positive Response
and its supplier a confirmed, revolving irrevocable letter of
credit in favor of Positive Response or its supplier, in the
amount of that portion of the total invoiced price of the
Products equal to the cost of goods plus freight advanced, if
any, which will assure payment at the time of shipment for all
amounts due in excess of $300,000. The term of the letter of
credit shall be at least six (6) months. The amount of the letter
of credit shall be renewed, and the term extended to cover each
subsequent purchase order for Product where the amount of credit
is expected to exceed $300,000 at least ten (10) days prior to
the placing of a purchase order. The letter of credit must
<PAGE> 71
provide that partial shipments against the letter of credit shall
be permitted, and must also provide that payment of the invoiced
price shall be made when any of the following documents are
presented: (1) a provisional commercial invoice; (2) a clean
dock, ship or aircraft receipt, or received-for-shipment bill of
lading, or other transportation receipt; or (3) National Media's
certificate of inspection and acceptance.
4.5.5 Payment of Balance of Purchase Price. The
balance of the Product Purchase Price Per Unit shall be
the sum of:
4.5.5.1 The Wholesale Purchase Price Per
Unit computed under Paragraph 4.1.2 less:
4.5.5.1.1 Amounts previously paid
pursuant to Paragraph 4.5.4; plus, the
greater of:
4.5.5.2 The Retail Product Purchase Price
Per Unit computed under Paragraph 4.1.1 less:
4.5.5.2.1 Amounts previously paid pursuant to
Paragraphs 4.5.3 and 4.5.4;
and 4.5.5.2.2 A reserve for returns and
chargebacks equal to ten percent (10%) of the
difference between Paragraph
4.5.5.2 less Paragraph 4.5.5.2.1; or
4.5.5.3 The Adjusted Cost Per Unit less:
4.5.5.3.1 Amounts previously paid
pursuant to Paragraphs 4.5.3 and 4.5.4;
and
4.5.5.3.2 A reserve for returns
and chargebacks equal to ten percent
(10%) of the net difference between
Paragraph 4.5.5.3 less Paragraph
4.5.5.3.1
<PAGE> 72
and shall be paid by National Media within thirty (30) days from
the end of the month following the month in which the resale of
such product is made by National Media.
4.5.6 Sales and Payment Reports. Within thirty (30) days
following the end of each month (the "Accounting Period"),
National Media shall prepare and send to Positive Response a
Sales and Payment Report which shall include a payment of the
amount due under Paragraph 4.5.5 plus any reserve payment due
under this Paragraph 4.5.6 and shall set forth, at a minimum, the
following information on a Product by Product basis and, to the
extent readily available, on a regional cluster basis, for each
Product for the Accounting Period, and for all prior Accounting
Periods from the inception of National Media's sales of each of
said Product: (a) the number of units of each Product sold; (b)
the gross sales revenues received for each Product; (c) an
itemization by category of all amounts deducted from gross sales
revenues for each Product for purposes of determining the
Adjusted Net Revenues under Paragraph 4.2; (d) the calculations
used to determine the balance of the purchase price due by
National Media to Positive Response for each Product as of the
end of the Accounting Period under Paragraph 4.5.5, including;
(e) the ten percent (10%) reserve calculation for each Product;
(f) an accounting for the actual returns for each Product against
current monies then due for each Product; and (g) the Adjusted
Cost Per Unit for each Product. Actual returns and chargebacks
for each Product shall be charged against monies due Positive
Response for the month for that Product when the actual return or
chargeback is received. The ten percent (10%) reserve charge
against amounts due under Paragraphs 4.5.5.2.2 and 4.5.5.3.2
for sales made in a given month shall be credited back in full to
Positive Response in the second month following the month in
which the reserve was established. For example, if the reserve
<PAGE> 73
for returns and chargebacks for the month of February, 1995 is
$35,000, National Media shall pay or otherwise apply a credit of
$35,000 to Positive Response in the Sales and Payment Report due
for the month of April, 1995. Each Sales and Payment Report shall
be deemed to be certified by National Media that the Sales and
Payment Report (1) is a full, complete and accurate accounting of
all sales activity and revenues for the Accounting, (2) has been
prepared in accordance with the terms of this Agreement; and (3)
has been prepared on a basis consistent with prior Sales and
Payment Reports except where otherwise noted.
4.5.7 Foreign Taxes. If any tax is to be imposed by any foreign
country with respect to amounts payable by National Media to
Positive Response, such amounts due Positive Response shall be
computed and paid based upon the gross amount involved before
deduction of any amount for taxes; provided, however, National
Media may deduct from amounts due hereunder any such taxes
actually paid on behalf of Positive Response, provided clear
documentation of such payment is attached to the Sales and
Payment Report wherein such reduction is taken.
4.6 Overpayment by National Media. In the event of an
overpayment by National Media under Paragraph 2.3 or this
Paragraph 4, Positive Response shall promptly remit to
National Media the full amount of any overpayment made to
Positive Response (whether such overpayment results from
receipt of duplicate payments from National Media and its credit card
processing agents, credit chargebacks, or otherwise). In the event that
<PAGE> 74
Positive Response fails to remit any such overpayment within ten (10) days
after notice thereof from National Media, then the unpaid amount shall bear
interest in accordance with the provisions of Paragraph 4.7 hereof.
Moreover, the provisions of Paragraph 4.8 hereof (no right of offset)
shall apply with respect to the obligations of Positive Response to
promptly pay when due all such overpayments.
4.7 Late Payment. In the event National Media fails to pay Positive
Response for any amount payable under Paragraph 2.4, this Paragraph 4 or
Paragraph 11 when such amount is due, such unpaid amount shall bear
interest at ten percent (10%) per annum, compounded annually, until such
amount shall have been paid in full. Interest shall begin to accrue on
each such unpaid amount on the date when such amount first became due.
4.8 No Right of Offset. National Media may not delay or avoid in any
way the timely payment of any amount when and as due under any alleged or
actual right to offset, set off or take a deduction from the amount so due.
This Paragraph 4.8 is specifically intended to preclude National Media
from asserting against Positive Response any alleged or actual breach of
this Agreement by Positive Response or any other claim whatsoever (other
than a claim of prior payment or overpayment) as a defense against the
timely payment of all amounts due hereunder. Further, National Media and
Positive Response each waive any right to deposit any amount due hereunder
before any court pending final resolution of any claim which would support
its right to offset or set off any amounts due hereunder.
4.9 Material Breach. The failure by National Media to
pay any amount due under this Paragraph 4 when due or to
render a Sales and Payment Report when due shall be con-
sidered to be a material breach of this Agreement.
4.10 Example to Product Pricing and Payment. Attached hereto as
Exhibit "A-1" and incorporated herein as though fully set forth is an
example reflecting the computation and payment of: Example (1) the Retail
<PAGE> 75
Product Purchase Price for Domestic Sales (Paragraph 4.1.1.2); Example (2)
the Retail Product Purchase Price for Foreign Sales (Paragraph 4.1.1.1);
Example (3) the Wholesale Product Purchase Price (Paragraph 4.1.2); and
Example (4) the Adjusted Cost Floor (Paragraph 4.1.3).
5. SALE OF AMAZING DISCOVERIES SERVICE MARK.
5.1 Transfer of Service Mark. Concurrent with the execution of this
Agreement, National Media shall transfer all of its right, title and
interest in and to the Service Mark to Positive Response in accordance with
the "Assignment of United States Service Mark" attached hereto as Exhibit
"A" and incorporated herein by this reference. National Media shall execute
and deliver the Assignment of United States Service Mark upon execution of
this Agreement and National Media shall thereafter execute and deliver such
other documents and instruments as Positive Response may reasonably deem
necessary or appropriate to confirm the transfer of all of National Media's
right, title and interest in and to the Service Mark, together with all
attendant goodwill, to Positive Response.
5.1.1 Foreign Registrations and Pending Applications for the
Service Mark. To the best of its knowledge after reasonable
investigation, National Media represents and warrants to Positive
Response that the only foreign/non-United States registration or
pending applications of the Service Mark or any derivatives
thereof owned by National Media and any of its subsidiaries
including Quantum Marketing International, Inc. and Quantum
International, Ltd. are set forth in Exhibit "B", "List of
Foreign Registrations and Pending Applications For The Amazing
Discoveries Service Mark" ("Foreign Service Marks"), attached
hereto and incorporated herein by this reference. (Exhibit "B"
is a tentative list and will be followed up by National Media
with a complete list). Upon written request, National Media shall
<PAGE> 76
execute or shall cause its appropriate subsidiaries to execute
such documents and instruments as Positive Response may
reasonably deem necessary or appropriate to transfer and assign
the Foreign Service Marks to Positive Response or its designee.
5.2 Payment for Service Mark. Upon execution of this Agreement,
Positive Response shall pay National Media the sum of One Hundred Thousand
Dollars ($100,000.00) in consideration of the transfer of the Service
Mark. Positive Response shall also pay or reimburse National Media, as the
case may be, for any additional costs incurred by National Media in
prosecuting any Foreign Service Marks after the date of this Agreement.
5.3 Termination of Mark Agreement. The Agreement Respecting Ownership
and Use of Service Mark dated December 13, 1993 by and between National
Media and Positive Response, is hereby terminated and shall be of no
further force or effect. All rights and obligations by and between National
Media and Positive Response respecting the ownership and use of the
Service Mark shall be as set forth in this Agreement.
5.4 Ownership of Prior Amazing Discoveries Infomercials. All Amazing
Discoveries Infomercials produced by Positive Response prior to the date of
this Agreement ("Prior Amazing Discoveries Infomercials") shall be and
remain the property of National Media subject only to (a) any royalties due
Positive Response and (b) a right of first refusal to purchase said Prior
Amazing Discoveries Infomercials granted by National Media to Positive
Response pursuant to Paragraph 5.4.1. National Media may air such Prior
Amazing Discoveries Infomercials at such times as it deems appropriate
notwithstanding the termination of this Agreement under Paragraph 10
subject only to its duties to pay Positive Response any fees due Positive
Response pursuant to the Settlement Agreement and Full and Mutual Release
dated December 31, 1993 or the Production Agreement dated December 13,
1993. Notwithstanding the transfer of the Service Mark to Positive Response
hereunder, National Media may continue to use the Service Mark in
connection with airing of Prior Amazing Discoveries Infomercials and the
marketing of the goods advertised thereby.
<PAGE> 77
5.4.1 Positive Response's Right of First Refusal to Purchase
Prior Amazing Discoveries Infomercials. National Media shall not
enter into any transaction for the transfer of any or all of its
interests in any or all of the Prior Amazing Discoveries
Infomercials without first (a) notifying Positive Response in
writing of the terms of all pending bona fide third party offers
under consideration by National Media to acquire any or all of
National Media's interest in any or all of the Prior Amazing
Discoveries Infomercials, and (b) giving Positive Response the
opportunity to acquire the interests being transferred on terms
at least as favorable to National Media as those of the most
favorable third party offer then under consideration (the
"Right of First Refusal"). Third party consideration which cannot
be acquired on the open market shall be ignored and consideration
which can be acquired such as cash, stock or securities traded on
a national exchange and credit shall be considered as part of the
third party offer. Positive Response shall have a period of
thirty (30) days from the date of its receipt of such notice to
meet or exceed the most favorable third party offer then under
consideration by National Media. If Positive Response fails to
offer to meet or exceed such third party offer within such
thirty-day period, then National Media shall be free to accept
such third party offer and transfer its interest (including,
without limitation, its right to continue to use the Service Mark
in connection with airing such Prior Amazing Discoveries
Infomercial(s)) in accordance therewith; provided, however, that
such transfer must be made within sixty (60) days following the
thirty-day period set forth above and must be in writing and made
expressly subject to the continuation of the rights of Positive
<PAGE> 78
Response as set forth in the Settlement Agreement and Full and
Mutual Release, and Production Agreement, by and between National
Media and Positive Response, dated December 13, 1993.
5.4.2 Permitted Transfers. Notwithstanding the provisions of
Paragraph 5.4.1, National Media may transfer its interest in any
or all of the Prior Amazing Discoveries Infomercials (a) to a
wholly-owned subsidiary of National or Media Arts, (b) in
connection with the merger or consolidation of National or Media
Arts into or with another entity, or (c) in connection with the
sale or transfer of all or substantially all of the assets of
National Media, and in each such case Positive Response shall not
have the right to exercise its Right of First Refusal. Any such
transfer shall be in writing and made expressly subject to the
continuation of the rights of Positive Response as set forth in
this Agreement.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS BY POSITIVE RESPONSE.
6.1 United States Regulatory Compliance. Positive Response represents,
warrants and covenants to National Media that (a) all information
respecting a Product in an Infomercial will be accurate, to the best of
Positive Response's knowledge, in all material respects, and (b) all
Infomercials and Products will comply with all of the laws and regulations
of the United States and those of its states relating to the advertisement,
sale, use and effects of Products ("Applicable Law").
6.2 Proprietary Rights. Positive Response represents,
warrants and covenants to National Media with respect to
each Infomercial and Product under this Agreement as
follows:
<PAGE> 79
6.2.1 Power and Authority. Positive Response has
all necessary power and authority to grant to National
Media all of the rights and privileges granted pursuant
to this Agreement.
6.2.2 Intellectual Property. Positive Response
owns all right, title and interest in and to the
Intellectual Property.
6.2.3 No Infringement. Neither the granting of
the Marketing and Distribution Rights granted hereunder
nor the exercise thereof by National Media in accor-
dance with the terms of this Agreement will infringe or otherwise
violate the proprietary rights of any person or entity or result
in or create an obligation on the part of National Media to pay
any fees, commission, royalties, compensation or other amounts of
any kind to any third party other than amounts which become due
in the normal course of business including but not limited to
taxes, tariffs, duties and the like.
6.2.4 No Adverse Claims. Positive Response is not aware of any
claims, suits or demands made by any person or entity challenging
or otherwise questioning the validity of its rights or the rights
of its supplier in, to or with respect to the Products or the
Intellectual Property associated with the Product or the
Infomercial related thereto and shall disclose to National Media
all such claims which may hereafter arise.
6.3 Domestic Insurance. Positive Response represents, warrants and
covenants to National Media that for so long as National Media continues to
sell Product under this Agreement, Positive Response shall maintain (or
shall cause its supplier to maintain) product liability insurance for sales
in the United States and Canada in amounts and of a type customarily
maintained by manufacturers or suppliers similarly situated but, in any
event, not less than US $1,000,000 per occurrence. National Media shall be
named as an additional insured on all such product liability insurance
policies.
<PAGE> 80
7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS BY NATIONAL MEDIA.
7.1 Limited U.S. and Foreign Regulatory Compliance. National Media
represents, warrants and covenants to Positive Response that (a) its sales
of Product within the United States will comply with all of the laws and
regulations of the United States and those of its states relating to the
sale of goods by infomercial and (b) prior to its sale of Product outside
of the United States and Canada, it will investigate the laws of each
jurisdiction and advise Positive Response of any changes required to the
Infomercial or Product so that each will comply, in all material res-
pects, with the laws and regulations of those jurisdictions relating to the
advertisement, sale, use and effects of the Product and the Infomercial.
7.2 Air Time. In order to avoid overlap in the parties' airings of
Infomercials on national cable, National Media represents, warrants and
covenants to Positive Response that National Media will use reasonable
efforts to provide Positive Response with schedules of its planned domestic
airings of Infomercials as early as practicable in advance of such airings.
Notwithstanding the foregoing, the parties acknowledge that all such airing
schedules are subject to change based on changing marketing conditions, and
that all schedules provided under this Paragraph 7.2 shall therefore be
advisory only and shall not be binding on National Media.
<PAGE> 81
7.3 Intellectual Property Infringers. National Media represents,
warrants and covenants to Positive Response that National Media shall
promptly provide Positive Response written notice of any and all infringers
or possible infringers of the Intellectual Property of which National Media
or its subdistributors has knowledge and Positive Response may, in its
discretion and at its own expense, prosecute such infringers and
infringement action or assert any claim of infringement of the Intellectual
Property without National Media's prior approval. Each party shall have the
right (but shall not be required) to enforce Positive Response's rights in
the Intellectual Property against infringement thereof. If the party
seeking to enforce such rights (the "Enforcing Party") requests the other
party (the "Non-Enforcing Party") to join its efforts to enforce such
rights and the Non-Enforcing Party declines to do so, the Enforcing Party
shall have the right (but shall not be required) to enforce such rights in
the name of Positive Response. In such case, the Enforcing Party shall be
responsible for all costs of such enforcement efforts. The Enforcing Party
shall fully inform the Non-Enforcing Party of the status of any such
enforcement efforts, and the Non-Enforcing Party shall retain the right to
join in any such efforts at any time, after which the Non-Enforcing Party
shall share equally in all subsequent costs of such enforcement efforts.
The net proceeds (if any) of any settlement, judgment or award resulting
from such enforcement efforts shall be divided among the parties in direct
proportion to the expenses thereof borne by each.
<PAGE> 82
7.4 Indemnification For Acts of Subdistributors. National Media
represents, warrants and covenants to Positive Response that National Media
shall remain primarily liable to Positive Response for amounts due
hereunder notwithstanding National Media's appointment of one or more
subdistributors pursuant to Paragraph 1.1.5. National Media shall indemnify
Positive Response under Paragraph 9.2 for the acts of its subdistributors.
7.5 Customer List. With respect to sales of Product made by National
Media through Television Marketing in the United States and Canada,
National Media represents, warrants and covenants to Positive Response that
National Media shall provide Positive Response, on a nonexclusive basis,
with a Customer List for such sales on a royalty free basis. The Customer
List shall be supplemented monthly by Product and shall include the names,
addresses, and phone numbers of customers who purchase the Product.
7.6 Foreign Insurance. National Media represents, warrants and
covenants to Positive Response that for so long as National Media continues
to sell Product under this Agreement in countries other than United States
and Canada, National Media shall maintain product liability insurance for
sales in countries other than the United States and Canada in amounts not
less than US $1,000,000 per occurrence. Positive Response shall be named
as an additional insured on all such product liability insurance policies.
8. MUTUAL REPRESENTATIONS AND WARRANTIES.
8.1 Corporate Existence. National Media and Positive Response each
represents and warrants to the other that it is duly organized and validly
existing under the laws of its respective state of incorporation.
8.2 Power and Authorization. National Media and Positive Response each
represents and warrants to the other that it has the requisite power and
authority (corporate and otherwise) to enter into this Agreement and has
duly authorized by all necessary action the execution and delivery hereof
by the officers whose names are signed on its behalf below.
8.3 No Conflict. National Media and Positive Response each represents
and warrants to the other that its execution and delivery of this Agreement
and the performance of its obligations hereunder do not and will not
conflict with or result in a breach of or a default under its respective
organizational instruments or any agreement, instrument, order, law or
regulation applicable to it or by which it may be bound.
<PAGE> 83
8.4 Enforceability. National Media and Positive Response each
represents and warrants to the other that this Agreement has been duly and
validly executed and delivered by it and constitutes its valid and legally
binding obligation, enforceable in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium or other
laws of general application relating to or affecting the enforcement of
creditors' rights and except as enforcement is subject to general equitable
principles.
9. INDEMNIFICATION.
9.1 By Positive Response. Subject to Paragraph 9.1.1 hereof, Positive
Response shall defend, indemnify and hold harmless National Media and its
officers, directors, employees, agents, successors-in-interest and assigns
from and against any and all losses, obligations, deficiencies and
liabilities whatsoever, including, without limitation, all accounts, suits,
proceedings, claims, actions, causes of action, demands, interest,
penalties, assessments, damages, judgments, awards, settlements, costs,
reasonable attorneys' and accountants' fees and disbursements (collectively
"Liabilities") which any of them may incur or become obligated to pay
arising out of or resulting from (a) any alleged or actual noncompliance of
any Infomercial with any Applicable Law, or (b) the use, misuse or effect
(known or unknown) of any Product, without regard to whether such Liability
arises in connection with regulatory enforcement or consumer claims.
9.1.1 Exceptions. Positive Response shall have no duty under
Paragraph 9.1 hereof or otherwise to defend, indemnify or hold
harmless with respect to any Liabilities which (a) arise out of
or result from any fraud, deception or knowing misrepresentation
by or on behalf of National Media or any of its officers,
directors, employees or agents; (b) arise out of or result from
the material breach by National Media of any of its express
representations, warranties, covenants, obligations, agreements
or duties under this Agreement; or (c) are subject to National
Media's duty to defend, indemnify and hold harmless pursuant to
Paragraph 9.2.
<PAGE> 84
9.2 By National Media. Subject to Paragraph 9.2.1 hereof, National
Media shall defend, indemnify and hold harmless Positive Response and its
officers, directors, employees, agents, successors-in-interest and assigns
from and against any and all Liabilities which any of them may incur or
become obligated to pay arising out of or resulting from (a) the
performance by National Media (or any of its officers, directors, employees
or agents) of National Media's duties and obligations under this Agreement,
or (b) the breach by National Media of any of its representation,
warranties, covenants, obligations, agreements or duties under this
Agreement.
9.2.1 Exceptions. National Media shall have no duty under
Paragraph 9.2 hereof or otherwise to defend, indemnify or hold
harmless with respect to any Liabilities which (a) arising out of
or result from any fraud, deception or knowing misrepresentation
by or on behalf of Positive Response or any of its officers,
directors, employees or agents; or (b) arise out of or result
from the material breach by Positive Response of any of its
express representations, warranties, covenants, obligations,
agreements or duties under this Agreement; or (c) are subject to
Positive Response's duty to defend, indemnify and hold harmless
pursuant to Paragraph 9.1 hereof.
<PAGE> 85
9.3 Procedure. Promptly after learning of the occurrence of any event
which may give rise to its rights under the provisions of this Paragraph 9,
any person seeking to enforce such rights (a "Claiming Person") shall give
written notice of such matter to the party against whom enforcement of such
rights is sought (the "Indemnifying Party"). The Claiming Person shall
cooperate with the Indemnifying Party in the negotiation, compromise and
defense of any such matter. The Indemnifying Party shall be in charge of
and control such negotiations, compromise and defense, provided that the
Indemnifying Party shall promptly notify the Claiming Person of all
developments in the matter. In no event shall the Claiming Person
compromise or settle any such matter without the prior consent of the
Indemnifying Party, which shall not be bound by any such compromise or
settlement absent its prior consent (which consent shall not be
unreasonably withheld or delayed). The Claiming Person shall retain the
right to be represented, at its expense, by counsel of its choosing.
9.4 Disclosure of Liabilities. So long as this Agreement shall remain
in effect, National Media and Positive Response shall each be under a
continuing duty to fully and promptly to disclose to the other all
Liabilities subject to any duty of indemnification hereunder which shall at
any time hereafter be threatened, asserted or entered against either party
to this Agreement by any third party. National Media and Positive Response
each further agrees to provide the other with copies of all documents
relating to all such Liabilities.
10. TERM AND TERMINATION.
10.1 Term. The initial term of this Agreement shall begin on the date
hereof and shall continue for a period ending on December 31, 1997
("Initial Term"). Thereafter, the term shall continue for successive annual
one-year periods unless either party has given the other written notice of
its election to terminate this Agreement ("Renewal Period"). This Agreement
<PAGE> 86
may not be terminated without cause during the Initial Term and may only be
terminated during the Initial Term pursuant to Paragraph 10.3. This
Agreement may be terminated without cause at any time during any Renewal
Period provided written notice of termination is given to the other party
at least ninety (90) days prior to the effective date of such termination.
The Initial Term and each Renewal Period, if any, are referred to herein as
the Term. The parties understand that this Agreement contemplates the
absolute ability of either party to terminate this Agreement during any
Renewal Period as stated herein without the necessity of either party
having any cause for such termination. During any of said Renewal Periods,
National Media understands that Positive Response retains the right to
terminate this Agreement in its sole discretion and Positive Response
understands that National Media may also terminate the Agreement in its
sole discretion.
10.2 Rights and Obligations Upon Termination During Renewal Period.
Upon the effective date of a termination of this Agreement during any
Renewal Period in accordance with Paragraph 10.1 ("Elective Termination"),
National Media's Marketing and Distribution Rights shall cease as to
Infomercials produced by Positive Response after the Elective Termination
except with respect to Amazing Discoveries Infomercials as set forth in
Paragraph 10.2.1. With respect to Infomercials and Products being
distributed by National Media at the time of Elective Termination, National
<PAGE> 87
Media shall be entitled to continue to distribute each such Product until
such time as National Media's gross revenues from the sale of a Product
falls below $10,000 per month for three (3) consecutive months at which
time National Media's Marketing and Distribution Rights to said Product
shall cease.
10.2.1 Right of First Refusal For Marketing and Distribution
Rights to Amazing Discoveries Infomercials. National Media shall
have a right of first refusal to obtain the Marketing and
Distribution Rights to Amazing Discoveries Infomercials produced
after an Elective Termination of this Agreement ("Future Amazing
Discoveries Infomercials") on the conditions set forth in this
Paragraph 10.2.1. Positive Response shall not enter into an
agreement with an unrelated third party for the distribution and
marketing of Future Amazing Discoveries Infomercials without
first (a) notifying National Media in writing of the terms of all
pending bona fide third party offers under consideration by
Positive Response to market and distribute Future Amazing
Discoveries Infomercials, and (b) giving National Media the
opportunity to offer to market and distribute Future Amazing
Discoveries Infomercials on terms at least as favorable to
Positive Response as those of the most favorable third party
offer then under consideration ("Right of First Refusal").
National Media shall have a period of thirty (30) days from the
date of its receipt of such notice to meet or exceed the most
favorable third party offer then under consideration by Positive
Response. If National Media fails to offer to meet or exceed all
of the terms of such third party offer within such thirty-day
<PAGE> 88
period, then Positive Response shall be free to accept such third
party offer to market and distribute Future Amazing Discoveries
Infomercials; provided, however, that such agreement must be made
within sixty (60) days following the thirty-day period set forth
above and must be in writing.
10.3 Events Permitting Termination. Without regard to the Term set
forth in Paragraph 10.1, either party may terminate this Agreement in whole
or in part upon thirty (30) days written notice thereof to the other party
upon the material breach by the other party of any of its representa-
tions, warranties, covenants or agreements contained in this Agreement.
Upon the expiration of such notice period, this Agreement shall terminate
(in whole or in part, as the case may be) without the need for further
action by either party; provided, however, that if the breach upon which
such notice of termination is based shall have been fully cured to the
reasonable satisfaction of the non-breaching party within such thirty-day
period, then such notice of termination shall be deemed rescinded, and this
Agreement shall be deemed reinstated and in full force and effect. Such
right of termination shall be in addition to such other rights and remedies
as the terminating party may have under applicable law. With respect to
Infomercials and Products being distributed by National Media on the
effective date of a termination of this Agreement in accordance with this
Paragraph 10.3, National Media shall be entitled to continue to market each
such Product for a period of one hundred eighty (180) days following the
effective date of said termination. During said one hundred eighty (180)
day period, National Media shall have the right to market its then
remaining inventory of Products and at the end of such one hundred eighty
(180) day period, National Media's Marketing and Distribution Rights to all
Products and Infomercials shall cease.
10.4 Rights and Obligations When Marketing and Distribution Rights
Cease. At such time as National Media's Marketing and Distribution Rights
cease under Paragraph 10.2 or Paragraph 10.3, National Media shall have no
<PAGE> 89
further Marketing and Distribution Rights. National Media shall promptly
pay all amounts owing to Positive Response including any such amounts which
might have become due at some future date because of deferred payment or
credit agreement. At such time as National Media's Marketing and
Distribution Rights cease, National Media shall (a) immediately discontinue
the use of the Intellectual Property and thereafter shall no longer use or
have the right to use the Intellectual Property or any variation or
simulation thereof, or any words or marks similar thereto or to directly or
indirectly, manufacture, market or sell the Products with or without the
Intellectual Property; (b) National Media shall promptly and diligently
deliver all master and duplicate videotapes of Infomercials and Deriva-
tive Works; and (c) upon reasonable request, promptly execute and deliver
to Positive Response documents in form and substance satisfactory to
Positive Response assigning to Positive Response all of National Media's
rights, title and interest, if any and into any Intellectual Property.
10.5 Survival of Necessary Rights Upon Termination. Each Paragraph of
this Agreement which is necessary for a party to enforce its rights
immediately prior to or as a consequence of a termination of this Agreement
under Paragraph 10.2 or Paragraph 10.3 shall survive any termination of
this Agreement.
11. RECORD KEEPING; AUDIT RIGHTS.
11.1 Generally. During the term of this Agreement and for three (3)
years thereafter, (a) National Media shall maintain and retain complete and
accurate records of all sales of Product arising from the exercise of its
Marketing and Distribution Rights, and (b) Positive Response shall maintain
and retain complete and accurate records of all Infomercial Production
Costs. During such period, all such records shall be made available for
inspection by National Media or Positive Response, as the case may be (or
its respective designee) at the inspecting party's expense during normal
<PAGE> 90
business hours upon reasonable prior written notice (which in any event
shall not be less than ten (10) business days). National Media shall
arrange for the inspection of foreign sales records at its United States
corporate headquarters.
11.2 Audit Rights. National Media or Positive Response, as the case
may be, may cause such records to be audited at its expense upon twenty
(20) business days prior written notice to the other; provided, however,
that if any such audit shall show either (a) underpayment of amounts due
hereunder from National Media to Positive Response (excluding interest), or
(b) overpayment of Infomercial Production Costs or Amazing Discoveries set
and graphics cost (excluding interest) to Positive Response by National
Media, and such underpayment or overpayment exceeds by more than three
percent (3%) of the total amount actually due, then the party whose records
is under review shall bear the actual costs of such audit.
12. INDEPENDENT CONTRACTOR.
No party nor any of its officers, employees, agents or representatives
is an employee or agent of any other party for any purpose whatsoever.
Rather, each party is and shall at all times remain an independent
contractor. This Agreement does not and shall not be construed to create
any association, partnership or joint venture between the parties. Each
party shall have sole control of the manner and means of performing its
respective obligations under this Agreement. Except as otherwise
specifically provided herein, each party shall be responsible for all
expenses and disbursements which it incurs in connection with this
Agreement. No party has, nor shall it hold itself out as having, any right,
power or authority to create any contract or obligation either express or
implied, on behalf of, in the name of, or binding upon any other party,
unless such other party shall consent thereto in writing. Each party shall
<PAGE> 91
have the right to appoint and shall be solely responsible for its own sales
force, employees, agents and representatives, who shall be at such party's
own risk, expense and supervision and shall not have any claim against any
other party for compensation or reimbursement.
13. INJUNCTIVE RELIEF.
Each party acknowledges that a breach of any of the covenants
contained in Paragraph 1.2.1 of this Agreement by National Media or
National Media continuing to exercise Marketing and Distribution Rights
after those rights have ceased under Paragraph 10 will result in
irreparable and continuing damage to Positive Response for which there will
be no adequate remedy at law. Accordingly, in the event of any such breach,
Positive Response shall be entitled to injunctive relief and/or an order
for specific performance with respect to such breach. National Media shall
not oppose such relief on the grounds that there is an adequate remedy at
law, and such right shall be cumulative and in addition to any other
remedies at law or in equity (including monetary damages) which Positive
Response may have.
14. MISCELLANEOUS.
14.1 Notices. All notices, requests, instructions, consents and other
communications to be given pursuant to this Agreement shall be in writing
and shall be deemed received (a) on the same day if delivered in person, by
same day courier or by telegraph, telex or facsimile transmission, (b) on
the next day if delivered by overnight mail or courier, or (c) on the date
indicated on the return receipt, or if there is no such receipt, on the
<PAGE> 92
third calendar day (excluding Sundays) if delivered by certified or
registered mail, postage prepaid, to the party for whom intended to the
following addresses:
If to National Media:
---------------------
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Attention: Mark P. Hershhorn, President
Fax: (215) 772-5013
If to Positive Response:
------------------------
Positive Response Television, Inc.
14724 Ventura Boulevard, Suite 600
Sherman Oaks, CA 91502
Attention: Stephen A. Weber, President
Fax: (818) 380-6966
Any party may by written notice given to the other in accordance with this
Agreement change the address to which notices to such party are to be
delivered.
14.2 Entire Agreement. Except for (a) the Settlement Agreement and
Full and Mutual Release and (b) the Production Agreement, each dated
December 13, 1993, this Agreement contains the entire understanding of the
parties with respect to the subject matter hereof and supersedes in their
entirety all prior agreements and understandings between the parties with
respect to the subject matter hereof, whether oral or written which shall
have no further force or effect. The terms of this Agreement as set forth
in the numbered paragraphs hereof are contractual and not mere recitals.
Each party has executed this Agreement without reliance upon any promise,
representation or warranty other than those expressly set forth herein.
Each party acknowledges that (a) it has carefully read this Agreement; (b)
it has had the assistance of legal counsel of its choosing (and such other
professionals and advisors as it has deemed necessary) in the review and
execution hereof; (c) the meaning and effect of the various terms and
<PAGE> 93
provisions hereof have ben fully explained to it by such counsel; (d) it
has conducted such investigation, review and analysis as it has deemed
necessary to understand the provisions of this Agreement and the
transactions contemplated hereby; and (e) it has executed this Agreement of
its own free will.
14.3 Amendment. No amendment of this Agreement shall be effective
unless embodied in a written instrument executed by all of the parties.
14.4 Waiver. Any waiver by any party of any breach or default of any
provision of this Agreement shall not constitute a waiver of such provision
or any subsequent breach or default thereof.
14.5 Binding Effect. This Agreement shall be binding
on and inure to the benefit of the parties hereto and their
respective heirs, representatives, successors and assigns.
14.6 Assignability. No party hereto may assign this Agreement or any
rights or duties hereunder to any person or entity without the prior
written consent of the other party, and any attempted assignment without
such consent shall be void. Notwithstanding the foregoing, it is understood
and agreed that National Media may exercise its rights and perform its
obligations hereunder, in whole or in part, by itself or through a
subdistributor under Paragraph 1.1.5 including any one or more of its
existing or future wholly-owned subsidiary corporations, including, without
limitation, Media Arts, Quantum Marketing International, Inc. and Quantum
International, Ltd.; provided, however, that in such case (a) such
subsidiary shall have agreed in writing to be bound by all of the terms and
conditions of this Agreement; and (b) National Media shall remain primarily
liable for all of its obligations under this Agreement, notwithstanding the
exercise of any of its rights or duties by such subsidiary or
subdistributor hereunder.
<PAGE> 94
14.7 Governing Law; Jurisdiction.
14.7.1 Governing Law. Except to the extent that
federal law is required under the Federal Arbitration
Act by Paragraph 14.7.2, this Agreement shall be
governed by and construed in accordance with the
internal laws of the State of California without regard
to conflict of laws principles.
14.7.2 Disputes. Any dispute, claim or controversy of any
kind, whether in contract or in tort, statutory or common law,
legal or equitable, now existing or hereafter existing between
the parties in any way arising out of, pertaining to or in
<PAGE> 95
connection with: (a) this Agreement or any related agreements,
documents or instruments, (b) all past and present agreements of
any kind, (c) any incidents, omissions, acts, practices or
occurrences, (d) any aspect of the past or present relationship
between the parties, (e) the Settlement Agreement and Full and
Mutual Release by and between the parties dated December 13, 1993
(Section 9.3 of said agreement being deleted and this Paragraph
14.7.2 being inserted in lieu thereof), or (f) the Production
Agreement by and between the parties dated December 13, 1993
(Section 15.7(b) of said agreement being deleted and this
Paragraph 14.7.2 being inserted in lieu thereof) shall be
resolved exclusively through arbitration administered by Judicial
Arbitration & Mediation Services, Inc.-Endispute ("JAMS"). It
is the intention of the parties that all future disputes
between the parties, if any, be decided by arbitration as set
forth in this Paragraph 14.7.2 whether or not such dispute is
related to or arises out of this Agreement.
14.7.2.1 Interstate Commerce. The parties hereto
acknowledge that this Agreement, the actions contemplated by
this Agreement and the prior agreements and relationships
between the parties involve interstate commerce.
<PAGE> 96
14.7.2.2 Exclusive Jurisdiction and Venue. The parties
consent to the personal jurisdiction and venue of the United
States District Court for the Central District of California
in Los Angeles, California and the Los Angeles Superior
Court. National Media specifically recognizes and
acknowledges the waiver of its rights to transfer the
arbitration based upon forum non conveniens or any similar
argument.
14.7.2.3 Arbitration. Any and all disputes, claims or
controversies shall be resolved by final and binding
arbitration before a judicial panelist of JAMS
("Arbitrator"). The hearing shall be conducted at a
location determined by the Arbitrator in Los Angeles,
California and shall be administered by the Arbitrator in
accordance with JAMS then existing Rules of Practice &
Procedure.
14.7.2.4 Enforcement of Arbitration Award. Any party to the
arbitration may apply to (a) the United States District
Court for the Central District of California for an order
confirming the award pursuant to 9 U.S.C. Section 9, the
Federal Arbitration Act or (b) the Los Angeles Superior
Court. The parties agree that the United States District
Court for the Central District of California shall have
jurisdiction over the parties hereto for entering judgment
on such award. Such award shall include any legal and/or
equitable relief. Further, an award may include any
provisional remedy, including, but not limited to,
injunctive relief and prejudgment writs of attachment.
<PAGE> 97
14.7.2.5 Failure to Arbitrate Under Agreement. A party
aggrieved by the failure, neglect or refusal of another to
arbitrate under this Agreement may petition the United
States District Court for the Central District of California
pursuant to 9 U.S.C. Section 4 for an order directing that
such arbitration proceed in the manner provided herein.
14.7.2.6 WAIVER OF JURY TRIAL. THE PARTIES EXPRESSLY WAIVE
ANY RIGHTS TO A TRIAL BY A JURY.
14.7.2.7 Waiver of Right to Appeal. The parties expressly
waive the right to appeal the judgment upon the arbitration
award.
14.7.2.8 Nonexistence of JAMS. The parties agree that, if
for any reason, JAMS is no longer in existence at the time
any dispute arises which is to be governed by this Paragraph
14.7.2, the parties shall nevertheless conduct mediation and
arbitration in accordance with the JAMS Rules of Practice &
Procedure for Arbitration 1994 Edition, a copy of which is
attached hereto as Exhibit "C" and incorporated herein by
reference, before a retired judge selected by the parties.
If the parties cannot agree on a retired judge to act as
mediator or arbitrator, then each party shall designate a
retired judge and the retired judges so designated shall
select another retired judge to act as mediator or
arbitrator, who shall not be selected from among those
retired judges selected by the parties.
14.8 Severability. All of the provisions of this Agreement are
intended to be distinct and severable. If any provision of this Agreement
is or is declared to be invalid, illegal, void or unenforceable in any
jurisdiction for any reason whatsoever, then such provision shall be deemed
stricken and ineffective in such jurisdiction only to the extent of such
invalidity, illegality, voidness or unenforceability, and the remaining
terms and provisions of this Settlement Agreement shall continue in full
force and effect. Sun invalidity, illegality, voidness or unenforce-
ability shall not affect either the balance of such provision, to the
<PAGE> 98
extent it is not invalid or unenforceable, or the remaining provisions
hereof, nor render invalid, illegal, void or unenforceable such provision
in any other jurisdiction. If any provision of this Agreement shall be
deemed invalid due to its scope or breadth, such provision shall be deemed
valid to the extent permitted by applicable law.
14.9 Further Actions. Each party shall diligently and promptly execute
such additional instruments and take such further actions as may be
reasonably requested by any other party in order to carry out the intents
and purposes of this Agreement.
14.10 Time of the Essence. Time is of the essence of
this Agreement.
14.11 Attorneys' Fees and Costs. In the event of litigation between
the parties to enforce any rights hereunder, the prevailing party shall be
entitled to recover, as an element of its costs and not as damages, and in
addition to such other relief as may be awarded, the reasonable attorneys'
fees, expenses and costs which it incurred in such litigation. Such fees,
expenses and costs shall include, without limitation, those incurred (a) in
respect of investigation of claims and defenses, (b) in appellate
proceedings, if any, and (c) in proceedings (whether brought in any case
under the Bankruptcy Code or otherwise) to enforce or collect any judgment.
For purposes of this Paragraph 14.11, the "prevailing party" shall be the
party which is entitled to recover costs incurred in connection with the
<PAGE> 99
proceeding, whether or not such proceeding proceeds to final judgment.
Attorneys' fees awarded by any court or tribunal shall be counted in
calculating the amount of a judgment for purposes of determining whether a
party is the prevailing party for purposes of this Paragraph 14.11.
14.12 Force Majeure. Neither National Media nor Positive Response
shall be responsible for any delay or failure in performance of any part of
this Agreement to the extent that such delay or failure is caused by fire,
flood explosion, war, strike, embargo, government requirement, civil or
military authority, act of God, inability to obtain raw materials or
supplies of Product(s), acts or omissions of carriers and other similar
causes beyond its control.
14.13 Headings. The headings of paragraphs and subparagraphs have been
included for reference and convenience only, shall not define, limit or
describe the scope, meaning or intent of any provision of this Agreement,
and shall not be considered in interpreting this Agreement.
14.14 Counterparts. This Agreement may be executed in one or more
counterpart, each of which shall be deemed to be an original, and all of
which together shall constitute one and the same Agreement. This Agreement
may be executed and delivered via electronic facsimile transmission with
the same force and effect as if it were executed and delivered by the
parties simultaneously in the presence of one another.
<PAGE> 100
14.15 Interpretation and Construction. This Agreement has been fully
and freely negotiated by all of the parties hereto, shall be considered as
having been drafted jointly by all of the parties hereto, and shall not be
interpreted or construed against any party on account of its participa-
tion in the drafting hereof or otherwise.
14.16 License of Intellectual Property Under Bankruptcy Code. Provided
National Media is not then in material breach under this Agreement, this
Agreement shall be deemed to be a license of rights to intellectual
property by Positive Response to National Media as licensee as to which
National Media may make an election under Section 365(n) of the Bankruptcy
Code, 11 U.S.C. Section 365(n).
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed in duplicate original on the date first written above.
ATTEST: NATIONAL MEDIA CORPORATION
By: ___________________ By: ____________________
Marshall Fleisher Mark P. Hershhorn
Vice President President
ATTEST: MEDIA ARTS INTERNATIONAL, LTD.
By: ___________________ By: ____________________
Marshall Fleisher Mark P. Hershhorn
Vice President President
ATTEST: POSITIVE RESPONSE TELEVISION,
INC.
By: ___________________ By: ____________________
Stephen A. Weber Michael S. Levey
President Chairman of the Board
<PAGE> 101
EXHIBIT LIST
Ex. No. Description
------ ------------
A Assignment of United States Service Mark
A-1 Example to Product Pricing and Payment
B List of Foreign Registrations and Pending
Applications For The Amazing Discoveries Service
Mark
C JAMS Rules of Practice & Procedure for Arbitration
1994 Edition
<PAGE> 102
EXHIBITS
________
Exhibits have been intentionally excluded.
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