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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 (I.R.S. Employer
of incorporation 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Stock, par value $ .01 per share New York Stock Exchange
Philadelphia Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
Registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant as of May 31, 1995 was approximately
$143,567,638*.
There were 14,241,332 issued and outstanding shares of the Registrant's
common stock, par value $.01 per share, at May 31, 1995. In addition, there
were 686,710 shares of treasury stock as of such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement for its 1995 annual
meeting of stockholders are incorporated by reference into Part III and IV.
*Calculated by excluding all shares that may be deemed to be beneficially
owned by executive officers and directors of the Registrant, without
conceding that all such persons are "affiliates" of the Registrant for
purposes of the federal securities laws, but including the shares
beneficially owned by others listed on the "Security Ownership of Certain
Beneficial Owners" table included in Registrant's proxy statement.
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PART I
ITEM 1: BUSINESS
GENERAL
National Media Corporation ("the Company" or "National Media") is one of
the leaders in the use of direct response transactional television
programming, known as infomercials, to sell consumer products. The Company is
engaged in this form of direct marketing of consumer products in the United
States and Canada through its domestic subsidiary, Media Arts International,
and overseas through the programming of its wholly-owned subsidiary, Quantum
International Ltd. ("Quantum") which reaches over 40 countries in Europe, the
Middle East, South America and the Pacific Rim. Through its programming, the
Company introduced 13 new products in fiscal 1995, 8 of which were
successfully introduced and are currently airing. The Company plans to
introduce approximately 25 new products worldwide during fiscal 1996. In
addition to these products, the Company markets products of independent third
parties who provide programs to National Media. The Company currently has
working relationships with three of the industry's leading infomercial
production companies (Positive Response Television, Inc., Guthy-Renker
Corporation and Inphomation, Inc.) to air their shows and distribute their
products in the international marketplace. To capitalize on the consumer
awareness and familiarity that National Media's infomercials create for its
products, the Company, along with its strategic partners, also markets and
sells its products through non-infomercial distribution channels, including
retail stores and television home shopping programs.
Infomercials are advertisements for consumer products, typically 30
minutes in length, which provide in-depth demonstrations and explanations of
a product. In some cases, advertisements ranging from 1 to 2 minutes may be
used. The Company attempts to present the product in an entertaining and
informative fashion utilizing a variety of program formats, including talk
shows and live paid studio audience programs. The product is made available
for purchase by viewers through toll-free telephone numbers in the United
States and Canada and through pay telephone numbers in other countries. These
telephone numbers are provided on-screen during the broadcast.
The Company's product line is concentrated in eight principal categories:
health and fitness, automotive, kitchen and household goods, beauty and
personal care, outdoor, music, self-improvement and crafts. For the majority
of the products marketed by National Media, the Company manages all phases of
the marketing of a product in both the United States and international
markets, including the selection of the product, the manufacture of the
product by third parties, the production and airing of the infomercial, and
the delivery of the product to the customer. Orders are taken by independent
telemarketing companies and are electronically transmitted to the Company's
fulfillment centers where the product is packaged and shipped. The Company
has an in-house customer service unit in North America and provides customer
service for its international operations through independent fulfillment
centers.
In general, the Company airs each infomercial domestically for four to ten
months or more, after which the potential exists for additional international
airings which may range from twelve to twenty-four months. The Company's
recent entrance into the Asian market provides it with an opportunity to
further extend an infomercial's airing life. The Company's marketing efforts
frequently include a second phase of distribution through non-infomercial
marketing programs. Non-infomercial distribution includes sales through
television home shopping programs; direct mail marketing through catalogs,
credit card statement inserts, magazines and newspapers; and retail
distribution.
THE INFOMERCIAL INDUSTRY
The infomercial industry developed after the Federal Communications
Commission ("FCC") rescinded its limitations on advertising minutes per hour
in 1984, thereby permitting 30-minute blocks of television advertising. The
deregulation of the cable television industry and the resulting proliferation
of cable channels led to the growth of the infomercial industry by increasing
the available media time in the United States, particularly during the hours
between midnight and 9:00 a.m. Producers of infomercials, combining direct
response marketing and retailing in a television talk show format, took
advantage of the new opportunity to purchase the "dark time" from cable
channels. After the initial growth period, the industry consolidated through
the end of the 1980s. At the same time, increased attention from the Federal
Trade Commission ("FTC") and consumer protection agencies led to increased
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regulation of the reliability of the advertisements. By the early 1990s,
infomercials, and home shopping cable channels, had become more accepted by
television viewers as a forum for obtaining information about products and
services and making purchases from home.
COMPANY HISTORY
National Media is the successor to National Paragon Corporation, a company
engaged in the needlecraft business for more than 60 years, which filed for
bankruptcy in 1985. Emerging from bankruptcy in 1986, the Company acquired an
infomercial business, Media Arts International ("Media Arts"), as part of its
plan of reorganization. In September 1990, the Company was approved for
listing on the New York Stock Exchange. In April 1991, the Company sold
National Syndications, Inc. ("NSI"), its specialty catalog/mail order
business, and focused on developing its infomercial business. In June 1991,
the Company acquired out of bankruptcy the business and assets of Quantum
Marketing International ("Old Quantum"), a competitor in the infomercial
business, which had a European operation. Since the beginning of fiscal 1992,
the Company implemented a strategy involving the recruitment of management
personnel with experience in the direct-response industry, the improvement of
its product development and product sourcing practices, the acquisition of
in-house product fulfillment and customer service capabilities, the expansion
of current operations into the international marketplace and the development
of other distribution outlets particularly through its strategic partners and
retail stores.
PRODUCT AND INFOMERCIAL DEVELOPMENT
The Company maintains a product development department which researches
and develops new products that may be suited for direct response television
marketing and subsequent marketing through non-infomercial distribution
channels. Typically these products are selected based on their suitability
for television demonstration and explanation.
The Company's product development staff, consisting of nine employees,
develops new product ideas from a variety of sources, including inventors,
suppliers, trade shows, industry conferences, strategic alliances with
manufacturing and consumer product companies and the Company's ongoing review
of new developments within its eight targeted product categories. As a result
of the Company's prominence in the infomercial industry, National Media
receives unsolicited new product proposals from independent third parties.
The Company currently reviews in excess of 100 new product proposals per
month. In early calendar year 1994, the Company became a target of an
acquisition bid by ValueVision International, Inc. ("ValueVision") which
ultimately was never consummated. Management's and the Company's attention
was directed from the production of infomercials. As a result of the
foregoing and the Company's limited cash position, only 13 new products were
introduced on a global basis during fiscal year 1995. The Company,
revitalized by its capital infusion and improved operating results, expects
to bring approximately 25 new products to market worldwide during fiscal
1996.
The evaluation phase of the product development process generally takes
approximately two to eight weeks, depending upon the product being reviewed.
During this phase, the product development department evaluates the
marketability of the product, determines whether adequate and timely supplies
of the product can be obtained and analyzes whether the projected
profitability of the product satisfies the Company's criteria. If the Company
determines that a product idea that is owned by a third party is worth
pursuing, the Company generally seeks to license exclusive worldwide rights
to the product. With regard to certain of its products, however, the Company
does not possess exclusive worldwide rights for all marketing venues. See --
"Licensing Arrangements."
Once the Company decides to bring a product to market, it arranges for the
production of a 30-minute infomercial for the product at a cost that
generally ranges from $100,000 to $200,000. In addition, producers, hosts and
spokespersons generally receive fees based upon the success of the product.
The Company's infomercials are produced by independent production companies
with experience in the Company's product categories in the United States and
other countries. The production of an infomercial generally takes
approximately eight to sixteen weeks to complete. The program is then tested
in specific time slots on both national cable networks and targeted broadcast
stations. If a show achieves successful results in the market test, it is
aired on a rapidly increasing schedule on cable networks and broadcast
stations. During this initial phase, the Company may modify the creative
presentation of the infomercial and the retail pricing, depending upon viewer
response. After the initial marketing phase, the Company may adjust the
frequency of a program's airings to achieve a schedule of programs that it
believes maximizes the profitability of all of the Company's products being
marketed through infomercial programming at a given time.
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PRODUCTS
National Media markets consumer products in a variety of categories,
including automotive, beauty and personal care, kitchen and household, health
and fitness, outdoor, music, crafts and self-improvement. In fiscal 1995,
National Media offered approximately 85 products to consumers in the global
marketplace. Of these products, 46 were products sold through National
Media's infomercials and 39 were products sold through infomercials produced
by other companies. Of the 46 products sold through National Media's
infomercials, 13 were products first introduced by National Media in fiscal
1995 and 33 were products that were previously offered by National Media. The
following table sets forth examples of some of the products marketed and sold
through the Company's infomercials, their respective product categories and
the fiscal year in which each infomercial was first aired.
<TABLE>
<CAPTION>
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Product Category Product (Fiscal Year First Aired)
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<S> <C>
Automotive Touchless Car Care (1995) Autofom car polish (1993) ColorCote 2000
colored car polish (1992) Auri car polish (1990)
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Beauty & Personal Care Jet Aire Professional Hair Styling System (1993) Frankie Avalon's
Zero Pain topical pain reliever (1993) Sudden Youth skin care system
(1992)
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Kitchen & Household Goo Gone (1995) Royal Diamond Cookware (1994) Sterling Spring water
filter (1993) Juice Tiger fruit and vegetable juicer (1992) American
Harvest Jet Stream Oven (1992) Deni Turbo Sealer food packager (1992)
Astonish all-purpose cleaner (1991)
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Health & Fitness E-Force (1995) Powerwalk Plus (1994) Bruce Jenner's Minimax Exercise
System (1994) Bruce Jenner's Stairclimber Plus stair climber (1993)
Tony Little's Target Training System video tapes (1993) Bruce Jenner's
Super Step stair climber (1992)
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Outdoor Medicus golf club (1993) Kangaroo Lure fishing lure (1993) Flying
Lure fishing lure (1992)
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Crafts Bedazzler Plus bead punch kit (1993) Purrfect Punch embroidery system
(1992)
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Self-improvement Alphanetics reading improvement materials (1992) The Human Calculator
mathematics teaching materials (1991)
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Music Alltime Classics (1995) Hits of the 60's (1995) Hits of the 70's
(1995) Rock and Roll Days (1995) Shades of Country (1995)
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The Company's five most successful products in each of the fiscal years
ended March 31, 1995, 1994, and 1993 accounted for 54%, 67% and 47%,
respectively, of the Company's net revenues for such periods. The Company
continues to be dependent, in part, upon its ability to introduce and sell
new products. The Company's expansion into international markets has reduced
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its dependency on new shows by giving new life to programs that comprise the
Company's show library. Historically, the majority of the Company's products
generated their most significant domestic revenue in their introductory year,
while foreign revenues have tended to be generated more evenly over a longer
period.
LICENSING ARRANGEMENTS
National Media obtains the rights to new products generated by third
parties through various licensing arrangements generally involving royalties
related to the success of the product. The amount of the royalty is
negotiated and generally depends upon the level of involvement of the third
party in the development and marketing of the product. The Company generally
pays the smallest royalty to a third party that only provides a product
concept. A somewhat higher royalty is paid to a third party that has
developed and manufactured a product. National Media also obtains the rights
to sell products which have already been developed, manufactured and marketed
through infomercials produced by other companies. In such cases, the Company
generally pays a higher royalty rate to the third party because of the
relatively small amount of the Company's resources required to develop the
product. The Company generally seeks exclusive worldwide rights to all
products, which includes global infomercial and non-infomercial rights. In
some cases, the Company does not obtain all marketing and distribution
rights, but seeks to receive a royalty on sales made by the licensor pursuant
to the rights retained by the licensor.
MEDIA ACCESS
At present, the Company utilizes approximately 450 to 550 hours of cable
and broadcast television time per week in the United States and in excess of
325 hours per week internationally to air its infomercials. The Company
believes that a large and productive inventory of media time is necessary to
maintain a competitive advantage as well as allowing the Company to maximize
the revenue producing potential from its portfolio of shows (i.e. rollout or
support of retail). Approximately one-half of the Company's cable air time in
the United States and over two-thirds of the Company's satellite and
terrestrial air time internationally has been purchased under long-term
contracts that provide for specific time slots on television over the life of
the respective contracts.
Domestically, the Company purchases most of its cable television time
directly from cable networks and their respective media representatives, and
at present has commitments for cable television time slots for periods
ranging from one month to five years. These cable networks presently include
The Nashville Network, USA Network, The Learning Channel, Lifetime
Television, Discovery, The Family Channel, BET, Home Team Sports, CNBC,
America's Talking, FX, The New Inspirational Network, TV Food Network, SCIFI,
E!, ESPN2, and Product Information Network. The Company believes that at
least one of the above networks is carried on every local cable system
carrier throughout the country. The Company has an exclusive contract with
Group W Satellite Communication on behalf of The Nashville Network which
expires in December 1997.
In addition to domestic air time purchased on cable networks, the Company
also purchases broadcast television time from network affiliates and
independent stations. Broadcast television time segments are purchased
primarily in 30-minute spots. The Company also purchases 60 and 120-second
spots where economically feasible. The time segments on broadcast television
are purchased primarily on a quarterly basis based on the availability of
programming time. The Company intends to continue to pursue opportunities in
new television markets through other cable channels and with additional
broadcast television stations in existing television markets. The Company
believes that there is currently more than an adequate supply of broadcast
television time available from these sources in the United States. Recently,
larger multiple system operators (MSO's) have elected to change their
operations by selling dark time. The Company believes that this may create an
opportunity to lower its cost of airtime as well as obtain additional airtime
in desired markets. The Company generally has the right to sell any excess
media times it may have to others, if necessary. During fiscal 1995, the
Company maintained a broker relationship with several companies, to which it
sold excess air time. In addition to generating additional revenues, this
practice reduces some of the risk associated with large purchases of media
time and provides an additional source of product for its international
operations.
In fiscal 1995 in the United States, approximately 49% of the media time
purchased by the Company came from cable television and 51% came from network
affiliates and independent television. The Company's infomercials generally
run in the United States between the hours of 3:00 a.m. to 2:00 p.m., Eastern
time, seven days a week.
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The Company, through its international subsidiary Quantum, has several
exclusive contracts with European satellite networks that enable the Company
to broadcast its programming throughout Europe and the Middle East. See
"International." Through these contracts, Quantum is generally entitled to
broadcast programming continuously for a specified period of time. Under some
of these arrangements, the Company has a right of first refusal for any
additional air time that may become available for direct marketing during the
term of the respective contract. This gives the Company the right to air its
infomercials on a given network exclusive of any other competing
infomercials.
The Company purchases its media time in Japan exclusively through its
partner Mitsui & Co., Ltd..
As discussed above, the Company purchases a significant amount of its
media time from cable television and satellite networks. These cable
television and satellite networks assemble programming for transmission to
multiple and local cable system operators. These operators may not be
required to carry all the network's programming. The Company currently does
not pay and is not paid for the "privilege" of being broadcast by these
operators. It is possible that, if demand for air time grows, and because of
recently enacted cable legislation, these operators will begin to charge the
Company to continue broadcasting the Company's infomercials or limit the
amount of time available to the Company. The Company is dependent on having
access to media time to televise its infomercials on cable networks,
satellite networks, network affiliates and local stations. There can be no
assurance that the Company will be able to purchase or renew media time on a
long-term basis or at favorable price levels. Significant increases in the
cost of media time or significant decreases in the Company's access to media
time could have a material adverse effect on the Company's results of
operations.
INTERNATIONAL
For fiscal years 1995, 1994 and 1993, the Company's international
operations generated net revenues of $80.4 million, $46.0 million and $37.6
million, respectively. See Note 16 to the consolidated financial statements
for information related to foreign operating income (loss) and identifiable
assets for fiscal years 1995, 1994 and 1993. National Media entered the
international market for direct response television marketing as a result of
its June 1991 acquisition of the assets of Old Quantum. The Company believes
that it is the leader in direct response transactional television programming
in Europe and Asia. Quantum's infomercials are aired in its market
territories by satellite transmission direct to homes ("DTH") with satellite
reception dishes, by cable operators who retransmit satellite broadcasts to
cable ready homes and by terrestrial broadcast television. Quantum's
satellite air time is obtained through long term agreements with companies
that own or lease satellite transponder time. While Quantum's programs
presently reach consumers in countries all over the world, including the
United Kingdom, Germany, France, the Benelux countries, Denmark, Austria,
Switzerland, Italy, Sweden, Finland, Norway, former Eastern Bloc countries,
the Middle East, Turkey, Spain, Portugal, Ireland, Australia, New Zealand,
Peru, Mexico, Brazil, Greece, Argentina, Singapore, Taiwan, and Japan,
approximately 60% of international revenue is currently generated in the
European market. The Company made significant penetration of the Asian market
in fiscal 1995 with its airing of infomercials in Japan beginning in late
July 1994. The Company has recently entered into a two year agreement with
its partner Mitsui & Co., Ltd. to provide media time and fulfillment service
in support of the Japanese operations. Approximately 37% of fiscal 1995
international revenue was generated in the Asian market, primarily in Japan.
The products offered through Quantum's programs are licensed on an
exclusive basis for televised marketing in its broadcast areas, and consist
of consumer products concentrated in the following categories: health and
fitness, sports, automotive, kitchen and household, beauty and personal care,
self improvement, crafts and music. The majority of Quantum's programs have
historically come from Media Arts; however, Quantum also has available
programming from other independent domestic infomercial companies, including
three industry leaders with which the Company has working relationships. In
addition, Quantum has continued to devote additional attention to the
sourcing of product and corresponding production of its own locally developed
infomercials. During fiscal year 1995, the Company introduced 7 new products
from locally developed infomercials and has plans to introduce approximately
11 new products in fiscal 1996. These products along with products supplied
by Media Arts and independent infomercial companies should provide a steady
stream of new product offerings to the international marketplace.
Through Quantum's programming, the Company has brought to the
international marketplace many of its products that had been successfully
marketed in the United States, including, for example, Auri car polish, the
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Bedazzler Plus craft kit, Perfect Smile, the Flying Lure fishing lure, Bruce
Jenner's Super Step stair climber and Minimax Exercise System, Tony Little's
Target Training System video tapes and Royal Diamond Cookware. As a key
component of the Company's strategy to extend the life cycle of each of its
products, management identifies products that had wide consumer appeal in the
United States which it believes can be duplicated internationally. The
selected infomercial programs are dubbed into the appropriate foreign
languages, and re-broadcast in other countries. During fiscal 1995, Quantum
successfully aired locally produced infomercials in the music category,
including Hits of the 60's and 70's and Shades of Country.
Throughout most of Europe, Singapore, and Japan, the Company operates the
inbound telemarketing, warehousing, fulfillment, distribution and customer
service functions of its business through independent agents, each of which
is responsible for a particular territory. Orders are processed and shipped
directly to customers by these agents who are later paid by the Company,
generally on a per unit basis. Outside Europe and Japan, Quantum contracts
with independent licensees who buy Quantum's products outright and then sell
to consumers, both through infomercials and through other local distribution
channels, under conditions and standards prescribed and monitored by Quantum.
Since 1991, the Company has entered into a number of long-term, exclusive
contracts with Pan European satellite channels such as Eurosport, NBC Super
Channel, and Flextech (Starstream). During the term of these contracts, the
Company is guaranteed a specified amount of satellite television hours per
month, and has rights of first refusal for any additional infomercial air
time that becomes available. In Japan, the Company has a two year contract
with Mitsui & Co., Ltd., for terrestrial broadcast television time. As a
result of these relationships, the Company's transactional television
programming can be seen in virtually every country in Europe and the Middle
East and in Japan, although at the present time the Company's products are
only available for purchase in the countries set forth above. The Company's
long-term media contracts in Europe expire at various dates from August 1996
through 1999. Presently, the Company broadcasts in excess of 325 hours per
week internationally. The Company intends to pursue marketing relationships
in additional Asian and Latin American markets.
The Company believes that it is currently the dominant direct response
television marketing Company in Europe and Japan, due to its established
distribution systems, its market penetration, its broadcast reach and the
frequency of its infomercial broadcasts in these markets. Furthermore, the
Company believes that it is well positioned to take advantage of the
potential growth in the international transactional television marketplace,
which the Company believes is in its early stages of development. The Company
believes that its purchase of additional airtime in Europe, Japan and the
Middle East will enable it to increase revenues without incurring a
proportional increase in operating costs.
SOURCING AND MANUFACTURING
The Company uses sources in the United States and several countries in
Europe and Asia to manufacture its infomercial products. The Company has
entered into strategic partnerships with several manufacturers in various
product categories in an effort to reduce its dependence on third party
manufacturers. The Company believes that its strategic partnership strategy
reduces the risk of supply problems, such as delays in receiving shipments,
which could have a material adverse effect on the success of a product. The
Company closely monitors the availability of supplies of products and
promptly adjusts the air time of an infomercial for a product which cannot be
adequately supplied. Additionally, the Company employs a
technical/engineering firm in Hong Kong to coordinate and direct the
Company's manufacturing sources in Asia and to monitor the quality of the
products manufactured in such countries.
Before the Company takes a major inventory position, the Company test
markets the product. The Company then purchases additional product units
which generally take four to six weeks to deliver.
INBOUND TELEMARKETING
A necessary element of infomercial marketing is the order-taking function
known as inbound telemarketing. Customers may order products marketed through
infomercials during or after the infomercial by calling a number (toll-free
in the United States) which is shown periodically on the television screen
during the broadcast. The majority of customer payments in the United States
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for such products are made through credit cards over the telephone with the
remainder paid by check. National Media subcontracts the telemarketing function
to one of several companies that provide this service for a fixed fee based on
the number of telephone calls answered. This service includes order processing.
The inbound telemarketers, in certain cases, also promote additional Company
product sales at the time of purchase.
Starting in fiscal 1996 (September 1995) and continuing through fiscal
1998, the Company has positioned itself to reduce its telemarketing costs as
a result of its tentative settlement of litigation with ValueVision, as
described in Note 13 to the Consolidated Financial Statements. This
settlement includes an agreement by ValueVision to provide telemarketing
services to the Company for a minimum of one million telephone calls a year
over a three year period at rates significantly below those currently being
paid by the Company for similar services. This covers a significant portion
of the Company's current domestic telemarketing expenditures.
FULFILLMENT AND CUSTOMER SERVICE
The Company's North American fulfillment center is located in Phoenix,
Arizona. Product fulfillment consists of the assembly, as required, packaging
and shipping of products, and processing of customer returns. The Company's
fulfillment center in Phoenix, Arizona, a 190,000 square foot facility,
processes substantially all orders for the Company's products for sales in
North America. National Media primarily uses CTC, a bulk shipper to deliver
products to customers in the United States. During the fourth quarter of
fiscal year 1994, the Company replaced United Parcel Service with CTC as its
primary deliverer of domestic product. This change resulted in reduced
freight costs during fiscal year 1995. In certain instances, the manufacturer
of the product ships directly to the customer.
In markets outside North America, the Company uses various firms in
different countries for fulfillment services. European products are shipped
to independent warehouses in Rotterdam, The Netherlands and Middlesex,
England. Products are then shipped to nine independent fulfillment centers
throughout Europe that process the Company's European sales orders. In
Europe, products are generally delivered to consumers on a "cash on delivery"
basis through local postal systems. In Asia, products are primarily shipped
to warehouses in Japan controlled by the Company's partner, Mitsui & Co.,
Ltd., from where the orders are fulfilled and shipped. In Japan, products are
generally delivered to consumers on a "cash on delivery" basis.
An important aspect of the Company's marketing strategy is to maintain and
improve quality customer service. The Company operates toll-free customer
service telephone numbers and maintains its own customer service department
in Phoenix, Arizona to respond to customer inquiries, provide product
information to customers and process product returns for its United States
operations. Outside of the United States and Canada, the Company provides
customer service through third parties on a contract basis.
The Company generally offers a 30-day money back return policy to
purchasers of any of its products. In addition, products are also covered by
the warranty offered by manufacturers for defective products. The terms of
such warranties vary depending upon the product and the manufacturer. The
average return rate of the Company's products for the fiscal years ended
March 31, 1995 and 1994 was 14.3% and 11.7%, respectively. Management
believes that the increase in the average return rate percentage is due to a
change in the domestic product mix to higher priced products (which
historically carry a higher return rate), as well as an increase in
international revenues as a percentage of total revenues. International
revenues carry a higher average return rate due to the "cash on delivery"
terms of the business.
MANAGEMENT INFORMATION SYSTEMS
The Company's computer system, located in its Philadelphia headquarters
features programs which allow the Company to manage its media time purchases
and program scheduling, to manage the flow of product order information among
its telemarketers, its fulfillment center and its credit card clearing house
and to manage the flow of shipping, billing and payments information. The
Company's primary computer system located in its Phoenix, Arizona fulfillment
facility allows the Company to manage the functions related to fulfillment
and customer service. The Company believes that its management information
systems are currently adequate. However, in order to facilitate growth and to
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integrate fully its international operations, the Company is in the process of
enhancing its computer systems related to all phases of its operations. The
Company has earmarked approximately $2 million of the capital budget for fiscal
year 1996 for this project.
NON-INFOMERCIAL MARKETING
Based on the success of certain products in retail markets and the
evolution of the nature of its business, the Company believes that its
transactional television programming can be highly effective in building
consumer awareness of its products as well as positioning the Company to act
as the media marketing partner for manufacturers of consumer products. The
Company intends to capitalize on this product awareness and ability to act as
a media marketing partner and extend the sales life of its products by
shifting products from traditional infomercial programming to non-infomercial
marketing channels such as retail distribution; catalogs; direct mail; direct
response print ads; television home shopping programs; credit card statement
inserts and the development of strategic partnerships. The Company realized
that infomercials provided a legitimate vehicle for established manufacturers
to showcase certain products. Many products, due to their complex nature or
simply economics, cannot be effectively marketed through traditional 30 or 60
second spots. Additionally, manufacturers have come to realize that the
aforementioned showcasing of a product through an infomercial on television
is a powerful means to create and build brand awareness and generate
follow-up product sales through traditional retail outlets. The Company
continues to work closely with (i) Regal Ware, Inc. to develop products in
the housewares segment, (ii) CSA, Inc. in the fitness product segment, and
(iii) Blue Coral, Inc. in the car wax and auto care segment. A clear
advantage of these relationships is that typically the Company's
manufacturing partner will provide research and development support and
assume the inventory risk, thereby reducing the Company's financial risk as
well as its working capital requirements. National Media's marketing programs
are structured to strengthen and protect its products through patents,
product positioning and brand identification.
Prior to fiscal 1992, a limited amount of the Company's sales had been
through non-infomercial distribution channels that did not include retail
distribution. In fiscal 1992, the Company began selling products through
traditional retail channels, such as mass merchandisers (e.g., Venture,
Caldor, Target, Sears, Montgomery Ward and Kmart), specialty retailers (e.g.,
Bass Pro Shops), and wholesale clubs (e.g., BJ's Wholesale Club and PACE).
During fiscal year 1994, the Company entered into agreements with strategic
partners who handle the retail marketing and pay a royalty to the Company on
retail sales in consideration of the television advertising for the product
funded by the Company. As a result of these agreements being in effect for
the entire year during fiscal 1995, the Company's net revenues from
non-infomercial sales were $11.0 million in fiscal 1995 as compared with
$16.6 million in 1994, a decrease of 34%; however, the Company realized
approximately $1.0 million of additional gross profit from these revenues in
the current year.
The Company intends to pursue further expansion of its retail operations
in order to capitalize on the consumer brand awareness created by the
Company's transactional television programming and reinforced by the "As Seen
On TV" in-store signage. The Company believes that the product exposure
created by the Company's transactional television programming enables the
Company and its strategic partners to utilize traditional retail distribution
channels without incurring any of the additional advertisement costs that
other consumer product companies may incur. In this manner, the Company
believes that it will be able to market products to consumers who view its
programming, but do not traditionally purchase products through direct
response marketing.
BACKLOG
The timing of orders is largely influenced by the degree of consumer
response to product offerings, inventory levels, marketing strategies,
seasonality and overall economic conditions. Backlog orders for the Company
at May 31, 1995 and 1994 were approximately $4.6 million and $6.6 million,
respectively. The Company's average backlog during fiscal year 1995 was
between $3 million to $6 million representing two to four weeks' processing.
The consumer is notified upon placement of an order that normal shipping time
is four to six weeks. Orders in excess of anticipated production capacity are
included in backlog figures. However, product shortages, cancellations,
returns and allowances may reduce the amount of sales realized from the
fulfillment of backlog orders.
8
<PAGE>
GOVERNMENT REGULATION
Various aspects of the Company's business are subject to regulation and
ongoing review by a variety of federal, state, and local agencies, including
the Federal Trade Commission (FTC), the United States Post Office, the
Consumer Product Safety Commission (CPSC), the Federal Communications
Commission, the Food and Drug Administration, States' Attorneys General and
other state and local consumer protection and health agencies. The statutes,
rules and regulations applicable to the Company's operations, and to various
products marketed by it, are numerous, complex and subject to change.
As a result of prior settlements with the FTC, the Company has agreed to
two consent orders which among other things require the Company to submit
compliance reports to the FTC staff. The Company has submitted the compliance
reports as well as additional information requested by the FTC staff. In
connection with one of these orders, the Company recently received a request
from the FTC for certain information regarding the Company's infomercials in
order to determine whether the Company is in compliance with such order. The
Company is cooperating with such request and as of the current date believes
itself to be in compliance with the consent orders and other FTC
requirements.
On February 24, 1994, the staff of the 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
provisions of the Consumer Product Safety Act. The Company has disputed this
preliminary determination and is presently in negotiation with the CPSC staff
to resolve this issue. See "Legal Proceedings" for further discussion of this
matter.
Quantum's business is subject to the laws and regulations of England and
of the European Union and various consumer and health protection laws and
regulations in other countries in which the programming is broadcast, where
applicable. If any significant actions were brought against Quantum in
connection with a breach of such laws or regulations, including the
imposition of fines or other penalties, or against one of the entities
through which Quantum obtains a significant portion of its media access,
Quantum's results of operations could be materially adversely affected. At
this time, Quantum's European business is operating under licenses issued in
the United Kingdom. There can be no assurance that changes in the laws and
regulations of any territory which forms a significant portion of Quantum's
market will not adversely affect the Company's business.
The Company collects and remits sales tax in the states in which it has a
physical presence. Certain states in which the Company's only activity is
direct marketing have attempted to require direct marketers, such as the
Company, to collect and remit sales tax on sales to customers residing in
such states. A recent decision of the U.S. Supreme Court held that Congress
can enable the states to impose a sales tax although Congress has taken no
action to that effect. The Company is prepared to collect sales taxes for
other states if laws are passed requiring such collection. The Company does
not believe that a change in the tax laws requiring the collecting of sales
tax will have a material adverse effect on the Company's results of
operations.
COMPETITION
The Company competes directly with several companies which generate sales
from infomercials. The Company also competes with a large number of consumer
product companies and retailers which have substantially greater financial,
marketing and other resources than the Company, some of which have indicated
their intent to conduct direct response marketing. The Company also competes
with companies that make imitations of the Company's products at
substantially lower prices. Products similar to the Company's products may be
sold in department stores, pharmacies, general merchandise stores and through
magazines, newspapers, direct mail advertising and catalogs. Other companies
with substantially greater financial resources may be entering the
infomercial market creating additional competition.
EMPLOYEES
As of May 31, 1995, the Company and its subsidiaries had 178 full time
employees. The Company also utilizes contract laborers at its fulfillment
center in Phoenix, Arizona. None of the Company's employees are covered by
collective bargaining agreements, and management considers relations with its
employees to be good.
9
<PAGE>
TRADEMARKS
The Company has a number of registered trademarks and other common law
trademark rights for certain of its products and marketing programs. It is
the Company's policy that it will seek to fully protect its trademark rights
in its future products and programs and will vigorously defend its trademark
rights.
ITEM 2. PROPERTIES
The Company leases office space for its principal executive offices in
Philadelphia, Pennsylvania. The lease, which commenced in November 1992,
provides for the Company to rent office space of approximately 30,000 square
feet. The annual rent is $14.75 per square foot. In April 1995, the Company
exercised its option to terminate the lease at the end of the initial 5 year
term, effective October 31, 1997 and in connection therewith, as called for
by the lease, paid a termination fee of $220,000. This building is owned by
Mergren Associates, a real estate company owned by John J. Turchi, Jr., the
Company's former Chairman of the Board and Chief Executive Officer and a
significant stockholder of the Company. The building is managed by an
independent real estate firm. An independent real estate firm engaged by the
Company determined that the lease was based on fair market conditions at the
time of inception. The Company believes that the terms of the lease are fair
to the Company.
A subsidiary of the Company leases approximately 190,000 square feet in
Phoenix, Arizona for warehousing, fulfillment and customer service
operations. The Company currently has approximately 30,000 square feet of
office space available for subletting or expansion. The annual lease payments
for this lease range from $452,000 for fiscal year 1996 to $1,084,000 for
fiscal years 2010 through 2014.
Quantum leases approximately 6,800 square feet of office space in London,
England. The lease expires in March 1996. The lease requires annual rent
payment of pounds sterling183,700 ($298,000 as of March 31, 1995).
ITEM 3. LEGAL PROCEEDINGS
SHAREHOLDERS' FEDERAL CLASS ACTIONS
In June 1993, a class action complaint was filed in the United States
District Court for the Eastern District of Pennsylvania against the Company
and certain of its former executive officers. Five similar lawsuits
subsequently were filed in the same court. The six actions were consolidated,
and an amended consolidated class action complaint was filed in October,
1993. The complaint involved allegations concerning disclosure by the Company
of its ongoing relationship with Positive Response Television, Inc., an
infomercial producer and Ronic, S.A., a supplier of the Company. The parties
have reached a settlement of this action, calling for cash payments by the
Company's insurer of $2.175 million and the issuance, subject to adjustment,
of 145,000 shares of the Company's common stock.
SHAREHOLDERS' DELAWARE CLASS ACTIONS
In January 1994 four class action complaints were filed against the
Company and certain of its present and former officers and directors in the
Court of Chancery of the State of Delaware in connection with a proposed
merger transaction with ValueVision International, Inc. ("ValueVision"). On
April 17, 1995, the Company and the other parties to the litigation reached
an agreement in principle to settle these actions, as well as the Lachance
and Efron and Cohen Class Action Litigation described below, providing for
cash payments of $1.5 million, 75% of which will be paid by the Company's
insurer. The Company recorded a charge of $375,000 in the fourth quarter of
fiscal year 1995 for its portion of the settlement.
LACHANCE AND EFRON AND COHEN CLASS ACTIONS
In July and December, 1994, stockholders filed purported class action
lawsuits in federal court against the Company and certain of its former
officers and directors in connection with the aborted ValueVision tender
offer. The parties have reached an agreement in principle to settle the
matter as discussed in Shareholders' Delaware Class Actions above.
10
<PAGE>
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(R) 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
has also indicated that, upon agreement on and 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 costs 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 operation and financial position.
TERMINATED TENDER OFFER AND MERGER AGREEMENT WITH VALUEVISION INTERNATIONAL,
INC.
On April 22, 1994, the Company filed suit in federal court against
ValueVision alleging that ValueVision had wrongfully terminated its amended
tender offer. In May 1994 ValueVision answered the Company's complaint and
set forth various counterclaims. The Company and ValueVision have agreed to
settle this action and have, in connection with such settlement, executed a
Telemarketing, Production and Post-Production Agreement and an International
Joint Venture Agreement as more fully described in Note 13 to the
Consolidated Financial Statements. All of such matters are subject to the
approval of the Company's shareholders on or before August 31, 1995. There
can be no assurance that such approval will be obtained.
WILLIAM H. CAMPBELL
In July, 1994, a former officer of the Company filed a complaint in
federal court against the Company and Mr.Turchi, the Company's former
Chairman and CEO, alleging that the defendants 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 seeks to
recover compensatory damages in excess of $1.3 million as well as punitive
damages and to rescind all alleged debts owed to the Company by Mr. Campbell
(approximately $238,000). 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 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.
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 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an annual meeting of its stockholders on February 22,
1995. The meeting was held to elect a board of eight directors; to consider
and approve (a) the adoption of the Director's Stock Grant Plan, (b) the
amendment of the 1991 Stock Option Plan, to include an increase in the number
of shares of common stock available for issuance by 565,000 shares and the
grant of options for such shares, and (c) the adoption of the 1995 Management
Incentive Plan; and to ratify the Board of Directors' appointment of the
Company's independent certified public accountants as auditors for the Company
11
<PAGE>
for the fiscal years ending March 31, 1995 and 1996. All proposals were approved
as follows:
<TABLE>
<CAPTION>
Against or
For Withheld Abstain
------------ ------------ ---------
<S> <C> <C> <C>
1. Election of Directors .....................
Individual Director Totals: .............
David J. Carman ......................... 13,329,413 251,445
Constantinos I. Costalas ................ 13,239,318 251,540
Frederick S. Hammer ..................... 13,233,408 257,450
Mark P. Hershhorn ....................... 13,239,256 251,602
Brian McAdams ........................... 13,238,818 252,040
Jon W. Yoskin II ........................ 12,970,113 520,745
Ira M. Lubert* .......................... 144,796
Charles L. Andes* ....................... 144,796
2. Director's Stock Grant Plan ............... 5,090,229 917,626 177,206
3. Stock Option Plan ......................... 5,310,957 931,406 183,268
4. Management Incentive Plan ................. 5,140,278 878,251 166,532
5. Ratification of Auditors .................. 13,373,178 73,718 43,962
</TABLE>
- ------
* The holders of the Company's Series B Convertible Preferred Stock have the
right to elect two members of the Company's Board of Directors.
12
<PAGE>
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange and
the Philadelphia Stock Exchange under the symbol "NM".
The following table sets forth the quarterly high and low closing stock
prices and dividends declared for the last two fiscal years. The Company's
common stock has been traded on the New York Stock Exchange since September
14, 1990.
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1994
----------------------------------- -----------------------------------
Cash Cash
Dividends Dividends
Quarter Ended High Low Declared High Low Declared
----------------- -------- ------- ------------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
June 30 ......... 9 7/8 3 7/8 -- 10 1/4 4 5/8 --
September 30 .... 5 1/4 3 1/4 -- 7 4 5/8 --
December 31 ..... 5 7/8 3 1/2 -- 7 1/8 4 7/8 --
March 31 ........ 8 1/8 4 1/2 -- 11 5/8 6 --
-------- ------- ------------- -------- ------- -------------
</TABLE>
The number of record holders of the Company's common stock on May 31, 1995
was approximately 866. The Company is currently restricted in its ability to
pay dividends under the terms of its Note and Warrant Purchase agreement as
more fully described in Note 4 to the consolidated financial statement.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
-------------------------------------------------------------------
(In Thousands, Except Per Share Amounts)
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Operating Data:(1).......................
Net revenues ........................... $176,167 $172,602 $141,997 $102,218 $102,112
Income (loss) from continuing operations
before income taxes ................... (372) (8,699) 6,335 (6,788) 4,266
Income (loss) from continuing operations (672) (8,699) 6,259 (7,023) 4,047
Net income (loss) ...................... (672) (8,699) 6,259 (4,854) 2,611
--------- --------- --------- --------- ---------
Income (loss) per common share: ........
Income (loss) from continuing operations $ (.05) $ (.72) $ .48 $ (.64) $ .36
Net income (loss) ...................... (.05) (.72) .48 (.44) .23
Cash dividends ......................... -- -- -- -- .175
--------- --------- --------- --------- ---------
Weighted average number of shares ...... 14,024 12,078 13,046 11,087 11,297
--------- --------- --------- --------- ---------
Balance Sheet Information:(1)............
Working capital (deficiency) ........... $ 22,081 $ 1,377 $ 7,995 $ (1,780) $ 6,283
Total assets ........................... 64,143 47,475 46,771 34,258 24,145
Short-term debt ........................ 184 4,770 2,917 3,603 206
Long-term debt(2)........................ 3,613 448 1,090 1,492 1,720
Shareholders' equity ................... 26,625 10,571 17,630 11,143 16,032
--------- --------- --------- --------- ---------
</TABLE>
- ------
(1) The information herein relates only to continuing operations and has been
restated to reflect the discontinued operations resulting from the sale of
the Company's wholly-owned subsidiary, National Syndications, Inc.
subsequent to March 31, 1991.
(2) Net of loan discount of $1,650.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is engaged in the direct marketing of consumer products
primarily through the use of infomercials in both the domestic and
international marketplace. The Company's operating results continue to
13
<PAGE>
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. The Company continues to take actions designed to
reduce the risk associated with relying on a limited number of successful
products for a disproportionate amount of its revenues by expanding its
presence in the international marketplace, thereby creating new markets for
its products, and joining forces with strategic partners to increase its
product base. International expansion has resulted in a greater percentage of
the Company's revenues being generated from the international infomercial
market. As the Company enters new markets overseas, it is able to air shows
from its existing library, thus reducing its dependence on new show
productions. The Company is taking advantage of the product awareness created
by its infomercials by extending the sales life of its infomercial products
through non-infomercial distribution channels, such as retail arrangements
and 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. The Company's fiscal year end is
March 31. All references herein to fiscal 1995 refer to the fiscal year ended
March 31, 1995. Similar references are made for prior fiscal years.
RESULTS OF OPERATIONS
The following table sets forth operating data of the Company as a
percentage of net revenues for the periods indicated below.
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Statement of Operations Data: ...........
Net revenues ....................... 100.0% 100.0% 100.0%
Operating costs and expenses: ......
Media purchases ............... 29.5 32.5 27.1
Direct costs .................. 55.4 55.1 52.6
Selling, general and
administrative .............. 11.8 12.0 15.1
Severance expense for former
Chairman and Chief Executive
Officer ..................... 1.5 -- --
Unusual charges ............... 1.6 5.2 .5
Interest expense .............. .4 .2 .2
------ ------- ------
Total operating costs and
expenses ............... 100.2 105.0 95.5
------ ------- ------
Income (loss) before income taxes .. (.2) (5.0) 4.5
------- ------- ------
Net income (loss) .................. (.4)% (5.0)% 4.4%
====== ======= ======
</TABLE>
FISCAL 1995 COMPARED TO FISCAL 1994
NET REVENUES
Net revenues were $176.2 million in fiscal 1995 as compared to $172.6
million in fiscal 1994, an increase of $3.6 million or 2.1%.
Domestic net revenues. Domestic net revenues were $95.8 million in fiscal
1995 as compared to $126.6 million in fiscal 1994, a decrease of $30.8
million or 24.3%. Domestic infomercial and non-infomercial net revenues
decreased by $25.2 million and $5.6 million, respectively. The decrease in
infomercial revenues was primarily due to a reduction in the number of shows
available for airing during 1995. New show production was adversely effected
by the events of the early part of 1995 relating to the ValueVision Tender
Offer as described in Note 13 to the Consolidated Financial Statements. The
Company introduced 6 new shows in fiscal 1995 as compared to 17 in fiscal
1994. Domestic revenues were also unfavorably impacted by a change in the
Company's sales mix toward higher priced products, which have historically
experienced a higher return rate. As expected, based on the current year
product mix, returns as a percentage of gross revenues increased from 8.5% in
fiscal 1994 to 11.8% in fiscal 1995. The decline in non-infomercial net
revenues was primarily a result of the Company's decision to receive
royalties for certain products in lieu of full sales participation in retail
distribution. Despite the $5.6 million decline in non-infomercial net
revenue, the Company realized approximately $1.0 million of additional gross
profit from these revenues during the current year. In addition, as a result
of its decision to shift away from owning inventory for retail sales in favor
14
<PAGE>
of royalty arrangements with manufacturers, the Company believes it has provided
itself with a more stable and steady stream of royalty revenue with limited
associated inventory risk. Approximately 54% and 15% of the Company's current
year domestic net revenues were generated from sales of its Powerwalk Plus
product and Regal Ware Royal Diamond Cookware product, respectively.
The Company recently entered into separate agreements with Inphomation,
Inc., and Positive Response Television, Inc., infomercial companies, which
provide for the worldwide marketing of new products via infomercials. This
development, coupled with recent additions to its marketing staff, should
allow the Company to compete more effectively in the area of product and
infomercial development in fiscal 1996.
Foreign net revenues. Foreign net revenues were $80.4 million in fiscal
1995 as compared to $46.0 million in fiscal 1994, an increase of $34.4
million or 74.8%. On a local currency basis, foreign net revenues for the
year increased 67.7% over the prior year. The increase in net revenues from
foreign sales was primarily due to the Company's successful entrance into the
Japanese market which began in late July 1994. Japanese net revenues were
$25.7 million for the period ended March 31, 1995. The remaining $8.7 million
increase in foreign net revenues was due to the continued expansion of the
Company's foreign operations from 30 countries at the end of fiscal 1994 to
over 40 countries in Europe and the Middle East at the end of fiscal 1995.
Revenue growth is supported by the Company's ability to capitalize on its
large library of infomercials, many of which are five or more years old, but
which are entirely new to the international market. In addition, foreign net
revenues are not dependent on any single product due to the Company's
existing show library.
OPERATING COSTS
Total operating costs and expenses were $176.5 million for fiscal 1995 as
compared to $181.3 million in fiscal 1994, a decrease of $4.8 million or
2.6%.
Media purchases. Media purchases were $52.0 million (net of $13.5 million
in media sales) in fiscal 1995 as compared to $56.2 million (net of $5.6
million in media sales) in fiscal 1994, a decrease of $4.2 million or 7.5%,
principally as a result of a decrease in domestic show airings. The ratio of
media purchases to net revenues decreased from 32.5% in fiscal year 1994 to
29.5% in fiscal year 1995 as a result of a higher proportion of current year
net revenues being generated in international markets characterized by more
effective media costs. Internationally, the ratio of media purchases to net
revenues further benefited from increased availability of lower cost time
while the domestic ratio was favorably impacted by an effective mix of media
time utilized to air Company products and media time sold.
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
$97.6 million in fiscal 1995 as compared to $95.0 million in fiscal 1994, an
increase of $2.6 million or 2.7%. This increase was a result of the 2.1%
increase in net revenues during the year. As a percentage of net revenues,
direct costs remained stable at 55.4% in fiscal year 1995 and 55.1% in fiscal
year 1994. Domestically, direct costs as a percentage of net revenues
decreased by 1.9 percentage points as a result of a reduction in
non-infomercial direct costs. Higher infomercial product costs due to a
change in product mix were offset by a reduction in freight, telemarketing
and commission costs. The reduction in non-infomercial direct costs was due
to the Company's decision to receive royalties for certain products in lieu
of full sales participation in retail. The Company believes that its
tentative settlement of litigation with ValueVision as described in Note 13
to the Consolidated Financial Statements, which includes an agreement by
ValueVision to provide telemarketing services to the Company for a minimum of
one million telephone calls a year over a three year period at rates
significantly below the rates currently being paid by the Company for similar
services, represents an excellent opportunity for cost reduction in fiscal
years 1996, 1997 and 1998.
Internationally, direct costs as a percentage of net revenues increased
approximately 4.2 percentage points primarily due to increased freight,
fulfillment and processing costs as a result of the Company's expansion into
new countries, especially Japan. These costs are typically higher upon
initial entrance into a market. Management anticipates future reductions in
fulfillment and telemarketing costs in connection with new agreements
recently entered into covering the Japanese market.
15
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $20.8 million in fiscal
1995 as compared to $20.7 million in fiscal 1994, a decrease of $.1 million
or .5%. Selling, general and administrative expenses as a percentage of net
revenues decreased in fiscal 1995 to 11.8% from 12.0% in fiscal 1994. The
reduction in selling, general and administrative expenses as a percentage of
net revenues in fiscal year 1995 was accomplished despite costs associated
with the Company's entrance into the Japanese market and an increased
provision for bad debt expense of $750,000 primarily related to royalties due
from a single customer. As a result of staff reductions made in late fiscal
year 1994 and early fiscal year 1995, the Company reduced its domestic
personnel costs by $1.8 million.
SEVERANCE EXPENSE FOR FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER
During fiscal year 1995, the Company incurred severance expense of $2.65
million relating to the resignation of the Company's former Chairman and
Chief Executive Officer. See Note 7 to the Consolidated Financial Statements
herein for further discussion.
UNUSUAL CHARGES
The Company's results of operations for the year ended March 31, 1995
included unusual charges of $2,868,000 relating to settlement of ongoing
litigation and associated legal fees. Such matters are discussed in Note 17
to the Consolidated Financial Statements. $1,100,000 of such unusual charges
were incurred in the fourth quarter of fiscal 1995.
Included in the unusual charges of $9,049,000 for the year ended March 31,
1994 was $4,127,000 for certain legal settlements. In addition, the Company
recognized additional expenses during the period including $1,138,000 in
legal fees associated with the aforementioned settlements and class action
lawsuits, $1,000,000 related to the relocation of its fulfillment center to
Phoenix, Arizona; $1,268,000 in costs associated with the terminated tender
offer and agreement of merger with ValueVision; $725,000 in severance related
to personnel reductions; $591,000 in costs associated with two aborted stock
offerings; and $200,000 in other costs.
INTEREST EXPENSE
Interest expense was $689,000 in fiscal 1995 as compared to $300,000 in
fiscal 1994, an increase of $389,000. This increase reflects interest at 9.5%
as well as amortization of the loan discount ($150,000) and loan origination
fees associated with the Company's $5.0 million term loan obtained October
1994 and higher interest rates during the current year.
NET INCOME (LOSS)
The Company had a net loss of $672,000 in fiscal 1995 as compared to a net
loss of $8,699,000 million in fiscal 1994, an improvement of $8,027,000.
FISCAL 1994 COMPARED TO FISCAL 1993
NET REVENUES
Net revenues were $172.6 million in fiscal 1994 as compared to $142.0
million in fiscal 1993, an increase of $30.6 million or 21.6%.
Domestic net revenues. Domestic net revenues were $126.6 million in fiscal
1994 as compared to $104.4 million in fiscal 1993, an increase of $22.2
million or 21.3%. Domestic infomercial net revenues increased by $31.2
million while non- infomercial revenues decreased by $9.0 million. The
success of the TONY LITTLE TARGET TRAINING SYSTEM(R) coupled with the
increase in show airings were the major reasons for the increase in
infomercial revenues in fiscal year 1994. The decline in non-infomercial net
revenues was primarily due to fiscal year 1993 reflecting strong sales of
JUICE TIGER(R) as well as the Company's decision to receive royalties for
certain products in lieu of full sales participation in retail distribution.
16
<PAGE>
Foreign net revenues. Foreign net revenues were $46.0 million in fiscal
1994 as compared to $37.6 million in fiscal 1993, an increase of $8.4 million
or 22.3%. On a local currency basis, foreign net revenues for fiscal year
1994 increased 34.5% over fiscal year 1993. The increase in net revenues from
foreign sales was primarily due to the expansion of the Company's European
operations from 17 countries at the end of fiscal 1993 to 30 countries in
Europe and the Middle East at the end of fiscal 1994, coupled with an
increased average unit selling price in fiscal 1994.
OPERATING COSTS
Total operating costs and expenses were $181.3 million for fiscal 1994 as
compared to $135.7 million in fiscal 1993, an increase of $45.6 million or
33.6%.
Media purchases. Media purchases were $56.2 million (net of $5.6 million
in media sales) in fiscal 1994 as compared to $38.5 million in fiscal 1993,
an increase of $17.7 million or 46.0%, principally as a result of increased
show airings to support domestic and international revenue growth, higher
media rates and the Company's decision to enter the media brokerage business
during fiscal year 1994. The Company's ratio of media purchases to net
revenue for fiscal year 1993 was favorably impacted by the renegotiation of
one of its European cable contracts. Results of operations in fiscal year
1994 reflected decreases in consumer response to product offerings, higher
media rates, and the decline in domestic non- infomercial net revenues which
incur no media costs. The result was an increase in the ratio of media
purchases to net revenues from 27.1% in fiscal year 1993 to 32.5% during
fiscal year 1994.
Direct costs. Direct costs were $95.1 million in fiscal 1994 as compared
to $74.8 million in fiscal 1993, an increase of $20.3 million or 27.1%. This
increase was attributable primarily to increased product sales in fiscal
1994. During fiscal year 1994, the Company experienced a favorable trend in
the cost of materials. Material cost reductions in the domestic operations
more than offset increased material costs internationally. Significant sales
of the lower cost TONY LITTLE TARGET TRAINING TAPE product was a major factor
in the domestic material cost reduction. Offsetting a portion of the material
cost reduction was an increase in commission expense, especially with the
aforementioned Tony Little tapes, of approximately $4.5 million. As a
percentage of sales, direct costs increased to 55.1% in fiscal year 1994 from
52.6% in fiscal year 1993. A significant factor was increased production cost
of approximately $5.1 million in fiscal 1994 versus fiscal 1993. This
increase was due to a reduced success rate on newly introduced shows and an
increase in the average production cost of infomercials aired in fiscal year
1994. In addition, the international operation incurred increased dubbing
cost as a result of its expansion into new countries during fiscal 1994.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $20.7 million in fiscal
1994 as compared to $21.3 million in fiscal 1993, a decrease of $.6 million
or 2.8%. Selling, general and administrative expenses as a percentage of net
revenues decreased in fiscal 1994 to 12.0% from 15.1% in fiscal 1993. This
decrease was a direct result of the growth in the Company's net revenues. In
addition, the Company took action in 1994 to further reduce selling, general
and administrative expenses in the future by enacting management and staff
reductions. The Company recorded associated severance costs of $725,000 in
fiscal year 1994 which are included in the unusual charges described below.
UNUSUAL CHARGES
Unusual charges of $9,049,000 for the year ended March 31, 1994 included
$4,127,000 for certain legal settlements. In addition, the Company recognized
additional expenses during fiscal year 1994 including $1,138,000 in legal
fees associated with the aforementioned settlements and class action
lawsuits, $1,000,000 related to the relocation of its fulfillment center to
Phoenix, Arizona; $1,268,000 in costs associated with anti- takeover defenses
and the terminated tender offer and agreement of merger with ValueVision;
$725,000 in severance related to personnel reductions; $591,000 in costs
associated with two aborted stock offerings; and $200,000 in other costs.
17
<PAGE>
Unusual charges for the fiscal year ended March 31, 1993 were $725,000 and
included $425,000 for severance expense and $300,000 for settlements of
litigation and related legal fees.
INTEREST EXPENSE
Interest expense was $300,000 in fiscal 1994 as compared to $371,000 in
fiscal 1993, a decrease of 19.1%. This decrease reflected lower interest
rates and a reduction in the Company's average outstanding short-term
borrowings.
NET INCOME (LOSS)
The Company had a net loss of $8.7 million in fiscal 1994 as compared to
net income of $6.3 million in fiscal 1993, a decrease of $15.0 million. This
was primarily due to the unusual charges and the increase in the Company's
media purchases as a percentage of net revenues as described above.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations and outstanding cash and cash equivalents will
provide the primary support for funding current operations. Cash and cash
equivalents increased $11.9 million from $1.6 million at March 31, 1994 to
$13.5 million at March 31, 1995. The Company's working capital increased by
$20.7 million during the same period from $1.4 million to $22.1 million. The
increases were primarily a result of the Company's current year financing
activities which generated approximately $10.4 million in cash. An additional
benefit was realized from an increase of $4.1 million in cash provided by
operations which changed from a use of cash of $2.2 million in fiscal year
1994 to a source of cash of $1.9 million in fiscal year 1995. The primary
reason for the increase was a reduction of in excess of $8.0 million in the
Company's net loss. The increase in inventories during the year was primarily
attributable to the Company's need to support its continued global expansion,
especially into Japan, as is evidenced by the 74.8% growth in foreign net
revenues during fiscal year 1995. The Company achieved a turnaround in cash
provided from operations during 1995 despite cash payments in excess of $5.1
million for litigation related settlements and legal fees.
In October and December 1994, the Company received proceeds of $9,415,000
(net of offering costs of $872,000) from the sale of 255,796 investment units
("Units") in private placement transactions described in Note 11 to the
Consolidated Financial Statements.
Prior to the December 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 have seriously jeopardized 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 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
accepted this application.
In October 1994, the Company entered into a Note and Warrant Purchase
Agreement (the "Note Agreement") pursuant to which it obtained a $5 million
five year interest only term loan bearing interest at a rate equal to the
prime rate plus .5%. Approximately $3.1 million of the proceeds were used to
repay the Company's pre-existing bank debt. The loan is secured by a lien on
substantially all of the assets of the Company and its subsidiaries. The
terms of the Note Agreement, among other things, restrict the Company's
ability to make acquisitions, pay dividends and incur additional indebtedness
except for a maximum of $1.0 million in borrowing from a foreign bank. The
lenders 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 Note
Agreement. In April 1995, the term loan was acquired by a bank with all
material terms remaining unchanged.
18
<PAGE>
The remainder of the proceeds from the term loan and sale of Units are
being used for working capital purposes.
The Company's international revenues are subject to foreign exchange risk.
To the extent that the Company incurs local currency expenses that are based
on local denominated sales volume (fulfillment and media costs), this
exposure is reduced significantly. The Company closely monitors exchange rate
movements and will protect short term cash flows through the use of options
and/or future contracts when appropriate. In the long term the Company has
the ability to change prices at any time in order to react to major currency
fluctuations; thus reducing the risk associated with local currency
movements.
Fiscal year 1995 saw the Company achieve significant improvement in its
financial position and operating results, including its return to
profitability in its two most recent fiscal quarters and its settlement or
tentative settlement of the bulk of the Company's outstanding litigation. The
Company's financial statements for the year ended March 31, 1995 contain an
unqualified opinion from its independent auditors.
The Company settled or tentatively settled significant outstanding
litigation during fiscal years 1995 and 1994 and, in connection therewith,
incurred costs resulting in a reduction of earnings of $2.8 million and $5.3
million, respectively. While it is not possible to give assurance as to the
effects of any potential future litigation against the Company or settlements
in excess of current accruals, management believes it has taken a major step
in positioning the Company against these types of unusual litigation charges
in the future.
The Company has additional capital resource and liquidity requirements
related to its issuance, subject to adjustment, of 145,000 shares of the
Company's common stock in connection with the Federal Class Action settlement
described in Note 13 to the Consolidated Financial Statements and the payment
of $375,000 upon final approval of the ValueVision Class Action Litigation
settlement described in Note 13 to the Consolidated Financial Statements.
Management believes that the ValueVision settlement, if approved on
substantially the same terms as the tentative settlement, would not be likely
to have a material adverse effect on the financial position of the Company.
In connection with its financing activities during fiscal year 1995, the
Company issued preferred stock convertible into and warrants to acquire
shares of common stock in a total amount of 7,897,512 which represents 55.6%
of common stock outstanding at March 31, 1995. The Company also has 2,908,096
options outstanding under its stock option plans. While having a dilutive
effect on future earnings per share, the exercise of all of these warrants
and options would provide the Company with approximately $40.1 million in
additional capital.
The Company's capital expenditures for the past two years have been
limited partially due to its financial condition. The Company expects to
spend in excess of $2.0 million to update its worldwide management
information system in fiscal 1996.
Management believes that cash generated from operations, its current
capital structure and the other sources of capital described above are
adequate to support the Company's long term growth needs including continued
international expansion, required capital expenditures and potential future
acquisitions.
19
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth operating data of the Company, including
such data as a percentage of net revenues, for the last two fiscal years.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------
1995 Fiscal Year June 30 September 30 December 31 March 31
- --------------------------------- ----------------- ----------------- ---------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues .................... $40,397 100.0% $38,535 100.0% $41,254 100.0% $55,981 100.0 %
Operating costs and expenses: ...
Media purchases ............ 13,018 32.2 11,584 30.1 11,754 28.5 15,605 27.9
Direct costs ............... 21,348 52.9 21,290 55.2 23,219 56.3 31,748 56.7
Selling, general and
administrative ......... 5,073 12.6 4,785 12.4 4,673 11.3 6,235 11.1
Severance to former Chairman
and Chief Executive
Officer ................ 2,650 6.9
Unusual charges ............ 335 0.8 241 0.6 1,192 2.9 1,100 2.0
Interest expense ........... 124 0.3 105 0.3 181 0.4 279 0.5
------- ------ ------- ----- ------ ------ ------- ------
Total operating costs
and expenses ...... 39,898 98.8 40,655 105.5 41,019 99.4 54,967 98.2
------- ------ ------- ----- ------ ------ ------- ------
Income (loss) before income taxes 499 1.2 (2,120) (5.5) 235 0.6 1,014 1.8
------- ------ ------- ----- ------- ------ ------- ------
Net income (loss) ............... $ 471 1.2% $(2,092) (5.4)% $ 235 0.6% $ 714 1.3%
======= ====== ======= ===== ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------
1994 Fiscal Year June 30 September 30 December 31 March 31
- -------------------------------- ---------------- ----------------- ------------------ -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues ................... $44,433 100.0% $45,862 100.0% $38,772 100.0% $43,535 100.0%
Operating costs and expenses: ..
Media purchases ........... 12,365 27.8 15,427 33.6 13,946 36.0 14,477 33.3
Direct Costs .............. 23,910 53.8 24,990 54.5 21,811 56.3 24,359 55.9
Selling, general and
administrative ........ 5,118 11.5 4,893 10.7 5,447 14.0 5,209 11.9
Unusual charges ........... 2,465 5.4 1,984 5.1 4,600 10.6
Interest expense .......... 105 0.3 65 0.1 55 0.1 75 0.2
------- ----- ------- ------ ------- ------ ------- ------
Total operating costs
and expenses ..... 41,498 93.4 47,840 104.3 43,243 111.5 48,720 111.9
------- ----- ------- ------ ------- ------ ------- ------
Income (loss) before income
taxes ...................... 2,935 6.6 (1,978) (4.3) (4,471) (11.5) (5,185) (11.9)
Net income (loss) .............. $ 2,333 5.3% $(1,522) (3.3)% $(4,331) (11.2)% $(5,179) (11.9)%
======= ===== ======= ====== ======= ====== ======= ======
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted in a separate section of this
report.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are:
<TABLE>
<CAPTION>
Name Age Position
----------------------------------- ----- -------------------------------------------------------
<S> <C> <C>
David J. Carman (1) ............... 44 Executive Vice President of the Company, President and
Chief Executive Officer of Quantum International, Ltd.
and Director
James A. Jernigan ................. 52 Executive Vice President and Chief Operating Officer
for North American Operations
John J. Sullivan .................. 48 Senior Vice President, Administration, Planning and
Investor Relations
Constantinos I. Costalas (1) ...... 59 Vice Chairman, Senior Financial Officer and Director
Michael J. Emmi (2) ............... 53 Director
Brian McAdams (1) ................. 53 Chairman of the Board, Chairman of the Executive
Committee and Director
Mark P. Hershhorn (1) ............. 45 President, Chief Executive Officer and Director
Frederick S. Hammer (1)(2)(3)(4)(5) 59 Director
Ira M. Lubert (5) ................. 45 Director
Charles L. Andes (4)(5) ........... 64 Director
Jon W. Yoskin II (2)(3)(5) ........ 55 Director
</TABLE>
- ------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Nominating Committee.
(5) Member of the Shareholder Committee.
David J. Carman served as President and Chief Operating Officer of the
Company's Quantum International, Ltd. ("Quantum") subsidiary since joining
the Company in December 1991 until April 1995, has been President and Chief
Executive Officer of Quantum since April 1995, and has been Executive Vice
President of the Company since September 1994. From June 1991 to August 1994,
Mr. Carman served as Vice President of the Company. From October 1989 to June
1991, Mr. Carman had been Vice President in charge of European, Central
Pacific, Australian and New Zealand operations of The Franklin Mint. Between
1986 and 1989, he had been President of various international subsidiaries of
The Franklin Mint. Prior to that time, Mr. Carman held a Teaching Fellowship
at an Australian university and was President of his own strategic consulting
company. He has served as a Director of the Company since April 1993.
James A. Jernigan has served as Executive Vice President of the Company
and Chief Operating Officer for North American Operations since September
1994. From June 1994 until September 1994, he served as Senior Vice President
and Chief Operating Officer of the Company. From January 1992 until June
1994, Mr. Jernigan was Vice President, Manufacturing, Sourcing and
International Operations of the Company. He was Vice President of Sourcing
and International Operations at The Franklin Mint from December 1987 to
January 1992.
John J. Sullivan has served as Senior Vice President, Administration,
Planning and Investor Relations of the Company since April 1995 and as Vice
President, Treasurer and Chief Financial Officer of the Company from
21
<PAGE>
September 1991 to April 1995. From 1989 to 1991, Mr. Sullivan was Chief
Financial Officer of Gold Medal Sporting Goods. Prior to that time, Mr.
Sullivan was employed by The Franklin Mint for more than 18 years in various
capacities, most recently as Corporate Controller.
Constantinos I. Costalas has been the Vice Chairman of the Company since
September 1994 and the Senior Financial Officer since April 1995. Until
February 11, 1994, he served as Chairman of the Board, President and Chief
Executive Officer of Glendale Bancorporation and as Chairman of the Board,
President and Chief Executive Officer of Glendale National Bank of New
Jersey, which positions were held since 1985 and 1976, respectively. He has
served as a Director of the Company since May 1993.
Michael J. Emmi has served as Chairman of the Board, Chief Executive
Officer and President of Systems & Computer Technology Corporation, a
provider of computer software and services, since May 1985. Mr. Emmi is also
a Director of CompuCom Systems, Inc., Crusader Savings and Loan Association,
and The Franklin Institute and is the Chairman of the Pennsylvania Chapter of
the American Electronics Association. Prior to such time, Mr. Emmi held
various positions with General Electric Information Services Company
(GEISCO), a unit of General Electric Company and other subsidiaries of
General Electric Company, most recently as Senior Vice President, Marketing
and U.S. Sales of GEISCO, from February 1982 to May 1985. He has served as a
Director of the Company since April 1995.
Brian McAdams has served as Chairman of the Board and Chairman of the
Executive Committee of the Company since September 1994 and was Chief
Executive Officer of the Company from September 1994 to April 1995. Mr.
McAdams has served as President, Chief Executive Officer and a Director of
McAdams, Richman & Ong, Inc., an advertising and marketing company, since
1976. He is also a Director of Crusader Savings and Loan Association. Mr.
McAdams serves on the board of the Council of Better Business Bureau and
serves on the Marketing and Advertising Review Committee. He has served as a
Director of the Company since June 1990.
Mark P. Hershhorn has served as President of the Company since August
1994, has been Chief Executive Officer of the Company and Chairman of Quantum
since April 1995 and served as Chief Operating Officer of the Company from
August 1994 until April 1995. From June 1993 to August 1994, Mr. Hershhorn
served as President and Chief Operating Officer of Buckeye Communications,
Inc. From December 1991 to April 1993, Mr. Hershhorn was President and Chief
Operating Officer of the Company. From April 1990 until December 1991, Mr.
Hershhorn was Senior Vice President of Food Operations and Joint Ventures for
Nutri/System, Inc. Prior to assuming the position with Nutri/System, Inc., he
acted as a consultant for J. Crew, Inc. from January through April 1990. From
1985 to January 1990, Mr. Hershhorn was an executive with The Franklin Mint
in Philadelphia, Pennsylvania, serving as Vice President and Chief Financial
Officer, as well as a Director. He has served as a Director of the Company
since September 1994.
Frederick S. Hammer has been Vice Chairman of Tri-Arc Financial Services,
Inc., a provider of specialized insurance products to the financial services
industry, since June 1994. From February 1993 to June 1994, Mr. Hammer was
Chairman of Mutual of America Capital Management Corporation. From 1989 until
1993, Mr. Hammer was President of the SEI Asset Management Group in Wayne,
Pennsylvania. From 1989 until 1991, Mr. Hammer was Mazur Fellow at the
Wharton School of the University of Pennsylvania. Mr. Hammer presently serves
on the Board of Directors of Alco Standard Corporation and was previously a
director of Meritor Savings Bank. He has served as a Director of the Company
since October 1994.
Ira M. Lubert has served as Managing Director of Radnor Venture Management
Company and of Technology Leaders Management,Inc., both of which are venture
capital management companies, since 1988. Mr. Lubert is a Director of
CompuCom Systems, Inc. He has served as a Director of the Company since
December 1994.
Charles L. Andes has served as Chief Executive Officer of Interactive
Marketing Ventures since January 1995 and as Chief Executive Officer and
President of the Eastern Technology Council, an affiliation of industry
leaders in technology fields who collaborate and cooperate on a broad range
of technology related matters, since 1991. From 1986 until 1991, Mr. Andes
was President and Chief Executive Officer of The Franklin Institute in
Philadelphia, a world-renowned science museum and research center. From 1973
until 1985, Mr. Andes was Chairman of The Franklin Mint. Mr. Andes is a
Director of Information Systems Acquisition Corporation and First Fidelity
Bank, N.A., Chairman of the Pennsylvania Academy of the Fine Arts and is Vice
Chairman of the Pennsylvania Intergovernmental Corporation Authority, a board
created by the Commonwealth of Pennsylvania to oversee the operating and
capital budgets of the City of Philadelphia. He has served as a Director of
the Company since October 1994.
22
<PAGE>
Jon W. Yoskin II has served as Chairman, Chief Executive Officer and a
Director of Tri-Arc Financial Services Inc., a provider of specialized
insurance products to the financial services industry, since 1986. Prior to
that time, he worked in the insurance and banking industries with companies
such as Meritor, TransAtlantic Life Insurance Assurance Company and Royal Oak
Insurance Company. Mr. Yoskin has served as a Director of the Company since
June 1994.
BOARD COMMITTEES
The Board of Directors has an Executive Committee which exercises such
management functions as may be delegated by the Board of Directors from time
to time, an Audit Committee which reviews the results and scope of the audit
and other services provided by the Company's independent public accountants,
a Compensation Committee which makes recommendations regarding salaries and
incentive compensation for officers of, and consultants to, the Company, and
a Nominating Committee which is responsible for reviewing candidates, and
recommending to the Board nominees for membership on the Board of Directors.
The Executive Committee is currently comprised of Messrs. Carman, Costalas,
Hammer, Hershhorn and McAdams, the Audit Committee is currently comprised of
Messrs. Emmi, Hammer and Yoskin, the Compensation Committee is currently
comprised of Messrs. Hammer and Yoskin and the Nominating Committee is
currently comprised of Messrs. Hammer and Andes. The Shareholder's Committee
is currently comprised of Messrs. Hammer, Lubert, Andes and Yoskin.
SECTION 16(A) DISCLOSURE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors and persons who own more than ten percent of
the Company's Common Stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the New York and
Philadelphia Stock Exchanges. Officers, directors and greater than
ten-percent owners are required by Securities and Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on the Company's review of the copies of such forms received
by it, the Company believes that, during the fiscal year ended March 31,
1995, it was in compliance with all filing requirements applicable to its
officers, directors, and greater than ten-percent owners, except the Company
recently discovered that certain filings which were made on a timely basis
with the Securities and Exchange Commission may not have been made with the
New York Stock Exchange and/or the Philadelphia Stock Exchange.
ITEM 11. EXECUTIVE COMPENSATION
This information will be set forth in the Registrant's definitive proxy
statement for its 1995 annual meeting of stockholders and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information will be set forth in the Registrant's definitive proxy
statement for its 1995 annual meeting of stockholders and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
This information will be set forth in the Registrant's definitive proxy
statement for its 1995 annual meeting of stockholders and is incorporated
herein by reference.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements and Schedules
The following is a list of the consolidated financial statements of the
Company and its subsidiaries and supplementary data submitted in a separate
section of this report.
-- Report of Independent Auditors.
-- Consolidated Balance Sheets -- March 31, 1995 and 1994.
-- Consolidated Statements of Operations -- Years ended March 31, 1995,
1994, and 1993.
-- Consolidated Statements of Shareholders Equity -- Years ended March
31, 1995, 1994, and 1993.
-- Consolidated Statements of Cash Flows -- Years ended March 31, 1995,
1994, and 1993.
-- Notes to Consolidated Financial Statements
The following is a list of the schedules filed as part of this Form 10-K.
Schedule VIII -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
(b) Reports on Form 8-K filed in the fourth quarter of 1995:
Form 8-K dated January 13, 1995
Item 5. Other Events -- Announcement of the Company's consummation of
several transactions with Buckeye Communications, 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.
Form 8-K dated March 20, 1995
Item 5. Other Events -- Announcement by the Company of the following:
tentative settlement of ValueVision litigation, and in connection with
settlement, the entrance of a Telemarketing and Joint Venture
Agreement with ValueVision and the tentative settlement of the related
Class Action lawsuits.
Form 8-K dated April 13, 1995
Item 5. Other Events -- Announcement by the Company of the following:
execution of a settlement agreement concerning all claims involved in
the Company's Federal Shareholders' Class Action litigation pending
since October 1993 and notification of the Company being served with a
copyright infringement suit.
c) Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
3.1* Certificate of Incorporation (Exhibit 3(a)
3.2(a)** Bylaws (Exhibit 4.1)
3.2(b)*** Amendment to By-laws dated February 1992 (Exhibit 3(b)(1)
3.2(c) Amendment to By-laws dated April 1995
4.1* Specimen copy of stock certificate for shares of Common Stock of the Registrant (Exhibit 4(a)
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
4.2 Specimen copy of stock certificate for shares of Series B Convertible Preferred Stock of the
Registrant
4.3++ Rights Agreement dated as of January 3, 1994 (Exhibit 4.2)
4.3(a)++ Amendment No. 1 to Rights Agreement, dated as of March 6, 1994 (Exhibit 4.2(a)
4.3(b) Amendment No. 2 to Rights Agreement, dated as of September 26, 1994
4.3(c) Amendment No. 3 to Rights Agreement, dated as of September 30, 1994
4.3(d) Amendment No. 4 to Rights Agreement, dated as of November 30, 1994
4.4 Certificate of Designation of Series B Convertible Preferred Stock
10.1* 1988 Stock Option Plan (Exhibit 10(b)+
10.2(a)## Amended and Restated 1991 Stock Option Plan (Exhibit A)+
10.2(b)*** Form of Stock Option Agreement (Exhibit 10(a)(2)(ii)+
10.2(c)*** Form of Note of Exercising Options Holder (Exhibit 10(a)(3)(iii)+
10.3*** Non-Plan Stock Option (Exhibit 10(a)(2)(i)+
10.4**** 401(k) Plan Document (Exhibit 10(a)(4)+
10.5## 1995 Management Incentive Plan (Exhibit B)+
10.6(a)**** Stock Purchase Agreement between Registrant and Synacq, Inc. (Exhibit 10(c)(3)
10.6(b)**** Products Offering Services Agreement between Registrant and Synacq, Inc. (Exhibit 10(c)(4)
10.6(c)**** Financial Consulting Agreement between Registrant and Synacq, Inc. (Exhibit 10(c)(5)
10.6(d)**** Non-Competition and Confidentiality Agreement between Registrant and Synacq, Inc.
(Exhibit 10(c)(6)
10.7*** Lease for 1700 Walnut Street, Philadelphia, PA (Exhibit 10(d)(5)
10.8**** Form of Indemnity Agreement (Exhibit 10(h)
10.9(a)*** Employment Agreement between the Registrant and John J. Turchi, Jr. dated as of September 23,
1993 (Exhibit 10.2)+
10.9(b)&& Letter Agreement between the Registrant and John J. Turchi, Jr. dated September 12, 1994
(Exhibit 10)
10.9(c)& Letter Agreement between the Registrant, John J. Turchi, Jr. and Mergren Associated dated April
13, 1995 (Exhibit 10.4)
10.10(a)*** Amendment to Employment Agreement between the Registrant and John J. Sullivan dated as of March
1, 1992 (Exhibit 10(l)(1)+
10.10(b)++ Employment Agreement between the Registrant and John J. Sullivan dated as of June 1, 1994
(Exhibit 10.16(b)+
10.11(a)+ Employment Agreement between the Registrant and Michael M. Hammond dated as of April 16, 1993
(Exhibit 10.17)+
10.11(b)++ Agreement between the Registrant and Michael M. Hammond dated as of May 3, 1994
(Exhibit 10.17(a)+
10.12(a)++ Employment Agreement between the Registrant and David Carman dated as of June 1, 1993
(Exhibit 10.3)+
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
10.12(b)++ Employment Agreement between Quantum and David Carman dated as of June 1, 1993 (Exhibit 10.4)
10.13++ Employment Agreement between the Registrant and James Jernigan dated as of June 1, 1994
(Exhibit 10.20)+
10.14+ Promissory Note between the Registrant and John J. Turchi, Jr. dated January 1, 1992
10.15++ Lease for 7822 S. 46th Street; Phoenix, AZ (Exhibit 10.1)
10.16+++ Settlement Agreement; dated as of October 8, 1993, by and among: Ronic, S.A.; Ronic Industries
S.A.; Marie-Claire Faivre Duboz; Registrant; Quantum and Media Arts (Exhibit 10.1)
10.17+++ Settlement Agreement and Full and Mutual Release dated December 13, 1993 by and between
Registrant, Media Arts and Positive Response Marketing, Inc. and Michael S. Levey. (Exhibit 10.2)
10.18(a)++ Marketing and Distribution Agreement dated as of July 1, 1993 among Registrant, Quantum and
Direct Records, Inc. (Exhibit 10.25(a)
10.18(b)++ First Amendment to Marketing and Distribution Agreement as of July 15, 1993 among Registrant,
Quantum and Direct Records, Inc. (Exhibit 10.25(b)
10.19++ Production Agreement dated December 13, 1993 by and among Registrant, Media Arts, and Positive
Response Television, Inc. (Exhibit 10.26)
10.20++ Agreement Respecting Ownership and Use of Service Mark dated December 13, 1993 by and among
Registrant and Media Arts and Positive Response Television, Inc. and Michael S. Levey
(Exhibit 10.27)
10.21# Promissory Note between the Registrant and John J. Turchi, Jr. dated January 14, 1994 (Exhibit 6)
10.22# Promissory Note between the Registrant and David Carman dated January 13, 1994 (Exhibit 6)
10.23# Promissory Note between the Registrant and John J. Sullivan dated January 13, 1994 (Exhibit 6)
10.24(a) Nonnegotiable Consolidated, Amended and Restated Promissory Note between the Registrant and
Kevin Harrington dated March 23, 1995
10.24(b) Letter Agreement between the Registrant and Kevin Harrington dated March 23, 1995
10.25&&&& Settlement Agreement and Full and Mutual Release between the Registrant and Abraham J. Salaman
dated August 1, 1994 (Exhibit 10)
10.26&&& Employment Agreement between the Registrant and Mark P. Hershhorn dated August 26, 1995
(Exhibit 10)
10.27(a)|B| Securities Purchase Agreement between the Registrant and, the persons executing, or causing to
be executed the signature page dated September 30, 1994 (Exhibit 10(a))
10.27(b) Amendment to Securities Purchase Agreement dated as of December 19, 1994
10.28|B| Note and Warrant Purchase Agreement between the Registrant, Media Arts International, Ltd.,
Quantum International Limited and Safeguard Scientifics (Delaware), Inc. dated October 19, 1994
(Exhibit 10(b))
10.29|B||B| Securities Purchase Agreement between the Registrant and, the persons executing, or causing to
be executed, the signature page thereof dated as of November 30, 1994 (Exhibit 10)
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
10.30|B||B||B| Agreement between the Registrant, Buckeye Communications, Inc. and Mark Hershhorn dated August
26, 1994 (Exhibit 99a)
10.31 ++++ Marketing, Distribution and Service Mark Agreement between the Registrant, Media Arts
International, Ltd., and Positive Response Television, Inc. (Exhibit 10.3)
10.32 ++++ Employment Agreement between the Registrant and Brian McAdams dated January 5, 1995
(Exhibit 10.1)
10.33 ++++ Employment Agreement between the Registrant and Constantinos I. Costalas dated January 5, 1995
(Exhibit 10.2)
10.34 & Settlement Agreement among the Registrant, ValueVision International, Inc., John J. Turchi,
Jr., Robert J. Johander and Mark A. Payne dated April 13, 1995 (Exhibit 10.1)
10.35 & Telemarketing, Production and Post-Production Agreement between the Registrant and ValueVision
International, Inc., dated April 13, 1995 (Exhibit 10.2)
10.36 & Join Venture Agreement between the Registrant and ValueVision International, Inc., dated April
13, 1995 (Exhibit 10.3)
10.37 Stipulation and Agreement of Compromise and Settlement regarding National Media Securities
Litigation
10.38 Registration Rights Agreement dated as of December 19, 1994 by and among National Media
Corporation and the persons whose signatures appear on the signature page thereof
11.1 Statement RE: Computation of Per Share Earnings
21.1 Subsidiaries of the Company
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule
</TABLE>
- ------
* Incorporated by reference to Registrant's Registration Statement on Form
S-1 (Reg. No. 33-26778) filed January 31, 1989.
** Incorporated by reference to Registrant's Registration Statement on Form
S-3 (Reg. No. 33-35301) filed June 8, 1990.
*** Incorporated by reference to Registrant's Annual Report on Form 10-K for
fiscal year ended March 31, 1992 filed June 26, 1992.
**** Incorporated by reference to Registrant's Annual Report on Form 10-K for
fiscal year ended March 31, 1991 filed June 20, 1991.
++ Incorporated by reference to Registrant's Annual Report on Form 10-K for
fiscal year ended March 31, 1994 filed July 14, 1994.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
+ Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1993 filed June 29, 1993.
++ Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the period ended September 30, 1993 filed November 12, 1993.
+++ Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the period ended December 31, 1993 filed February 14, 1994.
++++ Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the period ended December 31, 1994 filed February 14, 1995.
27
<PAGE>
|B| Incorporated by reference to Registrant's Report on Form 8-K dated
October 5, 1994.
|B%|B| Incorporated by reference to Registrant's Report on Form 8-K dated
December 8, 1994.
|B||B||B| Incorporated by reference to Registrant's Report on Form 8-K dated
January 13, 1995.
& Incorporated by reference to Registrant's Report on Form 8-K dated
April 13, 1995.
&& Incorporated by reference to Registrant's Report on Form 8-K dated
September 12, 1994.
&&& Incorporated by reference to Registrant's Report on Form 8-K dated
August 26, 1994.
&&&& Incorporated by reference to Registrant's Report on Form 8-K dated
July 19, 1994.
## Incorporated by reference to Registrant's Proxy Statement in
connection with annual meeting of Stockholders to be held on
February 22, 1995.
# Incorporated by reference to Registrant's Schedule 14 D-9 filed on
February 18, 1994.
28
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(A)(1) AND (2), (C) AND (D)
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED MARCH 31, 1995
NATIONAL MEDIA CORPORATION
PHILADELPHIA, PA
29
<PAGE>
NATIONAL MEDIA CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995 AND 1994
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors ............................................................. 31
Audited Consolidated Financial Statements
Consolidated Balance Sheets ................................................................ 32
Consolidated Statements of Operations ...................................................... 34
Consolidated Statements of Shareholders' Equity ............................................ 35
Consolidated Statements of Cash Flows ...................................................... 36
Notes to Consolidated Financial Statements ................................................. 37
</TABLE>
30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
National Media Corporation
We have audited the accompanying consolidated balance sheets of National
Media Corporation as of March 31, 1995 and 1994, and the related consolidated
statements of operations, cash flows, and shareholders' equity for each of
the three years in the period ended March 31, 1995. Our audits also included
the financial statement schedule included in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of National Media Corporation at March 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended March 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
May 12, 1995
31
<PAGE>
NATIONAL MEDIA CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES
AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
March 31
1995 1994
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................................. $13,467 $ 1,595
Accounts receivable, net .............................................. 14,344 14,709
Inventories ........................................................... 15,387 10,761
Prepaid media ......................................................... 2,660 2,695
Prepaid show production ............................................... 3,463 2,830
Deferred costs ........................................................ 1,820 2,222
Prepaid expenses and other current assets ............................. 1,228 833
Deferred income taxes ................................................. 1,782 1,204
-------- --------
Total current assets .................................................... 54,151 36,849
Property and equipment, net ............................................. 4,413 4,809
Excess of cost over net assets of acquired businesses and other
intangible assets, less accumulated amortization of $1,918 and $1,582,
respectively .......................................................... 4,659 4,995
Other assets ............................................................ 920 822
-------- --------
Total assets ............................................................ $64,143 $47,475
======== ========
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
March 31
1995 1994
--------- ----------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Notes payable to bank ................................................. $ -- $ 3,819
Accounts payable ...................................................... 12,093 12,292
Accrued expenses ...................................................... 17,786 15,826
Deferred revenue ...................................................... 279 1,735
Income taxes payable .................................................. 300 --
Deferred income taxes ................................................. 1,428 849
Current portion of long-term debt and capital lease obligations ....... 184 951
------- --------
Total current liabilities ............................................... 32,070 35,472
Long-term debt and capital lease obligations ............................ 3,613 448
Deferred income taxes ................................................... 354 355
Other liabilities ....................................................... 1,481 629
Shareholders' equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares; issued
255,796 and -0- shares Series B convertible preferred stock
(liquidation preference of $10,232), respectively .................. 3 --
Common stock, $.01 par value; authorized 50,000,000 shares; issued
14,879,542 and 14,338,042 shares, respectively ..................... 149 144
Additional paid-in capital ............................................ 31,877 19,026
Retained earnings ..................................................... (10) 662
------- --------
32,019 19,832
Treasury stock, 686,710 shares, at cost ............................... (3,791) (3,791)
Notes receivable, directors, officers, employees, consultants, and
others ............................................................. (1,868) (4,504)
Foreign currency translation adjustment ............................... 265 (966)
------- --------
Total shareholders' equity .............................................. 26,625 10,571
------- --------
Total liabilities and shareholders' equity .............................. $64,143 $47,475
======= ========
</TABLE>
See accompanying notes.
33
<PAGE>
NATIONAL MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES
AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year ended March 31
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Product sales .................................... $ 168,689 $ 167,920 $ 137,638
Retail royalties ................................. 5,303 3,694 3,218
Sales commissions and other revenues ............. 2,175 988 1,141
----------- ----------- -----------
Net revenues ....................................... 176,167 172,602 141,997
Operating costs and expenses:
Media purchases .................................. 51,961 56,215 38,458
Direct costs ..................................... 97,605 95,070 74,777
Selling, general, and administrative ............. 20,766 20,667 21,331
Severance expense for former Chairman and Chief
Executive Officer ............................. 2,650 -- --
Unusual charges .................................. 2,868 9,049 725
Interest expense ................................. 689 300 371
----------- ----------- -----------
Total operating costs and expenses ................. 176,539 181,301 135,662
----------- ----------- -----------
Income (loss) before income taxes .................. (372) (8,699) 6,335
Income taxes ....................................... 300 -- 76
----------- ----------- -----------
Net income (loss) .................................. $ (672) $ (8,699) $ 6,259
=========== =========== ===========
Income (loss) per common and dilutive common
equivalent shares ................................ $ (.05) $ (.72) $ .48
=========== =========== ===========
Weighted average number of common shares outstanding 14,023,800 12,077,900 13,046,400
=========== =========== ===========
</TABLE>
See accompanying notes.
34
<PAGE>
NATIONAL MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
Year ended March 31
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Preferred stock:
Beginning balance .................................... $ -- $ -- $ --
Issuance of investment units ......................... 3 -- --
-------- --------- --------
Ending balance ......................................... 3 -- --
Common stock:
Beginning balance .................................... 144 123 118
Exercise of stock options (41,500; 2,052,418; and
491,234 shares) ................................... -- 21 5
Issuance of shares to settle litigation (500,000
shares) ........................................... 5 -- --
-------- --------- --------
Ending balance ......................................... 149 144 123
Additional paid-in capital:
Beginning balance .................................... 19,026 13,363 12,398
Issuance of investment units ......................... 9,083 -- --
Issuance of shares to settle litigation .............. 1,726 -- --
Issuance of warrants in connection with term loan .... 1,800 -- --
Exercise of stock options ............................ 242 5,652 965
Reissuance of treasury shares ........................ -- 11 --
-------- --------- --------
Ending balance ......................................... 31,877 19,026 13,363
Retained earnings:
Beginning balance .................................... 662 9,361 3,102
Net income (loss) .................................... (672) (8,699) 6,259
-------- --------- --------
Ending balance ......................................... (10) 662 9,361
Treasury stock:
Beginning balance .................................... (3,791) (3,892) (3,892)
Reissuance of treasury shares (18,265 shares) ........ -- 101 --
-------- --------- --------
Ending balance ....................................... (3,791) (3,791) (3,892)
Deferred compensation:
Beginning balance .................................... -- -- (6)
Amortization of deferred compensation ................ -- -- 6
-------- --------- --------
Ending balance ......................................... -- -- --
Notes receivable:
Beginning balance .................................... (4,504) (496) (452)
Collection of notes receivable ....................... 2,636 642 367
Exercise of stock options ............................ -- (4,650) (411)
-------- --------- --------
Ending balance ......................................... (1,868) (4,504) (496)
Foreign currency translation adjustment:
Beginning balance .................................... (966) (829) (125)
Translation adjustment for the year .................. 1,231 (137) (704)
-------- --------- --------
Ending balance ......................................... 265 (966) (829)
-------- --------- --------
Total shareholders' equity ............................. $26,625 $10,571 $17,630
======== ========= ========
</TABLE>
See accompanying notes.
35
<PAGE>
NATIONAL MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended March 31
1995 1994 1993
--------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) .................................... $ (672) $ (8,699) $ 6,259
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ................... 1,650 1,628 2,022
Amortization of loan discount ................... 150 -- --
Provision for deferred rent expense ............. 402 363 --
Decrease (increase) in:
Accounts receivable, net ...................... 1,139 (3,577) (6,006)
Inventories ................................... (3,987) (360) (5,505)
Prepaid cable and advertising costs ........... (370) (662) (3,730)
Deferred costs ................................ 402 807 (1,155)
Other current assets .......................... (395) (106) 1,129
Increase (decrease) in:
Accounts payable .............................. (415) 1,839 5,546
Accrued expenses .............................. 4,713 6,422 (875)
Deferred revenue .............................. (1,456) (903) 1,167
Income taxes payable .......................... 300 (520) (97)
Other ......................................... 440 1,548 899
-------- -------- -------
Net cash provided by (used in) operating activities .. 1,901 (2,220) (346)
Cash flows from investing activities
Additions to property and equipment .................. (832) (1,815) (1,974)
Proceeds from sale of building ....................... -- -- 2,275
-------- -------- -------
Net cash (used in) provided by investing activities .. (832) (1,815) 301
Cash flows from financing activities .................
Net proceeds from issuance of investment units ....... 9,415 -- --
Proceeds from borrowings ............................. 5,000 442 2,978
Payments on long-term debt ........................... (952) (1,565) (2,147)
Exercise of stock options ............................ 242 1,022 486
Net (repayments) borrowings under lines of credit .... (3,819) 2,334 (2,197)
Payments received on notes receivable ................ 492 583 367
-------- -------- -------
Net cash provided by (used in) financing activities .. 10,378 2,816 (513)
Effect of exchange rate changes on cash and cash
equivalents ........................................ 425 (34) (337)
-------- -------- -------
Net increase (decrease) in cash and cash equivalents . 11,872 (1,253) (895)
Cash and cash equivalents at beginning of year ....... 1,595 2,848 3,743
-------- -------- -------
Cash and cash equivalents at end of year ............. $13,467 $ 1,595 $ 2,848
======== ======== =======
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest ........................................... $ 546 $ 339 $ 319
======== ======== =======
Taxes on income .................................... $ -- $ 30 $ 5
======== ======== =======
Supplemental schedule of noncash investing and
financing activities
Common stock issued upon exercise of stock options for
notes receivable ................................... $ -- $ 4,650 $ 411
======== ======== =======
Purchase of equipment financed by capital lease ...... $ -- $ 442 $ 278
======== ======== =======
</TABLE>
See accompanying notes.
36
<PAGE>
NATIONAL MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. DESCRIPTION OF BUSINESS
National Media Corporation is engaged in the direct marketing of consumer
products principally through television media, by its wholly-owned
subsidiaries, Media Arts International, Ltd. and Quantum International
Limited ("Quantum").
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of National
Media Corporation and its wholly- owned subsidiaries (the Company). All
significant intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION AND RESERVE FOR RETURNED MERCHANDISE
Product sales and retail royalty revenue is recognized when the product is
shipped. Commission revenue is recognized when an order is received and the
appropriate credit investigation is completed. Generally, it is the Company's
policy to refund unconditionally the total price of merchandise returned
within 30 days. The Company provides an allowance, based upon experience, for
returned merchandise.
CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, the Company considers
all highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents.
CASH FLOW--NONCASH FINANCING ACTIVITIES
During the year ended March 31, 1995, the Company engaged in certain
noncash 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 13. The value of the shares was based on the stock's fair market
value at the date of settlement. 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 7, by amounts
due the Company by the former Chairman and CEO which were previously included
in Notes Receivable in the shareholders' equity section of the balance sheet.
ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $1,954,360 and $906,400 at March
31, 1995 and 1994, respectively.
INVENTORIES
Inventories consist principally of products purchased for resale, and are
stated at the lower of cost (determined by the first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT AND DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost. Depreciation and amortization
are provided using the straight- line method based on the estimated useful
lives of the assets or lease terms.
37
<PAGE>
National Media Corporation
Notes to Consolidated Financial Statements - (Continued)
1. Description of Business and Summary of Significant Accounting Policies
- (Continued)
EXCESS OF COST OVER NET ASSETS ACQUIRED AND OTHER INTANGIBLE ASSETS
Excess of cost over net assets of acquired businesses ("goodwill") is
being amortized by the straight-line method over 20 to 40 years. Other
intangible assets are being amortized by the straight-line method over 2 to 5
years. Amortization expense for excess of cost over net assets acquired and
other intangible assets was $336,200, $415,200, and $702,100 for the years
ended March 31, 1995, 1994, and 1993, respectively.
SHOW PRODUCTION COSTS
Costs related to the production of the Company's direct response televised
advertising programs are capitalized and amortized over the estimated useful
life of the production. Show production expense was $6,077,000, $6,833,000,
and $1,765,000 for the years ended March 31, 1995, 1994, and 1993,
respectively. Production expense for 1995, 1994, and 1993 included
$1,100,000, $2,600,000, and $200,000, respectively, for amounts written down
related to unsuccessful shows.
DEFERRED REVENUE AND COSTS
Deferred revenue consists of funds received by the Company for items
ordered, but not shipped. The related costs are deferred and expensed as
orders are shipped. The Company also defers direct costs on product orders
for which the funds are not yet received and expenses these costs as orders
are shipped.
PER SHARE AMOUNTS
Income (loss) per share amounts have been computed based upon the weighted
average number of common shares and dilutive common equivalent shares (stock
options, warrants, and preferred stock) outstanding using the "if converted
method" in 1995 and the "treasury stock" method in 1994 and 1993. For 1995
and 1994, the effect of the exercise of stock options and warrants and the
conversion of convertible preferred stock was not assumed in the calculation
of loss per share because the effect was anti-dilutive.
FOREIGN CURRENCY TRANSLATION
Results of operations for the Company's foreign subsidiary are translated
using the average exchange rates during the period, while assets and
liabilities are translated into U.S. dollars using the rate at the balance
sheet date. Resulting translation adjustments are recorded as a component of
shareholders' equity.
RECLASSIFICATIONS
Certain prior-year amounts have been reclassified to conform to the
current presentation.
INCOME TAXES
The Company uses the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
38
<PAGE>
National Media Corporation
Notes to Consolidated Financial Statements - (Continued)
2. ACCRUED EXPENSES
Accrued expenses include the following (in thousands):
<TABLE>
<CAPTION>
March 31
1995 1994
--------- ---------
<S> <C> <C>
Allowance for product refunds and returns $3,371 $3,193
Accrual for legal settlements ............ 1,875 2,513
Accrual for commissions payable .......... 1,226 2,141
Accrual for media purchases .............. 3,207 912
Accrual for sales and VAT tax ............ 2,311 1,544
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31
1995 1994
--------- ---------
<S> <C> <C>
Furniture, fixtures, and office equipment ..... $ 7,735 $ 6,832
Leasehold improvements ........................ 938 922
Equipment under capital leases ................ 720 720
--------- ---------
9,393 8,474
Less accumulated depreciation and amortization (4,980) (3,665)
--------- ---------
Total ......................................... $ 4,413 $ 4,809
========= =========
</TABLE>
Depreciation and amortization expense for property and equipment,
including equipment under capital lease, was $1,314,374, $1,212,800, and
$1,319,900 for the years ended March 31, 1995, 1994, and 1993, respectively.
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following (in
thousands):
<TABLE>
<CAPTION>
March 31
1995 1994
--------- -------
<S> <C> <C>
Term loan payable to investor, net of discount $3,350 $ --
Term loan payable to bank ..................... -- 788
Bankers' acceptances .......................... -- 3,819
Obligations under capital leases .............. 447 611
------- -------
3,797 5,218
Less current portion .......................... 184 4,770
------- -------
Long-term portion ............................. $3,613 $ 448
======= =======
</TABLE>
The Company obtained a $5,000,000 five-year secured term loan with an
independent investor pursuant to a Note and Warrant Purchase Agreement, dated
October 19, 1994 (Note Agreement). Approximately $3.1 million of the proceeds
of the loan were used to repay the Company's pre-existing bank credit
facility. The balance of the proceeds is 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 an independent valuation analysis, the Company has valued
the Loan Warrants at $1.8 million. The corresponding loan discount is being
39
<PAGE>
National Media Corporation
Notes to Consolidated Financial Statements - (Continued)
4. Long-Term Debt and Capital Lease Obligations - (Continued)
amortized over the life of the loan (60 months) and is included in interest
expense. On April 20, 1995, the term loan was purchased by a bank. All
material terms of the loan remained unchanged. The loan is guaranteed by the
original investor.
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. 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 nondomestic 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 pounds sterling200,000 pounds
(approximately $300,000). Under the Note Agreement, the Company is subject to
certain restrictions, including the payment of dividends, and must comply
with covenants including the maintenance of specific ratios.
Long-term debt maturities and payments due under capital lease obligations
are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending Long-Term Capital Lease
March 31 Debt Obligations
----------- ------------- -----------------
<S> <C> <C>
1996 ...................... $ -- $229
1997 ...................... -- 118
1998 ...................... -- 117
1999 ...................... -- 75
2000 ...................... 5,000 --
------ ------
5,000 539
Less: Interest portion .... -- 92
Loan discount ....... 1,650 --
------ ------
Total .............. $3,350 $447
====== ======
</TABLE>
5. 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 11.
Each share of 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 preferred stock shall be entitled to
receive dividends declared on the common stock as if the shares of preferred
stock had been converted into shares of common stock. Except as to the
election of directors, each share of preferred stock has voting rights
equivalent to the total number of shares of common stock into which the share
of the preferred stock is convertible. The holders of the 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 preferred stockholders' right to elect two directors
terminates under certain circumstances.
At March 31, 1995, there were 11,750,000 shares of common stock reserved
for conversion of preferred stock, for exercise of stock options and
warrants, for issuance under the 1995 Management Incentive Plan, and for
issuance in connection with the tentative settlement of the Shareholders'
Federal Class Action litigation. The Company would receive proceeds in excess
of $40 million upon exercise of all options and warrants currently
outstanding.
40
<PAGE>
National Media Corporation
Notes to Consolidated Financial Statements - (Continued)
6. INCOME TAXES
The components of income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
Federal State Foreign Total
---------- ------- --------- -------
<S> <C> <C> <C> <C>
1995
- ----
Current ......................... $ -- $100 $ 200 $ 300
Deferred ........................ (495) -- 495 --
-------- ------ ------ --------
Total ........................... $ (495) $100 $ 695 $ 300
======== ====== ====== ========
1994
- ----
Current ......................... $ -- $ -- -- $ --
Deferred ........................ 209 -- (209) --
-------- ------ ------ --------
Total ........................... $ 209 $ -- (209) $ --
======== ====== ====== ========
1993
- ----
Current ......................... $ 544 $ 76 $ -- $ 620
Deferred ........................ (113) -- 1,813 1,700
Benefit of operating loss
carryforward ................... (1,992) -- (252) (2,244)
-------- ------ ------ --------
Total ........................... $(1,561) $ 76 $1,561 $ 76
======== ====== ====== ========
</TABLE>
Income (loss) before income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ---------
<S> <C> <C> <C>
United States $ (1,530) $ (7,979) $1,049
Foreign ....................... 1,158 (720) 5,286
--------- --------- --------
Total ......................... $ (372) $ (8,699) $6,335
========= ========= ========
</TABLE>
Significant components of the Company's deferred tax liabilities and
assets are as follows (in thousands):
<TABLE>
<CAPTION>
March 31
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ......... $ 9,493 $ 9,621
Alternative minimum tax credit
carryforward .......................... 469 469
Investment tax credit carryforward ....... 66 66
Accrued vacation and severance pay ....... 785 354
Inventory and accounts receivable reserves 1,824 1,465
Reserve for legal settlements ............ 840 774
Other .................................... 546 452
-------- --------
Total deferred tax assets .................. 14,023 13,201
Valuation allowance ........................ (10,451) (10,121)
-------- --------
Deferred tax assets ........................ 3,572 3,080
Deferred tax liabilities:
Prepaid media and other costs ............ 1,078 714
Tax over book depreciation ............... 360 360
Deferred production costs ................ 682 407
Deferred sales ........................... 1,452 1,599
-------- --------
Total deferred tax liabilities ............. 3,572 3,080
-------- --------
Net deferred tax asset ..................... $ -- $ --
======== ========
</TABLE>
41
<PAGE>
National Media Corporation
Notes to Consolidated Financial Statements - (Continued)
6. Income Taxes - (Continued)
The increase in the valuation allowance recorded against deferred tax
assets is allocable to the increase in net U.S. operating loss carryforwards
generated in the fiscal year ended March 31, 1995.
A reconciliation of the Company's provision for income taxes to the
provision for income taxes at the U.S. federal statutory rate of 34% is as
follows:
<TABLE>
<CAPTION>
Year ended March 31
1995 1994 1993
--------- ----------- ---------
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate ....... $ (126) $ (2,958) $ 2,154
Tax effect of: ................................
Net operating loss .......................... 126 2,958 --
Utilization of net operating loss
carryforward ............................. -- -- (1,672)
Recognition of net deferred tax asset ....... -- -- (482)
Foreign income taxes ........................ 200 -- --
State and local income taxes ................ 100 -- 76
------- --------- --------
Income tax expense ............................ $ 300 $ -- $ 76
======= ========= ========
</TABLE>
At March 31, 1995, the Company has the following loss and credit
carryforwards for tax purposes (in thousands):
<TABLE>
<CAPTION>
Amount Expiration
--------- --------------
<S> <C> <C>
U.S. net operating loss ......................... $26,150 2002 to 2010
Foreign net operating loss ...................... 1,825 unlimited
Alternative minimum tax credit .................. 469 unlimited
Investment tax credit ........................... 66 1998 to 2001
</TABLE>
The U.S. net operating loss carryforward includes approximately $14.2
million related to the exercise of employee stock options. For financial
reporting purposes, a valuation allowance has been recognized to offset the
deferred tax assets related to the entire U.S. net operating loss
carryforward.
Undistributed earnings of the Company's foreign subsidiary amounted to
approximately $3,377,000 million at March 31, 1995. Those earnings are
considered to be indefinitely reinvested and, accordingly, no provision for
U.S. federal and state income taxes has been provided thereon. Distribution
of those earnings in the form of dividends or otherwise would be subject to
U.S. income taxes, reduced by foreign tax credits.
7. SEVERANCE TO FORMER CHAIRMAN
In September 1994, the Chairman of the Board and Chief Executive Officer
of the Company resigned. In connection with his resignation, he and the
Company executed a letter agreement. The Company recorded severance expense
of $2,650,000, pursuant to the terms of the letter agreement and the terms of
his employment agreement. In connection with the former Chairman's
resignation as a member of the Company's Board of Directors and the Company's
settlement of the ValueVision litigation as discussed in Note 13, the Company
and the former Chairman entered into further agreements in part amending the
earlier agreements. Pursuant to such agreements, the Company (i) paid the
former Chairman $50,000 per month through March 31, 1995, (ii) forgave two
notes made by the former Chairman, in the principal amount of $1,646,189,
(iii) accelerated 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 (iv) retained the former Chairman as a consultant for a term
of 36 months for which he will be paid $300,000. 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.
42
<PAGE>
National Media Corporation
Notes to Consolidated Financial Statements - (Continued)
8. STOCK OPTIONS
The Company has stock option plans under which, as amended, a maximum of
5,065,000 shares of common stock may be issued upon exercise of incentive or
nonincentive stock options, special options, or stock appreciation rights
granted pursuant to such plans. To date, the exercise price of options issued
under the Plans has been market or related to market. All employees of the
Company, as well as directors, officers, and third parties providing services
to the Company are eligible to participate in the Plans.
Pursuant to employment agreements with various officers of the Company,
who entered into employment agreements after August 31, 1991, as well as
certain other agreements, the Board of Directors has authorized the grant of
options to purchase up to 1,042,000 shares of common stock at exercise prices
equal to the market price at the time of grant. In each case, the grant of
option was an inducement to the execution of an employment or other
agreement.
Options granted vest over a period ranging from the date of grant up to a
maximum of three years. Options may be exercised up to a maximum of 10 years
from date of grant.
<TABLE>
<CAPTION>
Shares Under
Option
--------------
<S> <C>
Outstanding at April 1, 1992 ....................... 2,423,491
Granted ............................................ 835,000
Exercised at average of $1.86 per share ............ (491,234)
Expired and canceled ............................... (43,333)
----------
Outstanding at March 31, 1993 ...................... 2,723,924
Granted ............................................ 1,590,000
Exercised at average of $2.76 per share ............ (2,052,418)
Expired and canceled ............................... (181,666)
----------
Outstanding at March 31, 1994 ...................... 2,079,840
Granted ............................................ 1,165,590
Exercised at average of $5.84 per share ............ (41,500)
Expired and canceled ............................... (295,834)
----------
Outstanding at March 31, 1995 ...................... 2,908,096
==========
Exercisable at March 31, 1995 ...................... 1,886,427
==========
Exercise price ..................................... $1.50 - $10.75
==============
Shares available for future grant at March 31, 1995 70,016
==========
Shares available for future grant at March 31, 1994 19,182
==========
</TABLE>
9. NOTES RECEIVABLE, DIRECTORS, OFFICERS, EMPLOYEES, CONSULTANTS, AND OTHERS
Notes outstanding in an aggregate principal amount of $1,868,000 were
received in connection with the issuance of 995,000 shares of common stock
upon exercise of stock options with exercise prices ranging from $1.625 to
$5.125 per share. Approximately $504,000 of these notes are repayable upon
the earlier of the sale of the underlying stock or in equal quarterly
installments over a three-year period commencing on the 90th day or first
anniversary of the individual ceasing to be employed by the Company. A note
in the amount of $1,364,000 is due September 30, 1996 with minimum quarterly
repayments of $270,000 effective September 30, 1995. This note is secured by
certain of the Company's common stock. The notes carry interest rates ranging
from 3.79% to 4.00%.
10. STOCK PURCHASE RIGHTS
On January 13, 1994, the Company distributed one preferred share purchase
right on each outstanding share of its common stock. The rights will become
exercisable only if, without the Company's consent or waiver a person or
group acquires 15 percent or more of the Company's outstanding common stock
or announces a tender offer the consummation of which would result in
43
<PAGE>
National Media Corporation
Notes to Consolidated Financial Statements - (Continued)
10. Stock Purchase Rights - (Continued)
ownership by a person or group of 15 percent or more of the Company's
outstanding common stock. Each right will entitle shareholders to buy one
one-hundredth of a share of a new series of junior participating preferred stock
at an exercise price of $40. In addition, upon the occurrence of certain events,
the holders of rights will thereafter have the right to receive, upon exercise
at the then-current exercise price, common stock (or, in certain circumstances,
cash, property, or other securities of the Company) having a value equal to two
times the exercise price of the right. In the event that the Company is acquired
in a merger or other business combination, or 50% or more of the Company's
assets or earning power is sold, proper provision will be made so that each
holder of a right will thereafter have the right to receive, upon exercise at
the then-current exercise price of the right, common stock of the acquiring or
surviving company having a value equal to two times the exercise price of the
right. Any rights that are, or were, under certain circumstances, beneficially
owned by such a 15% owner will immediately become null and void.
The holders of rights, as such, have no rights as stockholders of the
Company. The Company has the ability to redeem the rights at $.001 per right
until the occurrence of certain specified events.
11. EQUITY INVESTMENT
During the year ended March 31, 1995, the Company raised a total of
$9,415,000 (net of $872,000 of offering costs) through the sale, in privately
negotiated transactions, of a total of 255,796 investment units ("Units").
Each Unit consists of one share of preferred stock, par value $.01 per share,
of the Company and a warrant (the "Warrants") to purchase twelve (12) shares
(subject to adjustment) of common stock, par value $.01 per share, 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:
<TABLE>
<CAPTION>
Common Stock
Warrants Issuable Date Exercisable Expiration Date
---------- -------------- ----------------- ----------------
<S> <C> <C> <C>
32,250 387,000 October 5, 1995 October 5, 2004
223,546 2,682,552 December 19, 1995 December 19, 2004
</TABLE>
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.
Holders of the aforementioned preferred stock and Warrants and Loan Warrants
(see Note 4) have certain demand registration rights and piggy-back
registration rights with respect to the shares of common stock issuable
thereunder. 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).
12. COMMITMENTS AND CONTINGENCIES
The Company rents warehouse and office space under various operating
leases which expire through December 2013 including a lease with a related
party as described in Note 14. Future minimum lease payments (exclusive of
real estate taxes and other operating expenditures) as of March 31, 1995
under noncancelable operating leases with initial or remaining terms of one
year or more are as follows for the years ended March 31 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 ................................ $ 1,366
1997 ................................ 1,161
1998 ................................ 1,006
1999 ................................ 856
2000 ................................ 946
Thereafter .......................... 13,094
---------
$18,429
=========
</TABLE>
44
<PAGE>
National Media Corporation
Notes to Consolidated Financial Statements - (Continued)
12. Commitments and Contingencies - (Continued)
Rent expense under various operating leases aggregated $2,119,100,
$2,483,500, and $930,200 in 1995, 1994, and 1993, respectively. Subleased
building space rental income aggregated $140,500, $148,600, and $67,300, for
1995, 1994, and 1993, respectively.
During fiscal year 1995, the Company expended $51,961,000 on media
purchases, a portion of which were made under long-term agreements. According
to the terms of one such agreement between the Company and a cable television
network which extends through December 1997, the Company is obligated to
purchase a specific number of television hours per calendar year. The
agreement is cancelable by the cable television network with six months'
written notice, only in the event that it decides to telecast its own
programming on a 24-hours-per-day basis. In addition, the Company has
agreements with certain Pan European satellite channels to purchase a
specific number of television hours per week at a minimum guaranteed amount.
These contracts expire at various dates from August 1996 to December 1999.
Total commitments under these media contracts are: $22,700,000 in 1996;
$21,800,000 in 1997; $18,300,000 in 1998; $1,000,000 in 1999; and $750,000 in
2000.
13. LITIGATION AND REGULATORY MATTERS
SHAREHOLDERS' FEDERAL CLASS ACTIONS
In June 1993, a class action complaint was filed in federal court against
the Company and certain of its former executive officers. 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 in October 1993. The complaint involved allegations concerning
disclosure by the Company of its ongoing relationship with Positive Response
Television, Inc., an infomercial producer, and Ronic, S.A., a supplier of the
Company.
The parties have reached a settlement of this action, calling for cash
payments by the Company's insurer of $2.175 million and the issuance, subject
to adjustment, of 145,000 shares of common stock. In connection with the
settlement, the Company recorded a charge of approximately $725,000.
TERMINATED TENDER OFFER AND MERGER AGREEMENT WITH VALUEVISION INTERNATIONAL,
INC.
On April 22, 1994, the Company filed suit in federal court against
ValueVision International, Inc. ("ValueVision") alleging that ValueVision had
wrongfully terminated its amended tender offer. In May 1994, ValueVision
answered the Company's complaint and set forth various counterclaims. On
April 17, 1995, the Company, ValueVision, and all other parties to this
litigation entered into a settlement agreement, pursuant to which the parties
agreed to dismiss with prejudice all claims and counterclaims. In connection
with the settlement agreement, the Company and ValueVision executed a
Telemarketing, Production and Post-Production Agreement (the "Telemarketing
Agreement") and a Joint Venture Agreement. The settlement agreement shall
become effective upon the earlier to occur of (i) the date upon which the
shareholder approval required by the applicable New York Stock Exchange rules
and regulations in order to consummate the Telemarketing Agreement has been
obtained or (ii) the date the Telemarketing Agreement becomes effective. In
the event the settlement agreement is not effective by August 31, 1995, the
settlement agreement shall become null and void in its entirety.
Pursuant to the Telemarketing Agreement, ValueVision is obligated to
provide to the Company over a three-year period inbound telephone call-taking
services at rates more favorable than those currently being paid by the
Company. ValueVision is also obligated to provide to the Company certain
production and post- production services.
As additional consideration for the services to be provided by ValueVision
under the Telemarketing Agreement, the Company is obligated to grant to
ValueVision, on the effective date, warrants (the "Warrants") to purchase up
to 500,000 shares of the Company's common stock at a price of $8.865 per
share (subject to adjustment pursuant to the antidilution provisions of the
Warrants). This price was based on a premium over the average 20-day market
45
<PAGE>
National Media Corporation
Notes to Consolidated Financial Statements - (Continued)
13. Litigation and Regulatory Matters - (Continued)
TERMINATED TENDER OFFER AND MERGER AGREEMENT WITH VALUEVISION INTERNATIONAL,
INC. -- (CONTINUED)
value prior to the date of settlement. The Warrants will vest with respect to an
equal number of shares on each of the thirteen-month, 2-year and 3-year
anniversaries of the effective date provided that ValueVision satisfies certain
conditions. The Warrants will expire on the tenth anniversary of the effective
date.
The Telemarketing Agreement shall become effective upon the later to occur of
the stockholder approval date and the certification date. In the event the
stockholder approval date does not occur on or prior to August 31, 1995,
either the Company or ValueVision may terminate the Telemarketing Agreement.
Upon such a termination, the settlement agreement shall become null and void.
In the event the certification date has not occurred by the sixtieth day
following the stockholder approval date, the Company may terminate the
Telemarketing Agreement. Upon such a termination, the Company will be
entitled to receive liquidated damages in the amount of $3,000,000. The
Company will also be entitled to liquidated damages at a lesser amount for
certain other material breaches under the Telemarketing Agreement.
As part of the settlement, the Company and ValueVision also entered into a
Joint Venture Agreement. Pursuant to the Joint Venture Agreement, the Company
is required, subject to certain exceptions, to negotiate in good faith with
ValueVision to form a joint venture to pursue home shopping opportunities
outside of the United States and Canada before pursuing such opportunities by
itself or with certain third parties. ValueVision granted the Company similar
rights with respect to infomercial opportunities ValueVision may have outside
the United States and Canada.
In connection with the matters discussed above, the Company agreed to
reimburse its former Chairman $50,000 for certain legal fees and associated
costs he incurred in connection with the litigation with ValueVision and
certain other legal matters to which the Company is a party and to accelerate
a substantial portion of the payments payable to the former Chairman under
that certain Consulting Agreement as described in Note 7. In addition, the
Company exercised its option to terminate, effective October 31, 1997, that
certain Lease dated February 25, 1992 as discussed more fully in Note 15.
Pursuant to the terms of the Lease, the Company was required to pay the sum
of $220,000 in connection with the exercise of its right of early
termination.
The issuance of the Warrants to ValueVision required the prior consent of the
holders of the promissory notes issued pursuant to the Note Agreement as
discussed in Note 4. As an inducement to the Noteholders to permit the
issuance of the Warrants, the Company has agreed to issue the Noteholders
warrants (the "Waiver Warrants") to purchase 500,000 shares of the Company's
common stock at a price of $10.00 per share. These warrants expire on the
earlier of 12 months after the notes are paid in full or upon the Noteholders
no longer being guarantors of the notes. The issuance of the Waiver Warrants
is subject to the approval of the Company's stockholders.
SHAREHOLDERS' DELAWARE CLASS ACTIONS
In January 1994, four class action complaints were filed in Delaware
Chancery Court against the Company and certain of its present and former
officers and directors in connection with a proposed merger transaction with
ValueVision. On April 17, 1995, the Company and other parties to the
litigation entered into agreements in principle to settle these actions as
well as the Lachance and Efron and Cohen Class Action litigation described
below. These agreements provide for cash payments of $1.5 million, 75% of
which will be paid by the Company's insurer. The Company recorded a charge of
$375,000 for its portion of the settlement.
LACHANCE AND EFRON AND COHEN CLASS ACTIONS
In 1994, stockholders filed purported class action lawsuits in federal
court against the Company and certain of its former officers and directors in
connection with the aborted ValueVision tender offer. The parties have
reached an agreement in principle to settle the matter as discussed in
Shareholders' Delaware Class Actions above.
46
<PAGE>
National Media Corporation
Notes to Consolidated Financial Statements - (Continued)
13. Litigation and Regulatory Matters - (Continued)
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(R) 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
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
condition.
CAMPBELL V. NATIONAL MEDIA CORPORATION
On July 28, 1994, a former officer of the Company filed a complaint in
federal court against the Company and the former Chairman and Chief Executive
Officer containing various allegations including a claim that the Company and
the former Chairman 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. The former officer seeks to recover compensatory
damages in excess of $1.3 million as well as punitive damages and to rescind
all alleged debts owed to the Company by him (approximately $238,000). The
Company and its former Chairman filed motions to dismiss and/or for summary
judgment, 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, 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.
SALAMAN V. NATIONAL MEDIA
On August 1, 1994, the Company entered into an agreement which settled a
judgment entered against the Company related to litigation brought by a
former director against the Company. Pursuant to the agreement, the Company
paid the former director $500,000 and issued to him 500,000 newly issued
shares of the Company's common stock (the "Shares"). On February 10, 1995,
the Company registered the Shares under the Securities Act of 1933, as
amended, for resale by the former director. Upon the declaration of
effectiveness of the registration statement, the parties caused the action to
be dismissed with prejudice.
RONIC, S.A. V. NATIONAL MEDIA
In October 1993, the Company entered into a settlement agreement with
Ronic, S.A., a supplier of one of the Company's products, related to
litigation involving its claim for payment of merchandise ordered and
received, and damages for Ronic's entry into receivership among other things.
The remaining terms of the settlement agreement (i) require Ronic to make
available during the period October 1, 1994 to September 30, 1997 (or until
the Company has purchased a total of $25,000,000 of product from Ronic)
certain manufacturing capacity for the Company in return for payment by the
Company annually on September 30 of between $0 and $250,000, on a sliding-scale
47
<PAGE>
National Media Corporation
Notes to Consolidated Financial Statements - (Continued)
13. Litigation and Regulatory Matters - (Continued)
RONIC, S.A. V. NATIONAL MEDIA -- (CONTINUED)
formula, depending upon the amount of goods purchased from Ronic, (ii) designate
Ronic as the preferred manufacturer of all of the Company's small electrical and
mechanical appliances for the next three years, and (iii) grant Ronic a
twenty-year license to market and manufacture electronic juice extractors under
the Company's Juice Tiger(R) trademark.
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 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.
14. RETIREMENT PLAN
The Company adopted a 401(k) defined contribution plan effective August 1,
1992. All of the Company's U.S. full-time employees may participate in the
plan. The Company matches employee contributions. The level of the matching
contributions depends on the return on equity of the Company each year.
Expense recognized for the plan was $40,000 and $12,500 for the years ended
March 31, 1995 and 1994, respectively.
15. RELATED PARTY TRANSACTIONS
In February 1992, the Company entered into a lease agreement for office
space in a building owned by Mergren Associates, a real estate company owned
by the Company's former Chairman of the Board and CEO. The lease provided for
the Company to rent approximately 29,795 square feet of office space for a
ten-year term ending October 31, 2002. Pursuant to the terms of the lease and
in connection with the ValueVision settlement as more fully discussed in Note
13 the Company exercised its option to terminate the lease, effective October
31, 1997. The rent for the remaining term will be $14.75 per square foot. To
assess the fairness of this lease, an independent real estate firm was
engaged to determine that the lease was based on fair market conditions at
the time of inception. The Company took possession of the property in
February 1993. Rental expense is $37,000 per month.
16. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment and is engaged in the direct
marketing of products principally through television. Information as to the
Company's foreign operations, which are principally in Europe and Asia
(commencing in July 1994) is set forth below (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
U.S. and Canada ................... $ 95,714 $126,580 $104,447
Europe ............................ 50,513 46,022 37,550
Asia .............................. 29,940 -- --
--------- --------- --------
Total ............................... $176,167 $172,602 $141,997
========= ========= ========
Operating income (loss): ............
U.S. and Canada ................... $ (4,753) $ (8,404) $ 1,171
Europe ............................ 2,008 5 5,535
Asia .............................. 3,062 -- --
--------- --------- --------
Total ............................... $ 317 $ (8,399) $ 6,706
========= ========= ========
Identifiable assets:
U.S. and Canada $ 28,191 $ 27,780 $ 30,493
Europe ............................ 27,779 19,695 16,278
Asia .............................. 8,173 -- --
--------- --------- --------
Total ............................... $ 64,143 $ 47,475 $ 46,771
========= ========= ========
</TABLE>
48
<PAGE>
National Media Corporation
Notes to Consolidated Financial Statements - (Continued)
16. Segment and Geographic Information - (Continued)
Operating income is net income before interest and income taxes. U.S. and
Canada includes unallocated corporate expenses.
17. UNUSUAL CHARGES
The year ended March 31, 1995 includes unusual charges of $2,868,000
consisting of settlement costs and related legal fees of $831,000 for the
tentative settlement of the Shareholders' Federal Class Action litigation and
$345,000 for settlement of a dispute with Direct Records, a former business
partner; $914,000 in costs associated with the tentative settlement of the
ValueVision litigation and related shareholder class action litigation;
$198,000 in costs connected with the Salaman litigation; and $580,000
representing the present value of future purchase commitments required as
part of the Ronic Settlement (see Note 13).
Included in the unusual charges of $9,049,000 for the year ended March 31,
1994 is $4,127,000 for certain legal settlements, including $1,852,000
($1,550,000 of which represents punitive damages) for Salaman v. National
Media, $1,625,000 for Ronic, S.A. v. National Media, $550,000 for Positive
Response Marketing, Inc. and Michael Levey v. National Media Corporation and
Media Arts International, Ltd., and $100,000 for other settlements. Also
included is $1,138,000 in legal fees associated with the aforementioned
settlements, as well as the shareholders' federal class action lawsuits,
$1,000,000 related to the relocation of its fulfillment center to Phoenix,
Arizona; $1,268,000 in costs associated with anti-takeover defenses and the
terminated tender offer and agreement of merger; $725,000 in severance
related to personnel reductions; $591,000 in costs associated with two
aborted stock offerings; and $200,000 of other charges.
Unusual charges for the fiscal year ended March 31, 1993 were $725,000 and
include $425,000 in severance expense and $300,000 in legal settlements and
related legal fees.
18. SUBSEQUENT EVENT
In June 1995, the Company signed a letter of intent to purchase the stock
of two companies which own the rights to the Flying Lure, a line of fishing
lure products. This transaction is contingent upon the Company's satisfactory
completion of a due diligence review of the two companies. The contemplated
transaction calls for a basic purchase price of $4 million payable over a
three-year period with an additional amount up to a maximum of $3 million
payable if worldwide sales of the product exceed targeted levels over a
three- to six-year period. A portion of the basic purchase price would
consist of a debenture convertible by the seller into the Company's common
stock at a premium over the stock price at the closing date. In addition, the
Company would pay $1.2 million under the terms of a noncompetition agreement
with the inventor.
49
<PAGE>
SCHEDULE VIII
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
------------------------------
Balance at Charged to
beginning of costs and Charged to Balance at end
Description period expenses other accounts Deductions of period
-------------------------- -------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1995:
- --------------------------
Allowance for doubtful
accounts .......... $ 906 $ 1,300 $ 252(1) $1,954
======= ======= ======== =======
Reserve for refunds . $3,193 $29,423 $29,245(2) $3,371
======= ======= ======== =======
Year ended March 31, 1994:
-------------------------
Allowance for doubtful
accounts .......... $ 581 $ 742 $ 417(1) $ 906
======= ======= ======== =======
Reserve for refunds . $2,310 $22,205 $21,322(2) $3,193
======= ======= ======== =======
Year ended March 31, 1993:
-------------------------
Allowance for doubtful
accounts .......... $ 120 $ 678 $ 217(1) $ 581
======= ======= ======== =======
Reserve for refunds . $1,958 $21,528 $21,176(2) $2,310
======= ======= ======== =======
</TABLE>
- ------
(1) Uncollectible accounts written off, net of recoveries.
(2) Refunds on products sold.
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NATIONAL MEDIA CORPORATION
Date: June 29, 1995 /s/ MARK P. HERSHHORN
---------------------------------------------------
Mark P. Hershhorn
President, Chief Executive Officer, and Director
Date: June 29, 1995 /s/ JOHN J. SULLIVAN
----------------------------------------------------
John J. Sullivan
Senior Vice President, Administration, Planning
and Investor Relations and Principal Accounting
Officer
Date: June 29, 1995 /s/ CONSTANTINOS I. COSTALAS
----------------------------------------------------
Constantinos I. Costalas
Vice Chairman of the Board, Principal Financial
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: June 29, 1995 /s/ BRIAN MCADAMS
---------------------------------------------------
Brian McAdams
Chairman of the Board, Chairman of the Executive
Committee and Director
Date: June 29, 1995 /s/ DAVID J. CARMAN
----------------------------------------------------
David J. Carman
Executive Vice President of the Company,
President and Chief Executive Officer of
Quantum International, Ltd. and Director
Date: June 29, 1995 /s/ CHARLES L. ANDES
----------------------------------------------------
Charles L. Andes
Director
Date: June 29, 1995 /s/ MICHAEL J. EMMI
----------------------------------------------------
Michael J. Emmi
Director
Date: June 29, 1995 /s/ FREDERICK S. HAMMER
----------------------------------------------------
Frederick S. Hammer
Director
Date: June 29, 1995 /s/ JON W. YOSKIN II
----------------------------------------------------
Jon W. Yoskin II
Director
Date: June 29, 1995 /s/ IRA M. LUBERT
----------------------------------------------------
Ira M. Lubert
Director
51
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
3.1* Certificate of Incorporation (Exhibit 3(a)
3.2(a)** Bylaws (Exhibit 4.1)
3.2(b)*** Amendment to By-laws dated February 1992 (Exhibit 3(b)(1)
3.2(c) Amendment to By-laws dated April 1995
4.1* Specimen copy of stock certificate for shares of Common Stock of the Registrant (Exhibit 4(a)
4.2 Specimen copy of stock certificate for shares of Series B Convertible Preferred Stock of the
Registrant
4.3++ Rights Agreement dated as of January 3, 1994 (Exhibit 4.2)
4.3(a)++ Amendment No. 1 to Rights Agreement, dated as of March 6, 1994 (Exhibit 4.2(a)
4.3(b) Amendment No. 2 to Rights Agreement, dated as of September 26, 1994
4.3(c) Amendment No. 3 to Rights Agreement, dated as of September 30, 1994
4.3(d) Amendment No. 4 to Rights Agreement, dated as of November 30, 1994
4.4 Certificate of Designation of Series B Convertible Preferred Stock
10.1* 1988 Stock Option Plan (Exhibit 10(b)+
10.2(a)## Amended and Restated 1991 Stock Option Plan (Exhibit A)+
10.2(b)*** Form of Stock Option Agreement (Exhibit 10(a)(2)(ii)+
10.2(c)*** Form of Note of Exercising Options Holder (Exhibit 10(a)(3)(iii)+
10.3*** Non-Plan Stock Option (Exhibit 10(a)(2)(i)+
10.4**** 401(k) Plan Document (Exhibit 10(a)(4)+
10.5## 1995 Management Incentive Plan (Exhibit B)+
10.6(a)**** Stock Purchase Agreement between Registrant and Synacq, Inc. (Exhibit 10(c)(3)
10.6(b)**** Products Offering Services Agreement between Registrant and Synacq, Inc. (Exhibit 10(c)(4)
10.6(c)**** Financial Consulting Agreement between Registrant and Synacq, Inc. (Exhibit 10(c)(5)
10.6(d)**** Non-Competition and Confidentiality Agreement between Registrant and Synacq, Inc.
(Exhibit 10(c)(6)
10.7*** Lease for 1700 Walnut Street, Philadelphia, PA (Exhibit 10(d)(5)
10.8**** Form of Indemnity Agreement (Exhibit 10(h)
10.9(a)*** Employment Agreement between the Registrant and John J. Turchi, Jr. dated as of September 23,
1993 (Exhibit 10.2)+
10.9(b)&& Letter Agreement between the Registrant and John J. Turchi, Jr. dated September 12, 1994
(Exhibit 10)
10.9(c)& Letter Agreement between the Registrant, John J. Turchi, Jr. and Mergren Associated dated April
13, 1995 (Exhibit 10.4)
10.10(a)*** Amendment to Employment Agreement between the Registrant and John J. Sullivan dated as of March
1, 1992 (Exhibit 10(l)(1)+
<PAGE>
Exhibit No.
- ---------------
10.10(b)++ Employment Agreement between the Registrant and John J. Sullivan dated as of June 1, 1994
(Exhibit 10.16(b)+
10.11(a)+ Employment Agreement between the Registrant and Michael M. Hammond dated as of April 16, 1993
(Exhibit 10.17)+
10.11(b)++ Agreement between the Registrant and Michael M. Hammond dated as of May 3, 1994
(Exhibit 10.17(a)+
10.12(a)++ Employment Agreement between the Registrant and David Carman dated as of June 1, 1993
(Exhibit 10.3)+
10.12(b)++ Employment Agreement between Quantum and David Carman dated as of June 1, 1993 (Exhibit 10.4)
10.13++ Employment Agreement between the Registrant and James Jernigan dated as of June 1, 1994
(Exhibit 10.20)+
10.14+ Promissory Note between the Registrant and John J. Turchi, Jr. dated January 1, 1992
10.15++ Lease for 7822 S. 46th Street; Phoenix, AZ (Exhibit 10.1)
10.16+++ Settlement Agreement; dated as of October 8, 1993, by and among: Ronic, S.A.; Ronic Industries
S.A.; Marie-Claire Faivre Duboz; Registrant; Quantum and Media Arts (Exhibit 10.1)
10.17+++ Settlement Agreement and Full and Mutual Release dated December 13, 1993 by and between
Registrant, Media Arts and Positive Response Marketing, Inc. and Michael S. Levey.
(Exhibit 10.2)
10.18(a)++ Marketing and Distribution Agreement dated as of July 1, 1993 among Registrant, Quantum and
Direct Records, Inc. (Exhibit 10.25(a)
10.18(b)++ First Amendment to Marketing and Distribution Agreement as of July 15, 1993 among Registrant,
Quantum and Direct Records, Inc. (Exhibit 10.25(b)
10.19++ Production Agreement dated December 13, 1993 by and among Registrant, Media Arts, and Positive
Response Television, Inc. (Exhibit 10.26)
10.20++ Agreement Respecting Ownership and Use of Service Mark dated December 13, 1993 by and among
Registrant and Media Arts and Positive Response Television, Inc. and Michael S. Levey
(Exhibit 10.27)
10.21# Promissory Note between the Registrant and John J. Turchi, Jr. dated January 14, 1994
(Exhibit 6)
10.22# Promissory Note between the Registrant and David Carman dated January 13, 1994 (Exhibit 6)
10.23# Promissory Note between the Registrant and John J. Sullivan dated January 13, 1994 (Exhibit 6)
10.24(a) Nonnegotiable Consolidated, Amended and Restated Promissory Note between the Registrant and
Kevin Harrington dated March 23, 1995
10.24(b) Letter Agreement between the Registrant and Kevin Harrington dated March 23, 1995
10.25&&&& Settlement Agreement and Full and Mutual Release between the Registrant and Abraham J. Salaman
dated August 1, 1994 (Exhibit 10)
10.26&&& Employment Agreement between the Registrant and Mark P. Hershhorn dated August 26, 1995
(Exhibit 10)
<PAGE>
Exhibit No.
- -----------
10.27(a)|B| Securities Purchase Agreement between the Registrant and, the persons executing, or causing to
be executed the signature page dated September 30, 1994 (Exhibit 10(a)
10.27(b) Amendment to Securities Purchase Agreement dated as of December 19, 1994
10.28|B| Note and Warrant Purchase Agreement between the Registrant, Media Arts International, Ltd.,
Quantum International Limited and Safeguard Scientifics (Delaware), Inc. dated October 19, 1994
(Exhibit 10(b)
10.29|B||B| Securities Purchase Agreement between the Registrant and, the persons executing, or causing to
be executed, the signature page thereof dated as of November 30, 1994 (Exhibit 10)
10.30|B||B||B| Agreement between the Registrant, Buckeye Communications, Inc. and Mark Hershhorn dated August
26, 1994 (Exhibit 99a)
10.31 ++++ Marketing, Distribution and Service Mark Agreement between the Registrant, Media Arts
International, Ltd., and Positive Response Television, Inc. (Exhibit 10.3)
10.32 ++++ Employment Agreement between the Registrant and Brian McAdams dated January 5, 1995
(Exhibit 10.1)
10.33 ++++ Employment Agreement between the Registrant and Constantinos I. Costalas dated January 5, 1995
(Exhibit 10.2)
10.34& Settlement Agreement among the Registrant, ValueVision International, Inc., John J. Turchi,
Jr., Robert J. Johander and Mark A. Payne dated April 13, 1995 (Exhibit 10.1)
10.35& Telemarketing, Production and Post-Production Agreement between the Registrant and ValueVision
International, Inc., dated April 13, 1995 (Exhibit 10.2)
10.36& Join Venture Agreement between the Registrant and ValueVision International, Inc., dated April
13, 1995 (Exhibit 10.3)
10.37 Stipulation and Agreement of Compromise and Settlement regarding National Media Securities
Litigation
10.38 Registration Rights Agreement dated as of December 19, 1994 by and among National Media
Corporation and the persons whose signatures appear on the signature page thereof
11.1 Statement RE: Computation of Per Share Earnings
21.1 Subsidiaries of the Company
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule
</TABLE>
- ------
* Incorporated by reference to Registrant's Registration Statement on
Form S-1 (Reg. No. 33-26778) filed January 31, 1989.
** Incorporated by reference to Registrant's Registration Statement on
Form S-3 (Reg. No. 33-35301) filed June 8, 1990.
*** Incorporated by reference to Registrant's Annual Report on Form 10-K
for fiscal year ended March 31, 1992 filed June 26, 1992.
**** Incorporated by reference to Registrant's Annual Report on Form 10-K
for fiscal year ended March 31, 1991 filed June 20, 1991.
++ Incorporated by reference to Registrant's Annual Report on Form 10-K
for fiscal year ended March 31, 1994 filed July 14, 1994.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
<PAGE>
+ Incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended March 31, 1993 filed June 29, 1993.
++ Incorporated by reference to Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1993 filed November 12, 1993.
+++ Incorporated by reference to Registrant's Quarterly Report on Form
10-Q for the period ended December 31, 1993 filed February 14, 1994.
++++ Incorporated by reference to Registrant's Quarterly Report on Form
10-Q for the period ended December 31, 1994 filed February 14, 1995.
|B| Incorporated by reference to Registrant's Report on Form 8-K dated
October 5, 1994.
|B||B| Incorporated by reference to Registrant's Report on Form 8-K dated
December 8, 1994.
|B||B||B| Incorporated by reference to Registrant's Report on Form 8-K dated
January 13, 1995.
& Incorporated by reference to Registrant's Report on Form 8-K dated
April 13, 1995.
&& Incorporated by reference to Registrant's Report on Form 8-K dated
September 12, 1994.
&&& Incorporated by reference to Registrant's Report on Form 8-K dated
August 26, 1994.
&&&& Incorporated by reference to Registrant's Report on Form 8-K dated
July 19, 1994.
## Incorporated by reference to Registrant's Proxy Statement in
connection with annual meeting of Stockholders to be held on
February 22, 1995.
# Incorporated by reference to Registrant's Schedule 14 D-9 filed on
February 18, 1994.
<PAGE>
RESOLVED, that Article IV of the Bylaws of the Company is amended as
follows:
1. Section 1 of Article IV is amended to add, in the first sentence
thereof, the words "chief executive officer" after the words "chairman of the
Board."
2. Section 2(a) of Article IV is amended to delete therefrom the words
"shall be the chief executive officer of the Corporation and"; and
3. The following new Section 2A is hereby added to Article IV:
"Section 2A. The Chief Executive Officer.
---------------------------
The chief executive officer shall be either the chairman of the Board
or the president and shall have such powers and duties as chief
executives of corporations usually have or as the Board assigns to him
or her."
<PAGE>
Exhibit 4.2
SPECIMEN
NUMBER SHARES
______ ______
NATIONAL MEDIA CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SERIES B CONVERTIBLE PREFERRED STOCK
PAR VALUE $0.01 PER SHARE
This Certifies that ________________________ is the registered holder
of ____________________ Shares of the SERIES B CONVERTIBLE PREFERRED
STOCK of National Media Corporation, fully paid and non-assessable
transferable only on the books of the Corporation by the holder hereof
in person or by Attorney upon surrender of this Certificate properly
endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and its Corporate Seal to be
hereunto affixed this _____ day of ____________________ A.D. 19__
_______________________________ ____________________________________
Secretary Chairman and Chief Executive Officer
RESTRICTIVE LEGEND:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1993, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND
THE TRANSFERABILITY THEREOF IS SUBJECT TO THE PROVISIONS OF A SECURITIES
PURCHASE AGREEMENT BY AND AMONG NATIONAL MEDIA CORPORATION AND THE PURCHASERS
LISTED ON SCHEDULE 1 THERETO.
The Corporation will furnish without charge to each stockholder who so requests,
a statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof authorized to be issued and the qualifications, limitations or
restrictions of such preferences and/or rights.
<PAGE>
Exhibit 4.3(b)
AMENDMENT NO. 2 TO RIGHTS AGREEMENT ("Amendment No. 2"), between NATIONAL
MEDIA CORPORATION, a Delaware corporation (the "Company"), and MELLON
SECURITIES TRUST COMPANY, a New York Corporation, as Rights Agent (the
"Rights Agent").
W I T N E S S E T H
WHEREAS, on January 3, 1994, the Company and the Rights Agent entered into
that certain Rights Agreement (as amended by Amendment No. 1 to Rights Agreement
dated as of March 6, 1994, the "Rights Agreement"); and
WHEREAS, pursuant to Section 27 of the Rights Agreement, this Amendment No.
2 may be entered into by the Company and the Rights Agent without the approval
of any holders of Rights.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto hereby agree as follows:
1. The definition of "Acquiring Person" set forth in Section 1(a) of the
Rights Agreement is hereby amended by adding to the second sentence
thereof, after the words "that certain Agreement and Plan of Merger
dated as of March 6, 1994 by and among the Company, ValueVision
Acquisition I Corp. (the "Merger Agreement") or (ii)" The following
new language:
"the execution, or consummation of the transactions contemplated
by, (A) that certain Term Sheet for the Purchase of Debt and
Warrants in National Media Corporation by Safeguard Scientifics,
Inc. dated September 26, 1994, and/or (B) that certain Term Sheet
for the Purchase of Preferred Stock and Warrants of National
Media Corporation by Technology Leaders L.P. dated September 26,
1994, or (iii)"
2. Section 3(a) of the Rights Agreement is hereby amended by adding as a
new third sentence thereof (to be inserted after language added by
Amendment No. 1 to the Rights Agreement, dated March 6, 1994) the
following:
"Notwithstanding the foregoing, no Distribution Date shall occur as a
result of the execution, or consummation of the transactions
contemplated by, (A) that certain Term Sheet for the Purchase of Debt
and Warrants in National Media Corporation by Safeguard Scientifics,
Inc. dated September 26, 1994, and/or (B) that certain Term Sheet for
<PAGE>
the Purchase of Preferred Stock and Warrants of National Media
Corporation by Technology Leaders L.P. dated September 26, 1994."
3. Capitalized terms used but not defined in this Amendment No. 2 shall
have the respective meanings ascribed thereto in the Rights Agreement.
4. Except as expressly amended by this Amendment No. 2, the Rights
Agreement shall remain in full force and effect as the same was in
effect immediately prior to the effectiveness of this Amendment No. 2.
5. This Amendment No. 2 shall be governed and construed on the same basis
as the Rights Agreement, as set forth therein.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
the Rights Agreement to be executed by their respective officers thereunto duly
authorized as of September 26, 1994.
NATIONAL MEDIA CORPORATION
By: /s/ Mark P. Hershhorn
----------------------
Name: Mark P. Hershhorn
Title: President
MELLON SECURITIES TRUST COMPANY
By: /s/ Paul H. Buchbaum
-----------------------
Name: Paul H. Buchbaum
Title: Senior Vice President
-2-
<PAGE>
Exhibit 4.3(c)
AMENDMENT NO. 3 TO RIGHTS AGREEMENT ("Amendment No. 3"), between NATIONAL
MEDIA CORPORATION, a Delaware corporation (the "Company"), and MELLON
SECURITIES TRUST COMPANY, a New York Corporation, as Rights Agent (the
"Rights Agent").
W I T N E S S E T H
WHEREAS, on January 3, 1994, the Company and the Rights Agent
entered into that certain Rights Agreement (as amended by Amendment No. 1 to
Rights Agreement dated as of March 6, 1994 and Amendment No. 2 to the Rights
Agreement dated as of September 26, 1994, the "Rights Agreement"); and
WHEREAS, pursuant to Section 27 of the Rights Agreement, this Amendment No.
3 may be entered into by the Company and the Rights Agent without the approval
of any holders of Rights.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto hereby agree as follows:
1. The definition of "Acquiring Person" set forth in Section 1(a) of the
Rights Agreement is hereby amended by adding to the second sentence
thereof, after the words "by Technology Leaders L.P. dated September
26, 1994, or (iii)" the following new language:
"the execution, or consummation of the transactions contemplated
by, that certain Securities Purchase Agreement dated as of
September 30, 1994 between National Media Corporation and the
persons executing, or causing to be executed, the signature page
thereof, or (iv)"
2. Section 3(a) of the Rights Agreement is hereby amended by adding a new
fourth sentence thereof (to be inserted after language added by
Amendment No. 2 to the Rights Agreement, dated September 26, 1994) the
following:
"Notwithstanding the foregoing, no Distribution Data shall occur
as a result of the execution, or consummation of the transactions
contemplated by, that certain Securities Purchase Agreement dated
as of September 30, 1994 between National Media Corporation and
the persons executing, or causing to be executed, the signature
page thereof."
3. Capitalized terms used but not defined in this Amendment No. 3 shall
have the respective meanings ascribed thereto in the Rights Agreement.
4. Except as expressly amended by this Amendment No. 3, the Rights
Agreement shall remain in full force and effect as the same was in
effect immediately prior to the effectiveness of this Amendment No. 3.
<PAGE>
5. This Amendment No. 3 shall be governed and construed on the same basis
as the Rights Agreement, as set forth therein.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to
the Rights Agreement to be executed by their respective officers thereunto duly
authorized as of September 30, 1994.
NATIONAL MEDIA CORPORATION
By: /s/ Mark P. Hershhorn
---------------------------
Name: Mark P. Hershhorn
Title: President
MELLON SECURITIES TRUST COMPANY
By: /s/ Paul H. Buchbaum
---------------------------
Name: Paul H. Buchbaum
Title: Senior Vice President
<PAGE>
AMENDMENT NO. 4 TO RIGHTS AGREEMENT ("Amendment No. 4"), between NATIONAL MEDIA
CORPORATION, a Delaware corporation (the "Company"), and MELLON SECURITIES TRUST
COMPANY, a New York Corporation, as Rights Agent (the "Rights Agent").
W I T N E S S E T H
WHEREAS, on January 3, 1994, the Company and the Rights Agent entered into
that certain Rights Agreement (as amended by Amendment No. 1 to Rights Agreement
dated as of March 6, 1994, Amendment No. 2 to the Rights Agreement dated as of
September 26, 1994 and Amendment No. 3 to the Rights Agreement dated as of
September 30, 1994, (the "Rights Agreement"); and
WHEREAS, pursuant to Section 27 of the Rights Agreement, this Amendment No.
4 may be entered into by the Company and the Rights Agent without the approval
of any holders of Rights.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto hereby agree as follows:
I. The definition of "Acquiring Person" set forth in Section 1(a) of the
Rights Agreement is hereby amended by adding to the second sentence
thereof, after the words "or causing to be executed, the signature
page thereof or (iv)" the following new language:
"the execution, or consummation of the transactions contemplated
by, that certain Securities Purchase Agreement by and among
National Media Corporation, Safeguard Scientifics (Delaware) Inc.
and the persons listed on Schedule 1 thereto, or (v) the
execution, or consummation of the transactions contemplated by,
those certain Securities Purchase Agreements by and among
National Media Corporation and each of the persons listed on
Exhibit A hereto, or (vi)"
II. Section 3(a) of the Rights Agreement is hereby amended by adding new
fifth and sentences thereof (to be inserted after language added by
Amendment No. 3 to the Rights Agreement, dated as of September 30,
1994) the following:
"Notwithstanding the foregoing, no Distribution Date shall occur
as a result of the execution, or consummation of the transactions
contemplated by, that certain Securities Purchase Agreement by
and among National Media Corporation, Safeguard Scientifics
(Delaware) Inc. and the persons listed on Schedule 1 thereto.
Notwithstanding the foregoing, No Distribution Date shall occur
as a result of the execution, or consummation of the
<PAGE>
transactions contemplated by, those certain Securities Purchase
Agreements by and among National Media Corporation and each of
the persons listed on Exhibit A hereto."
III. Capitalized terms used but not defined in this Amendment No. 4 shall
have the respective meanings ascribed thereto in the Rights Agreement.
IV. Except as expressly amended by this Amendment No. 4, the Rights
Agreement shall remain in full force and effect as the same was in
effect immediately prior to the effectiveness of this Amendment No. 4.
V. This Amendment No. 4 shall be governed and construed on the same basis
as the Rights Agreement, as set forth therein.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 4 to
the Rights Agreement to be executed by their respective officers thereunto duly
authorized as of November 30, 1994.
NATIONAL MEDIA CORPORATION
By: /s/ Brian McAdams
------------------------------------------
Name: Brian McAdams
Title: Chairman/Chief Executive Officer
MELLON SECURITIES TRUST COMPANY
By: /s/ Emanuel Galfo
------------------------------------------
Name: Emanuel Galfo
Title: Account Officer
<PAGE>
EXHIBIT A
Name Amount
- ---- --------
Dave Bacharach $100,000
David Baxter 50,000
Peter Brice 100,000
Bank Cantrade (Peter Richner) 550,000
David Carman 100,000
Craig Drake 100,000
Tony Filiti 100,000
Nedra Fischer 300,000
William Goldstein 50,000
Michelle Hallman 20,000
Frederick Hammer 100,000
Frits Hulsink 100,000
Ton Ching Khoon 200,000
Yolanda Levene 100,000
Richard Maida 100,000
Simon Olswang 100,000
Steve Rosner 500,000
Stanley Schneider 100,000
Wolfgang Simon 250,000
Arthur Spector 100,000
Sylvester Stallone 400,000
David Stein 100,000
H. Dewey Yesner 100,000
Jon W. Yoskin, II 50,000
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION
of
SERIES B CONVERTIBLE PREFERRED STOCK
of
NATIONAL MEDIA CORPORATION
(Pursuant to Section 151 of the
Delaware General Corporation Law)
National Media Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Company"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Company (the "Board") and by a committee of the Board pursuant to the
authority of the Board as required by Section 151 of the Delaware General
Corporation Law:
RESOLVED, that there is hereby established a series of the Series Preferred
Stock designated "Series B Convertible Preferred Stock, par value $0.01 per
share", (herein referred to as "Series B Preferred Stock"), consisting of
400,000 shares, having a stated value per share equal to $0.01, and having the
relative rights, designations, preferences, qualifications, privileges,
limitations, restrictions, options, conversion rights and other special or
relative rights applicable thereto as follows:
1. Dividend Provisions. The holders of shares of Series B Preferred Stock
shall be entitled to receive dividends, out of any assets legally available
therefor, in an amount per share of Series B Preferred Stock which is equal to
the product of (a) the number of shares of Common Stock into which the Series B
Preferred Stock is convertible at the time of declaration of such dividend
multiplied by (b) the aggregate per share amount of all cash dividends plus the
aggregate per share amount (based upon the fair market value at the time the
non-cash dividend or other distribution is declared or paid as determined in
good faith by the board of directors) of all non-cash dividends or other
distributions on the Common Stock of the corporation other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock of
the corporation. Such dividends shall be declared and paid contemporaneously
with the declaration and payment of the related dividend on the Common Stock.
<PAGE>
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
corporation, either voluntary or involuntary, the holders of Series B Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets of this corporation to the holders of Common Stock by
reason of their ownership thereof, an amount per Series B Preferred Stock share
equal to $40.00 (such amount being referred to herein as the "Premium"). If upon
the occurrence of such event, the assets and funds thus distributed among the
holders of the Series B Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amount, then the
entire assets and funds of the corporation legally available for distribution
shall be distributed ratably among the holders of the Series B Preferred Stock
in proportion to the amount of such Stock owned by each such holder.
Notwithstanding the foregoing, if upon the occurrence of any event of
liquidation, dissolution or winding up of the corporation, the holders of the
Series B Preferred Stock would receive an aggregate amount in excess of $40.00
per share of Series B Preferred Stock if they were to convert such Series B
Preferred Stock into Common Stock, then such holders, in lieu of receiving a
distribution as a holder of Series B Preferred Stock, will be treated for the
purposes of such liquidation, dissolution or winding up as if they had
theretofore converted.
(b) After the distribution described in subsection (a) has been paid,
the remaining assets of the corporation available for distribution to
shareholders shall be distributed among the holders of Common Stock pro rata
based on the number of shares of Common Stock held by each such holder.
(c) A sale, conveyance or disposition of all or substantially all of
the assets of this corporation shall be deemed to be a liquidation, dissolution
or winding up within the meaning of this Section 2, if the holders of a majority
of the outstanding Series B Preferred Stock elect to have such transaction
treated as a liquidation, failing which election the holders of the Series B
Preferred Stock shall receive the same treatment in such sale, conveyance or
disposition as the holders of shares of Common Stock.
3. Conversion. The holders of the Series B Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Conversion Rights. Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time from and after the
date of issuance of such share, at the office of this corporation or any
transfer agent for the Series B Preferred Stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing $40.00 per
share by the Conversion Price at the time in effect for such share. The initial
Conversion Price per share for shares of Series B Preferred Stock shall be $4.00
per share of Common Stock; provided, however, that the Conversion Price for the
Series B Preferred Stock (the "Conversion Price") shall be subject to adjustment
as set forth in subsection 3(c).
<PAGE>
(b) Mechanics of Conversion. Before any holder of Series B Preferred
Stock shall be entitled to convert the same into shares of Common Stock, he
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the corporation or of any transfer agent for the Series B Preferred
Stock, and shall give written notice by mail, postage prepaid, to the
corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The corporation shall,
as soon as practicable thereafter, issue and deliver at such office to such
holder of Series B Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of whole shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series B Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offer of securities registered
pursuant to the Securities Act of 1933, the conversion may, at the option of any
holder tendering Series B Preferred Stock for conversion, be conditioned upon
the closing with the underwriter of the sale of securities pursuant to such
offering, in which event the person or persons entitled to receive the Common
Stock issuable upon such conversion of the Series B Preferred Stock shall not be
deemed to have converted such Series B Preferred Stock until immediately prior
to the closing of such sale of securities.
(c) Conversion Price Adjustments of Preferred Stock. The Conversion
Price shall be subject to adjustment from time to time as follows:
(i) (A) If the corporation shall issue any Additional Stock
(as defined below) without consideration or for a consideration per share less
than the Conversion Price in effect immediately prior to the issuance of such
Additional Stock, the Conversion Price in effect immediately prior to each such
issuance shall forthwith (except as otherwise provided in this clause (i)) be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) calculated on a weighted average basis based upon the issue price, the
Conversion Price then applicable, the number of shares of Common Stock issued
and outstanding before such transaction and the number of shares of Common Stock
issuable in connection with such transaction.
(B) No reduction of the Conversion Price for the Series B
Preferred Stock shall be made in an amount less than one cent per share,
provided that any adjustments which are not required to be made by reason of
this sentence shall be carried forward and shall be either taken into account in
any subsequent adjustment made prior to three years from the date of the event
giving rise to the adjustment being carried forward, or, if no such adjustment
is made, shall be made at the end of three years from the date of the event
giving rise to the adjustment being carried forward. Except to the limited
extent provided for in subsections (E)(3) and (E)(4), no adjustment of such
Conversion Price pursuant to this subsection 3(c)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect immediately
prior to such adjustment.
<PAGE>
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any discounts, commissions or other expenses allowed, paid or incurred
by the corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as reasonably determined by
the Board of Directors, irrespective of any accounting treatment.
(E) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms convertible into
or exchangeable for Common Stock or options to purchase or rights to subscribe
for such convertible or exchangeable securities (which are not excluded from the
definition of Additional Stock), the following provisions shall apply:
1. The aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subsections 3(c)(i)(C) and (c)(i)(D)), if
any, received by the corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
Common Stock covered thereby.
2. The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the corporation
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the corporation upon the
conversion or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the manner
provided in subsections 3(c)(i)(C) and (c)(i)(D)).
3. In the event of any change in the number of shares
of Common Stock deliverable or any increase in the consideration payable to the
corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including but not
limited to a change resulting from the antidilution provisions thereof, the
Conversion Price of the Series B Preferred Stock obtained with respect to the
adjustment which was made upon the issuance of such options, rights or
securities, and any subsequent adjustments based thereon, shall be recomputed to
reflect such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.
<PAGE>
4. Upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the expiration of
any options or rights related to such convertible or exchangeable securities,
the Conversion Price of the Series B Preferred Stock obtained with respect to
the adjustment which was made upon the issuance of such options, rights or
securities or options or rights related to such securities, and any subsequent
adjustments based thereon, shall be recomputed to reflect the issuance of only
the number of shares of Common Stock actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities.
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 3(c)(i)(E)) by this
corporation after the date any shares of Series B Preferred Stock are first
issued (the "Purchase Date") other than:
(A) Common Stock issued pursuant to a transaction described
in subsection 3(c)(iii) hereof or pursuant to any warrants issued in connection
with the sale by the Company of the Series B Preferred Stock or issuance by the
Company of debt,
(B) shares of Common Stock issuable or issued after the
Purchase Date to employees, directors, consultants or other persons having a
business relationship with the Company for the primary purpose of soliciting or
retaining their employment or business relationship, or
(C) Common Stock issued or issuable upon conversion of the
Series B Preferred Stock.
(iii) In the event the corporation should at any time or from
time to time after the Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series B Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
such series shall be increased in proportion to such increase of outstanding
shares determined in accordance with subsection 3(c)(i)(E).
(iv) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of the outstanding
shares of Common Stock, then following the record date of such combination, the
Conversion Price for the Series B Preferred Stock shall be appropriately
<PAGE>
increased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be decreased in proportion to such decrease in
outstanding shares.
(d) Other Distributions. In the event the corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in subsection 3(c)(iii), then, in each such
case for the purpose of this subsection 3(d), the holders of the Series B
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of Series B Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
(e) Recapitalizations. If at any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in this Section
3), provision shall be made so that the holders of the Series B Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series B
Preferred Stock the number of shares of stock of other securities or property of
the corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of the Series B
Preferred Stock after the recapitalization to the end that the provisions of
this Section 3 (including adjustment of the Conversion Price then in effect and
the number of shares purchasable upon conversion of the Series B Preferred
Stock) shall be applicable after that event as nearly equivalent as may be
practicable.
(f) No Impairment. The corporation will not, by amendment of its
Articles or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series B Preferred Stock against impairment.
(g) No Fractional Shares; Certificate as to Adjustments.
(i) No fractional shares shall be issued upon conversion of the
Series B Preferred Stock, and the number of shares of Common Stock to be issued
shall be rounded to the nearest whole share. Whether or not fractional shares
are issuable upon such conversion shall be determined on the basis of the total
number of shares of Series B Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series B Preferred Stock pursuant to this Section 3, the
corporation, at its expense, shall promptly compute such adjustment or
<PAGE>
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series B Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The corporation shall, upon the written request at any
time of any holder of Series B Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price at the time in effect, and (C) the number
of shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of a share of Series B Preferred
Stock.
(h) Notices of Record Date. In the event of any taking by the
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock or any class of
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series B Preferred Stock, at least 20
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(i) Reservation of Stock Issuable Upon Conversion. This corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Series B Preferred Stock such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series B Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series B
Preferred Stock, in addition to such other remedies as shall be available to the
holder of such Series B Preferred Stock, the corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
(j) Notices. Any notice required by the provisions of this Section 3
to be given to the holders of shares of Series B Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of this corporation.
4. Voting Rights.
(a) Election of Directors.
(i) From and after the date on which 125,000 or more shares of
Series B Preferred Stock are first issued and for so long as 50% or more of such
shares of Series B Preferred Stock have not been converted into shares of Common
Stock or transferred to any new holder(s), the holders of the Series B Preferred
Stock shall have the right to elect two directors. The holders of the Common
Stock shall have the right, voting as a class, to elect the remaining directors.
<PAGE>
The holders of the Series B Preferred Stock shall not have cumulative voting
rights. Notwithstanding the foregoing, if the size of the corporation's board of
directors is increased to between 15 and 19 members, the number of directors
which the holders of the Series B Preferred Stock shall increase to 3.
(ii) Each director shall be elected at the annual meeting of
shareholders and shall serve until his successor is elected and qualified or
until his earlier resignation or removal. Any director who shall have been
elected by the holders of Series B Preferred Stock may be removed during his
term of office, either for or without cause, by and only by the affirmative vote
of the holders of a majority of the shares of the Series B Preferred Stock then
outstanding, given at a special meeting of such shareholders duly called for
that purpose, and any vacancy thereby created may be filled by the holders of
the Series B Preferred Stock represented at that meeting.
(b) Subject to Section 4(a) above, the holder of each share of Series
B Preferred Stock shall have the right to one vote for each share of Common
Stock into which such Series B Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share), and with respect to such vote, such holder shall have
full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any shareholders' meeting in accordance with the by-laws of
this corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote; provided however that, notwithstanding the foregoing, the Series
B Preferred Stock shall not be entitled to vote in the election of the directors
to be elected by the holders of Common Stock referred to in Section 4(a)(i)
hereof.
5. Protective Provisions. So long as shares of Series B Preferred Stock are
outstanding, this corporation shall not without first obtaining the approval (by
vote or written consent) of the holders of at least 60% of the then outstanding
shares of Series B Preferred Stock (voting in accordance with Section 4 above):
(a) alter or change the rights, preferences or privileges of the
shares of Series B Preferred Stock so as to affect adversely the shares;
(b) create any new series of stock or any other securities convertible
into equity securities of the corporation having a preference over, or being on
a parity with, the Series B Preferred Stock with respect to voting, dividends,
liquidation rights or otherwise;
(c) do any act or thing which would result in taxation of the holders
of shares of the Series B Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended); or
(d) declare any dividend on any class or series of stock other than
the Series B Preferred Stock, or repurchase shares of any class or series.
<PAGE>
6. Status of Converted Stock. In the event any shares of Series B Preferred
Stock shall be converted pursuant to Section 3 hereof, the shares so converted
shall be cancelled and shall not be reissuable by the corporation, and the
Articles of this corporation shall be appropriately amended to affect the
corresponding reduction in the corporation's authorized capital stock.
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the Corporation by its President and attested by its Secretary this 4th day
of October, 1994.
National Media Corporation
By: /s/ Mark P. Hershhorn
-------------------------------
Mark P. Hershhorn, President
[SEAL]
ATTEST:
/s/ Craig A. Streem
- ----------------------------
Craig A. Streem, Secretary
<PAGE>
$1,363,757.00 March 23, 1995
NONNEGOTIABLE CONSOLIDATED, AMENDED AND RESTATED
PROMISSORY NOTE
FOR VALUE RECEIVED, KEVIN HARRINGTON (hereinafter "MAKER") promises to pay
to the order of NATIONAL MEDIA CORPORATION (hereinafter "PAYEE") at the office
of PAYEE, or at such other place designated by PAYEE, the principal sum of ONE
MILLION THREE HUNDRED SIXTY THREE THOUSAND SEVEN HUNDRED FIFTY SEVEN DOLLARS
($1,363,757), payable on or before September 30, 1996 (the "Maturity Date").
Simple interest, at the rate of four percent (4.0%) per annum, shall accrue from
the date hereof on the outstanding principal hereunder and shall be payable on
or before the Maturity Date. This Note constitutes the consolidation, amendment
and restatement of the following two promissory notes of MAKER to PAYEE: (i)
that promissory note dated January 13, 1994, in the original principal amount of
$1,269,550, as amended by amendment dated April 6, 1994; and (ii) that
promissory note dated September 24, 1993 in the original principal amount of
$161,500, each of which notes (collectively, the "Prior Notes") shall, from and
after the execution and delivery hereof by MAKER, be deemed cancelled. Payee, by
accepting delivery of this Note, forever waives any rights, claims and remedies
it may otherwise have had against Maker under the Prior Notes.
Reference is made to that certain letter agreement dated of even date
herewith by and between MAKER and PAYEE (the "Letter Agreement"). Pursuant to
the Letter Agreement, MAKER is required to make (or cause to be made) certain
periodic payments to PAYEE of interest and principal under this Note. The terms
of the Letter Agreement are specifically incorporated herein by this reference.
Terms capitalized but not otherwise defined herein shall have the meanings given
to them, respectively, in the Letter Agreement.
This Note may be prepaid in whole or in part at any time without penalty.
Each of the following events shall constitute an Event or Default under
this Note, regardless of the cause thereof and whether within or beyond the
control of MAKER:
(a) The failure of MAKER (i) to pay the full remaining principal balance
and all accrued interest under this Note by September 30, 1996, or
(ii) to cause W. H. Newbold's & Co., Inc. ("Newbold's") to pay any sum
due under the Letter Agreement (and therefore this Note) within two
(2) days of the date such payment was due;
(b) If MAKER shall make an assignment for the benefit of creditors, file a
petition in bankruptcy, apply to or petition any tribunal for the
appointment of a receiver, intervenor or trustee for MAKER or a
substantial part of MAKER's assets; or if MAKER shall commence any
proceeding under any bankruptcy, assignment or readjustment of debt
law or statute of any jurisdiction, whether now or hereafter in
effect; or if any such petition or application shall have
<PAGE>
been filed or proceeding commenced against MAKER which shall not be
dismissed within ninety (90) days, or if any such receiver, intervenor
or trustee shall have been appointed and shall not have been dismissed
within ninety (90) days;
(c) The material breach by MAKER of the Letter Agreement; and
(d) The refusal or material failure of Newbold's to honor the Letter of
Instructions (or such other instructions as the parties may hereafter
agree upon).
Notwithstanding the foregoing, failure of Newbold's to pay timely any sum
due to PAYEE under the Letter Agreement and this Note shall not constitute a
default by MAKER in the event that National fails to deliver any quarterly
statement of outstanding principal and accrued interest to Newbold's as
contemplated by the Letter Agreement.
If an Event of Default should occur under this Note, then the entire unpaid
balance of said principal sum shall, at the option of PAYEE and without notice
to MAKER, become due and payable immediately, and PAYEE may also recover all
costs of suit and other expenses in connection therewith.
MAKER hereby waives presentment, demand for payment, notice of dishonor,
and any and all other notices and demands in connection with the delivery,
acceptance, performance, default or enforcement of this Note.
Maker acknowledges that he has had the assistance of counsel in the review
and execution of this Note and further acknowledges that the meaning and effect
of the terms and provisions hereof have been fully explained to Maker by such
counsel.
The failure of Payee to exercise any right or remedy afforded under this
Note or the Letter Agreement shall in no event be construed as a waiver or
release thereof.
MAKER hereby waives presentment for payment, demand, notice of demand,
notice of nonpayment or dishonor, protest and notice of protest of this Note,
and all other notices in connection with the delivery, acceptance, performance,
default, or enforcement of the payment of this Note. Maker's obligations
hereunder shall not be affected in any manner by any indulgence, extension of
time, renewal, waiver or modification granted or consented to by PAYEE. MAKER
consents to any and all extensions of time, renewals, waivers, or modifications
that may be granted by PAYEE with respect to the payment or other provisions of
the NOTE, and to the release of the collateral or any part thereof, with or
without substitution.
No delay by PAYEE in exercising any power or right hereunder shall operate
as a waiver of any power or right, preclude other or further exercise thereof,
or the exercise of any other power or right hereunder or otherwise; and no
<PAGE>
waiver whatever or modification of the terms hereof shall be valid unless in
writing signed by PAYEE or any holder of this Note and then only to the extent
therein set forth.
This Note may not be assigned by Payee without Maker's prior written
consent, which shall be in the sole discretion of Maker.
This Note shall be interpreted and enforced in accordance with the internal
laws of the Commonwealth of Pennsylvania.
KEVIN HARRINGTON
/s/ Kevin Harrington
------------------------------
<PAGE>
Constantinos I. Costalas
Vice Chairman
Direct Dial: 215/772-5064 LOGO
Fax: 215/772-5013
March 23, 1995
Mr. Kevin Harrington
One Seaside Lane, #103
Belleair, FL 34616
Dear Kevin:
This letter sets forth the terms of certain agreements between you and
National Media Corporation ("National"), effective as of the date set forth
above, with respect to your obligations under a Promissory Note dated January
13, 1994 (as amended by amendment dated April 6, 1994) in the original
principal amount of $1,269,550, and a Promissory Note dated September 24,
1993 in the original principal amount of $161,500 (collectively, the
"Original Notes"). The Original Notes were issued in connection with your
exercise of options to purchase an aggregate of 770,000 shares of common
stock of National. The aggregate outstanding principal balance under the
Original Notes as of the date hereof is $1,363,757, all of which has been due
and payable since June 29, 1994, the date on which your employment with
National terminated.
In consideration of the mutual covenants and agreements set forth below,
and intending to be legally bound, the parties hereby agree as follows:
1. Treatment of Indebtedness. Concurrently with your execution of this
letter agreement, you shall execute and deliver to National a Consolidated,
Amended and Restated Promissory Note in the original principal amount of
$1,363,757, dated as of the date hereof and bearing a maturity date of
September 30, 1996, in substantially the form of Exhibit "A" attached hereto
(the "Replacement Note"). Subject to the provisions of Section 5 hereof, the
Replacement Note shall be given in substitution for and consolidation and
replacement of the Original Notes, each of which shall be marked cancelled
and returned to you upon the release of the Replacement Note from the escrow
established pursuant to Section 5 hereof. Simple interest on the principal
balance of the Replacement Note shall accrue at the rate of 4.0% per annum
from the date thereof. Periodic payments shall be made from proceeds of
sales of your common stock of National and applied toward the indebtedness
under the Replacement Note, all as contemplated by and specifically set forth
in Section 2(b) of this letter agreement. Moreover, you may prepay all or
any of the outstanding principal balance of the Replacement Note without
penalty or premium. The remaining outstanding principal balance of the
Replacement Note, together with all accrued and unpaid interest thereon,
shall be due and payable without demand, defalcation, setoff or deduction, no
later than September 30, 1996 (subject, however, to acceleration thereof as
set forth in Section 5 hereof).
2. Treatment of Stock.
(a) Representations and Warranties Regarding Harrington Shares.
You hereby make the following representations and warranties to National with
respect to shares of National's common stock owned or controlled by you as of
the date hereof:
<PAGE>
(1) Harrington Shares. You do not have a pecuniary interest
in, or have dispositive power over, any equity securities of National other
than 296,100 shares of National's common stock (collectively, the "Harrington
Shares").
(2) Newbold's Interest. The Harrington Shares are, as of the
date hereof, held in an account titled KEVIN HARRINGTON at W. H. Newbold's &
Co., Inc. ("Newbold's"), and are subject to a security interest in favor of
Newbold's (the "Newbold's Interest") to secure indebtedness in the principal
amount of $480,000, plus interest accrued thereon (the "Newbold's
Indebtedness").
(3) Encumbrances. Subject to the Newbold's Interest you own
the Harrington Shares as of the date hereof free and clear of all claims,
liens and encumbrances of any nature and have the full right, power and
authority to dispose of the Harrington Shares.
(b) Instructions to Newbold's. Concurrently with the execution of
this letter agreement, you will join with National in issuing a letter of
irrevocable instructions to Newbold's, in substantially the form of Exhibit
"B" attached hereto (the "Letter of Instructions"), pursuant to which
Newbold's shall be instructed to take the following actions from the date
hereof until the earlier to occur of (i) such time as National shall have
notified Newbold's that the entire indebtedness under the Replacement Note
has been satisfied in full, or (ii) Newbold's has distributed and/or set
aside for payment to National an amount, in the aggregate, equal to all
amounts of principal and interest due under the Replacement Note:
(1) Sale of Shares. Subject to the provisions of Section
2(b)(3) hereof (with respect to additional sales of shares), Newbold's shall
be instructed to sell such of the Harrington Shares as are necessary to
produce not more than $300,000 in proceeds (net of applicable broker's
commissions) per calendar quarter from the date hereof through and including
the quarter ending June 30, 1996. With respect to the calendar quarter
ending September 30, 1996, Newbold's shall be instructed to sell such of the
Harrington Shares as are necessary to produce net proceeds in an amount up to
(but not exceeding) the difference between the balance outstanding under the
Replacement Note as of July 1, 1996 and all amounts previously distributed to
National pursuant to Section 2(b)(2) hereof. Newbold's shall be further
instructed that all such sales are to be conducted in an orderly manner so as
not to materially affect the price of National's common stock as reported on
the New York Stock Exchange. All proceeds of sales of Harrington Shares
executed in accordance with such instructions shall be distributed and
applied in accordance with Section 2(b)(2) hereof.
(2) Distribution and Application of Proceeds. Newbold's
shall be instructed to pay, within five business days following each sale of
Harrington Shares made pursuant to this letter agreement, the net proceeds of
each such sale in accordance with the following scheme of distribution:
(i) First, all such proceeds shall be paid to Newbold's,
to be applied by Newbold's first against interest accrued on, and then
against the outstanding principal balance of, the Newbold's Indebtedness,
until all such amounts have been satisfied in full.
(ii) Next, after satisfaction in full of the Newbold's
Indebtedness (and except as otherwise provided in Section 2(b)(3) hereof), up
to $270,000 in net proceeds realized from sales made in each calendar quarter
shall be paid to National (except that in the calendar quarter ending
September 30, 1996, the maximum proceeds payable to National shall be
determined in accordance with Section 2(b)(1) hereof), with all such proceeds
to be applied by National first against interest accrued on, and then against
the outstanding principal balance of, the Replacement Note until all such
amounts have been satisfied in full.
<PAGE>
(iii) Next, after payment of the aggregate quarterly
proceeds payable to National under Section 2(b)(2)(ii) hereof (and except as
otherwise provided in Section 2(b)(3) hereof), any remaining proceeds up to,
but not exceeding, $30,000 shall be paid to you.
(3) Additional Sales of Shares. In addition to those
Harrington Shares to be sold pursuant to Section 2(b)(1) hereof, Newbold's
shall be instructed to sell such further shares as you may direct by written
request to Newbold's (a copy of which shall be provided to National) solely
for purposes of accelerating the repayment of the Newbold's Indebtedness and
the Replacement Note, provided, however, that all such sales are conducted in
an orderly manner so as not to materially affect the price of National's
common stock as reported on the New York Stock Exchange. All net proceeds of
such additional sales of Harrington Shares shall distributed and applied in
accordance with Sections 2(b)(2)(i) and (ii) hereof, except that the maximum
quarterly distribution to National set forth in Section 2(b)(ii) hereof shall
not apply with respect to distributions of the net proceeds of such
additional sales. Rather, the net proceeds of such sales shall be paid to
National in addition to those proceeds payable pursuant to Section 2(b)(ii)
hereof. In the event that you cause such additional sales of Harrington
Shares to be made in any calendar quarter hereunder, the dollar value of
Harrington Shares required to be sold pursuant to Section 2(b)(1) hereof in
the next succeeding quarter shall be reduced by the dollar value of such
additional sales, and the net proceeds of sales distributable to National and
you in such succeeding quarter pursuant to Section 2(b)(2)(ii) and (iii)
hereof shall be reduced on a pro rata basis.
(4) Notice of Sales. Newbold's shall be instructed to notify
you and National in writing within two (2) business days after each trade of
Harrington Shares of (i) the date of the trade, (ii) the number of Harrington
Shares traded, (iii) the gross proceeds of such trade, (iv) the net proceeds
of such trade remaining after deduction of applicable broker's commissions,
(v) the net proceeds retained by Newbold's (if any) for application against
the Newbold's Indebtedness, and (vi) the net proceeds for distribution to
National and you, respectively, in accordance with Section 2(b)(2) hereof;
(5) Notice of Certain Events. Newbold's shall be instructed
to notify National immediately if you attempt to borrow any additional money
from Newbold's, transfer any Harrington Shares other than in accordance with
the terms of this letter agreement or modify the instructions contained in
the Letter of Instructions.
(c) Pledge of Shares.
(1) Grant. To secure repayment of the indebtedness evidenced
by the Replacement Note, you hereby pledge to National and grant to National
a security interest in the Harrington Shares and (iii) all cash and noncash
proceeds thereof, including without limitation, any securities or instruments
hereafter issued on account or in substitution of, or in exchange for the
Harrington Shares in consequence of a stock dividend, stock split,
conversion, reclassification, reorganization, merger, consolidation, sale of
assets or other distribution of any kind (all such property hereinafter
referred to collectively as the "Collateral").
(2) Priority and Perfection. National's security interest in
the Harrington Shares shall be junior and subordinate only to the security
interest of Newbold's therein to secure the Newbold's Indebtedness. Promptly
upon the satisfaction of the Newbold's Indebtedness, you shall deliver or
cause to be delivered to National (or to such agent as National may direct)
all certificates representing the Harrington Shares together with assignments
separate from such certificates, duly endorsed in blank for transfer, all of
which shall be held by National (or its agent) subject to the pledge and
security interest granted hereby.
<PAGE>
(3) Disposition of Collateral. Until payment in full of the
indebtedness evidenced by the Replacement Note, no transfer or other
disposition of the Collateral may be made by or for you other than sales of
the Harrington Shares as expressly contemplated in Section 2(b) of this
letter agreement.
(4) Defeasance of Pledge. Upon payment in full of the
indebtedness evidenced by the Replacement Note, the pledge and security
interest evidenced hereby shall automatically terminate, and National shall
forthwith return to you all of the Collateral and all evidences thereof.
(5) Voting Rights. Notwithstanding the pledge and security
interest granted hereby, until the occurrence of default in the repayment of
the indebtedness evidenced by the Replacement Note, you shall retain the
right to vote with respect to the Collateral and shall have and may exercise
all other rights as holder of the Collateral, except to the extent that any
such vote or the exercise of any such right is inconsistent with or in
violation of the provisions of the pledge granted hereby.
(6) Rights Upon Default. If you shall not have cured any
default in the repayment of the indebtedness evidenced by the Replacement
Note within ten days after notice by National thereof, National shall be
entitled to exercise any or all of the rights and remedies of a secured
creditor under the Uniform Commercial Code with respect to the Collateral.
3. Covenants of National. National hereby covenants and agrees as
follows:
(a) Execution of Documents. Until the Replacement Note is
satisfied in full, National shall timely execute such documents and
instruments as Newbold's may request as a condition of Newbold's compliance
with the terms of the Letter of Instructions, including, without limitation,
delivery of all certificates representing the Harrington Shares as are
necessary to permit Newbold's to consummate any sales thereof made pursuant
to Section 2(b)(1) or (3) hereof. Any failure by Newbold's to effect sales
of Harrington Shares and distribute net proceeds thereof in accordance with
Section 2(b) hereof which is occasioned by the failure of National to timely
deliver certificates for such shares to Newbold's shall not constitute a
default on your part in the performance of your payment obligations
hereunder.
(b) Quarterly Statements. As promptly as is practicable after the
beginning of each calendar quarter, National shall provide Newbold's with a
written statement (a copy of which shall also be provided to you) setting
forth the outstanding principal balance under the Replacement Note and all
accrued and unpaid interest thereon, as of the beginning of such calendar
quarter. Such statement shall include a current accounting of all payments
previously made by you or on your behalf, together with the application of
such payments against principal and interest. Any failure by Newbold's to
distribute proceeds of sales of Harrington Shares to National in accordance
with Section 2(b)(2)(ii) hereof which is occasioned by the failure of
National to deliver any such quarterly statement to Newbold's shall not
constitute a default on your part in the performance of your payment
obligations hereunder. The failure by National to deliver any such quarterly
statement shall not, however, excuse nonperformance by you of any of your
covenants and agreements hereunder. If you fail to object in writing to any
such statement within ten days after such statement is provided to you, you
shall be conclusively deemed to have received and accepted the accounting set
forth in such statement.
(c) Return of Note. Promptly upon the satisfaction of the
Replacement Note, National shall return to you the original of such note
marked "paid in full" by a duly authorized representative of National.
<PAGE>
4. Your Covenants. Until the Replacement Note is satisfied in full,
you hereby covenant and agree as follows:
(a) Ensure Compliance by Newbold's. You shall use your reasonable
efforts to ensure that Newbold's complies with the terms of the Letter of
Instructions, and you shall execute such documents and instruments as
Newbold's may reasonably request as a condition of Newbold's compliance with
the terms of the Letter of Instructions.
(b) Acknowledged Copy of Letter of Instructions. You shall
provide National with a copy of the Letter of Instructions, acknowledged by
Newbold's, as soon as practicable after the execution of this letter
agreement.
(c) Payment of Proceeds of Sales. If you receive, or any person,
organization or other entity acting on your behalf receives, any proceeds
from the sale of the Harrington Shares (other than the proceeds distributable
to you in accordance with Section 2(b)(2) hereof) at any time before the
Replacement Note has been satisfied in full, you shall pay such proceeds to
National to be applied against interest accrued on and the outstanding
principal balance of the Replacement Note within three (3) business days
after receiving such proceeds.
(d) Actions Prejudicial to National. Until such time as the
Replacement Note shall have been satisfied in full, you shall not borrow any
additional funds from Newbold's, transfer any Harrington Shares other than
pursuant to the terms of this letter agreement, modify the instructions
contained in the Letter of Instructions or grant any further security
interest in the Harrington Shares except as specifically contemplated herein.
(e) Payment of Taxes. Pay any and all taxes due in connection
with the sale of the Harrington Shares.
5. Escrow Pending Newbold's Acceptance of Instructions. National shall
hold this letter agreement and the Replacement Note in escrow pending the
parties' receipt of confirmation from Newbold's of its acceptance of the
Letter of Instructions. This letter agreement and the Replacement Note shall
not be deemed delivered until the parties' receipt of confirmation from
Newbold's of its acceptance of the Letter of Instructions (or such other
instructions as the parties may hereafter agree upon), whereupon this letter
agreement and the Replacement Note shall be released from escrow. Should
Newbold's refuse to honor the Letter of Instructions (or such other
instructions as the parties may hereafter agree upon), then this letter
agreement and the Replacement Note shall be deemed null and void, and the
Original Notes shall be deemed to be in full force and effect as if this
letter agreement and the Replacement Note had not been executed.
6. Representations and Warranties. Each party makes the following
representations and warranties to the other:
(a) Power and Authority. It has all necessary power and authority
(corporate and otherwise) to enter into this letter agreement, and has duly
authorized by all necessary action the execution and delivery of this letter
agreement by the officer or person whose name is signed on its behalf below.
(b) No Conflict. Its execution and delivery of this letter
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
organizational instruments or any other agreement, instrument, order, law or
regulation applicable to it or by which it may be bound.
(c) Binding Effect. This letter 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 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.
<PAGE>
7. Mutual Releases.
(a) By National. Except as expressly otherwise provided herein,
National, for itself, and its subsidiaries and their respective directors,
officers, employees, agents, affiliates, successors and assigns
(collectively, "National's Affiliates") hereby knowingly and willingly fully,
forever, irrevocably and unconditionally waives, releases, acquits,
exonerates and discharges you and your successors and assigns of and from any
and all actions, causes of action, suits, proceedings, claims, damages,
expenses, debts, bills, covenants, contracts, controversies, agreements,
promises, judgments and demands (other than derivative stockholder claims
filed by persons other than directors, officers or employees of National or
any of National's Affiliates or spouses or descendants thereof) of any nature
whatsoever, known or unknown, anticipated or unanticipated, direct, indirect
or contingent, arising in law or equity (collectively, "Claims") which
National, National's Affiliates or any other person or entity purporting to
act on their behalf ever had, now has or hereafter can, shall or may have
against you and your successors and assigns by reason of any cause whatsoever
from the beginning of your employment with National through the date hereof,
including, without limitation, any and all matters relating to your
employment by National and the termination of such employment. Nothing in
this letter agreement, however, shall serve to waive or release any Claim
against you arising out of or related in any way to your representations,
warranties, covenants, agreements and obligations under this letter
agreement.
(b) By You. Except as expressly otherwise provided herein, you,
for yourself and your heirs and assigns, hereby knowingly and willingly
fully, forever, irrevocably and unconditionally waive, release, acquit,
exonerate and discharge National and National's Affiliates of and from any
and all Claims which you or any other person or entity purporting to act on
your behalf ever had, now has or hereafter can, shall or may have against
National or any of National's Affiliates from or by reason of any cause
whatsoever from the beginning of your employment with National through the
date hereof, including, without limitation, any and all matters relating to
your employment by National and termination of such employment. Nothing
contained in this letter agreement shall serve to waive or release any Claim
against National (i) to honor National's obligations of indemnity under your
former employment agreement with National with respect to acts taken or
omissions made by you in the course of your employment with National as an
officer, director or employee of National (including, without limitation, in
connection with any derivative stockholder Claim made against you), or
(ii) arising out of or related in any way to National's representations,
warranties, covenants, agreements and obligations under this letter
agreement.
8. Application of Payments from Newbold's. All proceeds of sales of
the Harrington Shares received by National from Newbold's pursuant to Section
2(b)(2) hereof shall be applied by National as of the date of National's
receipt of such funds (which, in the case of wire transfers, shall be the
date of confirmation thereof, and, in the case of payment by check, shall be
the date of National's actual receipt of such check (absent any subsequent
dishonor thereof). National shall apply all payments received hereunder
first against interest accrued on, and then against the outstanding principal
balance of, the Replacement Note until all such amounts have been satisfied
in full.
9. Indemnification by National. National hereby indemnifies you and
holds you harmless from and against any loss that you may incur as the result
of the inaccuracy, in any material respect, of any statement prepared and
delivered by National pursuant to Section 3(b) hereof (such loss to include,
without limitation, any appreciation in the market price of National's common
stock between the date of sale of any Harrington Shares which would not have
been sold by Newbold's absent such inaccuracy and the date on which such
Harrington Shares would otherwise have been sold absent such inaccuracy).
<PAGE>
10. Miscellaneous.
(a) Notices. All notices, payments, requests, instructions,
consents and other communications to be given pursuant to this letter
agreement shall be in writing and shall be deemed received (i) on the same
day if delivered in person, by same-day courier or by telegraph, telex or
facsimile transmission, (ii) on the next day if delivered by overnight mail
or courier, or (iii) on the date indicated on the return receipt, or if there
is no such receipt, on the 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 you:
Kevin Harrington
One Seaside Lane, #103
Belleair, FL 34616
FAX: ___/___-____
If to National:
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Attention: Chief Financial Officer
FAX: 215/772-5038
Any party may by written notice given to the other in accordance with this
letter agreement change the address to which notices to such party are to be
delivered.
(b) Entire Agreement. This letter agreement contains the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings between them with respect
to such subject matter. Each party has executed this letter agreement
without reliance upon any promise, representation or warranty other than
those expressly set forth herein.
(c) Amendment. No amendment of this letter agreement shall be
effective unless embodied in a written instrument executed by both of the
parties.
(d) Waiver of Breach. The failure of any party hereto at any
time to enforce any of the provisions of this letter agreement shall not be
deemed or construed to be a waiver of any such provision nor in any way to
affect the validity of this letter agreement or any provisions hereof or the
right of any party hereto to thereafter enforce each and every provision of
this letter agreement. No waiver of any breach of any of the provisions of
this letter agreement shall be effective unless set forth in a written
instrument executed by the party against whom or which enforcement of such
waiver is sought; and no waiver of any such breach shall be construed or
deemed to be a waiver of any other or subsequent breach.
(e) Binding Effect. This letter agreement shall be binding on and
inure to the benefit of the parties hereto and their respective heirs,
representatives, successors and assigns.
(f) Governing Law. This letter agreement shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Pennsylvania without regard to conflict of laws principles.
(g) Headings. The headings of sections and subsections have been
included for convenience only and shall not be considered in interpreting
this letter agreement.
<PAGE>
(h) Counterparts. This letter agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, and all
of which together shall constitute one and the same instrument. This letter
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.
(i) Assistance of Counsel. Each party acknowledges that (i) it
has carefully read this letter agreement, (ii) 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, (iii) the
meaning and effect of the various terms and provisions hereof have been fully
explained to it by such counsel, (iv) it has conducted such investigation,
review and analysis as it has deemed necessary to understand the provisions
of this letter agreement and the transactions contemplated hereby, and (v) it
has executed this letter agreement of its own free will.
(j) Disclosure. Neither National nor you shall disclose, either
in writing, orally or otherwise, including, but not limited to, any press
releases, announcements and discussions of any type or nature whatsoever with
any third parties, the contents or subject matter of this letter agreement,
the Replacement Note, the Letter of Instructions and that certain side letter
agreement of even date herewith addressed from you to National, without the
prior written consent of the other party hereto.
(k) Current Sales. You have caused Newbold's to sell
approximately 20,000 of the Harrington Shares within the past several days,
and you are awaiting settlement of the trades of those shares at prices
approximating $7.00 per share. All proceeds from the sale of those shares
will be applied to reduce the Newbold's Indebtedness, and you will provide to
National written notification, upon your receipt of same from Newbold's, of
the remaining number of the Harrington Shares you own and of the remaining
balance of the Newbold's Indebtedness.
If the foregoing accurately sets forth our agreement, please so indicate
by signing the enclosed copy of this letter and returning it to my attention.
Sincerely,
Constantinos I. Costalas
for NATIONAL MEDIA CORPORATION
ACCEPTED AND AGREED:
____________________________
Kevin Harrington
Date: March 23, 1995
<PAGE>
AMENDMENT TO SECURITIES PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 30, 1994
BETWEEN NATIONAL MEDIA CORPORATION
AND THE PERSONS EXECUTING OR CAUSING TO BE EXECUTED
THE SIGNATURE PAGE THEREOF
WHEREAS, National Media Corporation (the "Company") and the signatories
hereto (the "Purchasers"), among others, are parties to that certain Securities
Purchase Agreement dated as of September 30, 1994 (the "Purchase Agreement");
and
WHEREAS, the parties hereto desire to amend certain terms of the Purchase
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, and for good and valuable consideration, the sufficiency of
which is acknowledged, the parties hereto hereby agree as follows:
1. Section 6.01(b) of the Purchase Agreement is amended to read in its
entirety as follows:
"The term "Registrable Securities" means, on any date, the
following securities held by a person who has executed this Agreement
or an affiliate of such person, or any other person who is not a
competitor of the Company and who acquired such securities from a
person who executed this Agreement or from a transferee of such
person: (i) the shares of Common Stock issued and issuable upon
conversion of the shares of the Preferred Stock and exercise of the
Warrants issued under this Agreement (provided, however, that no share
of Common Stock issuable upon exercise of any Warrant, described in
this paragraph 6.01(b), shall be considered a Registrable Security
until that date which is one year after the date of such Warrant's
issuance), and (ii) all shares of Common Stock or other securities of
the Company issued in respect of the foregoing securities (and such
other securities of the Company) by way of a stock split, stock
dividend, recapitalization, merger or consolidation, but exclusive of
any shares or other securities described in the foregoing clauses sold
in a public offering registered under the Securities Act or sold
pursuant to Rule 144 promulgated under the Securities Act. In
addition, except as provided in Sections 6.02(c), 6.06 and 6.07, for
purposes of calculating the percentage of Registrable Securities
required to effect a registration under this Agreement, the term
Registrable Securities shall include "Eligible Securities" as such
<PAGE>
term is defined in that certain Registration Rights Agreement dated as
of December 19, 1994 (the "Registration Agreement").".
2. Section 6.02(a) of the Purchase Agreement is amended to read in its
entirety as follows:
"If the Company shall receive at any time a written request of
Holders of not less than thirty seven and one-half percent (37.5%) of
Registrable Securities, then the Company shall, within ten (10) days
of the receipt thereof, give written notice of such request to all
Holders, and shall, subject to the limitations of Section 6.02(b),
effect as soon as practicable, and in any event within 90 days of the
receipt of such request, the registration under the Securities Act of
such Registrable Securities which the Holders request to be registered
within twenty (20) days of the mailing of such notice by the Company
in accordance with Section 10.01. If within fifteen (15) days of the
exercise of a demand registration right granted under this Section,
the Company notifies the Holders of the Registrable Securities making
such demand that the Company wishes to register securities of the same
class for its own account on the registration statement being filed
pursuant to the demand for offering to the public via a firm
commitment underwriting, then the Company may include securities for
its own account in such registration statement; provided, however,
that if the managing underwriter determines and advises in writing
that the inclusion of any or all such securities for the Company's
account in the registration statement covered by the requests for
registration made under this Section 6.02 would be detrimental to the
offering of the Registrable Securities being sold in such
registration, then the requisite number of securities for the
Company's account shall be excluded from registration hereunder.".
3. Section 6.02(b) of the Purchase Agreement is amended by deleting the
last sentence of such section and replacing it with the following:
"If the Holders of Registrable Securities making such demand
propose to sell their Registrable Securities in a firm commitment
underwriting and the managing underwriter advises such Holders that
not all Registrable Securities of such Holders can be included in such
offering, then the requisite number of Registrable Securities shall be
excluded from registration on a pro rata basis among the Holders of
the Registrable Securities requesting such registration, based upon
the number of Registrable Securities requested to be registered.".
<PAGE>
4. Section 6.02(b) of the Purchase Agreement is further amended to add a
new sentence to the end of such section as follows:
"Provided the Company has honored its obligations under Section
6.03, no demand registration right granted in this Section 6.02 may be
exercised during any period of time beginning on the date the Company
files a registration statement with the Securities and Exchange
Commission covering Registrable Securities in a firm commitment
underwriting and ending on the earlier to occur of (i) the date which
is 120 days after such registration statement becomes effective, (ii)
the date on which the Company withdraws such registration statement
with the Securities and Exchange Commission, or (iii) the date which
is 180 days after the date the Company files such registration
statement; provided, however, the provisions of this sentence shall
only be effective if and to the extent the managing underwriter so
requests.".
5. Section 6.02(c) of the Purchase Agreement is amended to read in its
entirety as follows:
"The Company is obligated to effect only three such registrations
pursuant to this Section 6.02; provided, however, notwithstanding
anything to the contrary contained in Section 6.02 of this Agreement,
on and after the date on which demand registration rights of all
signatories (the "Registration Agreement Signatories") to the
Registration Agreement expire (i) pursuant to Section 2(g) of the
Registration Agreement, or (ii) because the Company has filed and
caused to become effective two (2) registration statements pursuant to
Section 2 of the Registration Agreement, the Company shall be
obligated, only upon the request of one or more of the signatories to
the Amendment to this Agreement dated as of December 19, 1994 to
effect one registration pursuant to Section 6.02(a), but only if the
gross proceeds of the proposed offering will be or are reasonably
expected to be $500,000 or more. In the event one or more of the
signatories to the Amendment to this Agreement dated as of December
19, 1994 exercises their third registration right pursuant to this
Section 6.02 and Registrable Securities which such signatories request
to be included in such registration are excluded from such
registration pursuant to Section 6.02(b), the Company shall be
obligated to effect such number of additional registrations pursuant
to this Section 6.02 as is required until none of the Registrable
Securities such holder requests to be included in such registration
are excluded pursuant to Section 6.02(b).".
<PAGE>
6. Section 6.03 of the Purchase Agreement is amended by deleting the last
sentence of such section and replacing it with the following:
"Upon the written request of each Holder given within twenty (20)
days after mailing of such notice by the Company in accordance with
Section 10.01, the Company shall, subject to the provisions of Section
6.08, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be so
registered.".
7. Section 6.08 of the Purchase Agreement is amended by deleting the second
sentence of such section and replacing it with the following:
"If the managing underwriter determines and advises in writing
that the inclusion of any or all Registerable Securities in the
registration statement covered by requests for registration made under
Section 6.03 would be detrimental to the offering of the securities
being sold by the Company for its own account in such registration,
then the requisite number of Registrable Securities shall be excluded
from registration hereunder on a pro rata basis among the Holders of
Registrable Securities requesting such registration based upon the
number of Registrable Securities each Holder requests to have
registered.".
8. Section 6.12 of the Purchase Agreement is amended by deleting the first
clause of such section and replacing it with the following:
"In case the Company shall receive from any Holder or Holders of
Registrable Securities a written request or requests that the Company
effect a shelf registration on Form S-3 and any related qualification
or compliance with respect to all or part of such Registrable
Securities owned by such Holder or Holders, the Company will:".
9. Clause (2) of Section 6.12(b) of the Purchase Agreement is amended to
read in its entirety as follows:
"If the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if
any) where the gross proceeds of the proposed offering will be or are
reasonably expected to be less than $500,000;".
<PAGE>
10. The Purchasers consent to the Company (i) offering and selling up to
228,750 units of investment ("Units"), each unit consisting of one share of the
Company's Series B Convertible Preferred Stock and Warrants to purchase 12
shares of the Company's Common Stock, (ii) entering into the Registration
Agreement with the purchasers of Units and certain signatories to the Purchase
Agreement, and (iii) entering into the Note and Warrant Purchase Agreement and
consummation of the transactions contemplated thereby.
11. The terms and conditions of the Purchase Agreement shall remain in full
force and effect, except as such terms and conditions are amended hereby.
12. The registration rights of all Registration Agreement Signatories shall
be governed by the Registration Agreement and such parties shall have no rights
or obligations under the Purchase Agreement. The registration rights of all
Purchasers shall be governed by the Purchase Agreement, as amended hereby, and
such parties shall have no rights or obligations under the Registration
Agreement. Notwithstanding the foregoing sentence, the parties acknowledge and
agree that (i) the exercise by Registration Agreement Signatories of certain
rights under the Registration Agreement will cause the triggering of certain
rights of the Purchasers under the Purchase Agreement, as amended hereby, and
(ii) the exercise of certain rights by the Purchasers under the Purchase
Agreement, as amended hereby, will cause the triggering of certain rights of
Registration Agreement Signatories under the Registration Agreement.
13. The shares of Common Stock issuable upon conversion or exercise of the
securities issued by the Company to the Registration Agreement Signatories
(collectively, the "Investment Securities"), shall be included in the term
"Registrable Securities" as defined in the Purchase Agreement; provided,
however, on and after the date on which demand registration rights of
Registration Agreement Signatories expire (i) pursuant to Section 2(g) of the
Registration Agreement, or (ii) because the Company has filed and caused to
become effective two (2) registration statements pursuant to Section 2 of the
Registration Agreement, the Investment Securities shall not be included in the
term "Registrable Securities" as defined in the Purchase Agreement. The shares
of Common Stock issuable upon conversion or exercise of securities issued by the
Company to the Purchasers pursuant to the Purchase Agreement shall be included
in the term "Eligible Securities" as defined in the Registration Agreement in
the manner set forth in Section 2(c) thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Amendment to the Purchase Agreement, as of December 19, 1994.
NATIONAL MEDIA CORPORATION
By: /s/ Brian McAdams
-------------------------------------
/s/ Morris R. Garfinkle
-------------------------------------
Morris R. Garfinkle
/s/ Robert H. Morse
-------------------------------------
Robert H. Morse
/s/ Martin Jacobs
-------------------------------------
Martin Jacobs
/s/ Marc C. Ginsberg
-------------------------------------
Marc C. Ginsberg
/s/ David Naftaly
-------------------------------------
David Naftaly
/s/ Steven H. Oram, Trustee
-------------------------------------
Steven H. Oram, Chartered Cash or
Deferred Arrangement Profit Trust
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
- -----------------------------------:
:
IN RE: NATIONAL MEDIA : MASTER FILE
SECURITIES LITIGATION : NO. 93-CV-2977
- -----------------------------------:
:
THIS DOCUMENT RELATES TO: :
:
ALL ACTIONS :
- -----------------------------------:
STIPULATION AND AGREEMENT
OF COMPROMISE AND SETTLEMENT
The parties to the above-captioned action, by and through
their respective attorneys, propose the following Stipulation and Agreement of
Compromise and Settlement (the "Settlement") for the Court's approval:
A. The above-captioned proceeding consists of a consolidated
class action suit. As amended, the action is brought by five named plaintiffs(1)
on behalf of themselves and a class of all other persons who bought the common
stock of National Media Corporation ("National Media") during the period from
June 29, 1992 through and including May 27, 1993 (the "Class Period"). The
action was brought against National Media and three of its former officers and
directors, John J. Turchi, Jr., Kevin Harrington and Michael H. Hammond
(collectively the "individual defendants").(2)
- --------
1 Plaintiffs Gary Pache and Richard Clemen each purchased
their National Media common stock jointly with their wives.
2 Michael Hammond is deceased. A Suggestion of Death was
filed in this matter on October 26, 1994. For purposes of this
Settlement, Michael H. Hammond shall refer to the Estate of Michael
H. Hammond.
<PAGE>
B. As set forth in the Consolidated Second Amended Class
Action Complaint ("Complaint"), the class action plaintiffs allege violations by
National Media and the individual defendants of Section 10(b) of the Securities
Exchange Act of 1934, the rules and regulations of the Securities and Exchange
Commission promulgated thereunder and common law negligent misrepresentation.
Plaintiffs allege in the Complaint that, among other things, National Media
during the Class Period issued releases, statements and reports that
misrepresented and failed to disclose material facts with respect to National
Media. Plaintiffs allege in the Complaint that National Media issued these false
and misleading releases, statements and reports at the direction of and with the
consent and knowledge of the individual defendants. Plaintiffs further assert
that, as a result of these public statements, the market price of National Media
common stock was artificially inflated.
C. Plaintiffs and defendants stipulate that, for purposes of
implementing the Settlement, and pursuant to Rules 23(a) and (b)(3) of the
Federal Rules of Civil Procedure, the Class herein consists of all purchasers of
the common stock of National Media during the alleged Class Period, and who
sustained damages in connection therewith, excluding the individual defendants,
members of the immediate families and heirs of each of the individual
defendants, any entity in which any defendant has a controlling interest, the
legal representatives, successors, predecessors in interest or assigns of any
2
<PAGE>
defendant, and the directors and officers of National Media and members of their
immediate families and heirs.
D. Plaintiffs' counsel have conducted an extensive
investigation relating to plaintiffs' claims and the underlying events and
transactions alleged in the Complaint, including inspecting thousands of
documents produced by the defendants and by numerous non-parties, and taking
extensive depositions of defendants and third parties. Plaintiffs' counsel also
have made a thorough study of the legal principles applicable to plaintiffs'
claims herein. They desire to settle those claims against the defendants because
further proceedings would be protracted and expensive, the ultimate outcome as
to liability and damages is uncertain, and the collectibility of a substantial
judgment is highly uncertain.
E. In light of the foregoing considerations, plaintiffs and
their counsel have concluded that it is in the best interests of the Class to
settle and dismiss with prejudice the action in the manner set forth below, and
have further concluded that the terms of this Settlement are fair, reasonable
and adequate and will result in substantial and material benefits to the members
of the Class.
F. As they have from the commencement of this
litigation, National Media and the individual defendants categorically deny
wrongdoing, liability and damages to the plaintiff class. All the defendants
have responded to the Complaint denying all allegations of wrongdoing and
liability therein, asserting affirmative defenses thereto, and demanding
3
<PAGE>
judgment on the merits dismissing the Complaint. Nonetheless, relying on the
provision in Paragraph 18 below that this Settlement shall in no event be
construed as or deemed to be evidence of, or an admission or concession on their
part of any fault or liability whatsoever, and without conceding any infirmity
in the defenses that defendants have asserted in this action, they consider it
desirable that the action be dismissed on the terms set forth below. Defendants
desire to settle this litigation to avoid further expense, to dispose of
burdensome and protracted litigation, and to permit attention by executive and
other officials of National Media to its business operations, unhindered by
expensive litigation and associated distraction and diversion, and thereby to
put to rest all controversy concerning all claims that have been or might have
been asserted in this action.
NOW, THEREFORE, IT IS HEREBY STIPULATED, CONSENTED TO AND
AGREED, by and among the undersigned counsel, on behalf of their respective
clients and the Class, and subject to certification of the Class and the
approval of the Court pursuant to Rule 23(e) of Federal Rules of Civil
Procedure, that this action shall be settled, compromised and dismissed as to
all defendants, with prejudice and without court costs to any party, upon and
subject to the following terms and conditions:
4
<PAGE>
ADDITIONAL DEFINITIONS
1. As used in this Settlement and the related
documents annexed as exhibits, which exhibits are incorporated by reference in
this Settlement, the following terms (not already defined in the recitals set
forth above) shall have the meanings set forth below:
a. The words "person," "he" or "his" shall include,
without limitation, any individual, corporation, partnership or other entity,
and his, her or its legal representative;
b. "Action" means the above-captioned action.
c. "Administrative Expenses" means costs and
expenses incurred in connection with processing Proofs of Claim, including but
not limited to the fees and costs of a Claims Administrator and the costs of
printing and mailing to Class Members the Notice and the Proof of Claim.
Administrative Expenses shall not include legal fees, whether incurred in
connection with provision of notice to Class Members, processing Proofs of
Claim, or otherwise;
d. "Authorized Claimant" means a Claimant who
satisfies the requirements of paragraphs 8 and 17 hereof and whose claim is not
rejected;
e. "Claimant" means any Class Member who files or
purports or attempts to file a Proof of Claim;
f. "Claims Administrator" means the person selected
by Plaintiffs' Counsel to receive and assist in processing Proofs of Claim;
5
<PAGE>
g. "Class Member" means any person who purchased
shares of National Media common stock during the Class Period and who sustained
damages in connection therewith, excluding the individual defendants, members of
the immediate families and heirs of each of the individual defendants, any
entity in which any defendant has a controlling interest, the legal
representatives, successors, predecessors in interest or assigns of any
defendant, and the directors and officers of National Media and members of their
immediate families and heirs;
h. "Defendants" means National Media Corporation,
John J. Turchi, Jr., Kevin Harrington and Michael H. Hammond.
i. "Defendants' Counsel" means Klehr, Harrison,
Harvey, Branzburg & Ellers (counsel of record for defendants in the Action);
j. The "Effective Date" of this settlement shall be
the day following the day on which the judgment described in paragraph 13 hereof
becomes final. For purposes of this stipulation, the judgment shall be deemed to
become final on the later of (i) the thirty-first day after it is entered, if no
appeal is taken therefrom; or (ii) if an appeal is taken therefrom, on the day
after the date on which it is not subject to further judicial review or appeal,
either by reason of affirmance by a court of last resort or by reason of lapse
of time or otherwise;
k. The "Gross Settlement Fund" means the settlement
payment contributed in accordance with paragraph 2 hereof and interest accruing
thereon;
6
<PAGE>
l. "Hearing Date" means the date set by the Court to
consider whether the settlement set forth in this Settlement shall be approved;
m. "Net Settlement Fund" means the Gross Settlement
Fund less the sum of any Administrative Expenses and such attorneys' fees and
disbursements as may be allowed by the Court;
n. "Notice" means the form of Notice of Pendency and
Proposed Settlement of Class Action And Settlement Hearing that is attached
hereto as Exhibit B;
o. "Notice and Administration Fund" means the
principal amount, included in (and to be established from) the Cash Settlement
Fund (as defined below) of Seventy Five Thousand Dollars ($75,000) in cash plus
any interest earned thereon.
p. "Named Plaintiffs" means Michael Fink, Michael
Sorkin, Gary and Carol Pache, David Stern and Richard and Diane Clemen;
q. "Plaintiffs' Counsel" mean Berger & Montague,
P.C., and Barrack, Rodos & Bacine, Plaintiffs' Co-Lead Counsel in this Action
pursuant to Order dated August 31, 1993;
r. "Proof of Claim" means the form of Instructions
And Proof of Claim Form attached hereto as Exhibit C;
s. "Recognized Claim" means that portion of the
claim of each Authorized Claimant that constitutes Recognized Loss as defined in
paragraph 8(c)(i) below;
7
<PAGE>
t. "Released Claims" means and includes any and all
claims, actions, causes of action, rights and liabilities whatsoever, whether
based on any federal, state or foreign law, foreseen or unforeseen, mature or
unmatured, known or unknown, accrued or not accrued, against National Media or
the individual defendants or any of its or their present or former members,
officers, partners, directors, trustees, employees, agents, servants, investment
bankers, advisers, attorneys, stockholders, heirs, executors, administrators,
representatives, successors, assigns, subsidiaries, affiliates, parents,
divisions, predecessors, insurers or reinsurers that are alleged or that could
have been alleged in the Action.
u. "Settling Plaintiffs" means all Class Members
except those who exercise their right in a timely manner, pursuant to Rule
23(c)(2) of the Federal Rules of Civil Procedure, to be excluded from the Class
and from the binding effect of a judgment in the Action.
SETTLEMENT FUND
2. There shall be contributed as a settlement
payment the following:
a. the sum of two million, one hundred seventy
five thousand ($2,175,000) dollars in cash (the "Cash Settlement Fund"); and
b. (1) one hundred forty-five thousand
(145,000) shares of National Media common stock (the "Stock Settlement Fund");
provided, however, that the number of shares of stock in the Stock
8
<PAGE>
Settlement Fund shall be subject to adjustment as provided in paragraph 2(c)
hereof;
c. With respect to National Media's stock
contribution to the settlement:
(1) National Media shall undertake to
make the appropriate filings with the Securities and Exchange Commission, the
various state securities agencies and the New York Stock Exchange as soon as
practicable after the signing of this Settlement in order to register the stock
in the Stock Settlement Fund for sale under the Securities Act of 1933 and under
any applicable state securities law, or National Media shall provide an opinion
letter that such filings are unnecessary. Plaintiffs and their attorneys will
cooperate fully with National Media in whatever way necessary to accomplish any
required filings. No sale of the stock in the Stock Settlement Fund shall take
place until the necessary filings, if any, have been approved by the appropriate
governmental and self-regulatory bodies, or the above referenced opinion letter
is provided to plaintiffs' counsel.
(2) As soon as practicable, but in any
event on or prior to the Effective Date, National Media shall issue to Berger &
Montague as escrow agent a certificate evidencing the number of shares of
National Media stock in the Stock Settlement Fund;
(3) The Stock Settlement Fund shall be
liquidated pursuant to a Selling Protocol agreed to by the parties. If gross
proceeds of less than seven hundred twenty-five thousand
9
<PAGE>
($725,000) dollars are obtained through the sale of the stock in the Stock
Settlement Fund pursuant to the Selling Protocol, National Media in its sole
discretion shall either (1) increase the number of shares in the Stock
Settlement Fund so that the gross proceeds from the sale of stock in the Stock
Settlement Fund shall equal seven hundred twenty-five thousand ($725,000), or
(2) pay in cash the difference between the gross proceeds from the sale of the
Stock Settlement Fund and seven hundred twenty-five thousand ($725,000)
("National Media's Cash Contribution").
Plaintiffs shall cease selling the National Media common stock
in the Stock Settlement Fund at such time as the gross proceeds from the sale of
the stock in the Stock Settlement Fund equal one million fifty thousand
($1,050,000) dollars, and shall return to National Media a stock certificate
reflecting all unsold shares. If the gross proceeds from the sale of the stock
in the Stock Settlement Fund exceeds one million fifty thousand ($1,050,000)
dollars, the excess amount shall be paid to National Media within 14 days of the
time when such shares have been sold.
d. Within thirty (30) days after preliminary
approval of the settlement by the Court, defendants shall transmit to the Escrow
Agents (defined below) the sum of $75,000 (the "Notice and Administration
Fund"). The Notice and Administration Fund shall be used by Plaintiffs' Counsel
to pay the costs of identifying and notifying Class Members, soliciting the
filing of claims by Class Members, assisting them in making their claims, and
otherwise administering, on behalf of the Class, this Settlement. Except
10
<PAGE>
for the $75,000 Notice and Administration Fund, no funds shall be disbursed from
the Settlement Fund, nor shall Plaintiffs' Counsel incur obligations to pay
total expenses that would exceed the sum in the Notice and Administration Fund
for any purpose, until the Settlement becomes final, unless the Court approves
such disbursements or incurring of expenses. On or after the Effective Date, any
balance (including interest) then remaining in the Notice and Administration
Fund, less expenses incurred but not yet paid, shall be transferred to,
deposited and credited as part of, the Settlement Fund. Thereafter, Plaintiffs'
Counsel shall have the right to use such portions of the Settlement Fund as are,
in their exercise of reasonable judgment, necessary to carry out the purposes of
this Settlement.
e. Within 30 days of preliminary approval of the
Settlement by the Court, the Cash Settlement Fund less the Notice and
Administration Fund shall be wire transferred to an account at PNC Bank, N.A.,
Philadelphia, Pennsylvania (the "Bank"), designated by Berger & Montague and
Barrack, Rodos & Bacine as escrow agents (the "Escrow Agents"). Immediately upon
receipt, the Escrow Agents shall maintain the Cash Settlement Fund in an
interest bearing account, certificates of deposit, U.S. Treasury Bills, U.S.
agency paper, or in some combination thereof, with any interest accruing thereon
to become part of the Gross Settlement Fund.
f. The Escrow Agents shall not disburse the Gross
Settlement Fund except as provided in the Settlement, or with the written
agreement of Defendants' Counsel.
11
<PAGE>
g. Subject to such further orders and/or
directions as may be made by the Court, the Escrow Agents are authorized to
execute such transactions on behalf of the Settling Plaintiffs as are consistent
with the terms of the Settlement.
h. All funds held by the Escrow Agents shall be
deemed and considered to be in custodia legis of the Court, and shall remain
subject to the jurisdiction of the Court, until such time as such funds shall be
distributed pursuant to the Settlement and/or further order(s) of the Court.
(1) The Escrow Agents, and the Defendants
and their insurer agree to treat the Settlement Fund as being at all times as
one or more "qualified settlement funds" within the meaning of Treas. Reg.
Section 1.468B-1. In addition, the Escrow Agents and, as required, the
Defendants and their insurer shall jointly and timely make the following
elections as are necessary or advisable to carry out the provisions of this
Section: (i) the "relation-back election" (as defined in Treas. Reg. Section
1.468B- 1) back to the earliest permitted date, and (ii) the election provided
for in Treas. Reg. Section 1.468B-5(b)(2). Such elections shall be made in
compliance with the procedures and requirements contained in such regulations.
It shall be the responsibility of the Escrow Agents to timely and properly
prepare, and deliver the necessary documentation for signature by all necessary
parties, and thereunder to cause the appropriate filing to occur.
(2) For the purposes of Treas. Reg.
Section 1.468B, the "administrator" shall be the Escrow Agents. The Escrow
12
<PAGE>
Agents shall timely and properly file all informational and other tax returns
necessary or advisable with respect to the Settlement Fund (including without
limitation the returns described in Treas. Reg. Section 1.468B-2(k)). Such
returns (as well as the elections described in Section 2.i.(1) of this
Settlement) shall be consistent with this Section and in all events shall
reflect that all taxes (including any interest or penalties) on the income
earned by the Settlement Fund shall be paid out of the Settlement Fund as
provided in Section 2.i.(3) of this Settlement.
(3) All (a) taxes (including any
interest or penalties) arising with respect to the income earned by the
Settlement Fund ("Taxes") and (b) expenses and costs incurred in connection with
the operation and implementation of this Section (including without limitation
expenses of tax attorneys and accountants and mailing and distribution costs and
expenses relating to filing (or failing to file) the returns described in this
Section ("Tax Expenses")), shall be paid out of the Settlement Fund; in all
events the Defendants and their insurer shall have no liability or
responsibility for the Taxes or the Tax Expenses. Further, Taxes and the Tax
Expenses shall be treated as, and considered to be, a cost of administration of
the Settlement and shall be timely paid by the Escrow Agents out of the
Settlement Fund without prior order from the Court and the Escrow Agents shall
be obligated (notwithstanding anything herein to the contrary) to withhold from
distribution to class members any funds necessary to pay such amounts (as well
as any amounts that may be required to be withheld under Treas. Reg.
13
<PAGE>
Section 1.468B-2(1)(2)); the Defendants and their insurer are not responsible
and shall have no liability therefor. The parties hereto agree to cooperate with
the Escrow Agents, each other, and their tax attorneys and accountants to the
extent reasonably necessary to carry out the provisions of this Section.
i. If the Settlement is not finally approved or
consummated, or fails to become effective for any reason, the then- remaining
balance of the Notice and Administration Fund (including interest thereon), less
any monies paid or expenses incurred but not yet paid, shall be returned to
National Media's insurer.
RELEASES
3. Upon the Effective Date of the Settlement, the Settling
Plaintiffs, and their respective heirs, executors, administrators,
representatives, successors, assigns and agents (hereinafter "Releasors"),
hereby remise, release and forever discharge Defendants and their respective
present or former members, officers, partners, directors, trustees, employees,
agents, servants, investment bankers, advisers, attorneys, stockholders, heirs,
executors, administrators, representatives, successors, assigns, subsidiaries,
affiliates, parents, divisions, subdivisions, predecessors, insurers and
reinsurers (hereinafter "Releasees"), of and from any and all claims, actions,
causes of action, rights and liabilities whatsoever, whether based on any
federal, state or foreign law, foreseen or unforeseen, mature or unmatured,
known or unknown, accrued or not accrued, which have been or could have
14
<PAGE>
been asserted by Releasors in this Action or in any other court or tribunal, by
reason of, based upon, with respect to, in connection with, or that arise out of
the Action or the matters alleged therein. The contribution set forth in
paragraph 2 shall constitute full and complete discharge of the entire
obligation of National Media and the individual defendants under this
Settlement, and National Media and the individual defendants shall have no
further obligation or liability to the Named Plaintiffs (individually or as
representatives of the Class), or the Class Members, except as otherwise
specifically provided in this Settlement.
4. Upon the Effective Date of the Settlement, Defendants shall
remise, release and forever discharge the Class Members, their attorneys, heirs,
administrators, and each of them, from any and all claims, actions, causes of
action, rights and liabilities whatsoever, whether based on any federal, state
or foreign law, foreseen or unforeseen, mature or unmatured, known or unknown,
accrued or not accrued, that have been or could have been asserted by Defendants
in this Action or in any other court or tribunal, by reason of, based upon, with
respect to, in connection with, or that arise out of the Action or the matters
alleged therein.
ADMINISTRATIVE EXPENSES, ATTORNEYS' FEES AND DISBURSEMENTS
5. Such attorneys' fees and disbursements of
Plaintiffs' Counsel as the Court may award, as well as Administrative Expenses,
15
<PAGE>
are to be paid out of the Gross Settlement Fund on or after the Effective Date.
6. The undersigned Plaintiffs' Counsel intend to apply to this
Court for an award of attorneys' fees in an aggregate amount not to exceed
thirty (30%) of the Gross Settlement Fund, and in addition, reimbursement of
expenses. The determination as to the amount of any fees and disbursements to be
awarded will be made by the Court, and nothing in this Settlement shall be
construed to constitute an agreement between the Class Members or their counsel
and National Media, the individual defendants or any of their counsel as to the
amount of any such award, except that the award shall not exceed the parameters
specified in this Paragraph 6. National Media agrees that it will not oppose and
will take no position with respect to Plaintiffs' Counsel's request to the Court
for an award of attorneys' fees and disbursements within the parameters set
forth above. In addition, Plaintiffs' Counsel intend to apply to the Court for
an award of up to $1,500 to be paid to each of the five (5) named representative
plaintiffs who initiated this Action on behalf of the Class, and who bore the
burden of Defendants' discovery directed to the Class. Defendants will not take
any position with respect to such awards.
ADMINISTRATION AND DISTRIBUTION
OF THE NET SETTLEMENT FUND
7. Plaintiffs' Counsel, or their authorized agents,
acting on behalf of the Class, and subject to the supervision, direction and
approval of the Court, shall administer and calculate the claims submitted
16
<PAGE>
by Class Members and shall oversee distribution of the Settlement Fund.
8. On and after the Effective Date, the Settlement Fund
shall be applied as follows:
(a) Subject to the approval and further order(s)
of the Court, to pay to counsel for plaintiffs their fees, costs, and expenses,
including fees of experts and consultants, if and to the extent allowed by the
Court, and to pay any awards to the named plaintiffs.
(b) To pay all unpaid costs and expenses
incurred in connection with providing notice to Class Members, locating Class
Members, soliciting Class claims, assisting with the filing of claims,
administering and distributing the Net Settlement Fund to the Class, processing
proofs of claim, processing requests for exclusion, escrow fees and costs.
(c) Subject to the approval and further order(s)
of the Court, the Net Settlement Fund shall be distributed to Class Members who
submit valid, timely proofs of claim ("Authorized Claimants") as follows:
(i) Each Authorized Claimant will be
entitled to receive from the Net Settlement Fund the claimant's pro rata share
of the Net Settlement Fund. The Recognized Loss for Class Members is defined as
follows: for those securities purchased during the period from June 29, 1992
through May 27, 1993, and still owned at the close of business on May 27, 1993,
17
<PAGE>
it is the difference between the purchase price and $6.00, the closing price on
May 28, 1993.
(ii) The date of purchase or sale is the
"contract" or "trade" date as distinguished from the "settlement"
date.
(iii) For Authorized Claimants who
purchased and/or sold shares of National Media stock in multiple transactions,
Recognized Loss will be calculated on a "first in/first out" basis, and any net
profits earned on such shares purchased and sold during the Class Period will be
used to offset any losses as computed under subparagraphs (c)(i) above.
(iv) The Net Settlement Fund will be
divided by the total Recognized Loss of all Authorized Claimants to arrive at a
distribution ratio. Each Authorized Claimant will then receive an award from the
Net Settlement Fund computed by multiplying that distribution ratio by each
Authorized Claimant's approved Recognized Loss.
(v) If the pro rata share of the Net
Settlement Fund for an Authorized Claimant is less than five dollars ($5.00)
after application of the formula set forth above, then no part of the Net
Settlement Fund shall be distributed to such Authorized Claimant and the losses
of such Authorized Claimant shall be removed from the calculation of the pro
rata share of the Net Settlement Fund to be distributed to the remaining
Authorized Claimants. The Net Settlement Fund shall be distributed to all
remaining Authorized Claimants and each such Authorized Claimant shall
18
<PAGE>
receive an amount equal to his, her or its pro rata share after the elimination
of claims with a pro rata share of the Net Settlement Fund that is less than
five dollars ($5.00).
(vi) In the event that all Authorized Claimants receive
distributions equal to 100% of their Recognized Losses on all National Media
common stock purchased during the Class Period and a portion of the Net
Settlement Fund remains undistributed, Plaintiffs' Counsel or Defendants'
Counsel or both may apply to the Court for an Order directing a distribution of
the balance.
(vii) Payment from the Settlement Fund made
pursuant to and in the manner set forth above shall be deemed conclusive of
compliance with this Settlement against all Authorized Claimants. All Class
Members who fail to file valid and timely proofs of claim shall be barred from
participating in distributions from the Settlement Fund (unless otherwise
ordered by the Court), but otherwise shall be bound by all of the terms of this
Settlement, including the terms of any judgment entered and the dismissal with
prejudice, releases and discharges given or provided for herein.
(d) No Authorized Claimant shall have any claim
against plaintiffs' counsel based on the distributions made substantially in
accordance with this Settlement.
EFFECT OF DISAPPROVAL, CANCELLATION AND TERMINATION
9. If the Court does not enter the judgment provided
for in paragraph 13, or if the Court enters the judgment and appellate
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review is sought, and on such review, such entry of judgment is vacated,
modified or reversed, then this Settlement shall be cancelled and terminated,
unless all parties to this Settlement, who are adversely affected thereby, in
their discretion within thirty (30) days from the date of the mailing of such
ruling to such parties, provide written notice to all other parties hereto of
their intent to proceed with the Settlement under the terms of the judgment as
it may have been modified by the Court. Such notice may be provided on behalf of
the Class by Plaintiffs' Counsel. No party shall have any obligation whatsoever
to proceed under the terms other than those provided for and agreed to herein.
10. Concurrently with the execution of this Settlement,
counsel for the parties shall enter into a supplemental agreement (which shall
be deemed a part of this Settlement) setting forth the conditions that would
give rise to an option for the Defendants to terminate this Settlement in whole
or in part. Such condition relates to the number of National Media common stock
eligible for participation for which exclusion from the Class may be requested.
11. In the event this Settlement is terminated or cancelled,
or fails to become effective for any reason, then within ten (10) business days
after written notice is sent by Plaintiffs' Counsel or Defendants' counsel to
counsel for all parties hereto, the Cash Settlement Fund, including accrued
interest, and the balance of the Notice and Administration Fund, including
accrued interest but less any monies paid or expenses incurred but not yet paid,
shall be refunded by the Escrow Agents to National Media's insurer; the Stock
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Settlement Fund, and any proceeds obtained pursuant to the Selling Protocol,
including accrued interest, shall be refunded to National Media. In such event,
the parties to this Settlement shall be deemed to have reverted nunc pro tunc to
their respective status as of the date and time immediately prior to the
execution of this Settlement and they shall proceed in all respects as if this
Settlement and related orders had not been executed and without prejudice in any
way from the negotiation, fact or terms of this Settlement.
NOTICE PROCEDURE
12. a. As soon as practical after execution of this
Settlement but in any event no later than March 20, 1995, Plaintiffs' Counsel
and Defendants' Counsel shall jointly apply to the Court for an Order providing
for Notice to Class Members substantially in the form of Exhibit A, the entry of
which Order shall be a condition precedent to any obligation of any party
pursuant to this Settlement.
b. After entry of the order providing for Notice and
in accordance with its terms, Plaintiffs' Counsel will arrange the printing and
mailing of the Notice and the Proof of Claim to Class Members, which shall be
charged to the Notice and Administration Fund, and shall cause to be served and
filed an affidavit evidencing compliance with this notice requirement.
21
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FINAL ORDER AND JUDGMENT
13. If, after the Notice and Hearing provided for herein, the
Court approves this Settlement, the parties shall present to the Court a Final
Order and Judgment substantially in the form of Exhibit E, inter alia,
dismissing the Action with prejudice and without costs, releasing National Media
and the individual defendants from the Released Claims, and providing for
disposition of the Gross Settlement Fund.
ADMINISTRATION OF THE FUND
14. The Net Settlement Fund shall be distributed after the
Effective Date in accordance with the directions of the Court. All (a) payment
and reimbursement of Administrative Expenses, (b) payments of attorneys' fees
and disbursements, and (c) Class recovery, shall be made solely from the Gross
Settlement Fund.
15. Plaintiffs' Counsel shall be authorized to retain a
corporate finance advisor who shall be authorized to sell the stock in the Stock
Settlement Fund in accordance with the Selling Protocol referenced in
subparagraph 2.c.(3). Any proceeds of such sale(s) shall be deposited in the
Cash Settlement Fund. Plaintiffs' Counsel shall be authorized to pay the
corporate finance advisor a reasonable fee and to pay such other expenses as may
be incurred incident to sale of the stock, or any portion of them, which shall
be an Administrative Expense.
16. Before the distribution of the Net Settlement Fund,
Plaintiffs' Counsel shall seek a Court Order authorizing distribution of the
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Fund and setting forth a detailed disposition of the Gross Settlement Fund.
PROCESSING AND DETERMINING OF CLAIMS
17. For purposes of determining the extent, if any, to which
any person shall be entitled to be treated as an Authorized Claimant under this
Settlement, the following conditions shall apply:
a. Each Class Member who desires to assert a
claim for recovery shall be required as a condition thereof to submit a
separate, duly signed Proof of Claim, substantially in the form of Exhibit C,
supported by such documents as are designated therein.
b. All Proofs of Claim must be received by the
Claims Administrator not later than 75 days following the Hearing Date, unless
such time period is extended by Order of the Court. Any Class Member who fails
to submit a Proof of Claim within such period will be forever barred from
receiving any payments under this Settlement but shall in all other respects be
bound by all the terms of this Settlement.
c. Each Claimant shall be deemed to have
submitted to the jurisdiction of the United States District Court for the
Eastern District of Pennsylvania with respect to such Claimant's Proof of Claim,
and his or her Proof of Claim will be subject to investigation and discovery
under the Federal Rules of Civil Procedure, provided that such investigation and
discovery shall be limited to that Claimant's status as a Class Member and the
amount of his Recognized Claim.
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d. Each Proof of Claim shall be submitted to
the Claims Administrator, who, under the supervision of Plaintiffs' Counsel,
shall determine the extent, if any, to which each claim shall be allowed,
subject to review by the Court under paragraph 17(f) hereof.
e. The Claims Administrator shall notify, in a
timely fashion and in writing, all Claimants whose Proofs of Claim they have
decided to reject in whole or in part, setting forth the reasons therefor, and
shall indicate in such notice that the Claimant whose claim is rejected has the
right to request a hearing before the Court if he so desires and complies with
the requirements of paragraph 17(f) hereof.
f. If any Claimant whose claim has been
rejected in whole or in part desires to contest such rejection, he shall, within
twenty days after the date of the mailing of the notice required in paragraph
17(e) hereof, serve upon Plaintiffs' Counsel, and file with the Court, a notice
and statement of reasons indicating his grounds for contesting the rejection and
requesting a hearing thereon before the Court. The Court thereupon shall
determine whether a hearing shall be held and the extent, if any, to which the
claim shall be allowed.
g. Defendants shall have no responsibility for
and no obligations or liabilities of any kind whatsoever in connection with the
determination, administration, calculation or payment of claims.
24
<PAGE>
h. In connection therewith, Defendants shall
have no involvement in the solicitation of Proofs of Claim, or any involvement
in the administration process itself, which will be conducted by Plaintiffs'
Counsel in accordance with this Settlement and the Judgment to be entered by the
Court.
i. No Authorized Claimant shall have any claim
against Plaintiffs' Counsel, the Claims Administrator or any of the Defendants
based on actions or distributions made substantially in accordance with this
Settlement.
j. The administration of the Settlement and the
determination of all controversies relating thereto, including disputed
questions of law and fact with respect to the validity of claims, shall be
subject to the jurisdiction of, and determination by, the United States District
Court for the Eastern District of Pennsylvania.
SETTLEMENT NOT AN ADMISSION
18. This Settlement, whether or not consummated, and any
proceedings taken hereunder are not and shall not in any event be construed as
or deemed to be an admission or concession by the parties, or any of them, of
the truth of any fact alleged or the validity of any claim or defense asserted
in the Action or of liability of National Media, the individual defendants,
their heirs, subsidiaries, affiliates, parents, divisions, predecessors,
successors, assigns, present or former members, officers, directors, trustees,
partners, employees, attorneys, representatives, agents, insurers or reinsurers;
25
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nor shall this Settlement, or any papers related to it or any of the terms
thereof be offered or received in evidence or in any way referred to against
National Media or the individual defendants in this Action or in any other legal
or administrative proceeding other than as may be necessary to consummate or
enforce this Settlement in this Action; nor are they a concession or presumption
of any wrongdoing on the part of National Media or the individual defendants (or
any of the other persons or entities listed previously in this paragraph), nor
an admission by Class Members or Plaintiffs' Counsel that the consideration to
be given hereunder represents the amount that could be recovered after trial.
National Media and the individual defendants have denied, and continue to deny,
all of Plaintiffs' allegations of fault or liability and the averments that
Plaintiffs or any Class Member suffered any monetary damage by reason of the
alleged wrongdoing, and National Media and the individual defendants have
entered into this Settlement solely to avoid the further inconvenience and
burdens of protracted and costly litigation. Nothing in this Settlement shall be
construed as an admission or concession that Plaintiffs or any Class Member have
in fact suffered any damage or that National Media or the individual defendants
are liable to Plaintiffs or any Class Member.
MISCELLANEOUS PROVISONS
19. Within the bounds of all other limitations, rights and
obligations set forth in this Settlement, Plaintiffs and National Media and the
individual defendants and their respective attorneys will cooperate fully with
one another in seeking court approval of this Settlement and use their
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best efforts to effect the consummation of this Settlement and compliance with
the provisions thereof.
20. Pending final determination of whether the settlement
reflected in this Settlement should be approved, the Named Plaintiffs, Class
Members, or any of them, shall not commence or prosecute any action on behalf of
themselves or any other person, asserting claims that fall within the definition
of Released Claims in Paragraph 1(t) of this Settlement against National Media
or the individual defendants.
21. The undersigned Plaintiffs' Counsel represent that they
have the authority on behalf of the Named Plaintiffs both individually and as
representatives of the Class Members to execute this Settlement, and the
undersigned Defendants' Counsel represent that they have been authorized by
their respective clients to execute this Settlement.
22. The headings in this Settlement are solely for the
convenience of the attorneys for the parties and the Court. The headings shall
not be deemed to be a part of this Settlement and shall not be considered in
construing or interpreting this Settlement.
23. This Settlement shall be binding upon and inure to
the benefit of the parties hereto and their respective subsidiaries, affiliates,
directors, officers, employees, heirs, partners, successors and assigns and any
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<PAGE>
corporation or other entity into or with which any corporate party hereto may
merge or consolidate.
24. This Settlement may be executed in multiple counterparts
and may be filed with the Court with separately executed counterpart signature
pages attached. For this purpose, signature pages transmitted by telecopier
shall be deemed to be original signature pages.
25. This Settlement shall be construed and entered into
in accordance with the laws of the Commonwealth of Pennsylvania
without giving effect to its choice of law rules.
26. The foregoing constitutes the entire agreement between the
parties with regard to the subject matter hereof and may not be modified or
amended except in a writing signed by all parties hereto.
DATED: ______________, 1995 KLEHR, HARRISON, HARVEY,
BRANZBURG & ELLERS
By: _______________________________
Mark L. Alderman
John Spelman
M. Norman Goldberger
Abbe F. Fletman
1401 Walnut Street
Philadelphia, PA 19102
(215) 568-6060
Attorneys for Defendants
National Media Corporation,
John J. Turchi, Jr., Kevin
Harrington and Michael H.
Hammond
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DATED: ______________, 1995 BERGER & MONTAGUE
By: _______________________________
Stanley R. Wolfe
Ruthanne Gordon
1622 Locust Street
Philadelphia, PA 19103
(215) 875-3000
Co-Lead Counsel for Plaintiffs
and Escrow Agent
DATED: _______________, 1995 BARRACK, RODOS & BACINE
By: _______________________________
Leonard Barrack
Anthony J. Bolognese
3300 Two Commerce Square
2001 Market Street
Philadelphia, PA 19103
(215) 963-0600
Co-Lead Counsel for Plaintiffs
and Escrow Agent
29
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is
entered into effective as of this 19th day of December, 1994, by and among
NATIONAL MEDIA CORPORATION (the "Company"), and the persons whose signatures
appear on the execution pages of this Agreement.
BACKGROUND
Pursuant to a Securities Purchase Agreement dated as of
September 30, 1994, as amended by the Amendment to Securities Purchase Agreement
dated as of December 19, 1994 (the "Initial Series B Agreement"), the Company
has issued 32,250 shares of its Series B Preferred Stock and warrants to
purchase up to 387,000 shares of the Company's Common Stock to a group of
investors (the "Initial Series B Issuance"). In addition, (i) the Company has
issued warrants to purchase 2,250,000 shares of Common Stock to Safeguard
Scientifics (Delaware), Inc. ("SSI") pursuant to a Note and Warrant Purchase
Agreement (the "Note Agreement") dated as of October 19, 1994 (the "SSI
Warrants"); and (ii) the Company has entered into an agreement with SSI and
certain other investors dated as of November 30, 1994 providing for the issuance
of up to 134,500 shares of Series B Preferred Stock and warrants to purchase up
to 1,614,000 shares of Common Stock (the "Second Series B Issuance"). The
Company may also issue up to an additional 94,250 units of its securities at a
purchase price of at least $40.00 per unit, each unit consisting of (i) one
share of Series B Preferred Stock and (ii) a warrant to purchase 12 shares of
Common Stock at an exercise price of at least $4.80 per share in one or more
rounds of financing (the "Subsequent Financing Rounds").
The Series B Preferred Stock issued in the Initial Series B
Issuance, the Series B Preferred Stock issued in the Second Series B Issuance,
and the Series B Preferred Stock to be issued in the Subsequent Financing Rounds
are hereinafter called the "Series B Preferred Stock"; the Warrants issued in
the Initial Series B Issuance, the Warrants issued in the Second Series B
Issuance, the Warrants to be issued in Subsequent Financing Rounds and the
Warrants issued pursuant to the Note Agreement are hereinafter called the
"Warrants"; the shares of Common Stock issuable upon the conversion of the
Series B Preferred Stock and the exercise of the Warrants are hereinafter called
the "Shares"; and the persons purchasing the Series B Preferred Stock and the
Warrants in the Initial Series B Issuance, pursuant to the Note Agreement, in
the Second Series B Issuance, and in the Subsequent Financing Rounds are
hereinafter called the "investors."
<PAGE>
In order to induce the investors to purchase the Company's
securities as described above, the Company has agreed to provide the
registration rights set forth in this Agreement to those investors listed on
Schedule 1 hereto and to any investors in Subsequent Financing Rounds who elect
to sign this Agreement.
NOW, THEREFORE, in consideration of the foregoing and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Piggyback Registration.
(a) If at any time the Company proposes for any
reason to register any of its equity securities under the Securities Act of 1933
(the "1933 Act"), other than on Form S-8 or Form S-4 or their then equivalents
relating to shares of Common Stock to be issued solely in connection with any
acquisition of any entity or business or shares of Common Stock issuable in
connection with stock option or other employee benefit plans, it shall each such
time promptly give written notice to the registered holders of the Eligible
Securities (as defined in Section 2(c)) of its intention to do so, and, upon the
written request, given within 30 days after receipt of any such notice, of a
holder to register any of its Eligible Securities, the Company shall (subject to
Section 9.1(b) hereof) use its best efforts to cause all Eligible Securities
with respect to which holders shall have so requested registration to be
registered under the 1933 Act promptly upon receipt of the written request of
such holders for such registration, all to the extent required to permit the
sale or other disposition by the holders of the Eligible Securities so
registered in the manner contemplated by such holders.
(b) In the event that any registration pursuant
to this Section 1 shall be, in whole or in part, an underwritten offering of
securities of the Company, the Company shall arrange for the Eligible Securities
requested to be registered pursuant to this Section 1 to be included in the
underwriting on the same terms and conditions as the comparable securities, if
any, otherwise being sold through such underwriters under such registration;
provided, however, that if the managing underwriter determines and advises in
writing that the inclusion of any or all Eligible Securities in the registration
statement covered by the requests for registration made under this Section 1
would be detrimental to the offering of the securities being sold by the Company
for its own account in such registration, then the requisite number of Eligible
Securities shall be excluded from registration hereunder on a pro rata basis
among the holders of the Eligible Securities requesting such registration based
upon the number of Eligible Securities each holder requests to have registered.
For purposes of computing the number of Eligible Securities held by each holder
of Eligible Securities that must be excluded from registration, a share of
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<PAGE>
Preferred Stock shall be considered equal to the number of shares of Common
Stock issuable upon the conversion thereof and a Warrant shall be considered
equal to the number of shares of Common Stock issuable upon the exercise
thereof.
2. Demand Registration.
(a) The registered holders of not less than 37.5%
of the Eligible Securities may at any time request in writing that the Company
cause a registration statement to be filed under the 1933 Act with respect to
such of their Eligible Securities as they shall specify in such request. The
Company shall promptly give written notice of such request to the other holders
of Eligible Securities and afford them the opportunity of including in the
requested registration statement such of their Eligible Securities as they shall
specify in a written notice given to the Company within thirty (30) days after
their receipt of the Company's notice of the request for the filing of a
registration statement. Following receipt of such notices, the Company shall
promptly use its best efforts to cause all Eligible Securities with respect to
which holders shall have so requested registration to be registered under the
1933 Act, all to the extent required to permit the sale or other disposition by
the holders of the Eligible Securities so registered in the manner contemplated
by such holders.
(b) The Company shall not be required to file and
cause to become effective more than two registration statements at the demand of
the holders of Eligible Securities made under this Section 2.
(c) The term "Eligible Securities" shall mean, on
any date, the following securities held by a person who has executed this
Agreement or an affiliate of such person, or any other person who is not a
competitor of the Company and who acquired such securities from a person who
executed this Agreement or from a transferee of such person: (i) the shares of
Common Stock issued and issuable upon (W) conversion of the shares of Series B
Preferred Stock and exercise of the Warrants issued in the Initial Series B
Issuance, (X) exercise of the SSI Warrants, (Y) conversion of the shares of
Series B Preferred Stock and exercise of the Warrants issued in the Second
Series B Issuance, and (Z) exercise and/or conversion of the Series B Preferred
Stock and Warrants issued in the Subsequent Financing Rounds (provided, however,
that no share of Common Stock issuable upon exercise of any Warrant shall be
considered an Eligible Security until that date which is one year after the date
of such Warrant's issuance), (ii) plus all shares of Common Stock or other
securities of the Company issued in respect of the foregoing securities (and
such other securities of the Company) by way of a stock split, stock dividend,
recapitalization, merger or consolidation, (iii) but exclusive of any shares
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<PAGE>
or other securities described in the foregoing clauses sold in a public offering
registered under 1933 Act or sold pursuant to Rule 144. In addition, for
purposes of calculating the percentage of Eligible Securities required to effect
a demand registration under Section 2(a) herein, the term Eligible Securities
shall include "Registrable Securities" as such term is defined in Section
6.01(b) of the Initial Series B Agreement.
(d) If within fifteen (15) days of the exercise
of a demand registration right granted under this Section, the Company notifies
the holders of the Eligible Securities making such demand that the Company
wishes to register securities of the same class for its own account on the
registration statement being filed pursuant to the demand for offering to the
public via a firm commitment underwriting, then the Company may include
securities for its own account in such registration statement; provided,
however, that if the managing underwriter determines and advises in writing that
the inclusion of any or all such securities for the Company's account in the
registration statement covered by the requests for registration made under this
Section 2 would be detrimental to the offering of the Eligible Securities being
sold in such registration, then the requisite number of securities for the
Company's account shall be excluded from registration hereunder.
(e) If the holders of the Eligible Securities
making such demand propose to sell their Eligible Securities in a firm
commitment underwriting and the managing underwriter advises such holders that
not all Eligible Securities of such holders can be included in such offering,
then the requisite number of Eligible Securities shall be excluded from
registration on a pro rata basis among the holders of the Eligible Securities
requesting such registration, based upon the number of Eligible Securities
requested to be registered.
(f) Provided the Company has honored its
obligations under Section 1, no demand registration right granted in this
Section may be exercised during any period of time beginning on the date the
Company files a registration statement with the Securities and Exchange
Commission covering Eligible Securities in a firm commitment underwriting and
ending on the earlier to occur of (i) the date which is 120 days after such
registration statement becomes effective, (ii) the date on which the Company
withdraws such registration statement with the Securities and Exchange
Commission, or (iii) the date which is 180 days after the date the Company files
such registration statement; provided, however, the provisions of this sentence
shall only be effective if and to the extent the managing underwriter so
requests.
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<PAGE>
(g) The demand registration rights granted in
this Section 2 shall expire, if not exercised prior thereto, on the date on
which more than 90% of the Eligible Securities shall have been publicly sold by
the holders thereof in a public offering registered under the Securities Act of
1933, pursuant to Rule 144 thereunder, or otherwise.
(h) The Company shall not be required to effect
any such registration pursuant to Section 2 if the Company shall furnish to such
holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed on or before the date filing would be required and it is
therefore essential to defer commencement of preparation of such registration
statement for a period of not more than 60 days after receipt of the initiating
request of the holders of Eligible Securities under this Section 2, provided,
however, that the Company may not utilize this right more than once in any
twelve month period.
3. Form S-3 Registration.
(a) One or more of the registered holders of the
Eligible Securities may at any time or from time to time request in writing that
the Company cause a registration statement on Form S-3 to be filed under the
1933 Act with respect to such of their Eligible Securities as they shall specify
in such request. The Company shall promptly give written notice of such request
to the other holders of Eligible Securities and afford them the opportunity of
including in the requested registration statement on Form S-3 such of their
Eligible Securities as they shall specify in a written notice given to the
Company within thirty (30) days after their receipt of the Company's notice of
the request for the filing of a registration statement on Form S-3. Following
receipt of such notices, the Company shall promptly use its best efforts to
cause all Eligible Securities with respect to which holders shall have so
requested registration to be registered on Form S-3 under the 1933 Act, all to
the extent required to permit the sale or other disposition by holders of the
Eligible Securities so registered in the manner contemplated by such holders.
(b) The Company shall not be required to effect
any such registration pursuant to this Section 3;
(i) If Form S-3 is not available for such
offering by the holders of Eligible Securities;
(ii) If the Company shall furnish to such
holders a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
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<PAGE>
seriously detrimental to the Company and its stockholders for such Form S-3
registration statement to be filed on or before the date filing would be
required and it is therefore essential to defer commencement of preparation of
such Form S-3 registration statement for a period of not more than 60 days after
receipt of the initiating request of the holders of Eligible Securities under
this Section 3, provided, however, that the Company may not utilize this right
more than once in any twelve month period;
(iii) If the Company has already effected two
registrations for the holders of Eligible Securities pursuant to Section 3 of
this Agreement during the prior twelve (12) months; or
(iv) If the gross proceeds of the proposed
offering will be or are reasonably expected to be less than
$500,000; or
(v) If the Eligible Securities with respect
to which registration is requested may be sold by the holders thereof within one
three-month period without compliance with the registration requirements of the
1933 Act pursuant to Rule 144, unless such holders provide to the Company the
opinion of a reputable investment banking or brokerage firm that the sale of
such securities pursuant to Rule 144 would not provide such holders
substantially the same net proceeds as could be obtained pursuant to a sale
under Form S-3.
4. Registration Procedures.
(a) Nothing herein imposes on the Company the
responsibility to find an investment banking firm to underwrite the offering of
Eligible Securities on a firm commitment basis. The holders of Eligible
Securities may, however, locate or identify an investment banking firm to
underwrite such offering of Eligible Securities in which case the Company will
participate in such underwritten offering by cooperating with such underwriter
and entering into an underwriting agreement as described in Section 8.
(b) If and whenever the Company is under an
obligation pursuant to the provisions of this Agreement to use its best efforts
to effect the registration of any Eligible Securities the Company shall, as
expeditiously as practicable:
(i) prepare and file with the Securities
and Exchange Commission a registration statement with respect to such Eligible
Securities and use its best efforts to cause such registration statement to
become effective;
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<PAGE>
(ii) prepare and file with the Securities
and Exchange Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective for at least 120 days and to comply
with the provisions of the 1933 Act with respect to the sale or other
disposition of all Eligible Securities covered by such registration statement
for such period;
(iii) furnish to each selling stockholder
such numbers of copies of each prospectus (including each preliminary
prospectus) in conformity with the requirements of the 1933 Act, and such other
documents as such seller may reasonably request in order to facilitate the
public sale or other disposition of such Eligible Securities;
(iv) use its best efforts to register or
qualify the Eligible Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions as the managing underwriter,
if any, or if there is no managing underwriter, the holders of a majority of the
Eligible Securities, shall request, (provided that the Company shall not be
required to consent to general service of process for all purposes in any
jurisdiction where it is not then qualified) and do any and all other acts or
things which may be reasonably necessary or advisable to enable such seller to
consummate the public sale or other disposition in such jurisdictions of such
Eligible Securities;
(v) notify each seller of the Eligible
Securities covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act within the
appropriate period mentioned in clause (ii) of this Section 4, of the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing, and at the request of any such seller prepare and furnish to such
seller a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Eligible Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing; and
(vi) furnish, at the request of any holder
or holders of Eligible Securities requesting registration pursuant to this
Agreement, on the date that such Eligible Securities are delivered to the
underwriters for sale pursuant to such registration or, if such Eligible
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Securities are not being sold through underwriters, on the date that the
registration statement with respect to such Eligible Securities becomes
effective, (A) an opinion, dated such date, of the independent counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the holder or holders making such request, stating
that such registration statement has become effective under the 1933 Act and
that (1) to the best of the knowledge of such counsel, no stop order suspending
the effectiveness thereof has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the 1933 Act; (2) the
registration statement, the related prospectus, and each amendment or supplement
thereto, comply as to form in all material respects with the requirements of the
1933 Act and the applicable rules and regulations of the Securities and Exchange
Commission thereunder (except that such counsel need express no opinion as to
financial statements contained therein); (3) such counsel has no reason to
believe that either the registration statement or the prospectus, or any
amendment or supplement thereto, contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (except that such
counsel need express no opinion as to financial statements contained therein);
(4) the description in the registration statement or the prospectus, or any
amendment or supplement thereto, of all legal and governmental matters and all
contracts and other legal documents or instruments are accurate and fairly
present the information required to be shown; (5) such counsel does not know of
any legal or governmental proceedings, pending or contemplated, required to be
described in the registration statement or prospectus, or any amendment or
supplement thereto, which are not described as required, nor of any contracts or
documents or instruments of a character required to be described in the
registration statement or prospectus, or any amendment or supplement thereto, or
to be filed as exhibits to the registration statement which are not described
and filed as required, and (6) such other legal matters with respect to such
registration as any such holder or holders requesting such opinion may
reasonably request; and (B) a comfort letter, dated such date, from the
independent certified public accountants of the Company, addressed to the
underwriters, if any, and to the holder or holders making such request, in the
customary form.
5. Information to be Furnished by Holders of Eligible
Securities. Each prospective seller of Eligible Securities registered or to be
registered under any registration statement shall furnish to the Company such
information and execute such documents regarding the Eligible Securities held by
such seller and the intended method of disposition thereof as the Company shall
reasonably request in connection with the action to be taken by the Company.
-8-
<PAGE>
6. Expenses of Registration.
(a) All expenses incurred by the Company in
complying with this Agreement (other than underwriting discounts and
commissions, and fees and expenses of counsel to the sellers of the Eligible
Securities), including, without limitation: (i) all registration and filing fees
(including all expenses incident to filing with the National Association of
Securities Dealers, Inc.); (ii) the fees and expenses of complying with
securities and blue sky laws; (iii) reasonable expense allowances of the
underwriters; (iv) printing expenses, (v) fees and disbursements of Company
counsel; and (vi) the fees and expenses of the independent public accountants
(including the expense of any special audits in connection with any such
registration), are herein called "Registration Expenses." All underwriting
discounts and commissions and fees and expenses of counsel to the sellers of the
Eligible Securities applicable to the Eligible Securities covered by any such
registration, are herein called "Selling Expenses."
(b) The Company shall pay all Registration
Expenses in connection with piggyback registrations under Section 1, all S-3
demand registrations under Section 3, and one (1) registration per year under
Section 2. All Selling Expenses in connection with each registration pursuant to
this Agreement shall be borne by the seller or sellers therein in proportion to
the number of Eligible Securities included by each in such registration, or in
such other proportions as they may agree upon. Neither the sellers of Eligible
Securities nor the Company shall be required to pay any underwriter's counsel
fees in any public offering made pursuant to a registration statement filed
under Sections 2 or 3, unless such parties agree otherwise.
7. Indemnification and Contribution.
(a) To the extent permitted by law, the Company
shall indemnify and hold harmless each holder of Eligible Securities, its
executive officers, directors and controlling persons (within the meaning of the
1933 Act) and each person who participates as an underwriter or controlling
person of an underwriter (within the meaning of the 1933 Act) with respect to a
registration statement pursuant to this Agreement against any loss, claims,
damages or liabilities to which any of them may become subject under the 1933
Act or otherwise insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
of any material fact contained in a registration statement including Eligible
Securities owned by such holder, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, or arise out of or
are based upon the omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
-9-
<PAGE>
and will reimburse any of them for any legal or other expenses reasonably
incurred by any of them in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the Company
shall not be liable hereunder in any such case if any such loss, claim, damage,
or liability arises out of or is based upon any untrue statement or omission
made in such registration statement, prospectus or amendment or supplement
thereto in reliance upon and in conformity with written information furnished to
the Company for such purpose by such holder or by its representative or by any
underwriter on behalf of such holder.
(b) To the extent permitted by law, each holder
of Eligible Securities joining in any registration statement of the Company
pursuant to this Agreement shall indemnify and hold harmless the Company, its
executive officers, directors, and controlling persons (within the meaning of
the 1933 Act) and each person who participates as an underwriter or controlling
person of an underwriter (within the meaning of the 1933 Act) with respect to a
registration statement pursuant to this Agreement against any losses, claims,
damages, or liabilities to which any of them may become subject under the 1933
Act or otherwise insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
of any material fact contained in such registration statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or arise out of or are based upon the omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, made in reliance upon and in conformity with written
information furnished to the Company by such holder or by its representative or
by any underwriter on behalf of such holder for such purpose, and will reimburse
any of them for any legal or other expenses reasonably incurred by them in
connection with investigating or defending, any such loss, claim, damage,
liability or action; provided that such holder's liability hereunder shall not
exceed the net proceeds realized by such holder from the Eligible Securities
sold by it in the offering made pursuant to the registration statement.
(c) Promptly after receipt by an indemnified
party under this Section 7 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, notify the indemnifying party in writing of the commencement
thereof and the indemnifying party shall have the right to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to notify
an indemnifying party promptly of the commencement of any such action, if
prejudicial to the ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
7, but the omission so to notify the indemnifying party will not relieve
-10-
<PAGE>
such party of any liability that such party may have to any indemnified party
other than under this Section 7. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof but the fees and expenses of such counsel subsequent to any assumption
of the defense by the indemnifying party shall not be at the expense of the
indemnifying party unless the employment of such counsel has been specifically
authorized in writing by the indemnifying party. The indemnifying party shall
not be liable to indemnify any person for any settlement of any such action
effected without the indemnifying party's written consent.
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 7(a) is applicable but for any reason is held to be unavailable from the
Company with respect to all holders of Eligible Securities or any such holder,
the Company and the holder or holders of Eligible Securities, as the case may
be, shall contribute to the aggregate losses, claims, damages and liabilities
(including any investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claims asserted) to which the Company and one or more of the holders of
Eligible Securities may be subject in such proportion as is appropriate to
reflect the relative fault of the Company on the one hand and the holder or
holders of Eligible Securities on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities.
Notwithstanding the foregoing, no holder of Eligible Securities shall be
required to contribute any amount in excess of the net proceeds received by such
holder from the Eligible Securities as the case may be, sold by such holder
pursuant to the registration statement. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Each person, if any, who controls a holder of
Eligible Securities within the meaning of the Securities Act shall have the same
rights to contribution as such holder.
(e) The obligations of the Company and holders of
Eligible Securities under this Section 7 shall survive the completion of any
offering of Eligible Securities in a registration statement under this Agreement
or otherwise.
8. Underwriting Agreement. If Eligible Securities are
sold pursuant to a registration statement in an underwritten offering pursuant
to this Agreement, the Company and any person hereunder participating therein
agree to enter into an underwriting agreement containing customary
representations and warranties with respect to the business and operations of an
issuer of, or, as the case may be, the seller of the securities being registered
-11-
<PAGE>
and customary covenants and agreements to be performed by such issuer or seller,
including, without limiting the generality of the foregoing, customary
provisions with respect to indemnification by the Company of the underwriters of
such offering. If the holders initiating a registration request under Section 2
(the "Initiating Holders") notify the Company that they intend to distribute
Eligible Securities covered by such request by means of an underwritten
offering, the majority in interest of such Initiating Holders shall select the
underwriter or underwriters for such registration.
9. Limitations on Subsequent Registration Rights.
(a) Any "piggyback" registration rights granted
by the Company to holders of its securities after the date hereof, other than in
the Subsequent Financing Rounds, shall provide for the exclusion of such
holders' securities from any registration statement registering Eligible
Securities pursuant to this Agreement if either the holders of a majority of the
Eligible Securities proposed to be registered or the managing underwriter
determine in good faith that the inclusion of such securities would be
detrimental to the offering of the Eligible Securities, or the securities to be
sold for the Company's account.
(b) If, subsequent to the date hereof, other than
in the Subsequent Financing Rounds, the Company grants "demand" registration
rights to holders or prospective holders of its securities to demand that the
Company register any securities of the Company under the 1933 Act, or any other
statute then in effect corresponding to the 1933 Act, such demand registration
rights shall be granted under and subject to the right of the holders of the
Eligible Securities to include all or part of their Eligible Securities in any
such registration on the terms and conditions of this Agreement which relate to
"piggyback" registration rights under Section 1, and shall prohibit such holders
from causing the Company to file and make effective such a registration
statement within 120 days of the effectiveness of any underwritten registration
statement registering Eligible Securities pursuant to this Agreement, when such
restriction is required by the underwriter of the Eligible Securities.
Purchasers of Units in Subsequent Financing Rounds shall not
be granted registration rights other than pursuant to this Agreement.
10. Transfer of Registration Rights. The registration
rights conferred on the holders of Eligible Securities shall only inure to the
benefit of a transferee of Eligible Securities if such transferee is not
engaged in a business which competes with that of the Company or any of its
Subsidiaries.
-12-
<PAGE>
11. Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to an investor, at such investor's address set forth on the
Signature Page hereto, or at such other address as such investor shall have
furnished to the Company in writing, or (b) if to any other holder of Eligible
Securities, at the address for such holder reflected in the Company's records,
(c) if to the Company, at National Media Corporation, 1700 Walnut Street,
Philadelphia, PA 19103 (telephone (215)772-5000; facsimile (215)772-5018) and
addressed to the attention of the President, or at such other address as the
Company shall have furnished to the holders of Eligible Securities.
12. Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of Eligible Securities upon any
breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of any such holder nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any holder of Eligible Securities of any
breach or default under this Agreement, or any waiver on the part of any holder
of Eligible Securities of any provisions or conditions of this Agreement, must
be in writing and shall be effective only to the extent specifically set forth
in such writing.
13. Miscellaneous.
(a) Amendments and Waivers. The provisions of
this Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given unless the Company obtains the written
consent of the [holders of at least a majority of the Eligible Securities
affected by such amendment, modification or supplement], provided, however, that
this Section 13(a) shall not apply to amendments to this Agreement arising
solely from the addition of new parties to this Agreement through their
execution of counterpart signature pages as contemplated by Section 13(b)
herein.
(b) Counterparts. This Agreement may be
executed in any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement. The
Company shall have the right to add one or more persons who purchase Units in
-13-
<PAGE>
Subsequent Financing Rounds as parties hereto by causing such persons to sign a
counterpart hereof and by sending a copy of such signed counterpart to the other
parties hereto, whereupon each person so becoming a party shall become entitled
to share in the rights granted hereunder without the need for any action by the
other parties hereto.
(c) Headings. The headings in this Agreement
are for convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
(d) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania without regard to principles of conflict of laws.
(e) Severability. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restrictions. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such which may be hereafter declared invalid, void or
unenforceable.
(f) Entire Agreement. This Agreement is
intended by the parties to be a final expression of their agreement and a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. To the extent
any party hereto has been granted registration rights (the "Prior Registration
Rights") by the Company with respect to any securities of the Company pursuant
to the Initial Series B Agreement or the Note Agreement, such party acknowledges
and agrees that this Agreement supersedes and replaces such Prior Registration
Rights in their entirety and any such Prior Registration Rights shall be void
and shall be of no further force or effect from and after the date of this
Agreement.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement
as of the date first written above.
NATIONAL MEDIA CORPORATION
By: /s/ Brian McAdams
------------------------------
-15-
<PAGE>
SCHEDULE 1
----------
Safeguard Scientifics (Delaware), Inc.
Technology Leaders II L.P.
Technology Leaders II Offshore C.V.
Warren V. Musser
Ira M. Lubert
Robert E. Keith, Jr.
Robert A. Fox
Vincent G. Bell, Jr.
Jean C. Tempel
Jack L. Messman
Michael Boyd
Charles L. Andes
James W. Poduska, Sr., Ph.D.
Arthur R. Spector
Gary J. Anderson, M.D.
CIP Capital L.P.
Mark P. Hershhorn
Craig A. Streem
Jack Sullivan
Patrick Sullivan
Dave Bacharach
David Baxter
Peter Brice
Bank Cantrade (Peter Richner)
David Carman
Craig Drake
Tony Filiti
Nedra Fischer
William Goldstein
Michelle Hallman
Frederick Hammer
Frits Hulsink
Ton Ching Khoon
Yolanda Levene
Richard Maida
Simon Olswang
Steve Rosner
Stanley Schneider
Wolfgang Simon
Sylvester Stallone
David Stein
H. Dewey Yesner
Jon W. Yoskin, II
-16-
<PAGE>
EXHIBIT 11.1 -- STATEMENT RE:
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------
1995 1994 1993
--------- ---------- --------
(In thousands, except per share data)
<S> <C> <C> <C>
Primary:
Average shares outstanding ....................... 14,024 12,078 11,237
Net effect of dilutive common stock
equivalents 2) (3) ............................. 0 0 1,809
-------- -------- --------
Total ............................................ 14,024 12,078 13,046
======== ======== ========
Net income (loss) ................................ $ (672) $ (8,699) $ 6,259
======== ======== ========
Per share earnings:
Net earnings (loss) .............................. $ (.05) $ (.72) $ .48
======== ======== =======
Fully Diluted
Average shares outstanding ....................... 14,024 12,078 11,237
Net effect of dilutive common stock
equivalents (2) (4) ............................ 0 0 2,006
-------- -------- -------
Total ............................................ 14,024 12,078 13,243
======== ======== =======
Net income (loss) ................................ $ (672) $ (8,699) $ 6,259
======== ======== =======
Per share earnings:
Net earnings (loss) (1) .......................... $ (.05) $ (.72) $ .47
======== ======== =======
</TABLE>
- ------
(1) This calculation is submitted in accordance with the requirements of
Regulation S-K although not required by APB Opinion No. 15 because it
results in dilution of less than 3%.
(2) Common stock equivalents include the effect of the exercise of stock
options and warrants and the conversion of convertible preferred stock.
(3) For fiscal year 1995, based on dilutive common stock equivalents using
the if converted method. For fiscal years 1994 and 1993, based on the
treasury stock method using average market price.
(4) For fiscal year 1995, based on dilutive common stock equivalent using the
if converted method. For fiscal years 1994 and 1993, based on the
treasury stock method using the year-end market price, if higher than
average market price.
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Name of Parent
Subsidiary Name State of Corporation Company
- --------------- -------------------- --------------
<S> <C> <C>
Media Arts International, Ltd. Delaware National Media Corporation
National Media Marketing Corporation Delaware National Media Corporation
National Media Holdings, Inc. Delaware National Media Corporation
Business Publications, Inc. Delaware Media Arts International
National Media Media Corporation Delaware National Media Corporation
Quantum Marketing International, Inc. Delaware National Media Corporation
Quantum International Ltd. United Kingdom Media Arts International
Multi-Media Distribution Center, Inc. Delaware Media Arts International
N.P. A. Realty Corp. New York National Media Corporation
Quantum International Japan Company Limited Japan National Media Corporation
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-3 No. 33-53252, Form S-3 No. 33-34303, Form S-3 No.
33-35301, Form S-3 No. 33-41916, Form S-3 No. 33-82618 and Form S-8 No.
33-34304) of National Media Corporation and in the related Prospectuses of
our report dated May 12, 1995, with respect to the consolidated financial
statements and schedule of National Media Corporation and subsidiaries
included in this Annual Report (Form 10-K) for the year ended March 31, 1995.
Philadelphia, Pennsylvania
June 28, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000070412
<NAME> National Media Corp.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 13,467
<SECURITIES> 0
<RECEIVABLES> 16,298
<ALLOWANCES> (1,954)
<INVENTORY> 15,387
<CURRENT-ASSETS> 54,151
<PP&E> 9,393
<DEPRECIATION> (4,980)
<TOTAL-ASSETS> 64,143
<CURRENT-LIABILITIES> 32,070
<BONDS> 0
<COMMON> 149
0
3
<OTHER-SE> 26,473
<TOTAL-LIABILITY-AND-EQUITY> 64,143
<SALES> 176,167
<TOTAL-REVENUES> 176,167
<CGS> 149,566
<TOTAL-COSTS> 175,850
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 689
<INCOME-PRETAX> (372)
<INCOME-TAX> 300
<INCOME-CONTINUING> (672)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (672)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
