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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) January 17, 1996
NATIONAL MEDIA CORPORATION
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(Exact name of registrant as specified in charter)
Delaware I-6715 13-2658741
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(State or other juris- (Commission File Number) (IRS Employer Identi-
diction of incorporation) fication No.)
1700 Walnut Street, Philadelphia, PA 19103
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(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code 215-772-5000
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N/A
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(Former name or former address, if changed since last report.)
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Exhibit Index appears on Page 5
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Item 5. Other Events
On January 18, 1996, National Media Corporation ("NMC" or the
"Registrant") announced that it had entered into an Agreement
and Plan of Merger and Reorganization (the "Merger
Agreement"), dated as of January 17, 1996, by and among NMC,
PRT Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of NMC ("Merger Sub"), and Positive
Response Television, Inc., a California corporation ("PRT"),
pursuant to which PRT will be merged with and into Merger Sub
(the "Merger"), PRT's separate corporate existence will be
extinguished, the equity interest of PRT's shareholders in PRT
will cease, and Merger Sub will be renamed "Positive Response
Television, Inc." and it will continue as a wholly-owned
subsidiary of NMC.
Pursuant to the terms of the Merger Agreement, each
outstanding share of common stock, no par value ("PRT Common
Stock"), of PRT (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 except for those shares held in the treasury of PRT, which
shall be cancelled, without consideration, as a result of the
Merger) will be converted into the right to receive .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 PRT'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 PRT directly in connection with the Merger
Agreement, the Merger and the transactions contemplated
thereby and given effect in PRT'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 PRT's balance sheet items and
otherwise issuable, on a pro rata basis, to the shareholders
of PRT (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.
Consummation of the Merger is subject to the satisfaction of a
number of conditions, including, but not limited to: (i) the
approval and adoption of the Merger Agreement and approval of
the Merger by the holders of a majority of the issued and
outstanding shares of PRT Common Stock; (ii) the effectiveness
of a Registration Statement on Form S-4 to be filed by NMC in
connection with the issuance of NMC Common Stock in the
Merger; (iii) the absence of any restrictive court orders, or
any other legal restraints or prohibitions, preventing or
making illegal the consummation of the Merger; (iv) the
continuing accuracy in all material respects of the
representations and warranties made by each of PRT and NMC in
the Merger Agreement on and as of the Effective Time; (v) the
receipt by NMC and PRT, as applicable, of certain opinions
regarding tax, accounting and certain other matters; (vi) the
execution of employment and certain other agreements by
certain officers, directors and affiliates of PRT; (vii) the
approval of the New York Stock Exchange, subject to notice of
issuance, of the listing of the NMC Common Stock to be issued
in the Merger; (viii) the absence of any change, occurrence or
circumstance that is reasonably likely to be materially
adverse to the business, assets, financial condition or
results of operations of NMC or PRT; (ix) the absence of a
material adverse change in the outlook concerning any existing
litigation involving PRT or a good faith determination by NMC
that the outcome of any such litigation is likely to have a
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material adverse effect on the business, assets, financial
condition or results of operations of PRT; and (x) holders of
not more than 4.9% of the outstanding shares of PRT Common
Stock shall have exercised dissenters' rights in connection
with the Merger.
The foregoing discussion of the terms of the Merger Agreement
does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement itself, a copy
of which is attached hereto as Exhibit 2.1.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
(c) Exhibits.
2.1 Agreement and Plan of Merger and
Reorganization, dated as of January 17,
1996, by and among National Media
Corporation, PRT Acquisition Corp., and
Positive Response Television, Inc..
99.1 Press Release of National Media Corporation
dated January 18, 1996.
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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: January 22, 1996 By: /s/ Constantinos I. Costalas
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Name: Constantinos I. Costalas
Title: Principal Financial Officer
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EXHIBIT INDEX
Exhibit No.
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2.1 Agreement and Plan of Merger and Reorganization,
dated as of January 17, 1996, by and among
National Media Corporation, PRT Acquisition Corp.
and Positive Response Television, Inc.
99.1 Press Release of National Media Corporation dated
January 18, 1996.
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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:
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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.
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
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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 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
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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
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(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 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.
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(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.
(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.
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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.
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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, 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
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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 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
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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 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
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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,
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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 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
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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 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.
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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 Company nor any ERISA Affiliate has
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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
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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 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
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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 (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.
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(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
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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.
(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,
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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. ss. 9601 et seq. or 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.
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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)
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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 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.
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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 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.
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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.
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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.
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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.
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
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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 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
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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
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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 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
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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.
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
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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.
(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
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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.
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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 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);
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(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);
(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;
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(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
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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 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
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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, 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;
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(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
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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 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.
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(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 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
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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 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.
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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.
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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.
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.
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(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 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
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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 have 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
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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 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.
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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;
(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.
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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
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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; 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.
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(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 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
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(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
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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 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
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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 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.
-53-
<PAGE>
(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.
-54-
<PAGE>
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; 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
-55-
<PAGE>
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).
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.
-56-
<PAGE>
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
-57-
<PAGE>
EXHIBIT A
<PAGE>
EXHIBIT A
FORM OF DIRECTORS AND OFFICERS AGREEMENT
January 17, 1996
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Dear Sirs:
The undersigned is a director and/or executive officer of Positive
Response Television, Inc., a California corporation (the "Company"), and is the
beneficial owner of the number of shares of the common stock, no par value per
share, of the Company ("Company Common Stock") set forth next to the signature
line of this letter (the "Shares").
The Company and National Media Corporation ("Acquiror") are considering
execution of an Agreement and Plan of Merger and Reorganization (the
"Agreement") contemplating a statutory merger of the Company with and into a
wholly-owned subsidiary of Acquiror (the "Merger"), such execution being
subject, in the case of Acquiror, to the execution and delivery of this
Agreement. In consideration of the substantial expenses that Acquiror will incur
in connection with the transactions contemplated by the Agreement and in order
to induce Acquiror to execute the Agreement and to proceed to incur such
expenses, the undersigned agrees and undertakes, in the undersigned's capacity
as a stockholder of the Company and not in the undersigned's capacity as a
director or executive officer of the Company, as follows:
1. The undersigned will not effect any voluntary transfer or other
disposition of any of the Shares or of any interest therein. In the case of any
transfer by operation of law, this letter agreement shall be binding upon and
inure to the transferee. Any transfer or other disposition in violation of the
terms of this paragraph 1 shall be null and void. [Just in the case of ML and
SW]
2. The undersigned shall take or cause to be taken all actions
reasonably necessary or desirable on the undersigned's part so as to permit
consummation of the Merger at the earliest possible date and shall not take, or
cause or to the best of the undersigned's ability permit to be taken, any action
which would substantially impair the prospects of completing the Merger pursuant
to the Agreement, except that the undersigned may vote on the Merger in his
discretion.
3. This letter agreement shall terminate at the time of the termination
of the Agreement, except that any such termination shall be without prejudice to
your rights arising out of any willful breach of any covenant or representation
contained herein.
<PAGE>
January 17, 1996
Page 2
4. The undersigned will not exercise dissenters' rights in connection
with the Merger.
Notwithstanding anything to the contrary, the undersigned shall not be
required to do any of the foregoing if, as of the date such action is required
to be taken, the undersigned is advised in writing by the Company's legal
counsel that the taking of such action would constitute a breach of the
undersigned's fiduciary duty (as a director of the Company) to the shareholders
of the Company, actionable in a court of competent jurisdiction.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the date first above written.
Very truly yours,
------------------------------
Signature
Number of Shares
Beneficially Owned:
- ----------------------- ------------------------------
Print Name
Accepted and agreed to as of the
the date first above written:
NATIONAL MEDIA CORPORATION
By:_________________________
Name:
Title:
<PAGE>
EXHIBIT B
<PAGE>
EXHIBIT B
Board of Directors of Merger Sub
Michael Levey
James Jernigan
Constantinos Costalas
Mark Hershhorn
Brian McAdams
Officers of Merger Sub
Mark Hershhorn Chairman
Michael Levey Chief Executive Officer
Stephen Weber Vice Chairman
James Jernigan President
Constantinos Costalas Secretary
Constantinos Costalas Treasurer
<PAGE>
EXHIBIT C
<PAGE>
EXHIBIT C
FORM OF AFFILIATE AGREEMENT
___________, 1996
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Attention: Constantinos I. Costalas
Ladies and Gentlemen:
Pursuant to the terms of that certain Agreement and Plan of Merger and
Reorganization dated as of January 17, 1996 (the "Agreement"), among National
Media Corporation, a Delaware corporation ("Parent"), PRT Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of Parent ("Merger Sub"), and
Positive Response Television, Inc., a California corporation (the "Company"),
Parent will acquire the Company through the merger of the Company with and into
Merger Sub (the "Merger"). Subject to the terms and conditions of the Agreement,
at the Effective Time (as defined in the Agreement), each outstanding share of
the common stock, no par value, of the Company (the "Company Common Stock") will
be converted into the right to receive .5239 shares of the common stock, par
value $0.01 per share, of Parent (the "Parent Common Stock"), on the basis
described in the Agreement.
The undersigned has been advised that, as of the date hereof, he may be
deemed to be an "affiliate" of the Company, as the term "affiliate" is (i)
defined for purposes of paragraphs (c) and (d) of Rule 145 of the Rules and
Regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), and/or (ii) used in and for purposes of Accounting Series Releases 130
and 135, as amended, and Staff Accounting Bulletins 65 and 76 of the Commission.
The undersigned understands that the representations, warranties and
covenants set forth herein will be relied upon by Parent, stockholders of
Parent, the Company, other stockholders of the Company and their respective
counsel and accountants.
The undersigned represents and warrants to and agrees with Parent that:
<PAGE>
1. The undersigned has full power to execute and deliver this Affiliate
Agreement and to make the representations and warranties herein and to perform
his obligations hereunder.
2. The undersigned has carefully read this Affiliate Agreement and the
Agreement and has discussed its requirements and other applicable limitations
upon the undersigned's ability to sell, transfer or otherwise dispose of Parent
Common Stock, to the extent the undersigned felt necessary, with his counsel or
counsel for the Company.
3. The undersigned shall not make any sale, transfer or other
disposition of Parent Common Stock in violation of the Act or the Rules and
Regulations.
4. The undersigned has been advised that the issuance of shares of
Parent Common Stock to the undersigned in connection with the Merger will be
registered with the Commission under the Act on a Registration Statement on Form
S-4. However, the undersigned has also been advised that, since at the time the
Merger is to be submitted for a vote of the stockholders of the Company the
undersigned may be deemed to be an affiliate of the Company and the distribution
by the undersigned of any Parent Common Stock will not have been registered, and
is not exempt, under the Act, the undersigned may not sell, transfer or
otherwise dispose of Parent Common Stock issued to the undersigned in the Merger
unless (i) such sale, transfer or other disposition has been registered under
the Act, (ii) such sale, transfer or other disposition is made in conformity
with the requirements of Rule 145 promulgated by the Commission under the Act,
or (iii) in the opinion of counsel reasonably acceptable to Parent, such sale,
transfer or other disposition is otherwise exempt from registration under the
Act.
5. Parent is under no obligation to register the sale, transfer or
other disposition of Parent Common Stock by the undersigned or on its behalf
under the Act or, except as otherwise provided herein, to take any other action
necessary in order to make compliance with an exemption from such registration
available. Parent agrees that it will at all times use its best efforts to
comply with the applicable reporting requirements of the Securities Exchange Act
of 1934, as amended, such that the requirements of Rule 144(c) of the Act are at
all times met.
6. Stop transfer instructions will be given to Parent's transfer agent
with respect to the Parent Common Stock and there will be placed on the
certificates for the Parent Common Stock issued to the undersigned, or any
substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
____________, 1996 BETWEEN THE BENEFICIAL OWNER HEREOF AND NATIONAL
MEDIA CORPORATION, A COPY OF WHICH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICES OF NATIONAL MEDIA CORPORATION."
<PAGE>
7. Unless the transfer by the undersigned of its Parent Common Stock
has been registered under the Act or is a sale made in conformity with the
provisions of Rule 145, Parent reserves the right to put the following legend on
the certificates issued to any transferee of the undersigned:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A
PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145
PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE
BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933."
8. The legends set forth in paragraphs 6 and 7 above shall be removed
by delivery of substitute certificates without such legend if the undersigned
shall have delivered to Parent a copy of a letter from the staff of the
Commission, or an opinion of counsel in form and substance reasonably
satisfactory to Parent, to the effect that such legend is not required for
purposes of the Act.
9. The undersigned is the beneficial owner of (i.e. has sole or shared
voting or investment power with respect to) all the shares of Company Common
Stock and options to purchase Company Common Stock indicated on the last page
hereof (the "Company Securities"). Except for the Company Securities, the
undersigned does not beneficially own any shares of Company Common Stock or any
other equity securities of the Company or any options, warrants or other rights
to acquire any equity securities of the Company.
10. The undersigned will vote or cause to be voted for approval of the
Agreement all of the shares of Company Common Stock indicated on the last page
hereof as beneficially owned by the undersigned as well as all shares of Company
Common Stock hereafter acquired by the undersigned.
11. The undersigned will not exercise dissenters' rights in connection
with the Merger.
12. Parent shall at all times cooperate with the undersigned in causing
all legends to be removed and all stop transfer instructions to be revoked
promptly upon compliance by the undersigned with the provisions of this
Affiliate Agreement, the Act and the Rules and Regulations.
<PAGE>
NUMBER OF SHARES OF ISSUED AND OUTSTANDING COMPANY
COMMON STOCK BENEFICIALLY OWNED BY THE UNDERSIGNED:
-----------------------
NUMBER OF SHARES OF COMPANY COMMON STOCK
SUBJECT TO OPTIONS
BENEFICIALLY OWNED BY THE UNDERSIGNED:
-----------------------
Very truly yours,
-----------------------------------
(print name of stockholder above)
By:________________________________
Name:
Title:
(if applicable)
Accepted and agreed to this _____
day of ________________, 1996, by
National Media Corporation
By:____________________________
Name:
Title:
<PAGE>
EXHIBIT D
<PAGE>
EXHIBIT D
[FORM OF OPINION OF IRELL & MANELLA]
_________________, 1996
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Dear Sirs:
We have acted as counsel to Positive Response Television, Inc., a
California corporation (the "Company"), in connection with the transaction
contemplated by that certain Agreement and Plan of Merger and Reorganization,
dated as of January __, 1996 (the "Merger Agreement"), by and among National
Media Corporation ("Parent"), PRT Acquisition Corp., a wholly-owned subsidiary
of Parent ("Merger Sub"), and the Company. The opinion contained herein is being
delivered to you pursuant to Section 6.02(g) of the Merger Agreement. All
capitalized terms used herein which are not specifically defined herein shall
have the meanings ascribed thereto in the Merger Agreement.
As such counsel, we have made such legal and factual examinations and
inquiries as we have deemed necessary or appropriate for purposes of this
opinion, except where a statement is qualified as to knowledge or awareness, in
which case we have made no or limited inquiry as specified below.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
We have been furnished with, and with your consent have relied upon,
certificates of officers of the Company with respect to certain factual matters.
In addition, we have obtained and relied upon such certificates and assurances
from public officials as we have deemed necessary.
We are opining herein as to the effect on the subject transaction only
with respect to the federal laws of the United States (other than those
pertaining to intellectual property matters and trade regulation, consumer
protection and related matters, including without limitation, the Clayton Act,
the FTC Act and the Sherman Act), the internal laws of the State of California
and the General Corporation Law of the State of Delaware, and we express no
<PAGE>
_______________, 1996
Page 2
opinion with respect to the applicability thereto, or the effect thereon, of the
laws of any other jurisdiction or, in the case of Delaware, any other laws, or
as to any matters of municipal law or the laws of any local agencies within any
state.
Capitalized terms used herein without definition have the meanings
ascribed to them in the Merger Agreement.
Based upon the foregoing and subject to the qualifications hereinafter
set forth, we are of the opinion that:
1. The Company and each of its subsidiaries (the "Subsidiary(ies)") 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 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. The Company 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 where the failure to be so qualified or licensed
would not, individually or in the aggregate, have a Material Adverse Effect.
2. 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, no par value per share (the "Company Preferred Stock"), none of which
have been designated. As of the date hereof, according to the records of the
Company and its stock transfer agent (i) __________ shares of Company Common
Stock are issued and outstanding, all of which are validly issued, fully paid
and nonassessable, (ii) _________ shares of Company Common Stock are reserved
for future issuance pursuant to the exercise of Stock Options granted under the
Company Option Plan, (iii) ___________ 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. To the best of our knowledge (based solely on
a review of the Company's minute books as maintained by it and our review of
those specific contracts identified as "Material Contracts" on Exhibit 2.05 to
the Company Disclosure Schedule), other than as set forth in the Merger
Agreement and/or 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
<PAGE>
_______________, 1996
Page 3
issuance pursuant to the Stock Purchase Rights and the Company Option Plan, upon
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. All of the outstanding shares of capital stock of each of the
Subsidiaries are duly authorized, validly issued, fully paid and nonassessable.
To the best of our knowledge (based solely on a review of the Company's minute
books as maintained by it and our review of those specific contracts identified
as "Material Contracts" on Exhibit 2.05 to the Company Disclosure Schedule),
other than as set forth in the Merger Agreement and/or the Company Disclosure
Schedule, all outstanding shares of capital stock of each of the Subsidiaries
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. To the
best of our knowledge (based solely on a review of the Company's minute books as
maintained by it and our review of those specific contracts identified as
"Material Contracts" on Exhibit 2.05 to the Company Disclosure Schedule), other
than as set forth in the Merger Agreement and/or the Company Disclosure
Schedule, there are no obligations, contingent or otherwise, of the Company to
repurchase, redeem or otherwise acquire any shares of Company capital stock or
to provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any Subsidiary or any other entity other than
guarantees of bank obligations of subsidiaries or joint venture or similar
agreements entered into the ordinary course of business.
3. The Merger Agreement and all other documents, instruments and
agreements entered into by the Company in connection with the Merger Agreement
and the transactions contemplated thereby have been duly and validly authorized,
executed and delivered by the Company and each constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company 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. Each of the letter agreements executed by the directors
and executive officers of the Company in the form attached to the Merger
Agreement as Exhibit A and each of the Affiliate Agreements has been duly and
validly executed and delivered by each of the signatories thereto and each
constitutes a legal, valid and binding obligation of such signatory, enforceable
against each such signatory 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
<PAGE>
_______________, 1996
Page 4
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.
4. The execution, delivery and performance by the Company of the Merger
Agreement and all other documents, instruments and agreements entered into by
the Company in connection with the Merger Agreement and the transactions
contemplated thereby do not, and the consummation of the transactions
contemplated therein does 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, writ, judgment or decree known to us and applicable to the
Company or any of its Subsidiaries or by which its or any of their respective
properties is bound or affected, except where such conflict would not have a
Material Adverse Effect, 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 impair the Company's or any of its Subsidiaries' rights or alter
the rights or obligations of any third party under, or except as set forth on
the Company Disclosure Schedule give to others any rights of termination,
amendment, acceleration or cancellation of, any Material Contract known to us
(except that no opinion is expressed as to whether Merger Sub will be treated as
a successor to the Company entitled to enforce all such Material Contracts), or,
to the best of our knowledge, 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 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 where the creation of such a lien or encumbrance would not have
a Material Adverse Effect.
5. The execution, delivery and performance by the Company of the Merger
Agreement and all other documents, instruments and agreements entered into by
the Company in connection with the Merger Agreement and the transactions
contemplated thereby do not, and the consummation of the transactions
contemplated therein does not, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, in California, Delaware or with the United States Government, except
for (a) such consents, approvals, authorizations, permits, filings and
notifications which have been obtained or made and are in full force and effect,
(b) the filing of the certificate of merger in California and Delaware, and (c)
such consents, approvals, authorizations, permits, filings or notifications, the
failure to obtain or file of which would not have a Material Adverse Effect.
<PAGE>
_______________, 1996
Page 5
6. To the best of our knowledge, the only liens, charges and
encumbrances on the properties and assets of the Company are liens for taxes not
yet due and payable, 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, individually or in the aggregate,
have a Material Adverse Effect and those reflected in the Company Disclosure
Schedule. All material leases known to us pursuant to which the Company or any
of its subsidiaries lease from others material amounts of real property are in
good standing, valid and effective in accordance with their respective terms,
and to the best of our knowledge there is not 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, individually or in the aggregate, have a Material Adverse Effect.
7. The Board of Directors of the Company has taken all necessary action
(or refrained from taking action, where appropriate) so that no Stock Options
and no Stock Purchase Rights (or any portion thereof) will be accelerated (other
than those held by David M. Wood and Raymond M. Gaytan) or entitled to receive
cash or other property as a result of the consummation of the transactions
contemplated by the Merger Agreement, but instead shall be assumed or converted,
as applicable, as provided in Section 1.06(c) thereof.
8. The Company has filed all annual and quarterly reports (the
"Reports") required to be filed by it with the United States Securities and
Exchange Commission ("SEC"). We participated in the preparation of or reviewed
the Reports but did not independently verify the facts contained in such
Reports. Nothing has come to our attention which leads us to believe that such
Reports (except as to the financial statements, the notes thereto and other
accounting, statistical or financial data included therein as to which we
express no view) at the time they were filed (or if amended or superseded by a
subsequent filing, then on the date of such filing) contained any untrue
statement of a material fact or omitted 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
the Subsidiaries is required to file any forms, reports or other documents with
the SEC.
<PAGE>
_______________, 1996
Page 6
We further advise you that as counsel to the Company, we reviewed and
participated in the preparation of the Proxy Statement/Prospectus. The
limitations inherent in the review of factual and other matters included or
contemplated by the Proxy Statement/Prospectus, and the character or
determinations involved in such process are such, however, that we do not make
any warranty or representation concerning, or assume any such responsibility
for, the accuracy, completeness or fairness of any of the statements contained
in the Proxy Statement/Prospectus.
Based upon and subject to the foregoing, nothing has come to our
attention that would lead us to believe that, insofar as it relates to the
Company, the Proxy Statement/Prospectus, at the date it or any amendments or
supplements thereto were mailed to stockholders, at the time of the Company
Stockholders' Meeting and at the Effective Time, (except as to the financial
statements, the notes thereto, accounting and other statistical or financial
data included therein as to which we express no view or opinion) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Whenever our opinion herein with respect to the existence or
nonexistence of facts is qualified by the phrase "to our knowledge," or any
similar phrase implying a limitation on the basis of knowledge, such phrase
means only that the individual attorneys currently in this firm who have had
active involvement in the transactions contemplated by the Merger Agreement do
not have actual knowledge that the facts as stated herein are untrue. Unless
otherwise expressly stated herein, such persons have not undertaken any
investigation to determine the existence or nonexistence of such facts.
This opinion is rendered only to you and is solely for your benefit in
connection with the above transaction. This opinion may not be relied upon by
you for any other purpose, or furnished to, quoted to, or relied upon by any
other person, firm or corporation for any purpose without our prior written
consent.
Very truly yours,
Irell & Manella
<PAGE>
[FORM OF OPINION OF RUSS, AUGUST & KABAT]
__________________, 1996
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Dear Sirs:
We have acted as counsel to Positive Response Television, Inc., a California
corporation (the "Company") in connection with certain trademark, copyright and
patent matters, as well as business litigation in which the Company has been
named as a party plaintiff or defendant. The opinion contained herein is being
delivered to you pursuant to Section 6.02(g) of that certain Agreement and Plan
of Merger and Reorganization by and among National Media Corporation and the
Company dated January __, 1996 (the "Merger Agreement"). All capitalized terms
utilized but not otherwise defined herein shall be deemed to have the meaning
ascribed thereto in the Merger Agreement.
1. The Company or 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 therefore, 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. All material patents, registered trademarks, trade names and
copyrights held by the Company or its subsidiaries are valid and subsisting. All
presently pending applications, however, may or may not ultimately issue as
patents, registered trademarks, or copyrighted registrations. To the best of our
knowledge, there is no unauthorized use, infringement or misappropriation by the
Company of any intellectual property rights owned by any third party, including
any employee or former employee of the Company or its subsidiaries. To the best
of our knowledge, after due inquiry, other than as set forth in the Merger
Agreement and/or the Company Disclosure Schedule, neither the Company or any of
its subsidiaries has been sued or charged in writing as a defendant in any
claim, suit, action or proceeding which involves a claim of infringement of
trade secrets, any patents, trademarks, service marks, tradenames 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 or any of its
subsidiaries may be engaged in such infringement.(1)
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In the interest of caution and full disclosure, the following matters
may peripherally involve intellectual property rights: (a) BluBlocker
Corporation v. Positive Response Television, Inc., Eagle Eyes, et al.; (b) The
Komando Corporation, et al. v. Positive Response, et. al.,; (c) Sylver
Enterprises, Inc. v. The Hammond Companies, and Positive Response, et al.; and
(d) a potential action by Bodylines, Inc. asserting that PRTV is somehow
breaching an agreement not to disclose proprietary data by proceeding with an
infomercial campaign featuring a breast enhancement product competitive with
Bodylines, Inc.'s "accents" breast enhancement product.
<PAGE>
2. Except as set forth in the Company's SEC reports, to the best of our
knowledge after due inquiry, there are no claims, actions, suits, proceedings or
investigations, pending or 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, which is reasonably likely,
individually or in the aggregate, to materially hinder or delay consummation of
the transactions contemplated by the Merger Agreement or could result in a
Material Adverse Affect.
Very truly yours,
RUSS, AUGUST & KABAT
Larry C. Russ
<PAGE>
[FORM OF OPINION OF HARVEY SAFERSTEIN]
__________, 1996
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Dear Sir or Madam:
In connection with the transactions contemplated by that certain
Agreement and Plan of Merger and Reorganization, dated as of January __, 1996
(the "Merger Agreement"), by and among National Media Corporation ("Parent"),
PRT Acquisition Corp., a wholly-owned subsidiary of Parent ("Merger Sub"), and
Positive Response Television, Inc. (the "Company"), I have been asked by the
Company to render an opinion with regard to certain infomercials produced by the
Company. The opinion contained herein is being delivered to you pursuant to
Section 6.02(g) of the Merger Agreement. All capitalized terms used herein which
are not specifically defined herein shall have the meanings ascribed thereto in
the Merger Agreement.
I have periodically reviewed, as counsel, when requested by the
Company, the videotaping, editing, and/or working scripts for certain of the
Company's infomercials. I have also, as counsel, when requested by the Company,
reviewed materials the Company has provided to me purporting to substantiate
certain claims contained in those infomercials. In that connection I typically
reviewed the various draft show outlines, working scripts, uncut videotapes,
competitive information, competitive videos, written product materials and/or
other data supplied by the Company to me to evaluate the infomercial or
materials. For some infomercials I reviewed only the scripts and the resulting
videotape and did not attend the filming; for others I attended the filming. In
that connection I have also reviewed the terms of a consent order between the
Federal Trade Commission and the Company. The infomercials I reviewed as
described since January 1994 include: Magic Shine, Tai Chi, Perfect Hair, Nectar
Valley, Super Slicer, Mathemagics, SRX, Bow Dazzler, and Cyberedge. Of those
infomercials I attended the videotaping of Nectar Valley, Mathemagics, SRX, Bow
Dazzler, and Cyberedge. Based on the above reviews, I have concluded and hereby
advise you that the infomercials referred to above do not violate any material
terms of the Consent Order.
I have taken no further steps, inquiries, or independent
investigations, since my contemporaneous counseling described above. However, I
have turned over relevant substantiation materials in my files to the Company
for purposes of a due diligence inquiry by National Media Corporation counsel
and have discussed various infomercials with said counsel for National Media
Corporation.
If you have any further questions please do not hesitate to call me.
Sincerely,
Harvey I. Saferstein
<PAGE>
EXHIBIT E
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, made as of the _____ day of __________, 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
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
<PAGE>
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 ____________, 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 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
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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 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.
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<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.
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 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.
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<PAGE>
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
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.
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 __, 1996,
by and between 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, 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
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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, 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).
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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 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
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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
(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
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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 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
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<PAGE>
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 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.
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(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 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
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If to National Media, to:
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Attention: President
If to Executive, to:
Michael Levey
_______________________
____________, California _____
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 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.
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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.
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.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ATTEST: POSITIVE RESPONSE TELEVISION,
INC.
________________________ By: ____________________________________
(SEAL) Name:
Title:
WITNESS:
________________________ By: ____________________________________
MICHAEL LEVEY
ATTEST: NATIONAL MEDIA CORPORATION
________________________ By: ____________________________________
(SEAL) Name:
Title:
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EXHIBIT F
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, made as of the _____ day of ____________, 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 ____________, 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
<PAGE>
full business time, attention and best efforts to the affairs of the Company
during the term of this 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
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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 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
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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 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
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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.
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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.
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(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 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;
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(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 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.
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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 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
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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 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
-10-
<PAGE>
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 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
_______________________
____________, California _____
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 and
-11-
<PAGE>
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: ____________________________________
(SEAL) Name:
Title:
WITNESS:
________________________ ______________________________________
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: ____________________________________
(SEAL) Name:
Title:
-13-
<PAGE>
EXHIBIT G
<PAGE>
EXHIBIT G
[FORM OF OPINION OF KHHB&E]
_________________, 1996
Positive Response Television, Inc.
14724 Ventura Boulevard
Sixth Floor
Sherman Oaks, CA 91407
Gentlemen:
We have acted as counsel to National Media Corporation, a
Delaware corporation ("Parent"), and PRT Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), in
connection with the transactions contemplated by that certain Agreement and Plan
of Merger and Reorganization, dated as of January 17, 1996 (the "Merger
Agreement"), by and among Parent, Merger Sub and Positive Response Television,
Inc. ("PRTV"). The opinion contained herein is being delivered to you pursuant
to Section 6.03(e) of the Merger Agreement. All capitalized terms used herein
which are not specifically defined herein are intended to have the meanings
ascribed thereto in the Merger Agreement.
In rendering our opinion, we have examined and relied upon the
original or copies of the following documents: (i) the Certificates of
Incorporation and the Bylaws, each as amended and/or restated, of Parent and
Merger Sub; (ii) minutes and records of the corporate proceedings of Parent and
Merger Sub with respect to the transactions contemplated by the Merger
Agreement, including, but not limited to, the issuance and delivery of the
Parent Common Stock; (iii) the executed Merger Agreement; (iv) the Registration
Statement and Proxy Statement/Prospectus; (v) certificates of good standing, or
their equivalent in a particular jurisdiction, of the Secretary of State or
other comparable public official for each of Parent and Merger Sub; (vi) those
material agreements (the "Material Agreements") of Parent listed as such in the
Parent's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 and
in Parent's Quarterly Reports on Form 10-Q for the quarters ended June 30, 1995
and September 30, 1995; and (vii) such other documents as we have deemed
necessary as a basis for the opinion hereinafter set forth. As to any facts
material to our opinion, we have relied, to the extent we deem such reliance
proper, upon representations and certificates of officers of each of Parent and
Merger Sub. In addition, in rendering certain of the opinions expressed herein,
we have relied exclusively, with your permission, upon that certain legal
opinion of even date herewith of Marshall A. Fleisher, Esquire, Vice President
(Legal) and Corporate Secretary of Parent, a copy of which is attached hereto.
<PAGE>
Positive Response Television, Inc.
__________________, 1996
Page 2
In our examination of the foregoing documents, we have
assumed: (i) the due authorization, execution and delivery by all relevant
parties, other than Parent and Merger Sub, of all agreements to which Parent
and/or Merger Sub is a party including, but not limited to, the Merger
Agreement; (ii) the legal capacity of all natural persons; (iii) the genuineness
of all signatures; and (iv) the authenticity of all documents submitted to us as
originals as well as the conformity to the originals of all documents submitted
to us as photostatic copies. We have further assumed the existence and good
standing of each entity that is a party to the documents examined by us (other
than Parent and Merger Sub) under the laws of the jurisdiction of its formation
or organization and the laws of the jurisdiction under which such documents are
governed and that the documents examined by us are in full force and effect and
have not been amended, supplemented or otherwise modified, except where we are
actually aware of any such amendment, supplement or other modification.
For purposes of this opinion letter, we have assumed that: (i)
PRTV has all requisite power and authority under all applicable laws,
regulations and governing documents to execute, deliver and perform its
obligations under the Merger Agreement; (ii) PRTV has duly authorized, executed
and delivered the Merger Agreement and all other agreements and documents
referred to therein to which PRTV is a party; (iii) PRTV is validly existing and
in good standing in all necessary jurisdictions; (iv) the Merger Agreement and
all other agreements executed in connection therewith constitute the valid and
binding obligation of each party thereto, other than Parent and Merger Sub,
enforceable against each of such parties in accordance with their respective
terms; (v) the Merger Agreement and the transactions contemplated thereby have
been duly approved in accordance with all applicable provisions of California
Law by the board of directors and the stockholders of PRTV; and (vi) there has
been no material mutual mistake of fact or misunderstanding or fraud, duress or
undue influence, in connection with the negotiation, execution or delivery of
the Merger Agreement.
Based upon the foregoing and subject to the qualifications
hereinafter set forth, we are of the opinion that:
1. Both Parent and Merger Sub are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
2. Both Parent and Merger Sub have the corporate
power and corporate authority under their respective Certificates of
Incorporation and the Delaware Corporation Law to execute, deliver and perform
each of their respective material obligations under the Merger Agreement. All
corporate proceedings required to be taken by both Parent and Merger Sub to
authorize Parent and Merger Sub, as the case may be, to enter into and carry out
the Merger Agreement and the transactions contemplated thereby have been duly
and properly taken and the Merger Agreement constitutes a valid obligation
<PAGE>
Positive Response Television, Inc.
__________________, 1996
Page 3
binding upon both Parent and Merger Sub in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, or other laws effecting the enforceability of creditor's rights in
general (including, without limitation, the effect of statutory and other laws
regarding fraudulent conveyances, fraudulent transfers and preferential
transfers) and subject to general principles of equity and judicial construction
(including, without limitation, requirements of good faith, fair dealing,
conscionability and materiality), regardless of whether enforceability is
considered in a proceeding in equity or at law.
3. Parent and Merger Sub have obtained all required
approvals and consents under the Material Agreements, applicable federal and
state securities and "blue sky" laws and regulations, applicable federal
anti-trust laws and regulations and Delaware Corporation Law (as hereinafter
defined) to execute, deliver and consummate the transactions contemplated by the
Merger Agreement and the execution, delivery and consummation of the Merger
Agreement does not violate or conflict with either of Parent's or Merger Sub's
Certificate of Incorporation or Bylaws, or the Delaware Corporation Law.
4. Upon delivery of the Parent Common Shares in
accordance with the terms of the Merger Agreement, such Parent Common Shares
will be duly authorized, validly issued, fully paid and non assessable.
We further advise you that as counsel to Parent and Merger
Sub, we reviewed and participated in the preparation of the Registration
Statement and Proxy Statement/Prospectus, participated in discussions with
representatives of Parent and Merger Sub, their financial adviser and
accountants, and advised Parent and Merger Sub regarding their compliance with
the applicable laws relating to the Registration Statement and Proxy
Statement/Prospectus, including, but not limited to, the Securities Act, the
Exchange Act and the applicable rules and regulations promulgated thereunder.
In addition, in connection with the foregoing, we conferred
with officers and representatives of Parent and Merger Sub, including Parent's
accountants, at which the contents of the Registration Statement and Proxy
Statement/Prospectus and related matters and documents were discussed and
reviewed. The limitations inherent in the review of factual and other matters
included in or contemplated by the Registration Statement and Proxy
Statement/Prospectus, and the character or determinations involved in such
process are such, however, that we do not make any warranty or representation
concerning, or assume any such responsibility for, the accuracy, completeness or
fairness of the statements contained in the Registration Statement and Proxy
Statement/Prospectus.
<PAGE>
Positive Response Television, Inc.
__________________, 1996
Page 4
Based upon and subject to the foregoing, nothing has come to
our attention that would lead us to believe that, insofar as they relate to
Parent and Merger Sub, the Registration Statement and Proxy Statement/Prospectus
contained, (A) in the case of the Proxy Statement/Prospectus, at the date it or
any amendments or supplements thereto were mailed to stockholders, at the time
of the Company Stockholders' Meeting and at the Effective Time, and (B) in the
case of the Registration Statement, when it became effective under the
Securities Act and at the Effective Time, any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (it being understood that, with your
consent, we express no belief or opinion with respect to the financial
statements and other statistical and financial data included in the Registration
Statement and Proxy Statement/Prospectus or the information contained therein
regarding the Company). In addition, each of the Registration Statement and
Proxy Statement/Prospectus appeared on its face to be appropriately responsive
in all material respects to the requirements, as appropriate, of the Securities
Act, the Exchange Act and the rules and regulations promulgated thereunder.
Whenever a statement herein is qualified by the phrases "to
the best of our knowledge," "we are not aware," "known to us," or similar
phrases, it is intended to indicate that, during the course of our
representation of the Parent and Merger Sub, no information that would give us
current actual knowledge of the inaccuracy of such statement has come to the
attention of those attorneys currently in this firm who have rendered legal
services in connection with the representation described in this opinion letter.
We have not, except as specifically identified in this opinion
letter, undertaken any independent investigation, review or research in
connection with any matters addressed herein or to determine the accuracy or
genuineness of any statement or document upon which we have relied, and any
limited inquiry undertaken by us during the preparation of this opinion letter
should not be regarded as such an investigation, review or research.
Our opinion is limited to: (i) the General Corporation Law of
the State of Delaware ("Delaware Corporation Law"); (ii) Delaware contract law
(but not including any statutes, ordinances, administrative decisions, rules or
regulations of any political subdivision of the State of Delaware); (iii)
applicable federal and state securities and "blue sky" laws and regulations; and
(iv) applicable federal anti-trust laws and regulations, and we express no
opinion with respect to the laws of any other state or jurisdiction.
We assume no obligation to advise you of any changes in the
foregoing subsequent to the delivery of this opinion letter. This opinion is
intended only for the use of the addressees in connection with the transactions
<PAGE>
Positive Response Television, Inc.
__________________, 1996
Page 5
contemplated by the Merger Agreement and may not be used or relied upon by any
other person without a prior written consent.
Very truly yours,
<PAGE>
NATIONAL MEDIA CORPORATION
1700 Walnut Street
Philadelphia, PA 19103
215 o 772-5000
215 o 772-5018 Fax
PRESS RELEASE
Contact:
Bruce Boyle
Director of Corporate Communications
(800) 311-3561
------------------------------------------------------------------------------
NATIONAL MEDIA CORPORATION
SIGNS DEFINITIVE AGREEMENT
WITH POSITIVE RESPONSE TV
Philadelphia, PA, January 18, 1996 -- National Media Corporation (NYSE:NM)
announced today that it has signed a definitive agreement to acquire Positive
Response Television, Inc. (NASDAQ:PRTV), an acquisition that was announced
previously on October 19, 1995.
Under terms of the definitive agreement Positive Response TV shareholders will
receive .5239 shares of National Media Corporation common stock for each share
of PRTV common stock they own, subject to an adjustment if PRTV's shareholders'
equity falls below an established minimum. Certain of the shares will be issued
into escrow pending liquidation of certain of PRTV's balance sheet items.
The acquisition remains contingent upon a vote by PRTV shareholders and
regulatory approval.
PRTV currently has approximately 3.55 million shares of common stock
outstanding. Following consummation of the transaction, PRTV's shareholders will
own approximately 7 percent of National Media Corporation's common stock,
assuming conversion of all outstanding preferred stock, options and warrants.
Mark P. Hershhorn, President and Chief Executive Officer of National Media
Corporation, said, "We're pleased that the acquisition is proceeding forward and
we're enthusiastic about joining forces with Mike Levey and his outstanding
team."
Through the acquisition, National Media Corporation will add the professional
talents of Mike Levey, Founder, Chairman and Chief Executive Officer of PRTV,
one of the most recognized on-air talents in all of television, and the creator
of the "Amazing Discoveries" and "Ask Mike" formats.
---MORE---
<PAGE>
January 18, 1996
Page 2
Following the acquisition, Mr. Levey will serve as chief executive officer of
the PRTV subsidiary and as an executive vice president of National Media
Corporation.
Mr. Levey said, "Linking up with National Media and its global distribution
system, as well as its impressive list of international partners, is an
outstanding opportunity for me, and for shareholders of our company."
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., brings infomercial programming to more than 235 million
households in 60 countries worldwide.
* * *
[To request previous press releases on National Media Corporation please
contact, PR Newswire at (800) 758-5804 Ext. 604644.]
