<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) May 17, 1996
--------------------
NATIONAL MEDIA CORPORATION
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
DELAWARE I-6715 13-2658741
- ------------------------- ------------------------ ---------------------
(State or other juris- (Commission File Number) (IRS Employer Identi-
diction of incorporation) fication No.)
1700 WALNUT STREET, PHILADELPHIA, PA 19103
- ---------------------------------------- ---------
(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code 215-772-5000
-----------------
N/A
------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
____________________________________________
Exhibit Index appears on Page 27
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 17, 1996, pursuant to the terms of that certain Agreement and
Plan of Merger and Reorganization (the "Merger Agreement"), dated as
of January 17, 1996 and amended as of April 4, 1996, by and among
National Media Corporation (the "Company"), PRT Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of the Company
("Merger Sub"), and Positive Response Television, Inc., a California
corporation ("PRT"), the Company acquired PRT through a tax-free
merger (the "Merger") of PRT with and into Merger Sub. PRT is a
California-based direct marketing company and a producer of
infomercials. Upon consummation of the Merger, the separate
corporate existence of PRT ceased, and the name of Merger Sub was
changed to "Positive Response Television, Inc.".
Pursuant to the terms of the Merger, each share of PRT common stock
has been converted into the right to receive .4512 shares of the
Company's common stock. No fractional shares will be issued. Cash
will be paid in lieu of any fractional shares resulting from the
Merger in an amount equal to the fractional share interest to which a
holder of PRT common stock (a "Holder") would otherwise be entitled
multiplied by $18.6625, the average closing price of the Company's
common stock on the New York Stock Exchange for the twenty (20)
trading days prior to the consummation of the Merger. It is presently
anticipated that an aggregate of approximately 1,625,000 shares of the
Company's common stock will be issued upon surrender of certificates
representing shares of PRT common stock.
In addition to the foregoing, an aggregate of 211,146 shares of the
Company's common stock, representing .0586 shares of the Company's
common stock for each share of PRT common stock outstanding at the
effective time of the Merger, have been deposited into an escrow
account pending the satisfaction of certain conditions described in
the Merger Agreement and that certain Escrow Agreement, dated as of
May 17, 1996, by and among the Company, PRT, the Shareholders'
Representative named therein and Chemical Mellon Shareholder Services,
L.L.C., as Escrow Agent, entered into pursuant thereto.
At the effective time of the Merger, there were outstanding options to
purchase an aggregate of 378,990 shares of PRT common stock under an
existing stock option plan. Pursuant to the terms of the Merger,
these options have been assumed by the Company and have been
converted into the right to acquire an aggregate of approximately
193,200 shares of the Company's common stock. The exercise price of
each such option has been similarly adjusted to reflect the exchange
rate in the Merger.
Upon consummation of the Merger, Merger Sub retained the employees of
PRT and entered into five (5) year employment agreements (the
"Employment Agreements") with each of Michael Levey, former Chairman
and Chief Executive Officer of PRT, and Lisa Vann Levey, former Vice
President and Secretary of PRT.
The Employment Agreements, which are renewable for successive one year
periods, provide that Michael Levey and Lisa Vann Levey shall be
engaged as, and hold the positions of, Chief Executive Officer of
Merger Sub and Vice President of Merger Sub, respectively, at annual
base salaries of $325,000 and $200,000, respectively. Michael Levey
and Lisa Vann Levey shall also participate in, and be eligible for
bonuses pursuant to, the Company's Management Incentive Plan and shall
be entitled to participate in all other benefit programs generally
available to officers of the Company and its subsidiaries. In
addition, pursuant to the Employment Agreements, each of Michael Levey
and Lisa Vann Levey are provided with an automobile allowance.
Furthermore, Merger Sub has agreed to maintain a life insurance
policy, in the face amount of $2.0 million, on behalf of Mr.
-2-
<PAGE>
Levey and the Company has agreed to grant Mr. Levey options to
purchase up to an aggregate of 300,000 shares of the Company's common
stock. The Employment Agreements also impose restrictions on the
ability of each of Michael Levey and Lisa Vann Levey to sell their
shares of the Company's common stock. The Company has granted Michael
Levey certain piggyback registration rights with respect to the
shares of the Company's common stock owned by Mr. Levey and his wife.
Copies of the Merger Agreement, the Escrow Agreement and the
Employment Agreements of each of Michael Levey and Lisa Vann Levey are
attached hereto as Exhibits 2.1, 2.2, 99.1 and 99.2, respectively.
Item 5. OTHER EVENTS
On May 30, 1996, the Company announced that it had reached separate
agreements to acquire (i) all of the outstanding capital stock of
Prestige Marketing International Limited and Prestige Marketing
Limited (collectively, "Prestige Marketing"), and (ii) all of the
outstanding capital stock of Suzanne Paul Holdings PTy Limited
("Suzanne Paul") and its subsidiaries.
Prestige Marketing (which operates in New Zealand and throughout
Asia) and Suzanne Paul (which operates in Australia) are direct
response television marketing companies based in New Zealand and
Australia, respectively.
The acquisitions will be funded by a combination of cash and shares
of the Company's common stock and are collectively valued at
approximately $27.0 million. The acquisitions are subject to
certain regulatory notifications and are expected to be completed
before the end of June, 1996.
Three of the principals of the companies will enter into five-year
employment agreements upon consummation of the acquisitions.
A copy of the press release issued by the Company announcing the
agreements is attached hereto as Exhibit 99.3.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
<TABLE>
<CAPTION>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Independent Auditors' Report........................................................ 4
Consolidated Balance Sheets, December 31, 1995 and 1994............................. 5
Consolidated Statements of Operations, Years Ended December 31, 1995, 1994 and
1993............................................................................... 6
Consolidated Statements of Shareholders' Equity, Years Ended December 31, 1995, 1994
and 1993........................................................................... 7
Consolidated Statements of Cash Flows, Years Ended December 31, 1995, 1994 and
1993............................................................................... 8
Notes to Consolidated Financial Statements.......................................... 9
Consolidated Balance Sheets, March 31, 1996 (Unaudited) and December 31, 1995....... 18
Consolidated Statements of Operations (Unaudited), Three Months Ended March 31,
1996 and 1995...................................................................... 19
Consolidated Statements of Cash Flows (Unaudited), Three Months Ended March 31,
1996 and 1995...................................................................... 20
Notes to Consolidated Financial Statements (Unaudited).............................. 21
</TABLE>
-3-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Positive Response Television, Inc.
Sherman Oaks, California
We have audited the consolidated balance sheets of Positive Response
Television, Inc. and subsidiaries (the "Company") at December 31, 1995 and 1994
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Positive Response Television,
Inc. and subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Los Angeles, California
March 25, 1996
-4-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS (NOTE 7)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
-------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................................... $ 725,000 $ 3,247,000
Restricted cash (Note 7).................................................... 1,500,000 1,500,000
Royalties receivable........................................................ 663,000 1,408,000
Accounts receivable, net of allowance for doubtful accounts of $237,000 and
152,000, at 1995 and 1994, respectively.................................... 4,887,000 1,938,000
Inventories................................................................. 2,413,000 1,676,000
Infomercial production costs, net of accumulated amortization of $2,873,000
and $969,000, at 1995 and 1994, respectively............................... 1,877,000 1,272,000
Current portion of notes receivable (Note 3)................................ 381,000 314,000
Prepaid air time............................................................ 2,024,000 2,834,000
Prepaid income taxes........................................................ 2,000 862,000
Prepaid expenses and other current assets................................... 628,000 914,000
Deferred air time........................................................... 1,647,000 4,192,000
Due from officers (Note 8).................................................. 121,000 193,000
-------------- --------------
Total current assets.................................................... 16,868,000 20,350,000
NOTES RECEIVABLE, NET OF CURRENT PORTION (Note 3)............................. 129,000 10,000
FURNITURE, FIXTURES AND EQUIPMENT, net (Note 4)............................... 622,000 615,000
OTHER ASSETS.................................................................. 434,000 295,000
-------------- --------------
TOTAL ASSETS............................................................ $ 18,053,000 $ 21,270,000
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................................ $ 1,001,000 $ 1,464,000
Accrued professional fees (Note 8).......................................... 323,000 132,000
Deferred revenues........................................................... 274,000 284,000
Allowance for returns....................................................... 1,394,000 893,000
Accrued Royalties........................................................... 497,000 164,000
Other accrued expenses...................................................... 783,000 590,000
Notes payable - bank (Note 7)............................................... 1,839,000 --
Current portion of long-term debt (Note 7).................................. 25,000 23,000
Profit participation payable (Note 5)....................................... 276,000 1,196,000
Deferred income taxes (Note 11)............................................. 20,000 1,675,000
-------------- --------------
Total current liabilities............................................... 6,432,000 6,421,000
LONG-TERM DEBT (Note 7)....................................................... 91,000 116,000
-------------- --------------
Total liabilities....................................................... 6,523,000 6,537,000
-------------- --------------
COMMITMENTS (Notes 5, 6, 7, 9, 10, 13 and 14)
SHAREHOLDERS' EQUITY (Note 10)
Preferred stock, no par value; 5,000,000 shares authorized, none issued or
outstanding................................................................
Capital stock, no par value; 15,000,000 shares authorized, 3,552,986 and
3,549,986 issued and outstanding at December 31, 1995 and 1994,
respectively............................................................... 11,352,000 11,335,000
Retained earnings........................................................... 178,000 3,398,000
-------------- --------------
Total shareholders' equity.............................................. 11,530,000 14,733,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................... $ 18,053,000 $ 21,270,000
-------------- --------------
-------------- --------------
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- -------------
<S> <C> <C> <C>
REVENUES
Product sales................................................... $ 52,239,000 $ 35,932,000 $ --
Air time sales.................................................. 7,610,000 4,068,000 --
Royalty income.................................................. 3,362,000 2,408,000 3,075,000
Production income............................................... -- 43,000 750,000
Other........................................................... 196,000 69,000 --
-------------- -------------- -------------
Total revenues................................................ 63,407,000 42,520,000 3,825,000
-------------- -------------- -------------
OPERATING COSTS AND EXPENSES
Cost of goods sold.............................................. 13,899,000 7,771,000 --
Other direct operating costs.................................... 48,117,000 26,589,000 801,000
Profit participation (Note 5)................................... 314,000 1,496,000 --
General and administrative...................................... 6,047,000 3,232,000 1,720,000
Litigation settlement, net (Note 6)............................. -- -- (150,000)
-------------- -------------- -------------
Total operating costs and expenses............................ 68,377,000 39,088,000 2,371,000
-------------- -------------- -------------
INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF VENTURES............... (4,970,000) 3,432,000 1,454,000
EQUITY IN EARNINGS OF VENTURES (Note 5)........................... -- 105,000 75,000
-------------- -------------- -------------
INCOME (LOSS) FROM OPERATIONS..................................... (4,970,000) 3,537,000 1,529,000
-------------- -------------- -------------
OTHER INCOME (EXPENSE)
Gain on exchange of venture interests (Note 5).................. -- 164,000 --
Interest income, net............................................ 78,000 111,000 (9,000)
Other........................................................... 17,000 6,000 (41,000)
-------------- -------------- -------------
Total other income (expense).................................. 95,000 281,000 (50,000)
-------------- -------------- -------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES................... (4,875,000) 3,818,000 1,479,000
PROVISION (BENEFIT) FOR INCOME TAXES (Note 11).................... (1,655,000) 1,527,000 181,000
-------------- -------------- -------------
NET INCOME (LOSS)................................................. $ (3,220,000) $ 2,291,000 $ 1,298,000
-------------- -------------- -------------
-------------- -------------- -------------
PRO FORMA (Note 11)
Income before provision for income taxes........................ $ 1,479,000
Provision for income taxes...................................... 592,000
-------------
Net income.................................................... $ 887,000
-------------
-------------
INCOME (LOSS) PER COMMON SHARE
Primary......................................................... $(0.91) $0.77 $0.49
Fully diluted................................................... $(0.91) $0.74 $0.49
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary......................................................... 3,550,076 2,985,498 1,804,239
Fully diluted................................................... 3,550,076 3,075,631 1,804,239
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
----------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993........................... 1,772,684 $ 9,000 $ 246,000 $ 255,000
Shares issued in private placement, net of
offering costs (Note 10)........................ 223,756 1,174,000 -- 1,174,000
Dividends........................................ -- -- (437,000) (437,000)
Net income....................................... -- -- 1,298,000 1,298,000
----------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1993......................... 1,996,440 1,183,000 1,107,000 2,290,000
Shares issued in acquisition of subsidiary (Note
1).............................................. 3,546 14,000 -- 14,000
Shares issued in public offering, net of offering
costs (Note 10)................................. 1,150,000 5,446,000 -- 5,446,000
Shares issued in private placement, net of
offering costs (Note 10)........................ 400,000 4,692,000 -- 4,692,000
Net income....................................... -- -- 2,291,000 2,291,000
----------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1994......................... 3,549,986 11,335,000 3,398,000 14,733,000
Shares issued upon exercise of stock options
(Note 10)....................................... 3,000 17,000 -- 17,000
Net loss......................................... -- -- (3,220,000) (3,220,000)
----------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1995......................... 3,552,986 $ 11,352,000 $ 178,000 $ 11,530,000
----------- -------------- -------------- --------------
----------- -------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
-7-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)....................................................... $ (3,220,000) $ 2,291,000 $ 1,298,000
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization......................................... 2,161,000 933,000 65,000
Equity in earnings of ventures........................................ -- (105,000) (75,000)
Gain on exchange of venture interests................................. -- (164,000) --
Gain on disposal of assets............................................ (9,000) -- --
Write-off of receivable............................................... -- -- 24,000
Loss on write-off of leasehold improvements........................... -- -- 21,000
Deferred income taxes................................................. (1,655,000) 1,527,000 151,000
Changes in operating assets and liabilities
Restricted cash..................................................... -- (1,500,000) --
Royalties receivable................................................ 745,000 (1,000,000) (110,000)
Accounts receivable................................................. (2,949,000) (1,938,000) --
Production reimbursement receivable................................. -- -- 65,000
Inventories......................................................... (737,000) (1,676,000) --
Infomercial production costs........................................ (2,510,000) (1,846,000) --
Prepaid air time.................................................... 810,000 (2,820,000) --
Deferred air time................................................... 2,545,000 (4,192,000) --
Prepaid income taxes................................................ 860,000 (862,000) --
Prepaid expenses and other current assets........................... 275,000 (922,000) (25,000)
Notes receivable.................................................... (186,000) 206,000 (230,000)
Other assets........................................................ (209,000) (235,000) --
Accounts payable.................................................... (463,000) 1,413,000 (99,000)
Accrued professional fees........................................... 191,000 (180,000) 312,000
Deferred revenues................................................... (10,000) 284,000 --
Allowance for returns............................................... 501,000 893,000 --
Accrued Royalties................................................... 333,000 164,000 --
Other accrued expenses.............................................. 194,000 399,000 (128,000)
Profit participation payable........................................ (920,000) 1,196,000 --
------------ ------------ ------------
Net cash provided by (used in) operating activities............... (4,253,000) (8,134,000) 1,269,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment........................ (184,000) (536,000) (48,000)
Investment in ventures................................................ -- 7,000 (164,000)
Due from officers..................................................... 72,000 (193,000) --
Other................................................................. 10,000 (72,000) --
------------ ------------ ------------
Net cash used in investing activities............................. (102,000) (794,000) (212,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common shares from public offering.......... -- 5,483,000 (37,000)
Proceeds from issuance of common shares from private placement........ -- 4,692,000 1,174,000
Proceeds from issuance of common shares............................... 17,000 -- --
Proceeds from (repayment of) loans from shareholders.................. -- (223,000) 48,000
Proceeds from bank loan............................................... 1,839,000 -- --
Dividends............................................................. -- -- (437,000)
Other................................................................. (23,000) 118,000 --
------------ ------------ ------------
Net cash provided by financing activities......................... 1,833,000 10,070,000 748,000
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.................... (2,522,000) 1,142,000 1,805,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......................... 3,247,000 2,105,000 300,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................ $ 725,000 $ 3,247,000 $ 2,105,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
-8-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. THE COMPANY
Positive Response Television, Inc. (the "Company"), is a California
corporation based in Sherman Oaks, California. The Company produces infomercials
(television shows featuring various consumer products designed to motivate
television viewers to place telephone orders for such products) and generates
product sales through the airing of such infomercials and through other
distribution channels. The consolidated financial statements include the Company
and its wholly owned subsidiaries, Positive Response Media, Inc. ("PRM") and
Positive Response Telemarketing, Inc. ("PRTI"). Ventures in which the Company
does not own a majority interest are accounted for on the equity method (see
Note 5). All intercompany accounts and transactions are eliminated in
consolidation. Certain prior year account balances have been reclassified to
conform to current year classifications.
PRM, which buys and sells air time, became an operating unit of the Company
on January 1, 1994, the date of its acquisition, in connection with which the
Company issued 3,546 shares of its common stock. Pro forma operating results
have not been presented because they would not differ significantly from actual
results.
PRTI, which is engaged in outbound telemarketing, was incorporated on May
11, 1994 and commenced operations in July 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents include checking
and money market accounts with original maturities of less than ninety days.
RESTRICTED CASH -- Restricted cash represents cash held by a bank as
collateral for the Company's line of credit (see Note 7). Such cash is invested
in short-term certificates of deposit.
INVENTORIES -- Inventories are valued at the lower of first-in, first-out
cost or market and consist of goods sold in the Company's infomercials.
INFOMERCIAL PRODUCTION COSTS -- Production costs are capitalized when
incurred. The Company amortizes such costs based upon the ratio of current
revenues to total expected revenues. Additionally, unamortized deferred
production costs are written off when management determines that such costs are
not recoverable.
PREPAID AIR TIME -- Prepaid air time represents purchased television air
time scheduled to air subsequent to the balance sheet date.
DEFERRED AIR TIME -- The Company defers a portion of purchased television
air time that aired during the current year based on a pro rata share of shipped
versus unshipped orders as of the balance sheet date.
PREPAID AND OTHER CURRENT ASSETS -- Prepaid and other current assets
primarily consist of prepaid fulfillment costs, deferred telemarketing costs
(which is deferred under the same basis as deferred air time) and prepaid
insurance costs.
FURNITURE, FIXTURES AND EQUIPMENT -- Furniture, fixtures and equipment are
stated at historical cost. Depreciation is provided for using the straight-line
method over the estimated useful lives of 5 to 7 years (see Note 4).
DEFERRED REVENUES -- Deferred revenues represent 1) cash received for
customer orders that have not yet been shipped at the balance sheet date, and 2)
the portion of the television airtime billed that has not yet aired as of the
balance sheet date.
-9-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUES -- Revenues are composed of 1) product sales generated through
the airing of infomercials, 2) bulk sales to retailers and other distributors,
3) sale of television air time to third parties and ventures accounted for under
the equity method, 4) royalties based on product sales generated by companies to
whom the Company has granted certain marketing and distribution rights on its
products, and 5) production income, representing reimbursements by third parties
for approved infomercial production costs. Product sales and royalties are
recognized when products are shipped. Air time sales are recognized when aired.
Prior to 1994, substantially all of the Company's revenues (and consequently
most of the accounts receivable) were the result of production agreements with
National Media Corporation ("National Media") (see Note 14). Under the
agreement, the Company was reimbursed by National Media for all approved
production expenses. The reimbursed costs are shown as "production income" in
the accompanying statement of income. In addition, the Company receives
royalties based on products sold, as provided for under the production
agreement. These amounts are shown as "royalty income." Nonrefundable guarantees
are recognized upon delivery of the completed production.
OTHER DIRECT OPERATING COSTS -- Other direct operating costs consist
primarily of air time costs, fulfillment costs, telemarketing service costs and
other selling costs.
INCOME TAXES -- Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and income tax bases of
assets and liabilities that will result in taxable or deductible amounts in the
future. Such deferred income tax asset and liability computations are based on
enacted tax laws and rates applicable to periods in which the differences are
expected to affect taxable income. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in deferred
income tax assets and liabilities.
The Company operated as a cash-basis "S" corporation for both state and
Federal income tax purposes through December 31, 1993. Effective January 1,
1994, the Company elected to become a cash-basis "C" corporation (see Note 11).
EARNINGS PER SHARE -- Earnings per share amounts are computed based on the
actual weighted average number of common stock and dilutive common equivalent
shares (stock options and warrants) using the treasury stock method (see Note
10).
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates. The most
significant estimates relate to inventory obsolescence, infomercial production
costs and the allowance for returns.
-10-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
3. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Note receivable from Telebrands Corp............................. $ 500,000
Note receivable from Transactional Media, Inc. ("TMI")........... $ 200,000
Note receivable from National Media.............................. 10,000 124,000
----------- -----------
Total...................................................... 510,000 324,000
Current portion.................................................. 381,000 314,000
----------- -----------
Noncurrent portion............................................... $ 129,000 $ 10,000
----------- -----------
----------- -----------
</TABLE>
The note receivable from Telebrands Corp. is due in equal monthly
installments through April 1997, including interest at the rate of 8.75% per
annum. The note receivable from TMI was related to the exchange of interest in
certain ventures and is payable in equal installments of $25,000 per month (see
Note 5). The note receivable from National Media related to the settlement of
the Company's lawsuit with National Media (see Note 14) and was payable in equal
installments of $10,000 per month through January 1996.
4. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consists of the following:
<TABLE>
<CAPTION>
1995 1994
------------- -----------
<S> <C> <C>
Furniture and fixtures......................................... $ 215,000 $ 171,000
Equipment...................................................... 608,000 467,000
Vehicles....................................................... 274,000 274,000
------------- -----------
1,097,000 912,000
Less accumulated depreciation.................................. 475,000 297,000
------------- -----------
$ 622,000 $ 615,000
------------- -----------
------------- -----------
</TABLE>
5. PROFIT PARTICIPATION AND INVESTMENT IN VENTURES
The Company operates certain infomercial campaigns through profit
participation arrangements which generally involve a sharing of the net profits
of the respective campaigns between the Company and its venture partners. The
portion of the net profits due to the venture partners is reflected as
components of operating costs and expenses and current liabilities.
In 1993, the Company entered into two ventures (the Kim Komando Komputer
Show and the Tai Chi Show -- the "TMI Ventures") with TMI to produce
infomercials promoting certain products. Under the terms of the TMI Venture
agreements, profits and losses were shared equally, as were all costs, including
those associated with production and the product marketing campaign. Both the
infomercial and the products they promoted were owned by the TMI Ventures.
Effective April 1, 1994, the TMI Ventures were terminated. Pursuant to the
termination agreement, the Company assigned its interest in the Kim Komando
Komputer Show to TMI in exchange for TMI's interest in the Tai Chi Show and a
$300,000 note (see Note 3). The Company recognized a $164,000 gain upon the
exchange in 1994.
-11-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
5. PROFIT PARTICIPATION AND INVESTMENT IN VENTURES (CONTINUED)
The following are condensed combined financial statements of operations of
the ventures for the year ended December 31, 1993:
<TABLE>
<S> <C>
Revenues....................................................... $5,508,000
Expenses....................................................... 5,358,000
----------
Net income..................................................... $ 150,000
----------
----------
</TABLE>
6. LITIGATION
On May 1, 1995, a purported class action suit was filed in the United States
District Court for the Central District of California (the "Court") against the
Company and its principal executive officers alleging the that Company had 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 common stock of the Company
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 filed on June 9, 1995, which complaint added more plaintiffs and
expanded the class period to November 1994 to April 28, 1995. The Company moved
to dismiss the amended complaint and the compliant was dismissed by the Court in
late July 1995. The plaintiffs were granted sixty days leave to file another
amended complaint to allow them an attempt to state valid claims against the
Company.
On or about September 25, 1995, the plaintiffs filed a Second Amended
Complaint ("SAC"). The SAC added new defendants and attempts to set forth new
facts to support plaintiffs' entitlement to legal relief. On October 31, 1995,
the Company again moved to dismiss plaintiffs' entire action. The Court denied
the motion on December 11, 1995. Discovery is continuing.
An investigation of the Company and one of its shareholders by the Federal
Trade Commission ("FTC") for alleged unfair practices in the promotion and sale
of certain products was settled April 23, 1993. The settlement agreement
required the Company to pay $275,000 and to comply with all regulatory
requirements of the FTC in the Company's future production of infomercials.
The Company is a plaintiff or defendant in a number of commercial litigation
matters. Management of the Company does not believe that the disposition of any
of these matters will have a material adverse effect on the Company's financial
condition.
7. NOTE PAYABLE AND LONG-TERM DEBT
In May 1994, the Company obtained a $1,350,000 bank line of credit (the
"Line") to finance operations and inventory purchases, pursuant to which the
Company must maintain a $1,500,000 security deposit with the bank. In addition,
$200,000 of the Line was applied as a reserve against the Company's merchant
card activity for future returns and charge-backs. The Line is renewable
annually on May 1st and bears interest at a rate per annum one-half percent
(1/2%) below the prime rate in effect from time to time. The bank's prime rate
at December 31, 1995 was 8.5%. As of December 31, 1995, the Company's borrowings
under this Line were $339,000. Net of total open letters of credit of $146,000,
the total available on the Line at December 31, 1995 was $665,000.
In May 1995, the Company obtained a $2,500,000 line of credit (the "Second
Line") from another institution to finance operations and inventory purchases.
This line of credit contains certain financial covenants, which provide, among
other things, for the maintenance of a minimum consolidated net worth, minimum
liquidity and restrictions on certain expenditures. The Second Line is secured
by certain of the Company's assets, including accounts receivable and inventory.
The Second Line is
-12-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
7. NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED)
renewable annually on May 1st and bears interest at a rate per annum one percent
(1%) above the bank's reference rate. The bank's reference rate at December 31,
1995 was 8.5%. As of December 31, 1995, the Company had borrowed $1,500,000
under this Second Line.
As of December 31, 1995, the Company was not in compliance with several of
the financial covenants, including the minimum net worth and liquidity
requirements under the Second Line. Although the bank has not granted a waiver
for these defaults, it has elected not to pursue any of its remedies under the
Second Line at this time pending the merger with National Media (see Note 14).
In the event the merger is not consummated, the Company plans to negotiate the
agreement.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Note payable to bank, secured by vehicle, due in 1997, bearing
interest at 7.25% per annum..................................... $ 9,000 $ 16,000
Lease obligation, secured by vehicle, expiring in 1998, bearing
interest at 8% per annum........................................ 107,000 123,000
----------- -----------
Total long-term debt............................................. 116,000 139,000
Less current portion............................................. 25,000 23,000
----------- -----------
Non-current portion.............................................. $ 91,000 $ 116,000
----------- -----------
----------- -----------
</TABLE>
8. RELATED PARTY TRANSACTIONS
The Company has loans to officers totaling $121,000, which mature on
December 31, 1996, and bear interest at 8% per annum.
Certain directors and shareholders of the Company provided professional
services to the Company. The Company incurred $1,516,000, $417,000 and $409,000
in professional fees from these related parties in 1995, 1994 and 1993,
respectively. At December 1995 and 1994, a total of $216,000 and $78,000,
respectively, were accrued and payable to these parties.
9. PROFIT SHARING PLAN
The Company maintains a defined contribution profit sharing plan for all its
full-time employees. No contributions were authorized by the Board of Directors
for the years ended December 31, 1995 and 1994. Contribution by the Company to
the Plan in 1993 totaled $96,000.
10. COMMON STOCK AND STOCK OPTIONS
In December 1993, the Company completed a private placement of its common
stock. The Company issued 223,756 shares of its common stock at $5.64 per share
and realized proceeds (net of offering costs) of $1,174,000 from this offering.
On May 11, 1994, the Company completed an initial public offering, issuing
one million shares of its common stock at $6 per share. On June 16, 1994, an
additional 150,000 shares were issued upon exercise of the underwriters'
over-allotment option, at $6 per share. The Company's net proceeds, after
payment of all offering costs, were $5,446,000. As part of their consideration,
the underwriters were granted warrants to purchase up to 100,000 shares of the
Company's common stock. The warrants became exercisable on May 4, 1995 at $7.20
per share and expire on May 3, 1999.
-13-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
10. COMMON STOCK AND STOCK OPTIONS (CONTINUED)
On September 19, 1994, the Company issued an additional 400,000 shares of
its common stock at $12.50 per share in a private placement offering. The
Company's net proceeds, after payment of fees and related expenses, were
$4,692,000.
In January 1994, the Company adopted the 1994 Stock Option Plan (the
"Plan"), which reserved 390,088 common shares to be issued for officers,
directors and key employees. In November 1994, the authorized Plan shares were
increased to 600,000 shares. As of December 31, 1995, 398,490 options had been
granted at exercise prices ranging from $5.64 per share to $14.875 per share, of
which 228,228 were exercisable. As of December 31, 1995, 3,000 options had been
exercised with an additional 11,500 options exercised in January 1996. The
remaining options become exercisable at 20 percent annual increments through
1999. All options expire ten years from the date of grant. The exercise price is
set at or above the current stock price at the date of grant.
In October 1995, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 123, "Accounting for Stock-Based Compensation." The
Company does not plan to adopt the fair value features of the statement and
instead will base its accounting on the provisions of Accounting Principles
Board Opinion No. 25.
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993 (1)
-------------- ------------- -------------
<S> <C> <C> <C>
Current
Federal........................................................... $ 20,000
State............................................................. $ 30,000
Deferred
Federal........................................................... (1,424,000) $ 1,184,000 114,000
State............................................................. (251,000) 343,000 37,000
-------------- ------------- -------------
($ 1,655,000) $ 1,527,000 $ 181,000
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
-14-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
11. INCOME TAXES (CONTINUED)
Deferred income taxes and liabilities consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------------------------- ----------------------------
FEDERAL STATE FEDERAL STATE
------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Current Asset:
Net operating loss carryforwards.................... $ 518,000 -- $ 972,000 $ 122,000
Accounts receivable reserve......................... 47,000 $ 13,000 41,000 11,000
Reserve for returns................................. 252,000 69,000 284,000 77,000
Reserve for obsolete inventory...................... 90,000 25,000 37,000 10,000
------------- ------------- -------------- ------------
907,000 107,000 1,334,000 220,000
Valuation allowance................................. (268,000) -- (1,334,000) (220,000)
------------- ------------- -------------- ------------
Current asset net of allowance.................. 639,000 107,000 -- --
------------- ------------- -------------- ------------
Current Liability:
Cash to accrual adjustments......................... (630,000) (107,000) (1,424,000) (251,000)
Other............................................... (9,000) -- -- --
------------- ------------- -------------- ------------
Current liability............................... (639,000) (107,000) (1,424,000) (251,000)
------------- ------------- -------------- ------------
Net Current Liability........................... $ -- $ -- $ (1,424,000) $ (251,000)
------------- ------------- -------------- ------------
------------- ------------- -------------- ------------
</TABLE>
A reconciliation between the statutory federal income tax rate and the
effective income tax rates based on continuing operations is as follows:
<TABLE>
<CAPTION>
PRO FORMA
1995 1994 1993 (1)
----------- ----------- ------------
<S> <C> <C> <C>
Federal statutory income tax rate.............................................. (34.0)% 34.0% 34.0%
State taxes, net of federal benefit............................................ (5.1) 6.2 6.2
Effect of losses without current year benefit.................................. 4.8 -- --
Other.......................................................................... 0.4 (0.2) (0.2)
----------- ----------- ------
Total.................................................................... (33.9)% 40.0% 40.0%
----------- ----------- ------
----------- ----------- ------
</TABLE>
- ------------------------
(1) 1993 amounts result primarily from the conversion from an S corporation
taxpayer to a C corporation taxpayer using the cash-basis of accounting for
income taxes. The pro forma results of operations in the 1993 statements of
operations are presented as if the Company had been a C corporation with a
combined Federal and state income tax rate of 40%.
The Company has available net operating loss carryforwards for Federal
income tax purposes of $1,522,000, expiring in year 2009.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for income taxes were 0, $862,000 and $37,000 in 1995, 1994
and 1993, respectively. Cash payments for interest were $112,000, $10,000 and
$3,000 in 1995, 1994 and 1993, respectively.
In 1993, the Company purchased an automobile, financing $22,000 of the
purchase price. In 1994, the Company entered into a capital lease for an
automobile, which was capitalized at $130,000 (see Note 7).
-15-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
13. COMMITMENTS
LEASES -- The Company leases office space through a lease which expires
July 15, 1996, with a one year renewal option. Rent expense for 1995, 1994 and
1993 was $219,000, $168,000 and $43,000, respectively.
EMPLOYMENT CONTRACTS -- The Company has employment contracts with five
officers which expire in 1996, under which annual compensation aggregating
$894,000 is to be paid in 1996.
14. NATIONAL MEDIA CORPORATION
In May, 1993, the Company filed a breach of contract and declaratory relief
action against National Media (see Note 2), alleging that National Media had not
paid royalties earned in connection with the production and airing of a number
of infomercials. The suit also asserted the Company's ownership interest in a
certain service mark and sought reimbursement for attorney's fees and FTC
consent decree damages the Company incurred as indemnifiable expenses pursuant
to a written agreement with National Media.
On December 11, 1993, the Company and National Media entered into a
settlement agreement, with National Media agreeing to pay the Company all
outstanding royalties and an additional amount aggregating $560,000. The Company
received $300,000 in December 1993, and received $250,000 of its settlement over
a 25-month period commencing January 1994 (see Note 3). In addition, the Company
was relieved of a $10,000 obligation. The settlement also provided that National
Media has sole and exclusive ownership of the service mark, but that all future
shows using that name would be produced exclusively by the Company and hosted
exclusively by Mike Levey, the majority shareholder of the Company. The gain
reported in the 1993 statements of operations are net of attorney's fees
associated with the litigation in the amount of approximately $390,000. In
connection with the settlement agreement, the Company also entered into a new
production agreement with National Media.
On October 19, 1994, the Company and National Media entered into a new
Marketing, Distribution and Service Mark Agreement (the "New Agreement"). Under
the terms of the New Agreement, the Company paid $100,000 to obtain sole right,
title and interest in and to the "Amazing Discoveries" service mark. In
addition, National Media was granted exclusive rights to distribute certain of
the Company's infomercials in certain United States television markets and
certain foreign countries. As consideration, National Media reimbursed the
Company for one-half of the infomercial production costs, up to a maximum
reimbursement of $125,000, plus royalties ranging from 23% to 25% of Adjusted
Net Revenues (as defined) for sales to end-users and 40% of Adjusted Gross
Profit (as defined) for sales to other distributors.
On January 17, 1996, the Company entered into an Agreement and Plan of
Merger and Reorganization (as amended, the "Merger Agreement"), by and among the
Company, National Media and a wholly-owned subsidiary of National Media ("Merger
Sub"), pursuant to which the Company will be merged with and into Merger Sub
(the "Merger"), the Company's separate corporate existence will be extinguished,
and the equity interest of the Company's shareholders in the Company will cease.
The surviving corporation will be renamed "Positive Response Television, Inc."
and it will continue as a wholly-owned subsidiary of National Media.
Pursuant to the terms of the Merger Agreement, each outstanding share of
common stock of the Company (other than in limited circumstances, shares as to
which dissenters' rights of appraisal have been perfected under Chapter 13 of
the California Corporations Code and shares held by National
-16-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
14. NATIONAL MEDIA CORPORATION (CONTINUED)
Media) will be converted into the right to receive a maximum .5239 shares (the
"Exchange Ratio") of National Media's common stock, $.01 par value per share
("NMC Common Stock"), less a pro rata portion of any Reduction Amount (as
defined below). The Reduction Amount is defined as that number of shares of NMC
Common Stock equal to (x) two, multiplied by (y) the amount, if any, by which
the Minimum Shareholders' Equity (as defined below) exceeds the Company's
shareholders' equity as of December 31, 1995 (subject to adjustment for any
material changes thereto which occur after such date and subject to reduction
for certain agreed upon balance sheet items), divided by (z) $14.125. For
purposes of the Merger Agreement, "Minimum Shareholders' Equity" is defined as
$13,000,000, less the amount of all costs incurred by the Company directly in
connection with the Merger Agreement, the Merger and the transactions
contemplated thereby and given effect in the Company's financial statements. The
Merger Agreement also provides that, under certain circumstances, a number of
shares of NMC Common Stock equal in dollar value (based upon a price of $14.125
per share of NMC Common Stock) to certain of the Company's balance sheet items
and otherwise issuable, on a pro rata basis, to the shareholders of the Company
(the "Escrow Shares") will be held in escrow and will be deliverable out of
escrow, if at all, within approximately 18 months after the anticipated date of
closing, only upon the realization of the value of such items and the
satisfaction of certain conditions set forth in the Merger Agreement and an
Escrow Agreement to be entered into pursuant thereto.
The Merger Agreement also provides that each outstanding option to purchase
shares of the Company's stock will be assumed by National Media upon the same
terms and conditions as set forth in the Stock Option Plan and the agreement
pursuant to which each such option was issued, subject, however, to appropriate
adjustment (as to both number of shares and exercise price) to reflect the
Exchange Ratio (and the effect of the Reduction Amount thereon). Similarly, each
outstanding stock purchase right (if any) will be assumed by National Media upon
the same terms and conditions as set forth in the agreement or instrument
pursuant to which each such stock purchase right was issued or granted, subject,
however, to appropriate adjustment (as to both number of shares and exercise or
conversion price) to reflect the Exchange Ratio (and the effect of the Reduction
amount thereon). Currently, there are no stock purchase rights outstanding.
-17-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
-------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 987,000 $ 725,000
Restricted cash 1,500,000 1,500,000
Royalties receivable 556,000 863,000
Accounts receivable, net of allowance for doubtful accounts 4,465,000 4,887,000
Inventories 2,022,000 2,413,000
Infomercial production costs, net of accumulated amortization 2,114,000 1,877,000
Current portion of notes receivable 371,000 381,000
Prepaid air time 1,879,000 2,024,000
Prepaid income taxes 77,000 2,000
Prepaid expenses and other current assets 803,000 628,000
Deferred air time 2,392,000 1,647,000
Due from officers 77,000 121,000
-------------- --------------
Total current assets 17,243,000 16,868,000
NOTES RECEIVABLE, NET OF CURRENT PORTION 129,000 129,000
FURNITURE, FIXTURES AND EQUIPMENT, net 618,000 622,000
OTHER ASSETS 547,000 434,000
-------------- --------------
TOTAL ASSETS $ 18,537,000 $ 18,053,000
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,329,000 $ 1,001,000
Accrued professional fees 388,000 323,000
Deferred revenues 373,000 274,000
Allowance for returns 1,307,000 1,394,000
Other accrued expenses 1,151,000 1,280,000
Note payable - bank 1,578,000 1,839,000
Current portion of long-term debt 25,000 25,000
Profit participation payable 520,000 276,000
Income taxes payable 8,000
Deferred Income taxes 20,000 20,000
-------------- --------------
Total current liabilities 6,699,000 6,432,000
LONG-TERM DEBT 85,000 91,000
-------------- --------------
Total liabilities 8,784,000 6,523,000
-------------- --------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value; 5,000,000 shares authorized, none
issued or outstanding
Capital stock, no par value; 15,000,000 shares authorized,
3,598,077 issued and outstanding 11,563,000 11,352,000
Retained earnings 190,000 178,000
-------------- --------------
Total shareholders' equity 11,753,000 11,530,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 18,537,000 $ 18,053,000
-------------- --------------
-------------- --------------
</TABLE>
See notes to unaudited consolidated financial statements.
-18-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
-----------------------------
1996 1995
------------- ------------
REVENUES
Product sales $ 11,864,000 $ 20,741,000
Air time sales 2,275,000 858,000
Royalty income 403,000 1,794,000
Production income - -
Other 24,000 47,000
------------- ------------
Total revenues 14,566,000 23,440,000
------------- ------------
OPERATING COSTS AND EXPENSES
Cost of goods sold 2,968,000 5,258,000
Other direct operating costs 9,606,000 16,649,000
Profit participation 453,000 52,000
General and administrative 1,502,000 1,520,000
------------- ------------
Total operating costs and expenses 14,529,000 23,479,000
------------- ------------
INCOME (LOSS) FROM OPERATIONS 37,000 (39,000)
------------- ------------
OTHER INCOME (EXPENSE)
Interest income (expense), net (18,000) 40,000
Other - 1,000
------------- ------------
------------- ------------
Total other income (expense) (18,000) 41,000
------------- ------------
------------- ------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 19,000 2,000
PROVISION FOR INCOME TAXES 8,000 1,000
------------- ------------
NET INCOME $ 11,000 $ 1,000
------------- ------------
------------- ------------
INCOME PER COMMON SHARE
Primary $ 0.00 $ 0.00
Fully diluted $ 0.00 $ 0.00
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 3,679,037 3,778,399
Fully diluted 3,679,037 3,835,870
See notes to unaudited consolidated financial statements.
-19-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------
1996 1995
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 11,000 1,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 232,000 50,000
Deferred income taxes - 1,000
Changes in operating assets and liabilities
Royalties receivable 107,000 84,000
Accounts receivable 422,000 (1,999,000)
Inventories 391,000 (443,000)
Infomercial production costs (400,000) (382,000)
Prepaid air time 145,000 (41,000)
Deferred air time (746,000) 2,494,000
Prepaid income taxes (75,000)
Prepaid expenses and other current assets (176,000) (194,000)
Notes receivable 10,000 99,000
Other noncurrent assets (137,000) (105,000)
Accounts payable 328,000 100,000
Accrued professional fees 65,000 (31,000)
Deferred revenues 98,000 366,000
Allowance for returns (87,000) 667,000
Other accrued expenses (126,000) (251,000)
Profit participation payable 244,000 (384,000)
Income taxes payable 8,000
----------- ------------
Net cash provided by operating activities 315,000 32,000
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment (42,000) (65,000)
Due from officers 44,000 38,000
Other 1,000 8,000
----------- ------------
Net cash provided by (used in) investing activities 3,000 (19,000)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common shares 211,000
Payment of bank loan (261,000)
Other (6,000) (6,000)
----------- ------------
Net cash used in financing activities (58,000) (6,000)
----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 262,000 7,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 725,000 3,247,000
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 987,000 $ 3,254,000
----------- ------------
----------- ------------
</TABLE>
See notes to unaudited consolidated financial statements.
-20-
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. THE COMPANY
Positive Response Television, Inc. (the "Company"), is a California
corporation based in Sherman Oaks, California. The Company produces
infomercials (television shows featuring various consumer products designed
to motivate television viewers to place telephone orders for such products)
and generates product sales through the airing of such infomercials and
through other distribution channels. The consolidated financial statements
include the Company and its wholly owned subsidiaries, Positive Response
Media, Inc. ("PRM") and Positive Response Telemarketing, Inc. ("PRTI").
Ventures in which the Company does not own a majority interest are accounted
for on the equity method. All intercompany accounts and transactions are
eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the requirements of Regulation S-B. In
the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly, the financial position,
results of operations and cash flows for all periods presented, have been
made. The results of operations for the period ended March 31, 1996 are not
necessarily indicative of the results expected for the entire year ending
December 31, 1996. Certain prior year account balances have been
reclassified to conform to current year classifications.
PRM, which buys and sells air time, became an operating unit of the
Company on January 1, 1994, the date of its acquisition, in connection with
which the Company issued 3,546 shares of its common stock. PRTI, which is
engaged in outbound telemarketing and also provides customer service, was
incorporated on May 11, 1994 and commenced operations in July 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INFOMERCIAL PRODUCTION COSTS - Production costs are capitalized when
incurred. The Company amortizes such costs based upon the ratio of current
revenues to total expected revenues. Additionally, unamortized deferred
production costs are written off when management determines that such costs
are not recoverable.
PREPAID AIR TIME - Prepaid air time represents purchased television air
time scheduled to air subsequent to the balance sheet date.
DEFERRED AIR TIME - The Company defers a portion of purchased television
air time that aired during the current period based on a pro rata share of
shipped versus unshipped orders as of the balance sheet date.
ALLOWANCE FOR RETURNS - The allowance for returns is accounted for using
the accrual method and is estimated based on historical rates and actual
returns occurring subsequent to the balance sheet date.
REVENUES - Revenues are composed of 1) product sales generated through the
airing of infomercials, 2) bulk sales to distributors for retail
distribution, 3) sale of television air time to third parties and ventures
-21-
<PAGE>
accounted for under the equity method, 4) royalties based on product sales
generated by companies to whom the Company has granted certain marketing and
distribution rights on its products, and 5) production income, representing
reimbursements by third parties for approved infomercial production costs.
Product sales and royalties are recognized when products are shipped. Air
time sales are recognized when aired.
OTHER DIRECT OPERATING COSTS - Other direct operating costs consist
primarily of air time costs, fulfillment costs, telemarketing service costs
and other selling costs.
INCOME TAXES - Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and income tax bases
of assets and liabilities that will result in taxable or deductible amounts
in the future. Such deferred income tax asset and liability computations are
based on enacted tax laws and rates applicable to periods in which the
differences are expected to affect taxable income. Income tax expense is the
tax payable or refundable for the period plus or minus the change during the
period in deferred income tax assets and liabilities.
EARNINGS PER SHARE - Earnings per share amounts are computed based on the
actual weighted average number of common stock and dilutive common equivalent
shares (stock options and warrants) using the treasury stock method.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates. The most significant estimates relate to inventory obsolescence,
infomercial production costs and the allowance for returns.
3. PROFIT PARTICIPATION AND INVESTMENT IN VENTURES
The Company operates certain infomercial campaigns through profit
participation arrangements which generally involve a sharing of the net
profits of the respective campaigns between the Company and its profit
participants or venture partners. The portion of the net profits due to the
profit participants or venture partners is reflected as components of
operating costs and expenses and current liabilities.
4. LINES OF CREDIT
The Company has a $1,350,000 bank line of credit (the "Line") to finance
operations and inventory purchases, pursuant to which the Company must
maintain a $1,500,000 security deposit with the bank. In addition, $200,000
of the Line is applied as a reserve against the Company's merchant card
activity for future returns and charge-backs. The Line matures on August 1,
1996 and bears interest at a rate per annum one-half percent (1/2%) below the
prime rate in effect from time to time. As of March 31, 1996, the Company's
borrowings under this Line was $328,000. Net of total open letters of credit
of $370,000, the total available on the Line at March 31, 1996 was $452,000.
The Company also has a $2,500,000 line of credit (the "Second Line") with
another institution to finance operations and inventory purchases. This line
of credit contains certain financial covenants, which provide, among other
things, for the maintenance of a minimum consolidated net worth and
restrictions on certain expenditures. The Second Line is secured by certain
of the Company's assets, including accounts receivable and inventory. The
Second Line is renewable annually on May 1st and bears interest at a rate per
annum one percent (1%) above the bank's reference rate. Effective May 1,
1996, the Second Line
-22-
<PAGE>
was extended to June 1, 1996. As of March 31, 1996, the Company had borrowed
$1,250,000 under this Second Line.
As of March 31, 1996, the Company was not in compliance with the minimum
net worth and liquidity requirements under the Second Line. Although the
bank has not granted a waiver for these defaults, it has elected not to
pursue any of its remedies under the Second Line at this time pending the
merger with National Media (see Note 6). In the event the merger is not
consummated, the Company plans to negotiate the agreement.
5. LITIGATION
On May 1, 1995, a purported class action suit was filed in the United
States District Court for the Central District of California (the "Court")
against the Company and its principal executive officers alleging that the
Company had 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 common stock of the Company 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 filed on June 9, 1995, which
complaint added more plaintiffs and expanded the class period to November
1994 to April 28, 1995. The Company moved to dismiss the amended complaint
and the complaint was dismissed by the Court in late July 1995. The
plaintiffs were granted sixty days leave to file another amended complaint to
allow them an attempt to state valid claims against the Company.
On or about September 25, 1995, the plaintiffs filed a Second Amended
Complaint ("SAC"). The SAC added new defendants and attempts to set forth
new facts to support plaintiffs' entitlement to legal relief. On October 31,
1995, the Company again moved to dismiss plaintiffs' entire action. The
Court denied the motion on December 11, 1995. Discovery is continuing.
The Company is a defendant in a number of commercial litigation matters.
Management of the company does not believe that the disposition of any of
these matters will have a materially adverse effect on the Company's
financial condition.
6. MERGER WITH NATIONAL MEDIA
On January 17, 1996, the Company entered into an Agreement and Plan of
Merger and Reorganization (the "Merger Agreement"), by and among the Company,
National Media and a wholly-owned subsidiary of National Media ("Merger
Sub"), pursuant to which the Company will be merged with and into Merger Sub
(the "Merger"), the Company's separate corporate existence will be
extinguished, and the equity interest of the Company's shareholders in the
Company will cease. The surviving corporation will be renamed "Positive
Response Television, Inc." and it will continue as a wholly-owned subsidiary
of National Media. The Merger Agreement was subsequently amended on April 4,
1996.
Pursuant to the terms of the Merger Agreement, each outstanding share of
common stock of the Company (other than, in limited circumstances, shares as
to which dissenters' rights of appraisal have been perfected under Chapter 13
of the California Corporations code and shares held by National Media) will
be converted into the right to receive a maximum .5239 shares (the "Exchange
Ratio") of NMC's common stock, $.01 par value per share ("NMC Common Stock"),
less a pro rata portion of any Reduction Amount (as defined below). The
Reduction Amount is defined as that number of shares of NMC Common Stock
equal to (x) two, multiplied by (y) the amount, if any, by which the Minimum
Shareholders' Equity (as defined below) exceeds the Company's shareholders'
equity as of December 31, 1995 (subject to adjustment for any material
changes thereto which occur after such date and subject to reduction for
-23-
<PAGE>
certain agreed upon balance sheet items), divided by (z) $14.125. For
purposes of the Merger Agreement, "Minimum Shareholders' Equity" is defined
as $13,000,000, less the amount of all costs incurred by the Company directly
in connection with the Merger Agreement, the Merger and the transactions
contemplated thereby and given effect in the Company's financial statements.
The Merger Agreement also provides that, under certain circumstances, a
number of shares of NMC Common Stock equal in dollar value (based upon a
price of $14.125 per share of NMC Common Stock) to certain of the Company's
balance sheet items and otherwise issuable, on a pro rata basis, to the
shareholders of the Company (the Escrow Shares") will be held in escrow and
will be deliverable out of escrow, if at all, within approximately 18 months
after the anticipated date of closing, only upon the realization of the value
of such items and the satisfaction of certain conditions set forth in the
Merger Agreement and an Escrow Agreement to be entered into pursuant thereto.
The Merger Agreement also provides that each outstanding option to
purchase shares of the Company's stock will be assumed by National Media upon
the same terms and conditions as set forth in the Stock Option Plan and the
agreement pursuant to which each such option was issued, subject, however, to
appropriate adjustment (as to both number of shares and exercise price) to
reflect the Exchange Ratio (and the effect of the Reduction Amount thereon).
Similarly, each outstanding stock purchase right (if any) will be assumed by
National Media upon the same terms and conditions as set forth in the
agreement or instrument pursuant to which each such stock purchase right was
issued or granted, subject, however, to appropriate adjustment (as to both
number of shares and exercise or conversion price) to reflect the Exchange
Ratio (and the effect of the Reduction Amount thereon). Currently, there are
no such stock purchase rights outstanding.
-24-
<PAGE>
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(Continued)
(b) PRO FORMA FINANCIAL INFORMATION.
It is impracticable for the Company to provide the required pro forma
financial information relating to the Merger at the time of the filing
of this report. The Company undertakes to file such pro forma
financial information as an amendment to this Form 8-K as soon as
practicable after the date hereof, but in no event later than sixty
(60) days from the date by which this report on Form 8-K is required
to be filed.
(c) EXHIBITS.
2.1 Agreement and Plan of Merger and Reorganization, dated as of
January 17, 1996 and amended as of April 4, 1996, by and among
National Media Corporation, a Delaware corporation, PRT
Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of National Media Corporation, and Positive Response
Television, Inc., a California corporation.
2.2 Escrow Agreement, dated as of May 17, 1996, by and among National
Media Corporation, a Delaware corporation, Positive Response
Television, Inc., a California corporation, the Shareholders'
Representative named therein and Chemical Mellon Shareholder
Services, L.L.C., as Escrow Agent.
23.1 Consent of Deloitte & Touche LLP.
99.1 Employment Agreement, dated as of May 17, 1996, by and between
Positive Response Television, Inc., a Delaware corporation and a
wholly-owned subsidiary of National Media Corporation, National
Media Corporation, a Delaware corporation, and Michael Levey.
99.2 Employment Agreement, dated as of May 17, 1996, by and between
Positive Response Television, Inc., a Delaware corporation and a
wholly-owned subsidiary of National Media Corporation, and Lisa
Vann Levey.
99.3 Press Release, dated May 30, 1996.
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NATIONAL MEDIA CORPORATION
(Registrant)
Date: May 31, 1996 By: /s/ James M. Gallagher
---------------- ----------------------------
Name: James M. Gallagher
Title: Chief Financial Officer
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO.
2.1 Agreement and Plan of Merger and Reorganization, dated as of
January 17, 1996 and amended as of April 4, 1996, by and among
National Media Corporation, a Delaware corporation, PRT
Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of National Media Corporation, and Positive Response
Television, Inc., a California corporation.
2.2 Escrow Agreement, dated as of May 17, 1996, by and among National
Media Corporation, a Delaware corporation, Positive Response
Television, Inc., a California corporation, the Shareholders'
Representative and the Escrow Agent.
23.1 Consent of Deloitte & Touche LLP.
99.1 Employment Agreement, dated as of May 17, 1996, by and between
Positive Response Television, Inc., a Delaware corporation and a
wholly-owned subsidiary of National Media Corporation, National
Media Corporation, a Delaware corporation, and Michael Levey.
99.2 Employment Agreement, dated as of May 17, 1996, by and between
Positive Response Television, Inc., a Delaware corporation and a
wholly-owned subsidiary of National Media Corporation, and Lisa
Vann Levey.
99.3 Press Release, dated May 30, 1996.
<PAGE>
EXHIBIT 2.1
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
Agreement and Plan of Merger and Reorganization, dated as of January 17,
1996 (this "Agreement"), by and among National Media Corporation, a Delaware
corporation ("Parent"), PRT Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and Positive Response
Television, Inc., a California corporation (the "Company").
Witnesseth:
Whereas, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders for the Company to be acquired by Parent pursuant to the
merger (the "Merger") of the Company with and into Merger Sub upon the terms and
subject to the conditions set forth herein;
Whereas, in furtherance thereof, the Boards of Directors of Parent, Merger
Sub and the Company have each approved the Merger in accordance with the
applicable provisions of the Delaware General Corporation Law ("Delaware Law")
and the California Corporations Code ("California Law"), and upon the terms and
subject to the conditions set forth herein;
Whereas, pursuant to the Merger, each outstanding share (a "Share") of the
Company's common stock, without par value (the "Company Common Stock"), shall be
converted into the right to receive (subject to the provisions of Section 6.04
hereof) the Merger Consideration (as defined in Section 1.07(b) hereof), upon
the terms and subject to the conditions set forth herein;
Whereas, Parent, Merger Sub and the Company intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations thereunder, and to cause the Merger to
qualify as a reorganization under the provisions of Section 368(a) of the Code;
and
Whereas, as an inducement to the Parent's willingness to enter into this
Agreement, each of the directors and executive officers of the Company have
entered into a letter agreement with Parent in substantially the form attached
hereto as Exhibit A;
Now, therefore, in consideration of the foregoing premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.01. THE MERGER.
(a) Effective Time. At the Effective Time (as defined in Section 1.02), and
subject to and upon the terms and conditions of this Agreement, California Law
and Delaware Law, respectively, the Company shall be merged with and into the
Merger Sub, the separate corporate existence of the Company shall cease, and the
Merger Sub shall continue as the surviving corporation. The Merger Sub as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
(b) Closing. Unless this Agreement shall have been terminated and the
transactions contemplated herein shall have been abandoned pursuant to Section
7.01 hereof, subject to the satisfaction or waiver of the conditions set forth
in Article VI hereof, the consummation of the Merger will take place as promptly
as practicable (and in any event within two business days) after satisfaction or
waiver of the conditions set forth in Article VI hereof, at the offices of
Klehr, Harrison, Harvey, Branzburg & Ellers, 1401 Walnut Street, Philadelphia,
Pennsylvania 19102, unless another date, time or place is agreed to in writing
by the parties hereto.
<PAGE>
Section 1.02. EFFECTIVE TIME. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI hereof, the
parties hereto shall cause the Merger to be consummated by filing articles of
merger (the "Articles of Merger"), together with any required certificates, with
the Secretary of State of the State of California and the Secretary of State of
the State of Delaware, in such forms as are required by, and executed in
accordance with, the relevant provisions of California Law and Delaware Law,
respectively (the time of the latter of such filings being the "Effective
Time").
Section 1.03. EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Articles of Merger and
the applicable provisions of California Law and Delaware Law, respectively.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
Section 1.04. CERTIFICATE OF INCORPORATION; BY-LAWS.
(a) Certificate of Incorporation. Unless otherwise determined by Parent
prior to the Effective Time, at the Effective Time the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by Delaware Law and such Certificate of
Incorporation; provided, however, that Article I of the Certificate of
Incorporation of the Surviving Corporation shall be amended as of the Effective
Time to read as follows: "FIRST" The name of the corporation is Positive
Response Television, Inc."
(b) By-Laws. At the Effective Time, the By-Laws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation until thereafter amended as provided by Delaware Law, the
Certificate of Incorporation of the Surviving Corporation and such By-Laws.
Section 1.05. DIRECTORS AND OFFICERS. The directors and officers of Merger
Sub immediately following the Effective Time shall be as indicated on Exhibit B
attached hereto, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation.
Section 1.06. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, the Company
or the holders of any of the following securities:
(a) Conversion of Securities. Each Share issued and outstanding immediately
prior to the Effective Time (excluding any Shares to be cancelled pursuant to
Section 1.06(b) and any Dissenting Shares (as defined in Section 1.09)) shall be
converted, subject to Section 1.06(f), into the right to receive (subject to the
provisions of Section 6.04 hereof) .5239 (the "Exchange Ratio") validly issued,
fully paid and nonassessable shares of common stock of Parent, $.01 par value
per share (the "Parent Common Shares").
(b) Cancellation. Each Share held in the treasury of the Company and each
Share owned by Parent, Merger Sub or any direct or indirect wholly-owned
subsidiary of the Company or Parent immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, be cancelled and retired without payment of
any consideration therefor and cease to exist.
(c) Stock Options and Stock Purchase Rights. All Stock Options (as defined
in Section 5.05 hereof) then outstanding under the Company's 1994 Stock Option
Plan (the "Company Option Plan") shall be assumed by Parent in accordance with
Section 5.05 hereof. All Stock Purchase Rights (as defined in Section 5.06
hereof) then outstanding shall be converted into the right to purchase Parent
Common Shares in accordance with Section 5.06 hereof.
(d) Capital Stock of Merger Sub. Each share of common stock, $.01 par value
per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall become shares of the
-2-
<PAGE>
Surviving Corporation after the Merger and shall thereafter constitute all of
the issued and outstanding shares of the capital stock of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock splits, reverse splits, stock dividends
(including any dividends or distributions of securities convertible into Parent
Common Shares or Company Common Stock), reorganizations, recapitalizations or
other like changes with respect to Parent Common Shares or Company Common Stock
occurring after the date hereof and prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Parent Common Shares will
be issued, but in lieu thereof each holder of Company Common Stock who would
otherwise be entitled to a fraction of a share of Parent Common Shares (after
aggregating all fractional shares of Parent Common Shares to be received by such
holder) shall receive from Parent an amount of cash (rounded to the nearest
whole cent), without interest, equal to the product of (i) such fraction,
multiplied by (ii) the average closing price of the Parent Common Shares on the
New York Stock Exchange ("NYSE") for the twenty (20) trading days prior to the
consummation of the Merger.
Section 1.07. EXCHANGE OF CERTIFICATES.
(a) Exchange Agent. Subject to the provisions of Section 6.04 hereof,
Parent shall supply, or shall cause to be supplied, to or for the account of an
exchange agent designated by Parent (the "Exchange Agent"), in trust for the
benefit of the holders of Company Common Stock (other than Dissenting Shares),
for exchange in accordance with this Section 1.07, through the Exchange Agent,
certificates evidencing the Parent Common Shares issuable pursuant to Section
1.06 in exchange for outstanding Shares.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each holder
of record of a certificate or certificates which immediately prior to the
Effective Time evidenced outstanding Shares (other than Dissenting Shares) (the
"Certificates") (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon prior delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Parent may reasonably specify)
and (ii) instructions to effect the surrender of the Certificates in exchange
for the certificates evidencing shares of Parent Common Shares and, in lieu of
any fractional shares thereof, cash. Upon surrender of a Certificate for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed and such other customary documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor, subject to the provisions of Section 6.04 hereof, (A)
certificates evidencing that number of whole Parent Common Shares which such
holder has the right to receive in accordance with the Exchange Ratio in respect
of the Shares formerly evidenced by such Certificate, (B) any dividends or other
distributions to which such holder is entitled pursuant to Section 1.07(c) and
(C) cash in lieu of fractional Parent Common Shares to which such holder is
entitled pursuant to Section 1.06(f) (the Parent Common Shares, dividends,
distributions and cash described in this clause (C) being, collectively, the
"Merger Consideration"), and the Certificate(s) so surrendered shall forthwith
be cancelled. In the event of a transfer of ownership of Shares which is not
registered in the transfer records of the Company as of the Effective Time,
Parent Common Shares and cash may be issued and paid in accordance with this
Article I to a transferee if the Certificate evidencing such Shares is presented
to the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer pursuant to this Section 1.07(b) and by evidence that any
applicable stock transfer taxes have been paid. Until so surrendered, each
outstanding Certificate that, prior to the Effective Time, represented shares of
the Company Common Stock will be deemed, from and after the Effective Time, for
all corporate purposes other than the payment of dividends, to evidence the
ownership of the number of full shares of Parent
-3-
<PAGE>
Common Shares into which such shares of the Company Common Stock have been so
converted and the right to receive an amount in cash in lieu of the issuance of
any fractional shares in accordance with Section 1.06(f) hereof.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Parent
Common Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate until the holder of such Certificate
shall surrender such Certificate. Subject to applicable law, following surrender
of any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Shares issued in
exchange therefor, without interest, at the time of such surrender, the amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Shares.
(d) Transfers of Ownership. If any certificate for shares of Parent Common
Shares is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any person designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Shares in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(e) No Liability. Neither Parent, Merger Sub nor the Company shall be
liable to any holder of Company Common Stock for any Merger Consideration (or
dividends or distributions with respect thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(f) Withholding Rights. Parent, the Surviving Corporation and the Exchange
Agent shall be entitled to deduct and withhold from the Merger Consideration
otherwise payable pursuant to this Agreement to any holder of Company Common
Stock such amounts as Parent, the Surviving Corporation or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment under
the Code or any provision of state, local, provincial or foreign law. To the
extent that amounts are so withheld, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the Shares
in respect of which such deduction and withholding was made.
Section 1.08. STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of the Company Common Stock thereafter on the records
of the Company.
Section 1.09. DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary, any
holder of Shares falling within the definition of "dissenting shares", as such
term is defined under Section 1300(b) of California Law (any such Shares being
hereinafter referred to as "Dissenting Shares"), and who, as of the Effective
Time, has not effectively withdrawn or lost dissenters' rights with respect to
such Dissenting Shares pursuant to an event described in Section 1308 of
California Law, shall be entitled to such rights with respect to such Dissenting
Shares as are granted by California Law.
(b) Notwithstanding the provisions of subsection (a) hereof, if any holder
of Dissenting Shares shall effectively withdraw or lose (through failure to
perfect or otherwise) such holder's dissenters' rights, then, as of the later of
the Effective Time or the occurrence of such event, such holder's Shares shall
automatically be converted into and represent only the right to receive the
Merger Consideration, without interest thereon, upon surrender of the
Certificate or Certificates representing such Shares.
-4-
<PAGE>
(c) The Company shall give Parent (i) prompt notice of any written demands
received by the Company to require the Company to purchase shares of capital
stock of the Company pursuant to Chapter 13 of California Law, withdrawals of
such demands, and any other instruments served pursuant to California Law and
received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, voluntarily make any
payment with respect to any such demands or offer to settle or settle any such
demands.
(d) To the extent required by applicable California Law, the Company shall
establish an escrow account and adopt procedures in connection therewith to
carry out the foregoing.
Section 1.10. NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. The
Merger Consideration delivered upon the surrender for exchange of Shares in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
Shares which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be cancelled and exchanged as provided in this Article I.
Section 1.11. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such Parent Common
Shares as may be required pursuant to Section 1.06; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
Section 1.12. TAX CONSEQUENCES. It is intended by the parties hereto that
the Merger shall constitute a reorganization within the meaning of Section 368
of the Code. The parties hereto hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
Section 1.13. TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of Parent,
Merger Sub and the Company in good faith will take all such commercially
reasonable and lawful action as may be necessary or appropriate in order to
effectuate the Merger in accordance with this Agreement as promptly as possible.
If, at any time after the Effective Time, any such further action is necessary
or desirable to carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company and Merger
Sub, the officers and directors of the Company and Merger Sub are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
Section 1.14. MATERIAL ADVERSE EFFECT; ORDINARY COURSE OF BUSINESS. When
used in connection with the Company or any of its subsidiaries, or Parent or any
of its subsidiaries, as the case may be, the term "Material Adverse Effect", or
any derivation thereof, means any change or effect that, individually or when
taken together with all other such related changes or effects that have occurred
prior to the date of determination of the occurrence of the Material Adverse
Effect, is or is reasonably likely to be materially adverse to the business,
assets (including intangible assets), financial condition or results of
operations of the Company and its subsidiaries or Parent and its subsidiaries,
as the case may be, in each case taken as a whole.
When used in connection with the Company or any of its subsidiaries, or
Parent or any of its subsidiaries, as the case may be, the term "ordinary course
of business", or any derivation thereof,
-5-
<PAGE>
means the normal conduct of business consistent with past practice, except that
no action which is contrary to law, order, rule or regulation, or otherwise
contrary to commercial reasonableness, shall be considered to be in the ordinary
course of business.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that:
Section 2.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of the
Company and its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has the requisite corporate power and authority and is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders (collectively "Approvals") necessary to own,
lease and operate the properties it purports to own, operate or lease and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power, authority
and Approvals would not have a Material Adverse Effect. Each of the Company and
its subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that would not have a
Material Adverse Effect. A true and complete list of all of the Company's
subsidiaries, together with the jurisdiction of incorporation of each subsidiary
and the percentage of each subsidiary's outstanding capital stock owned by the
Company or another subsidiary, is set forth in Section 2.01 of that certain
written disclosure schedule, dated of even date herewith, delivered by the
Company to Parent (the "Company Disclosure Schedule"), except as is noted
therein. Except as set forth in Section 2.01 of the Company Disclosure Schedule,
the Company does not directly or indirectly own any equity or similar interest
in, or any interest convertible into or exchangeable or exercisable for, any
equity or similar interest in any corporation, partnership, joint venture or
other business association or entity which is material to the Company's
financial condition or results of operations.
Section 2.02. ARTICLES OF INCORPORATION AND BY-LAWS. The Company has
heretofore delivered to Parent complete and correct copies of its Articles of
Incorporation and By-Laws, as amended to date, and, except as is set forth in
Section 2.02 of the Company Disclosure Schedule, equivalent organizational
documents of each of its subsidiaries. Such Articles of Incorporation, By-Laws
and equivalent organizational documents of it and each of its subsidiaries are
in full force and effect. Neither the Company nor any of its subsidiaries is in
violation of any of the provisions of its Articles of Incorporation or By-Laws
or equivalent organizational documents.
Section 2.03. CAPITALIZATION. The authorized capital stock of the Company
consists of 15,000,000 shares of Company Common Stock and 5,000,000 shares of
the Company's preferred stock, without par value (the "Company Preferred
Stock"), none of which have been designated. As of the date hereof, (i)
3,549,986 shares of Company Common Stock are issued and outstanding, all of
which are validly issued, fully paid and nonassessable, (ii) 398,490 shares of
Company Common Stock are reserved for future issuance pursuant to the exercise
of Stock Options previously granted under the Company Option Plan, (iii) 106,666
shares of Company Common Stock are reserved for future issuance pursuant to the
exercise or conversion, as applicable, of Stock Purchase Rights, and (iv) no
shares of Company Preferred Stock are issued and outstanding. No material change
in such capitalization has occurred between September 30, 1995 and the date
hereof. Except as set forth in this Section 2.03 or in Section 2.03 of the
Company Disclosure Schedule, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of the Company or any of its subsidiaries or
obligating the Company or any of its subsidiaries to issue or sell any shares of
capital stock of, or other equity interests in, the Company or any of its
subsidiaries. All shares of Company Common Stock subject to issuance as
aforesaid, upon
-6-
<PAGE>
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be duly authorized, validly issued, fully paid
and nonassessable. There are no obligations, contingent or otherwise, of the
Company or any of its subsidiaries to repurchase, redeem or otherwise acquire
any shares of Company capital stock or the capital stock of any subsidiary or to
provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such subsidiary or any other entity other than
guarantees of bank obligations of subsidiaries or joint ventures or similar
arrangements entered into in the ordinary course of business or which would not,
in the aggregate, have a Material Adverse Effect. All of the outstanding shares
of capital stock of each of the Company's subsidiaries are duly authorized,
validly issued, fully paid and nonassessable, and all such shares are owned by
the Company or another subsidiary free and clear of all security interests,
liens, claims, pledges, agreements, limitations on the Company's voting rights,
charges or other encumbrances of any nature whatsoever.
Section 2.04. AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby
(subject to the satisfaction of the conditions to consummation set forth herein)
have been duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated
(other than the approval and adoption of the Merger by the holders of at least a
majority of the outstanding shares of the Company Common Stock entitled to vote
in accordance with California Law and the Company's Articles of Incorporation
and By-Laws). The Board of Directors of the Company has determined that it is
advisable and in the best interest of the Company's shareholders for the Company
to enter into a business combination with Parent upon the terms and subject to
the conditions of this Agreement. This Agreement has been duly and validly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Parent and Merger Sub, as applicable, constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms (subject to stockholder approval, as
aforesaid), except as the enforceability thereof may be limited by (i) the
effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to or
affecting the rights and remedies of creditors generally, and (ii) the effect of
general principles of equity, whether enforcement is considered in a proceeding
in equity or at law, and the discretion of the court before which any proceeding
therefor may be brought.
Section 2.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Section 2.05(a) of the Company Disclosure Schedule includes a list of
(i) all contracts, including distribution agreements, of the Company and its
subsidiaries calling for aggregate payments, either to or from the Company and
its subsidiaries, of $50,000 or more and (ii) all agreements which, as of the
date hereof, have been (or which are, in connection with the Company's next
filing pursuant to the Securities Exchange Act of 1934, required to be) filed by
the Company with the Securities and Exchange Commission (the "SEC") pursuant to
the requirements of the Securities Exchange Act of 1934, as amended, and the
rules promulgated thereunder (collectively, the "Exchange Act") as "material
contracts" ((i) and (ii) being, collectively, the "Material Contracts") of the
Company and its subsidiaries. The Company has delivered to Parent true and
correct copies of all Material Contracts.
(b) Except as set forth in Section 2.05(b) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company do not,
and the performance of this Agreement by the Company will not, (i) conflict with
or violate the Articles of Incorporation or By-Laws or equivalent organizational
documents of the Company or any of its subsidiaries, (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to the
Company or any of its subsidiaries or by which its or any of their respective
properties is bound or affected, or (iii) result in any breach of or constitute
a default (or an event that, with notice or lapse of time or both, would become
a default), or
-7-
<PAGE>
impair the Company's or any of its subsidiaries' rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any Material Contract,
or result in the creation of a lien or encumbrance on any of the properties or
assets of the Company or any of its subsidiaries pursuant to, any material note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
its or any of their respective properties is bound or affected, other than when
such occurrence would not have a Material Adverse Effect.
(c) Except as set forth in Section 2.05(c) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
for applicable requirements, if any, of the Securities Act of 1933, as amended
(the "Securities Act"), the Exchange Act, state securities laws ("Blue Sky
Laws") and the pre-merger notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the filing
and recordation of appropriate merger or other documents as required by
California Law and Delaware Law, and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the Merger, or
otherwise prevent or delay the Company from performing its obligations under
this Agreement, or would not otherwise have a Material Adverse Effect.
Section 2.06. COMPLIANCE; PERMITS.
(a) Neither the Company nor any of its subsidiaries is in conflict with, or
in default or violation of, (i) any law, rule, regulation, order, writ, judgment
or decree applicable to the Company or any of its subsidiaries or by which the
Company or any of its subsidiaries or its or any of their respective properties
is bound or affected or (ii) except as set forth in Section 2.06(a) of the
Company Disclosure Schedule, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or its or any of their respective properties
is bound or affected, except for any such conflicts, defaults or violations
which would not have a Material Adverse Effect.
(b) The Company and its subsidiaries hold all material permits, licenses,
easements, variances, exemptions, consents, certificates, orders and approvals
from governmental authorities which are material to the operation of the
business of the Company and its subsidiaries taken as a whole (collectively, the
"Company Permits"). The Company and its subsidiaries are in compliance with the
terms of the Company Permits, except where the failure to so comply would not
have a Material Adverse Effect.
Section 2.07. SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has filed all forms, reports and documents required to be
filed with the SEC and has delivered to Parent (i) its Annual Report on Form
10-KSB for the year ended December 31, 1994, (ii) its Quarterly Reports on Form
10-QSB for the periods ended March 31, 1995, June 30, 1995 and September 30,
1995, respectively, (iii) all proxy statements relating to the Company's
meetings of shareholders (whether annual or special) held since May 11, 1994,
(iv) all other reports or registration statements filed by the Company with the
SEC (other than Reports on Forms 3, 4 and 5 and Schedules 13D and/or 13G filed
with the SEC and copied to the Company) since December 31, 1993, and (v) all
amendments and supplements to all such reports and registration statements filed
with the SEC (collectively, the "Company SEC Reports"). The Company SEC Reports
(i) were prepared in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements
-8-
<PAGE>
therein, in the light of the circumstances under which they were made, not
misleading. The Company is not aware of any material discrepancies in the
Company's SEC Reports which have not been corrected. None of the Company's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports was prepared in
accordance with United States generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved (except as may be
indicated therein or in the notes thereto) and each fairly present the
consolidated financial position of the Company and its subsidiaries at and as of
the respective dates thereof and the consolidated results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount.
(c) The Company has heretofore delivered to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by the Company with the SEC pursuant
to the Securities Act or the Exchange Act.
Section 2.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 2.08 of the Company Disclosure Schedule and the Company SEC Reports,
since September 30, 1995, the Company has conducted its business in the ordinary
course and there have not occurred: (i) any amendments or changes in the
Articles of Incorporation or Bylaws of the Company; (ii) any material damage to,
destruction or loss of any assets of the Company (whether or not covered by
insurance); (iii) any material change by the Company in its accounting methods,
principles or practices (except as required by GAAP); (iv) any revaluation by
the Company of any of its assets, including, without limitation, writing down
the value of capitalized inventory, or writing off notes or accounts receivable,
other than in the ordinary course of business; (vi) any redemption or other
acquisition of Company Common Stock by the Company or any of the subsidiaries or
any declaration or payment of any dividend or other distribution in cash, stock
or property with respect to Company Common Stock, except for purchases
heretofore made pursuant to the terms of the Company's Employee Plans (as
defined in Section 2.11 hereof); (vii) any transfer of, or rights granted under,
any material leases, licenses, agreements, patents, trademarks, trade names or
copyrights other than those transferred or granted in the ordinary course of
business and consistent with past practice; or (viii) any mortgage, pledge,
security interest or imposition of lien or other encumbrance on any asset of the
Company or any of the subsidiaries, except those that are immaterial and
incurred in the ordinary course of business.
Section 2.09. NO UNDISCLOSED LIABILITIES OR COMMITMENTS. Except as is
disclosed in Section 2.09 of the Company Disclosure Schedule or incurred in
connection with the Company's obligations under this Agreement, neither the
Company nor any of its subsidiaries has any liabilities, obligations or
commitments (absolute, accrued, contingent or otherwise) which are, in the
aggregate, material to the business, operations or financial condition of the
Company and its subsidiaries taken as a whole, except liabilities (a) adequately
provided for in the Company's audited balance sheet (including any related notes
thereto) for the fiscal year ended December 31, 1994 included in the Company SEC
Reports (the "1994 Balance Sheet"), (b) incurred in the ordinary course of
business and not required under GAAP to be reflected on the 1994 Balance Sheet,
or (c) incurred since December 31, 1994 in the ordinary course of business which
would not have a Material Adverse Effect and, to the extent applicable,
disclosed in the unaudited balance sheets included in the Company SEC Reports
for such period or not required under GAAP to be so reflected.
Section 2.10. ROYALTIES AND PRODUCTION SCHEDULES. Section 2.10 of the
Company Disclosure Schedule sets forth each product for which either the Company
or any of its subsidiaries has produced or has agreed to produce an infomercial
or other program and for which either the Company or any of its subsidiaries
expects to receive royalties or other revenues. True and correct copies of each
contract or other agreement (and each amendment thereto) pursuant to which such
royalties or other revenues
-9-
<PAGE>
are to be derived has been provided to Parent and each of such contracts and
agreements is in full force and effect. The Company and each of its subsidiaries
have provided Parent the production schedule and budget for each infomercial or
other program currently being produced by the Company or any of its subsidiaries
or which any of them has agreed to produce. The budgets and production schedules
previously delivered represent the Company's good faith estimate of the
aggregate costs associated with each such infomercial as presently contemplated.
Section 2.11. ABSENCE OF LITIGATION. Except as set forth in Section 2.11
of the Company Disclosure Schedule or the Company SEC Reports, there are no
claims, actions, suits, proceedings or investigations pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries, or any properties or rights of the Company or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that could have a Material
Adverse Effect.
Section 2.12. EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS.
(a) Section 2.12(a) of the Company Disclosure Schedule lists all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), regardless of whether ERISA is
applicable thereto, all other bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance or termination pay,
medical or life insurance, supplemental unemployment benefits, profit-sharing,
pension or retirement plans, agreements or arrangements and other similar fringe
or employee benefit plans, programs or arrangements, and any current or former
employment or executive compensation or severance agreements, written or
otherwise, for the benefit of, or relating to, any employee of the Company, any
trade or business (whether or not incorporated) which is a member of a
controlled group including the Company or which is under common control with the
Company (an "ERISA Affiliate") within the meaning of Section 414 of the Code, or
any subsidiary of the Company, to which the Company, an ERISA Affiliate, or any
Subsidiary is a party, with respect to which the Company, an ERISA Affiliate, or
any Subsidiary has or could have any obligation, as well as each plan with
respect to which the Company or an ERISA Affiliate could incur liability if such
plan has been or were terminated (together, the "Employee Plans"), and a true
and correct copy of each such written Employee Plan has been delivered to
Parent.
(b) Except as set forth in Section 2.12(b) of the Company Disclosure
Schedule, (i) none of the Employee Plans promises or provides retiree medical or
other retiree welfare benefits to any person and none of the Employee Plans is a
"multiemployer plan" as such term is defined in Section 3(37) of ERISA; (ii)
there has been no transaction or failure to act with respect to any Employee
Plan, which could result in any material liability of the Company or any of its
subsidiaries; (iii) all Employee Plans are in compliance in all material
respects with the requirements prescribed by any and all statutes, orders, or
governmental rules and regulations currently in effect with respect thereto, and
the Company and each of its subsidiaries have performed all material obligations
required to be performed by them under, are not in any material respect in
default under or violation of, and have no knowledge of any default or violation
by any other party to, any of the Employee Plans except as to which such
non-compliance, non-performance or default would not result in a Material
Adverse Effect; (iv) each Employee Plan intended to qualify under Section 401(a)
of the Code is the subject of a favorable determination letter from the IRS, and
nothing has occurred which may reasonably be expected to impair such
determination; (v) all contributions required to be made to any Employee Plan,
pursuant to the terms of the Employee Plan or any collective bargaining
agreement, have been made on or before their due dates and a reasonable amount
has been accrued for contributions to each Employee Plan for the current plan
years; (vi) with respect to each Employee Plan, no "reportable event" within the
meaning of Section 4043 of ERISA (excluding any such event for which the thirty
(30) day notice requirement has been waived under the regulations to Section
4043 of ERISA) nor any event described in Sections 4062, 4063 and 4041 of ERISA
has occurred; and (vii) neither the
-10-
<PAGE>
Company nor any ERISA Affiliate has incurred, nor reasonably expects to incur,
any liability under Title IV of ERISA (other than liability for premium payments
to the Pension Benefit Guaranty Corporation arising in the ordinary course).
(c) Each Employee Plan that is required or intended to be qualified under
applicable law or registered or approved by a governmental agency or authority,
has been so qualified, registered or approved by the appropriate governmental
agency or authority, and nothing has occurred since the date of the last
qualification, registration or approval to adversely affect, or cause the
appropriate governmental agency or authority to revoke, such qualification,
registration or approval.
(d) All contributions (including premiums) required by law or contract to
have been made or approved by the Company under or with respect to Employee
Plans have been paid or accrued by the Company. Except as disclosed in Section
2.12(d) of the Company Disclosure Schedule, without limiting the foregoing,
there are no material unfunded liabilities under any Employee Plan.
(e) There are no pending or, to the knowledge of the Company, threatened
investigations, litigation or other enforcement actions against the Company with
respect to any of the Employee Plans.
(f) There are no actions, suits or claims pending or, to the best knowledge
of the Company, threatened by former or present employees of the Company (or
their beneficiaries) with respect to Employee Plans or the assets or fiduciaries
thereof (other than routine claims for benefits).
(g) No condition or event has occurred with respect to the Employee Plans
which has or could reasonably be expected to result in a material liability to
the Company.
(h) Section 2.12(h) of the Company Disclosure Schedule sets forth a true and
complete list of each current or former employee, officer or director of the
Company or any of its subsidiaries who holds any option to purchase Company
Common Stock as of the date hereof, together with the number of shares of
Company Common Stock subject to such option, the date of grant of such option,
the extent to which such option is vested, the option price of such option (to
the extent determined as of the date hereof), whether such option is intended to
qualify as an incentive stock option within the meaning of Section 422(b) of the
Code (an "ISO"), whether such option was issued pursuant to the Company Option
Plan, and the expiration date of such option. Section 2.12(h) of the Company
Disclosure Schedule also sets forth the total number of such ISOs and such
nonqualified options.
(i) The Company has delivered to Parent (i) true and correct copies of all
employment agreements with officers of the Company; (ii) true and correct copies
of all agreements with consultants or independent contractors obligating the
Company to make annual cash payments in an amount exceeding $25,000; (iii) a
schedule listing all officers of the Company who have executed a non-competition
agreement with the Company, (iv) true and correct copies of all plans, programs,
agreements and other arrangements of the Company with or relating to its
employees which contain change in control provisions; and (v) the form of
standard employment agreement, if any, of the Company for its non-executive
employees.
Section 2.13. LABOR MATTERS. There are no controversies pending or, to the
knowledge of the Company or any of its subsidiaries, threatened, between the
Company or any of its subsidiaries and any of their respective employees, which
controversies have or may have a Material Adverse Effect; neither the Company
nor any of its subsidiaries is a party to any collective bargaining agreement or
other labor union contract applicable to persons employed by the Company or its
subsidiaries nor does the Company or any of its subsidiaries know of any
activities or proceedings of any labor union to organize any such employees; and
neither the Company nor any of its subsidiaries has any knowledge of any
strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with
respect to any employees of the Company or any of its subsidiaries.
Section 2.14. REGISTRATION STATEMENT; PROXY STATEMENT. None of the
information supplied or to be supplied by the Company for inclusion or
incorporation by reference in (i) the Registration
-11-
<PAGE>
Statement on Form S-4 to be filed with the SEC by Parent in connection with the
issuance of Parent Common Shares in the Merger (the "Registration Statement") or
(ii) the proxy statement relating to the meeting of the Company's shareholders
(the "Company Shareholders' Meeting") to be held in connection with the Merger
(the "Proxy Statement" and, together with the Prospectus contained in the
Registration Statement, the "Proxy Statement/Prospectus") will, (A) in the case
of the Proxy Statement/Prospectus, at the date it or any amendments or
supplements thereto are mailed to shareholders, at the time of the Company
Shareholders' Meeting and at the Effective Time and (B) in the case of the
Registration Statement, when it becomes effective under the Securities Act and
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements included therein, in light of the circumstances under
which they are made, not misleading. The Proxy Statement will comply as to form
in all material respects with the applicable provisions of the Exchange Act and
the rules and regulations thereunder. If at any time prior to the Effective
Time, any event relating to the Company or any of its respective affiliates,
officers or directors should be discovered by the Company which should be set
forth in an amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, the Company shall promptly inform Parent and Merger Sub.
Section 2.15. RESTRICTIONS ON BUSINESS ACTIVITIES. Except for this
Agreement or as disclosed in Section 2.15 of the Company Disclosure Schedule,
there is no existing material agreement, judgment, injunction, order or decree
binding upon the Company or any of its subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of the Company or any of its subsidiaries, the acquisition
of property by the Company or any of its subsidiaries or the conduct of business
by the Company or any of its subsidiaries as currently conducted or as proposed
to be conducted by the Company.
Section 2.16. TITLE TO PROPERTY. The Company owns no real property.
Section 2.16(b) of the Company Disclosure Schedule sets forth a true and
complete list of all real property leased by the Company or any of its
subsidiaries requiring annual lease payments of more than $25,000, and the
aggregate monthly rental or other fee payable under such lease. Except as set
forth in Section 2.16 of the Company Disclosure Schedule, the Company and each
of its subsidiaries have good, marketable and defensible title to all of their
material properties and assets, free and clear of all liens, charges and
encumbrances, except liens for taxes not yet due and payable and such liens or
other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby or
which would not have a Material Adverse Effect; and, to the Company's knowledge,
all leases pursuant to which the Company or any of its subsidiaries lease from
others material amounts of real or personal property are in good standing, valid
and effective in accordance with their respective terms, and there is not, to
the Company's knowledge, under any of such leases, any existing material default
or event of default (or event which with notice or lapse of time, or both, would
constitute a material default and in respect of which the Company or such
subsidiary has not taken adequate steps to prevent such a default from
occurring) except where the lack of such good standing, validity and
effectiveness or the existence of such default or event of default would not
have a Material Adverse Effect. All the facilities of the Company and its
subsidiaries are in good operating condition and repair, except where the
failure of such plants, structures and equipment to be in such good operating
condition and repair would not, individually or in the aggregate, have a
Material Adverse Effect.
Section 2.17. TAXES.
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean taxes, fees,
levies, duties, tariffs, imposts and governmental impositions or charges of any
kind in the nature of (or similar to ) taxes, payable to any federal, state,
provincial, local or foreign taxing authority, including (without limitation)
(i) income, franchise, profits, gross receipts, ad valorem, net worth, value
added, sales, use, service, real or personal property, special assessments,
capital stock, license, payroll, withholding, employment, social security,
workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premiums, windfall profits, transfer and
gains taxes and
-12-
<PAGE>
(ii) interest, penalties, additional taxes and additions to taxes imposed with
respect thereto; and "Tax Returns" shall mean returns, reports and information
statements with respect to Taxes required to be filed with the United States
Internal Revenue Service (the "IRS") or any other taxing authority, domestic or
foreign, including, without limitation, consolidated, combined and unitary tax
returns.
(b) Other than as disclosed on Section 2.17(b) of the Company Disclosure
Schedule, the Company and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which the Company or
any of its subsidiaries is or has been a member, have filed all United States
federal income Tax Returns and all other material Tax Returns required to be
filed by them or any of them, and have paid and discharged all Taxes shown
therein to be due and there are no other Taxes that would be due if asserted by
a taxing authority, except such as are being contested in good faith by
appropriate proceedings (to the extent that any such proceedings are required)
or with respect to which the Company is maintaining reserves in accordance with
GAAP in its financial statements to the extent currently required in all
material respects adequate for their payment, except, in each instance, to the
extent the failure to do so would not have a Material Adverse Effect. Except as
disclosed in Section 2.17(b) of the Company Disclosure Schedule, neither the IRS
nor any other taxing authority or agency is now asserting or, to the best of the
Company's knowledge, threatening to assert against the Company or any of its
subsidiaries any deficiency or claim for additional Taxes other than additional
Taxes with respect to which the Company is maintaining reserves in accordance
with GAAP in its financial statements which are in all material respects
adequate for their payment, except, in each instance, to the extent the failure
to do so would not have a Material Adverse Effect. Except as disclosed in
Section 2.17(b) of the Company Disclosure Schedule, no Tax Return of either the
Company or any of its subsidiaries is currently being audited by any taxing
authority except as would not have a Material Adverse Effect. No material Tax
claim has become a lien on any assets of the Company or any subsidiary thereof
and neither the Company nor any of its subsidiaries has, except as would not
have a Material Adverse Effect, granted any waiver of any statute of limitations
with respect to, or any extension of a period for the assessment of, any Tax.
Neither the Company nor any of its subsidiaries is required to include in income
(i) any material items in respect of any change in accounting principles or any
deferred intercompany transactions, or (ii) any installment sale gain where, in
each case, the inclusion in income would result in a Tax liability materially in
excess of the reserves therefor.
(c) The Company on behalf of itself and all its subsidiaries hereby
represents that, other than as disclosed on Section 2.17(c) of the Company
Disclosure Schedule, and other than with respect to items the inaccuracy of
which would not have a Material Adverse Effect: (i) neither the Company nor any
of its subsidiaries is a party to any agreement, contract or arrangement that
may result, separately or in the aggregate, in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code, determined
without regard to Section 280G(b)(4) of the Code; (ii) neither the Company nor
any of its subsidiaries has been subject to any accumulated earning tax or
personal holding company tax; neither the Company nor any of its subsidiaries
owns stock in a passive foreign investment company within the meaning of Section
1296 of the Code; (iii) neither the Company nor any of its subsidiaries is
obligated under any agreement with respect to industrial development bonds or
other obligations with respect to which the excludeability from gross income of
the holder for United States federal or state income tax purposes could be
affected by the transactions contemplated hereunder; (iv) neither the Company
nor any of its subsidiaries has entered into any deferred intercompany
transaction within the meaning of Section 1.1502-13(a)(2) of the United States
Treasury Regulations as to which material items of deferred gain or loss have
not been restored, and (v) no material excess loss account within the meaning of
Section 1.1502-19 of the United States Treasury Regulations exists with respect
to the stock of any of the Company's subsidiaries.
(d) No power of attorney, which is currently in force, has been granted by
the Company or any of its subsidiaries with respect to any matter relating to
Taxes.
-13-
<PAGE>
(e) Except as set forth in Section 2.17(e) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to any
agreement or arrangement (written or oral) providing for the allocation or
sharing of Taxes.
(f) The Company and each of its subsidiaries have withheld from each payment
made (or other form of compensation given) to any of their respective past or
present employees, officers or directors the amount of all Taxes and other
deductions required to be withheld therefrom and paid the same to the proper tax
or other receiving officers within the time required by law.
(g) Except as set forth in Section 2.17(g) of the Company Disclosure
Schedule, the Company has remitted to the appropriate Tax authority when
required by law to do so all amounts collected by it on account of all retail
sales Tax.
(h) Except as disclosed in Section 2.17(h) of the Company Disclosure
Schedule, there has been no material debt to a third party of the Company or any
of its subsidiaries which has been forgiven and which has given rise to (or is
expected to give rise to) "cancellation of indebtedness income" under the
provisions of the Code.
(i) Section 2.17(i) of the Company Disclosure Schedule sets forth a true,
correct and complete list of all unpaid Taxes (other than Taxes which, in the
aggregate, are immaterial in amount) relating to all periods up to and including
the date hereof, whether or not yet due and owing, of the Company and its
subsidiaries existing as of the date hereof, which list is itemized by category
and type of Tax.
Section 2.18. ENVIRONMENTAL MATTERS. (a) Except in all cases, in the
aggregate, as have not had and could not reasonably be expected to have a
Material Adverse Effect, the Company and each of its subsidiaries (i) have
obtained all applicable permits, licenses and other authorizations which are
required under federal, state, provincial or local laws relating to pollution or
protection of the environment, including laws relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants or hazardous or
toxic materials or wastes into ambient air, surface, water, ground water or land
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants
or hazardous or toxic materials or wastes by the Company or its subsidiaries (or
their respective agents); (ii) are in compliance with all terms and conditions
of such required permits, licenses and authorizations, and also are in
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
such laws or contained in any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder;
(iii) as of the date hereof, are not aware of nor have received notice of any
event, condition, circumstance, activity, practice, incident, action or plan
which is reasonably likely to interfere with or prevent continued compliance
with or which would give rise to any common law or statutory liability, or
otherwise form the basis of any claim, action, suit or proceeding, based on or
resulting from the Company's or any of its subsidiary's (or any of their
respective agent's) manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge or release
into the environment, of any pollutant, contaminant or hazardous or toxic
material or waste; (iv) have taken all actions necessary under applicable
requirements of federal, state or local laws, rules or regulations to register
any products or materials required to be registered by the Company or its
subsidiaries (or any of their respective agents) thereunder; and (v) have
complied with all applicable occupational safety and health requirements of
federal, state or local laws, rules or regulations relating to the use or
storage of any hazardous, toxic or carcinogenic substances.
(b) Set forth on Section 2.18 of the Company Disclosure Schedule are all
known or suspected environmental conditions or problems at each site of
operation of the Company and its subsidiaries, including but not limited to the
presence of asbestos (friable or encapsulated), transformers containing PCBs,
radon and any aboveground or underground storage tanks.
(c) None of the sites of operation of the Company and its subsidiaries is a
Superfund site under the Comprehensive Environmental Response, Cleanup and
Liability Act, 42 U.S.C. Section 9601 et seq. or
-14-
<PAGE>
has been proposed for listing on the National Priorities List under that Act.
Any deed restriction or public notice required by any federal, state or local
law, rule or regulation because any site of operation of the Company or any of
its subsidiaries is contaminated has been complied with, and each such deed
restriction or public notice has been disclosed on Schedule 2.18 of the Company
Disclosure Schedule.
Section 2.19. BROKERS. Other than as set forth below, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company. The Company has
heretofore furnished to Parent complete and correct copies of all agreements
between the Company and Cruttenden & Company pursuant to which such firm would
be entitled to any payment relating to the transactions contemplated hereunder.
Section 2.20. FULL DISCLOSURE. No statement contained herein or in any
certificate or schedule furnished or to be furnished by the Company or its
subsidiaries to Parent or Merger Sub in, or pursuant to the provisions of, this
Agreement contains or shall contain any untrue statement of a material act or
omits or will omit to state any material fact necessary, in the light of the
circumstances under which it was made, to make the statements herein or therein
not misleading.
Section 2.21. INTELLECTUAL PROPERTY.
(a) Except as set forth in Section 2.21(a) of the Company Disclosure
Schedule, the Company owns, or is licensed or otherwise possesses legally
sufficient rights to use, all patents, trademarks, trade names, service marks,
copyrights and any applications therefor, technology, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material that are used or proposed to be used in the business of
the Company as currently conducted or planned to be conducted in any material
respect. Section 2.21(a) of the Company Disclosure Schedule lists all current
and past (lapsed, expired, abandoned or cancelled) patents, registered and
material unregistered trademarks and service marks, registered and material
unregistered copyrights, trade names and any applications therefor owned by the
Company (the "Company Intellectual Property Rights"), and specifies the
jurisdictions in which each such Company Intellectual Property Right has been
issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners. Section 2.21(a) of
the Company Disclosure Schedule includes and specifically identifies all
third-party patents, trademarks, service marks, tradenames or copyrights (the
"Third Party Intellectual Property Rights"), to the knowledge of the Company,
which are incorporated in, are, or form a part of any Company product now being
marketed, presently contemplated to be marketed or marketed since May 11, 1994.
Section 2.21(a) of the Company Disclosure Schedule lists (i) any requests the
Company has received to make any registration of the type referred to in the
penultimate sentence prior hereto, including the identity of the requestor and
the item requested to be so registered, and the jurisdiction for which such
request has been made; (ii) all material licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which any person
is authorized to use any Company Intellectual Property Right, or any trade
secret material to the Company; (iii) all material licenses, sublicenses and
other agreements as to which the Company is a party and pursuant to which the
Company is authorized to use any Third Party Intellectual Property Rights, or
other trade secret of a third party in or as any product, and includes the
identity of all parties thereto, a description of the nature and subject matter
thereof, the applicable royalty and the term thereof; and (iv) all agreements
between the Company and any third party pursuant to which either party is
subject to a non-disclosure agreement.
(b) Except as set forth in Section 2.21(b) of the Company Disclosure
Schedule, the Company is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations hereunder, in
violation of any license, sublicense or agreement described in Section 2.21(a)
of the Company Disclosure Schedule. No claims with respect to the Company
Intellectual Property Rights, any trade secret material to the Company, or Third
Party Intellectual Property
-15-
<PAGE>
Rights to the extent arising out of any use, reproduction or distribution of
such Third Party Intellectual Property Rights by or through the Company, are
currently pending or, to the knowledge of the Company, are threatened by any
person, nor does the Company know of any valid grounds for any bona fide claims
(i) to the effect that the manufacture, sale, licensing or use of any product as
now used, sold or licensed or proposed for use, sale or license by the Company
infringes on any copyright, patent, trademark, service mark or trade secret;
(ii) against the use by the Company of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how or computer software programs
and applications used in the Company's business as currently conducted or as
proposed to be conducted by the Company (iii) challenging the ownership,
validity or effectiveness of any of the Company Intellectual Property Rights or
other trade secret material to the Company; or (iv) challenging the Company's
license or legally enforceable right to use of the Third Party Intellectual
Property Rights. To the Company's knowledge, after reasonable investigation, all
patents, registered trademarks, trade names and copyrights held by the Company
are valid and subsisting. Except as set forth in Section 2.21(b) of the Company
Disclosure Schedule, to the Company's knowledge, there is no unauthorized use,
infringement or misappropriation of any of the Company Intellectual Property
Rights by any third party, including any employee or former employee of the
Company or any of its subsidiaries. Except as set forth in Section 2.21(b) of
the Company Disclosure Schedule, neither the Company nor any of its subsidiaries
(i) has been sued or charged in writing as a defendant in any claim, suit,
action or proceeding which involves a claim or infringement of trade secrets,
any patents, trademarks, service marks, trade names or copyrights and which has
not been finally terminated prior to the date hereof or been informed or
notified by any third party that the Company may be engaged in such infringement
or (ii) has knowledge of any infringement liability with respect to, or
infringement by, the Company or any of its subsidiaries of any trade secret,
patent, trademark, service mark, trade names or copyright of another.
(c) Neither the Company nor any subsidiary of the Company is aware that any
of its employees is obligated under any contract or contracts (including
licenses, agreements, covenants and other commitments of any nature), or is
subject to any order, writ, judgment, injunction, decree, determination or award
of any court, administrative agency or other tribunal, that restricts the
employee's activities on behalf of the Company or such subsidiary as presently
conducted or interfere with the use of such employee's best efforts to promote
the interests of the Company or such subsidiary.
Section 2.22. INTERESTED PARTY TRANSACTIONS. Except as set forth in
Section 2.22 of the Company Disclosure Schedule or in the Company SEC Reports,
since December 31, 1993, no event has occurred that would be required to be
reported as a Certain Relationship or Related Transaction, pursuant to Item 404
of Regulation S-K promulgated by the SEC.
Section 2.23. INSURANCE. Section 2.23 of the Company Disclosure Schedule
lists all material insurance policies and fidelity bonds covering the assets,
business, equipment, properties, operations, employees, officers and directors
of the Company and its subsidiaries. There is no claim by the Company or any of
its subsidiaries pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. Except as set forth in Section 2.23 of the Company Disclosure
Schedule, all premiums payable under all such policies and bonds have been paid
and the Company and its subsidiaries are otherwise in full compliance with the
terms of such policies and bonds for other policies and bonds providing
substantially similar insurance coverage). Except as set forth in Section 2.23
of the Company Disclosure Schedule, such policies of insurance and bonds are of
the type and in amounts customarily carried by persons conducting business
similar to those of the Company and its subsidiaries. The Company does not know
of any threatened termination of, or material premium increase with respect to,
any such policies.
Section 2.24. COMPANY OPTION PLAN. Except as set forth in Section 2.24 of
the Company Disclosure Schedule, the Board of Directors of the Company, or the
authorized committee thereof, has taken all necessary action (or refrained from
taking action, where appropriate) under the Company
-16-
<PAGE>
Option Plan so that no Stock Options (or any portion thereof) will be
accelerated or entitled to receive cash or other property as a result of the
consummation of the transactions contemplated hereby, but instead shall be
assumed as provided in Section 1.06(c) hereof.
Section 2.25. VOTE REQUIRED. The affirmative vote of the holders of at
least a majority of the outstanding shares of the Company Stock is the only vote
of the holders of any class or series of the Company's capital stock necessary
to approve the Merger.
Section 2.26. OPINION OF FINANCIAL ADVISOR. The Company has been advised
by its financial advisor, Cruttenden Roth, Incorporated, that in its opinion, as
of the date hereof, the terms of the Merger are fair to the shareholders of the
Company from a financial point of view, and has delivered a written copy of such
opinion to Parent.
Section 2.27. ANTITAKEOVER PROVISIONS INAPPLICABLE. There are no
provisions of California Law or, to the best of the Company's knowledge, the
laws of any other jurisdiction which are in the nature of anti-takeover measures
which apply to this Agreement, the Merger, the letter agreements executed by
certain of the directors and executive officers of the Company in the form
attached hereto as Exhibit A or the transactions contemplated hereby or thereby.
ARTICLE III
REPRESENTATION AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company that:
Section 3.01. ORGANIZATION AND QUALIFICATION. Parent and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority and is in possession of all Approvals
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power, authority and Approvals would not have a Material Adverse Effect. Parent
and each of its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would not
have a Material Adverse Effect.
Section 3.02. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Merger Sub and the consummation by Parent and
Merger Sub of the transactions contemplated hereby (subject to the satisfaction
of the conditions to consummation set forth herein) have been duly and validly
authorized by all necessary corporate action on the party of Parent and Merger
Sub, and no other corporate proceedings on the part of Parent or Merger Sub are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. The Board of Directors of Parent has determined that it is
advisable and in the best interest of Parent's stockholders for Parent to enter
into and perform this Agreement. This Agreement has been duly and validly
executed and delivered by Parent and Merger Sub and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of Parent and Merger Sub, enforceable against each of
them in accordance with its terms, except as the enforceability thereof may be
limited by (i) the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect relating
to or affecting the rights and remedies of creditors generally, and (ii) the
effect of general principles of equity, whether enforcement is considered in a
proceeding in equity or at law, and the discretion of the court before which any
proceeding therefor may be brought.
-17-
<PAGE>
Section 3.03. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Except as set forth in Section 3.03 of that certain written disclosure
schedule, dated of even date herewith, delivered by Parent and Merger Sub to the
Company (the "Parent Disclosure Schedule"), the execution and delivery of this
Agreement by Parent and Merger Sub does not, and the performance of this
Agreement by Parent and Merger Sub shall not, (i) conflict with or violate the
Certificate of Incorporation or By-Laws of Parent or Merger Sub, (ii) conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to Parent or any of its subsidiaries or by which its or their respective
properties are bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or impair Parent's rights or alter the rights or obligations of
any third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any Material Contract or result in the creation
of a lien or encumbrance on any of the properties or assets of Parent or any of
its subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or any of its subsidiaries is a party or by which
Parent or any of its subsidiaries or its or any of their respective properties
are bound or affected, except in any such case for any such breaches, defaults
or other occurrences that would not have a Material Adverse Effect.
(b) Except as set forth in Section 3.03 of the Parent Disclosure Schedule,
the execution and delivery of this Agreement by Parent and Merger Sub does not,
and the performance of this Agreement by Parent and Merger Sub will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the Securities Act, the
Exchange Act, the Blue Sky Laws and the pre-merger notification requirements of
the HSR Act, and the filing and recordation of appropriate merger or other
documents as required by California Law and Delaware Law, (ii) that Parent is
required to provide notice of the Merger to the Federal Trade Commission (the
"FTC") pursuant to the terms of those certain consent orders between Parent and
the FTC, and (iii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the Merger, or otherwise prevent or delay
Parent or Merger Sub from performing their respective obligations under this
Agreement, or would not otherwise have a Material Adverse Effect.
Section 3.04. CERTIFICATE OF INCORPORATION AND BY-LAWS. Parent has
heretofore furnished to the Company complete and correct copies of its and
Merger Sub's Certificates of Incorporation and By-Laws, as amended to date. Such
Certificates of Incorporation and By-Laws are in full force and effect. Neither
Parent nor Merger Sub is in violation of any of the provisions of its
Certificate of Incorporation or By-Laws.
Section 3.05. CAPITALIZATION. As of December 31, 1995, the authorized
capital stock of Parent consisted of (i) 50,000,000 shares of Parent Common
Shares of which: 16,552,429 shares were issued and outstanding, 686,710 shares
were held in treasury, 1,977,333 shares were reserved for issuance pursuant to
outstanding options under Parent's stock option plans (including shares issuable
pursuant to options granted contingent on shareholder approval), 6,713,537
shares were reserved for future issuance pursuant to the exercise or conversion,
as applicable, of other outstanding options, warrants and other similar rights
to acquire Parent Common Shares, and 1,706,250 shares were reserved for future
issuance with respect to the conversion of Parent's outstanding Series B
Convertible Preferred Stock; and (ii) 10,000,000 shares of preferred stock, $.01
par value per share ("Parent Preferred Stock"), 170,625 shares of Series B
Convertible Preferred Stock of which were issued and outstanding. The authorized
capital stock of Merger Sub consists of 1,000 shares of common stock, $.01 par
value per share, all of which, as of the date hereof, are issued and
outstanding. All of the outstanding shares of Parent's and Merger Sub's
respective capital stock have been duly authorized and are validly existing,
fully paid and nonassessable. Parent owns all of the capital stock of Merger
Sub.
-18-
<PAGE>
Section 3.06. COMPLIANCE; PERMITS.
(a) Except as set forth in Section 3.06(a) of the Parent Disclosure
Schedule, neither Parent nor any of its subsidiaries is in conflict with, in
default with respect to or in violation of (i) any law, rule, regulation, order,
judgment or decree application to Parent or any of its subsidiaries or by which
its or any of their respective properties is bound or affected or (ii) any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which Parent or any of its subsidiaries is or any
of their respective properties is bound or affected, except for any such
conflicts, defaults or violations which would not have a Material Adverse
Effect.
(b) Parent and its subsidiaries hold all material permits, licenses,
easements, variances, exemptions, consents, certificates, orders and approvals
from governmental authorities which are material to the operation of the
business of the Company and its subsidiaries taken as a whole as it is now being
conducted (collectively, the "Parent Permits"). Parent and its subsidiaries are
in compliance with the terms of the Parent Permits, except where the failure to
so comply would not have a Material Adverse Effect.
Section 3.07. SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has filed all forms, reports and documents required to be filed
with the SEC, and has heretofore delivered to the Company, in the form filed
with the SEC, (i) its Annual Reports on Form 10-K for the fiscal years ended
March 31, 1995 and 1994, and its Quarterly Reports on Form 10-Q for the fiscal
quarters ended June 30, 1995 and September 30, 1995, (ii) all proxy statements
relating to Parent's meetings of stockholders (whether annual or special) held
since March 31, 1995, (iii) all other reports or registration statements (other
than Reports on Forms 3, 4 and 5 and Schedules 13D and/or 13G filed with the SEC
and copied to Parent) filed by Parent with the SEC since March 31, 1995 and (iv)
all amendments and supplements to all such reports and registration statements
filed with the SEC (collectively, the "Parent SEC Reports"). The Parent SEC
Reports (i) were prepared in accordance with the requirements of the Securities
Act or the Exchange Act, as the case may be, and (ii) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of Parent's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports has been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and each fairly
presents the consolidated financial position of Parent and its subsidiaries at
and as of the respective dates thereof and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in
amount.
(c) There are no amendments or modifications which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Parent with the SEC
pursuant to the Securities Act or the Exchange Act.
Section 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 3.08 of the Parent Disclosure Schedule, since September 30, 1995, Parent
has conducted its business in the ordinary course and there has not occurred:
(i) any Material Adverse Effect; (ii) any amendments or changes in the
Certificate of Incorporation or By-Laws of Parent; (iii) any damages to,
destruction or loss of any assets of the Parent (whether or not covered by
insurance) that could have a Material Adverse Effect; (iv) any revaluation by
Parent of any of its assets, including, without limitation, writing down the
value of capitalized inventory or writing off notes or accounts receivable other
than
-19-
<PAGE>
in the ordinary course of business; or (v) except as disclosed in Section 3.08
of the Parent Disclosure Schedule, any other action or event that would have
required the consent of the Company pursuant to Section 4.03 had such action or
event occurred after the date of this Agreement.
Section 3.09. RESTRICTIONS ON BUSINESS ACTIVITIES. Except for this
Agreement and as set forth in Section 3.09 of the Parent Disclosure Schedule,
there is no existing material agreement, judgment, injunction, order or decree
binding upon Parent or any of its subsidiaries which has or could reasonably be
expected to have the effect of prohibiting or materially impairing any business
practice of Parent or any of its subsidiaries, any acquisition of property by
Parent or any of its subsidiaries or the conduct of business by Parent or any of
its subsidiaries as currently conducted or as proposed to be conducted by
Parent.
Section 3.10. TITLE TO PROPERTY. Except as set forth in Section 3.10 of
the Parent Disclosure Schedule, Parent and each of its subsidiaries have good,
marketable and defensible title to all of their properties and assets, free and
clear of all liens, charges and encumbrances except liens for taxes not yet due
and payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or interfere with the present use of the
property affected thereby or which would not have a Material Adverse Effect;
and, to Parent's knowledge, all leases pursuant to which Parent or any of its
subsidiaries lease from others material amounts of real or personal property are
in good standing, are valid and effective in accordance with their respective
terms, and there is not, to the knowledge of Parent, under any of such leases,
any existing material default or event of default (or event which, with notice
or lapse of time, or both, would constitute a material default and in respect of
which Parent or such subsidiary has not taken adequate steps to prevent such a
default from occurring) except where the lack of such good standing, validity
and effectiveness, or the existence of such default or event of default would
not have a Material Adverse Effect.
Section 3.11. FULL DISCLOSURE. No statement contained herein or in any
certificate or schedule furnished or to be furnished by Parent or Merger Sub to
the Company in, or pursuant to the provisions of, this Agreement contains or
will contain any untrue statement of a material fact or omits or shall omit to
state any material fact necessary, in the light of the circumstances under which
it was made, to make the statements herein or therein not misleading.
Section 3.12. NO UNDISCLOSED LIABILITIES.
(a) Except as is disclosed in Section 3.12 of the Parent Disclosure Schedule
or the Parent SEC Reports or incurred in connection with this Agreement, neither
Parent nor any of its subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise) which are, in the aggregate, material to the business,
operations or financial condition of Parent and its subsidiaries taken as a
whole, except liabilities (i) adequately provided for in Parent's audited
balance sheet (including any related notes thereto) for the fiscal year ended
March 31, 1995 included in the Parent SEC Reports (the "March 31 Balance
Sheet"), (ii) incurred in the ordinary course of business and not required under
GAAP to be reflected on the March 31 Balance Sheet, or (iii) incurred since
March 31, 1995 in the ordinary course of business which would not have a
Material Adverse Effect and, to the extent applicable, disclosed in the
unaudited balance sheets included in the Parent SEC Reports for such period or
not required under GAAP to be so reflected.
(b) As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement and except for this Agreement
and any other agreements or arrangements contemplated by this Agreement, Merger
Sub has not and will not have incurred, directly or indirectly, through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
Section 3.13. ABSENCE OF LITIGATION. Except as set forth in Section 3.13
of the Parent Disclosure Schedule or as reflected in the Parent SEC Reports,
there are no claims, actions, suits, proceedings or
-20-
<PAGE>
investigations pending or, to the knowledge of Parent, threatened against Parent
or any of its subsidiaries, or any properties or rights of Parent or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that could have a Material
Adverse Effect.
Section 3.14. INSURANCE. Parent and its subsidiaries maintain fire and
casualty, general liability, business interruption, product liability and
sprinkler and water damage insurance that Parent believes to be reasonably
prudent for its business.
Section 3.15. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. Subject
to the accuracy of the representations of the Company in Section 2.14, the
Registration Statement pursuant to which the Parent Common Shares to be issued
in the merger will be registered with the SEC shall not, at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements included therein, in
light of the circumstances under which they were made, not misleading. Subject
to the accuracy of the representations of the Company in Section 2.13, the
information supplied by Parent for inclusion in the Proxy Statement/Prospectus
will not, on the date the Proxy Statement/ Prospectus is first mailed to
shareholders, at the time of the Company Shareholders' Meeting and at the
Effective Time, contain any statement which at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or will omit to state any material fact required to be
stated therein or necessary in order to make the statements included therein not
false or misleading. If at any time prior to the Effective Time any event
relating to Parent, Merger Sub or any of their respective affiliates, officers
or directors should be discovered by Parent or Merger Sub which should be set
forth in an amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Parent or Merger Sub will promptly inform the Company.
Notwithstanding the foregoing, Parent makes no representation or warranty with
respect to any information supplied by the Company which is contained in, or
furnished in connection with the preparation of, any of the foregoing.
Section 3.16. TAXES. Other than as disclosed on Section 3.16 of the Parent
Disclosure Schedule, Parent and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which Parent or any of
its subsidiaries is or has been a member, have filed all United States federal
income Tax Returns and all other material Tax Returns required to be filed by
them or any of them, and have paid and discharged all Taxes shown therein to be
due and there are not other Taxes that would be due if asserted by a taxing
authority, except such as are being contested in good faith by appropriate
proceedings (to the extent that any such proceedings are required) or with
respect to which Parent is maintaining reserves in accordance with GAAP in its
financial statements to the extent currently required which are in all material
respects adequate for their payment, except, in each instance, to the extent the
failure to do so would not have a Material Adverse Effect. Neither the IRS nor
any other taxing authority or agency is now asserting or, to the best of
Parent's knowledge, threatening to assert against Parent or any of its
subsidiaries any deficiency or claim for additional Taxes other than additional
Taxes with respect to which Parent is maintaining reserves in accordance with
GAAP in its financial statements which are in all material respects adequate for
their payment, except, in each instance, to the extent that the failure to do so
would not have a Material Adverse Effect. Except as set forth in Section 3.16 of
the Parent Disclosure Schedule, no Tax Return of either Parent or any of its
subsidiaries is currently being audited by any taxing authority except as would
not have a Material Adverse Effect. Except as set forth in Section 3.16 of the
Parent Disclosure Schedule, no material tax claim has become a lien on any
assets of Parent or any subsidiary thereof and neither Parent nor any of its
subsidiaries has, except as would not have a Material Adverse Effect, granted
any waiver of any statute of limitations with respect to, or any extension of a
period for the assessment of, any Tax.
-21-
<PAGE>
Section 3.17. BROKERS. No broker, finder or investment banker (other than
InterAtlantic Securities Corp. and Howard, Lawson & Co.) is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or Merger Sub.
Section 3.18. OPINION OF FINANCIAL ADVISOR. Parent has been advised in
writing by Howard, Lawson & Co. that in its opinion, as of the date hereof, the
Exchange Ratio is fair from a financial point of view to Parent, and has
delivered a written copy of such opinion to the Company.
Section 3.19. NO STOCKHOLDER VOTE. No vote of the stockholders of Parent
is necessary to approve the Merger or the issuance of Parent Common Shares
pursuant to the terms thereof.
Section 3.20. EMPLOYEE BENEFIT PLANS.
(a) Section 3.20 of the Parent Disclosure Schedule lists all employee
benefit plans (as defined in Section 3(3) of ERISA), regardless of whether ERISA
is applicable thereto, all other bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, medical or life insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement plans
and other similar fringe benefit plans or programs, written or otherwise, for
the benefit of, or relating to, any current employee of Parent or any trade or
business (whether or not incorporated) which is a member of a control group
which includes Parent or which is under common control with Parent (an "ERISA
Affiliate of Parent") within the meaning of Section 414 of the Code, to which
Parent or an ERISA Affiliate of Parent is a party, with respect to which Parent
or an ERISA Affiliate of Parent has or could have any obligation, as well as
each plan with respect to which Parent or an ERISA Affiliate of Parent could
incur liability if such plan has been or were terminated (together, the "Parent
Employee Plans"), and a true and correct copy of each such written Parent
Employee Plan has been delivered to the Company.
(b) Except as set forth in Section 3.20 of the Parent Disclosure Schedule,
(i) none of the Parent Employee Plans promises or provides retire medical or
other retiree welfare benefits to any person and none of the Parent Employee
Plans is a "multiemployer plan" as such term is defined in Section 3(37) of
ERISA; (ii) there has been no transaction or failure to act with respect to any
Parent Employee Plan which could result in any material liability of Parent;
(iii) all Parent Employee Plans are in compliance in all material respects with
the requirements prescribed by any and all statutes, orders, or governmental
rules and regulations currently in effect with respect thereto, and Parent has
performed all material obligations required to be performed by it under, is not
in any material respect in default under or violation of, and has no knowledge
of any default or violation by any other party to, any of the Parent Employee
Plans except as to which such non-compliance, non-performance or default would
not result and is not reasonably likely to result in a Material Adverse Effect;
(iv) each Parent Employee Plan intended to qualify under Section 401(a) of the
Code is the subject of a favorable determination letter from the IRS, and
nothing has occurred which may reasonably be expected to impair such
determination; (v) all contributions required to be made to any Parent Employee
Plan, pursuant to the terms of the Parent Employee Plan or any collective
bargaining agreement, have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Parent Employee
Plan for the current plan years; (vi) with respect to each Parent Employee Plan,
no "reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the thirty (30) day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Sections 4062, 4063 and 4041 of ERISA has occurred; and (vii) neither Parent nor
any ERISA Affiliate of Parent has incurred, nor reasonably expects to incur, any
liability under Title IV of ERISA.
(c) Each Parent Employee Plan that is required or intended to be qualified
under applicable law, or registered or approved by a governmental agency or
authority, has been so qualified, registered or approved by the appropriate
governmental agency or authority, and nothing has occurred since the date of the
last qualification, registration or approval to adversely affect, or cause the
appropriate governmental agency or authority to revoke, such qualification,
registration or approval.
-22-
<PAGE>
(d) All contributions (including premiums) required by law or contract to
have been made or approved by Parent under or with respect to Parent Employee
Plans have been paid or accrued by Parent. Except as disclosed in Section
3.20(d) of the Parent Disclosure Schedule, without limiting the foregoing, there
are no material unfunded liabilities under any Parent Employee Plan.
(e) There are no pending or, to the knowledge of Parent, threatened
investigations, litigation or other enforcement actions against Parent with
respect to any of the Parent Employee Plans.
(f) There are no actions, suits or claims pending or, to the best knowledge
of Parent, threatened by former or present employees of Parent (or their
beneficiaries) with respect to Parent Employee Plans or the assets or
fiduciaries thereof (other than routine claims for benefits).
(g) No condition or event has occurred with respect to the Parent Employee
Plans which has or could reasonably be expected to result in a material
liability to Parent.
Section 3.21. INTELLECTUAL PROPERTY.
(a) Except as set forth in Section 3.21(a) of the Parent Disclosure
Schedule, Parent and its subsidiaries own, or are licensed or otherwise possess
legally sufficient rights to use, all material patents, trademarks, trade names,
service marks, copyrights and any applications therefor, technology, know-how,
computer software programs or applications and tangible or intangible
proprietary information or material that are used or proposed to be used in the
business of Parent or any of its subsidiaries as currently conducted or planned
to be conducted in any material respect.
(b) Except as set forth in Section 3.21(b) of the Parent Disclosure
Schedule, to Parent's knowledge, there is no material unauthorized use,
infringement or misappropriation of any of Parent's or its subsidiaries'
material patents, registered and unregistered trademarks and service marks,
registered and unregistered copyrights, trade names and any applications
therefor, by any third party, including any employee or former employee of
Parent or any of its subsidiaries. Except as set forth in Section 3.21(b) of the
Parent Disclosure Schedule, neither Parent nor any of its subsidiaries (i) has
been sued or charged in writing as a defendant in any claim, suit, action or
proceeding which involves a claim or infringement of trade secrets, any patents,
trademarks, service marks, trade names or copyrights and which has not been
finally terminated prior to the date hereof or been informed or notified by any
third party that Parent may be engaged in such infringement or (ii) has
knowledge of any infringement liability with respect to, or infringement by,
Parent or any of its subsidiaries of any trade secret, patent, trademark,
service mark, trade names or copyright of another.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
Section 4.01. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE
MERGER. During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, the
Company covenants and agrees that, unless Parent shall otherwise agree in
writing, the Company shall conduct its business and shall cause the businesses
of its subsidiaries to be conducted only in, and the Company and its
subsidiaries shall not take any action except in, the ordinary course of
business; and the Company shall use reasonable commercial efforts to preserve
substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and its subsidiaries (to the extent deemed
material to the Company's business), to take all reasonable action in the
ordinary course of business necessary to prevent the loss, cancellation,
abandonment forfeiture or expiration of any material Company Intellectual
Property, and to preserve the present relationships of the Company and its
subsidiaries with customers, suppliers and other persons with which the Company
or any of its subsidiaries has significant business relations except where the
loss of any such relationship would not have a Material Adverse Effect. By way
of amplification and not limitation, except as contemplated by this Agreement,
neither the Company nor any of its subsidiaries shall, during the
-23-
<PAGE>
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, directly or indirectly do,
or propose or agree to do, any of the following without the prior written
consent of Parent:
(a) amend or otherwise change the Company's Articles of Incorporation or
By-Laws;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or
other rights of any kind to acquire any shares of capital stock, or any
other ownership interest (including, without limitation, any phantom
interest) of the Company, any of its subsidiaries or affiliates (except for
the issuance of shares pursuant to the exercise of Stock Options (as defined
in Section 5.05 hereof) or pursuant to the exercise or conversion, as
applicable, of Stock Purchase Rights (as defined in Section 5.06 hereof),
which Stock Options or Stock Purchase Rights, as the case may be, are
outstanding and vested on the date hereof or which vest hereafter in
accordance with their terms, and except for the issuance of not more than an
aggregate of 14,184 shares to Doug Gravink pursuant to the Company's
commitments to him as set forth in that certain Purchase Agreement, dated
February 28, 1994, by and between the Company, Doug Gravink and the other
parties thereto);
(c) sell, lease, assign, transfer, pledge, dispose of or encumber any
material assets of the Company or any of its subsidiaries (except for (i)
sales of assets in the ordinary course of business and (ii) dispositions of
obsolete or worthless assets to any unrelated party);
(d) other than as specifically provided for in Sections 5.05 and 5.06
hereof, amend or change the period (or permit any acceleration, amendment or
change) of exercisability or conversion, as applicable, of Stock Options or
Stock Purchase Rights or authorize cash payments in exchange for any Stock
Options or Stock Purchase Rights;
(e) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof)
in respect of any of its capital stock, except that a wholly-owned
subsidiary of the Company may declare and pay a dividend to its parent, (ii)
split, combine or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or (iii) amend the terms of,
repurchase, redeem or otherwise acquire, or permit any subsidiary to
repurchase, redeem or otherwise acquire, any of its securities or any
securities of its subsidiaries, or propose to do any of the foregoing;
(f) sell, transfer, license, sublicense or otherwise dispose of any
material Company Intellectual Property Rights, or amend or modify any
existing agreements with respect to any Company Intellectual Property Rights
or Third Party Intellectual Property Rights, other than licenses in the
ordinary course of business;
(g) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; (ii) incur any indebtedness for borrowed money or issue
debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any person, or make
any loans or advances, except in the ordinary course of business; (iii)
create, incur, assume or suffer to exist, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind or nature upon the
property or assets, income or profits, whether now owned or hereafter
acquired, of the Company or its subsidiaries, except in the ordinary course
of business; (iv) enter into or amend any contract or agreement other than
in the ordinary course of business; (v) authorize any capital expenditures
or purchase of fixed assets which are, in the aggregate, in excess of
$25,000 for the Company and its subsidiaries, taken as a whole; or (vi)
enter into or amend any contract, agreement, commitment or arrangement to
effect any of the matters prohibited by this Section 4.01(g);
-24-
<PAGE>
(h) increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of employees
of the Company or its subsidiaries in the ordinary course of business, or
grant any severance or termination pay to (except as may be required by law
or agreement existing as of the date hereof), or enter into any employment
or severance agreement with, any director, officer or other employee of the
Company or any of its subsidiaries, or establish, adopt, enter into or amend
any Employee Plan;
(i) take any action, other than as required by GAAP, to change
accounting policies or procedures (including, without limitation, procedures
with respect to revenue recognition, payments of accounts payable and
collection of accounts receivable);
(j) make any material Tax election inconsistent with past practices or
settle or compromise any material, federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations for any
assessment of any Tax, except to the extent the amount of any such
settlement has been reserved for on the Company's most recent SEC Report;
(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) against
or of the Company, other than the payment, discharge or satisfaction in the
ordinary course of business of liabilities reflected or reserved against in
the financial statements of the Company or incurred in the ordinary course
of business;
(l) pay, discharge or satisfy any principal of any debt, with a maturity
of more than one year, for borrowed money or for the deferred purchase price
of property or services, except at the stated maturity of such debt or as
required by mandatory prepayment provisions relating thereto (subject to any
subordination provisions thereto), or amend any provision pertaining to the
subordination or the terms of payment of any such debt;
(m) except as may be required by law, take any action to terminate or
amend any of its Employee Plans other than in connection with the Merger;
(n) liquidate or dissolve itself (or suffer any liquidation or
dissolution);
(o) enter into any long-term media purchase agreement; or
(p) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.01(a) through (o) above, or any action which would
prevent the Company from performing or cause the Company not to perform its
covenants hereunder or result in any of the conditions to the Merger set
forth herein not being satisfied except as contemplated by this Agreement.
* * *
Notwithstanding the prohibitions of this Section 4.01, Parent and Merger Sub
acknowledge that the Company is in the process of renegotiating the terms of its
third party debt financing with the intention of reaching an agreement with
Wells Fargo Bank to handle all of such debt financing (the "Debt Financing").
The parties agree that the negotiation, execution and consummation of, and/or
the Company's compliance with, the terms of the Debt Financing (including the
repayment of all indebtedness to the Bank of America with proceeds received from
Wells Fargo) shall not be deemed to be a breach of this Section 4.01 if
undertaken by the Company in good faith and in the ordinary course of its
business.
Section 4.02. NO SOLICITATION.
(a) Except to the extent that the Company's Board of Directors is advised in
writing by such Board's counsel that failure to do so would constitute a breach
of the Board's fiduciary duties to the shareholders of the Company, actionable
in a court of competent jurisdiction, the Company agrees that neither it nor any
of its subsidiaries nor any of the respective officers and directors of the
Company and its subsidiaries shall, and the Company shall direct and use its
best efforts to cause its employees, agents, directors and representatives
(including, without limitation, any investment
-25-
<PAGE>
banker, attorney or accountant retained by it or any of its subsidiaries) not
to, initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any proposals or offers (including, without limitation, any proposals
or offers to shareholders of the Company) with respect to a merger,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities of, the Company or
any of its subsidiaries or a change in composition of a majority of directors on
the Company's Board of Directors (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal") or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal;
provided, however, that nothing contained in this Agreement shall prevent the
Board of Directors of the Company from referring any third party to this Section
4.02(a). Nothing contained in this Section 4.02(a) or any other provision of
this Agreement shall prevent the Board of Directors of the Company from
considering, negotiating, approving and recommending to the shareholders of the
Company a bona fide, unsolicited or solicited (if solicited in accordance with
Board's fiduciary duties as advised in writing by its counsel as described
above), written Acquisition Proposal which the Board of Directors of the Company
determines in good faith (after consultation with its financial advisors, and
after receiving a written opinion of outside counsel, or the advice of outside
counsel that is reflected in the minutes of the Board of Directors of the
Company, to the effect that the Board of Directors is required to do so in order
to discharge properly its fiduciary duties) would result in a transaction more
favorable to the Company's shareholders than the transaction contemplated by
this Agreement (any such Acquisition Proposal being referred to herein as a
"Superior Proposal").
(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal or any request for nonpublic information relating to the
Company or any of its subsidiaries in connection with an Acquisition Proposal or
for access to the properties, books or records of the Company or any subsidiary
by any person or entity that informs the Board of Directors of the Company or
such subsidiary that it is considering making, or has made, an Acquisition
Proposal. Such notice to Parent shall be made orally and in writing. Such notice
shall indicate in reasonable detail the identity of the offeror and the terms
and conditions of such proposal, inquiry or contact, unless in the case of an
unsolicited offer, the terms of an unsolicited offer specifically prohibits such
disclosure and the Company's Board of Directors is advised in writing by its
counsel that such disclosure would constitute a violation of the Board's
fiduciary duties to the Company's shareholders, actionable in a court of
competent jurisdiction.
(c) If the Board of Directors of the Company receives a request for material
nonpublic information and if the Board is advised in writing by its counsel that
failure to comply with the request would constitute a violation of its fiduciary
obligations to the Company's shareholders, actionable in a court of competent
jurisdiction, then, and only in such case, the Company may, subject to the
execution of a confidentiality and standstill agreement substantially similar to
that then in effect between the Company and Parent, provide such party with
access to information regarding the Company.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any parties (other than Parent and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from any confidentiality or
standstill agreement to which the Company is a party except pursuant to the
terms of such agreement.
(e) The Company shall ensure that the officers, directors and employees of
the Company and its subsidiaries and any investment banker or other advisor or
representative retained by the Company are aware of, and shall direct and use
its best efforts to cause such persons to comply with, the restrictions
described in this Section.
Section 4.03. CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Parent covenants and agrees
that, unless the Company shall otherwise agree in writing, Parent shall conduct
its business, and cause the businesses of its subsidiaries to be conducted,
-26-
<PAGE>
in the ordinary course of business, other than actions taken by Parent or its
subsidiaries in contemplation of the Merger, and shall not directly or
indirectly do, or propose to do, any of the following without the prior written
consent of the Company:
(a) amend or otherwise change Parent's Certificate of Incorporation, or
amend the terms of the Parent Common Shares;
(b) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets of any other person, which, in each case, would
materially delay or prevent the consummation of the transactions
contemplated by this Agreement;
(c) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of any of its capital stock, except that a wholly-owned subsidiary of Parent
may declare and pay a dividend to its parent; or
(d) take or agree in writing or otherwise to take any action which would
make any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect or prevent Parent from performing or cause
Parent not to perform its covenants hereunder or result in any of the
conditions to the Merger set forth herein not being satisfied except as
contemplated by this Agreement.
ARTICLE V
ADDITIONAL COVENANTS
Section 5.01. PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. As
promptly as practicable after the execution of this Agreement, the Company and
Parent shall prepare and file with the SEC preliminary proxy materials which
shall constitute the Proxy Statement of the Company and the Prospectus contained
in the Registration Statement of Parent with respect to the Parent Common Shares
to be issued in connection with the Merger. As promptly as practicable after
comments are received from the SEC thereon and after the furnishing by the
Company and Parent of all information required to be contained therein, the
Company and Parent shall file with the SEC a combined Proxy and Registration
Statement on Form S-4 (or on such other form as shall be appropriate) relating
to the approval of the Merger and the transactions contemplated hereby by the
shareholders of the Company and shall use all reasonable efforts to cause the
Registration Statement to become effective as soon thereafter as practicable.
The Proxy Statement shall include the recommendation of the Board of Directors
of the Company in favor of the Merger, subject to the second sentence of Section
4.02.
Section 5.02. SHAREHOLDERS' MEETING. The Company shall in accordance with
California Law and the Company's Articles of Incorporation and Bylaws call and
hold the Company Shareholders' Meeting as promptly as practicable for the
purpose of voting upon the approval of the Merger. Subject to the provisions of
Section 4.02, the Company shall use its reasonable best efforts to hold the
Company Shareholders' Meeting as soon as practicable after the date on which the
Registration Statement becomes effective. The Company shall use its reasonable
best efforts to solicit from its shareholders proxies in favor of the approval
of the Merger, and shall take all other action necessary or advisable to secure
the vote or consent of shareholders required by California Law to obtain such
approvals.
Section 5.03. ACCESS TO INFORMATION; CONFIDENTIALITY. Upon reasonable
notice and subject to restrictions contained in confidentiality agreements to
which such party is subject, the Company and Parent shall each (and shall cause
each of their subsidiaries to) afford to the officers, employees, accountants,
counsel and other representatives of the other, reasonable access, during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, the Company and Parent each
shall (and shall cause each of their subsidiaries to) furnish promptly to the
other all information concerning its business, properties and personnel as such
other
-27-
<PAGE>
party may reasonably request, and each shall make available to the other the
appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and personnel
as either party may reasonably request. Each party shall keep such information
confidential in accordance with the terms of that certain confidentiality
agreement (the "Confidentiality Agreement") between Parent and the Company dated
July 24, 1995.
Section 5.04. CONSENTS; APPROVALS. The Company and Parent shall each use
their best efforts to obtain all consents, waivers, approvals, authorizations or
orders (including, without limitation, all United States and foreign
governmental and regulatory rulings and approvals), and the Company and Parent
shall make all filings (including, without limitation, all filings with United
States and foreign governmental or regulatory agencies) required in connection
with the authorization, execution and delivery of this Agreement by the Company
and Parent and the consummation by them of the transactions contemplated hereby.
The Company and Parent shall furnish all information required to be included in
the Proxy Statement and the Registration Statement, or for any application or
other filing to be made pursuant to the rules and regulations of any United
States or foreign governmental body in connection with the transactions
contemplated by this Agreement.
Section 5.05. STOCK OPTIONS.
(a) At the Effective Time, the Company's obligations with respect to each
outstanding option to purchase shares of Company Common Stock (each, a "Stock
Option") under the Company Option Plan will be assumed by Parent, subject to any
applicable vesting schedule (except as otherwise specifically agreed in writing
by the Company). Except as otherwise specifically agreed in writing by the
Company, each Company Option so assumed by Parent under this Agreement shall
continue to have, and be subject to, the same terms and conditions set forth in
the Company Option Plan and the agreement pursuant to which such Stock Option
was issued as in effect immediately prior to the Effective Time, except that (i)
such Stock Option will be exercisable for that number of Parent Common Shares
equal to the product of (x) the number of shares of Company Common Stock that
were purchasable under such Stock Option immediately prior to the Effective
Time, multiplied by (y) the Exchange Ratio, rounded up to the nearest whole
number of shares of Parent Common Shares, and (ii) the per share exercise price
for the shares of Parent Common Shares issuable upon exercise of such assumed
Stock Option will be equal to the quotient determined by dividing (x) the
exercise price per share of Company Common Stock at which such Stock Option was
exercisable immediately prior to the Effective Time, by (y) the Exchange Ratio,
and rounding the resulting exercise price up to the nearest whole cent.
(b) After the Effective Time, Parent will issue to each holder of any
outstanding Stock Option a document evidencing the foregoing assumption by
Parent.
(c) After the Effective Time, Parent will prepare and file with the SEC, at
the earliest time which Parent, in its reasonable discretion, deems prudent, a
registration statement on Form S-8 with respect to the offer and sale by Parent
of Parent Common Shares issuable upon the exercise of Stock Options under the
Company Option Plan and with respect to the resale by Michael Levey of Parent
Common Shares issuable upon the exercise of stock options to be granted to Mr.
Levey pursuant to the employment agreement referred to in Section 6.02(h)
hereof.
Section 5.06. STOCK PURCHASE RIGHTS.
(a) At the Effective Time, the Company's obligations with respect to each
outstanding option (excluding Stock Options, as defined in Section 5.05 above),
warrant, convertible security or other similar right of any kind or nature to
acquire Company Common Stock (each, a "Stock Purchase Right") will be assumed by
Parent, subject to any applicable vesting schedule. Each Stock Purchase Right so
assumed by Parent under this Agreement shall continue to have, and be subject
to, the same terms and conditions set forth in the agreement or instrument
pursuant to which each such Stock Purchase Right was issued or granted as in
effect immediately prior to the Effective Time, except that (i) each such Stock
Purchase Right will be exercisable or convertible, as the case may be, for that
number of Parent Common Shares equal to the product of (x) the number of shares
of Company
-28-
<PAGE>
Common Stock that were purchasable under such Stock Purchase Right immediately
prior to the Effective Time, multiplied by (y) the Exchange Ratio, rounded up to
the nearest whole number of shares of Parent Common Shares, and (ii) the per
share exercise or conversion price, as the case may be, for the shares of Parent
Common Shares issuable upon exercise or conversion, as applicable, of such Stock
Purchase Right will be equal to the quotient determined by dividing (x) the
exercise or conversion price, as applicable, per share of Company Common Stock
at which such Stock Purchase Right was exercisable or convertible, as the case
may be, immediately prior to the Effective Time, by (y) the Exchange Ratio, and
rounding the resulting exercise or conversion price, as applicable, up to the
nearest whole cent.
(b) The Company shall take all such actions (including, but not limited to,
obtaining any and all consents, approvals or waivers from the holders of the
Stock Purchase Rights) as are necessary under the terms and conditions of the
agreements and instruments governing each such Stock Purchase Right to ensure
that all such Stock Purchase Rights may be assumed by Parent as provided in
Section 5.06(a) above. Parent shall have the prior right to review and approve
or disapprove any such agreements.
Section 5.07. AGREEMENTS OF AFFILIATES. The Company shall deliver to
Parent, prior to the date the Registration Statement is filed with the SEC, a
letter (the "Affiliate Letter") identifying all persons, who are, or may be
deemed to be, as of such date, "affiliates" of the Company for purposes of Rule
145 under the Securities Act. The Company shall cause each person who is
identified as an "affiliate" in the Affiliate Letter to deliver to Parent, prior
to the date on which the Proxy Statement/ Prospectus is mailed to the
shareholders of the Company for use at the Company Shareholders' Meeting, an
executed agreement (the "Affiliate Agreement") in substantially the form of
Exhibit C attached hereto.
Section 5.08. INDEMNIFICATION AND INSURANCE.
(a) The Certificate of Incorporation of the Surviving Corporation shall
contain provisions with respect to indemnification substantially similar to
those set forth in the By-Laws of the Company (to the extent allowable under
applicable Delaware law), which provisions shall not be amended, repealed or
otherwise modified in any manner that would adversely affect the rights
thereunder of individuals who at or prior to the Effective Time were directors,
officers, employees or agents of the Company, unless such modification is
prospective in nature and is required by law.
(b) The Company shall, to the fullest extent permitted under applicable law
or under the Company's Articles of Incorporation or By-Laws and regardless of
whether the Merger becomes effective, indemnify and hold harmless, and after the
Effective Time, the Surviving Corporation shall, to the fullest extent permitted
under applicable law or under the Surviving Corporation's Certificate of
Incorporation or By-Laws (including provisions pertaining to advances of legal
fees), indemnify and hold harmless, each present and former director, officer,
employee, fiduciary and agent of the Company or any of its subsidiaries
(collectively, the "Indemnified Parties") against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement of, or in connection with, any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or
omission occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement). In the event of
any such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) any counsel retained by the Indemnified
Parties for any period after the Effective Time shall be reasonably satisfactory
to the Surviving Corporation, (ii) after the Effective Time, the Surviving
Corporation shall pay the reasonable fees and expenses of such counsel, and
(iii) the Surviving Corporation will cooperate in the defense of any such
matter; provided, however, that the Surviving Corporation shall not be liable
for any settlement
-29-
<PAGE>
effected without its written consent (which consent shall not be unreasonably
withheld). The Indemnified Parties as a group may retain only one law firm to
represent them with respect to any single action unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties.
Section 5.09. NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate, and (ii) any failure of
the Company, Parent or Merger Sub, as the case may be, materially to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant to
this Section shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice; and provided, further, that
failure to give such notice shall not be treated as a breach of covenant for the
purposes of Sections 6.02(a) and 6.03(a) unless the failure to give such notice
results in material prejudice to the other party.
Section 5.10. FURTHER ACTION; TAX TREATMENT; ACCOUNTING TREATMENT. Upon
the terms and subject to the conditions hereof, each of the parties hereto in
good faith shall use all commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all other things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the transactions contemplated by this Agreement, to obtain in a timely manner
all necessary filings, and to otherwise satisfy or cause to be satisfied all
conditions precedent to its obligations under this Agreement. Without limiting
the foregoing, the Company shall take all actions and do all other things
necessary to obtain a tax clearance letter from the State of California prior to
the Closing. Each of Parent, Merger Sub and the Company shall use its best
efforts to (i) cause the Merger to qualify, and will not (both before and after
consummation of the Merger) take any actions which could prevent the Merger from
qualifying, as a reorganization under the provisions of Section 368 of the Code
and the regulations promulgated thereunder; and (ii) cause the Merger to be
accounted for, and will not (both before and after consummation of the Merger)
take any action which would mitigate against or prevent the Merger from being
accounted for, as a pooling of interests. Each of Parent, Merger Sub and the
Company shall report the Merger as a reorganization under the provisions of
Section 368 of the Code and the regulations promulgated thereunder and, to the
extent permitted, on all state and local Tax returns filed after the Effective
Time of the Merger.
Section 5.11. PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to the Merger or this Agreement and shall not issue any
such press release or make any such public statement without the prior consent
of the other party, which consent shall not be unreasonably withheld; provided,
however, that a party may, without the prior consent of the other party, issue
such press release or make such public statement as may, upon the advice of
counsel, be required by law, the National Association of Securities Dealers or
the NYSE if it has used all reasonable efforts to consult with the other party.
Section 5.12. LISTING OF PARENT COMMON SHARES. Parent shall use its
reasonable best efforts to cause the shares of Parent Common Shares to be issued
in the Merger to be approved for listing on the New York Stock Exchange.
Section 5.13. CONVEYANCE TAXES. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable in connection with the transactions contemplated hereby that are
required or permitted to be filed on or before the Effective Time.
-30-
<PAGE>
Section 5.14. ACCOUNTANTS' LETTERS. The Company shall cause Deloitte &
Touche LLP to deliver to Parent, as of a date just prior to the time the
Registration Statement is declared effective by the SEC (and to be updated as of
a date just prior to the Effective Time), a letter covering such matters as are
requested by Parent and as are customarily addressed in accountant's "comfort"
letters.
Section 5.15. UPDATE TO COMPANY DISCLOSURE SCHEDULE. The Company shall
deliver to Parent, as of the Effective Time, an update to the Company Disclosure
Schedule current through the Effective Date.
ARTICLE VI
CONDITIONS TO THE MERGER; ESCROW HOLDBACK
Section 6.01. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Effectiveness of the Registration Statement. The Registration Statement
shall have been declared effective by the SEC under the Securities Act. No stop
order suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose and no similar proceeding
in respect of the Proxy Statement shall have been initiated or, to the knowledge
of Parent or the Company, threatened by the SEC.
(b) Shareholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the shareholders of the Company.
(c) HSR Act. Any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(d) No Injunctions or Restraints; Illegality; Material Threat. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by any administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; there shall not be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal; and no third party
shall have taken any action, or threatened to take any action, or asserted any
claim, or threatened to assert any claim, which action or claim could pose a
material threat to the consummation of the Merger;
(e) Tax Opinions. Parent and the Company shall have each received
substantially identical written opinions from their respective counsel, Klehr,
Harrison, Harvey, Branzburg & Ellers and Irell & Manella, in form and substance
reasonably satisfactory to them to the effect that the Mergers will constitute a
reorganization within the meaning of Section 368 of the Code, and such opinions
shall not have been withdrawn. In rendering such opinions, counsel shall be
entitled to rely upon representations of Parent, Merger Sub and the Company and
certain affiliates and shareholders of the Company; and
(f) NYSE Listing. The Parent Common Shares shall have been approved for
listing, subject to notice of issuance, on the NYSE.
Section 6.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER
SUB. The obligations of Parent and Merger Sub to effect the Merger are also
subject to the following conditions.
(a) Representations and Warranties. The representations and warranties of
the Company contained in this Agreement (together with the Company Disclosure
Schedule) shall be true and correct in all respects on and as of the Effective
Time, except for (i) changes contemplated by this Agreement, (ii) those
representations and warranties which address matters only as of a particular
date (which
-31-
<PAGE>
shall remain true and correct as of such date) and (iii) instances where the
failure to be true and correct would not have a Material Adverse Effect on the
Company, with the same force and effect as if made on and as of the Effective
Time, and Parent and Merger Sub shall have received a certificate to such effect
signed by the Chairman/Chief Executive Officer and President/Chief Financial
Officer of the Company in their capacities as executive officers of the Company;
(b) Agreements and Covenants. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time, and Parent and Merger Sub shall have received a certificate to such effect
signed by the Chairman/Chief Executive Officer and President/Chief Financial
Officer of the Company in their capacities as executive officers of the Company;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to be
made, by the Company for the authorization, execution and delivery of this
Agreement and the consummation by it of the transactions contemplated hereby
shall have been obtained or made by the Company;
(d) Governmental Actions. There shall not have been instituted, pending or
threatened any action or proceeding (or any investigation or other inquiry that
might result in such an action or proceeding) by any governmental authority or
administrative agency before any governmental authority, administrative agency
or court of competent jurisdiction, in either case, seeking to prohibit or limit
Parent from exercising all material rights and privileges pertaining to its
ownership of the Surviving Corporation or the ownership or operation by Parent
or any of its subsidiaries of all or a material portion of the business or
assets of Parent or any of its subsidiaries, or seeking to compel Parent or any
of its subsidiaries to dispose of or hold separate all or any material portion
of the business or assets of Parent or any of its subsidiaries, as a result of
the Merger or the transactions contemplated by this Agreement;
(e) Material Adverse Change. Since the date of this Agreement, there shall
have been no change, occurrence or circumstance in the business, results of
operations or financial condition of the Company or any subsidiary of the
Company, including, but not limited to, (i) the threat or filing of any action,
claim, suit or proceeding against or involving the Company or (ii) any
development in existing litigation of the Company, in any such case having or
reasonably likely to ha ve a Material Adverse Effect. In entering into this
Agreement, Parent has relied in part upon the representations of the Company and
its legal counsel concerning ongoing litigation involving the Company, the
anticipated outcome thereof and the costs attendant thereto. Following the date
hereof, there shall have been no materially adverse change in the outlook
concerning such litigation, nor shall Parent have in good faith determined that
the outcome of any of such litigation matters will have a Material Adverse
Effect;
(f) Affiliate Agreements. Parent shall have received an Affiliate Agreement
from each person who is identified in the Affiliate Letter as an "affiliate" of
the Company, and each such Affiliate Agreement shall be in full force and
effect;
(g) Legal Opinions. Parent shall have received opinions, dated the Effective
Date, from counsel to the Company, in substantially the forms attached hereto as
Exhibit D;
(h) Employment Agreements; Restrictions on Resale; Other Matters. (i) Each
of Michael Levey, as Chairman and Chief Executive Officer of the Company, and
Lisa Levey shall have entered into five (5) year employment agreements with the
Surviving Corporation in substantially the forms attached hereto as Exhibits E
and F, respectively; (ii) each of Michael Levey and Lisa Levey shall also have
entered into an agreement with Parent, on terms acceptable to Parent, pursuant
to which each shall agree to refrain from selling, in the aggregate, more than
75,000 Parent Common Shares during any twelve (12) month period from and after
the Effective Time until the third anniversary thereof; (iii) Stephen Weber
shall have entered into an amendment to his existing employment agreement, as
previously amended April 14, 1994, reflecting that, following the Effective
Time, he shall occupy the
-32-
<PAGE>
position of Vice Chairman, not President/Chief Operating Officer/Chief Financial
Officer, of the Surviving Corporation; (iv) Stephen Weber shall have entered
into a one (1) year non-competition agreement with the Surviving Corporation,
commencing January 1, 1997, on terms acceptable to Parent; (v) Michael Levey
shall have entered into a cost/recovery sharing agreement with the Company, in
form reasonably acceptable to Parent, regarding the Company's and Mr. Levey's
ongoing litigation with Forbes Magazine, et al.; (vi) each of Michael Levey,
Stephen Weber, Doug Gravink and, as appropriate, any other directors, officers,
consultants or employees of the Company, shall have executed promissory notes
payable to the Company, in form reasonably acceptable to Parent, regarding any
amounts payable by each of them to the Company as of the Effective Time; and
(vii) Michael Levey shall have taken and passed such physical examinations as
Parent shall reasonably request;
(i) Opinion of Financial Advisor. Parent shall have received a written
opinion, dated the Effective Date, from Howard, Lawson & Co. that in its
opinion, as of the Effective Date, the Exchange Ratio is fair from a financial
point of view to Parent;
(j) Cruttenden Warrant. Cruttenden Roth, Incorporated shall have executed
and accepted an amended and restated warrant concerning the Stock Purchase
Rights held by Cruttenden Roth, Incorporated in form reasonably satisfactory to
Parent;
(k) Stock Options and Stock Purchase Rights. Each of Valerie Castle and
Charles McGlade shall have entered into written agreements with the Company, in
form reasonably acceptable to Parent, concerning such person's Stock Option and
Stock Purchase Right, respectively, to acquire 20,000 shares and 6,666 shares,
respectively, of Company Common Stock and the effect of the Merger thereon;
(l) Dissent. The holders of no more than a maximum of 4.9 percent of the
Company's Common Stock shall have exercised their rights under California Law to
dissent from the transaction; and
(m) Escrow. The Escrow calculations (as described in Section 6.04 below)
shall have been made and, to the extent required by Section 6.04 below, the
Escrow Holdback (as defined in Section 6.04 below) shall have been accomplished.
Section 6.03. ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub contained in this Agreement (together with the Parent
Disclosure Schedule) shall be true and correct in all respects on and as of the
Effective Time, except for (i) changes contemplated by this Agreement, (ii)
those representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date) and (iii)
instances where the failure to be true and correct would not have a Material
Adverse Effect on Parent and Merger Sub, with the same force and effect as if
made on and as of the Effective Time, and the Company shall have received a
certificate to such effect signed by the President and Chief Financial Officer
of Parent;
(b) Agreements and Covenants. Parent and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Effective Time, and the Company shall have received a certificate to such effect
signed by the President and Chief Financial Officer of Parent;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to be
made, by Parent and Merger Sub for the authorization, execution and delivery of
this Agreement and the consummation by them of the transactions contemplated
hereby shall have been obtained or made by Parent and Merger Sub;
(d) Material Adverse Change. Since the date of this Agreement, there shall
have been no change, occurrence or circumstance in the business, results of
operations or financial condition of Parent or any subsidiary of Parent having
or reasonably likely to have a Material Adverse Effect;
-33-
<PAGE>
(e) Legal Opinion. The Company shall have received an opinion, dated the
Effective Date, from Klehr, Harrison, Harvey, Branzburg & Ellers, counsel to
Parent, in substantially the form attached hereto as Exhibit G; and
(f) Opinion of Financial Advisor. The Company shall have received a written
opinion, dated the Effective Date, from Cruttenden Roth, Incorporated that in
its opinion, as of the Effective Date, the terms of the Merger are fair to the
shareholders of the Company from a financial point of view. A copy of such
opinion shall be delivered by the Company to Parent upon the receipt of such
opinion by the Company.
Section 6.04. MINIMUM SHAREHOLDERS' EQUITY; ESCROW.
(a) (i) The Company shall cause Deloitte & Touche LLP (the "Auditors") to
complete their audit of the Company's financial statements for the year ended
December 31, 1995 (the "Balance Sheet Date") (the "1995 Year-End Financial
Statements") promptly following the date hereof on a basis consistent with past
practices. The Company's balance sheet as of the Balance Sheet Date shall
include as liabilities any bonus(es) payable to Doug Gravink and/or any other
Company personnel for the 1995 or any prior fiscal year as well as any
additional insurance premiums payable by the Company pertaining to any period
prior to the Balance Sheet Date.
(ii) To the extent that the Company's shareholders' equity as of the
Balance Sheet Date, subject to any material adjustment thereto occurring as
a result of post-Balance Sheet Date occurrences which the parties may agree
upon in good faith, minus an amount equal to the aggregate Writedown
Amounts, as defined below (to the extent that such Writedown Amounts have
not already been written off), is less than the Minimum Shareholders'
Equity, as defined below, the aggregate maximum number of shares of NMC
common stock issuable to the Holders (as defined below) shall be reduced by
an amount equal to such shortfall, multiplied by two (2) and then divided by
$14.125. Notwithstanding the foregoing, any reserve established or writedown
effected in the Company's 1995 Year End Financial Statements corresponding
to any of the Liquidation Amounts, as defined below, shall not be given
effect in making the calculation described in this subparagraph (a)(ii). The
amount calculated by reversing the effect of any such writedowns or reserves
shall hereinafter be referred to as the "Calculation Equity".
(iii) "Minimum Shareholders' Equity" shall mean an amount equal to (A)
$13,000,000 less (B) an amount equal to all costs incurred by the Company
directly in connection with this Agreement, the Merger and the transactions
contemplated hereby and thereby and given effect in the Company's financial
statements (the "Transaction Costs").
(iv) The Auditors shall deliver their preliminary calculation of the
Company's shareholders' equity as of the Balance Sheet Date to Parent and
the Company as soon as practicable. Each party shall have ten (10) days
after such delivery to raise objections or propose changes (delivered to
both the Auditors and the other party) and an additional two days to respond
to proposals of the other party. Thereafter, the Auditors shall complete
their audit as soon as practicable. The Company's shareholders' equity as
reflected on the audited balance sheet as of the Balance Sheet Date shall be
conclusive and binding on Parent, Merger Sub and the Company as of that date
for purposes of the calculations to be made pursuant to this Section 6.04.
The Company shall advise Parent as to, and the Auditors shall verify to
Parent, the amount of the Transaction Costs.
(b) (i) To the extent that the Adjusted Shareholders' Equity (as defined
below) is less than the Calculation Equity, then certain of the Parent Common
Shares otherwise to be delivered to the Company's Shareholders shall be
deposited, upon consummation of the Merger, into escrow subject to the
provisions of subparagraph (c) below.
(ii) Adjusted Shareholders' Equity shall mean the sum of (A) the
Company's shareholders' equity as of the Balance Sheet Date, subject to any
material adjustment thereto necessitated by post-Balance Sheet Date
occurrences which the parties hereto may agree upon in good faith;
-34-
<PAGE>
MINUS (B) the Writedown Amounts (to the extent such Writedown Amounts have
not already been written off); MINUS (C) the Liquidation Amounts; and MINUS
(D) the Other Holdback Amounts (as defined below).
(iii) "Writedown Amounts" shall mean (A) the amount of any deferred
software costs; and (B) the amount of any note receivable from David Wood.
Just prior to the Effective Time, the Company shall write-off such Writedown
Amounts as the Parent shall deem reasonable.
(iv) The "Liquidation Amounts" shall mean (A) the amount of any
unsupported deferred media credits; (B) the amount of any cash deposits held
by Lytle (in excess of $100,000) and/or by the Perfect Hair manufacturer;
(C) the amount of any Telebrands receivable(s); (D) any unamortized
production costs of the Tai Chi show; (E) any unamortized production costs
of the Mathemagics Show; (F) the amount of any Perfect Hair inventory; (G)
the amount of any insurance recovery receivable; and (H) the amount of any
third party media receivables.
(v) The "Other Holdback Amounts" shall mean any amounts which would be
due to be paid to the law firm of Russ, August & Kabat ("R,A&K") as of the
Effective Time pursuant to that certain Attorney-Client Representation
Agreement by and between the Company, Michael Levey and R,A&K (the "Fee
Agreement") if the litigation matter referred to therein (the "Litigation")
were dismissed by the Company as of the Effective Time, less any of such
amounts which have already been accrued in the Company's financial
statements (the "Fee Amount").
(c) The Parent Common Shares to be placed into escrow (the "Escrow Shares")
shall have an aggregate Value (as defined below) equal to the difference between
the Calculation Equity and the Adjusted Shareholders' Equity, less the sum of
the Liquidation Amounts which have been collected and/or the value thereof
demonstrated on or prior to the Effective Date. The "Value" of each Parent
Common Share shall be $14.125. An escrow account (the "Escrow Account") shall be
established at Parent's transfer agent, or such other third party as shall be
mutually acceptable to Parent and the Company (the "Escrow Agent"), pursuant to
the terms of an Escrow Agreement between Parent and the Escrow Agent (the
"Escrow Agreement") in a form to be agreed upon by Parent and the Company. The
Escrow Shares shall be released as provided in subparagraph (d) below and in
accordance with the terms of the Escrow Agreement.
(d) As of September 30, 1996, March 31, 1997 and September 30, 1997 (the
"Review Dates"), Parent and the Shareholders' Representative (as defined below)
shall conduct a review of those balance sheet items pertaining to the
Liquidation Amounts. To the extent that all or a portion of the Liquidation
Amounts (net of any third party costs of collection in the case of (B), (C), (G)
and (H)) have, as of such dates, either been collected/liquidated (in the case
of items (A), (B), (C), (F), (G) and (H)) or the value thereof demonstrated (in
the case of items (D) and (E)), Parent shall cause Escrow Agent to deliver out
of the Escrow Account, on a pro-rata basis to those persons who held Company
Common Stock as of the Effective Time (the "Holders"), a number of Escrow Shares
equal to the quotient of (x) the aggregate dollar amount which, as of the date
of such review, has either been collected/liquidated or the value thereof
demonstrated with respect to the Liquidation Amounts, divided by (y) the per
share Value. In addition, as of the first Review Date to occur following the
dismissal (voluntary or otherwise), settlement or final adjudication of the
Litigation, to the extent that any portion of the Fee Amount has prior thereto
been paid to R,K&A other than out of net proceeds of any such settlement or
final adjudication, then a number of Escrow Shares equal to such portion of the
Fee Amount divided by $14.125 shall be delivered back to Parent in accordance
with the terms of the Escrow Agreement and a number of Escrow Shares equal to
the balance of the Fee Amount divided by $14.125 shall be delivered to the
Holders. Notwithstanding the foregoing, in no event shall the aggregate number
of Parent Common Shares to be delivered to the Holders pursuant to the
provisions of this subparagraph (d) exceed the aggregate number of Escrow Shares
initially deposited into the Escrow Account and nothing herein shall be
construed as granting any such rights upon such Holders. Following the last of
such Review Dates and any delivery of Parent Common Shares thereby called for,
any Escrow Shares remaining in the Escrow Account shall be delivered back
-35-
<PAGE>
to Parent in accordance with the terms of the Escrow Agreement. Parent and
Merger Sub shall not compromise, forgive or otherwise settle for less than the
full accrued amount thereof any of items (A), (B), (C), (F) or (G) of the
Liquidation Amounts without the Shareholders' Representative's prior approval.
The Shareholders' Representative shall be Michael Levey.
ARTICLE VII
TERMINATION
Section 7.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
shareholders of the Company:
(a) by mutual written consent duly authorized by the Boards of Directors of
Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by April 30, 1996 (provided that the right to terminate this
Agreement under this Section 7.01(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date); or
(c) by either Parent or the Company if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued a non-appealable final order, decree or ruling or taken any other action,
in each case having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger; or
(d) by Parent or the Company, if, at the Company Shareholders' Meeting
(including any adjournment or postponement thereof), the requisite vote of the
shareholders of the Company shall not have been obtained; or
(e) by Parent, if (i) the Board of Directors of the Company shall withdraw,
modify or change its recommendation of this Agreement or the Merger in a manner
adverse to Parent or shall have resolved to do so; or (ii) the Board of
Directors of the Company shall have taken a "neutral" position with respect to
(or shall have failed to reject as inadequate or failed to have reaffirmed its
recommendation of this Agreement and the Merger within ten (10) business days
after the public announcement or commencement of) an Acquisition Proposal; or
(f) by Parent or the Company, upon a material breach of any representation,
warranty, covenant or agreement on the part of the Company or Parent and Merger
Sub, respectively, set forth in this Agreement or if any representation or
warranty of the Company or Parent and Merger Sub, respectively, shall have
become materially untrue, in either case, such that the conditions set forth in
Section 6.02(a) or 6.02(b), or Section 6.03(a) or 6.03(b), would not be
satisfied (a "Terminating Breach"); provided that, if such Terminating Breach is
curable prior to the expiration of thirty (30) days from its occurrence (but in
no event later than April 30, 1996) by Parent or the Company, as the case may
be, through the exercise of its reasonable best efforts and for so long as
Parent or the Company, as the case may be, continues to exercise such reasonable
best efforts, neither the Company nor Parent, respectively, may terminate this
Agreement under this Section 7.01(f) unless such thirty (30) day period expires
without such Terminating Breach having been cured; or
(g) by the Company or Parent, if the Board of Directors of the Company shall
have resolved to accept, or accepted, a Superior Proposal on or before June 30,
1996.
Section 7.02. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 7.01, this Agreement shall forthwith become
null and void and there shall be no liability on the part of any party hereto or
any of its affiliates, directors, officers or stockholders except (i) as set
forth in Section 7.03 and Section 8.01 hereof, and (ii) nothing herein shall
relieve any party from liability for any willful breach hereof (provided that
any fee paid by the Company pursuant to Section 7.03(b) hereof shall be credited
towards any such liability of the Company). If the Board of Directors of the
Company, in good faith, after receiving the advice of outside counsel, concludes
that it
-36-
<PAGE>
would be in violation of its fiduciary duties if it did not take or omit to take
the actions enumerated in Section 7.01(e) or 7.01(g) as giving rise to a right
of termination by Parent, then any such action or omission shall not be
considered a willful breach of this Agreement.
Section 7.03. FEES AND EXPENSES.
(a) Except as set forth in this Section 7.03, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated. Notwithstanding the foregoing, in the event of a termination of
this Agreement by Parent pursuant to Section 7.01(f) hereof, the Company and
Parent agree to share equally all costs and expenses, including filing fees
and/or attorney's fees, incurred in connection with their compliance with the
pre-merger notification requirements of the HSR Act; provided, however, that in
the event the Company is required to pay to Parent the fee referred to in
Section 7.03(b) below and the Company delivers such fee in accordance with
Section 7.03(c) below, the Company shall not be responsible to Parent for any
portion of such costs and expenses.
(b) The Company shall pay Parent a fee of $500,000 in the event that:
(i) the Agreement is terminated by Parent pursuant to Section 7.01(f);
and
(ii) the Company is sold to a third party on or before June 30, 1996.
(c) The fee payable pursuant to Section 7.03(b) shall be paid within one
business day after the last to occur of the events described in Section 7.03(b).
If the Company pays such fee to Parent, such payment shall be deemed to be in
lieu of all other recoveries which Parent may otherwise have the right to pursue
from the Company or any of its affiliates, directors, officers or shareholders.
In no event shall the Company be required to pay any fee pursuant to Section
7.03(b) if, immediately prior to the termination of the Agreement, Parent is in
material breach of its obligations under this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Except as otherwise provided in this Section 8.01, the
representations, warranties, covenants and agreements of each party hereto shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any other party hereto, any person controlling any such
party or any of their officers or directors, whether prior to or after the
execution of this Agreement. Any disclosure made with reference to one or more
sections of the Company Disclosure Schedule or the Parent Disclosure Schedule
shall be deemed disclosed with respect to each other section therein as to which
such disclosure is relevant provided such relevance is reasonably apparent.
Except as otherwise expressly provided herein, the representations, warranties,
covenants and agreements in this Agreement and all certificates of any officer
of Parent or the Company delivered pursuant hereto shall terminate at the
Effective Time or upon termination of this Agreement pursuant to Section 7.01,
as the case may be; provided, however, that the covenants and agreements set
forth in Sections 5.05 and 5.06 shall survive the Effective Time indefinitely
and those set forth in Sections 5.03 and 7.03 shall survive termination
indefinitely. The Confidentiality Agreement shall survive termination of this
Agreement as provided therein.
Section 8.02. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered personally, three days after being
sent by registered or certified mail (postage prepaid, return receipt
requested), one day after dispatch by recognized overnight courier (provided
delivery is
-37-
<PAGE>
confirmed by the carrier) and upon transmission by telecopy, confirmed received,
to the parties at the following addresses (or at such other address for a party
as shall be specified by like changes of address):
(a) If to Parent or Merger Sub:
National Media Corporation
1700 Walnut Street, 9th Floor
Philadelphia, PA 19103
Telecopier No.: (215) 772-5013
Attention: Constantinos I. Costalas, Vice Chairman
With a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telecopier No.: (215) 568-6603
Attention: Gerald F. Stahlecker, Esq.
(b) If to the Company:
Positive Response Television, Inc.
14724 Ventura Boulevard
Sixth Floor
Sherman Oaks, CA 91407
Telecopier No.: (818) 380-6966
Attention: Michael Levey, Chairman
With a copy to:
Irell & Manella
1800 Avenue of the Stars (Century City)
Suite 900
Los Angeles, CA 90067-4276
Telecopier No.: (310) 203-7199
Attention: Alvin G. Segel, Esq.
Section 8.03. CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "affiliates" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person, including, without limitation, any partnership
or joint venture in which the Company (either alone, or through or together with
any other subsidiary) has, directly or indirectly, an interest of 10 percent or
more;
(b) "business day" means any day other than a day on which banks in New York
are required or authorized to be closed.
(c) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d)(3)) of the Exchange Act); and
(d) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, Parent or such other person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or indirectly,
more than 50% of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
Section 8.04. AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time;
-38-
<PAGE>
provided, however, that, after approval of the Merger by the shareholders of the
Company, no amendment may be made which by law requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
Section 8.05. WAIVER. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
Section 8.06. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 8.07. SEVERABILITY. If any term or other provision of this
Agreement is held to be invalid, illegal or incapable of being enforced under
any rule of law or public policy by a court of competent jurisdiction, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner so that the transactions
contemplated hereby are fulfilled to the extent possible.
Section 8.08. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
undertakings (other than the Confidentiality Agreement), both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
and, except as otherwise expressly provided herein, is not intended to confer
upon any other person any rights or remedies hereunder.
Section 8.09. ASSIGNMENT, MERGER SUB. This Agreement shall not be assigned
by operation of law or otherwise, except that Parent and Merger Sub may assign
all or any of their rights hereunder to any affiliate provided that no such
assignment shall relieve the assigning party of its obligations hereunder.
Parent guarantees the full and punctual performance by Merger Sub of all of the
obligations hereunder of Merger Sub.
Section 8.10. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 5.08 (which is intended to be for the
benefit of the Indemnified Parties and may be enforced by such Indemnified
Parties).
Section 8.11. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 8.12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF DELAWARE
APPLICABLE TO CONTRACTS EXECUTED AND FULLY PERFORMED WITHIN THE STATE OF
DELAWARE (WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES).
-39-
<PAGE>
Section 8.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 8.14. WAIVER OF JURY TRIAL. EACH OF PARENT, MERGER SUB AND THE
COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED
UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
National Media Corporation
By: /s/ Mark Hershhorn
-----------------------------------
Name: Mark Hershhorn
Title: PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PRT Acquisition Corp.
By: /s/ Constantinos I. Costalas
-----------------------------------
Name: Constantinos I. Costalas
Title: VICE PRESIDENT
Positive Response Television, Inc.
By: /s/ Michael Levey
-----------------------------------
Name: Michael Levey
Title: CHIEF EXECUTIVE OFFICER
-40-
<PAGE>
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Amendment (the "Amendment") to that certain Agreement and Plan of
Merger and Reorganization (the "Agreement"), dated as of January 17, 1996, by
and among National Media Corporation, a Delaware corporation ("Parent"), PRT
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Merger Sub"), and Positive Response Television, Inc., a California
corporation (the "Company"), is entered into as of the 4th day of April, 1996 by
and among the parties to the Agreement. Capitalized terms used in this Amendment
and not otherwise defined herein shall have the meaning ascribed thereto in the
Agreement.
Whereas, Parent, Merger Sub and the Company desire to amend certain terms of
the Agreement;
Now, therefore, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein and in the Agreement, and intending to
be legally bound hereby, Parent, Merger Sub and the Company hereby agree to
amend the Agreement as follows:
1. Section 5.10 of the Agreement is amended by deleting the second and
third sentences of such section and replacing them with the following:
"Each of Parent, Merger Sub and the Comany shall use its best
efforts to cause the Merger to qualify, and will not (either
before or after consummation of the Merger) take any actions which
could prevent the Merger from qualifying, as a reorganization
under the provisions of Section 368 of the Code and the
regulations promulgated thereunder."
2. Section 6.04(d) of the Agreement is amended to add a new sentence after
the third sentence of such section as follows:
"Finally, Parent shall be entitled to receive, as of the first
Review Date to occur following the date (the "Tax Determination
Date") on which a final determination is issued by the State of
California as to the aggregate amount of any Taxes due and owing
from the Company and its subsidiaries as of the Tax Determination
Date (the "State Tax Deficiency"), a number of Escrow Shares equal
to (x) the amount, if any, by which the State Tax Deficiency
exceeds the amount accrued with respect to such Taxes on the
Company's financial statements as of the Closing Date, divided by
(y) $14.125."
3. Section 7.01(b) of the Agreement is amended by deleting "April 30, 1996"
from the second line thereof and replacing it with "May 31, 1996".
4. Section 7.01(f) of the Agreement is amended by deleting "April 30, 1996"
from the eighth line thereof and replacing it with "May 31, 1996".
5. The terms and provisions of the Agreement shall remain in full force and
effect, except as such terms and provisions are amended hereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
National Media Corporation
By: /s/ MARK HERSHHORN
-----------------------------------
Name: Mark Hershhorn
Title: PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PRT Acquisition Corp.
By: /s/ CONSTANTINOS I. COSTALAS
----------------------------------
Name: Constantinos I. Costalas
Title: VICE PRESIDENT
Positive Response Television, Inc.
By: /s/ MICHAEL LEVEY
-----------------------------------
Name: Michael Levey
Title: CHIEF EXECUTIVE OFFICER
-2-
<PAGE>
EXHIBIT 2.2
<PAGE>
ESCROW AGREEMENT
----------------
This Escrow Agreement (the "Agreement") is entered into as of May 17, 1996,
by and among National Media Corporation, a Delaware corporation ("Parent"),
Positive Response Television, Inc., a California corporation (the "Company"),
the Shareholders' Representative (as defined herein) and the Escrow Agent named
herein.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Parent and the Company have entered into an Agreement and Plan
of Merger and Reorganization, dated as of January 17, 1996 and amended as of
April 4, 1996 (together with all exhibits, schedules, supplements and any
subsequent amendments thereto, the "Plan"), pursuant to which the Company
will be merged with and into PRT Acquisition Corp. ("Merger Sub"), a
wholly-owned subsidiary of Parent. Capitalized terms used in this Agreement
and not otherwise defined herein shall have the meanings given them in the
Plan;
WHEREAS, the Plan provides that Parent will deposit the Escrow Shares into
an escrow account (the "Escrow Account"), as soon as practicable after the
Effective Time, pending the collection/liquidation of certain items reflected on
the Company's audited balance sheet as of December 31, 1995 (the "1995 Balance
Sheet"), as adjusted to reflect post-December 31, 1995 occurrences, subject to
the terms and conditions set forth herein. The calculation of the number of
Escrow Shares required to be deposited in the Escrow Account pursuant to the
Plan and this Agreement is set forth on EXHIBIT A attached hereto; and
WHEREAS, the parties hereto desire to establish the terms and conditions
pursuant to which the Escrow Shares will be deposited, held in, and disbursed
from the Escrow Account.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. ESCROW OF SHARES. The Escrow Shares will be held in escrow by
Chemical Mellon Shareholder Services, L.L.C. (or such other institution as
Parent and the Shareholders' Representative may mutually agree upon) (the
"Escrow Agent"), pending the collection/liquidation of certain items reflected
on the Company's 1995 Balance Sheet (as adjusted to reflect post-December 31,
1995 occurrences) and identified in Section 6.04 of the Plan and Sections
2(c)(iii) and (iv) of this Agreement, until such Escrow Shares are required to
be released pursuant to the terms of this Agreement and the Plan. Any shares of
Parent Common Stock subsequently issued with respect to the Escrow Shares during
the term of this Agreement, whether by stock split, stock dividend or otherwise
(collectively, Additional Escrow Shares"), will also be held in escrow by the
Escrow Agent. The Escrow Agent agrees to accept delivery of the Escrow Shares
and any Additional Escrow Shares, and hold such Escrow Shares and Additional
Escrow Shares in escrow subject to the terms and conditions of this Agreement
and the Plan.
2. DEPOSIT OF ESCROW SHARES; RELEASE FROM ESCROW.
(a) DELIVERY OF ESCROW SHARES. As soon as practicable following the
Effective Time, the Escrow Shares otherwise issuable in the Merger, on a pro-
rata basis, to those persons who hold shares of Company Common Stock as of the
Effective Time (the "Holders") will be delivered by Parent to the Escrow Agent
in the form of a duly authorized stock certificate or certificates issued in the
name of the Escrow Agent or its nominee. In the event Parent issues any
Additional Escrow Shares, such shares will be issued in the name of the Escrow
Agent and delivered to the Escrow Agent in the same manner as the Escrow Shares
delivered pursuant to the preceding sentence.
(b) DIVIDENDS, VOTING AND RIGHTS OF OWNERSHIP. Except for any
dividends paid in shares of Parent Common Stock declared with respect to the
Escrow Shares (such shares being defined in Section 1 above as "Additional
Escrow Shares") which shall be treated as provided in Sections 2(a) and 2(c)(ii)
hereof, any and all dividends and other distributions declared with respect to
the Escrow Shares (or Additional Escrow Shares, if any), whether payable in
cash, securities or other property of any kind, will be distributed currently to
the Holders. Each Holder will have voting rights with respect to the Escrow
Shares (and any Additional Escrow Shares issued with respect thereto) deposited
in the Escrow Account with respect to such Holder so long as such shares are
held in escrow, and Parent and the Escrow Agent will take all reasonable steps
necessary to allow the exercise of such rights. While the Escrow Shares (and
any Additional Escrow Shares issued with respect thereto) remain in the Escrow
Agent's possession pursuant to this Agreement and the Plan, the Holders will
retain and will be able to exercise all other incidents of ownership with
respect to the Escrow Shares (and any Additional Escrow Shares issued with
respect
<PAGE>
thereto) which are not inconsistent with the terms and conditions hereof and
thereof.
(c) DISTRIBUTION TO HOLDERS.
(i) As of September 30, 1996, March 31, 1997 and September
30, 1997 (the "Review Dates"), Parent and the Shareholders' Representative
(as defined herein) shall, in good faith, conduct a review of those balance
sheet items pertaining to the Liquidation Amounts (as defined below). To the
extent that all or a portion of the Liquidation Amounts (net of any third
party costs of collection in the case of items (B), (C) and (E) of subsection
(iii) below) have, as of such dates, been collected/liquidated, Parent shall,
in accordance with Section 2(d) below, instruct Escrow Agent to deliver out
of the Escrow Account to the Holders a number of Escrow Shares equal to the
quotient of (x) the aggregate dollar amount which, as of the date of such
review, has been collected/liquidated with respect to the Liquidation
Amounts, divided by (y) $14.125. In addition, as of the first Review Date to
occur following the dismissal (voluntary or otherwise), settlement or final
adjudication of the Litigation (as defined in subsection (iv) below), to the
extent that any portion of the Fee Amount (as defined in subsection (iv)
below) has prior thereto been paid by the Company, other than out of the net
proceeds of any such settlement or final adjudication, then a number of
Escrow Shares equal to such portion of the Fee Amount divided by $14.125
shall be delivered back to Parent by the Escrow Agent and a number of Escrow
Shares equal to the balance of the Fee Amount divided by $14.125 shall be
delivered to the Holders. Finally, as of the first Review Date to occur
following the date (the "Tax Determination Date") on which a final
determination is issued by the State of California as to the aggregate amount
of any Taxes due and owing from the Company and its subsidiaries as of such
Tax Determination Date (the "State Tax Deficiency"), a number of Escrow
Shares equal to (x) the amount, if any, by which the State Tax Deficiency
exceeds the amount accrued with respect to such Taxes on the Company's
financial statements as of the Closing Date, divided by (y) $14.125 shall be
delivered back to Parent by the Escrow Agent. Notwithstanding the foregoing,
in no event shall the aggregate number of Escrow Shares to be delivered to
the Holders pursuant to this Section 2(c) exceed the aggregate number of
Escrow Shares deposited by Parent into the Escrow Account pursuant to Section
1 hereof and nothing contained herein shall be construed as granting any such
rights upon such Holders.
As soon as practicable following the last of the Review Dates and
any delivery of Escrow Shares thereby called for, any Escrow Shares remaining in
the Escrow Account shall be delivered back to Parent by the Escrow Agent.
Parent and Merger Sub shall not compromise, forgive or otherwise
settle for less than the full accrued amount thereof any of items (A), (B), (C)
or (D) of the Liquidation Amounts without the Shareholders' Representative's
prior written consent, which consent shall not be unreasonably withheld.
(ii) Whenever the Escrow Agent is required to deliver Escrow
Shares to either Parent or the Holders pursuant to subsection (i) above, the
Escrow Agent shall also deliver to Parent or the Holders, as the case may be,
any and all Additional Escrow Shares issued with respect to such Escrow Shares.
(iii) For purposes of this Section 2(c), "Liquidation
Amounts" shall mean:
A. The amount of any unsupported deferred media
credits;
B. The amount of any cash deposits held by Lytle (in
excess of $100,000) and/or by the Perfect Hair manufacturer;
C. The amount of any Telebrands receivable(s);
D. The amount of any Perfect Hair inventory; and
E. The amount of any third party media receivables.
(iv) For purposes of this Section 2(c), the "Fee Amount"
shall mean any amounts which would be due to be paid to the law firm of Russ,
August & Kabat as of the Effective Time pursuant to that certain Attorney-Client
Representation Agreement by and among such law firm, the Company and Michael
Levey if the litigation matter referred to therein (the "Litigation") were
dismissed by the Company as of the Effective Time, less any of such amounts
which have already been accrued in the Company's financial statements as of the
Effective
-2-
<PAGE>
Time.
(d) RELEASE OF SHARES TO HOLDERS. The Escrow Shares (and any
Additional Escrow Shares issued with respect thereto) will be held by the Escrow
Agent until required to be released pursuant to Section 2(c) above. Within
thirty (30) business days after the applicable release condition is met, the
Escrow Agent will deliver to each Holder the requisite number of Escrow Shares
(and any Additional Escrow Shares issued with respect thereto) to be released on
such date as identified by Parent and the Shareholders' Representative to the
Escrow Agent in writing, in the form of stock certificate(s) issued in the name
of such Holder. Parent and the Shareholders' Representative undertake to
deliver a notice to the Escrow Agent identifying the number of Escrow Shares
(and any Additional Escrow Shares issued with respect thereto) to be released
within such thirty-day period and Parent agrees to take such action as may be
necessary to cause such certificates to be issued in the names of the
appropriate Holders and delivered to the Escrow Agent together with the notice
from Parent and the Shareholders' Representative. Escrow Shares (and any
Additional Escrow Shares issued with respect thereto) will be released on a pro-
rata basis to the respective Holders in proportion to their respective interests
in the Company as of the Effective Time. Certificates representing Escrow
Shares (and any Additional Escrow Shares issued with respect thereto) so issued
that are subject to resale restrictions under applicable securities laws will
bear a legend to that effect. Parent will notify the Escrow Agent if any Escrow
Shares (and any Additional Escrow Shares issued with respect thereto) are
subject to any resale restriction, and Parent will provide the text of any
required legend. Cash will be paid in lieu of fractions of Escrow Shares (and
any Additional Escrow Shares issued with respect thereto) in accordance with the
provisions of Section 1.06(f) of the Plan. Parent will deposit with the Escrow
Agent sufficient funds to pay such cash amounts for fractional shares within
thirty (30) business days after the applicable release condition is met.
(e) NO ENCUMBRANCE. No Escrow Shares, Additional Escrow Shares or any
beneficial interest therein may be pledged, sold, assigned, or transferred,
including by operation of law, by a Holder or be taken or reached by any legal
or equitable process in satisfaction of any debt or other liability of a Holder,
prior to their delivery to such Holder by the Escrow Agent. The right to
receive Escrow Shares (and any Additional Escrow Shares issued with respect
thereto) upon release and distribution thereof in accordance with this Agreement
are not transferable or assignable except by will, the laws of intestacy, or by
other operation of law.
(f) POWER TO TRANSFER ESCROW SHARES. The Escrow Agent is hereby
granted the power to effect any transfer of Escrow Shares (and any Additional
Escrow Shares issued with respect thereto) contemplated by the Plan or this
Agreement. Parent will cooperate with the Escrow Agent in promptly issuing
stock certificates to effect such transfers.
3. TERMINATION. This Agreement shall terminate upon the release of all
Escrow Shares (and any Additional Escrow Shares issued with respect thereto)
pursuant to the terms of Sections 2 or 5(e) hereof.
4. SHAREHOLDERS' REPRESENTATIVE.
(a) Pursuant to the terms of the Plan as approved by the Holders, the
Holders have consented to the appointment of Michael Levey as the representative
("Shareholders' Representative") for and on behalf of each of the Holders to
give and receive notices and communications, to authorize delivery to the
Holders of the Escrow Shares (and any Additional Escrow Shares issued with
respect thereto), to agree to, negotiate, and enter into settlements and
compromises of Liquidation Amounts, and to take all actions necessary or
appropriate in the judgment of the Shareholders' Representative for the
accomplishment of the foregoing. Such agency may be changed by the Holders of a
majority in interest of the Escrow Shares from time to time upon not less than
ten (10) days' prior written notice to Parent. No bond will be required of the
Shareholders' Representative, and the Shareholders' Representative will receive
no compensation for his services. Notices or communications to or from the
Shareholders' Representative will constitute notice to or from each of the
Holders. Parent agrees to waive any conflict of interest of any type that may
arise as a result of Michael Levey acting as Shareholders' Representative.
(b) The Shareholders' Representative will not be liable for any act
done or omitted hereunder as Shareholders' Representative while acting in good
faith and not in a manner constituting willful misconduct and any act done or
omitted pursuant to the advice of counsel will be conclusive evidence of such
good faith. The Holders will severally indemnify the Shareholders'
Representative and hold him harmless against any loss, liability or expense
incurred without willful misconduct or bad faith on the part of the
Shareholders' Representative and arising out of or in connection with the
acceptance or administration of his duties hereunder.
-3-
<PAGE>
(c) The Shareholders' Representative will have reasonable access to
information about the Company and Parent and the reasonable assistance of
Parent's and Merger Sub's officers and employees for purposes of performing his
duties and exercising his rights hereunder, provided that the Shareholders'
Representative will treat confidentially and not disclose any nonpublic
information from or about Parent or Merger Sub to anyone (except on a need to
know basis to individuals who agree to treat such information confidentially).
(d) A decision, act, consent or instruction of the Shareholders'
Representative will constitute a decision, act, consent or instruction of all
Holders and will be final, binding and conclusive upon each such Holder, and the
Escrow Agent and Parent may rely upon any decision, act, consent or instruction
of the Shareholders' Representative as being the decision, act, consent or
instruction of each and every such Holder. The Escrow Agent and Parent are
hereby relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Shareholders'
Representative.
5. LIMITATION ON ESCROW AGENT'S RESPONSIBILITIES. The acceptance by the
Escrow Agent of its duties as such hereunder is expressly made subject to the
following terms and conditions:
(a) The Escrow Agent will act solely as stakeholder hereunder and is
not a party to, and is not bound by, any agreement referred to herein or by any
other agreement between Parent and the Shareholders' Representative or their
respective agents, administrators, successors, or assigns, other than this
Agreement. The Escrow Agent shall not be deemed to be the agent, other than as
set forth herein, of either Parent, the Shareholders' Representative or the
Holders.
(b) The Escrow Agent will not be responsible or liable in any manner
whatsoever for the sufficiency, correctness, genuineness or validity of any
Escrow Shares (or any Additional Escrow Shares issued with respect thereto)
deposited hereunder.
(c) The Escrow Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype, telecopy, message, cablegram, radiogram, order or
other document or telephone message reasonably believed by it to be genuine and
correct and to have been signed, sent, or made by the proper person or entity,
and, with respect to all legal matters pertaining to this Agreement and its
duties hereunder, upon advice of counsel selected by it.
(d) The Escrow Agent shall be liable hereunder only for its actions
or omissions constituting gross negligence or willful misconduct.
(e) In the event of any dispute as to the nature of its rights or
obligations hereunder or as to the entitlement of either Parent or the Holders
to the Escrow Shares (and any Additional Escrow Shares issued with respect
thereto), the Escrow Agent may at any time or from time to time interplead,
deposit and/or transfer all or any part of the Escrow Shares (together with any
Additional Escrow Shares issued with respect thereto) with or to a court of
competent jurisdiction in Philadelphia County, Pennsylvania in accordance with
the procedural rules thereof. The Escrow Agent shall give notice of such action
to Parent and the Shareholders' Representative. Upon such interpleader, deposit
or payment, the Escrow Agent shall be immediately and automatically relieved and
discharged from all further obligations and responsibilities hereunder, and
except as provided herein, this Agreement shall terminate.
(f) Parent agrees to indemnify and hold the Escrow Agent harmless
from and against all costs, claims and expenses, including reasonable attorneys'
fees, incurred in connection with, or related to, the performance of the Escrow
Agent's duties hereunder, except with respect to actions or omissions taken or
suffered by the Escrow Agent involving gross negligence or willful misconduct on
the part of the Escrow Agent. The provisions of this subparagraph shall survive
the expiration or sooner termination of this Agreement.
6. NOTICES. Any notice provided for or permitted under this Agreement
will be treated as having been given when (i) delivered personally, (ii) sent by
confirmed telex or telecopy, (iii) sent by commercial overnight courier with
written verification of receipt, or (iv) mailed postage prepared by certified or
registered mail, return receipt requested, to the party to be notified, at the
address set forth below, or at such other place of which the other party has
been notified in accordance with the provisions of this Section 6.
-4-
<PAGE>
Escrow Agent: Chemical Mellon Shareholder Services, L.L.C.
450 W. 33rd Street, 15th Floor
New York, NY 10001
Attn: Emanuel Galfo
Fax: (212) 946-3466
The Company: Positive Response Television, Inc.
14724 Ventura Boulevard, First Floor
Sherman Oaks, CA 91407
Attn: Michael S. Levey
Fax: (818) 380-6966
With a copy to: Irell & Manella
1800 Avenue of the Stars (Century City)
Suite 900
Los Angeles, CA 90067-4276
Attn: Alvin G. Segel, Esq.
Fax: (310) 203-7199
Shareholders' Representative: Michael Levey
c/o Positive Reponse Television, Inc.
14724 Ventura Boulevard, First Floor
Sherman Oaks, CA 91407
Fax: (818) 380-6966
Parent: National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Attn: Brian J. Sisko
Fax: (215) 772-5173
With a copy to: Klehr, Harrison, Harvey,
Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Attn: Gerald F. Stahlecker, Esquire
Fax: (215) 568-6603
Such notice will be treated as having been received upon actual receipt.
7. GENERAL.
(a) GOVERNING LAWS. It is the intention of the parties hereto that
the internal laws of the Commonwealth of Pennsylvania (irrespective of its
choice of law principles) shall govern the validity of this Agreement, the
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties hereto.
(b) BINDING UPON SUCCESSORS AND ASSIGNS. Subject to, and unless
otherwise provided in, this Agreement, each and all of the covenants, terms,
provisions, and agreements contained herein shall be binding upon, and inure to
the benefit of, the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties hereto.
-5-
<PAGE>
(c) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one or the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
(d) ENTIRE AGREEMENT. Except as set forth in the Plan and the
Agreement of Merger, this Agreement, the exhibits hereto, the documents
referenced herein, and the exhibits thereto, constitute the entire understanding
and agreement of the parties hereto with respect to the subject matter hereof
and thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto and thereto. The express terms hereof
control and supersede any course of performance or usage of trade inconsistent
with any of the terms hereof.
(e) CONFLICTS. In the event of any conflict or inconsistency between
the terms of this Agreement and the terms of the Plan, the terms of this
Agreement shall control.
(f) WAIVERS. No waiver by any party hereto of any condition or of
any breach of any provision of this Agreement will be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, will be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.
(g) AMENDMENT. This Agreement may be amended with the written
consent of Parent, the Company, the Escrow Agent and the Shareholders'
Representative.
8. EXPENSES OF ESCROW AGENT. All fees and expenses of the Escrow Agent
incurred in the ordinary course of performing its responsibilities hereunder
will be paid by Parent upon receipt of a written invoice by the Escrow Agent.
Any extraordinary fees and expenses reasonably incurred by the Escrow Agent,
including without limitation any fees or expenses incurred by the Escrow Agent
in connection with a dispute over the distribution of Escrow Shares, will be
paid 50% by Parent and 50% by the Holders. The Escrow Agent shall deliver a
written invoice of such fees to Parent and the Shareholders' Representative.
The Holders' liability for any such fees shall be pro rata among the Holders in
proportion to their respective interests in the Company as of the Effective
Time. The Holders' liability for the fees and expenses of the Escrow Agent
shall be paid by Parent and shall be recoverable as a claim hereunder out of the
Escrow Account. Upon the payment by Parent of the Holders' portion of such fees
and expenses hereunder, then the Escrow Agent shall, upon demand by Parent,
transfer to Parent a number of Escrow Shares (together with any Additional
Escrow Shares issued with respect thereto) having an aggregate value (based upon
a value of $14.125 per share) equal to such portion of the fees and expenses.
In the event the Escrow Agent incurs any liability to any person, firm or
corporation by reason of its acceptance or administration of this Agreement,
Parent agrees to indemnify the Escrow Agent for its extraordinary fees and
expenses, including, without limitation, counsel fees and expenses, as the case
may be. Notwithstanding the foregoing, no indemnity need be paid in the event
of the Escrow Agent's gross negligence or willful misconduct.
9. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by
specifying not less than sixty (60) days' prior written notice of such a date
when such resignation will take effect. Parent will designate a successor
Escrow Agent prior to the expiration of such 60-day period by giving written
notice to the Escrow Agent and the Shareholders' Representative. Parent may
appoint a successor Escrow Agent without the consent of the Holders or the
Shareholders' Representative so long as such successor is a bank with assets of
at least $50 million (or an affiliate of such an institution) and prompt notice
of such appointment is provided to the Holders and the Shareholders'
Representative. The Escrow Agent will promptly transfer the Escrow Shares
(together with any Additional Escrow Shares issued with respect thereto) to such
designated successor. In the event no successor Escrow Agent is appointed as
described in this Section 9, the Escrow Agent may apply to a court of competent
jurisdiction for the appointment of a successor Escrow Agent.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
PARENT:
By: /s/ Constantinos I. Costalas
-----------------------------------
Name: Constantinos I. Costalas
Title: Vice Chairman
COMPANY:
By: /s/ Michael Levey
-----------------------------------
Name: Michael Levey
Title: Chief Executive Officer
SHAREHOLDERS' REPRESENTATIVE:
/s/ Michael Levey
-------------------------------------
Michael Levey
ESCROW AGENT:
By: /s/ Emanuel Galfo
-----------------------------------
Name: Emanuel Galfo
Title:
-7-
<PAGE>
EXHIBIT 23.1
<PAGE>
Independent Auditors' Consent
We consent to the incorporation by reference in the Registration
Statements of National Media Corporation on Form S-3 (File Nos. 33-53252,
33-34303, 33-35301, 33-41916, 33-82618, 33-63841) and Form S-8 (File Nos.
33-34304, 33-60969, 33-63537) of our report with respect to the Consolidated
Financial Statements of Positive Response Television, Inc. and Subsidiaries,
dated March 25, 1996, included in the Current Report on Form 8-K of National
Media Corporation, dated May 17, 1996, filed with the Securities and Exchange
Commission.
Deloitte & Touche LLP
Los Angeles, California
May 30, 1996
<PAGE>
EXHIBIT 99.1
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, made as of the 17th day of May, 1996, by and between POSITIVE
RESPONSE TELEVISION, INC., a Delaware corporation (the "Company") and a wholly-
owned subsidiary of National Media Corporation ("National Media"), NATIONAL
MEDIA and MICHAEL LEVEY ("Executive").
W I T N E S S E T H
-------------------
WHEREAS, National Media acquired Positive Response Television, Inc., a
California corporation ("Old PRTV") through the merger of Old PRTV into the
Company and intends that the Company function as an operating subsidiary of
National Media;
WHEREAS, Executive is willing to serve the Company on a full-time basis
during the term hereof as its Chief Executive Officer, subject to the terms and
conditions hereinafter set forth; and
WHEREAS, the Company desires to employ Executive in accordance with the
terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, it is agreed as follows:
1. EMPLOYMENT. The Company hereby employs Executive, and Executive
hereby accepts employment from the Company as its Chief Executive Officer, upon
the terms and conditions hereinafter set forth. It is the intention of the
parties that the Company shall be operated as an operating subsidiary of
National Media, conducting business as an infomercial company, including without
limitation, the creation and production of infomercials, creation and execution
of telemarketing campaigns, selection and acquisition of products, acquisition
of media time (as part of, and consistent with, the overall National Media
United States integrated media strategy), and entering into product distribution
agreements for third party shows or other arrangements with respect to the
foregoing, in each case on terms deemed appropriate by Executive in the exercise
of his good faith business judgment. National Media shall provide adequate
funding for the Company in accordance with annual budgets and individual product
<PAGE>
budgets prepared by management of the Company, approved by Executive, and
approved by the Company's Board of Directors and the Chief Executive Officer of
National Media. So long as such action does not conflict with any other
contractual obligations of National Media, National Media shall give to the
Company the first opportunity to exploit any product or service offered to it
for sale through infomercial or similar channels of distribution.
2. TERM OF EMPLOYMENT. The term ("Term") of this Agreement shall
commence as of May 17, 1996 (the "Commencement Date") and shall continue
thereafter until the fifth anniversary of the Commencement Date (the "Initial
Termination Date"), unless sooner terminated in accordance with the terms
hereof. The Term of this Agreement shall be automatically renewed for
successive one-year periods, and the Termination Date shall be automatically
extended accordingly, unless this Agreement is terminated by either party upon
six (6) months' written notice prior to the end of the then current Term. As
used herein, "Term" shall refer to the initial Term of this Agreement as
extended by any renewal Term then in effect; and "Termination Date" shall refer
to the last day of the Term of this Agreement, as it may have been extended.
3. DUTIES. Executive shall be engaged as, and hold the position of,
Chief Executive Officer of the Company. Executive shall have such authority and
responsibilities as are normally attendant thereto and agrees to perform such
duties and render such services consistent therewith, and as may from time to
time be reasonably required of him by the Company. The Board of Directors of
the Company (the "Board") shall be comprised of five members, including
Executive, the President of the Company and three other directors designated by
National Media. If the Board shall establish an Executive Committee, Executive
shall be a member of such committee. The Company's and Executive's principal
place of business shall be in the greater Los Angeles, California area.
Executive shall also serve as Executive Vice President of National Media. To
the extent such appointment does not violate applicable law or regulations or
otherwise materially adversely affect National Media, National Media shall cause
Executive to be appointed to serve during the Term as a director of Quantum
International, Ltd. and such other subsidiaries of National Media as shall be
mutually agreed upon by Executive and National Media. Executive shall devote
his full business time, attention and best efforts to the affairs of the Company
during
-2-
<PAGE>
the term of this Agreement. Executive will report directly to the Board and the
Chief Executive Officer of National Media and the exercise of his duties
hereunder shall be subject to their oversight. Executive may participate in
other businesses and act as a director of any profit or nonprofit corporation,
so long as such activity is not competitive with the business of the Company in
any material respect and does not materially detract from the performance of his
duties as a full-time executive of the Company.
4. COMPENSATION AND REIMBURSEMENT FOR EXPENSES.
4.1 BASE SALARY. The Company shall pay to Executive a minimum base
salary of Three Hundred and Twenty Five Thousand Dollars ($325,000.00) per annum
(as the same may be increased from time to time, the "Base Salary"). The Base
Salary shall be payable in accordance with the Company's regular payroll
practices, as determined by the Board in effect from time to time (but not less
frequently than bi-monthly) and shall be subject to annual review and adjustment
as the Board deems appropriate. The Base Salary may be increased or decreased
from time to time in the discretion of the Company's Board; PROVIDED, HOWEVER,
that Executive's Base Salary shall at no time be less than Three Hundred Twenty
Five Thousand Dollars ($325,000.00).
4.2 ANNUAL BONUS. In addition to the other amounts payable to
Executive hereunder, Executive shall participate in National Media's Management
Incentive Plan ("MIP"), beginning with National Media's Plan Year (as defined in
the MIP) ending March 31, 1997 on terms similar to other senior executives of
National Media holding comparable positions. The amount of bonus payable under
the MIP shall be based on performance (including, but not limited to,
Executive's ability to operate the Company within the budgets established as
aforesaid) in accordance with the provisions of the MIP, as determined by the
Compensation Committee of National Media's Board of Directors. Should National
Media or the Company adopt other annual or long-term bonus or incentive plans in
lieu of or in addition to the MIP, Executive shall be entitled to participate in
all such plans on terms comparable to other senior executives of National Media
or the Company, as the case may be, holding similar positions.
4.3 REIMBURSEMENT OF EXPENSES. The Company will promptly reimburse
-3-
<PAGE>
Executive, upon receipt of vouchers therefor, for all reasonable and necessary
expenses incurred by Executive for travel, entertainment and miscellaneous and
other business expenses which are incurred in connection with the performance of
his duties hereunder. Such reimbursements shall be made in accordance with the
Company's regular reimbursement procedures and practices in effect from time to
time for similarly situated officers of the Company or of National Media and its
other subsidiaries.
5. FRINGE BENEFITS.
5.1 GENERAL. Executive shall be entitled to participate in any and
all fringe and other benefit programs generally available to the officers of
National Media and its subsidiaries, including without limitation, stock option
plans, incentive plans, profit sharing plans, pension plans, thrift and savings
plans, insurance plans, supplemental insurance and benefit plans. However,
nothing contained in this subparagraph 5.1 shall be construed as requiring the
Company or National Media generally to maintain any such fringe benefit program.
5.2 PLANS. Executive shall be entitled to participate in any and all
employee benefit and/or welfare plans, including but not limited to health,
medical, and savings investment plans sponsored by the Company for its, or
National Media for its and its subsidiaries', officers and/or employees, and
receive any other benefits generally applicable to officers of the Company or
those of National Media and its other subsidiaries.
5.3 STOCK OPTIONS. As an inducement to the Executive to enter the
employ of the Company and to increase National Media shareholder value, National
Media hereby grants to the Executive, non-qualified stock options (the
"Options") to purchase up to 300,000 shares (the "Additional Shares") of
National Media common stock on terms that would otherwise apply if the Options
were issued under National Media's 1991 Stock Option Plan. The specific terms
of such conditional grant shall be set forth in a separate stock option
agreement. Notwithstanding the foregoing, such Options shall NOT be issued
pursuant to National Media's 1991 Stock Option Plan. The exercise price under
the Options shall be equal to the closing price of National Media's common stock
on the New York Stock Exchange as of the date hereof. The Options shall expire
five (5) years from the date hereof and shall vest as follows, assuming that, as
of such date, the
-4-
<PAGE>
Executive is still in the active employ of the Company:
(a) one third shall vest on the first anniversary date of the
date hereof;
(b) one third shall vest on the second anniversary of the date
hereof; and
(c) one third shall vest on the third anniversary of the date
hereof.
5.4 LIFE INSURANCE.
(a) PURCHASE. During the Term of this Agreement, the Company shall
provide Executive, or at the option of Executive, Executive's Life Insurance
Trust, with a Company-paid term life insurance policy in the face amount of
$2,000,000. At Executive's option, Executive may obtain an insurance policy in
lieu of a policy provided by the Company hereunder, and the Company shall pay
premiums therefor as set forth in invoices presented to the Company. The owner
of such life insurance policy shall be Executive or Executive's Life Insurance
Trust, and the beneficiary under such policy shall be, as directed by Executive.
Upon the termination of Executive's employment hereunder, Executive may purchase
any such insurance policy at a price to be negotiated in good faith by Executive
and the Company.
(b) PAYMENT OF PREMIUMS. The Company shall timely pay all premiums
for such life insurance whether provided by the Company for Executive or by
Executive's Life Insurance Trust for the Executive.
(c) MEDICAL EXAMINATIONS. Executive agrees to submit to all medical
examinations, supply all information and execute all documents required by the
insurance company in connection with the issuance of a policy for such insurance
as well as for any key man insurance the Company or National Media may desire to
maintain on Executive's life. The Company shall reimburse Executive for any
costs incurred by Executive for any such medical examinations.
5.5 AUTOMOBILE ALLOWANCE. At the present time, the Company, as
successor in interest to Old PRTV, leases a Mercedes Benz 600 SL automobile for
use by Executive. The lease (the "Lease") on such vehicle runs through August
30, 1998. Through the expiration of such Lease, the Company will continue to
fulfill all monetary obligations under the Lease. Executive shall be
responsible, and shall not be reimbursed, for maintenance and all other costs
-5-
<PAGE>
relating to the operation of such vehicle. Following expiration of the Lease,
during the Term and so long as Executive is in the active employ of the Company,
the Company shall pay Executive a monthly automobile allowance of Eight Hundred
Dollars ($800.00) which shall be deemed to compensate Executive for all
automobile related costs, including, but not limited to, insurance, fuel,
maintenance, wear and tear, etc..
5.6 VACATIONS; HOLIDAYS; SICK LEAVE. Executive shall be entitled to
such number of paid vacation days in each calendar year as are generally awarded
to senior executive officers of National Media, but not less than three (3)
weeks in any calendar year (prorated in any calendar year during which Executive
is employed hereunder for less than the entire year in accordance with the
number of days in such calendar year during which he is so employed). Executive
shall not be permitted to carry over any portion of Executive's accrued but
unused vacation time from one fiscal year to the next fiscal year; PROVIDED,
HOWEVER, that in the event applicable law renders the preceding clause
unenforceable, Executive shall be permitted to carry over accrued but unused
vacation time, but in no event shall Executive be permitted to accrue at any
time more than three (3) weeks' vacation time. Executive shall also be entitled
to all paid holidays and sick leave as are generally awarded to senior
executives of National Media.
6. NATIONAL MEDIA COMMON STOCK.
6.1 RESTRICTION ON TRANSFER OF NATIONAL MEDIA COMMON STOCK. Executive
shall not (and Executive's wife shall not), without the prior written consent of
National Media (which consent will not be unreasonably withheld), agree to or
permit the sale, disposition or other transfer by him and/or his Permitted
Transferees (as defined below) of more than 75,000 shares of National Media
Common Stock (including any shares sold by Executive's wife) in any twelve (12)
month period during the first thirty-six months following the date hereof (the
"Transfer Restriction"). This Paragraph 6 shall in no way restrict or limit
Executive's ability to (a) transfer shares of National Media Common Stock to his
immediate family members or to a trust or trusts for the benefit of his
immediate family members for estate planning purposes or (b) pledge shares of
National Media Common Stock to a financial institution as security for debt
incurred by Executive (all transferees permitted by clause (a) and (b) are
referred to herein as "Permitted
-6-
<PAGE>
Transferees"); PROVIDED, HOWEVER, that Executive and such Permitted Transferees
shall (i) be bound by the Transfer Restriction and (ii) execute, prior to any
such transfer to such Permitted Transferee, such documents as may be reasonably
requested by the Company or National Media to evidence such Transfer
Restriction.
In the event that Executive's employment by the Company is (a)
terminated by the Company for any reason other than pursuant to
subparagraph 9.1(b) hereof or (b) terminated by Executive pursuant to
subparagraph 9.1(c) hereof, the provisions of this Paragraph 6.1 shall terminate
and be of no further force or effect.
6.2 REGISTRATION RIGHTS.
(a) If, at any time during the employment of Executive by the Company
pursuant hereto, National Media shall determine to register under the Securities
Act of 1933 any shares of its common stock (other than a registration on Form
S-8, S-4 or similar form or a registration on any form which does not include
substantially the same information, other than information relating to selling
stockholders or their plan of distribution, as would be required to be included
in a registration statement covering the sale of the Shares (as defined below)),
National Media will, subject to further provisions herein set forth, promptly
give written notice thereof to Executive; and include in such registration
statement (the "Registration Statement") all shares of National Media common
stock owned by Executive (and/or Executive's spouse) specified in a written
request made by Executive (the "Shares") within ten (10) days after the receipt
of such written notice from National Media; provided, however, that Executive
shall have such notice and registration rights only to the extent that National
Media does not at that time have an effective registration covering the Shares.
Such registration shall provide for the sale of the Shares included therein from
time to time during the six month period beginning on the effective date of the
Registration Statement (the "Sale Period"), subject to the provisions
hereinafter set forth. All registration, filing, qualification and printing
expenses incurred in connection with the Registration Statement shall be for the
account of National Media; provided that all fees and disbursements of counsel
retained by Executive with respect to the Registration Statement and all
underwriting, brokerage or similar commissions or discounts incurred in
connection with the sale
-7-
<PAGE>
of the Shares shall be for the account of Executive. National Media shall have
no obligation to declare the Registration Statement effective. If the offering
included in such Registration Statement is underwritten, Executive, at the
election of the underwriter, shall (i) include the Shares in such underwritten
offering, (ii) reduce the number of shares to be included in such offering or
(iii) delay the sale of the Shares for such period as other selling stockholders
agree to delay the sale of their shares included in such registration, in any
case upon such terms and conditions as determined by the managing underwriter in
its sole discretion but on terms substantially similar to other persons in
similar positions. If Executive is required to delay such sale pursuant to
clause (iii) in the immediately preceding sentence, the Sale Period shall
commence upon the expiration of any such delay. Executive shall furnish in
writing to National Media such information regarding the Executive and the
distribution proposed by the Executive as the Company may request in writing and
as shall be required in connection with any registration. Executive shall also
execute such documents as may be required by National Media or any underwriter
in connection with such registration. Notwithstanding anything to the contrary
contained in this subparagraph 6.2(a), the rights granted to Executive hereunder
are subordinated, subject to the terms and conditions and the prior satisfaction
of all registration and related rights granted by National Media prior to the
date hereof.
(b) Notwithstanding any provision to the contrary set forth in
subparagraph 6.2(a) above, National Media covenants and agrees to include in
that certain registration statement on Form S-8 which National Media has agreed
to prepare and file pursuant to the terms of Section 5.05(c) of that certain
Agreement and Plan of Merger and Reorganization, dated as of January 17, 1996
and amended as of April 4, 1996, by and among National Media, the Company and
Old PRTV, the resale by Executive of the Additional Shares issuable by National
Media upon the exercise by Executive of the Options.
7. NON-DISCLOSURE. Executive shall not at any time during the Term of
this Agreement or thereafter, except as properly required in the conduct of the
business of the Company and as authorized by the Company, or as otherwise
required by law or court order, disclose or authorize anyone else to disclose
any secret, proprietary or confidential information,
-8-
<PAGE>
material or matter relating to the Company or any of its customers.
8. COVENANT NOT TO COMPETE; RIGHT OF FIRST REFUSAL.
8.1 COVENANT NOT TO COMPETE. From the Commencement Date through the
fifth (5th) anniversary of the Commencement Date, Executive shall not, without
the prior written consent of the Company, engage directly or indirectly in any
television infomercial venture or any television infomercial production
activities which is competitive with the business of the Company or of National
Media and shall not be an officer, director, employee, independent contractor or
Substantial Owner of any such restricted business. "Substantial Owner" as used
herein shall mean an owner of at least five percent (5%) of the beneficial
equity or voting interests in a subject restricted business. Notwithstanding
the foregoing, (a) if Executive terminates this Agreement pursuant to
subparagraph 9.1(c) hereof, the restrictions described above shall terminate as
of the date of such termination; and (b) if the Company terminates Executive's
employment other than pursuant to subparagraph 9.1(b) hereof, the restrictions
described above shall terminate upon the cessation of any severance payments due
Executive hereunder.
Executive acknowledges that the obligations and restrictions contained
in this Paragraph 8, in view of the nature of the business in which the Company
is engaged, are reasonable and necessary in order to protect the legitimate
interests of the Company and that any violation thereof would result in
irreparable injury to the Company. Executive understands and agrees that the
remedies at law for any breach of the forgoing covenant may be inadequate and
that the Company may be entitled to, in addition to all other remedies which it
may have, enforcement of this Agreement by injunctive relief or by decree of
specific performance in a court of competent jurisdiction. If one or more of
the provisions contained in this Paragraph 8 shall for any reason be held to be
excessively broad in scope, subject or otherwise, to be unenforceable at law,
such provision or provisions shall be construed by the appropriate judicial body
by limiting or reducing it or them, as the case may be, so as to be enforceable
to the maximum extent compatible with applicable law then in existence.
Executive hereby grants to National Media the right of first refusal
to participate in any infomercial-related project which he may become involved
with in any capacity, including,
-9-
<PAGE>
but not limited to, any project which any company he may hereafter be employed
or retained by becomes involved with. Such right shall be communicated to
National Media in writing. The terms of such offered participation shall be
consistent with the prevailing industry standards and practices. Should
National Media decline to participate, Executive shall be free to offer
participation on substantially similar terms to a third party. Such right of
first refusal shall extend for a period of two (2) years following the
termination of Executive's employment with the Company but shall not apply if
Executive has terminated his employment pursuant to subparagraph 9.1(c) or if
the Company has terminated Executive's employment other than pursuant to
subparagraph 9.1(b).
9. TERMINATION.
9.1 Executive's employment under this Agreement shall terminate upon
the occurrence of any of the following:
(a) DEATH OR DISABILITY. In the event of Executive's death, this
Agreement shall terminate as of the date of death. If Executive becomes
"Permanently Disabled" (meaning that, in the opinion of an independent physician
selected by National Media and reasonably satisfactory to Executive or his
representative, he is unable to perform his duties hereunder due to partial or
total mental or physical disability for an aggregate of 180 days (whether or not
consecutive) in any consecutive twelve (12) month period). National Media shall
have the right to terminate this Agreement by giving Executive thirty (30) days
prior written notice thereof, and upon the expiration of such thirty (30) day
period, Executive's employment under this Agreement shall terminate. If
Executive shall resume his duties within thirty (30) days after receipt of such
notice of termination and continue to perform such duties for four (4)
consecutive weeks thereafter, this Agreement shall continue in full force and
effect, without any reduction in Base Salary, other compensation and other
benefits, and the notice of termination shall be considered null and void and of
no effect.
(b) CAUSE. For purposes of this Agreement, the Company shall have
"Cause" to terminate the Executive's employment if the Executive, in the
reasonable judgment of the Company, (i) materially breaches any of his
agreements, duties or obligations under this
-10-
<PAGE>
Agreement and has not cured, or commenced in good faith to cure, such
breach within thirty (30) days after notice; (ii) embezzles or converts to his
own use any funds of the Company or any client or customer of the Company;
(iii) converts to his own use or unreasonably destroys any property of the
Company without the Company's consent; (iv) is convicted of a felony; (v) is
adjudicated as mentally incompetent; or (vi) is habitually intoxicated or is
diagnosed by an independent medical doctor to be addicted to any unlawful drug
or any controlled substance or drug which impacts upon his ability to perform
his duties hereunder. Notwithstanding the foregoing, Executive shall not be
deemed to have been terminated for Cause unless and until the Executive has
received thirty (30) days' prior written notice (the "Dismissal Notice") of such
termination during which period he has been provided with the opportunity, with
his legal counsel present, to address the Board with respect to the alleged
grounds for the termination. In the event Executive does not dispute such
determination within thirty (30) days after receipt of the Dismissal Notice,
Executive shall not have the remedies provided pursuant to Paragraph 11 of this
Agreement.
(c) COMPANY BREACH. In the event of the Company's material breach of
any provisions of this Agreement, Executive shall have the right to terminate
his employment hereunder; provided that Executive shall give written notice to
the Company of his intent to so terminate setting forth the basis for such
termination, and the Company shall then have thirty (30) days after receipt of
such notice to cure the subject breach.
9.2 TERMINATION OBLIGATIONS OF EXECUTIVE. In the event Executive's
employment under this Agreement is terminated, Executive, or his legal
representative in case of termination by death or Executive's physical or mental
incapacity to serve, shall:
(a) by the close of the next business day following termination,
resign from all corporate and board positions held in National Media, the
Company and any of their respective subsidiaries and affiliated companies;
(b) promptly return to a representative designated by the Company all
property, including but not limited to, keys, identification cards and credit
cards of the Company or any of its subsidiaries or affiliated companies; and
-11-
<PAGE>
(c) incur no further expenses or obligations on behalf of the Company
or any of its subsidiaries and affiliated companies.
10. TERMINATION COMPENSATION.
10.1 COMPENSATION. Subject to the terms of subparagraph 10.2 hereof,
in the event that Executive shall terminate his employment under this Agreement
pursuant to subparagraph 9.1(c) above, or if the Company shall terminate
Executive's employment under this Agreement prior to the Termination Date for
any reason other than those set forth in subparagraphs 9.1(a) or (b), the
Company shall (a) pay Executive or, in the event of Executive's death following
termination, Executive's estate (i) his full Base Salary through the date of
termination at the rate in effect at the time notice of such termination is
given; and (ii) in lieu of any further salary or other payments to Executive
hereunder for periods subsequent to the date of termination, the Company shall
pay as liquidated damages to Executive in accordance with the terms of
subparagraph 10.2 hereof an amount equal to his full Base Salary through the
Termination Date (without regard to the actual date of termination of
employment) calculable at the then current Base Salary, but in no event less
than one (1) year's Base Salary; and (b) maintain in full force and effect for
the continued benefit of Executive through the earlier of the Termination Date
or Executive obtaining similar benefits through other employment, all employee
benefit plans and programs, not including any stock option, bonus or other
compensation type plans, in which Executive was entitled to participate
immediately prior to Executive's discharge or resignation, provided that
Executive's continued participation is possible under the general terms and
provisions of such benefit plans and programs and otherwise in accordance with
applicable law. In the event that Executive's participation in any such benefit
plan or program is barred, the Company shall make all reasonable efforts to
arrange to provide Executive, at the Company's expense, with benefits
substantially similar to those which Executive is entitled to receive under such
plans and programs.
10.2 In the event that Executive is entitled to receive severance in
accordance with subparagraph 10.1(ii) hereof, such severance shall be paid to
Executive in accordance with the Company's normal payroll practices in effect
from time to time as if Executive was employed
-12-
<PAGE>
by the Company through the Termination Date; provided, however, that in the
event that Executive violates the Covenant Not to Compete contained in Paragraph
8 hereof, in addition to all other rights and remedies which the Company may
have, the foregoing severance shall only be payable through the date of such
violation and the Company shall be entitled to cease providing Executive with
the benefits to which he would otherwise be entitled.
10.3 NO MITIGATION. Executive shall not be required to mitigate the
amount of any payments provided for in subparagraph 10.1 above by seeking other
employment or otherwise, nor shall the amount of any payment provided for herein
be reduced by any compensation earned as a result of employment by another
employer.
11. CHANGE IN CONTROL. Within thirty (30) days following a Change in
Control, as hereinafter defined, notwithstanding anything in this Agreement to
the contrary, Employee may terminate this Agreement by giving the Company at
least thirty (30) days' prior written notice of the effective date of such
termination and upon such termination, all of the terms and provisions of this
Agreement (including the provisions contained in Paragraph 8 hereunder) shall
terminate and be of no further force and effect. As used in this Paragraph 11,
a "Change in Control" shall be deemed to have occurred only if (a) any person or
group (as such term is defined in Section 13(d)(3) of the Securities Exchange
Act of 1934) acquires direct or indirect control over the voting power of the
voting stock of National Media in a transaction not approved by the Company's
Board of Directors or (b) a majority of the members of the Board of Directors of
National Media cease being "Continuing Directors". A "Continuing Director"
shall be deemed to be a member of the National Media Board of Directors who
either is a National Media director on the date of this Agreement or is
hereafter nominated for election or appointed to the National Media Board of
Directors by the affirmative vote of a majority of the Continuing Directors who
were members of such Board at the time of such nomination or appointment.
12. ARBITRATION. In the event of a dispute hereunder, both parties agree
to resolve such dispute according to the policies and procedures of the American
Arbitration Association ("AAA"). Within fifteen (15) days of notice of such
dispute, the Executive or the Company, as the case may be, shall, in accordance
with the Rules of AAA, file a petition with the AAA for
-13-
<PAGE>
arbitration of the dispute, in the City of Philadelphia, Pennsylvania. The
costs, including legal fees, of any such dispute shall be borne by the party
incurring such fees and/or costs. Such proceeding shall also determine all
other disputes between the parties relating to Executive's employment. The
parties covenant and agree that the decision of the AAA shall be final and
binding and hereby waive their rights to appeal therefrom.
13. COUNSEL FEES AND INDEMNIFICATION.
(a) In the event that it shall be necessary or desirable for the
Executive to retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any and all of his rights under this
Agreement, including participation in any proceeding contesting the validity or
enforceability of this Agreement and any arbitration proceeding pursuant to
Paragraph 12 of this Agreement, the Executive shall be entitled to recover from
the Company his reasonable attorneys' fees and costs and expenses in connection
with the enforcement of his rights. No fees shall be payable if the Company is
successful on the merits.
(b) The Company shall indemnify, defend and hold Executive harmless
to the maximum extent permitted by law against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees incurred by
Executive, in connection with the defense of, or as a result of, any action or
proceeding (or any appeal from any action or proceeding) in which Executive is
made or is threatened to be made a party by reason of any act or omission of
Executive in his capacity as an officer, director or employee of the Company, or
of National Media or any of its subsidiaries, regardless of whether such action
or proceeding is one brought by or in the right of the Company, to procure a
judgment in its favor. Expenses (including attorneys' fees) incurred by
Executive in defending any civil, criminal, administrative, or investigative
action, suit or proceeding shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of Executive to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Company as
authorized in this subparagraph 13(b). National Media shall at all times
include Executive as an insured under all of its directors and officers
liability insurance, covering his services for National Media, the Company and
any of their respective affiliates, on
-14-
<PAGE>
a basis at least as favorable as other senior officers of National Media.
(c) The Company shall at all times fulfill Old PRTV's indemnification
obligations to Executive.
(d) The provisions of this Paragraph 13 shall survive termination of
this Agreement and shall survive indefinitely with respect to any cost or
liability incurred by Executive on account of any actual or alleged act,
omission, or decision by Executive during the Term.
14. NOTICES. Unless either party notifies the other to the contrary, any
notice required hereunder shall be duly given if delivered in person or by
registered first class mail or recognized overnight mail carrier:
If to the Company, to:
Positive Response Television, Inc.
c/o National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Attention: President
If to National Media, to:
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Attention: President
If to Executive, to:
Michael Levey
Positive Response Television, Inc.
14724 Ventura Boulevard, Suite 600
Sherman Oaks, California 91403-3501
15. GENERAL PROVISIONS.
15.1 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Company and its successors and assigns and
Executive, his designees, and his estate. Neither Executive, his designees, nor
his estate shall commute, pledge, encumber, sell or otherwise dispose of the
rights to receive the payments provided in this Agreement, which
-15-
<PAGE>
payments and the rights thereto are expressly declared to be nontransferable and
nonassignable (except by death or otherwise by operation of law).
15.2 SET-OFF. Executive hereby acknowledges and agrees that the
Company shall have the right to set-off against any amounts payable by the
Company to Executive under this Agreement all amounts payable to the Company by
Executive under any notes receivable of the Company from Executive (to the
extent there is any uncured default thereunder) or any other agreement or
pursuant to any other arrangement.
15.3 GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Pennsylvania from time to time in effect.
15.4 ENTIRE AGREEMENT. This Agreement represents the entire
agreement between Executive and the Company with respect to the subject matter
hereof. This Agreement may not be amended or modified except by a writing
signed by the parties hereto. Any written amendment, waiver or termination
hereof executed by the Company and Executive (or his estate) shall be binding
upon them and upon all persons, without the necessity of securing the consent of
any other person and no person shall be deemed to be a third party beneficiary
under this Agreement.
15.5 THIRD PARTY BENEFICIARIES. Except as provided in this
Agreement, each of Executive and the Company intends that this Agreement shall
not benefit or create any right or cause of action in or on behalf of any person
other than Executive and the Company. Notwithstanding the foregoing, Executive
and the Company acknowledge that National Media shall receive the benefits of,
and be entitled to enforce, all of the Company's rights contained in this
Agreement.
15.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
15.7 NO WAIVER. Except as otherwise expressly set forth herein,
no failure on the part of either party hereto to exercise and no delay in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of
-16-
<PAGE>
any right, power or remedy hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
15.8 HEADINGS. The headings of the paragraphs of this Agreement
have been inserted for convenience of reference only and shall in no way
restrict any of the terms or provisions hereof.
15.9 NATIONAL MEDIA GUARANTEE. National Media hereby guarantees
the obligations of the Company to Executive hereunder and agrees, in the event
the Company is unable to fulfill its obligations to Executive pursuant to the
terms hereof, to make such payments and provide such benefits to Executive in
accordance with the terms of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ATTEST: POSITIVE RESPONSE TELEVISION,
INC.
________________________ BY: /S/ CONSTANTINOS I. COSTALAS
(SEAL) ---------------------------------------
NAME: CONSTANTINOS I. COSTALAS
TITLE: VICE PRESIDENT AND SECRETARY
WITNESS:
________________________ /S/ MICHAEL LEVEY
-------------------------------------------
MICHAEL LEVEY
ATTEST: NATIONAL MEDIA CORPORATION
________________________ BY: /S/ CONSTANTINOS I. COSTALAS
(SEAL) ---------------------------------------
NAME: CONSTANTINOS I. COSTALAS
TITLE: VICE CHAIRMAN
<PAGE>
EXHIBIT 99.2
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, made as of the 17th day of May, 1996, by and between POSITIVE
RESPONSE TELEVISION, INC., a Delaware corporation (the "Company") and a wholly-
owned subsidiary of National Media Corporation ("National Media"), and LISA
LEVEY ("Executive").
W I T N E S S E T H:
--------------------
WHEREAS, Executive is willing to serve the Company on a full-time basis
during the term hereof as a Vice President, subject to the terms and conditions
hereinafter set forth; and
WHEREAS, the Company desires to employ Executive in accordance with the
terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, it is agreed as follows:
1. EMPLOYMENT. The Company hereby employs Executive, and Executive
hereby accepts employment from the Company, upon the terms and conditions
hereinafter set forth.
2. TERM OF EMPLOYMENT. The term ("Term") of this Agreement shall
commence as of May 17, 1996 (the "Commencement Date") and shall continue
thereafter until the fifth anniversary of the Commencement Date (the "Initial
Termination Date"), unless sooner terminated in accordance with the terms
hereof. The Term of this Agreement shall be automatically renewed for
successive one-year periods, and the Termination Date shall be automatically
extended accordingly, unless this Agreement is terminated by either party upon
six (6) months' written notice prior to the end of the then current Term. As
used herein, "Term" shall refer to the initial Term of this Agreement as
extended by any renewal Term then in effect; and "Termination Date" shall refer
to the last day of the Term of this Agreement, as it may have been extended.
3. DUTIES. Executive shall be engaged as, and hold the position of, Vice
President of the Company. Executive shall have such authority and
responsibilities as are normally attendant thereto and agrees to perform such
duties and render such services consistent therewith, and as may from time to
time be reasonably required of her by the Company. Executive shall devote her
full business time, attention and best efforts to the affairs of the Company
during the term of this
<PAGE>
Agreement. Executive will report directly to the Company's Board of Directors
(the "Board") and the Chief Executive Officers of each of the Company and
National Media.
4. COMPENSATION AND REIMBURSEMENT FOR EXPENSES.
4.1 BASE SALARY. The Company shall pay to Executive a minimum base
salary of Two Hundred Thousand Dollars ($200,000.00) per annum (as the same may
be increased from time to time, the "Base Salary"). The Base Salary shall be
payable in accordance with the Company's regular payroll practices, as
determined by the Company's Board of Directors, in effect from time to time (but
not less frequently than bi-monthly) and shall be subject to annual review and
adjustment as the Board deems appropriate. The Base Salary may be increased or
decreased from time to time in the discretion of the Company's Board; PROVIDED,
HOWEVER, that Executive's Base Salary shall at no time be less than Two Hundred
Thousand Dollars ($200,000.00).
4.2 ANNUAL BONUS. In addition to the other amounts payable to
Executive hereunder, Executive shall participate in National Media's Management
Incentive Plan ("MIP"), beginning with National Media's Plan Year (as defined in
the MIP) ending March 31, 1997 on terms similar to other executives of National
Media holding comparable positions. The amount of bonus payable under the MIP
shall be based on performance in accordance with the provisions of the plan, as
determined by the Compensation Committee of National Media's Board of Directors.
Should National Media or the Company adopt other annual or long-term bonus or
incentive plans in lieu of or in addition to the MIP, Executive shall be
entitled to participate in all such plans on terms comparable to other
executives of National Media or the Company, as the case may be, holding
comparable positions.
4.3 REIMBURSEMENT OF EXPENSES. The Company will promptly reimburse
Executive, upon receipt of vouchers therefor, for all reasonable and necessary
expenses incurred by Executive for travel, entertainment and miscellaneous and
other business expenses which are incurred in connection with the performance of
her duties hereunder. Such reimbursements shall be made in accordance with the
Company's regular reimbursement procedures and practices in effect from time to
time for similarly situated officers of the Company or of National Media and its
other subsidiaries.
-2-
<PAGE>
5. FRINGE BENEFITS.
5.1 GENERAL. Executive shall be entitled to participate in any and
all fringe and other benefit programs generally available to the officers of
National Media and its subsidiaries, including without limitation, stock option
plans, incentive plans, profit sharing plans, pension plans, thrift and savings
plans, insurance plans, supplemental insurance and benefit plans. However,
nothing contained in this subparagraph 5.1 shall be construed as requiring the
Company or National Media generally to maintain any such fringe benefit program
or to make any discretionary grant to Executive thereunder.
5.2 PLANS. Executive shall be entitled to participate in any and all
employee benefit and/or welfare plans, including but not limited to health,
medical, and savings investment plans sponsored by the Company for its, or
National Media for its and its subsidiaries', officers and/or employees, and
receive any other benefits generally applicable to officers of the Company or
those of National Media and its other subsidiaries. If the above-referenced
health/medical plans do not cover female fertility treatments at least to the
same extent that the health/medical insurance applicable to Executive under the
coverage provided to Executive by the Company's predecessor in interest did, the
Company shall, in addition to the foregoing, provide supplemental coverage to
cover such treatments or reimburse Executive for the actual cost of such
treatments.
5.3 AUTOMOBILE ALLOWANCE. During the Term, the Company shall pay
Executive a monthly automobile allowance of Six Hundred Dollars ($600.00) which
shall be deemed to compensate Executive for all automobile related costs,
including, but not limited to, insurance, fuel, maintenance, wear and tear,
etc..
5.4 VACATIONS; HOLIDAYS; SICK LEAVE. Executive shall be entitled to
such number of paid vacation days in each calendar year as are generally awarded
to senior officers of National Media and/or its subsidiaries holding comparable
positions, but not less than three (3) weeks in any calendar year (prorated in
any calendar year during which Executive is employed hereunder for less than the
entire year in accordance with the number of days in such calendar year during
which she is so employed). Executive shall not be permitted to carry over any
portion of
-3-
<PAGE>
Executive's accrued but unused vacation time from one fiscal year to the next
fiscal year; PROVIDED, HOWEVER, that in the event applicable law renders the
preceding clause unenforceable, Executive shall be permitted to carry over
accrued but unused vacation time, but in no event shall Executive be permitted
to accrue at any time more than three (3) weeks' vacation time. Executive shall
also be entitled to all paid holidays and sick leave as are generally awarded to
officers of National Media and/or its subsidiaries holding comparable positions.
5.5 MATERNITY LEAVE MATTERS. The Company and National Media
acknowledge that Executive may become pregnant during the term of her employment
hereunder and that it may be necessary for her to take an extended maternity
leave in order to safeguard her health and that of her child. Accordingly,
Executive shall be entitled to paid maternity leave in accordance with National
Media's short-term disability policy. In addition, Executive shall be entitled
to unpaid maternity leave for up to an additional eight (8) weeks prior to
and/or after such birth if she or her physician believe such leave is necessary
or desirable. In addition, the Company and National Media agree that, to the
extent that during any such pregnancy Executive is able to perform some of her
job functions from her home, National Media and Executive will equitably adjust
the terms of this Agreement to reflect any incremental costs incurred by the
Company due to such arrangement and to further reflect the actual job functions
which Executive is able to perform. Such diminished performance of her duties
shall not constitute grounds for the Company to terminate this Agreement unless
Executive has ceased to seek to perform her obligations hereunder in good faith.
6. RESTRICTION ON TRANSFER OF NATIONAL MEDIA COMMON STOCK. Executive
shall not (and Executive's husband, Michael Levey, shall not), without the prior
written consent of National Media (which consent will not be unreasonably
withheld), agree to or permit the sale, disposition or other transfer by her
and/or her Permitted Transferees (as defined below) of more than 75,000 shares
of National Media Common Stock (including any shares sold by Michael Levey) in
any twelve (12) month period during the first thirty-six months following the
date hereof (the "Transfer Restriction"). This Paragraph 6 shall in no way
restrict or limit Executive's ability to (a) transfer shares of National Media
Common Stock to her immediate family members or to a trust or
-4-
<PAGE>
trusts for the benefit of her immediate family members for estate planning
purposes or (b) pledge shares of National Media Common Stock to a financial
institution as security for debt incurred by Executive (all transferees
permitted by clause (a) and (b) are referred to herein as "Permitted
Transferees"); PROVIDED, HOWEVER, that Executive and such Permitted Transferees
shall (i) be bound by the Transfer Restriction and (ii) execute, prior to any
such transfer to such Permitted Transferee, such documents as may be reasonably
requested by the Company or National Media to evidence such Transfer
Restriction.
In the event that Executive's employment by the Company is (a)
terminated by the Company for any reason other than pursuant to
subparagraph 9.1(b) hereof or (b) terminated by Executive pursuant to
subparagraph 9.1(c) hereof, the provisions of this Paragraph 6 shall terminate
and be of no further force or effect.
7. NON-DISCLOSURE. Executive shall not at any time during the Term of
this Agreement or thereafter, except as properly required in the conduct of the
business of the Company and as authorized by the Company, or as otherwise
required by law or court order, disclose or authorize anyone else to disclose
any secret, proprietary or confidential information, material or matter relating
to the Company or any of its customers.
8. COVENANT NOT TO COMPETE. From the Commencement Date through the fifth
(5th) anniversary of the Commencement Date, Executive shall not, without the
prior written consent of the Company, engage directly or indirectly in any
television infomercial venture or any television infomercial production
activities which is competitive with the business of the Company or of National
Media and shall not be an officer, director, employee, independent contractor or
Substantial Owner of any such restricted business. "Substantial Owner" as used
herein shall mean an owner of at least five percent (5%) of the beneficial
equity or voting interests in a subject restricted business. Notwithstanding
the foregoing, if (a) Executive terminates this Agreement pursuant to
subparagraph 9.1(c) hereof, the restrictions described above shall terminate as
of the date of such Termination; and (b) if the Company terminates Executive's
employment other than pursuant to subparagraph 9.1(b) hereof, the restrictions
described above shall terminate upon the cessation of any severance payments due
Executive hereunder.
-5-
<PAGE>
Executive acknowledges that the obligations and restrictions contained
in this Paragraph 8, in view of the nature of the business in which the Company
is engaged, are reasonable and necessary in order to protect the legitimate
interests of the Company and that any violation thereof would result in
irreparable injury to the Company. Executive understands and agrees that the
remedies at law for any breach of the forgoing covenant may be inadequate and
that the Company may be entitled to, in addition to all other remedies which it
may have, enforcement of this Agreement by injunctive relief or by decree of
specific performance in a court of competent jurisdiction. If one or more of
the provisions contained in this Paragraph 8 shall for any reason be held to be
excessively broad in scope, subject or otherwise, to be unenforceable at law,
such provision or provisions shall be construed by the appropriate judicial body
by limiting or reducing it or them, as the case may be, so as to be enforceable
to the maximum extent compatible with applicable law then in existence.
9. TERMINATION.
9.1 Executive's employment under this Agreement shall terminate upon
the occurrence of any of the following:
(a) DEATH OR DISABILITY. In the event of Executive's death, this
Agreement shall terminate as of the date of death. If Executive becomes
"Permanently Disabled" (meaning that, in the opinion of an independent physician
selected by National Media and reasonably satisfactory to Executive or her
representative, she is unable to perform her duties hereunder due to partial or
total mental or physical disability for an aggregate of 180 days (whether or not
consecutive) in any consecutive twelve (12) month period). National Media shall
have the right to terminate this Agreement by giving Executive thirty (30) days
prior written notice thereof, and upon the expiration of such thirty (30) day
period, Executive's employment under this Agreement shall terminate. If
Executive shall resume her duties within thirty (30) days after receipt of such
notice of termination and continue to perform such duties for four (4)
consecutive weeks thereafter, this Agreement shall continue in full force and
effect, without any reduction in Base Salary, other compensation and other
benefits, and the notice of termination shall be considered null and void and of
no effect.
(b) CAUSE. For purposes of this Agreement, the Company shall have
-6-
<PAGE>
"Cause" to terminate the Executive's employment if the Executive, in the
reasonable judgment of the Company, (i) materially breaches any of her
agreements, duties or obligations under this Agreement and has not cured, or
commenced in good faith to cure, such breach within thirty (30) days after
notice; (ii) embezzles or converts to her own use any funds of the Company or
any client or customer of the Company; (iii) converts to her own use or
unreasonably destroys any property of the Company without the Company's consent;
(iv) is convicted of a felony; (v) is adjudicated as mentally incompetent; or
(vi) is habitually intoxicated or is diagnosed by an independent medical doctor
to be addicted to any unlawful drug or any controlled substance or drug which
impacts upon her ability to perform her duties hereunder. Notwithstanding the
foregoing, Executive shall not be deemed to have been terminated for Cause
unless and until the Executive has received thirty (30) days' prior written
notice (the "Dismissal Notice") of such termination during which period she has
been provided with the opportunity, with her legal counsel, to address the
Company's board of directors with respect to the alleged grounds for the
termination. In the event Executive does not dispute such determination within
thirty (30) days after receipt of the Dismissal Notice, Executive shall not have
the remedies provided pursuant to Paragraph 11 of this Agreement.
(c) COMPANY BREACH. In the event of the Company's material breach of
any provisions of this Agreement, Executive shall have the right to terminate
her employment hereunder; provided that Executive shall give written notice to
the Company of her intent to so terminate setting forth the basis for such
termination, and the Company shall then have thirty (30) days after receipt of
such notice to cure the subject breach.
9.2 TERMINATION OBLIGATIONS OF EXECUTIVE. In the event Executive's
employment under this Agreement is terminated, Executive, or her legal
representative in case of termination by death or Executive's physical or mental
incapacity to serve, shall:
(a) by the close of the next business day following termination,
resign from all corporate and board positions held in National Media, the
Company and any of their respective subsidiaries and affiliated companies;
(b) promptly return to a representative designated by the Company all
property, including but not limited to, automobiles, keys, identification cards
and credit cards of the
-7-
<PAGE>
Company or any of its subsidiaries or affiliated companies; and
(c) incur no further expenses or obligations on behalf of the Company
or any of its subsidiaries and affiliated companies.
10. TERMINATION COMPENSATION.
10.1 COMPENSATION. Subject to the terms of subparagraph 10.2 hereof,
in the event that Executive shall terminate her employment under this Agreement
pursuant to subparagraph 9.1(c) above, or if the Company shall terminate
Executive's employment under this Agreement prior to the Termination Date for
any reason other than those set forth in subparagraphs 9.1(a) or (b), the
Company shall (a) pay Executive or, in the event of Executive's death following
termination, Executive's estate (i) her full Base Salary through the date of
termination at the rate in effect at the time notice of such termination is
given; and (ii) in lieu of any further salary or other payments to Executive
hereunder for periods subsequent to the date of termination, the Company shall
pay as liquidated damages to Executive in accordance with the terms of
subparagraph 10.2 hereof an amount equal to her full Base Salary through the
Termination Date (without regard to the actual date of termination of
employment) calculable at the then current Base Salary, but in no event less
than one (1) year's Base Salary; and (b) maintain in full force and effect for
the continued benefit of Executive through the earlier of the Termination Date
or Executive obtaining similar benefits through other employment, all employee
benefit plans and programs, not including any stock option bonus or other
corporation type plans, in which Executive was entitled to participate
immediately prior to Executive's discharge or resignation, provided that
Executive's continued participation is possible under the general terms and
provisions of such benefit plans and programs and otherwise in accordance with
applicable law. In the event that Executive's participation in any such benefit
plan or program is barred, the Company shall make all reasonable efforts to
arrange to provide Executive, at the Company's expense, with benefits
substantially similar to those which Executive is entitled to receive under such
plans and programs.
10.2 In the event that Executive is entitled to receive severance in
accordance with subparagraph 10.1(ii) hereof, such severance shall be paid to
Executive in accordance with the Company's normal payroll practices in effect
from time to time as if Executive
-8-
<PAGE>
was employed by the Company through the Termination Date; provided, however,
that in the event that Executive violates the Covenant Not to Compete contained
in Paragraph 8 hereof, in addition to all other rights and remedies which the
Company may have, the foregoing severance shall only be payable through the date
of such violation and the Company shall be entitled to cease providing Executive
with the benefits to which she would otherwise be entitled.
10.3 NO MITIGATION. Executive shall not be required to mitigate the
amount of any payments provided for in subparagraph 10.1 above by seeking other
employment or otherwise, nor shall the amount of any payment provided for herein
be reduced by any compensation earned as a result of employment by another
employer.
11. CHANGE IN CONTROL. Within thirty (30) days following a Change in
Control, as hereinafter defined, notwithstanding anything in this Agreement to
the contrary, Employee may terminate this Agreement by giving the Company at
least thirty (30) days' prior written notice of the effective date of such
termination and upon such termination, all of the terms and provisions of this
Agreement (including the provisions contained in Paragraph 8 hereunder) shall
terminate and be of no further force and effect. As used in this Paragraph 11,
a "Change in Control" shall be deemed to have occurred only if (a) any person or
group (as such term is defined in Section 13(d)(3) of the Securities Exchange
Act of 1934) acquires direct or indirect control over the voting power of the
voting stock of National Media in a transaction not approved by the Company's
Board of Directors or (b) a majority of the members of the Board of Directors of
National Media cease being "Continuing Directors". A "Continuing Director"
shall be deemed to be a member of the National Media Board of Directors who
either is a National Media director on the date of this Agreement or is
hereafter nominated for election or appointed to the National Media Board of
Directors by the affirmative vote of a majority of the Continuing Directors who
were members of such Board at the time of such nomination or appointment.
12. ARBITRATION. In the event of a dispute hereunder, both parties agree
to resolve such dispute according to the policies and procedures of the American
Arbitration Association ("AAA"). Within fifteen (15) days of notice of such
dispute, the Executive or the Company, as the case may be, shall, in accordance
with the Rules of AAA, file a petition with the AAA for arbitration
-9-
<PAGE>
of the dispute, in the City of Philadelphia, Pennsylvania. The costs, including
legal fees, of any such dispute shall be borne by the party incurring such
costs. Such proceeding shall also determine all other disputes between the
parties relating to Executive's employment. The parties covenant and agree that
the decision of the AAA shall be final and binding and hereby waive their rights
to appeal therefrom.
13. COUNSEL FEES AND INDEMNIFICATION.
(a) In the event that it shall be necessary or desirable for the
Executive to retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any and all of her rights under this
Agreement, including participation in any proceeding contesting the validity or
enforceability of this Agreement and any arbitration proceeding pursuant to
Paragraph 12 of this Agreement, the Executive shall be entitled to recover from
the Company her reasonable attorneys' fees and costs and expenses in connection
with the enforcement of her rights. No fees shall be payable if the Company is
successful on the merits.
(b) The Company shall indemnify, defend and hold Executive harmless
to the maximum extent permitted by law against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees incurred by
Executive, in connection with the defense of, or as a result of, any action or
proceeding (or any appeal from any action or proceeding) in which Executive is
made or is threatened to be made a party by reason of any act or omission of
Executive in her capacity as an officer, director or employee of the Company, or
of National Media or any of its subsidiaries, regardless of whether such action
or proceeding is one brought by or in the right of the Company, to procure a
judgment in its favor. Expenses (including attorneys' fees) incurred by
Executive in defending any civil, criminal, administrative, or investigative
action, suit or proceeding shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of Executive to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Company as
authorized in this subparagraph 13(b). National Media shall at all times
include Executive as an insured under all of its directors and officers
liability insurance, covering her services for National Media, the Company and
any of their respective affiliates, on a basis at least as favorable as other
officers of
-10-
<PAGE>
National Media.
(c) The Company shall at all times fulfill the indemnification
obligations of the Company's predecessor company.
(d) The provisions of this Paragraph 13 shall survive termination of
this Agreement and shall survive indefinitely with respect to any cost or
liability incurred by Executive on account of any actual or alleged act,
omission, or decision by Executive during the Term.
14. NOTICES. Unless either party notifies the other to the contrary, any
notice required hereunder shall be duly given if delivered in person or by
registered first class mail or recognized overnight mail carrier:
If to the Company, to:
Positive Response Television, Inc.
c/o National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Attention: President
If to National Media, to:
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Attention: President
If to Executive, to:
Lisa Levey
Positive Response Television, Inc.
14724 Ventura Boulevard, Suite 600
Sherman Oaks, California 91403-3501
15. GENERAL PROVISIONS.
15.1 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Company and its successors and assigns and
Executive, her designees, and her estate. Neither Executive, her designees, nor
her estate shall commute, pledge, encumber, sell or otherwise dispose of the
rights to receive the payments provided in this Agreement, which payments
-11-
<PAGE>
and the rights thereto are expressly declared to be nontransferable and
nonassignable (except by death or otherwise by operation of law).
15.2 SET-OFF. Executive hereby acknowledges and agrees that the
Company shall have the right to set-off against any amounts payable by the
Company to Executive under this Agreement all amounts payable to the Company by
Executive under any other agreement or pursuant to any other arrangement.
15.3 GOVERNING LAW. This Agreement shall be governed by the
laws of the State of Pennsylvania from time to time in effect.
15.4 ENTIRE AGREEMENT. This Agreement represents the entire
agreement between Executive and the Company with respect to the subject matter
hereof. This Agreement may not be amended or modified except by a writing
signed by the parties hereto. Any written amendment, waiver or termination
hereof executed by the Company and Executive (or her estate) shall be binding
upon them and upon all persons, without the necessity of securing the consent of
any other person and no person shall be deemed to be a third party beneficiary
under this Agreement.
15.5 THIRD PARTY BENEFICIARIES. Except as provided in this
Agreement, each of Executive and the Company intends that this Agreement shall
not benefit or create any right or cause of action in or on behalf of any person
other than Executive and the Company. Notwithstanding the foregoing, Executive
and the Company acknowledge that National Media shall receive the benefits of,
and be entitled to enforce, all of the Company's rights contained in this
Agreement.
15.6 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same Agreement.
15.7 NO WAIVER. Except as otherwise expressly set forth herein,
no failure on the part of either party hereto to exercise and no delay in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or remedy
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or remedy.
-12-
<PAGE>
15.8 HEADINGS. The headings of the paragraphs of this Agreement
have been inserted for convenience of reference only and shall in no way
restrict any of the terms or provisions hereof.
15.9 NATIONAL MEDIA GUARANTEE. National Media hereby guarantees
the obligations of the Company to Executive hereunder and agrees, in the event
the Company is unable to fulfill its obligations to Executive pursuant to the
terms hereof, to make such payments and provide such benefits to Executive in
accordance with the terms of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ATTEST: POSITIVE RESPONSE TELEVISION,
INC.
________________________ BY: /S/ CONSTANTINOS I. COSTALAS
(SEAL) ----------------------------------------
NAME: CONSTANTINOS I. COSTALAS
TITLE: VICE PRESIDENT AND SECRETARY
WITNESS:
________________________ /S/ LISA LEVEY
----------------------------------------
LISA LEVEY
National Media hereby guarantees the obligations of the Company to
Executive hereunder and agrees, in the event the Company is unable to fulfill
its obligations to Executive pursuant to the terms hereof, to make such payments
and provide such benefits to Executive in accordance with the terms of this
Agreement.
ATTEST: NATIONAL MEDIA CORPORATION
________________________ BY: /S/ CONSTANTINOS I. COSTALAS
(SEAL) ----------------------------------------
NAME: CONSTANTINOS I. COSTALAS
TITLE: VICE CHAIRMAN
<PAGE>
EXHIBIT 99.3
<PAGE>
PRESS RELEASE NATIONAL MEDIA
Contact: CORPORATION
Bruce Boyle
Director of Corporate Communications
(800) 311-3561
NATIONAL MEDIA CORPORATION
ACQUIRES PACIFIC RIM
TELEVISION MARKETERS
TRANSACTION VALUED AT APPROXIMATELY $27 MILLION
Philadelphia, PA, May 30, 1996 -- National Media Corporation (NYSE:NM) today
announced an agreement to acquire two prominent television marketing companies,
one doing business in New Zealand and throughout Asia and the other doing
business in Australia.
The two companies, Prestige Marketing (doing business in New Zealand and
throughout Asia) and Suzanne Paul Pty Ltd. (doing business in Australia) are at
present joint venture partners in New Zealand and Australia with Quantum
International, Ltd., National Media Corporation's international subsidiary.
The companies are the two largest in Australia and New Zealand and are the two
largest independent, direct response companies operating in the Pacific Rim.
Mark P. Hershhorn, President and Chief Executive Officer of National Media
Corporation, said, "Our association with Prestige Marketing and Suzzanne Paul in
the past nine months has been extremely successful. We expect these new
subsidiaries of National Media Corporation to begin adding revenues and profits
from day one, which will make the acquisition non-dilutive on an earnings per
share basis to our shareholders."
The acquisition will be funded by a combination of cash and National Media
Corporation common stock and is expected to be completed within 30 days.
Together, the companies market more than 60 products directly, and in concert
with their licensee (TV Media, an independent company not part of the
transaction). Prestige Marketing and Suzanne Paul direct response television
programming appears on 30 different networks in Australia, New Zealand, Hong
Kong, Singapore, Malaysia, Indonesia, Thailand, the Philippines, South Africa,
Fiji, Taiwan, Japan and Russia.
-MORE-
<PAGE>
MAY 30, 1996
PAGE 2
Paul Meier, Managing Director of Prestige Marketing, Ltd., said, "This joining
of forces is the absolute best way to maximize the opportunities for
transactional television in this growing part of the international consumer
market. We're looking forward to joining the world's premiere television
marketing company."
The acquisition is subject to regulatory notification.
National Media Corporation is the world's largest publicly held infomercial
company and has built a strong, integrated, global consumer marketing company
through its expertise in transactional television and, with Quantum
International, Ltd. and Positive Response Television (PRTV), brings infomercial
programming to more than 260 million households worldwide.
* * *
[TO REQUEST PREVIOUS PRESS RELEASES ON NATIONAL MEDIA CORPORATION PLEASE
CONTACT, PR NEWSWIRE AT (800) 758-5804 EXT 604644.]
