<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
--------------- --------------
Commission File Number 1-6715
NATIONAL MEDIA CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-2658741
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(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1700 Walnut Street, Philadelphia, PA 19103
- ------------------------------------------------------------------------
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (215) 772-5000
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
There were 23,341,656 issued and outstanding shares of the registrant's common
stock, par value $.01 per share, at August 6, 1996. In addition, there were
711,930 shares of treasury stock as of such date.
<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
INDEX
Page
Facing Sheet ...............................................................1
Index.......................................................................2
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at
June 30, 1996 and March 31, 1996........................3
Condensed Consolidated Statements of Operations
Three months ended June 30, 1996 and 1995...............4
Condensed Consolidated Statements of Cash Flows
Three months ended June 30, 1996 and 1995...............5
Notes to Condensed Consolidated Financial Statements......6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..........10
Part II. Other Information
Item 1. Legal Proceedings .......................................14
Item 6. Exhibits and Reports on Form 8-K.........................16
Signatures.................................................................17
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
------------- ----------------
(Unaudited) (See Note Below)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................... $19,063 $18,405
Accounts receivable (net) ...................................................... 38,852 32,051
Inventories .................................................................... 27,101 22,605
Prepaid media .................................................................. 5,442 4,271
Prepaid show production ........................................................ 7,402 5,469
Deferred costs ................................................................. 5,336 4,102
Prepaid expenses and other assets .............................................. 3,199 2,339
Deferred income taxes .......................................................... 3,142 3,142
------------- -------------
Total current assets ......................................................... 109,537 92,384
Property and equipment (net) ...................................................... 8,635 6,954
Excess of cost over net assets of acquired businesses and other
intangible assets (net) ........................................................ 32,840 14,303
Other assets ...................................................................... 5,773 2,907
------------- -------------
Total assets ................................................................... $156,785 $116,548
============= =============
Current liabilities:
Accounts payable ............................................................... $12,213 $20,412
Accrued expenses ............................................................... 30,428 26,510
Deferred revenue ............................................................... 2,046 1,771
Income taxes payable ........................................................... 2,659 1,344
Deferred income taxes .......................................................... 2,749 2,749
Current portion of long-term debt and capital lease obligations................. 10,482 876
------------- -------------
Total current liabilities .................................................... 60,577 53,662
Long-term debt and capital lease obligations ...................................... 4,067 4,054
Deferred income taxes ............................................................. 393 393
Other liabilities ................................................................. 1,983 1,977
Shareholders' equity:
Preferred stock, $.01 par value; authorized 10,000,000
shares; issued 122,000 and 136,375 shares Series B convertible preferred
stock, respectively ............................................................ 1 1
Common stock, $.01 par value; authorized 50,000,000 shares;
issued 20,344,155 and 18,177,292 shares, respectively ........................ 203 182
Additional paid-in capital ..................................................... 77,014 48,135
Retained earnings .............................................................. 21,119 16,569
Treasury stock, 711,930 and 686,710 shares, respectively, at cost .............. (4,273) (3,791)
Notes receivable, directors, officers, employees, consultants and others ....... - (473)
Foreign currency translation adjustment ........................................ (4,299) (4,161)
------------- -------------
Total shareholders' equity ................................................... 89,765 56,462
------------- -------------
Total liabilities and shareholders' equity ................................... $156,785 $116,548
============= =============
Note: The balance sheet at March 31, 1996 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended June 30,
--------------------------------------------
1996 1995
-------------------- ---------------------
<S> <C> <C>
Revenues:
Product sales ................................................... $102,922 $63,798
Retail royalties ................................................ 5,187 1,158
Sales commissions and other revenues ............................ 1,191 89
-------------------- ---------------------
Net revenues .................................................. 109,300 65,045
Operating costs and expenses:
Media purchases ................................................. 37,576 20,683
Direct costs .................................................... 53,241 33,983
Selling, general and administrative ............................. 11,128 7,029
Interest expense ................................................ 305 240
-------------------- ---------------------
Total operating costs and expenses ............................ 102,250 61,935
-------------------- ---------------------
Income before income taxes ......................................... 7,050 3,110
Income taxes ....................................................... 2,500 508
-------------------- ---------------------
Net income ......................................................... $ 4,550 $ 2,602
==================== =====================
Income per common and common equivalent share:
Primary ......................................................... $ .18 $ .13
==================== =====================
Fully-diluted ................................................... $ .18 $ .13
==================== =====================
Weighted average number of common and common equivalent shares outstanding:
Primary ......................................................... 25,345 22,113
==================== =====================
Fully-diluted ................................................... 25,345 22,113
==================== =====================
</TABLE>
See notes to condensed consolidated financial statements.
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NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months ended June 30,
--------------------------------------------
1996 1995
-------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $4,550 $2,602
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation and amortization .............................. 777 388
Tax benefit from exercise of stock options.................. 800 -
Changes in operating assets and liabilities, net of
effects from acquisitions................................ (10,301) 1,285
Other ...................................................... (822) 71
-------------------- ---------------------
Net cash (used in) provided by operating activities ................ (4,996) 4,346
Cash flows from investing activities:
Additions to property and equipment ............................. (1,475) (379)
Investment in EarthLink ......................................... (1,250) -
Cost of companies acquired, net of cash acquired ................ 747 -
-------------------- ---------------------
Net cash used in investing activities .............................. (1,978) (379)
Cash flows from financing activities:
Proceeds from borrowings ........................................ 9,400 -
Payments on long-term debt ...................................... (1,859) (127)
Exercise of stock options and warrants........................... 450 79
Payments received on notes receivable ........................... - 253
-------------------- ---------------------
Net cash provided by financing activities .......................... 7,991 205
Effect of exchange rate changes on cash and cash equivalents ....... (359) (122)
-------------------- ---------------------
Net increase in cash and cash equivalents .......................... 658 4,050
Cash and cash equivalents at beginning of period ................... 18,405 13,467
-------------------- ---------------------
Cash and cash equivalents at end of period ......................... $19,063 $17,517
==================== =====================
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
June 30, 1996
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended June 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending March 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended March 31, 1996.
2. Per Share Amounts
Income 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".
3. Contingent Matters
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 an aborted merger transaction with ValueVision
International, Inc.. The parties have reached an agreement in principle to
settle these matters, along with certain similar actions filed in Delaware state
court. Such settlements provided for cash payments by the Company's insurer of
approximately $1.1 million and cash payments by the Company of $375,000, as to
which the Company recorded a charge against earnings in the fourth quarter of
fiscal 1995. Consummation of these federal court settlements is subject, among
other things, to the approval of such court.
Positive Response Shareholders' California Class Action.
On May 1, 1995, a purported class action suit was filed in the United States
District Court for the Central District of California against Positive Response
Television, Inc. ("PRTV") and its principal executive officers alleging that
PRTV has made false and misleading statements in its public filings, press
releases and other public statements with respect to its business and financial
prospects. The suit was filed on behalf of all persons who purchased
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<PAGE>
PRTV common stock during the period from January 4, 1995 to April 28, 1995. The
suit seeks unspecified compensatory damages and other equitable relief. An
amended complaint was dismissed in late July 1995. On or about September 25,
1995, the plaintiffs filed a second amended complaint, which added additional
officers as defendants and attempted to set forth new facts to support
plaintiffs' entitlement to legal relief. On October 31, 1995, PRTV again moved
to dismiss plaintiffs' entire action. The basis of PRTV's new motion was its
contention that plaintiffs failed to allege any new facts in support of a claim
that has already been dismissed. Oral argument in connection with PRTV's motion
was held on December 11, 1995. PRTV's motion to dismiss was denied. Discovery is
continuing. Management does not believe that the disposition of this matter will
have a material adverse effect on the Company's financial position.
Ab Roller Plus Patent Litigation.
On March 1, 1996, Precise Exercise Equipment ("Precise") filed suit in the
United States District Court for the Central District of California against
certain parties, including the Company alleging patent infringement, unfair
competition and other intellectual property claims. Such claims relate to an
alleged infringement of Precise's patent for an exercise device. The suit claims
that a product marketed by the Company pursuant to a license granted by a third
party violates Precise's patent. Pursuant to the terms of such license, the
third party is contractually obligated to indemnify the Company in this suit.
The suit seeks an injunction and treble damages. The Company's independent legal
counsel has issued an opinion to the Company that the product marketed by the
Company does not infringe upon Precise's patent. Management does not believe
that the disposition of this matter will have a material adverse effect on the
Company's results of operations or financial condition.
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<PAGE>
5. Debt
In June 1996, the Company increased its revolving credit line from $5.0
million to $20.0 million. The revolving credit facility is available until
September 30, 1997 at which time its continuation will be considered.
Interest on cash advances under the facility will accrue at varying rates
based, at the Company's option, on the bank's national commercial rate, or
the London Interbank Offering Rate (LIBOR) plus 1.25%. The agreement
requires the Company to pay an annual fee of .25% on the unused portion of
the facility. At June 30, 1996, there was $9.4 million outstanding under
this facility.
The facility is secured by a lien on substantially all of the Company and
its subsidiaries' assets. Such lien on certain nondomestic assets of the
Company is subordinate to a lien held by Barclays Bank PLC ("Barclays"). At
present, the Company has an overdraft line with Barclays in the amount of
(pound).2 million (approximately $.3 million). Under its agreement with the
bank, the Company is subject to certain restrictions, including the payment
of dividends and must comply with covenants including the maintenance of
specific ratios. The Company is in compliance with these restrictions and
covenants.
6. Acquisitions/Subsequent Events
As previously reported, on May 17, 1996 the Company acquired all of the
issued and outstanding capital stock of PRTV, a publicly traded direct
marketing company and producer of infomercials, for 1,836,773 shares (of
which 211,146 shares have been deposited into an escrow account for
possible future delivery to PRTV shareholders) of the Company's common
stock valued at $25.9 million. The acquisition was accounted for as a
purchase and is included in the Company's financial statements from the
date of acquisition. A total of $34.1 million in assets were acquired and
included excess of cost over acquired assets of $18.9 million which is
being amortized over 20 years.
Subsequent to June 30, 1996, the Company also acquired two direct response
marketing companies, Prestige Marketing Limited and Prestige Marketing
International Limited (collectively, "Prestige") and Suzanne Paul Holdings
Pty Limited and its operating subsidiaries (collectively, "Suzanne Paul").
The aggregate consideration paid by the Company for Prestige and Suzanne
Paul was approximately $4.2 million in cash, $2.8 million in a note payable
December 5, 1996 and 787,879 shares of the Company's common stock valued at
$14.7 million. Upon consummation of these acquisitions, the Company also
funded a dividend of approximately $4.6 million to the shareholders of
Suzanne Paul. In addition, the Company may be required to issue up to an
aggregate of an additional $5.0 million in the Company's common stock,
valued at then present market prices, in 1997 and 1998, contingent upon the
levels of net income achieved in those years by Prestige and Suzanne Paul.
The acquisition is to be accounted for as a purchase. A total of $32.6
million in assets are to be acquired and include excess of cost over
acquired assets of approximately $18.8 million, which is to be amortized
over 20 years.
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<PAGE>
The purchase price allocations for PRTV, Prestige and Suzanne Paul are
based on management's preliminary estimates of the fair value of assets
acquired and liabilities assumed. The final allocations may differ from
these estimates. Had the purchases of PRTV, Prestige and Suzanne Paul been
made at April 1, 1995, pro forma unaudited condensed results from
operations for the three months ended June 30, 1996 and 1995 would have
been as follows (in thousands, except per share data):
Three Months Ended June 30,
---------------------------
1996 1995
---------- ---------
Net revenues $ 123,815 $ 81,141
Net income $ 4,773 $ 542
Primary income per share $ .18 $ .03
Fully diluted income per share $ .18 $ .03
These pro forma amounts do not give effect to any contingent shares of the
Company's common stock which may be issued to the shareholders of Prestige
and/or Suzanne Paul. In addition, the pro forma information does not
purport to be indicative of the combined results of operations that would
have been reported had the transactions taken place on April 1, 1995 or of
future results of operations and does not reflect synergies or cost savings
that may be realized as a result of the acquisitions, particularly PRTV.
On August 6, 1996, the Company completed its public offering of an
additional 2,000,000 shares of its common stock with net proceeds to the
Company of approximately $29.2 million. If these shares had been
outstanding for the entire three month periods ended June 30, 1996 and
1995 and the PRTV, Prestige and Suzanne Paul acquisitions had been made at
the beginning of these periods, primary income and fully-diluted income per
share would have been $.17 for the three month period ended June 30, 1996
and $.03 for the three month period ended June 30, 1995.
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<PAGE>
Item 2. 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. The Company continually attempts
to diversify and expand its product offerings to generate increased
revenues. The Company's diversification efforts are designed to reduce the
risk associated with relying on a limited number of successful products for
a disproportionate amount of its revenues. Such efforts include the
expansion of its presence in the global marketplace, thereby creating new
markets for its product, and joining forces with strategic partners to
increase its product base. As the Company enters new markets it is able to
air shows from its existing library, thus reducing its dependence on new
products and new show productions. The Company takes 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 by entering into agreements with
manufacturers of consumer products in which the Company's strategic
partners supply new products and retail distribution channels for product
sales.
Results of Operations
The following table sets forth the operating data of the Company as a
percentage of net revenues for the periods indicated below.
Three Months Ended
June 30,
------------------
1996 1995
---- ----
Statement of Operations Data:
Net revenues ............................. 100.0% 100.0%
Operating costs and expenses:
Media purchases .......................... 34.3 31.8
Direct costs ............................. 48.7 52.2
Selling, general and administrative ...... 10.2 10.8
Interest expense ......................... .3 .4
----------- ----------
Total operating costs and expenses ......... 93.5 95.2
----------- ----------
Income before income taxes ................. 6.5 4.8
----------- ----------
Net income ................................. 4.2% 4.0%
=========== ==========
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<PAGE>
Three months ended June 30, 1996 compared to three months ended June 30, 1995
Net Revenues
Net revenues were $109.3 million for the three months ended June 30, 1996 as
compared to $65.0 million for the three months ended June 30, 1995, an increase
of $44.3 million or 68.0%.
Core market net revenues, which consist of net revenues in the United States,
Western Europe and Japan, were $104.3 million for the three months ended June
30, 1996 as compared to $63.3 million for the three months ended June 30, 1995,
an increase of $41.0 million or 64.8%. Approximately 52.6% of the Company's core
market net revenues for the three months ended June 30, 1996 were generated from
sales of the Ab Roller. In addition, sales of the Ab Roller accounted for 72.7%
of net revenues in the United States during the current quarter.
Emerging market net revenues, which include net revenues in the non-Japanese
countries in the Pacific Rim, Eastern Europe, the Middle East, Canada, Africa
and Latin America, were $5.0 million for the three months ended June 30, 1996 as
compared to $1.7 million for the earlier period, an increase of $3.3 million or
194.1%. The growth was a direct result of the ongoing expansion of the Company's
operations into new marketplaces.
Operating Costs
Total operating costs and expenses were $102.3 million for the three months
ended June 30, 1996 as compared to $61.9 million for the three months ended June
30, 1995, an increase of $40.4 million or 65.1%.
Media Purchases
Media purchases were $37.6 million (net of $.3 million in media sales) for the
three months ended June 30, 1996 as compared to $20.7 million (net of $3.6
million in media sales) for the three months ended June 30, 1995, an increase of
$16.9 million or 81.7%. The increase was directly attributable to the growth in
sales. The ratio of media purchases to net revenues increased from 31.8% to
34.3% for the three months ended June 30, 1995 and 1996, respectively. This was
primarily due to a higher percentage of the current quarter's net revenues being
earned in the United States marketplace where media costs are typically higher.
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 $53.2 million for the three
months ended June 30, 1996 as compared to $34.0 million for the three months
ended June 30, 1995, an increase of $19.2 million or 56.7%. This is reflective
of the 68.0% increase in net revenues during the three months ended June 30,
1996 as compared to the same period in the prior year. The ratio of direct costs
to net revenues decreased from 52.2% in the earlier period to 48.7% in the
current period. The decline in direct costs as a percentage of net revenues
reflects the Company's continued efforts to lower its costs and become a more
efficient operator.
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<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased approximately 58.3% from
$7.0 million for the three months ended June 30, 1995 to $11.1 million for the
three months ended June 30, 1996, primarily due to costs associated with the
Company's continuing global expansion. Selling, general and administrative
expenses as a percentage of net revenues decreased slightly from 10.8% for the
three months ended June 30, 1995 to 10.2% for the three months ended June 30,
1996.
Interest Expense
Interest expense was $.3 million for the three months ended June 30, 1996 as
compared to $.2 million for the three months ended June 30, 1995.
Income Taxes
The Company's effective tax rate was 35.5% for the three months ended June 30,
1996 as compared to 16.3% for the three months ended June 30, 1995. The lower
rate in the prior year was a result of the Company's utilization of net
operating losses to offset United States federal income taxes.
Liquidity and Capital Resources
The Company's working capital was $49.0 million at June 30, 1996 compared to
$38.7 million at March 31, 1996, an increase of $10.3 million. This was
principally due to an increase in accounts receivable and inventory associated
with the Company's increased sales volume and with the Company's continued
global expansion. Cash flow used in operations was $5.0 million for the three
months ending June 30, 1996 as compared to cash provided by operations of $4.3
million in the earlier period. The $4.6 million in net income for the period was
offset by the aforementioned increase in working capital accounts.
In late June 1996, the Company borrowed $9.4 million under its $20.0 million
revolving credit facility in anticipation of funding its acquisitions of
Prestige and Suzanne Paul which were consummated in early July 1996. The credit
facility is available for working capital, acquisitions and general corporate
purposes as well as for the issuance of letters of credit.
The Company believes that its available cash, cash from operations and available
borrowings under its revolving credit facility will be sufficient to meet its
normal operating, capital expenditure and debt service requirements for the near
term.
The Company intends to pursue acquisition and expansion opportunities as they
may arise. During the most recent period, the Company completed its acquisition
of PRTV in a stock for stock transaction, which resulted in the issuance of
approximately 1,836,773 shares of the Company's common stock, 211,146 of which
have been issued into escrow and may be delivered to the former shareholders of
PRTV within 18 months, upon the realization of certain assets. In addition, the
Company repaid approximately $1.0 million of outstanding debt of PRTV.
Subsequent to June 30, 1996, the Company also acquired two direct response
marketing
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<PAGE>
companies, Prestige and Suzanne Paul. The aggregate consideration paid by the
Company for Prestige and Suzanne Paul was approximately $4.2 million in cash,
$2.8 million in a note payable December 5, 1996 and 787,879 shares of the
Company's common stock. Upon consummation of these acquisitions, the Company
also funded a dividend of approximately $4.6 million to the shareholders of
Suzanne Paul. These cash amounts were funded by borrowings described above under
the Company's revolving credit facility. In addition, the Company may be
required to issue up to an aggregate of an additional $5.0 million in the
Company's common stock, valued at then present market prices, in 1997 and 1998,
contingent upon the levels of net income achieved in those years by Prestige and
Suzanne Paul.
On July 9, 1996 and May 23, 1996, respectively, the Company entered into
unrelated letters of intent to acquire Hawthorne Communications, Inc.
("Hawthorne"), a full-service infomercial advertising agency, and Nancy Langston
& Associates, Inc. ("Langston"), a media agency. The consideration for these
acquisitions will consist of a combination of an aggregate of approximately $1.4
million in cash and an aggregate of up to $6.4 million in common stock (at then
prevailing prices) over a period of three years. The Langston acquisition was
consummated on August 7, 1996 and the Hawthorne acquisition, which is subject to
the completion of satisfactory due diligence and definitive documentation, is
expected to be completed during the Company's fiscal quarter ending September
30, 1996.
On August 6, 1996, the Company completed its public offering of an additional
2,000,000 shares of its common stock pursuant to which it received net proceeds
of approximately $29.2 million. The Company has or will use the net proceeds to
(i) retire approximately $13.5 million of indebtedness incurred in connection
with the acquisitions of PRTV, Prestige and Suzanne Paul; (ii) provide
approximately $9.0 million for the acquisition and retention of media access
contracts, including acquiring the rights to use, for a one-year period, a
twenty-four hour analog satellite transponder to be utilized by the Company to
air its infomercials in European markets; and (iii) provide approximately $6.7
million for general corporate purposes, including working capital requirements
and expenditures related to potential future acquisitions (including up to an
aggregate of $1.4 million in connection with the acquisitions of Hawthorne and
Langston). Pending the application of the offering proceeds in the foregoing
manner, the Company will invest the proceeds in short-term income producing
investments.
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<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The information contained in Note 3 (Contingent Matters) to the Condensed
Consolidated Financial Statements in Part I of this report is incorporated
herein by reference. All of the matters referred to in Note 3 (Contingent
Matters) have been the subject of disclosure in prior reports on Form 10-Q
and/or 10-K.
As a result of prior settlements with the Federal Trade Commission (the "FTC"),
the Company has agreed to two consent orders. Prior to the Company's acquisition
of PRTV, PRTV and its Chief Executive Officer, Michael S. Levey, also agreed to
a consent order with the FTC. Among other things, such consent orders require
the Company, PRTV and Mr. Levey to submit compliance reports to the FTC staff.
The Company, PRTV and Mr. Levey have submitted compliance reports as well as
additional information requested by the FTC staff. In addition, in connection
with the acquisition by the Company of PRTV, both the Company and PRTV were
required pursuant to such consent orders to, and did, notify the FTC of such
acquisition and Michael S. Levey was required to, and did, notify the FTC of his
pending affiliation with the Company. In early June 1996, the Company received a
request from the FTC for additional information regarding two of the Company's
infomercials in order to determine whether the Company is operating in
compliance with the consent orders referred to above. Such request also included
a request for additional information concerning the Company's acquisition of
PRTV. The Company responded to such request. The FTC recently advised the
Company that it believed the Company had violated one of the consent orders by
allegedly failing to substantiate certain claims made in one of its infomercials
which was aired by the Company between 1993 and 1995. This infomercial is not
currently being aired. The FTC is continuing its inquiry with respect to this
infomercial and the Company is continuing to provide information to the FTC to
demonstrate substantiation. There can be no assurance that the Company will be
able to demonstrate sufficient substantiation and if the Company is unable to
demonstrate such substantiation, the FTC has a variety of enforcement mechanisms
available to it, including, but not limited to, monetary penalties. While no
assurances can be given, the Company does not believe that any remedies to which
it may become subject will have a material adverse effect on the Company's
results of operations or financial condition. It is possible that the
notifications referred to above will result in additional requests for
information from the Company and Mr. Levey and/or additional scrutiny of the
Company's operations. In an effort to maintain continued compliance with the
terms of its consent order, shortly following its acquisition of PRTV, the
Company caused PRTV to cease airing two of its infomercials until the Company
could make changes to such infomercials or take such other actions as it deems
appropriate to conform such infomercials to the Company's standards, if
possible. The Company is also considering changes to other PRTV infomercials.
The Company does not believe that such infomercials or the Company's actions
regarding them will have a material adverse effect on the Company's financial
condition.
As discussed in Note 6 in Part I of this report, the Company consummated its
acquisition of PRTV on May 17, 1996. The Company also acquired Prestige and
Suzanne Paul in early July 1996, and Langston in early August 1996. As a result
of these acquisitions, all liabilities of such entities became the
responsibility of the Company.
-14-
<PAGE>
Other Matters
The Company in the normal course of its business is a party to litigation
relating to trademark and copyright infringement, product liability,
contract-related disputes and other actions. It is the Company's policy to
vigorously defend all such claims and to enforce its rights in these areas.
Except as disclosed herein, the Company does not believe any of these actions,
either individually or in the aggregate, will have a material adverse effect on
the Company's results of operations or financial condition.
-15-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
11.1 Statement Re: Computation of Per Share Earnings.
27.1 Financial Data Schedule.
99 Lease, dated as of March 6, 1996, by and between Stoll Moss
Theaters Limited, and Quantum International Limited.
(b) The Company filed the following reports on Form 8-K during the three
month period ended June 30, 1996.
Form 8-K dated May 17, 1996
Item 2. Acquisition or Disposition of Assets - Announcement by the Company of
its acquisition of PRTV and the execution of employment agreements with the two
key executives of PRTV. It was impractical for the Company to provide the
required financial statements and pro forma financial information relating to
the acquisition at the time of the filing of such report. The Company undertook
to file such information as an amendment to the Form 8-K as soon as practical
after the date thereof, but in no event later than sixty (60) days from the date
by which the report on Form 8-K was required to be filed. Such amendment was
filed on Form 8-K/A on June 14, 1996.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL MEDIA CORPORATION
Registrant
Date: August 13, 1996 /s/ Mark P. Hershhorn
-------------------------
Mark P. Hershhorn
President, Chief Executive Officer and Director
Date: August 13, 1996 /s/ James M. Gallagher
--------------------------
James M. Gallagher
Vice President and Chief Financial Officer
-17-
<PAGE>
EXHIBIT INDEX
Exhibit No.
11.1 Statement Re: Computation of Per Share Earnings.
99 Lease, dated as of March 6, 1996, by and between
Stoll Moss Theaters Limited and
Quantum International Limited.
27.1 Financial Data Schedule.
-18-
<PAGE>
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF EARNINGS
<TABLE>
<CAPTION>
(In thousands, except per share data)
Three Months Ended
June 30,
1996 1995
-----------------------
<S> <C> <C>
Primary
Average shares outstanding ............................................ 18,600 14,224
Conversion of preferred stock ......................................... 1,306 2,558
Net effect of common stock equivalents (2)(3) ......................... 5,439 5,331
------- -------
Total ................................................................. 25,345 22,113
======= =======
Net income ............................................................ $ 4,550 $ 2,602
Adjustments to net income:
Reduction of interest expense (net of tax) related to retired debt -- 202
Increase in interest income (net of tax) from investment of
excess proceeds in short-term paper .......................... -- 137
------- -------
Adjusted net income ................................................... $ 4,550 $ 2,941
======= =======
Per share earnings:
Net income ............................................................ $ .18 $ .13
======= =======
Fully Diluted
Average shares outstanding ............................................ 18,600 14,224
Conversion of preferred stock ......................................... 1,306 2,558
Net effect of common stock equivalents (2)(4) ......................... 5,439 5,331
------- -------
Total ................................................................. 25,345 22,113
======= =======
Net income ............................................................ $ 4,550 $ 2,602
Adjustments to net income:
Reduction of interest expense (net of tax)
related to retired debt ...................................... -- 202
Increase in interest income (net of tax) from
investment of excess proceeds in short-term paper ............ -- 95
------- -------
Adjusted net income ................................................... $ 4,550 $ 2,899
======= =======
Per share earnings:
Net income (1) ........................................................ $ .18 $ .13
======= =======
</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.
(3) Based on common stock equivalents using the if converted method and average
market price.
(4) Based on common stock equivalents using the if converted method and the
period-end market price, if higher than the average market price.
<PAGE>
EXHIBIT 99
DATED 6 MARCH 1996
- ------------------- ------- - ---------
(1) STOLL MOSS THEATRES LIMITED
(2) QUANTUM INTERNATIONAL LIMITED
- -------------------------------------------------
LEASE in respect of the
second, third and fourth floors
21 Soho Square, London W1V 5FD
- -------------------------------------------------
-22-
<PAGE>
THIS LEASE is made the 6th day of March one thousand nine hundred and ninety six
BETWEEN:
(1) STOLL MOSS THEATRES LIMITED (registered number 233200) whose registered
office is at Manor House 21 Soho Square London W1V 5FD; and
(2) QUANTUM INTERNATIONAL LIMITED (registered number 2454128) whose
registered office is at Manor House 21 Soho Square London W1V 6HN
WITNESSETH as follows:-
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this Lease unless the context otherwise requires the
following expression shall have the following meanings:
"Base Rate" the base rate of Midland Bank
Plc from time to time;
"Basic Rent" the clear yearly rent as follows:
(a) for the period of two years from 1 March 1996 to 28
February 1998, the sum of two hundred and fifty three
thousand five hundred and eighty four pounds
((pound)253,584); and
(b) for the period from 1 March 1998 to 28 February 2001
the sum of two hundred and sixty nine thousand, four
hundred and thirty three pounds ((pound)269,433);
"Building" the land and premises known as 21
Soho Square and 3, 5, 7, 9 and 11
Sutton Row of which the Demised
Premises forms part;
"Conduits" flues, ventilating ducts, cisterns,
tanks, radiators, water, gas and
electricity supply pipes, sewers,
drains, gutters, tubes, meters, soil
pipes, waste water pipes and also
wires or cables used for the
conveyance of electrical current and
all valves, traps and switches
relating to them including any of
the same not owned by the Landlord
but which the Landlord is liable to
repair or maintain but excluding any
wire, cables or apparatus not
belonging to the Landlord or the
Tenant (and which neither is liable
to repair or maintain);
"Common Parts" the approaches, entrance halls,
staircases, passages, lift and fire
escapes in the Building;
-1-
<PAGE>
"Crossrail Link" a train service to be constructed in
and around London to link, among
other places, Paddington and
Liverpool Street train stations;
"Demised Premises" the second, third and fourth floors
of the Building as the same is shown
for the purposes of identification
only edged blue on the plans annexed
hereto ("the Plan") including:-
(a) as well as the whole any part or parts thereof as
appropriate;
(b) all walls wholly within the Demised Premises which
are not load bearing walls;
(c) the internal plaster coverings and plaster work of
the walls surrounding the Demised Premises and the
doors and door frames and window frames and the glass
in the windows of the Demised Premises;
(d) the plaster coverings and plaster work of the load
bearing walls and partitions lying within the Demised
Premises and the door and door frames and other
installations fitted in such walls and partitions;
(e) the plaster coverings and plaster work of the
ceilings screed and/or floorboards and any other
surfaces of floors of the Demised Premises;
(f) all Conduits which are situated within the Demised
Premises and which exclusively serve the same;
(g) any alterations, reconstruction, rebuilding,
addition or improvements to the Demised Premises;
(h) all fixtures (other than trade or tenant's fixtures)
in the Demised Premises but excluding:
(i) the external walls of the
Building;
(ii) the load bearing walls,
joists, beams, foundations
and other load bearing
parts of the Building;
(iii) all roofs of the Building;
(iv) any Conduits which do not
exclusively serve or are
outside the Demised
Premises all plant,
equipment and installations
in the Building for the
provision of heating and
air conditioning thereto;
-2-
<PAGE>
"Insured Risks" the risks from time to time covered
by the policy or policies of
insurance effected by the Superior
Landlord pursuant to its covenant to
that effect in the Superior Lease;
"Landlord" the party of the first part and
includes the estate owner for the
time being of the reversion
immediately expectant on the
Termination of the Term;
"this Lease" this Lease, any license or consent
granted pursuant hereto and any
variation hereof and any deed or
instrument made supplemental hereto;
"Planning Acts" the Town & Country Planning Act
1990, the Planning (Listed Buildings
and Conservation Areas) Act 1990,
the Planning (Hazardous Substances)
Act 1990, the Planning
(Consequential Provisions) Act 1990,
the Local Government Planning and
Land Act 1980, the Local Government
(Miscellaneous Provisions) Act 1982,
the Housing and Planning Act 1986
and any Act for the time being in
force of a similar nature or any
laws and regulations intended to
control or regulate the
construction, demolition, alteration
or change of use of land or
buildings or to preserve or protect
the environment or the national
heritage;
"Permitted Hours" Monday - Friday (inclusive)
between 7.45 am and 9.45 pm but
excluding Bank and Public holidays
(or otherwise with the express prior
permission of the Landlord in
respect of senior staff of the
Tenant);
"Perpetuity Period" the period expiring on the sooner of
eighty years from the date hereof
and the Termination of the Term;
"Prescribed Rate" four per centum per annum
above Base Rate compounded with
rests on the Rent Days such rate to
apply as well after as before any
judgment;
"Rent Days" 1st January, 1st April, 1st July and
1st October each year;
"Rent Commence- 1st day of March 1996 or if later 7
ment Date" days after the date of completion of
the Lease;
"Superior Landlord" the person or body entitled to the
reversion immediately expectant on
the determination of the Superior
Lease and also all those entitled to
superior reversionary interest (if
any);
-3-
<PAGE>
"Superior Lease" a Lease of the Building dated the
25th day of February 1992 and made
between Pensions Management (SWF)
Limited (1) and the Landlord (2);
"Tenant" the party of the second part and
includes its successors in title
or assigns;
"Term" Subject to the provision of
paragraph 17 of the Fourth Schedule,
a period from the 1st day of March
1996 until 28th day of February
2001;
"Termination of the the determination of the Term
Term" whether by affluxion of time,
re-entry or otherwise howsoever;
"VAT" value added tax or other tax of a
similar nature (and unless otherwise
expressly stated all references to
the rent or other monies payable by
the Tenant are exclusive of any VAT
charged or chargeable thereon);
1.2 Interpretation
This Lease shall unless the context otherwise requires be
construed on the basis that:
(a) where the Tenant for the time being (or any
guarantor) of this Lease comprises more than one
person the covenants and obligations assumed by the
Tenant or any such guarantor (as the case may be)
shall be construed as made by all such persons
jointly and severally;
(b) references to any Act of Parliament, order,
instrument, regulation, direction or plan shall be
deemed also to refer to any statutory or other
modification or reenactment thereof from time to time
in force and any order, instrument, regulation,
direction or plan from time to time in force made or
issued thereunder or deriving validity therefrom or
from any enactment repealed thereby or under any such
modification or re-enactment;
(c) any covenant on the part of the Tenant not to do any
act or thing shall include an obligation on the part
of the Tenant not to permit or suffer such act or
thing;
(d) words denoting one gender include the other gender
and words denoting persons include firms and
corporations and vice versa;
(e) references to any right of the Landlord to have
access to the Demised Premises and references to the
doing or permitting or any act or thing by the
Landlord shall be construed as extending to any
Superior Landlord and to all persons authorized by
the Landlord and any Superior Landlord;
-4-
<PAGE>
(f) references to the consent of the Landlord shall be
construed as extending to the consent of any Superior
Landlord.
1.3 Clause and paragraph headings shall not affect the
interpretation of this Lease.
2. DEMISE
In consideration of the rents hereby reserved and of the covenants on the part
of the Tenant and the conditions hereinafter contained the Landlord HEREBY
DEMISES unto the Tenant the Demised Premises TOGETHER WITH the rights set out in
Part 1 of the First Schedule EXCEPTING AND RESERVING unto the Landlord and to
all other persons from time to time entitled thereto the rights set out in Part
II of the First Schedule TO HOLD the same unto the Tenant SUBJECT TO all rights
of light and air and all covenants easements, rights and privileges (if any)
affecting the Demised Premises and in particular (but without prejudice to the
generality of the foregoing) the rights, covenants and other matters more
particularly contained or referred to in the documents mentioned in Entry Number
1 and 2 of the Charges Register of Title Number 248536 so far as the same are
subsisting and enforceable FOR the Term YIELDING AND PAYING therefor unto the
Landlord without deduction (exclusive of VAT):-
2.1 yearly during the Term and so in proportion for any period
less than a year the Basic Rent which shall be paid whether or
not demanded in advance by equal quarterly payments on each of
the Rent Days except the first payment which shall be made on
the Rent Commencement Date in respect of the period from and
including the Rent Commencement Date until (but excluding) the
Rent Day next following being the 1st day of April 1996; and
2.2 by way of further rent on demand a fair proportion (such
proportion to be properly determined by the Landlord's
surveyor) of the amounts payable from time to time by Landlord
in respect of the insurance rent reserved by the Superior
Lease; and
2.3 by way of further rent the service charge reserved by
paragraph 3 of the Second Schedule of this Lease; and
2.4 by way of further rent all interest and other amounts payable
under this Lease; and
2.5 by way of further rent all VAT payable on the rents reserved
by clauses 2.1 to 2.4 of this Lease.
3. TENANT'S COVENANTS
The Tenant COVENANTS with the Landlord in manner set out in the Second Schedule
-5-
<PAGE>
4. LANDLORD'S COVENANTS
The Landlord COVENANTS with the Tenant in manner set out in the Third Schedule
5. PROVISOS
PROVIDED ALWAYS and it is agreed and declared in the manner set out in the
Fourth Schedule
IN WITNESS whereof the partners hereto have executed this Lease as a deed the
day and year first before written
THE FIRST SCHEDULE
PART 1
(Rights included in the demise)
1. FULL rights of support, shelter and protection from all other parts of
the Building capable of providing the same for the Demised Premises.
2. THE right for the Tenant in common with the Landlord and all other
persons now or hereafter authorized or so entitled of free and
uninterrupted passage and running of water and soil, gas, electricity
and other services to and from the Demised Premises upon, through, over
or under the Conduits which serve the Demised Premises through over or
under other premises now or during the Perpetuity Period belonging to
the Landlord or in respect of which the Landlord shall be entitled to
such rights for itself or those deriving title under it so far as such
right is necessary for the enjoyment of the Demised Premises but not
for any other purposes.
3. SUBJECT to the Tenant causing no obstruction or damage to the same such
rights but during the Permitted Hours only (save in emergency) for the
Tenant in common with the Landlord and all other person having the like
rights to pass and repass on foot only over such parts of the Common
Parts as may be necessary for access to and egress from the Demised
Premises.
4. THE right to affix to or display on the notice board in the ground
floor foyer of the Building a notice stating the name of the Tenant and
the nature of its business provided the nature size and design of such
notice shall first be approved in writing by the Landlord such approval
not to be unreasonably withheld or delayed.
5. THE Tenant shall be entitled to the exclusive use of two car parking
bays in the basement of the Building throughout the Term. Such bays
shall be as designated in writing by the Landlord, from time to time.
-6-
<PAGE>
6. THE Tenant shall be entitled to the use of the toilets situated off the
rear staircase of the Building.
PART 2
(Exceptions and Reservations)
1. ALL rights of support, shelter and protection from the Demised Premises
for all other parts of the Building capable of enjoying the same and
all other liberties, easements quasi-easements, rights, benefits and
advantages over the Demised Premises now or from time to time enjoyed
or intended to be enjoyed by any premises now or during the Perpetuity
Period belonging to the Landlord.
2. THE right to the unimpeded access of light and air over the Demised
Premises to the remainder of the Building and any other premises now or
during the Perpetuity Period belonging to the Landlord.
3. THE right of free and uninterrupted passage and running of water soil
gas electricity and other services in and through the Conduits made or
to be made during the Perpetuity Period upon, through, over or under
the Demised Premises.
4. SUCH rights or access to and entry upon the Demised Premises as are
necessary or desirable for the proper and practical observance and
performance of the Landlord's covenants, conditions, agreements and
obligations under this Lease or the Superior Lease or under covenants,
conditions, agreements and obligations relating to any premises now or
during the Perpetuity Period belonging to the Landlord.
5. THE right to erect scaffolding for the purpose of repairing, painting
or cleaning the Building or any premises now or during the Perpetuity
Period belonging to the Landlord notwithstanding that such scaffolding
may temporarily restrict the access to or enjoyment and use of the
Demised Premises.
6. THE right at any time during the Term and for any purposes to execute
works and erections upon or build or rebuild or alter any premises now
or during the Perpetuity Period belonging to the Landlord in any manner
whatsoever notwithstanding that the carrying out of those works in a
reasonable and proper manner may cause noise, obstruction, disturbance,
annoyance or inconvenience to the Tenant in the Tenant's occupation or
use of the Demised Premises and to use or let the same for any purpose
or otherwise deal with them.
-7-
<PAGE>
THE SECOND SCHEDULE above referred to
Covenants and obligations of the Tenant given pursuant to Clause 3
1. Pay Rents
(1) To pay to the Landlord the Basic Rent and
other rents payable under this Lease at the
times and in the manner provided in this
Lease without deduction.
(2) To pay any VAT payable on the rent hereby
reserved and on all supplies received or
deemed to be received by the Tenant under or
in connection with this Lease;
(a) To pay to the Landlord any amount
equivalent to the VAT on supplies
received by the Landlord under or in
connection with the Lease to the
extent either that such VAT is not
available for credit pursuant to the
provisions of Section 14 of the VAT
Act 1983 in the prescribed
accounting period in which the VAT
was incurred or that the Landlord is
unable (having used reasonable
endeavors) to recover the same
otherwise.
(3) If so required by the Landlord to pay the
Basic Rent by way of Bankers Standing Order
or direct debit.
2. Pay Outgoings
(1) To pay and discharge all existing future
rates, taxes, duties, charges, assessments,
impositions and outgoings whatsoever
(whether parliamentary, parochial, local or
of any other description and whether or not
of a capital or revenue or non-recurring
nature and even though of a wholly novel
character) which are now or may at any time
hereafter be assessed, charged, levied or
imposed or payable in respect of the Demised
Premises (including a proper proportion of
any of the foregoing which may be assessed
upon the Building without apportionment.
Such proportion to be properly determined in
case of disagreement by the Landlord's
surveyor at the cost of the Tenant);
(2) To pay for all telephone, gas, electricity
and other services consumed on the Demised
Premises (including meter rents);
save where the amount of such rates, duties and outgoings are included by the
Landlord in the Service Charge.
-8-
<PAGE>
3. Service Charge
To pay the Service Charge calculated in accordance with and in the manner
prescribed in the Fifth Schedule.
4. Repair
To cleanse and keep clean and to keep in good and substantial repair and
condition the Demised Premises and insofar as they exist in or on the Demised
Premises the water, ventilation, sanitary apparatus, Conduits, machinery and
appurtenances and all plant and machinery and to replace from time to time all
Landlord's fixtures fittings (excluding the carpeting including in the Demised
Premises) and appurtenances in the Demised Premises which may be or become
beyond repair at any time during the Term or at the Termination of the Term
PROVIDED that there shall be excepted damage by any of the Insured Risks except
to the extent that the insurance of the Building effected by the Superior
Landlord has been vitiated or prejudiced or payment of the insurance moneys
refused in whole or in part as a consequence of any act or default of the Tenant
or any undertenant or their respective servants, agents, licensees or visitors.
5. Decoration, maintenance and cleaning
Without prejudice to the generality of the covenant at paragraph 4 of the Second
Schedule:
(1) as and whenever necessary and also during
the last six months prior to or at the
Termination of the Term to have prepared and
painted or otherwise decorated or treated
(as the case may be) all surfaces and other
portions, fabrics and finishes (a) usually
painted with at least two coats of good
quality paint or (b) otherwise decorated or
treated with good quality materials and so
often as may be necessary to have
professionally treated in accordance with an
appropriate manner for preserving and
protecting the same all other parts of the
Demised Premises requiring treatment for
preservation and protection;
(2) to carry out such painting, decoration or
other treatment in a proper and workmanlike
manner and during the last six months prior
to or at the Termination of the Term in
colors, tints and materials previously
approved in writing by the Landlord;
(3) to replace all broken or damaged glass in
the Demised Premises as and when the same is
broken or damaged with glass of the same
color, tint and specification;
(4) to keep the Demised Premises clear of all
rubbish and in a neat and tidy condition;
-9-
<PAGE>
(5) to clean the internal surfaces of all the
window frames and other glass comprised in
the Demised Premises as often as necessary;
(6) not to obstruct any heating or
air-conditioning equipment or Conduits and
not to do anything which causes an
obstruction or damage to the same.
6. Yield up
To yield up the Demised Premises unto the Landlord at the Termination of the
Term painted, treated, repaired, cleansed, maintained, amended and kept as
provided in paragraph 4 and 5 of the Second Schedule and otherwise as shall be
in accordance with the covenants and conditions contained in or imposed by
virtue of this Lease and the keys and all fixtures of every kind in or upon the
Demised Premises or which during the Term may be affixed or fastened to or upon
the same (other than tenant's or trade fixtures) and prior to the Termination of
the Term to the reasonable satisfaction of the Landlord:
(1) in case any of the said fixtures shall be
missing broken damaged destroyed or beyond
repair forthwith to replace them with others
of a similar or more modern character and of
no less value;
(2) unless released from compliance by written
notice given by the Landlord prior to the
Termination of the Term:
(a) to remove from the Demised Premises
all tenant's and trade fixtures and
fittings and partitions (excluding
partitions in situate at the
commencement of the Term) and
furniture and effects;
(b) in the event of any alterations,
additions or other works having been
made to the Demised Premises to
reinstate the Demised Premises to
the condition in which the same were
prior to the making of such
alterations, additions or other
works;
(c) to remove any molding, sign writing
or painting of the name or business
of the Tenant and other persons from
the Demised Premises;
(3) to make good any damage caused to the
Demised Premises by any reinstatement or
removal or the removal of any fixtures,
fittings, furniture or effects.
-10-
<PAGE>
7. Permit Entry for Landlord and others
To permit the Landlord and its servants, agents, contractors, workmen and the
Landlord's surveyor to enter upon the Demised Premises and remain thereon for
such period as shall be necessary (with all necessary plant, machinery,
equipment, tools and appliances) at all times in case of emergency and otherwise
when necessary and at any reasonable times on reasonable prior notice without
interruption or interference:
(1) to examine the Demised Premises to ensure
that nothing has been done or omitted which
constitutes or may be or tend to be a breach
or non-performance of any of the covenants
contained in this Lease;
(2) to take schedules or inventories of the
fixtures and things to be yielded up at the
Termination of the Term;
(3) for any other purpose connected with the
interest of the Landlord in the Demised
Premises and/or the Building either under
this Lease or under the Superior Lease.
PROVIDED that in exercising such rights the Landlord and others authorized shall
cause as little damage and inconvenience as possible and make good any damage
caused and shall stay only for so long as reasonably necessary.
8. Remedy Wants of repair and entry for Landlord on default
Forthwith to proceed to remedy, repair and make good all breaches of covenant,
wants of repair and of decoration and defects of which notice shall be given by
the Landlord to the Tenant and which the Tenant shall be liable to remedy,
repair and make good PROVIDED ALWAYS that if within one month from the date of
such notice the Tenant shall fail to commence to repair and make good the wants
of reparation and other matters prescribed in such notice to permit the Landlord
and all persons authorized by the Landlord with workmen, servants, agents and
(others with or without plant, machinery, equipment, tools and appliances) to
enter into and stay upon the Demised Premises and repair, decorate, treat,
preserve, protect and make good the same (but so that the Landlord's right of
entry or any other right or remedy of the Landlord under this Lease shall not
thereby be prejudiced) and to pay on demand by way of damages the costs and
expenses thereof together with interest thereon at the Prescribed Rate from the
respective dates of expenditure by the Landlord to the date of reimbursement.
9. Letting and Dealing Boards
To permit the Landlord and its servants and agents at any reasonable time during
the Term upon giving reasonable notice to enter upon the Demised Premises and
affix and retain without interference in a conspicuous position on the exterior
(but not so as materially to interfere with the access of light and air to the
Demised Premises) reasonable sized notices for selling the Landlords
Reversionary interest
-11-
<PAGE>
(and in the last six months of this Lease for reletting) and to permit all
persons with written authority from the Landlord or the Landlord's agents at
reasonable times of the day and upon reasonable notice to enter and view the
Demised Premises without interruption provided that entry and viewing for the
purposes of re-letting shall be limited to a period of six months prior to the
end of the Term, or if sooner following notice of termination pursuant to
paragraph 17 of the Fourth Schedule.
10. Notices
Immediately on receipt by the Tenant of any notice or communication from a
competent authority affecting the Demised Premises or the user thereof to give
to the Landlord copy thereof and in any event when the Tenant first becomes
aware of the service of such notice or of any circumstances likely to lead to
service of such a notice to give to the Landlord full particulars of such notice
or circumstances and to make or join in making such objection or representation
against or in respect of the same as the Landlord may require but so that such
objection or representation shall be at the Landlord's cost and expense.
11. Statutory Requirements
(1) At the expense of the Tenant to comply with
all present and future Acts of Parliament
and subordinate legislation made thereunder
relating to the Demised Premises or the use
thereof or the employment of persons therein
by the Tenant or any persons deriving title
under or through the Tenant and to execute
at the Tenant's own expense any work
required to be carried out in or to be
Demised Premises by any present or future
Acts of Parliament or subordinate
legislation made thereunder whether such
work is required to be carried out by the
Tenant or any person claiming under or
through the Tenant or by the owner or any
occupier of the Demised Premises.
(2) Not at any time to do or omit on or about
the Demised Premises any act or thing by
reason of which the Landlord may under any
such Acts or subordinate legislation incur
or have imposed upon it or become liable to
pay any levy, penalty, damages,
compensation, costs, charges or expenses.
(3) To obtain all licenses, permissions and
consents and to execute and do all works and
things and to bear and pay all expenses
required or imposed by any such Acts or
subordinate legislation in respect of any
works carried out by the Tenant or any
person deriving title under or through the
Tenant on the Demised Premises or of any
user thereof or of the employment of any
persons therein by the Tenant or any person
deriving title under or through the Tenant.
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12. Planning
Without prejudice to the generality of paragraph 11 of the Second Schedule:
(1) at the expense of the Tenant to comply with
the provisions and requirements of the
Planning Acts and all licences, consents,
permissions and conditions now or hereafter
existing, granted or imposed thereunder or
under any enactment repealed thereby so far
as the same are implemented by the Tenant or
any person deriving title under or through
the Tenant and related to or affect the
Demised Premises or any operations works
acts or things now or hereafter carried out
executed done or omitted thereon or the use
thereof for any purpose;
(2) so often as occasion shall require, at the
expense of the Tenant, to obtain from the
Local Planning Authority or other competent
authority all such licenses, consents and
permissions as may be required under the
Planning Acts for any works to or operations
on or the institution or continuance of any
use of the Demised Premises by the Tenant or
any person deriving title under or through
the Tenant but so that the Tenant shall not
make any application for planning permission
without the previous written consent of the
Landlord and to pay and satisfy any charge
that may hereafter be imposed (whether on
the Landlord or the Tenant or any other
person) in respect of any such operations or
of any such use as aforesaid;
(3) notwithstanding any consent which may be
granted by the Landlord not to carry out any
works or any alteration or addition to the
Demised Premises or any change of use
thereof (being works or any alteration or
addition or change of use for which a
planning permission needs to be obtained)
before a planning permission therefor has
been produced to the Landlord and
acknowledged in writing as satisfactory by
the Landlord;
(4) unless the Landlord shall otherwise direct
to carry out before the Termination of the
Term any works stipulated to be carried out
to the Demised Premises by a date subsequent
to the Termination of the Term as a
condition of any planning permission which
shall have been implemented by the Tenant or
any person deriving title under or through
the Tenant before or during the Term;
(5) if and when called upon so to do to produce
to the Landlord or as directed by it to any
third part all such plans, documents and
other evidence as the Landlord may
reasonably require in order to satisfy
itself that the provisions of this covenant
has been complied with in all respects;
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(6) not to do any thing to be done on or with
reference to the Demised Premises which may
be grounds for or cause or lead to the
compulsory acquisition thereof;
(7) not to serve any purchase notice under the
Planning Acts requiring any authority to
purchase the interest of the Tenant in the
Demised Premises.
13. Alterations
(1) Not to carry out any structural or external
alterations whatsoever to the Demised
Premises.
(2) Not without the prior written consent of the
Landlord (such consent not to be
unreasonably withheld or delayed) to carry
out any internal non structural alterations
to the Demised Premises or to the Conduits.
The Landlord may require as a condition of
any such consent that the Tenant shall enter
into such covenants with the Landlord with
regard to the execution of the alteration
and the reinstatement thereof at the
Termination of the Term in such form as the
Landlord may reasonably require. No such
consent shall be required by the Tenant for
the erection, removal or rearrangement of
internal non-structural lightweight
partitioning.
(3) To carry out and complete the work involved
in all alterations to the Demised Premises
in accordance with the terms of all
consents, with materials of suitable good
quality in a proper and workmanlike manner
and to the reasonable satisfaction of the
Landlord.
(4) On completion of the installation of
anything which shall become part of the
Demised Premises forthwith to give to the
Landlord written notice of the same stating
the full cost of reinstatement thereof.
(5) If pursuant to paragraph 13(2) of the Second
Schedule the Tenant applies for the
Landlord's consent to the making of any
alterations to the Demised Premises the
Landlord shall be entitled as a condition of
giving such consent to require the Tenant to
provide such reasonable financial security
as may be required by the Landlord for the
carrying out and completion of any such
works by the Tenant.
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14. Signs
Not to affix to or display on or permit to be affixed to or displayed on the
Demised Premises any sign hoarding poster placard or advertisement whatsoever
which shall be visible from the outside of the Demised Premises other than a
sign/nameplate in the entrance to the Building.
15. Dangerous and Deleterious Substances
(1) Not to keep on the Demised Premises any
material or liquid of a dangerous,
corrosive, combustible, explosive,
radio-active, volatile, unstable or
offensive nature or which might in any way
injure by percolation, corrosion or
otherwise the Demised Premises or the
Conduits serving the Building or the keeping
or use of which may contravene any statute,
order, regulation or bye-law.
(2) Not to stop up or obstruct in any way or
permit oil or grease or other deleterious
liquid or matter to enter by any means the
Conduits or any adjoining or neighboring
premises.
(3) In the event of any obstruction or injury
forthwith to remedy the same and make good
all damage to the satisfaction of the
Landlord.
16. Fire Precautions
At the expense of the Tenant:
(1) to comply with all requirements and
recommendations (whether legally enforceable
or not) from time to time of the appropriate
authority and of any insurers of the Demised
Premises in relation to fire precautions
affecting the Demised Premises;
(2) to keep and maintain sufficient fire
fighting and extinguishing apparatus in and
about the Demised Premises installed in
compliance with such requirements and
recommendations and with any legal
requirements and open to inspection and
properly maintained to the satisfaction of
any insurers of the Demised Premises and not
to obstruct the access to or means of
working of the same.
17. Securing Unoccupied Premises
Throughout any period during which the Demised Premises are closed for business
or are unoccupied whether or not furnished to keep the Demised Premises fully
secured.
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18. Loadings
(1) Not to impose or permit to be imposed
(whether by using machinery or otherwise) on
any part of the floors, roof, roof trusses,
ceilings or the structure of the Building
any load or weight greater than that which
the same are designed or constructed to bear
with due margin for safety.
(2) Not by machinery or otherwise, to cause or
permit any undue vibration to or nuisance by
noise or otherwise in the Demised Premises.
(3) Not to use Conduits in the Building or
connect any apparatus to them in such a way
of such a kind as to overload or endanger
the same.
(4) Not without the Landlord's consent in
writing to make any alteration to the
Conduits or other services serving the
Building and in any event only in accordance
with the standards laid down from time to
time by the relevant authorities or
institutes.
19. User
(1) Not to use the Demised Premises other than
during the Permitted Hours.
(2) Not to use the Demised Premises or any part
thereof:
(a) for residential purposes or as
sleeping accommodation;
(b) for any noisy, noisome, noxious,
offensive or dangerous trade, art,
manufacture, business or occupation
or for any sale by auction, public,
exhibition, political meeting, show,
spectacle or gambling or for any
illegal or immoral purpose;
(c) in any way or for any purpose which
may be a nuisance or
damage to the Landlord.
(3) Without prejudice to the generality of the
foregoing not to use the Demised Premises
otherwise than as offices.
20. Insurers' Requirements
(1) To carry out at the Tenant's expense such
works and other precautions as may be
reasonably required by any insurers of the
Demised Premises in connection with the use
of the Demised Premises by the Tenant and in
accordance with their directions.
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<PAGE>
(2) Not to carry on upon the Demised Premises or
any adjoining property controlled by the
Tenant any trade, business or activity or do
or permit any act or thing on or in relation
to the Demised Premises which may make void
or voidable any policy of insurance of the
Demised Premises or render any increased or
extra premium payable for such insurance.
(3) To pay forthwith on demand to the Landlord
the whole of the amount (including
reasonable professional and other fees and
costs) which should have been recoverable
under any insurance of the Demised Premises
to the extent that such amount is rendered
irrecoverable as a consequence of any act or
default of the Tenant or any undertenant or
their respective servants, agents, licensees
or visitors.
(4) Not to effect any insurance of the Demised
Premises.
21. Notify Damage by Insured Risks
To give immediate written notice to the Landlord, as soon as the same shall come
to the notice of the Tenant, of any destruction of or material damage to the
Demised Premises stating (if possible) whether and to what extent the same was
brought about directly or indirectly by any of the Insured Risks.
22. Prevent Encroachments
(1) Not knowingly to permit any owner of any
property adjoining or near the Demised
Premises to acquire any rights of way, light
or air or other privilege or easement or
make any encroachment over, against, out of,
or upon the Demised Premises and as soon as
the Tenant shall become aware thereof or of
any act or thing which might result in the
acquisition or making of any of the same to
give immediate written notice thereof to the
Landlord. At the request and cost of the
Landlord to adopt or permit the Landlord to
adopt such means as may be reasonably
required for preventing the acquisition or
making of any of the same. At the request
and cost of the Landlord to take, consent to
or bring all actions in the name of the
Tenant as the Landlord may reasonably
require or (at the option of the Landlord)
to join with the Landlord in taking such
steps or action as may be reasonably
required by the Landlord for preventing any
of the same from being acquired or made.
(2) Not to stop up, darken or obscure any
windows or lights belonging to the Demised
Premises.
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23. Alienation
(1) Not to assign transfer mortgage and/or
charge the whole of the Demised Premises
without the written consent of the Landlord
(which consent, subject to the consent of
the Superior Landlord, shall not be
unreasonably withheld or delayed) and the
Superior Landlord. The Landlord agrees to
use all reasonable endeavors to obtain the
consent of the Superior Landlord.
(a) Not to assign transfer mortgage
and/or charge part only of the
Demised Premises.
(2) Not to part with or share possession or
occupation of the whole or any part of the
Demised Premises other than in the manner
permitted by this paragraph 23.
(3) Not to execute any declaration of trust with
regard to the whole or any part of the
Demised Premises.
(4) Not to underlet the whole or any part of the
Demised Premises:
(a) otherwise than in accordance with
this paragraph 23; and
(b) without obtaining the prior written
consent of the Landlord (which
consent shall, subject to the
consent of the Superior Landlord,
not be unreasonably withheld or
delayed) and the Superior Landlord.
The Landlord agrees to use all
reasonable endeavors to obtain the
consent of the Superior Landlord.
(5) Not to create or permit to be created:
(a) more than three underlettings of the
Demised Premises;
(b) underlettings comprising units of
other than one or more whole
floors.
(6) Not to underlet the whole or any part of the
Demised Premises:-
(a) at a fine or premium or any other
consideration;
(b) at a rent which is less than the
full open market rental value
thereof without fine, premium or any
other consideration;
(c) at a rent payable more than two
quarters in advance;
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(d) other than on terms which shall
incorporate such provisions as are
necessary to ensure that any such
underlease is consistent with and in
all respects (other than the rent
payable thereunder) no less onerous
than the provisions of this Lease,
including provisions similar to
those contained in paragraph 23(4),
paragraph 23(5), paragraph 23(6),
paragraph 23(7) and paragraph 4 of
the Fourth Schedule.
(7) Not to underlet the whole or any part of the
Demised Premises without obtaining from the
underlessee:-
(a) a covenant by deed with the Landlord
and Superior Landlord that the
underlessee will throughout the term
granted by the underlease:-
(i) observe and perform all of
the covenants and
conditions on the part of
the tenant (other than the
covenant to pay rent)
contained in the
underlease;
(ii) not assign nor underlet
the premises demised by
the underlease.
(b) a covenant from the underlessee in
the underlease (which covenant the
Tenant shall enforce) in the terms
of paragraph 23(7)(a)(ii).
(8) Upon every application for consent required
by this paragraph 23 the Tenant undertakes
to disclose to the Landlord and/or the
Superior Landlord such information,
including the terms proposed, as the
Landlord or Superior Landlord may reasonably
require.
24. Register Devolutions
Within one month of every assignment transfer, underlease or charge affecting
the Demised Premises or any devolution of the estate of the Tenant therein or
this Lease or of any derivative interest and every surrender thereof to give
notice in writing with particulars thereof to the Landlord and produce such
assignment, transfer, underlease or charge or the Probate of the Will or Letters
of Administration or other instrument document or evidence of such devolution or
surrender with a certified copy thereof and in every case to pay to the Landlord
a reasonable registration fee of Twenty five pounds plus VAT thereon.
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25. Defective Premises
Forthwith upon becoming aware of the same to give notice in writing to the
Landlord of any defect in the Demised Premises which would or might give rise to
an obligation on the Landlord to do or refrain from doing any act or thing in
order to comply with the duty of care imposed on the Landlord pursuant to the
Defective Premises Act 1972 and at all times to display and maintain all notices
(including the wording thereof) which the Landlord may from time to time require
to be displayed at the Demised Premises.
26. Indemnify Landlord
To pay and make good to the Landlord and keep the Landlord fully and effectually
indemnified against all properly incurred and reasonable loss, costs, claims,
demands, liability, damage, actions and expenses whatsoever incurred or
sustained by the Landlord as a consequence of or in connection with any breach,
non-performance or non-observance of any of the covenants and conditions on the
part of the Tenant contained in this Lease including all costs and expenses
incurred by the Landlord in connection with any steps which the Landlord may
take to remedy any breach of covenant or condition by the Tenant contained in
this Lease. Such indemnity shall be without prejudice to any rights or remedies
of the Landlord under this Lease in respect of any breach, non-performance or
non- observance of any covenant or condition.
27. Costs
To pay on demand:-
(1) all reasonable legal costs and professional
fees and disbursements properly incurred by
the Landlord in connection with or any
application made by the Tenant for a consent
or licence or the consideration of any
proposal (including plans and
specifications) for and the inspection,
supervision and approval of otherwise of any
works on the Demised Premises or any change
in the user thereof;
(2) all proper expenses including solicitors,
costs and surveyors' fees properly incurred
by the Landlord in the preparation and
service of a notice under Section 146 of the
Law of Property Act 1925 or of proceedings
under Sections 146 and 147 of that Act
notwithstanding that in any such case
forfeiture is avoided otherwise than by
relief granted by the Court;
(3) all proper expenses including solicitors'
costs surveyors' fees and bailiff's costs
and commission reasonably and properly
incurred by the Landlord in connection with
any breach, non-performance or non-
observance of any of the covenants or
conditions on the part of the Tenant
contained in this Lease or the enforcement
thereof including
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(without prejudice to the generality of the
foregoing) the service of all notices
relating to and schedules of dilapidations
and want of repair or decoration to the
Demised Premises and any negotiations in
respect thereof and whether served during
the Term or within six months after the
Termination of the Term (but relating in all
cases to such wants of repair or decoration
that accrued not later than the Termination
of the Term) or the levy of distress.
28. Common Parts
(1) To use the Common Parts only to approach and
leave the Demised Premises and not to place
or leave anything in the Common Parts or
otherwise obstruct them.
(2) Not to use any parts of the Building which
are designated as fire escapes except in
case of fire or other emergencies or for
fire escape practice.
(3) Not to leave any rubbish or waste in any
part of or outside the Demised Premises or
the Building except in properly covered
receptacles designated by the Landlord.
29. Comply with Title Matters
(1) To perform and observe all the covenants,
conditions and provisions affecting the
Demised Premises referred to in the
documents mentioned in Entry Numbers 1 and 2
of the Charges Register of Title Number
248536 so far as the same relate to the
Demised Premises and are still subsisting
and capable of being enforced and to keep
the Landlord fully and effectually
indemnified from and against all costs,
claims, demands and liabilities arising from
any breach non-performance or non-
observance thereof.
(2) To observe and perform the covenants and
conditions on the part of the tenant
contained in the Superior Lease in so far as
the same relate to the Demised Premises (but
excepting in so far as the Landlord
expressly covenants in these Present to
observe and perform the same) and to
indemnify and keep indemnified the Landlord
from and against any actions, proceedings,
claims or damages arising from the breach
non-observance or non-performance of the
same or any of them.
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THE THIRD SCHEDULE above referred to
Covenants by the Landlord
1. Quiet Enjoyment
The Tenant paying the Basic Rent and other rents and charges payable under this
Lease and performing and observing the several covenants and stipulations on the
part of the Tenant contained in this Lease may peaceably and quietly hold and
enjoy the Demised Premises during the Term without any lawful interruption or
disturbance from or by the Landlord or any person rightfully claiming under or
in trust for it.
2. Superior Lease
To pay the rents reserved by the Superior Lease and to perform and observe the
covenants on the part of the tenant contained therein except insofar as the
covenants fail to be observed and performed by the Tenant by reason of the
obligation of the Tenant in this Lease and to procure that the Superior Landlord
complies with the covenants on its part contained in the Superior Lease.
THE FOURTH SCHEDULE above referred to
Provisos, Agreements and Declarations
1. Forfeiture
This Lease is made on the express condition that the Landlord or its agents may
forthwith re-enter upon the Demised Premises or any part thereof in the name
of the whole whereupon the Term of this Lease shall forthwith absolutely cease
and determine in the event that:-
(1) the Basic Rent or any other rents and
charges reserved or made payable in this
Lease or any part thereof shall be unpaid
for twenty one days next after the same
shall become due (in the case of the Basic
Rent whether formally or legally demanded or
not and in all other cases after due
demand); or
(2) there shall be a breach or non-performance
or non-observance of any of the covenants or
agreements on the part of the Tenant or
stipulations or conditions contained in this
Lease imposed on the Tenant; or
(3) the Tenant, being a company, shall go into
liquidation (other than a voluntary
liquidation of a solvent company for the
purpose of amalgamation or reconstruction)
or have a winding-up or administration order
made against it or shall enter into a
composition with its creditors or a scheme
of arrangement or its affairs or have a
receiver appointed under powers contained in
an instrument over all or any substantial
part of its undertaking or assets; or
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(4) the Tenant, being an individual, shall have
a bankruptcy order made against him or enter
into a composition with his creditors or
scheme of arrangement of his affairs then
and in any such case.
The provisions of paragraphs 1(1) to 1(4) of the Third Schedule are without
prejudice to any rights or remedies which may then have accrued to the Landlord
in respect of arrears of rent or other breach or non-observance of any condition
covenant or agreement on the part of the Tenant contained in this Lease or
otherwise.
2. Distress
If the Basic Rent or any part thereof shall be unpaid and in arrear for fourteen
days (whether demanded or not) it shall be lawful for the Landlord to enter into
and upon the Demised Premises at any time thereafter and by any reasonable means
(including breaking open any doors or windows) and distrain upon the Demised
Premises (which power shall extend to any tenant's and trade fixtures and
fittings then therein and for severance and removal thereof) and the distress
there and then found to dispose of in due course of law and to apply the
proceeds thereof first towards payment of all costs and expenses thereby
incurred and secondly towards the Basic Rent.
3. Notices
All notices to be given under this Lease shall be in writing and Section 196 of
the Law of Property Act 1925 as amended by the Recorded Delivery Service Act
1962 shall apply to the service of all such notices and in case of any notice to
be served on the Tenant such notice shall also be duly served if left at the
Demised Premises or sent to the last known address of the Tenant.
4. L & T A Compensation Exclusion
Subject to the provisions of sub-section (2) of the Section 38 of the Landlord
and Tenant Act 1954 neither the Tenant nor any underlessee of the Term or of the
Demised Premises shall be entitled on quitting the Demised Premises to any
compensation under Section 37 of such Act or under any corresponding provisions
in any Act amending or replacing the same.
5. Suspension of Rent
If during the Term the Demised Premises or any part thereof shall be destroyed
or so damaged or affected by any of the Insured Risks as to be unfit for
occupation and use or inaccessible then, save to the extent that the insurance
of the Demised Premises or for loss of rent shall have been vitiated or payment
of the policy moneys refused in whole or in part as a consequence of any act or
default of the Tenant or its servants agents licensees or visitors and subject
to the payment by the Tenant to the Landlord of an amount equal to any
applicable excess under the relevant policy of insurance, the Basic Rent or a
fair and just proportion thereof according to the nature and extent of the
damage shall as from the date of such destruction or damage or event affecting
the Demised Premises as aforesaid for a period equal to the period for which the
Superior Landlord has insured loss of rent for the Demised
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<PAGE>
Premises or until the Demised Premises shall have been rebuilt or reinstated
(whichever is the shorter period) be suspended and any dispute as to the extent
proportion or period of such suspension shall be determined by the Landlord's
Surveyor acting reasonably.
6. Determination on Destruction
In the event that:-
(1) the Demised Premises shall be destroyed or
so damaged or affected by any of the Insured
Risks as to render them unfit for occupation
and use or inaccessible or so that the
Tenant's use; and
(2) the insurance of the Demised Premises
effected, pursuant to the covenant by the
Superior Landlord in that behalf contained
in the Superior Lease, has not been vitiated
or prejudiced by or payment of the policy
moneys refused in whole or in part as a
consequence of any act or default of the
Tenant or its servants agents licensees or
visitors; and
(3) the Superior Landlord shall after using all
reasonable endeavors, have been unable
within the period referred to below to
obtain all necessary consents and approvals
for the rebuilding replacement and/or
reinstatement of the Demised Premises or
having obtained the same has not within such
period rebuilt replaced or reinstated the
Demised Premises so that they are fit for
occupation and use by the Tenant;
either party shall be entitled to determine this Lease upon the expiration of
the period for which loss of rent has been insured (calculated from the date of
such destruction or damage) by serving written notice on the other and this
Lease shall absolutely determine PROVIDED ALWAYS that such determination will
take place without prejudice to any and all rights then subsisting between the
parties to this Lease in relation to any antecedent breach by either party.
7. Landlord to have Insurance Moneys on Frustration
In the event that this Lease shall determine under the Provisions of Paragraph 6
of the Fourth Schedule above or the Superior Landlord shall not have completed
the rebuilding replacement and/or reinstatement of the Demised Premises
following destruction or damage by any of the Insured Risks at the Termination
of the Term then and in either such case all moneys payable or to become payable
under any insurance effected pursuant to the covenant on the part of the
Superior Landlord in that respect contained in the Superior Lease shall be paid
to the Superior Landlord for its own use and benefit.
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8. Double Insurances
If at any time the Tenant is entitled to the benefit of any insurance of the
Demised Premises then to the extent that the Superior Landlord fails to receive
the full benefit of any insurances effected pursuant to the covenant on the part
of the Superior Landlord in that respect contained in the Superior Lease by
reason of any insurance effected by the Tenant as aforesaid the Tenant shall pay
or procure that there be paid to the Superior Landlord for its own use and
benefit out of moneys received or to be received by virtue of such insurance
effected by the Tenant an amount equivalent to the amount which the Superior
Landlord shall have failed to receive as aforesaid.
9. Disclaimer
Except to the extent covered by the insurance effected by the Superior Landlord
and in any event only to the extent permitted by law neither the Landlord nor
the Superior Landlord shall be responsible to the Tenant of any other person for
any injury, death, damage, destruction or financial or consequential loss
whether to person, property or goods due directly or indirectly to the act
neglect or default of any other occupier for the time being of the Demised
Premises.
10. Interest on Unpaid Rents and Other Moneys
(1) If the Basic Rent, the Service Charge and
any VAT payable thereon shall not be paid to
the Landlord within fourteen days of the
relevant Rent Day (whether or not demanded)
or any other rents or amounts payable by the
Tenant to the Landlord hereunder shall not
be paid within seven days of the date of
demand the Tenant shall pay to the Landlord
with any such sums (but without prejudice to
all or any other rights or remedies of the
Landlord under this Lease) interest thereon
at the Prescribed Rate calculated on a day
to day basis (and compounded with rests on
the Rent Days) from the date on which the
same became due and payable or (if earlier)
the date of expenditure by the Landlord down
to the date of payment or reimbursement by
the Tenant.
(2) If any amounts payable by the Landlord to
the Tenant under this Lease shall not be
paid at the expiry of any period within
which they are required to be paid pursuant
to the provisions hereof or (where there is
no such period) within seven days of the
date of demand the Landlord shall pay to the
Tenant with any such sum interest thereon at
the Prescribed Rate calculated on a day to
day basis (and compounded with rests on the
Rent Days) from the date on which the same
became due and payable down to the date of
payment.
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11. Non-Acquisition of Easements
The Tenant shall not by implication of law or otherwise be entitled to any
estate or any right, privilege or easement whatsoever (except as expressly
granted) by this Lease nor shall the Tenant by virtue or in respect of the
Building or this Lease by deemed to have acquired or to be entitled nor shall it
during the Term acquire or become entitled by length of enjoyment prescription
or any other means to any such estate, right, privilege or easement.
12. Rent Refusal when Breach Exists
If the Landlord shall refuse to accept the Basic Rent or any other rents or
amounts payable by the Tenant to the Landlord under this Lease in order to avoid
a waiver of any right which the Landlord may have to forfeit this Lease or
re-enter the Demised Premises by reason of any breach of covenant by the Tenant
or otherwise then notwithstanding any tender of the same by the Tenant such sums
shall bear interest to be paid by the Tenant at the Prescribed Rate calculated
on a day-to-day basis (and compounded with rests on the Rent Days) from the date
on which the same became due and payable or (if earlier) the date of expenditure
following notification of breach by the Landlord down to the date upon which
payment shall be accepted by the Landlord or earlier forfeiture or re-entry.
13. Disputes with Adjoining Owners
Any dispute arising between the Tenant and tenants or occupiers of adjoining or
neighboring premises belonging to the Landlord about any easement, right or
privilege in favour of or affecting the Demised Premises or the premises
adjoining or near the Demised Premises shall be decided by the Landlord's
Surveyor (whose decision, including as to costs, shall be binding upon the
Tenant who shall submit to and abide by such decision).
14. Warranty Disclaimer
The Tenant acknowledges that no representation or warranty has been given prior
to the date hereof or is given or implied by this Lease that the use now or
hereafter proposed by the Tenant for the Demised Premises is or will be or will
remain a use which does not constitute a breach of the Planning Acts or will not
require planning permission and that no consent which the Landlord may give to
any change of use shall be taken as including any such representation or
warranty and subject to paragraphs 5 and 6 of this Schedule the Term and the
Basic Rent and other rents or amounts payable to the Landlord under this Lease
shall not determine by reason of any changes modifications or restrictions of
the user of or access to the Demised Premises or by the same being or becoming
impracticable or prohibited for any reason.
15. Enforcement of Landlord's Covenants
The covenants on the part of the Landlord contained in and obligations on its
part implied by this Lease shall be binding in full upon the owner of the
reversion expectant upon the Termination of the Term
-26-
<PAGE>
but shall not be enforceable against any person who has owned such reversion
after it shall have parted with all interest therein save in respect of any
breach arising prior thereto.
16. Landlord and Tenant Act
It is hereby agreed and declared that pursuant to an Order of The Mayors and
City of London Court made the 12th day of January 1996 Sections 24 and 28
(inclusive) of the Landlord and Tenant Art 1954 shall not apply to this Lease.
17. Break Clause
If any disruptive works which are scheduled to commence and/or do commence and
continue for a period in excess of two weeks in, under or upon any land or
buildings within 133 meters of the Building, as part of the Crossrail Link,
whether such works are enabling, preparatory or otherwise then on becoming aware
or receiving notification that such works are intended to commence within three
months or that they have actually commenced, then the Tenant may at any time
determine this Lease by giving the Landlord at least three months' notice in
writing AND such notice shall be effective to determine this Lease, whether or
not such works are actually commenced by the expiry of the said notice AND
FURTHER on the expiry of the notice this Lease shall cease and determine without
prejudice to the rights of either party against the other in respect of any
antecedent branches.
18. Notice by Landlord of Vacation of the Building
(1) If during the Term of this Lease the
Landlord shall vacate the Building the
Landlord shall give written notice to the
Tenant (meaning for the purposes of this
Lease only Quantum International Limited and
not any successor in title to Quantum
International Limited or any person deriving
title from the said Quantum International
Limited).
(2) The written notice in paragraph 18(1) above
shall contain details of the terms upon
which the Landlord will, subject to contract
and subject to the satisfactory receipt of
all necessary consents and permissions
(whether from the Superior Landlord or
otherwise), assign the Building or underlet
the balance of the Building to the Tenant.
19. General
It is hereby agreed and declared that there is no agreement for lease or tack to
which this Lease owes effect.
-27-
<PAGE>
THE FIFTH SCHEDULE above referred to
Service Charge
Part I
1. Definitions
In this Schedule the following expressions shall have the following meanings:-
"the Expenditure" means the total expenditure properly
and reasonably incurred by the
Landlord in supplying the Services
in an efficient and economic manner
having regard to the principles of
good estate management;
"the Tenant's Proportion" means 65.64% of the expenditure
incurred by the Landlord in
supplying the Services listed in the
Part II of the Fifth Schedule and
100% of the expenditure incurred by
the Landlord in supplying the
Services listed in Part III of the
Fifth Schedule and 22.22% of the
expenditure incurred by the Landlord
in supplying the Service listed in
Part IV of the Fifth Schedule and
the Management Fee;
"the Landlord's Account Year" means the period (of not less than a
year) in respect of which the
Landlord prepares its Service Charge
accounts;
"the Services" the items listed in Parts II, III
and IV of the Fifth Schedule;
"the Management Fee" the reasonable and properly incurred
fees and expenses payable by the
Landlord to any agent (or if any
such work is undertaken by the
Landlord's own staff incurred by the
Landlord) in connection with the
management of the Building and the
preparation and audit of any Service
Charge accounts including any
statement of the Expenditure or of
the Tenant's Proportion BUT PROVIDED
THAT such fees and expenses shall
not exceed 10% of the total cost of
supplying the Services to the entire
Building.
2. Basic Service Charge
(1) The basic Service Charge shall be such
yearly sum as the Landlord's surveyor may
from time to time reasonably determine and
notify in writing to the Tenant in respect
of any Landlord's Account Year during the
Term.
-28-
<PAGE>
(2) The basic Service Charge shall be paid
whether or not demanded in advance by equal
quarterly payments on each of the Rent Days
except the first payment which shall be made
on the Rent Commencement Date in respect of
the period from and including the Rent
Commencement Date to (but excluding) the
Rent Day next following the date hereof or
the end of the Landlord's Account Year (now
current) whichever shall first occur.
(3) The basic Service Charge currently applying
for the Landlord's Account Year shall be the
yearly sum of (pound)57,948.93.
3. Adjustment
(1) As soon as practicable after the end of each
Landlord's Account Year the Landlord shall
deliver to the Tenant a copy of the
Landlord's statement of the Expenditure for
such year and supplemental statement from
the Landlord showing the Tenant's Proportion
of such expenditure.
(2) If the Tenant's Proportion of the
Expenditure shown by such statement shall
exceed the basic Service Charge paid in
respect of such Landlord's Account Year the
Tenant shall within fourteen (14) days after
a written demand pay to the Landlord the
amount of such excess.
(3) If the Tenant's Proportion of such
Expenditure shall be less than the basic
Service Charge paid in respect of such
Landlord's Account Year then the Landlord
shall allow to the Tenant off the next
payment of basic Service Charge (or if the
tenancy has come to an end shall immediately
repay to the Tenant) the amount of such
difference.
(4) These provisions shall continue to apply
notwithstanding that the Term has come to an
end but only in respect of the period up to
the Termination of the Term.
4. Certificate
Each annual statement of Expenditure and the Tenant's Proportion shall (if
required by the Landlord) be certified by the Landlord's accountants whereupon
(save in the case of manifest error) a duly certified copy of such statement
shall be conclusive and final and binding on the parties but the Landlord shall
upon request permit the Tenant to inspect at any time up to one month after
delivery of such statement the vouchers and receipts for items included in it.
-29-
<PAGE>
5. No implied obligation
The inclusion of any of the Services in Parts II, III and IV of the Fifth
Schedule shall not imply any obligation on the part of the Landlord to provide
such service.
6. Objections
The Landlord will use reasonable endeavors to maintain the Expenditure at the
lowest reasonable figure consistent with good estate management but the Tenant
shall not be entitled to object to any item comprised in the Expenditure by
reason only that the materials, works or services in question might have been
provided at a lower cost or that any item of Expenditure was not included in
previous years.
Part II
1. Repairing and maintaining all parts of the Building not specifically
let or available for letting by the Landlord including without
prejudice to the generality of the foregoing, the external walls, the
window frames of the Demised Premises, the load bearing walls, joists,
foundations, beams and other load bearing parts of the Building the
roofs and all Conduits situated outside the Demised Premises or
situated within the Demised Premises but not exclusively serving the
Demised Premises or any other part of the Building which is demised or
intended to be demised by the Landlord.
2. Painting and other decorative treatment to and the periodic cleaning
of the exterior of the Building.
3. The repair and maintenance of all plant machinery and apparatus
(including without prejudice to the generality of the foregoing any
heating, air conditioning ventilation plant and any lifts) in or
serving the Building.
4. The provision of ventilation, heating and cooling services to the
Building.
5. The provision and supply of hot and cold water to the Building.
6. The provision of an adequate lift service to the Building.
7. The cost of maintaining, repairing, painting, decorating, cleaning and
lighting the Common Parts.
8. The cost of repairing, cleaning and maintaining any furniture,
furnishings, carpets blinds and other fixtures and fitting in the
Common Parts.
9. Insurance including:-
-30-
<PAGE>
a) insurance of the Landlord against third
party employers and public liability
risks in respect of the Building;
b) engineering insurances for lifts, boilers
and electrical or mechanical equipment
and apparatus in the Building;
c) such further insurances as the Landlord
may reasonably effect in respect of the
Building;
d) the initial un-insured loss arising on
any claim under any insurance policy
effected by the Landlord.
10. Maintaining and operating any signs, entry system and closed circuit
television or the like in the Building.
11. Maintaining and repairing:-
a) fire alarms and ancillary apparatus and fire
prevention equipment and apparatus in the
Common Parts and those parts of the Building
which are not let or available for letting;
b) security alarms apparatus and systems in the
Building; and
c) meters for measuring water and other
services provided in the Building.
12. Providing such staff for the services, management, supervision and
security of the Building as the Landlord shall consider necessary
including (without prejudice to the generality of the foregoing) the
provision of clothing and other similar and usual benefits in kind and
accommodation and in particular the reasonable costs of accommodation
within the Building provided rent free for such staff.
13. All general or water rates, taxes, duties, charges, assessments,
impositions and outgoings whatsoever whether parliamentary local or
otherwise and whether of a capital or recurring or non recurring nature
assessed, charged or imposed in respect of the Building.
-31-
<PAGE>
14. Providing and maintaining any plants, shrubs, trees, grassed areas and
grown or cut flowers in the Common Parts and those parts of the
Building which are not let or available for letting.
15. Collecting, storing and disposing of refuse including maintaining and
repairing refuse compactors.
16. Compliance by the Landlord with:-
a) any notice, regulation or order of any
competent authority and;
b) any requirement under any present or future
Act of Parliament, Order, Bye- law or
Regulation.
17. The cost of carrying out any works which are required to obtain a fire
certificate for the whole or any part of the Building or to comply with
the proper requirements of the fire officer.
18. Making representations against or otherwise contesting the incidents of
the provisions of any legislation, order, regulation, notice or
statutory requirement relating to or affecting the whole or any part of
the Building.
19. Any amount which the Landlord may be liable to pay as a contribution
towards the expense of making, repairing, maintaining, rebuilding,
renewing, replacing, lighting, insuring, connecting and cleansing all
ways, roads, pavements, sewers, drains, pipes, channels, water courses,
gutters, wires, cable, boundary walls, fences, party walls, structures,
passageways, open areas and other conveniences which shall at any time
belong to or be used for the Building in common with other premises
near or adjoining thereto.
20. The cost of doing all such other acts, matters and things as may in the
Landlord's reasonable discretion (to be exercised having regard to
principles of good estate management) be necessary or advisable for the
proper maintenance management and administration of the Building
including but not exclusively the appointment of agents solicitors,
accountants, surveyors, engineers and architects and the payment of
their proper fees (but so that such fees shall not include the fees and
expenses included in the Management Fee) and of carrying out
inspections, valuations, works or services of any kind whatsoever which
the Landlord may on reasonable grounds and in accordance with good
estate management consider desirable for any of these purposes.
Part III
1. All business rates levied in respect of the two car parking bays
provided pursuant to Paragraph 5 of Part I of the First Schedule.
-32-
<PAGE>
2. Keys and access devices provided in respect of the rear entrance to the
car park in the basement of the Building.
Part IV
1. Maintaining, repairing and/or decorating of the car parking area in the
basement of the Building.
-33-
<PAGE>
THE COMMON SEAL OF :
QUANTUM INTERNATIONAL LIMITED :
was hereunto affixed in the presence of:- :
Director
Secretary
THE COMMON SEAL OF :
STOLL MOSS THEATRES LTD. :
was hereunto affixed in the presence of:- :
Director
Secretary
-34-
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 19,063
<SECURITIES> 0
<RECEIVABLES> 41,871
<ALLOWANCES> (3,019)
<INVENTORY> 27,101
<CURRENT-ASSETS> 109,537
<PP&E> 15,514
<DEPRECIATION> (6,879)
<TOTAL-ASSETS> 156,785
<CURRENT-LIABILITIES> 60,577
<BONDS> 0
0
1
<COMMON> 203
<OTHER-SE> 89,561
<TOTAL-LIABILITY-AND-EQUITY> 156,785
<SALES> 109,300
<TOTAL-REVENUES> 109,300
<CGS> 90,817
<TOTAL-COSTS> 101,945
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 305
<INCOME-PRETAX> 7,050
<INCOME-TAX> 2,500
<INCOME-CONTINUING> 4,550
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,550
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
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