<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1996
REGISTRATION NO. 333-00975
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NATIONAL MEDIA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 5961 13-2658741
(State or other jurisdiction of (Primary S.I.C. number) (I.R.S. Employer
incorporation or organization) Identification Number)
1700 WALNUT STREET
PHILADELPHIA, PENNSYLVANIA 19102
(215) 772-5000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------------
BRIAN J. SISKO, VICE PRESIDENT/CORPORATE DEVELOPMENT
NATIONAL MEDIA CORPORATION
1700 WALNUT STREET
PHILADELPHIA, PENNSYLVANIA 19102
(215) 772-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With a copy to:
Stephen T. Burdumy, Esq.
Gerald F. Stahlecker, Esq.
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
(215) 568-6060
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective and certain
other conditions under the Agreement and Plan of Merger and Reorganization, as
amended, are met or waived.
-------------------------
If the securities registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Amount of
Title of Each Class of Amount to be Offering Maximum Aggregate Registration
Securities Registered Per Price Share Offering Price Fee
to be Registered(1)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par 1,885,033 $15.87(3) $26,562,746.43 $65.67(4)
value $.01 per share shares(2)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This Registration Statement relates to shares of Common Stock of the
Registrant issuable to holders of common stock of Positive Response
Television, Inc., a California corporation ("PRT"), in connection with the
proposed merger of PRT with and into a wholly-owned subsidiary of the
Registrant (the "Merger").
(2) Represents the maximum number of shares of Common Stock of the Registrant
which may be issued to shareholders of PRT pursuant to the Merger described
herein.
(3) Pursuant to Rule 457(f), the registration fee was computed on the basis of
the average of the high and low prices of PRT's Common Stock on the Nasdaq
National Market on April 12, 1996.
(4) Represents the filing fee payable with respect to 12,001 shares of the
Registrant's Common Stock. A registration fee of $9,093.89 was paid at the
time of the original filing of this Registration Statement with respect to
1,873,032 shares of the Registrant's Common Stock; such fee was computed on
the basis of the average of the high and low prices of PRT's Common Stock
on the Nasdaq National Market on February 13, 1996. Pursuant to Rule
457(b), $5,274.46 of the registration fee previously paid represents the
filing fee payable by PRT under Section 14(g) of the Securities Exchange
Act of 1934 in connection with the filing of preliminary proxy materials.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
NATIONAL MEDIA CORPORATION
CROSS-REFERENCE TABLE
PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NO. FORM S-4 CAPTION PROSPECTUS
- -------- ---------------- ----------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
Item 1 Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . Facing Page; Cross Reference Sheet;
Outside Front Cover Page of Proxy
Statement/ Prospectus
Item 2 Inside Front and Outside Back Cover Pages of Prospectus. . . . . . . . . . Table of Contents; Available Information;
Incorporation of Certain Information by
Reference
Item 3 Risk Factors, Ratio of Earnings to Fixed Charges and Other
Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary; Market Price and Dividend
Information; Selected Historical and Pro
Forma Financial Data; Risk Factors; The
Merger; The Merger Agreement and Related
Agreements; Pro Forma Combined Condensed
Financial Statements; Positive Response
Television, Inc.
Item 4 Terms of the Transaction . . . . . . . . . . . . . . . . . . . . . . . . . Summary; The Merger; The Merger Agreement
and Related Agreements; Comparison of
Shareholders' Rights
Item 5 Pro Forma Financial Information. . . . . . . . . . . . . . . . . . . . . . Selected Historical and Pro Forma
Financial Data; Pro Forma Combined
Condensed Financial Statements
Item 6 Material Contracts with the Company Being Acquired . . . . . . . . . . . . Summary; The Merger; The Merger Agreement
and Related Agreements; Positive Response
Television, Inc.
Item 7 Additional Information Required for Reoffering by Persons and
Parties Deemed to be Underwriters. . . . . . . . . . . . . . . . . . . . . Not Applicable
Item 8 Interests of Named Experts and Counsel . . . . . . . . . . . . . . . . . . Experts; Legal Matters
Item 9 Disclosure of Commission Position on Indemnification for
Securities Acts Liabilities. . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
<PAGE>
B. INFORMATION ABOUT THE REGISTRANT
Item 10 Information with Respect to S-3 Registrants. . . . . . . . . . . . . . . . Available Information; Incorporation of
Certain Information by Reference; Summary;
Market Price and Dividend Information;
Selected Historical and Pro Forma
Financial Data; The Merger; The Merger
Agreement and Related Agreements; Pro
Forma Combined Condensed Financial
Statements
Item 11 Incorporation of Certain Information by Reference. . . . . . . . . . . . . Incorporation of Certain Information by
Reference
Item 12 Information with Respect to S-2 or S-3 Registrants . . . . . . . . . . . . Not Applicable
Item 13 Incorporation of Certain Information by Reference. . . . . . . . . . . . . Not Applicable
Item 14 Information with Respect to Registrants Other than S-2 or
S-3 Registrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
Item 15 Information with Respect to S-3 Companies. . . . . . . . . . . . . . . . . Not Applicable
Item 16 Information with Respect to S-2 or S-3 Companies . . . . . . . . . . . . . Not Applicable
Item 17 Information with Respect to Companies Other than
S-2 or S-3 Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary; Market Price and Dividend
Information; Selected Historical and Pro
Forma Financial Data; The Merger; The
Merger Agreement and Related Agreements;
Pro Forma Combined Condensed Financial
Statements; Positive Response Television,
Inc.; Index to Financial Statements
D. VOTING AND MANAGEMENT INFORMATION
Item 18 Information if Proxies, Consents or Authorizations
are to be Solicited. . . . . . . . . . . . . . . . . . . . . . . . . . . . Facing Page; Outside Front Cover Page of
Proxy Statement/Prospectus; Summary; The
Special Meeting; The Merger; The Merger
Agreement and Related Agreements; Positive
Response Television, Inc.; Comparison of
Shareholders' Rights
Item 19 Information if Proxies, Consents or Authorizations are
not to be Solicited or in an Exchange Offer. . . . . . . . . . . . . . . . Not Applicable
</TABLE>
<PAGE>
POSITIVE RESPONSE TELEVISION, INC.
14724 VENTURA BOULEVARD, SUITE 600
SHERMAN OAKS, CALIFORNIA 91403-3501
April 19, 1996
TO: THE SHAREHOLDERS OF POSITIVE RESPONSE TELEVISION, INC.
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders of
POSITIVE RESPONSE TELEVISION, INC., a California corporation ("PRT"), to be held
at 9:00 a.m., local time, on May 17, 1996, at 14724 Ventura Boulevard, First
Floor, Sherman Oaks, California (the "Special Meeting").
At the Special Meeting you will be asked to consider and vote on the
following proposals:
1. Approval and adoption of the Agreement and Plan of Merger and
Reorganization, dated as of January 17, 1996 and amended as of April 4, 1996
(the "Merger Agreement"), by and among National Media Corporation, a
Delaware corporation ("NMC"), PRT Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of NMC ("Merger Sub"), and PRT, and to approve
the principal terms of the merger (the "Merger") of PRT with and into Merger
Sub pursuant to the Merger Agreement. As a result of the Merger, PRT will
become a wholly-owned subsidiary of NMC.
2. To transact such other business as may properly come before the
Special Meeting or any postponements or adjournments thereof.
PRT'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF PRT AND ITS
SHAREHOLDERS. AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE IN FAVOR OF THE PRINCIPAL TERMS OF THE MERGER.
Details of the proposed Merger and other important information concerning
NMC and PRT are more fully described in the accompanying Proxy
Statement/Prospectus. Please give this material your careful attention.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN
AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
PREPAID ENVELOPE. You may revoke your proxy in the manner described in the
accompanying Proxy Statement/Prospectus at any time before it has been voted at
the Special Meeting. If you attend the Special Meeting, you may vote in person
even if you have previously returned your proxy card. Your prompt cooperation
will be greatly appreciated.
Sincerely,
/s/Michael S. Levey
Michael S. Levey
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
POSITIVE RESPONSE TELEVISION, INC.
14724 VENTURA BOULEVARD, SUITE 600
SHERMAN OAKS, CALIFORNIA 91403-3501
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
---------------------
To Be Held May 17, 1996
TO: THE SHAREHOLDERS OF POSITIVE RESPONSE TELEVISION, INC.
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of
POSITIVE RESPONSE TELEVISION, INC., a California corporation ("PRT"), will be
held at 9:00 a.m., local time, on May 17, 1996 at 14724 Ventura Boulevard, First
Floor, Sherman Oaks, California (the "Special Meeting"), to consider and vote
upon the following proposals:
1. Approval and adoption of the Agreement and Plan of Merger and
Reorganization, dated as of January 17, 1996 and amended as of April 4, 1996
(the "Merger Agreement"), by and among National Media Corporation, a Delaware
corporation ("NMC"), PRT Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of NMC ("Merger Sub"), and PRT, and to approve the
principal terms of the merger (the "Merger") of PRT with and into Merger Sub
pursuant to the Merger Agreement. As a result of the Merger, PRT will become a
wholly-owned subsidiary of NMC. Pursuant to the terms of the Merger Agreement,
each outstanding share of PRT common stock (other than, in limited
circumstances, shares of PRT common stock as to which dissenters' rights of
appraisal have been perfected under Chapter 13 of the California Corporations
Code and except for those shares of PRT common stock held by NMC, which shall be
cancelled, without consideration, as a result of the Merger) will be converted
into the right to receive a maximum of 0.5239 shares (the "Exchange Ratio") of
NMC common stock, less a pro rata portion of any Reduction Amount (as defined
below). The Reduction Amount (which, in effect, takes into account the extent,
if any, by which PRT's shareholders' equity at December 31, 1995 (as adjusted)
is less than $13.0 million) 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. It is presently anticipated that the Reduction
Amount will be at least 30,000 shares, but not more than 100,000 shares, of NMC
common stock. Consequently, subject to the escrow arrangement described below,
PRT shareholders are presently expected to be entitled to receive a maximum of
between 0.4961 and 0.5156 shares of NMC common stock for each share of PRT
common stock held.
Notwithstanding the foregoing, 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 consummation of the Merger, 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. By voting in favor of the approval and adoption
of the Merger Agreement and the principal terms of the Merger, shareholders of
PRT thereby appoint Michael Levey as the Shareholders' Representative to serve
as their agent to make decisions and take all necessary and appropriate actions
on their behalf with respect to the Escrow Agreement and the Escrow Shares. It
is presently anticipated that at least 165,000 shares, but not more than 215,000
shares, of NMC Common Stock will be placed into escrow. Consequently, it is
presently expected that, at the effective time of the Merger, PRT shareholders
will receive between 0.4364 and 0.4697 shares of NMC common stock for each share
of PRT common stock held.
<PAGE>
In the event that the actual Reduction Amount and Escrow Amount collectively
exceed 315,000 shares of NMC common stock (i.e. PRT shareholders are to receive
less than 0.4364 shares of NMC common stock for each share of PRT common stock
held at the effective time of the Merger), PRT will be required to resolicit
shareholder approval of the Merger Agreement and the principal terms of the
Merger.
The Merger Agreement also provides that each outstanding option to purchase
shares of PRT common stock (each a "Plan Option") under PRT's 1994 Stock Option
Plan (the "Stock Option Plan") will be assumed by NMC upon the same terms and
conditions as set forth in the Stock Option Plan and the agreement pursuant to
which each such Plan Option was issued, subject, however, to appropriate
adjustment (as to both number of shares and exercise price) to reflect the
Exchange Ratio (and the effect of the Reduction Amount thereon). There are no
other outstanding options (excluding Plan Options), warrants, convertible
securities or other similar rights to acquire PRT common stock. A copy of the
Merger Agreement is attached as Annex A to the Proxy Statement/Prospectus
accompanying this Notice.
2. To transact such other business as may properly come before the Special
Meeting or any postponements or adjournments thereof.
The Board of Directors has fixed the close of business on March 25, 1996 as
the record date for the determination of the holders of PRT common stock
entitled to notice of, and to vote at, the Special Meeting. Accordingly, only
shareholders of record at the close of business on such date are entitled to
notice of and to vote at the Special Meeting and any adjournment or postponement
thereof. A quorum for purposes of the Special Meeting requires the presence, in
person or by proxy, of the holders of at least a majority of the shares of PRT
common stock entitled to vote at the Special Meeting. The affirmative vote of a
majority of the outstanding shares of PRT common stock entitled to vote thereon
is necessary for approval and adoption of the Merger Agreement and approval of
the principal terms of the Merger. As of the date hereof, the directors and
executive officers of PRT and their affiliates beneficially own approximately
46.6% of the outstanding shares of PRT Common Stock. Such persons are expected
to vote such shares in favor of the approval and adoption of the Merger
Agreement and the approval of the principal terms of the Merger.
Details of the proposed Merger and other important information concerning
NMC and PRT are more fully described in the accompanying Proxy
Statement/Prospectus. Please give this material your careful attention.
All shareholders are cordially invited to attend the Special Meeting in
person; however, to ensure your representation at the Special Meeting, you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage prepaid envelope enclosed for that purpose.
YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED AT THE SPECIAL
MEETING. ANY SHAREHOLDER ATTENDING THE SPECIAL MEETING MAY VOTE IN PERSON EVEN
IF HE OR SHE HAS PREVIOUSLY RETURNED A PROXY.
Holders of PRT common stock who object to the Merger may assert dissenters'
rights of appraisal pursuant to Chapter 13 of the California Corporations Code
(the "CCC"). A summary of such rights, setting forth the procedures to be
followed in order to assert such rights, is included in the Proxy
Statement/Prospectus accompanying this notice under the section entitled "THE
MERGER -- Rights of Dissenting Shareholders." A copy of the full text of the
relevant portions of Chapter 13 of the CCC is attached to the Proxy
Statement/Prospectus as Annex C and incorporated therein by reference.
THE BOARD OF DIRECTORS OF PRT HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF
<PAGE>
PRT AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY
RECOMMENDS THAT YOU VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT AND TO
APPROVE THE PRINCIPAL TERMS OF THE MERGER.
IT IS IMPORTANT THAT YOU RETURN YOUR SIGNED PROXY PROMPTLY, REGARDLESS OF
THE NUMBER OF SHARES YOU OWN. PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED
PROXY IN THE ACCOMPANYING ENVELOPE PROMPTLY, WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING.
Sincerely,
/s/ Michael S. Levey
Michael S. Levey
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Sherman Oaks, California
April 19, 1996
<PAGE>
<TABLE>
<S> <C>
[LOGO] [LOGO]
[LOGO] [LOGO]
</TABLE>
POSITIVE RESPONSE TELEVISION, INC.
PROXY STATEMENT
---------------------
NATIONAL MEDIA CORPORATION
PROSPECTUS
---------------------
This Proxy Statement/Prospectus is being furnished to holders of common
stock, no par value ("PRT Common Stock"), of Positive Response Television, Inc.,
a California corporation ("Positive Response" or "PRT"), in connection with the
solicitation of proxies by the Board of Directors of PRT for use at a special
meeting of PRT shareholders (the "Special Meeting") to be held at 9:00 a.m.
local time, on May 17, 1996, at 14724 Ventura Boulevard, First Floor, Sherman
Oaks, California and at any adjournment or postponement thereof. At the Special
Meeting, shareholders will be asked to consider and vote upon the approval and
adoption of an Agreement and Plan of Merger and Reorganization, dated as of
January 17, 1996 and amended as of April 4, 1996 (the "Merger Agreement"), by
and among National Media Corporation, a Delaware corporation ("National Media"
or "NMC"), PRT Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of NMC ("Merger Sub"), and PRT, and to approve the principal terms of
the merger (the "Merger") of PRT with and into Merger Sub pursuant to the Merger
Agreement. Upon consummation of 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 PRT
Common Stock (other than, in limited circumstances, shares of PRT Common Stock
("Dissenters' Shares") as to which dissenters' rights of appraisal have been
perfected under Chapter 13 of the California Corporations Code ("CCC") and
except for those shares of PRT Common Stock held by NMC, which shall be
cancelled, without consideration, as a result of the Merger) will be converted
into the right to receive a maximum of 0.5239 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
(which, in effect, takes into account the extent, if any, by which PRT's
shareholders' equity at December 31, 1995 (as adjusted) is less than $13.0
million) 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
<PAGE>
and the transactions contemplated thereby and given effect in PRT's financial
statements. It is presently anticipated that the Reduction Amount will be at
least 30,000 shares, but not more than 100,000 shares, of NMC Common Stock.
Consequently, subject to the escrow arrangement described below, PRT
shareholders are presently expected to be entitled to receive a maximum of
between 0.4961 and 0.5156 shares of NMC Common Stock for each share of PRT
Common Stock held. See "THE MERGER AGREEMENT AND RELATED AGREEMENTS -- Reduction
Amount."
Notwithstanding the foregoing, 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 consummation of the Merger, 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. By voting in favor of the approval and adoption
of the Merger Agreement and the principal terms of the Merger, shareholders of
PRT thereby appoint Michael Levey as the Shareholders' Representative to serve
as their agent to make decisions and take all necessary and appropriate actions
on their behalf with respect to the Escrow Agreement and the Escrow Shares. It
is presently anticipated that at least 165,000 shares, but not more than 215,000
shares, of NMC Common Stock will be placed into escrow. Consequently, it is
presently expected that, at the effective time of the Merger, PRT shareholders
will receive between 0.4364 and 0.4697 shares of NMC Common Stock for each share
of PRT Common Stock held. See "THE MERGER AGREEMENT AND RELATED AGREEMENTS --
Escrow of Shares."
In the event that the actual Reduction Amount and Escrow Amount collectively
exceed 315,000 shares of NMC Common Stock (i.e. if PRT shareholders are to
receive less than 0.4364 shares of NMC Common Stock for each share of PRT Common
Stock held at the effective time of the Merger), PRT will be required to
resolicit shareholder approval of the Merger Agreement and the principal terms
of the Merger.
The Merger Agreement also provides that each outstanding option to purchase
shares of PRT Common Stock (each a "Plan Option") under PRT's 1994 Stock Option
Plan (the "Stock Option Plan") will be assumed by NMC upon the same terms and
conditions as set forth in the Stock Option Plan and the agreement pursuant to
which each such Plan Option was issued, subject, however, to appropriate
adjustment (as to both number of shares and exercise price) to reflect the
Exchange Ratio (and the effect of the Reduction Amount thereon). There are no
other outstanding options (excluding Plan Options), warrants, convertible
securities or other similar rights to acquire PRT Common Stock. A copy of the
Merger Agreement is attached as Annex A to this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus also constitutes a prospectus of NMC with
respect to the issuance and delivery of up to an aggregate of 1,885,033 shares
of NMC Common Stock in connection with the Merger.
------------------------
On April 15, 1996, the last reported sales price of NMC Common Stock on the
New York Stock Exchange ("NYSE") was $19.00 per share. On April 15, 1996, the
last reported sales price of PRT Common Stock on the NASDAQ National Market was
$9.25 per share.
Unless authority to vote is withheld, all shares of PRT Common Stock
represented by properly signed proxies received by the Board of Directors of PRT
pursuant to this solicitation (and not revoked before they are voted) will be
voted FOR the approval and adoption of the Merger Agreement and FOR the approval
of the principal terms of the Merger.
As of the date of this Proxy Statement/Prospectus, the Board of Directors of
PRT knows of no business that will be presented for consideration at the Special
Meeting, other than that referred to above. If any other business properly comes
before the Special Meeting, the persons designated in the enclosed proxy will
vote on such business in accordance with their best judgment.
2
<PAGE>
Proxy cards for use by holders of PRT Common Stock accompany this Proxy
Statement/ Prospectus.
The enclosed proxies are being solicited by the Board of Directors of PRT,
for use in connection with the Special Meeting. PRT will bear the costs of such
solicitation. The solicitation may be made by directors, officers, employees and
management of PRT; however, such persons will not receive any fees for such
solicitation. Proxies may be solicited in person or by mail, telephone,
telegram, mailgram or other means. Brokers, nominees, fiduciaries and other
custodians have been requested to forward such soliciting material to the
beneficial owners of shares held of record by such custodian. Such custodians
may be reimbursed for their expenses. Any proxy may be revoked at any time
before it is voted by giving written notice of such revocation to, or by filing
a later dated proxy with, the Secretary of PRT. In addition, any proxy may be
voided by attending the Special Meeting and voting in person.
As of the close of business on March 25, 1996, the record date for voting at
the Special Meeting, there were approximately 3,598,077 shares of PRT Common
Stock outstanding. Such shares were held by approximately 54 shareholders of
record. Shareholders of record of PRT Common Stock as of the close of business
on March 25, 1996 shall be entitled to vote at the Special Meeting. Accordingly,
the total number of votes entitled to be cast at the Special Meeting in
connection with the approval and adoption of the Merger Agreement is 3,598,077.
A quorum for purposes of the Special Meeting shall require the presence, in
person or by proxy, of the holders of at least a majority of the PRT Common
Stock entitled to vote at the Special Meeting. The affirmative vote of a
majority of the outstanding shares of PRT Common Stock entitled to vote thereon
is necessary for the approval and adoption of the Merger Agreement and the
approval of the principal terms of the Merger. Approximately 46.6% of the
outstanding shares of PRT Common Stock are beneficially owned, in the aggregate,
by the directors and executive officers of PRT and their affiliates. In
connection with the Merger Agreement, such persons are expected to vote such
shares in favor of the approval and adoption of the Merger Agreement and the
approval of the principal terms of the Merger. See "THE MERGER AGREEMENT AND
RELATED AGREEMENTS -- Agreements of Positive Response Affiliates."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE SECURITIES REFERRED TO HEREIN.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to shareholders of PRT on or about April 19, 1996.
The date of this Proxy Statement/Prospectus is April 19, 1996
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
AVAILABLE INFORMATION....................................................................................... 6
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........................................................... 6
SUMMARY..................................................................................................... 8
Business of National Media................................................................................ 8
Business of Positive Response............................................................................. 8
Date and Place of the Positive Response Special Meeting................................................... 8
The Merger; Purpose of the Special Meeting................................................................ 9
Shareholders Entitled to Vote............................................................................. 9
Vote Required............................................................................................. 10
Dissenters' Rights........................................................................................ 10
Recommendation; Fairness Opinion.......................................................................... 10
Effective Time of the Merger.............................................................................. 10
Conditions to the Merger.................................................................................. 10
Reduction Amount.......................................................................................... 11
Escrow of Shares.......................................................................................... 11
Termination; Amendment.................................................................................... 12
Surrender of Certificates................................................................................. 12
Accounting Treatment...................................................................................... 12
Certain Federal Income Tax Consequences................................................................... 13
Regulatory Matters........................................................................................ 13
Interests of Certain Persons in the Merger................................................................ 13
Operations Following the Merger........................................................................... 13
MARKET PRICE AND DIVIDEND INFORMATION....................................................................... 14
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA............................................................ 15
RISK FACTORS................................................................................................ 18
THE SPECIAL MEETING......................................................................................... 26
General................................................................................................... 26
Matters to Be Considered at the Special Meeting........................................................... 26
Record Date; Voting at the Special Meeting; Vote Required................................................. 26
Proxies................................................................................................... 26
THE MERGER.................................................................................................. 28
General................................................................................................... 28
Background of the Merger.................................................................................. 28
Positive Response's Reasons for the Merger;
Recommendation of the Positive Response Board............................................................ 30
National Media's Reasons for the Merger................................................................... 30
Operations Following the Merger........................................................................... 31
Opinion of Positive Response's Financial Advisor.......................................................... 31
Certain Federal Income Tax Consequences................................................................... 33
Accounting Treatment...................................................................................... 34
Interests of Certain Persons in the Merger................................................................ 34
Regulatory Matters........................................................................................ 35
Rights of Dissenting Shareholders......................................................................... 36
THE MERGER AGREEMENT AND RELATED AGREEMENTS................................................................. 38
Effective Time of the Merger.............................................................................. 38
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Conversion of Shares...................................................................................... 38
Treatment of Plan Options................................................................................. 39
Business of Positive Response Pending the Merger.......................................................... 39
Solicitation of Alternative Transactions.................................................................. 40
Business of National Media Pending the Merger............................................................. 40
Corporate Structure and Related Matters After the Merger.................................................. 41
Certain Covenants......................................................................................... 41
Conditions to the Merger.................................................................................. 41
Reduction Amount.......................................................................................... 42
Escrow of Shares.......................................................................................... 43
Termination; Amendment.................................................................................... 45
Fees and Expenses......................................................................................... 45
Confidentiality Agreement................................................................................. 46
Agreements of Positive Response Affiliates................................................................ 46
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS........................................................... 46
POSITIVE RESPONSE TELEVISION, INC........................................................................... 52
General................................................................................................... 52
Business.................................................................................................. 53
Properties................................................................................................ 56
Legal Proceedings......................................................................................... 56
Selected Consolidated Financial Data of Positive Response................................................. 57
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Positive Response........................................................... 58
Directors and Executive Officers.......................................................................... 64
Executive Compensation.................................................................................... 65
Security Ownership of Certain Beneficial Owners and Management............................................ 68
Certain Relationships and Related Transactions............................................................ 70
COMPARISON OF SHAREHOLDERS' RIGHTS.......................................................................... 70
Vote Required for Extraordinary Transactions.............................................................. 70
Cumulative Voting......................................................................................... 71
Amendment to Governing Documents.......................................................................... 71
Dissenters' Rights........................................................................................ 72
Derivative Actions........................................................................................ 72
Shareholder Consent in Lieu of Meeting.................................................................... 72
Fiduciary Duties of Directors............................................................................. 73
Indemnification of Officers and Directors................................................................. 73
Director Liability........................................................................................ 73
Anti-Takeover Provisions and Interested Stockholder Transactions.......................................... 74
EXPERTS..................................................................................................... 75
LEGAL MATTERS............................................................................................... 75
OTHER MATTERS............................................................................................... 75
INDEX TO FINANCIAL STATEMENTS............................................................................... F-1
ANNEX A AGREEMENT AND PLAN OF MERGER AND REORGANIZATION..................................................... A-1
ANNEX B OPINION OF CRUTTENDEN ROTH INCORPORATED............................................................. B-1
ANNEX C CALIFORNIA APPRAISAL RIGHTS PROVISION............................................................... C-1
</TABLE>
5
<PAGE>
AVAILABLE INFORMATION
NMC and PRT are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission can be inspected and
copied at prescribed rates at the Public Reference Section of the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
Commission's regional offices located at 7 World Trade Center, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. NMC Common Stock is listed on both the New York Stock
Exchange and the Philadelphia Stock Exchange, and such reports, proxy statements
and other information concerning NMC may be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005 and the
Philadelphia Stock Exchange, Inc., 1900 Market Street, Philadelphia,
Pennsylvania 19103. PRT Common Stock is listed on the NASDAQ National Market,
and such reports, proxy statements and other information concerning PRT may be
inspected at the offices of The NASDAQ Stock Market, Reports Section, 1735 K
Street N.W., Washington, D.C. 20006.
NMC has filed with the Commission a registration statement on Form S-4 under
the Securities Act of 1933, as amended (the "Securities Act") with respect to
the securities to be issued by NMC to holders of PRT Common Stock (such
registration statement, together with all amendments, supplements and exhibits
thereto, is hereinafter referred to as the "Registration Statement"). This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered hereby, reference is hereby
made to the Registration Statement. Statements contained in this Proxy
Statement/Prospectus as to the contents of any document filed with, or
incorporated by reference in, the Registration Statement are not necessarily
complete, and in each instance are qualified in all respects by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by NMC with the Commission are incorporated
herein by reference:
(a) NMC's Annual Report on Form 10-K for the fiscal year ended March 31,
1995;
(b) NMC's Quarterly Reports on Form 10-Q for the quarters ended June 30,
1995, September 30, 1995 and December 31, 1995;
(c) NMC's Current Reports on Form 8-K, dated April 13, 1995, September
11, 1995, September 21, 1995, October 19, 1995 (as amended on Form 8-K/A
filed on or about January 6, 1996) and January 17, 1996; and
(d) The description of NMC Common Stock contained in NMC's Registration
Statement on Form 8-A, dated August 28, 1990, including all amendments and
reports filed for the purpose of updating such description.
All reports and other documents filed by NMC pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the Special Meeting shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of the
filing of such reports and documents. Any statement contained in a document
incorporated by reference herein shall be modified or superseded for all
purposes to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Proxy Statement/Prospectus.
6
<PAGE>
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (WITHOUT
EXHIBITS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE
AVAILABLE WITHOUT CHARGE UPON REQUEST. REQUESTS FOR NMC DOCUMENTS SHOULD BE
DIRECTED TO MARSHALL A. FLEISHER, VICE PRESIDENT (LEGAL) AND CORPORATE
SECRETARY, NATIONAL MEDIA CORPORATION, 1700 WALNUT STREET, PHILADELPHIA,
PENNSYLVANIA 19103, (215) 772-5000. REQUESTS FOR PRT DOCUMENTS SHOULD BE
DIRECTED TO LISA VANN LEVEY, SECRETARY, POSITIVE RESPONSE TELEVISION, INC.,
14724 VENTURA BOULEVARD, SUITE 600, SHERMAN OAKS, CALIFORNIA 91403-3501, (818)
380-6900. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE
SPECIAL MEETING, ANY REQUEST SHOULD BE MADE PRIOR TO MAY 12, 1996.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED IN THIS PROXY STATEMENT/PROSPECTUS
IN CONNECTION WITH THE MATTERS REFERRED TO HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN SO
AUTHORIZED BY NMC OR PRT. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OF ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES, OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE
UNLAWFUL. THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
7
<PAGE>
SUMMARY
The following is a summary of certain information about NMC, PRT, the Merger
Agreement and the Merger and is qualified in its entirety by reference to the
full text of this Proxy Statement/ Prospectus and the accompanying exhibits
hereto. Shareholders are urged to read this Proxy Statement/Prospectus in its
entirety, including the section entitled "RISK FACTORS," prior to voting.
BUSINESS OF NATIONAL MEDIA
NMC's business involves the use of direct response transactional television
programming, known as infomercials, to sell consumer products. NMC is engaged in
this form of direct marketing of consumer products in the United States and
Canada through its wholly-owned subsidiary, Media Arts International, Ltd.
("Media Arts"), which NMC acquired in 1986, and internationally through its
wholly-owned subsidiaries, Quantum International Limited ("Quantum"), which NMC
acquired in 1991, Quantum International UK Limited ("Quantum UK"), which was
formed in December 1994, and Quantum International Japan Company Limited
("Quantum Japan"), which was formed in June 1995. In addition, NMC markets
products of independent third parties who provide programs to NMC. To capitalize
on the consumer awareness and familiarity that NMC's infomercials create for its
products, NMC, along with its strategic partners, also markets and sells its
products through non-infomercial distribution channels, including retail stores
and television home shopping programs. As part of its business strategy to
continue to expand its existing markets, enter new markets and become a fully
integrated marketer of consumer products, NMC is constantly discussing potential
acquisitions, strategic investments and joint ventures.
On October 25, 1995, NMC acquired DirectAmerica Corporation and California
Production Group, Inc. (collectively, "DirectAmerica"), an infomercial
production company, through the merger of DirectAmerica with and into a
wholly-owned subsidiary of NMC. NMC's acquisition of DirectAmerica is more fully
discussed in NMC's Current Report on Form 8-K, dated October 19, 1995, under
"Item 2, Acquisition or Disposition of Assets."
NMC is a Delaware corporation, with its principal executive offices located
at 1700 Walnut Street, Philadelphia, Pennsylvania 19103 (telephone number (215)
772-5000).
BUSINESS OF POSITIVE RESPONSE
PRT is a direct marketing company and a producer of infomercials. From its
inception in 1988 through December 31, 1993, PRT derived substantially all of
its revenue by producing infomercials for NMC under the name "Amazing
Discoveries." In 1992, PRT produced its first infomercial for its own account.
In 1993, PRT produced two additional infomercials for its own account under the
"Ask Mike" banner. Both such infomercials and their related products were
jointly owned by PRT and a venture partner. In 1994, PRT (i) acquired an
in-house media-buying capability; (ii) completed an initial public offering,
issuing one million shares of PRT Common Stock, and a subsequent private
placement, issuing an additional 400,000 shares of PRT Common Stock; (iii)
established an outbound telemarketing operation to follow up on in-bound calls
and to utilize its customer database for additional sales of similar or parallel
products; and (iv) launched three wholly-owned infomercials for its own account.
During the year ended December 31, 1995, PRT entered into three additional
venture arrangements for the distribution of three infomercials produced by
others, and produced and completed four wholly-owned infomercials for its own
account.
PRT is a California corporation with its principal executive offices located
at 14724 Ventura Boulevard, Suite 600, Sherman Oaks, California 91403-3501
(telephone number (818) 380-6900).
DATE AND PLACE OF THE POSITIVE RESPONSE SPECIAL MEETING
The Special Meeting will be held on May 17, 1996 at 9:00 a.m., local time at
14724 Ventura Boulevard, First Floor, Sherman Oaks, California.
8
<PAGE>
THE MERGER; PURPOSE OF THE SPECIAL MEETING
THE MERGER. Pursuant to the terms of the Merger Agreement, each outstanding
share of PRT Common Stock (other than, in limited circumstances, Dissenters'
Shares and except for those shares of PRT Common Stock held by NMC, which shall
be cancelled, without consideration, as a result of the Merger) will be
converted into the right to receive a maximum of 0.5239 shares of NMC Common
Stock, less a pro rata portion of any Reduction Amount. It is presently
anticipated that the Reduction Amount will be at least 30,000 shares, but not
more than 100,000 shares, of NMC Common Stock. Consequently, subject to the
escrow arrangement described below, PRT shareholders are presently expected to
be entitled to receive a maximum of between 0.4961 and 0.5156 shares of NMC
Common Stock for each share of PRT Common Stock held. See "THE MERGER AGREEMENT
AND RELATED AGREEMENTS -- Reduction Amount."
Notwithstanding the foregoing, 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 consummation of the Merger, 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. By voting in favor of the approval and adoption
of the Merger Agreement and the principal terms of the Merger, shareholders of
PRT thereby appoint Michael Levey as the Shareholders' Representative to serve
as their agent to make decisions and take all necessary and appropriate actions
on their behalf with respect to the Escrow Agreement and the Escrow Shares. It
is presently anticipated that at least 165,000 shares, but not more than 215,000
shares, of NMC Common Stock will be placed into escrow. Consequently, it is
presently expected that, at the effective time of the Merger, PRT shareholders
will receive between 0.4364 and 0.4697 shares of NMC Common Stock for each share
of PRT Common Stock held. See "THE MERGER AGREEMENT AND RELATED AGREEMENTS --
Escrow of Shares."
In the event that the actual Reduction Amount and Escrow Amount collectively
exceed 315,000 shares of NMC Common Stock (i.e. if PRT shareholders are to
receive less than 0.4364 shares of NMC Common Stock for each share of PRT Common
Stock held at the effective time of the Merger), PRT will be required to
resolicit shareholder approval of the Merger Agreement and the principal terms
of the Merger.
The Merger Agreement also provides that each Plan Option will be assumed by
NMC upon the same terms and conditions as set forth in the Stock Option Plan and
the agreement pursuant to which each such Plan Option was issued, subject,
however, to appropriate adjustment (as to both number of shares and exercise
price) to reflect the Exchange Ratio (and the effect of the Reduction Amount
thereon). There are no other outstanding options (excluding Plan Options),
warrants, convertible securities or other similar rights to acquire PRT Common
Stock. See "THE MERGER AGREEMENT AND RELATED AGREEMENTS -- Treatment of Plan
Options."
THE SPECIAL MEETING. At the Special Meeting, the shareholders of PRT will
consider and vote upon proposals (i) to approve and adopt the Merger Agreement
and to approve the principal terms of the Merger, and (ii) to transact such
other business as may properly come before the Special Meeting or any
postponements or adjournments thereof. See "THE SPECIAL MEETING -- Matters to Be
Considered at the Special Meeting."
SHAREHOLDERS ENTITLED TO VOTE
The close of business on March 25, 1996 is the record date for determination
of holders of PRT Common Stock entitled to vote at the Special Meeting. At that
date, 3,598,077 shares of PRT Common Stock were outstanding, held by
approximately 54 holders of record. As of such date, directors and executive
officers of PRT and their affiliates may be deemed to be the beneficial owners
of shares of PRT Common Stock representing approximately 46.6% of the
outstanding voting power of PRT. See "THE SPECIAL MEETING -- Record Date; Voting
at the Special Meeting; Vote Required."
9
<PAGE>
VOTE REQUIRED
Approval and adoption of the Merger Agreement and approval of the principal
terms of the Merger will require the affirmative vote of the holders of a
majority of the outstanding shares of PRT Common Stock entitled to vote thereon.
As of March 25, 1996, the directors and executive officers of PRT and their
affiliates may be deemed to be the beneficial owners of approximately 46.6% of
the outstanding shares of PRT Common Stock. The directors and executive officers
of PRT are expected to vote or direct the vote of all shares of PRT Common Stock
over which such persons have voting control for approval and adoption of the
Merger Agreement and approval of the principal terms of the Merger. See "THE
SPECIAL MEETING -- Record Date; Voting at the Special Meeting; Vote Required."
DISSENTERS' RIGHTS
Shareholders of PRT who vote against the Merger may be entitled to certain
dissenters' rights of appraisal under Chapter 13 of the CCC. See "THE MERGER --
Rights of Dissenting Shareholders."
RECOMMENDATION; FAIRNESS OPINION
THE BOARD OF DIRECTORS OF PRT (THE "PRT BOARD") HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND RECOMMENDS THAT THE HOLDERS OF PRT COMMON STOCK VOTE FOR
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE PRINCIPAL
TERMS OF THE MERGER. CRUTTENDEN ROTH INCORPORATED ("CRUTTENDEN") HAS DELIVERED
TO THE PRT BOARD ITS WRITTEN OPINION DATED AS OF DECEMBER 7, 1995 TO THE EFFECT
THAT, BASED UPON AND SUBJECT TO THE VARIOUS CONSIDERATIONS SET FORTH IN SUCH
OPINION, AS OF THE DATE OF SUCH OPINION, THE TERMS OF THE MERGER ARE FAIR TO THE
HOLDERS OF PRT COMMON STOCK FROM A FINANCIAL POINT OF VIEW.
A copy of the opinion of Cruttenden, which sets forth the assumptions made,
procedures followed, matters considered and scope of review, is attached to this
Proxy Statement/Prospectus as Annex B and should be read carefully in its
entirety. See "THE MERGER -- Opinion of Positive Response's Financial Advisor,"
which contains a discussion of the fees to be paid to Cruttenden and the
conditions under which such fees are payable. Cruttenden did not assist in the
negotiation of the Exchange Ratio. The Exchange Ratio was established by NMC and
PRT. See "THE MERGER -- Opinion of Positive Response's Financial Advisor."
EFFECTIVE TIME OF THE MERGER
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Merger Agreement, the parties thereto will file
articles of merger, together with any required certificates, with each of the
Secretary of State of the State of Delaware and the Secretary of State of the
State of California. The Merger will become effective upon the filing of such
materials with the Secretary of State of the State of Delaware (the "Effective
Time"), which, assuming all conditions are met, is anticipated to occur shortly
after the Special Meeting. See "THE MERGER AGREEMENT AND RELATED AGREEMENTS --
Effective Time of the Merger."
CONDITIONS TO THE MERGER
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 requisite vote of the
shareholders of PRT; (ii) the effectiveness of the Registration Statement of
which this Proxy Statement/Prospectus is a part; (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 NYSE, 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
10
<PAGE>
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 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. See "THE MERGER AGREEMENT AND RELATED AGREEMENTS
- -- Conditions to the Merger."
REDUCTION AMOUNT
Pursuant to the terms of the Merger Agreement, each outstanding share of PRT
Common Stock (other than, in limited circumstances, Dissenter's Shares and
except for those shares of PRT Common Stock held by NMC, which shall be
cancelled, without consideration, as a result of the Merger) will be converted
into the right to receive a maximum of 0.5239 shares of NMC Common Stock, less a
pro rata portion of any Reduction Amount. The Reduction Amount is defined as
that number of shares of NMC Common Stock equal to (x) two, multiplied by (y)
the amount, if any, by which the Minimum Shareholders' Equity (as defined below)
exceeds the Calculation Equity (as defined below), divided by (z) $14.125. For
purposes of the calculation referred to above, (i) "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; and (ii) "Calculation Equity" is defined as PRT's shareholders'
equity as of December 31, 1995 appearing in its audited financial statements for
the fiscal year ended as of such date (subject to adjustment for any material
changes thereto which occur after such date and reversing the effect of any
reserve established or writedown effected in such audited financial statements
with respect to any of the Liquidation Amounts (as defined below under "--
Escrow of Shares")), less the amount of any deferred software costs.
It is presently anticipated that the Reduction Amount will be at least
30,000 shares, but not more than 100,000 shares, of NMC Common Stock.
Consequently, subject to the escrow arrangement described below under "-- Escrow
of Shares," PRT shareholders are presently expected to be entitled to receive a
maximum of between 0.4961 and 0.5156 shares of NMC Common Stock for each share
of PRT Common Stock held.
ESCROW OF SHARES
The Merger Agreement provides that, to the extent that PRT's Adjusted
Shareholders' Equity (as defined below) is less than the Calculation Equity, at
the Effective Time, NMC will deposit into escrow a number of shares (the "Escrow
Shares") of NMC Common Stock otherwise issuable, on a pro-rata basis, to the
shareholders of PRT (the "Holders") in the Merger having an aggregate value
(based upon a price of $14.125 per share of NMC Common Stock) equal to the sum
of the Liquidation Amounts (as defined below) and the Other Holdback Amounts (as
defined below). For purposes of the calculation described above, "Adjusted
Shareholders' Equity" shall mean an amount equal to (A) the Calculation Equity,
less (B) the Liquidation Amounts, and less (C) the Other Holdback Amounts.
"Liquidation Amounts" shall mean the dollar value of certain assets included on
PRT's audited balance sheet as of December 31, 1995 and identified in the Merger
Agreement (to the extent that any or all of such assets have not been
collected/liquidated prior to the Effective Time). "Other Holdback Amounts"
shall mean the dollar value of certain obligations which would be due to be paid
by PRT to its litigation counsel if the Forbes litigation referred to herein
under "POSITIVE RESPONSE TELEVISION, INC. -- Legal Proceedings" were to be
dismissed by PRT as of the Effective Time (less any of such amounts which have
already been accrued in PRT's audited financial statements for the fiscal year
ended December 31, 1995) (the "Fee Amount").
The Escrow Shares will be registered in the name of and deposited with
Chemical Mellon Shareholder Services or another mutually acceptable escrow agent
(the "Escrow Agent") pursuant to the terms of the Merger Agreement and an Escrow
Agreement to be entered into pursuant thereto. As of September 30, 1996, March
31, 1997 and September 30, 1997 (the "Review Dates"), NMC and the Shareholders'
Representative (as defined below) shall conduct a review of those balance sheet
items
11
<PAGE>
identified as Liquidation Amounts. To the extent that all or a portion of such
amounts have, as of such dates, been collected/liquidated, NMC shall cause the
Escrow Agent to deliver to the Holders, on a pro-rata basis, a number of Escrow
Shares having an aggregate value (based upon a price of $14.125 per share) equal
to the aggregate value of the amounts which, as of such dates, have been
collected/ liquidated with respect to such Liquidation Amounts. In addition, as
of the first Review Date to occur following the dismissal (voluntary or
otherwise), settlement or final adjudication of the Forbes litigation, to the
extent that any portion of the Fee Amount has prior thereto been paid by PRT,
other than out of the net proceeds of any such settlement or final adjudication,
then a number of Escrow Shares equal to the balance of the Fee Amount divided by
$14.125 shall be delivered to the Holders. Finally, as of the first Review Date
to occur following the date (the "Tax Determination Date") on which a final
determination is issued by the State of California as to the aggregate amount of
any taxes due and owing from PRT and its subsidiaries as of such Tax
Determination Date (the "State Tax Deficiency"), a number of Escrow Shares equal
to the amount, if any, by which the State Tax Deficiency exceeds the amount
accrued with respect to such taxes on PRT's financial statements as of the
Closing Date, divided by $14.125, shall be delivered back to NMC by the Escrow
Agent. Following the last of such Review Dates, any remaining Escrow Shares
shall be delivered back to NMC by the Escrow Agent. Neither NMC nor Merger Sub
may compromise, forgive or otherwise settle certain of such Liquidation Amounts
for less than the full accrued amount thereof without the Shareholders'
Representative's prior approval. The Shareholders' Representative shall be
Michael Levey.
It is presently anticipated that at least 165,000 shares, but not more than
215,000 shares, of NMC Common Stock will be placed into escrow. Consequently, it
is presently expected that, at the Effective Time, PRT shareholders will receive
between 0.4364 and 0.4697 shares of NMC Common Stock for each share of PRT
Common Stock held. See "THE MERGER AGREEMENT AND RELATED AGREEMENTS -- Escrow of
Shares."
TERMINATION; AMENDMENT
The Merger Agreement may be terminated and the Merger may be abandoned prior
to the Effective Time notwithstanding approval by the shareholders of PRT under
the circumstances specified in the Merger Agreement, including, without
limitation, by mutual written agreement of NMC and PRT and by either party if
the Merger is not consummated by May 31, 1996.
The Merger Agreement may be amended by an agreement in writing among the
parties thereto at any time prior to the Effective Time; provided, however, that
after approval of the Merger by the shareholders of PRT, no material amendment
may be made which, by law, requires further approval of such shareholders
without such further approval. See "THE MERGER AGREEMENT AND RELATED AGREEMENTS
- -- Termination; Amendment."
Under certain circumstances, PRT may be required to pay a termination fee to
NMC if the Merger Agreement is terminated. See "THE MERGER AGREEMENT AND RELATED
AGREEMENTS -- Fees and Expenses."
SURRENDER OF CERTIFICATES
If the Merger becomes effective, NMC will mail a letter of transmittal with
instructions to all holders of record of PRT Common Stock as of the Effective
Time for use in surrendering their stock certificates in exchange for
certificates representing NMC Common Stock and a cash payment in lieu of
fractional shares. CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF
TRANSMITTAL IS RECEIVED.
ACCOUNTING TREATMENT
The Merger is expected to be treated as a "purchase" for accounting
purposes. See "THE MERGER -- Accounting Treatment."
12
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to qualify as a tax-free reorganization under Section
368 of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly,
holders of PRT Common Stock will not recognize gain or loss for federal income
tax purposes by reason of the conversion of PRT Common Stock into NMC Common
Stock, except for cash received in lieu of fractional shares or cash received by
dissenting shareholders. It is a condition to NMC's and PRT's obligations to
consummate the Merger that they shall have received opinions from their
respective tax counsel that the Merger will qualify as a tax-free reorganization
under Section 368 of the Code. See "THE MERGER -- Certain Federal Income Tax
Consequences." Neither NMC nor PRT intends to waive this condition.
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder, the Merger may not be
consummated until notifications have been given and certain information has been
furnished to the United States Federal Trade Commission (the "FTC") and the
Antitrust Division of the United States Justice Department (the "Antitrust
Division"), and specified waiting period requirements have been satisfied. The
waiting period for the Merger expired on February 28, 1996. However, at any time
before or after the Effective Time, the FTC or the Antitrust Division could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the Merger or seeking the
divestiture of PRT by NMC, in whole or in part, or the divestiture or compulsory
licensing of substantial assets of NMC or PRT, or their respective subsidiaries.
In addition to the foregoing, each of NMC and PRT are obligated, pursuant to the
terms of certain consent orders entered into by each of NMC and PRT with the
FTC, to provide notice of the Merger to the FTC separate from the notice
referred to above. Such notices have been provided. See "THE MERGER --
Regulatory Matters."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the PRT Board with respect to the
Merger, shareholders of PRT should be aware that certain officers and directors
of PRT have interests in the Merger which differ in certain material respects
from those of other shareholders that present them with potential conflicts of
interest. See "THE MERGER -- Interests of Certain Persons in the Merger."
OPERATIONS FOLLOWING THE MERGER
Following the Merger, NMC plans to operate Merger Sub as a wholly-owned
subsidiary of NMC. Merger Sub will continue to do business, in large part, as
PRT is presently conducting its business. NMC intends to take advantage of
certain cost savings and other synergies which are expected to result from the
combination of certain of NMC's (and its existing subsidiaries') and PRT's
administrative and operational functions. Michael S. Levey, PRT's Chairman and
Chief Executive Officer, will serve as the Chief Executive Officer of Merger Sub
and will report to Merger Sub's board of directors and NMC's Chief Executive
Officer. It is presently anticipated that Merger Sub will produce infomercials
for NMC and for various third parties.
13
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
The following table sets forth, for the periods indicated, the range of high
and low sale prices for NMC Common Stock in the New York Stock Exchange
Composite Transactions Tape (as reported in published financial sources) and the
high and low sale prices reported for PRT Common Stock on the NASDAQ National
Market.
The closing price for NMC Common Stock on the New York Stock Exchange on
October 18, 1995, the last trading day prior to the public announcement of the
Merger, was $14.625 per share and on April 15, 1996, the latest practicable
trading day before the printing of this Proxy Statement/Prospectus, was $19.00
per share.
The closing price for PRT Common Stock on the NASDAQ National Market on
October 18, 1995, the last trading day prior to the public announcement of the
Merger, was $6.625 per share and on April 15, 1996, the latest practicable
trading day before the printing of this Proxy Statement/Prospectus, was $9.25
per share. The equivalent market price per share of PRT Common Stock, based upon
the Exchange Ratio (as adjusted to reflect the pro rata effect of the
anticipated Reduction Amount), would have been between $7.26 and $7.54 and
between $9.43 and $9.80, respectively.
<TABLE>
<CAPTION>
POSITIVE RESPONSE
NATIONAL MEDIA
-------------------------- ------------------
HIGH LOW HIGH LOW
QUARTER ENDED ($) ($) ($) ($)
- ----------------------------------- -------- -------- ----- -----
<S> <C> <C> <C> <C>
June 30, 1993...................... 10 1/4 4 5/8 -- (1) -- (1)
September 30, 1993................. 7 4 5/8 -- (1) -- (1)
December 31, 1993.................. 7 1/8 4 7/8 -- (1) -- (1)
March 31, 1994..................... 11 5/8 6 -- (1) -- (1)
June 30, 1994...................... 9 7/8 3 7/8 7 1/4(1) 5 3/8(1)
September 30, 1994................. 5 1/4 3 1/4 17 3/8 5 5/8
December 31, 1994.................. 5 7/8 3 1/2 19 3/4 14 1/8
March 31, 1995..................... 8 1/8 4 1/2 15 3/4 11
June 30, 1995...................... 10 1/4 7 1/8 13 1/2 3 3/8
September 30, 1995................. 14 3/4 9 1/4 7 1/4 3 7/8
December 31, 1995.................. 21 1/8 13 5/8 9 1/8 5 7/8
March 31, 1996..................... 21 1/2 14 3/4 9 7/8 6 7/8
<CAPTION>
PARTIAL QUARTER
- -----------------------------------
<S> <C> <C> <C> <C>
April 1, 1996 - April 15, 1996..... 19 1/2 15 3/4 9 3/8 7
</TABLE>
- ------------------------
(1) PRT Common Stock has only been traded on the NASDAQ National Market since
PRT's initial public offering in May 1994.
As of April 15, 1996, NMC and PRT had approximately 772 and 54 holders of
record, respectively. Neither NMC nor PRT has paid any cash dividends on their
common stock since January 1, 1994. Each of NMC and PRT currently intends to
retain earnings for use in their respective businesses and does not anticipate
paying cash dividends on their common stock in the foreseeable future. In
addition, the Merger Agreement prohibits the payment of any cash dividends by
NMC or PRT prior to the Effective Time. Furthermore, NMC's ability to declare or
pay any dividends or make any other distribution (whether in cash or property)
on any shares of its capital stock is restricted pursuant to the terms of
certain financing agreements between NMC and its lender. See "RISK FACTORS --
Dividends on Common Stock Not Likely."
14
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected historical financial information of NMC and PRT has
been derived from their respective historical consolidated financial statements,
and should be read in conjunction with such consolidated financial statements
and the notes thereto, certain of which are incorporated herein by reference or
included in this Proxy Statement/Prospectus. The selected pro forma financial
information of NMC and PRT is derived from the pro forma combined condensed
financial statements of NMC and PRT, and should be read in conjunction with such
pro forma statements and notes thereto which are included in this Proxy
Statement/Prospectus.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated, nor is it necessarily
indicative of future operating results or financial position.
NATIONAL MEDIA CORPORATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
------------------- HISTORICAL
NINE ---------------------------------------------------------------
MONTHS YEAR NINE
ENDED ENDED MONTHS
DECEMBER MARCH ENDED YEAR ENDED MARCH 31,
31, 31, DECEMBER ----------------------------------------------------
1995(2) 1995(3) 31, 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Net revenues....................... $224,194 $235,992 $191,006 $176,167 $172,602 $141,997 $102,218 $102,112
Income (loss) from continuing
operations before income taxes.... 6,681 2,569 12,663 (372) (8,699) 6,335 (6,788) 4,266
Income (loss) from continuing
operations........................ 6,335 1,919 10,679 (672) (8,699) 6,259 (7,023) 4,047
Net income (loss).................. 6,335 1,919 10,679 (672) (8,699) 6,259 (4,854) 2,611
Income (loss) per common and common
equivalent share from continuing
operations
-- primary..................... .27 .11 .49 (.05) (.72) .48 (.64) .36
-- fully diluted............... .24 .11 .45 (.05) (.72) .48 (.64) .36
Net income (loss) per common and
common equivalent share
-- primary..................... .27 .11 .49 (.05) (.72) .48 (.44) .23
-- fully diluted............... .24 .11 .45 (.05) (.72) .48 (.44) .23
Equivalent pro forma net income
(loss) per common and common
equivalent share
-- primary..................... .14 .06
-- fully diluted............... .12 .06
Cash dividends per share........... -- -- -- -- -- -- -- .175
Weighted average number of common
and common equivalent shares
-- primary..................... 25,164 17,196 22,780 14,024 12,078 13,046 11,087 11,297
-- fully diluted............... 26,143 17,196 23,759 14,024 12,078 13,046 11,087 11,297
</TABLE>
15
<PAGE>
NATIONAL MEDIA CORPORATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO
FORMA HISTORICAL
-------- ---------------------------------------------------------------
DECEMBER MARCH 31,
31, DECEMBER ----------------------------------------------------
1995(4) 31, 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Working capital (deficiency)....... $41,025 $31,839 $ 22,081 $ 1,377 $ 7,955 $ (1,780) $ 6,283
Total assets....................... 125,811 93,310 64,143 47,475 46,771 34,258 24,145
Short-term debt.................... 742 717 184 4,770 2,917 3,603 206
Long-term debt (net of current
maturities)(5).................... 4,209 4,118 3,613 448 1,090 1,492 1,720
Shareholders' equity............... 72,562 46,970 26,625 10,571 17,630 11,143 16,032
Book value per common share........ 3.95(6) 2.84 1.88 .77 1.52 1.01 1.46
Equivalent pro forma book value per
common share...................... 2.03
</TABLE>
- ------------------------------
(1) The information herein relates only to continuing operations and has been
restated to reflect the discontinued operations resulting from the sale of
the Company's wholly-owned subsidiary, National Syndications, Inc.
subsequent to March 31, 1991.
(2) Reflects the effects of the following transactions as if they all occurred
on April 1, 1995: (i) NMC's acquisition of DirectAmerica; and (ii)
consummation of the Merger.
(3) Reflects the effects of the following transactions as if they all occurred
on April 1, 1994: (i) NMC's acquisition of DirectAmerica; and (ii)
consummation of the Merger.
(4) Reflects the effects of the consummation of the Merger as if it occurred as
of such date.
(5) Net of loan discount of $1,380 and $1,650 at December 31, 1995 and March
31, 1995, respectively.
(6) Pro forma book value per common share was computed by adding the
approximately 1,829,498 shares of NMC Common Stock assumed to be issued in
the Merger in accordance with the Exchange Ratio (based upon 3,552,986
shares of PRT Common Stock outstanding as of December 31, 1995 and assuming
that the Reduction Amount is 31,911 shares) to the actual number of shares
of NMC Common Stock outstanding at the balance sheet date.
16
<PAGE>
POSITIVE RESPONSE TELEVISION, INC.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................................... $ 63,407 $ 42,520 $ 3,825 $ 2,485 $ 4,241
Income (loss) from operations..................... (4,970) 3,537 1,529(1) 81(1) 739(1)
Net income (loss)................................. (3,220) 2,291 1,298 69 731
Pro forma net income (loss) (2)................... (3,220) 2,291 887 42 439
Pro forma net income (loss) per common share (2)
-- primary...................................... (0.91) 0.77 0.49 0.02 0.24
-- fully diluted................................ (0.91) 0.74 0.49 0.02 0.24
Cash dividends per share.......................... -- -- 0.24 0.23 0.03
Weighted average number of shares
-- primary...................................... 3,550 2,986 1,804 1,804 1,804
-- fully diluted................................ 3,550 3,076 1,804 1,804 1,804
<CAPTION>
HISTORICAL
--------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................... $ 10,436 $ 13,929 $ 2,023 $ 78 $ 576
Total assets...................................... 18,053 21,270 3,235 958 1,427
Short-term debt................................... 1,864 23 3 -- --
Long-term debt (net of current maturities)........ 91 116 19 -- 403
Shareholders' equity.............................. 11,530 14,733 2,290 255 593
Book value per common share....................... 3.25 4.15 1.15 0.14 0.33
</TABLE>
- ------------------------
(1) Reflects officers' salaries.
(2) Pro forma information assumes that PRT was a "C" Corporation from 1990
through 1993 instead of an "S" corporation and paid income taxes at a rate
of 40%.
17
<PAGE>
RISK FACTORS
The following risk factors should be considered by holders of PRT Common
Stock in evaluating whether to approve the Merger Agreement and the Merger and
thereby become holders of NMC Common Stock. Certain of these factors relate
directly to the Merger while others relate to NMC's and PRT's business
independent of the Merger. These factors should be considered in conjunction
with the other information included and incorporated by reference in this Proxy
Statement/Prospectus.
INTEGRATION OF OPERATIONS
NMC and PRT have entered into the Merger Agreement with the expectation that
the Merger will result in certain beneficial synergies. These include the
combination of certain of the companies' administrative and operational
functions. Achieving these anticipated benefits will depend in part on whether
the operations of PRT can be integrated with NMC's business in an efficient and
effective manner. There is no assurance that this will occur. The combination of
the companies will require, among other things, integration of the companies'
respective product offerings and coordination of the companies' sales, marketing
and distribution efforts. The success of this process will be significantly
influenced by the ability of the combined business to retain key management,
marketing and production personnel. There is no assurance that this integration
will be accomplished smoothly or successfully. The integration of operations
following the Merger will require the dedication of management resources, which
may temporarily distract attention from the day-to-day business of the combined
business. The inability of management to successfully integrate the operations
of the companies could have an adverse effect on the business and results of
operations of the combined business.
EXCHANGE RATIO; REDUCTION AMOUNT
Pursuant to the terms of the Merger Agreement, each share of PRT Common
Stock issued and outstanding at the Effective Time will be converted into the
right to receive a maximum of 0.5239 shares of NMC Common Stock, less a pro rata
portion of the Reduction Amount. It is presently anticipated that the Reduction
Amount will be at least 30,000 shares, but not more than 100,000 shares, of NMC
Common Stock. Consequently, subject to the escrow arrangement described below
under "-- Escrow of Shares," PRT shareholders are presently expected to be
entitled to receive a maximum of between 0.4961 and 0.5156 shares of NMC Common
Stock for each share of PRT Common Stock held. The Merger Agreement does not
contain any provisions for adjustment of the Exchange Ratio based on
fluctuations in the price of NMC Common Stock. Accordingly, the value of the
consideration to be received by the shareholders of PRT in the Merger will
depend on the market price of NMC Common Stock at the Effective Time, the
Reduction Amount and the outcome of the escrow arrangement described below. On
January 17, 1996, the date on which the Merger Agreement was executed, the last
reported sales price of NMC Common Stock on the NYSE was $19.375 per share. On
April 15, 1996, the latest practicable trading day before the printing of this
Proxy Statement/Prospectus, the last reported sales price of NMC Common Stock on
the NYSE was $19.00 per share. There can be no assurance that the market price
of NMC Common Stock on and after the Effective Time will not be lower than both
of such prices. In addition, the Escrow Shares will be subject to fluctuations
in the market price of NMC Common Stock during the escrow period. See "-- Escrow
of Shares" below.
ESCROW OF SHARES
As described more fully under "THE MERGER AGREEMENT AND RELATED AGREEMENTS
- -- Escrow of Shares," to the extent that PRT's Adjusted Shareholders' Equity is
less than the Calculation Equity, at the Effective Time, NMC will deposit the
Escrow Shares into escrow in accordance with the provisions of the Merger
Agreement. It is presently anticipated that at least 165,000 shares, but not
more than 215,000 shares, of NMC Common Stock will be placed into escrow.
Consequently, it is presently expected that, at the Effective Time, PRT
shareholders will receive between 0.4364 and 0.4697 shares of NMC Common Stock
for each share of PRT Common Stock held. The Escrow Shares will be held by the
Escrow Agent unless and until, as of the Review Dates, NMC and the Shareholders'
Representative determine that all or a portion of the Liquidation Amounts have
18
<PAGE>
been collected/liquidated, at which time Escrow Shares will be released, on a
pro-rata basis, to the Holders in accordance with the terms of the Merger
Agreement and the Escrow Agreement to be entered into pursuant thereto. In
addition, as of the first Review Date to occur following the dismissal
(voluntary or otherwise), settlement or final adjudication of the Forbes
litigation described elsewhere herein under "POSITIVE RESPONSE TELEVISION, INC.
- -- Legal Proceedings," to the extent that any portion of the Fee Amount has
prior thereto been paid by PRT, other than out of the net proceeds of any such
settlement or final adjudication, then a number of Escrow Shares equal to the
balance of the Fee Amount divided by $14.125 shall be delivered to the Holders.
Finally, as of the first Review Date to occur following the Tax Determination
Date, a number of Escrow Shares equal to the amount, if any, by which the State
Tax Deficiency exceeds the amount accrued with respect to such taxes on PRT's
financial statements as of the Closing Date, divided by $14.125, shall be
delivered back to NMC by the Escrow Agent. Any undistributed Escrow Shares
remaining after the last of such Review Dates shall be returned to NMC and the
Holders will have no rights thereto. Consequently, it is possible that holders
of PRT Common Stock will not receive the maximum number of shares of NMC Common
Stock which such persons would otherwise have received based upon the Exchange
Ratio (as adjusted to reflect the pro rata effect of the Reduction Amount).
In addition, the Merger Agreement provides that, for purposes of determining
(i) the number of Escrow Shares to be deposited in escrow at the Effective Time,
and (ii) the number of Escrow Shares to be distributed to Holders following the
Review Dates, the value of each share of NMC Common Stock shall be fixed at
$14.125, which value may be greater than or less than the market price of NMC
Common Stock as of such dates. $14.125 is the price per share of NMC Common
Stock initially utilized in establishing the Exchange Ratio when the parties
executed a letter of intent regarding the Merger. As a result, the actual value
of the Escrow Shares will be subject to fluctuations in the market price of NMC
Common Stock during the escrow period. See "THE MERGER AGREEMENT AND RELATED
AGREEMENTS -- Escrow of Shares."
POTENTIAL CONFLICTS OF INTEREST
In considering the recommendation of the PRT Board with respect to the
Merger, shareholders of PRT should be aware that certain officers and directors
of PRT have interests in the Merger which differ in certain material respects
from those of other shareholders and present such officers and directors with
potential conflicts of interest. For example, the Merger Agreement provides that
consummation of the Merger is conditioned upon Merger Sub, at or prior to the
Effective Time, having entered into (i) five (5) year employment agreements with
each of Michael Levey, Chairman of the Board and Chief Executive Officer of PRT,
and Lisa Vann Levey, Vice President of PRT, and (ii) a one (1) year
noncompetition agreement with Stephen Weber, President, Chief Operating Officer
and Chief Financial Officer of PRT. In addition, the Merger Agreement also
provides that, after the Effective Time, Merger Sub will, to the fullest extent
permitted under applicable law or under its Certificate of Incorporation or
Bylaws, indemnify and hold harmless each present and former director and officer
of PRT against any liabilities arising out of or pertaining to any action or
omission occurring at or prior to the Effective Time, or arising out of or
pertaining to the transactions contemplated by the Merger Agreement. See "THE
MERGER -- Interests of Certain Persons in the Merger."
RIGHTS OF DISSENTING SHAREHOLDERS
Chapter 13 of the CCC provides that holders of shares which are listed for
trading on a national securities exchange shall not be entitled to dissenters'
rights under Chapter 13 unless demands for payment of the fair value of such
shares are filed with respect to 5% or more of the outstanding shares of such
class of securities within the time period specified in Chapter 13 of the CCC.
See "THE MERGER -- Rights of Dissenting Shareholders." PRT Common Stock is
listed for trading on the NASDAQ National Market, a national securities exchange
under the CCC. Thus, in the absence of any further limitation, unless holders of
5% or more of the outstanding shares of PRT Common Stock were to file demands
for payment at or before the Special Meeting, no holder of PRT Common Stock
would be entitled to dissenters' rights. In addition, a condition to NMC's
obligation to consummate the Merger is that holders of not more than 4.9% of the
outstanding shares of PRT Common Stock shall
19
<PAGE>
have exercised dissenters' rights in connection with the Merger. See "THE MERGER
AGREEMENT AND RELATED AGREEMENTS -- Conditions to the Merger." Consequently,
unless NMC waives this condition, the Merger will not be consummated if holders
of more than 4.9% of the outstanding shares of PRT Common Stock shall have
exercised dissenters' rights in connection with the Merger.
NATURE OF THE INFOMERCIAL INDUSTRY
The worldwide infomercial industry is relatively new and is characterized by
rapid growth and competition for products, customers and media access. The
success of the combined business in this industry will depend in part on
continued access to media time, the continued introduction of successful
products and NMC's and PRT's ability to enhance their product lines and support
product marketing and sales with efficient order fulfillment and customer
services. The future revenues of the combined business will depend substantially
on its ability to create and maintain an effective, integrated organization to
develop, introduce and market products that address changing customer needs on a
timely basis, establish and maintain effective distribution channels for its
products and develop new geographic markets and expand established geographic
markets. There can be no assurance that the combined business will be able to
achieve these goals. While NMC maintains an internal product development group,
there can be no assurance that present and potential third party product
providers of NMC and PRT will wish to market products through NMC and PRT
following the Merger. Any significant delay or reduction in product
introductions could have a material adverse effect on the results of operations
of the combined business.
DEPENDENCE ON FOREIGN SALES
NMC had no sales outside the United States and Canada prior to June 1991. In
the fiscal years ended March 31, 1995, 1994 and 1993, approximately 45.7%, 26.7%
and 26.4%, respectively, of NMC's net revenues were derived from sales to
customers outside the United States and Canada. Such sales represented a 74.8%
increase in fiscal 1995 from fiscal 1994 and a 22.6% increase in fiscal 1994
from fiscal 1993. In fiscal 1994 and 1995, sales in Germany accounted for
approximately 12% and 13%, respectively, of NMC's net revenues. In late July
1994, NMC began airing its infomercials in Asia. Sales of NMC's products in Asia
accounted for approximately 35.9% of NMC's net revenues for the nine months
ended December 31, 1995. International sales activity results in increased
working capital requirements as a result of additional lead time for delivery
and payment of product prior to receipt of sale proceeds. While NMC's foreign
operations have the advantage of airing NMC's infomercials that have been
successful in the United States, as well as successful infomercials produced by
companies with limited media access and distribution capabilities, there can be
no assurance that NMC's foreign operations will continue to generate significant
increases in net revenues. In addition, NMC is subject to the risks of doing
business abroad, including adverse fluctuations in currency exchange rates,
transportation delays and interruptions, political and economic disruptions, the
imposition of tariffs and import and export controls and increased customs or
local regulations. The occurrence of any one or more of the foregoing could
adversely affect NMC's results of operations.
PRT's products are distributed internationally through NMC and, to a lesser
extent, K-Tel Corporation ("K-Tel"). Consequently, PRT is subject to
substantially the same risks as NMC, but to a lesser degree since international
sales have historically accounted for less than 5% of PRT's net revenues.
ENTERING INTO NEW MARKETS
NMC's dependence on revenues from sales of products outside the United
States and Canada is described above, under "-- Dependence on Foreign Sales." In
particular, NMC's entrance into the Asian market should be noted. As NMC enters
into markets such as Asia, it is faced with the uncertainty of never having done
business in that commercial, political and social setting. Accordingly, despite
NMC's best efforts, its likelihood of success in each new market which it enters
is unpredictable for reasons particular to each such market. It is also possible
that, despite NMC's apparently successful entrance into a new market, some
unforeseen circumstance will arise which will limit NMC's ability to continue to
do business or to expand in that new market.
20
<PAGE>
DEPENDENCE ON KEY PRODUCTS AND UNPREDICTABLE MARKET LIFE
NMC and PRT are each dependent on their continuing ability to develop new
products to replace existing products as they mature through their product life
cycles. NMC's five most successful products in the nine months ended December
31, 1995 and each of the fiscal years ended March 31, 1995, 1994, 1993, and
1992, accounted for 43%, 54%, 67%, 47% and 59%, respectively, of NMC's net
revenues for such periods. PRT's five most successful products in each of the
fiscal years ended December 31, 1995, 1994, 1993 and 1992, accounted for 67%,
85%, 75% and 61%, respectively, of PRT's net revenues for such periods. For the
most part, NMC's and PRT's five most successful products change from year to
year. Product sales for a given period reflect, among other things, customer
response to the infomercials on the air during the period and NMC's management
of its products' life cycles to maximize revenue and profits based on a number
of variables, including competing products, etc. Customer response to
infomercials depends on many variables, including the appeal of the products
being marketed, the effectiveness of the infomercials and the availability of
competing products, as well as the timing and frequency of air-time. There can
be no assurance that NMC's or PRT's new products will receive market acceptance.
In addition, in the event NMC or PRT do not have an adequate supply of
inventory, as a result of production delays or shortages or inadequate inventory
management, they may lose potential product sales. The ability of NMC and PRT to
manage their inventory will be of critical importance due to NMC's practice
(which it will continue to follow after the consummation of the Merger) of
minimizing inventory of a given product. This issue is made even more difficult
by the international nature of NMC's business. It is also possible that, during
a product's life, problems may arise regarding intellectual property issues,
etc. which may affect the continued viability of the product for sale.
Even when market acceptance for new products occurs, results of operations
may be adversely impacted by returns of such products. NMC and PRT establish
reserves against such returns. Although NMC and PRT believe that such reserves
are adequate based upon historic levels and product mix, there can be no
assurance that NMC or PRT will not experience unexpectedly high levels of
returns (in excess of reserves) for certain products. In the event that returns
exceed reserves, results of operations could be adversely affected.
Most of NMC's and PRT's products have a limited market life for sales
through infomercials. Historically, the majority of products generate their most
significant domestic revenue in their introductory year, while foreign revenues
have tended to have been generated more evenly over a longer period. In the
event the number of times an infomercial is broadcast within a market is
increased, the market life of such product in such market may decrease. There
can be no assurances that a product which has produced significant sales will
continue to produce significant or any sales in the future. As a result, NMC and
PRT are dependent on their ability to effectively manage the life cycles of
products and to continue to identify and successfully market new products. The
failure of newly introduced products or significant delays in the introduction
of, or failure to introduce, new products would adversely impact results of
operations in terms of both lost opportunity cost and actual loss of dollars
invested.
DEPENDENCE ON THIRD PARTY MANUFACTURERS AND SERVICE PROVIDERS
NMC and PRT are dependent on strategic partners and other third party
sources, both foreign and domestic, to manufacture all of their products, but do
not depend on any one particular supplier for a majority of their products. NMC
and PRT are also dependent to an extent upon a number of companies which fulfill
orders placed for their products and/or provide telemarketing services. The
inability of NMC or PRT, either temporarily or permanently, to obtain a timely
supply of product to fulfill sales orders for a specific product could have a
material adverse effect on such company's results of operations. Moreover,
because the time from the initial approval of a product by product development
personnel to the first sale of such product is relatively short, NMC's and PRT's
ability to identify sources that can meet their production and order fulfillment
deadlines at a reasonable cost and produce a high-quality product or render
quality service is important to their business, and there can be no assurance
that they will successfully locate such sources. Since NMC and PRT often rely on
foreign manufacturers, they must allow longer lead times to order products to
fulfill customer orders and utilizing such foreign manufacturers exposes them to
the general risks of doing business abroad.
21
<PAGE>
MEDIA ACCESS
NMC and PRT are each dependent on having access to media time to televise
infomercials on cable networks, network affiliates and local stations. In the
normal course of business, NMC's and PRT's media contracts expire pursuant to
their terms from time to time. There can be no assurance that, as existing
contracts expire, NMC or PRT will be able to purchase or renew media time on a
long-term basis or at favorable price levels. NMC and, to a lesser extent, PRT
purchase a significant amount of media time from cable television and satellite
networks. These cable television and satellite networks assemble programming for
transmission to multiple and local cable system operators. These operators may
not be required to carry all of the network's programming. NMC and PRT currently
do not pay and are not paid for the "privilege" of being broadcast by these
operators. It is possible that, if demand for air time grows, and because of
recently enacted cable legislation, these operators will begin to charge to
continue broadcasting NMC's and PRT's infomercials or limit the amount of time
available for rebroadcast. Recently, larger multiple system operators have
elected to change their operations by selling dark time (I.E., the hours during
which a station does not broadcast its own programming). Significant increases
in the cost of media time or significant decreases in access to media time,
including, but not limited to, any failure to renew or extend existing
agreements, could have a material adverse effect on the results of operations of
the combined companies. There can also be no assurances that, even if NMC and
PRT secure media access, NMC's and PRT's programming will attract viewers or
that their products will enjoy consumer acceptance.
A significant portion of NMC's media time is purchased under contracts which
are one year or greater in length. Such contracts require NMC to make advance
purchases and commitments to purchase media time. To the extent NMC does not
manage such media time effectively, such failure could have a material adverse
effect on NMC's results of operations. However, in the past NMC has generally
been able to maintain a flow of infomercials to fill media time where it has
advance commitments. In addition, as part of its media strategy, NMC arranges to
sell a portion of its media time to others, if necessary. There can be no
assurance, however, that NMC will be able to use all of its media time or sell
it to others or that, upon expiration of such long-term contracts, NMC will be
able to successfully negotiate extensions of such contracts. The inability of
NMC to extend one or more of such contracts as they expire could have a material
adverse effect on NMC's results of operations. Only about 5% of PRT's media time
is purchased under long-term contracts.
RECENT LOSSES
While NMC had net income of $10,679,000 during the nine months ended
December 31, 1995, NMC has suffered net losses in three of its last four fiscal
years, including a net loss of $8,699,000 incurred in fiscal 1994 and a net loss
of $672,000 incurred in fiscal 1995. These losses resulted in a substantial
decrease in working capital from $7,995,000 at March 31, 1993 to $1,377,000 at
March 31, 1994. Based upon this deterioration in NMC's financial condition and
the presence of certain other conditions, as of July 13, 1994, NMC's independent
auditors opined that substantial doubt existed as to NMC's ability to continue
as a going concern. However, as a result of a series of capital raising
transactions in NMC's 1995 fiscal year and NMC's recent profitability, at
December 31, 1995, NMC's working capital had increased to approximately $31.8
million. NMC's fiscal 1995 audited financial statements contain an unqualified
opinion of its independent auditors. PRT suffered a loss in the amount of
approximately $3.22 million for the fiscal year ended December 31, 1995. No
assurance can be given that NMC's operations will continue to be profitable
and/or that its financial position will continue to improve or that the business
of the combined entities will be profitable.
LITIGATION
NMC in recent years has been involved in significant legal proceedings and
PRT is currently involved in significant legal proceedings which, if not settled
or adjudicated prior to the consummation of the Merger, will survive the Merger.
In addition, NMC and PRT have been, and continue to be, the subject of
regulatory investigations by the Federal Trade Commission (the "FTC") and the
Consumer Product Safety Commission (the "CPSC"). See "-- Regulatory Matters."
22
<PAGE>
Abbreviated information regarding the current status of material pending
litigation and regulatory actions involving NMC and PRT is set forth below.
However, as it pertains to previously reported matters involving NMC, such
information does not purport to be complete and is qualified in its entirety by
the detailed description of the legal and regulatory proceedings set forth in
the reports filed by NMC pursuant to the Exchange Act and incorporated by
reference herein. Such descriptions variously include information relating to
the status of the proceedings and NMC's evaluation of the claims made against
it. Certain of such previously reported matters have been resolved substantially
in accordance with the terms set forth in such prior disclosure. In addition, as
set forth above, NMC consummated the acquisition of DirectAmerica on October 25,
1995. As of such date, DirectAmerica was a party to several litigation
proceedings. As a result of the acquisition of DirectAmerica, any liability
which DirectAmerica may have in connection with such litigation becomes the
responsibility of the wholly-owned subsidiary of NMC into which DirectAmerica
was merged. Although certain of the former shareholders of DirectAmerica have
agreed to indemnify NMC against certain of such liabilities, it is not possible
to predict with any accuracy what, if any, liability NMC may have in connection
with such matters.
Positive Response Shareholders' California Class Action. On May 1, 1995, a
purported class action suit was filed in the United States District for the
Central District of California against PRT and its principal executive officers
alleging that PRT had made false and misleading statements in its public
filings, press releases and other public statements with respect to its business
and financial prospects. The suit was filed on behalf of all persons who
purchased PRT Common Stock during the period from January 4, 1995 to April 28,
1995. The suit seeks unspecified compensatory damages and other equitable
relief. An amended complaint was filed on June 9, 1995, which added more
plaintiffs and expanded the class period from November 1994 to April 28, 1995.
PRT moved to dismiss the amended complaint and the amended complaint was
dismissed in late July 1995. The plaintiffs were granted 60 days leave to file
another amended complaint to allow them an attempt to state valid claims against
PRT. On or about September 25, 1995, the plaintiffs filed a second amended
complaint, which added additional officers as defendants and attempted to set
forth new facts to support plaintiffs' entitlement to legal relief. On October
31, 1995, PRT again moved to dismissed plaintiffs' entire action. The basis of
PRT's new motion was its contention that plaintiffs failed to allege any new
facts in support of a claim that has already been dismissed. Oral argument in
connection with PRT's motion was held on December 11, 1995. PRT's motion to
dismiss was denied. Discovery is continuing.
Lachance and Efron and Cohen Class Actions. In July and December, 1994,
stockholders filed purported class action lawsuits in federal court against NMC
and certain of its former officers and directors in connection with an aborted
merger transaction with ValueVision International, Inc. ("ValueVision"). The
parties have reached an agreement in principle to settle these matters, along
with certain similar actions filed in Delaware state court. Such settlements
provide for cash payments by NMC's insurer of $1.125 million and cash payments
by NMC of $375,000, as to which NMC recorded a charge in the fourth quarter of
fiscal 1995. Consummation of these federal court settlements is subject, among
other things, to the final approval of such court.
Ab Roller Plus Patent Litigation. On March 1, 1996, Precise Exercise
Equipment ("Precise") filed suit in the United States District Court for the
Central District of California against certain parties, including NMC, alleging
patent infringement, unfair competition and other intellectual property claims.
Such claims relate to an alleged infringement of Precise's patent for an
exercise device. The suit claims that a product marketed by NMC pursuant to a
license granted by a third party violates Precise's patent. Pursuant to the
terms of such license, the third party is contractually obligated to indemnify
NMC in this suit. The suit seeks an injunction and treble damages. NMC's
independent legal counsel has issued an opinion to NMC that the product marketed
by NMC does not infringe upon Precise's patent. Management believes that an
adverse outcome in such litigation will not have a material adverse effect on
NMC's results of operations or financial condition.
23
<PAGE>
REGULATORY MATTERS
The Infomercial industry is regulated by the FTC, the United States Post
Office, the CPSC, the Federal Communications Commission, the Food and Drug
Administration, various States' Attorneys General and other state and local
consumer protection and health agencies. The FTC directly regulates marketers of
products, such as NMC and PRT, credit card companies which process customer
orders and others involved in the infomercial and direct marketing industries.
NMC's and PRT's marketing activities and/or products have been and will
continue to be subject to the scrutiny of each of the aforementioned regulatory
agencies. An adverse determination or extended investigation by any of these
agencies could have a material adverse effect on NMC and PRT. Moreover, the
domestic and international regulatory environments in which NMC and PRT operate
are subject to change from time to time. It is possible that changes in the
regulations to which NMC and PRT are subject might have a material adverse
effect on NMC's business or results of operations. As a result of prior
settlements with the FTC, NMC has agreed to two consent orders and PRT and its
Chairman and Chief Executive Officer, Michael S. Levey, have agreed to one
consent order, which, among other things, require NMC, PRT and Mr. Levey to
submit compliance reports to the FTC staff. NMC, PRT and Mr. Levey have
submitted the compliance reports as well as additional information requested by
the FTC staff. In connection with one of these orders, NMC received a request
from the FTC in June 1995 for certain information regarding NMC's infomercials
in order to determine whether NMC is in compliance with such order. NMC is
cooperating with such request, and as of the current date, believes itself to be
in compliance with the consent orders and other FTC requirements. In addition,
in connection with the Merger, both NMC and PRT are required pursuant to such
consent orders to notify the FTC of the Merger and Mr. Levey is required to
notify the FTC of his affiliation with NMC which will result from the Merger.
Such notices have been provided. Although no information requests have been
received from the FTC as of the date hereof, it is possible that such
notification will result in additional requests for information from NMC, PRT
and Mr. Levey and/or additional scrutiny of NMC's and PRT's operations.
On February 24, 1994, the staff of the CPSC notified NMC that it had made a
preliminary determination that a particular model of NMC's Juice
Tiger-Registered Trademark- product presents a "substantial product hazard"
under the Consumer Product Safety Act. The CPSC staff requested NMC to take
voluntary corrective action to ameliorate such alleged product hazard. While NMC
has disputed that the model in question presents a substantial product hazard,
NMC and the CPSC staff recently agreed upon the form and nature of voluntary
action proposed by NMC to assuage the CPSC staff's concerns. The Company is
awaiting a decision of the CPSC concerning the assessment of a civil penalty.
Management believes that the cost of implementing such corrective action plan
and the amount of any such civil penalty will not have a material adverse effect
on NMC's results of operations or financial condition.
NMC's international business is subject to the laws and regulations of
England, the European Union, Japan and other countries in which NMC sells its
products, including, but not limited to, the various consumer and health
protection laws and regulations in the countries in which the programming is
broadcast, where applicable. If any significant actions were brought against NMC
or any of its subsidiaries in connection with a breach of such laws or
regulations, including the imposition of fines or other penalties, or against
one of the entities through which NMC obtains a significant portion of its media
access, NMC could be materially adversely affected. There can be no assurance
that changes in the laws and regulations of any territory which forms a
significant portion of NMC's market will not adversely affect NMC's business or
results of operations. PRT distributes its products internationally through
arrangements with K-Tel and NMC and, accordingly, is not directly regulated
internationally.
PRODUCT LIABILITY CLAIMS
Products sold by NMC and PRT may expose NMC and PRT, respectively, to
potential liability from claims by users of such products, subject to NMC's and
PRT's rights, in certain instances, to indemnification against such liability
from the manufacturers of such products. NMC and PRT
24
<PAGE>
generally require the manufacturers of their products to carry product liability
insurance, although in certain instances where a limited amount of products are
purchased from non-U.S. vendors, the vendor may not be formally required to
carry product liability insurance. (Certain of such vendors, however, may in
fact maintain such insurance.) There can be no assurance that such parties will
maintain this insurance or that this coverage will be adequate to cover all
potential claims, including claims by NMC and/or PRT for indemnification. NMC
and PRT currently maintain product liability insurance coverage in amounts
deemed prudent. There can be no assurance that NMC and PRT will be able to
maintain such coverage or obtain additional coverage on acceptable terms, or
that such insurance will provide adequate coverage against all potential claims.
COMPETITION
NMC and PRT compete directly with several companies which generate sales
from infomercials. NMC and PRT also compete with a large number of consumer
product companies and retailers which have substantially greater financial,
marketing and other resources than NMC and PRT, some of which have recently
commenced, or indicated their intent to conduct, direct response marketing. NMC
and PRT also compete with companies that make imitations of their products at
substantially lower prices. Products similar to NMC's and PRT's products may be
sold in department stores, pharmacies and general merchandise stores and through
magazines, newspapers, direct mail advertising and catalogs.
DEPENDENCE ON KEY PERSONNEL
NMC's and PRT's executive officers have substantial experience and expertise
in the infomercial business and make significant contributions to each company's
growth and success. The unexpected loss of the services of one or more of such
individuals could have a material adverse effect on the combined company.
SHARES ELIGIBLE FOR SALE UNDER REGISTRATION RIGHTS
During 1995, NMC registered approximately 10,200,000 shares of NMC Common
Stock which allow the holders of such shares to sell them publicly. In the
absence of such registration, the sale of all of such shares of NMC Common Stock
would have been subject to substantial limitations. A substantial number of such
shares may still be held by the holders thereof and available for resale.
Sales of substantial amounts of the shares of NMC Common Stock discussed
above could adversely affect the market value of NMC Common Stock depending upon
the timing of such sales and, in the case of convertible securities, may effect
a dilution of the book value per share of NMC Common Stock. In addition, a
substantial number of such shares of NMC Common Stock are issuable pursuant to
the exercise of outstanding vested and non-vested options, warrants and similar
rights and the conversion of outstanding preferred stock. Subject to certain
limitations, the persons holding such options, warrants and convertible
securities may obtain the shares of NMC Common Stock underlying such options,
warrants and convertible securities at any time. The issuance of a large number
of shares of NMC Common Stock would dilute the percentage interests of other
stockholders of NMC (including the percentage interests of shareholders of PRT
who receive shares of NMC Common Stock in the Merger).
DIVIDENDS ON NMC COMMON STOCK NOT LIKELY
NMC has not declared or paid a cash dividend on its Common Stock since the
quarter ended December 31, 1991 and the Board of Directors does not anticipate
that dividends will be paid in the foreseeable future. In addition, NMC's
ability to declare or pay any dividends or make any other distribution (whether
in cash or property) on any shares of its capital stock is restricted pursuant
to the terms of certain financing agreements between NMC and its lender.
25
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of PRT Common
Stock in connection with the solicitation of proxies by the PRT Board for use at
the Special Meeting to be held at 14724 Ventura Boulevard, First Floor, Sherman
Oaks, California at 9:00 a.m., local time on May 17, 1996, or at any
adjournments or postponements thereof, for the purposes set forth herein and in
the accompanying Notice of Special Meeting of Shareholders of PRT.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, shareholders of record of PRT as of the close of
business on March 25, 1996, will be asked to consider and vote upon proposals
(i) to approve and adopt the Merger Agreement and to approve the principal terms
of the Merger, and (ii) to transact such other business as may properly come
before the Special Meeting or any postponements or adjournments thereof.
THE PRT BOARD HAS DETERMINED THAT THE MERGER IS ADVISABLE AND IN THE BEST
INTERESTS OF PRT AND ITS SHAREHOLDERS AND HAS THEREFORE UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE MERGER, AND RECOMMENDS A VOTE BY THE SHAREHOLDERS OF
PRT FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE
PRINCIPAL TERMS OF THE MERGER.
RECORD DATE; VOTING AT THE SPECIAL MEETING; VOTE REQUIRED
The PRT Board has fixed March 25, 1996 as the record date for the
determination of the shareholders of PRT entitled to notice of and to vote at
the Special Meeting. Only holders of record of PRT Common Stock on the record
date will be entitled to notice of and to vote at the Special Meeting. As of
March 25, 1996 there were 3,598,077 shares of PRT Common Stock outstanding and
entitled to vote, which were held by approximately 54 holders of record. Each
record holder of PRT Common Stock on the record date is entitled to cast one
vote per share, exercisable in person or by properly executed proxy, on each
matter properly submitted for the vote of the shareholders of PRT at the Special
Meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of PRT Common Stock entitled to vote at the
Special Meeting is necessary to constitute a quorum at the Special Meeting. The
approval of the Merger Agreement and the Merger will require the affirmative
vote of the holders of at least a majority of the outstanding shares of PRT
Common Stock entitled to vote thereon. Abstentions and broker non-votes will be
counted for purposes of determining whether a quorum is present, but will not be
counted as votes either for or against approval of the Merger Agreement and the
principal terms of the Merger. However, abstentions and broker non-votes will
have the practical effect of a vote against the Merger Agreement and the
principal terms of the Merger since they represent one less vote for approval.
As of March 25, 1996, directors and executive officers of PRT and their
affiliates may be deemed to be the beneficial owners of approximately 46.6% of
the outstanding shares of PRT Common Stock. Each of the directors and executive
officers of PRT is expected to vote or direct the vote of all shares of PRT
Common Stock over which he has voting control in favor of the Merger Agreement
and the principal terms of the Merger.
PROXIES
This Proxy Statement/Prospectus is being furnished to holders of PRT Common
Stock in connection with the solicitation of proxies by and on behalf of the PRT
Board for use at the Special Meeting.
All shares of PRT Common Stock that are entitled to vote and are represented
at the Special Meeting by properly executed proxies received prior to or at the
Special Meeting and not duly and timely revoked, will be voted at the Special
Meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such proxies will be voted FOR approval and adoption
of the Merger Agreement and approval of the principal terms of the Merger.
26
<PAGE>
IF ANY OTHER MATTERS ARE PROPERLY PRESENTED FOR CONSIDERATION AT THE SPECIAL
MEETING (OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF), INCLUDING, AMONG OTHER
THINGS, CONSIDERATION OF A MOTION TO ADJOURN OR POSTPONE THE SPECIAL MEETING TO
ANOTHER TIME AND/OR PLACE (INCLUDING, WITHOUT LIMITATION, FOR THE PURPOSE OF
SOLICITING ADDITIONAL PROXIES IF, FOR EXAMPLE, AN INSUFFICIENT NUMBER OF VOTES
ARE CAST TO APPROVE THE MERGER AGREEMENT AND THE MERGER), THE PERSONS NAMED IN
THE ENCLOSED FORMS OF PROXY AND VOTING THEREUNDER WILL HAVE DISCRETION TO VOTE
ON SUCH MATTERS IN ACCORDANCE WITH THEIR BEST JUDGMENT.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of PRT at or before the taking of the vote at the Special
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of PRT before the taking of the vote at the
Special Meeting or (iii) attending the Special Meeting and voting in person
(although attendance at the Special Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to Positive Response Television, Inc., at
14724 Ventura Boulevard, Suite 600, Sherman Oaks, California 91403-3501,
Attention: Lisa Vann Levey, Secretary or hand-delivered to Lisa Vann Levey, the
Secretary of PRT, at or before the taking of the vote at the Special Meeting.
In addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of PRT in person or by telephone, telegram or
other means of communication. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. Arrangements will also be made
with custodians, nominees and fiduciaries for forwarding proxy solicitation
materials to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries, and PRT will reimburse such custodians, nominees and
fiduciaries for reasonable expenses incurred in connection therewith.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES
WITH THEIR PROXY CARDS.
27
<PAGE>
THE MERGER
GENERAL
Pursuant to the terms of the Merger Agreement, PRT will merge with and into
Merger Sub, PRT's separate corporate existence will be extinguished, the equity
interest of PRT's shareholders in PRT will cease, Merger Sub will be renamed
"Positive Response Television, Inc." and it will continue as a wholly-owned
subsidiary of NMC. At the Effective Time of the Merger, each outstanding share
of PRT Common Stock (other than, in limited circumstances, Dissenters' Shares
and except for those shares of PRT Common Stock held by NMC, which shall be
cancelled, without consideration, as a result of the Merger) will be converted
into the right to receive a maximum of 0.5239 shares of NMC Common Stock, less a
pro rata portion of the Reduction Amount. No fractional shares of NMC Common
Stock will be issued in the Merger, but in lieu thereof each holder of PRT
Common Stock who would otherwise be entitled to a fraction of a share of NMC
Common Stock (after aggregating all fractional shares of NMC Common Stock to be
received by such holder) will receive from NMC an amount in cash (rounded to the
nearest whole cent), without interest, equal to the product of such fraction
multiplied by the average closing price of NMC Common Stock on the NYSE for the
twenty (20) trading days prior to the Effective Time. See "THE MERGER AGREEMENT
AND RELATED AGREEMENTS -- Conversion of Shares."
Notwithstanding the foregoing, to the extent that PRT's Adjusted
Shareholders' Equity is less than the Calculation Equity, a number of shares of
NMC Common Stock otherwise issuable, on a pro-rata basis, to the shareholders of
PRT in the Merger will be held in escrow pursuant to the terms of the Merger
Agreement and an Escrow Agreement to be entered into pursuant thereto. See "THE
MERGER AGREEMENT AND RELATED AGREEMENTS -- Escrow of Shares."
Upon consummation of the Merger, each then outstanding Plan Option will be
assumed by NMC subject to any applicable vesting schedule. Each Plan Option so
assumed by NMC shall continue to have, and be subject to, the same terms and
conditions set forth in the Stock Option Plan and the agreement or instrument
pursuant to which each such Plan Option was issued as in effect immediately
prior to the Effective Time, except: (i) each Plan Option will be exercisable
for that number of shares of NMC Common Stock equal to the product of (x) the
number of shares of PRT Common Stock that were purchasable under such Plan
Option immediately prior to the Effective Time, multiplied by (y) the Exchange
Ratio (as adjusted to reflect the pro rata effect of the Reduction Amount),
rounded up to the nearest whole number of shares of NMC Common Stock; and (ii)
the per share exercise price for the shares of NMC Common Stock issuable upon
exercise of the Plan Option will be equal to the quotient determined by dividing
(x) the exercise price per share of PRT Common Stock at which such Plan Option
was exercisable immediately prior to the Effective Time, by (y) the Exchange
Ratio (as adjusted to reflect the pro rata effect of the Reduction Amount), and
rounding the resulting exercise price up to the nearest whole cent. There are no
other outstanding options (excluding Plan Options), warrants, convertible
securities or other similar rights to acquire PRT Common Stock. See "THE MERGER
AGREEMENT AND RELATED AGREEMENTS -- Treatment of Plan Options."
BACKGROUND OF THE MERGER
As discussed herein under "POSITIVE RESPONSE TELEVISION, INC. -- General,"
prior to December 31, 1993, substantially all of PRT's revenues were derived
from infomercials produced by PRT for NMC. During 1993, NMC and PRT were parties
to litigation against one another regarding disputes arising out of the
companies' business relationship. Such litigation was settled in December 1993.
In October 1994, PRT and NMC entered into a significant strategic business
relationship pursuant to which (i) NMC and PRT split the production costs of
certain infomercials produced by PRT and (ii) NMC has the right to air such
infomercials on its proprietary domestic airtime and internationally in exchange
for certain payments to PRT.
Due to the foregoing relationship and the nature of the infomercial
industry, the Chief Executive Officers of NMC and PRT have known each other
professionally for a number of years. During the Spring and early Summer of
1995, the executive officers informally discussed whether there was any
28
<PAGE>
mutual interest in pursuing a possible combinative transaction between NMC and
PRT. On July 24, 1995, NMC and PRT executed a confidentiality agreement pursuant
to which they began exchanging information for preliminary due diligence and
valuation purposes.
NMC's Mergers and Acquisitions Committee, with the assistance of its
professional advisors, determined an appropriate valuation of PRT, based
principally upon PRT's publicly available financial information and NMC's
assessment of the potential administrative and operational savings which would
be possible if a combinative transaction between NMC and PRT were consummated.
Based on the information then available, NMC's Mergers and Acquisitions
Committee, Executive Committee and, finally, its Board of Directors authorized
NMC's management to attempt to negotiate and execute a non-binding letter of
intent with PRT.
Throughout the Summer of 1995, PRT management analyzed NMC's publicly
available information, including information regarding NMC's foreign operations
and its financial information and reviewed its own operations and prospects for
the future. PRT's accountants, legal counsel and other advisers were consulted
regarding a possible combination with NMC. Informal discussions with each of the
members of the Board of Directors continued throughout this period.
In early September, management of both companies began serious discussions
regarding the terms of a possible combination of the two companies. On October
18, 1995, the Board of Directors of PRT approved a letter of intent providing
for an acquisition substantially as described in this proxy statement. Shortly
thereafter, the PRT Board (i) appointed a special committee of the PRT Board of
Directors (the "PRT Special Committee"), comprised of the three members of the
PRT Board who are not executive officers of PRT, to review the terms of the
proposed transaction and make a recommendation to the PRT Board with respect to
such transaction; and (ii) retained Cruttenden to evaluate the fairness of the
proposed transaction with NMC from a financial point of view.
Following such approval, the parties executed the letter of intent. On the
date of execution, the companies each issued press releases regarding the letter
of intent and NMC reported the execution of the letter of intent in a Current
Report on Form 8-K, dated October 19, 1995, filed with the Commission.
The companies each conducted legal, documentary, operational, administrative
and financial due diligence of the other between the execution of the letter of
intent and execution of the Merger Agreement.
During the period following the execution of the letter of intent,
management of both companies negotiated the terms of the Merger Agreement.
Members of the PRT Special Committee and other members of the Board of Directors
of PRT were consulted and kept advised of the progress of the negotiations. On
December 7, 1995, the PRT Special Committee met with Cruttenden which advised
the Committee that the proposed Merger was fair to PRT's shareholders from a
financial point of view and reviewed with the Committee the valuation analysis
it performed in considering the transaction. The PRT Special Committee voted
unanimously to recommend the Merger to the PRT Board. Thereafter, on that day,
the entire Board of Directors of PRT held a meeting at which Cruttenden again
reported on its findings and presented the Board with its opinion that the
Merger was fair, from a financial point of view, to the shareholders of PRT. The
PRT Special Committee reported its conclusions that the Merger was just and
reasonable and recommended to the PRT Board that it approve the Merger.
Following an extended discussion as to the benefits which PRT's shareholders
will derive from the Merger, the Board of Directors of PRT approved the Merger
and authorized the officers of PRT to execute the Merger Agreement on behalf of
PRT.
On November 29, 1995, the NMC Board of Directors met to discuss and vote
upon the Merger Agreement. Following discussions with its financial and legal
advisors, NMC's Board unanimously approved the Merger and authorized the
appropriate officers of NMC to execute and deliver the Merger Agreement and to
take all other actions necessary or required to consummate the Merger, subject
to the conditions set forth therein.
29
<PAGE>
Following the above-referenced Board meetings, on January 17, 1996, the
companies executed the Merger Agreement and issued press releases concerning
such event on January 18, 1996. Each of NMC and PRT filed a Current Report on
Form 8-K, dated January 17, 1996, reporting the execution of the Merger
Agreement.
POSITIVE RESPONSE'S REASONS FOR THE MERGER; RECOMMENDATION OF THE POSITIVE
RESPONSE BOARD
The PRT Board has unanimously approved the Merger and determined that the
Merger is advisable and fair and in the best interests of PRT and its
shareholders. The PRT Board unanimously recommends to PRT shareholders that they
vote FOR the approval and adoption of the Merger Agreement and the approval of
the principal terms of the Merger. The PRT Board based its approval of the
Merger and its determination that the terms of the Merger are fair to PRT and
its shareholders upon a number of factors, including its views regarding the
following:
(i) The consideration to be received by PRT's shareholders in the
Merger, including the fact that the Exchange Ratio represented a premium of
15.7% over the closing market price of PRT Common Stock just prior to the
public announcement of the Merger;
(ii) The Merger will provide PRT shareholders with a publicly-traded
security that has a significantly larger market float, greater liquidity and
greater business diversification than PRT Common Stock;
(iii) The significantly greater financial and business resources, more
diversified product line and greater sales, marketing and distribution
capabilities that the combined entity would have over that of PRT alone;
(iv) The enhanced opportunities for both operating efficiencies and
synergies that are expected to result from the Merger, the enhanced
opportunities for growth (particularly in foreign markets) that the Merger
is expected to make possible, and the respective contributions that the
parties would bring to a combined institution;
(v) PRT management's due diligence review of NMC, including the
business, operations, earnings, and financial condition of NMC on a
historical, prospective and pro forma basis; and
(vi) The expectation that the Merger will be tax-free for federal income
tax purposes to PRT and its shareholders.
The PRT Board also considered the following information in concluding that
the terms of the Merger are fair to PRT and its shareholders: (i) its knowledge
of the business, operations, property, assets, financial condition, operating
results and prospects of PRT and NMC; (ii) current industry, economic and market
conditions and trends; (iii) the recommendation of the PRT Special Committee;
(iv) the opinion of Cruttenden as to the fairness of the Merger from a financial
point of view to the shareholders of PRT; (v) the terms of the Merger Agreement;
(vi) the structure and accounting and tax treatment of the Merger; (vii) the
respective corporate cultures and strategies of PRT and NMC; and (viii) PRT's
alternatives.
In view of the variety of factors considered in connection with its
evaluation of the Merger, the PRT Board did not find it practicable to and did
not quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination.
NATIONAL MEDIA'S REASONS FOR THE MERGER
As discussed elsewhere herein, NMC and PRT have in the past done business
together and continue to do business together. Due to the ongoing business
relationship between them and the fact that each is a publicly traded company
that regularly files reports with the Commission, NMC and PRT are each generally
familiar with the business of the other. The business conducted by PRT is very
similar to the business conducted by NMC. It was NMC's belief in entering into
the Merger Agreement that, by combining the businesses of NMC and PRT, the
combined companies could take advantage of many cost savings related to (i)
expenses related to operating as a public company, such as duplicative
30
<PAGE>
external audit costs; (ii) the replacement of outside third party vendors (such
as fulfillment providers and outbound telemarketing providers) with in-house
capabilities of NMC and PRT, as the case may be; and (iii) the combination of
existing operational departments within the companies.
In addition, NMC felt that the acquisition of PRT would, in conjunction with
its recent acquisition of DirectAmerica, provide NMC with a strong operating
presence on the west coast of the United States. Such west coast operations
will, in effect, act as a new receptor site for the overall NMC product sourcing
function. Lastly, in connection with the Merger, NMC will also acquire the
services of Michael S. Levey and Lisa Vann Levey. It was NMC's view that Michael
Levey is a well respected and well known on-air personality in the infomercial
industry and that both Michael and Lisa Levey are talented infomercial producers
whose services will be available to NMC for the foreseeable future.
OPERATIONS FOLLOWING THE MERGER
Following the Merger, NMC plans to operate Merger Sub as a wholly-owned
subsidiary of NMC. Merger Sub will continue to do business, in large part, as
PRT is presently conducting its business. NMC intends to take advantage of
certain cost savings and other synergies which are expected to result from the
combination of certain of NMC's (and its existing subsidiaries') and PRT's
administrative and operational functions. Michael S. Levey, PRT's Chairman and
Chief Executive Officer, will serve as the Chief Executive Officer of Merger Sub
and will report to Merger Sub's board of directors and NMC's Chief Executive
Officer. It is presently anticipated that Merger Sub will produce infomercials
for NMC and for various third parties.
OPINION OF POSITIVE RESPONSE'S FINANCIAL ADVISOR
As described above under "-- Background of the Merger." PRT retained
Cruttenden to act as its financial advisor in connection with the Merger. As
part of its engagement by PRT, Cruttenden rendered its oral opinion on December
7, 1995, which was confirmed in writing as of the same date, to the PRT Board,
that, as of such date, the consideration to be received by the holders of PRT
Common Stock in the Merger (the "Merger Consideration") was fair to such holders
from a financial point of view. A copy of Cruttenden's opinion, dated December
7, 1995, which sets forth the assumptions made, matters considered, and the
scope and limitations of the review undertaken by Cruttenden, is attached as
Annex B to this Proxy Statement/Prospectus. PRT's shareholders are urged to read
the opinion in its entirety. The following description of Cruttenden's opinion
is qualified in its entirety by reference to the full text of such opinion. Such
opinion is not a recommendation to any shareholder of PRT as to how to vote at
the Special Meeting. Cruttenden's opinion (i) addresses only the fairness of the
terms of the Merger from a financial point of view to the holders of PRT Common
Stock and (ii) speaks only as of the date of the opinion. It is a condition to
the obligations of PRT to consummate the Merger that PRT shall have received a
written opinion from Cruttenden, dated as of the Effective Time, that the terms
of the Merger are fair to PRT and its shareholders from a financial point of
view.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analysis and the application of those methods to particular
circumstances, and, therefore, such an opinion is not readily susceptible to a
partial analysis or summary description. The summary of the Cruttenden analyses
set forth below does not purport to be a complete description of the
presentation by Cruttenden to the PRT Board. In arriving at its opinion,
Cruttenden did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, Cruttenden believes that
its analyses and the summary set forth below must be considered as a whole, and
that considering any portion of such analyses and summary of the factors
considered, without considering all such analyses and factors, could create a
misleading or incomplete view of the processes underlying the analyses set forth
in the Cruttenden presentation to the PRT Board and to Cruttenden's opinion. In
performing its analyses, Cruttenden made numerous assumptions with respect to
industry performance, general business and other conditions and matters, many of
which are beyond the control of PRT and NMC. In performing its analyses,
Cruttenden relied, without assuming responsibility for verification, upon
estimates by the managements
31
<PAGE>
of PRT and NMC of potential cost savings that may be achieved if the Merger is
consummated. The analyses performed by Cruttenden are not necessarily indicative
of actual values or predictive of future results or values, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of assets or businesses do not
purport to be appraisals thereof or to reflect the prices at which businesses or
assets actually may be sold.
In rendering its opinion, Cruttenden relied, without assuming responsibility
for verification, upon the accuracy and completeness of all of the financial and
other information reviewed by Cruttenden for purposes of its opinion. With
respect to financial projections, estimates and analyses provided to Cruttenden
by PRT and NMC, assumed that such projections, estimates and analyses were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of PRT and NMC, respectively. With respect to
NMC, Cruttenden relied on data provided to it by NMC or otherwise derived by it
and by PRT and its advisors from discussions with NMC management. In addition,
Cruttenden did not make an independent evaluation or appraisal of any assets or
liabilities (contingent or otherwise) of PRT or NMC or any of their respective
subsidiaries and was not furnished with any such evaluation or appraisal, nor
did Cruttenden conduct a physical inspection of the properties of PRT or NMC. In
its opinion, Cruttenden noted that, among other things, its opinion was
necessarily based upon facts and circumstances, including stock market
conditions, existing and disclosed to it as of the date of its opinion.
Shareholders are urged to read the opinion in its entirety for assumptions made,
matters considered and limits of the review by Cruttenden.
In conducting its analysis and arriving at its opinion, Cruttenden held
discussions with the managements of PRT and NMC concerning the business,
financial statements, operations and prospects of their respective companies and
the prospects of a combined entity involving PRT and NMC.
In reaching its conclusion that the Merger was fair to PRT's shareholders
from a financial point of view, among other things, Cruttenden:
(i) Reviewed the terms of the Merger;
(ii) Reviewed the budgets, financial statements, projections, market
studies, material contracts, internal analyses and other relevant
documentation provided by PRT concerning its financial condition, historical
performance and future prospects;
(iii) Reviewed publicly available information regarding NMC and PRT;
(iv) Compared the projected discounted cash flows for NMC and PRT,
respectively, for the fiscal years 1996 through 2000 based upon projections
provided by each company;
(v) Calculated an imputed share price for both NMC and PRT by comparing
them with other publicly-traded companies in similar businesses, utilizing
six ratios: (a) Enterprise Value/Revenue, (b) Enterprise Value/EBITDA, (c)
Market Value/Net Income, (d) Market Value/Book, (e) Market Value/Revenues,
and (f) Market Value/Assets; and
(vi) Analyzed, based on data provided by each company, the dilutive
effect of the Merger on NMC's fiscal 1996 results.
Cruttenden also performed such other studies, analyses and inquiries and
considered such other information as it considered relevant. Cruttenden did not
believe that there have been any recent acquisitions in the infomercial,
advertising and related industries which were comparable to the Merger for
purposes of evaluating the fairness of the transaction.
Based on the foregoing analyses and considerations, Cruttenden concluded
that the Merger was fair to the shareholders of PRT from a financial point of
view.
The foregoing description of Cruttenden's opinion is qualified in its
entirety by reference to the full text of such opinion which is attached as
Annex B to this Proxy Statement/Prospectus.
32
<PAGE>
Cruttenden is an investment banking firm. As a part of its investment
banking business, Cruttenden is regularly engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwriting, secondary distributions of listed and unlisted securities, private
placements and other purposes. The PRT Board selected Cruttenden to serve as its
financial advisor based on Cruttenden's qualifications, expertise and
familiarity with PRT's business. The terms of Cruttenden's engagement to PRT are
set forth in an engagement letter dated October 18, 1995. Cruttenden was not
authorized to solicit and did not solicit interest from any party with respect
to an acquisition of PRT. Cruttenden's role as financial advisor is limited to
rendering an opinion that the principal terms of the Merger, as of December 7,
1995 and as of the Effective Time, are fair to the shareholders of PRT from a
financial point of view.
In the ordinary course of Cruttenden's business, it actively trades in the
equity securities of PRT for its own account and for the accounts of customers,
and accordingly may at any time hold a long or short position in such
securities. Cruttenden has in the past published investment research on PRT.
Cruttenden has performed investment banking services for PRT in the past and
served as managing underwriter of PRT's initial public offering in May 1994. In
connection with the public offering, Cruttenden received common stock purchase
warrants to purchase an aggregate 100,000 shares of PRT Common Stock. On March
1, 1996, Cruttenden exercised its warrants through the use of the "Appreciation
Currency" (a cashless exercise) method provided for in the warrant agreement,
receiving an aggregate of 16,240 shares of PRT Common Stock in full satisfaction
of its warrants.
Pursuant to the terms of the engagement letter, Cruttenden was engaged to
act as PRT's exclusive financial advisor and agent in connection with the Merger
and to render an opinion to the Board of Directors of PRT as to the fairness of
the principal terms of the Merger, from a financial point of view, to PRT and
its shareholders. As compensation for its services to PRT, Cruttenden will
receive a fee in the aggregate amount of $75,000, plus reimbursement of its
reasonable out-of-pocket expenses, including reasonable fees and disbursements
of counsel. If such expenses exceed $5,000, Cruttenden will promptly notify PRT
in writing. Pursuant to the engagement letter, PRT has agreed to indemnify
Cruttenden and its affiliates, and their respective directors, officers,
employees and agents, to the full extent lawful, from and against any losses,
claims, damages or liabilities related to or arising out of Cruttenden's
engagement or its role in connection therewith (other than those that result
primarily from such person's bad faith or gross negligence) and shall reimburse
any such indemnified person for all expenses incurred in connection with
investigating, defending or preparing to defend any such action or claim.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of tax counsel to NMC and PRT, the following discussion
summarizes the material federal income tax consequences of the Merger to PRT and
holders of PRT Common Stock. The discussion is based on the Code, its
legislative history, existing and proposed regulations thereunder, published
rulings and court decisions, all as in effect and existing on the date hereof
and all of which are subject to change at any time, which change may be
retroactive. The discussion does not address aspects of federal taxation other
than income taxation, nor does it address all aspects of federal income taxation
including, without limitation, aspects of federal income taxation that may be
applicable to particular holders of PRT Common Stock, such as holders who are
dealers in securities, foreign persons or persons who acquired their PRT Common
Stock in a compensation transaction. In addition, it does not address the state,
local or foreign tax consequences of the Merger, if any.
HOLDERS OF PRT COMMON STOCK ARE URGED TO CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER.
33
<PAGE>
The principal federal income tax consequences of the Merger to PRT and
holders of PRT Common Stock will be as follows:
(a) The Merger will qualify as a reorganization within the meaning of
Section 368 of the Code;
(b) No gain or loss will be recognized by PRT, Merger Sub or NMC solely
as a result of the Merger;
(c) No gain or loss will be recognized by holders of PRT Common Stock
upon their receipt of NMC Common Stock in exchange for their PRT Common
Stock, except that holders of PRT Common Stock who receive cash proceeds in
lieu of fractional shares of NMC Common Stock will recognize gain or loss
equal to the difference, if any, between such proceeds and the tax basis of
PRT Common Stock allocated to their fractional share interests. Such gain or
loss, if any, will be capital gain or loss if the fractional share interests
exchanged are held as capital assets at the Effective Time, and will be
long-term capital gain or loss if the holding period for the fractional
share interests (including the holding period of PRT Common Stock attributed
thereto) exceeds one year at the Effective Time;
(d) The tax basis of NMC Common Stock received by holders of PRT Common
Stock will be the same as the tax basis of the PRT Common Stock exchanged
therefor less the tax basis, if any, allocated to fractional share
interests;
(e) The holding period of NMC Common Stock in the hands of holders of
PRT Common Stock will include the holding period of their PRT Common Stock
exchanged therefor, provided that such PRT Common Stock is held as a capital
asset at the Effective Time; and
(f) In general, a dissenting holder of PRT Common Stock receiving solely
cash in exchange therefor will recognize gain or loss equal to the
difference, if any, between the cash received and the dissenting holder's
tax basis of the PRT Common Stock. Such gain or loss, if any, will generally
be capital gain or loss if the PRT Common Stock for which the dissenting
shareholder receives cash is held as a capital asset at the Effective Time,
and will be long-term capital gain or loss if the dissenting shareholder has
held the PRT Common Stock for more than one year at the Effective Time.
It is a condition to NMC's and PRT's obligations to effect the Merger that
NMC and PRT receive tax opinions from Klehr, Harrison, Harvey, Branzburg &
Ellers and Irell & Manella, respectively (the "Tax Opinions"), to the effect
that, on the basis of certain facts, including facts derived from officers'
certificates delivered by NMC and PRT, and certain assumptions stated in the Tax
Opinions, the Merger will be treated as a reorganization within the meaning of
Section 368 of the Code. Neither NMC nor PRT intends to waive this condition. If
this condition is waived by either NMC or PRT after approval of the Merger by
the holders of PRT Common Stock, then PRT intends to resolicit its shareholders
prior to consummation of the Merger.
No ruling has been or will be obtained from the Internal Revenue Service
(the "Service") with respect to the Merger. The Tax Opinions are not binding on
the Service or the courts, and no assurance can be given that the Tax Opinions
would be followed if challenged by the Service.
ACCOUNTING TREATMENT
The Merger is expected to be treated as a "purchase" for accounting
purposes. See "PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the PRT Board with respect to the
Merger, shareholders of PRT should be aware that certain officers and directors
of PRT have interests in the Merger which differ in certain material respects
from those of other shareholders, including those referred to below,
34
<PAGE>
that present them with potential conflicts of interest. The PRT Board was aware
of these potential conflicts and considered them along with the other matters
described in "-- Positive Response's Reasons for the Merger; Recommendation of
the Positive Response Board."
The Merger Agreement provides that NMC's and Merger Sub's obligation to
consummate the Merger is conditioned upon Merger Sub, at or prior to the
Effective Time, having entered into (i) five (5) year employment agreements with
each of Michael Levey and Lisa Vann Levey (the "Employment Agreements"), and
(ii) a noncompetition agreement with Stephen Weber that will commence on January
1, 1997 (the "Noncompetition Agreement").
The Employment Agreements, which are renewable for successive one year
periods, will provide that Michael Levey and Lisa Vann Levey shall be engaged
as, and hold the positions of, Chief Executive Officer of Merger Sub and Vice
President of Merger Sub, respectively, at annual base salaries of $325,000 and
$200,000, respectively. Michael Levey and Lisa Vann Levey shall also participate
in, and be eligible for bonuses pursuant to, NMC's Management Incentive Plan and
shall be entitled to participate in all other benefit programs generally
available to officers of NMC and its subsidiaries. In addition, NMC has agreed
to provide an automobile allowance to each of Michael Levey and Lisa Vann Levey.
Furthermore, NMC has agreed to purchase a life insurance policy, in the face
amount of $2.0 million, on behalf of Mr. Levey and has agreed, subject to
approval of NMC's stockholders, to grant Mr. Levey options to purchase up to an
aggregate of 300,000 shares of NMC Common Stock. The Employment Agreements will
also impose restrictions on the ability of each of Michael Levey and Lisa Vann
Levey to sell their shares of NMC Common Stock.
The Noncompetition Agreement will provide, in part, that Mr. Weber will not
engage, directly or indirectly, in any infomercial venture which is competitive
with the business of NMC and its subsidiaries for a period of one (1) year.
Pursuant to such agreement, Mr. Weber will be paid $180,000.
The Merger Agreement provides that PRT will, to the fullest extent permitted
under applicable law or under PRT's Articles of Incorporation or By-laws and
regardless of whether the Merger becomes effective, indemnify and hold harmless,
and that after the Effective Time, Merger Sub will, to the fullest extent
permitted under applicable law or under Merger Sub's Certificate of
Incorporation or By-laws, indemnify and hold harmless each present and former
director, officer, employee, fiduciary and agent of PRT or any of its
subsidiaries 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, or arising out of or pertaining to the transactions contemplated
by the Merger Agreement.
In addition, the Certificate of Incorporation of Merger Sub will contain
indemnification provisions substantially similar to those set forth in the
By-laws of PRT, which provisions are not to 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 PRT's directors,
officers, employees or agents, unless such modification is prospective in nature
and is required by law.
REGULATORY MATTERS
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the Antitrust Division and the FTC and
specified waiting period requirements have been satisfied. NMC and PRT filed
with the Antitrust Division and the FTC a Notification and Report Form (an "HSR
Notice") with respect to the Merger on February 6, 1996. The required waiting
periods under the HSR Act expired on February 28, 1996. However, at any time
before or after the Effective Time, the FTC or the Antitrust Division could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the Merger or seeking the
divestiture of
35
<PAGE>
PRT by NMC, in whole or in part, or the divestiture or compulsory licensing of
substantial assets of NMC or PRT, or their respective subsidiaries. State
attorneys general and private parties may also bring legal actions under the
federal or state antitrust laws under certain circumstances.
In addition to the foregoing, each of NMC and PRT are obligated, pursuant to
the terms of certain consent orders entered into by each of NMC and PRT with the
FTC, to provide notice of the Merger to the FTC separate from the HSR Notice.
Such notices have been provided.
RIGHTS OF DISSENTING SHAREHOLDERS
If NMC were to waive the condition to consummation of the Merger described
below (the "4.9% Condition") and if the Merger is consummated, holders of PRT
Common Stock who have properly exercised dissenters' rights in connection with
the Merger under Sections 1300-1312 ("Chapter 13") of the CCC will have the
right to receive such consideration as may be determined to be due with respect
to Dissenters' Shares pursuant to the laws of the State of California, so long
as demands for such consideration are properly filed at or before the Special
Meeting with respect to 5% or more of the outstanding shares of PRT Common
Stock.
The following summary of the provisions of Chapter 13 is not intended to be
a complete statement of such provisions, and Shareholders are urged to read the
full text of Chapter 13, a copy of which is attached to this Proxy
Statement/Prospectus as Annex C.
If the Merger is approved by the required vote of the holders of PRT Common
Stock and is not abandoned or terminated, each holder of shares of PRT Common
Stock who votes against the Merger and who follows the procedures set forth in
Chapter 13 will be entitled to have his or her shares of PRT Common Stock
purchased by PRT for cash at their fair market value, so long as demands for
such consideration are properly filed at or before the Special Meeting with
respect to 5% or more of the outstanding shares of PRT Common Stock and if NMC
waives the 4.9% Condition (which it does not intend to do). The fair market
value of shares of PRT Common Stock will be determined as of the day before the
first announcement of the terms of the Merger, excluding any appreciation or
depreciation resulting as a consequence of the Merger, but adjusted for any
stock split, reverse stock split or share dividend that becomes effective
thereafter. The shares of PRT Common Stock with respect to which holders have
perfected their purchase demand in accordance with Chapter 13 and have not
effectively withdrawn or lost such rights are referred to as the "Dissenters'
Shares."
Within ten (10) days after approval of the Merger by PRT's shareholders, PRT
must, if demands for purchase have been properly filed by the holders of 5% or
more of the outstanding shares of PRT Common Stock, mail a notice of such
approval (the "Approval Notice") to all shareholders who have voted against the
approval of the Merger and followed the procedures set forth in Chapter 13,
together with a statement of the price determined by PRT to represent the fair
market value of the applicable Dissenters' Shares (determined in accordance with
the immediately preceding paragraph), a brief description of the procedures to
be followed in order for the shareholder to pursue his or her dissenter's
rights, and a copy of Sections 1300-1304 of the CCC. The statement of price by
PRT constitutes an offer by PRT to purchase all Dissenters' Shares at the stated
amount.
A shareholder of PRT electing to exercise dissenters' rights must, within
the time period provided in Section 1301(b) of the CCC, demand in writing from
PRT the purchase of his or her Dissenters' Shares and payment to the shareholder
at their fair market value. A holder who elects to exercise dissenters' rights
should mail or deliver his or her written demand to PRT at 14724 Ventura
Boulevard, Suite 601, Sherman Oaks, California 91407, Attention: Lisa Vann
Levey, Secretary. The demand should specify the holder's name and mailing
address and the number of Dissenters' Shares held of record by such shareholder
and state that such holder is demanding purchase of his or her shares and
payment of their fair market value, and must also contain a statement as to what
the
36
<PAGE>
shareholder claims to be the fair market value of such shares as of the day
before the first announcement of the terms of the proposed Merger. Such
statement of the fair market value of the Dissenters' Shares constitutes an
offer by the shareholder to sell the Dissenters' Shares held by such shareholder
at that price.
Within the time period provided in Section 1302 of the CCC, the shareholder
must also submit the certificates representing the Dissenters' Shares to PRT for
endorsement as Dissenters' Shares.
If PRT and the PRT shareholder agree that the shares are Dissenters' Shares
and agree upon the purchase price of the shares, the dissenting shareholder is
entitled to the agreed-upon price with interest thereon at the legal rate on
judgements from the date of such agreement. Payment for the Dissenters' Shares
must be made within thirty (30) days after the later of the date of such
agreement or the date on which all statutory and contractual conditions to the
Merger are satisfied, and is subject to surrender to PRT of the certificates
representing the Dissenters' Shares.
If PRT denies that the shares are Dissenters' Shares or if PRT and the
shareholder fail to agree upon the fair market value of the Dissenters' Shares,
then, within the time period provided in Section 1304(a) of the CCC, any
shareholder who has made a valid written purchase demand and who has voted
against approval and adoption of the Merger Agreement may file a complaint in
the superior court of Los Angeles County requesting a determination as to
whether the shares are Dissenters' Shares or as to the fair market value of such
holder's Dissenters' Shares or both, or may intervene in any pending action
brought by any other PRT shareholder. If the fair market value of the
Dissenters' Shares is at issue, the court may appoint one or more impartial
appraisers to determine the fair market value of such Dissenters' Shares.
Except as expressly limited by Chapter 13, holders of Dissenters' Shares
continue to have all the rights and privileges incident to their shares of PRT
Common Stock, until the fair market value of their shares is agreed upon or
determined. A holder of Dissenters' Shares may not withdraw a demand for payment
unless PRT consents thereto.
Dissenters' Shares lose their status as Dissenters' Shares, and dissenting
shareholders cease to be entitled to require PRT to purchase their shares if:
(a) the Merger is abandoned; (b) the shares are transferred prior to their
submission to PRT for the required endorsement; (c) the dissenting shareholder
and PRT do not agree upon the status of the shares as Dissenters' Shares or do
not agree on the purchase price, but neither PRT nor the shareholder files a
complaint or intervenes in a pending action within six months after mailing of
the Approval Notice; or (d) with PRT's consent, the holder delivers to PRT a
written withdrawal of such holder's demand for purchase of his or her shares.
PRT SHAREHOLDERS WILL HAVE NO APPRAISAL RIGHTS UNLESS DEMANDS FOR PURCHASE
AND PAYMENT ARE RECEIVED AT OR PRIOR TO THE DATE OF THE PRT SPECIAL MEETING FROM
HOLDERS OF 5% OR MORE OF THE OUTSTANDING SHARES OF PRT COMMON STOCK. IN
ADDITION, NMC'S OBLIGATION TO CONSUMMATE THE MERGER IS CONDITIONED UPON HOLDERS
OF NOT MORE THAN 4.9% OF THE OUTSTANDING SHARES OF PRT COMMON STOCK HAVING
EXERCISED DISSENTERS' RIGHTS UNDER CHAPTER 13.
All officers and directors of PRT have agreed not to exercise dissenters'
rights with respect to the Merger.
37
<PAGE>
THE MERGER AGREEMENT AND RELATED AGREEMENTS
The following paragraphs summarize, among other things, the material terms
of the Merger Agreement, which is attached hereto as Annex A and incorporated by
reference herein. Shareholders of PRT are urged to read the Merger Agreement in
its entirety for a more complete description of the Merger.
EFFECTIVE TIME OF THE MERGER
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Merger Agreement, the parties thereto will file
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. The Merger will become effective upon the filing of such materials
with the Secretary of State of the State of Delaware, which, assuming all
conditions are met, is anticipated to occur shortly after the Special Meeting.
CONVERSION OF SHARES
Pursuant to the terms of the Merger Agreement, PRT will merge with and into
Merger Sub, PRT's separate corporate existence will be extinguished, the equity
interest of PRT's shareholders in PRT will cease, Merger Sub will be renamed
"Positive Response Television, Inc." and it will continue as a wholly-owned
subsidiary of NMC. At the Effective Time of the Merger, each outstanding share
of PRT Common Stock (other than, in limited circumstances, Dissenters' Shares
and except for those shares of PRT Common Stock held by NMC, which shall be
cancelled, without consideration, as a result of the Merger) will be converted
into the right to receive a maximum of 0.5239 shares of NMC Common Stock, less a
pro rata portion of the Reduction Amount. It is presently anticipated that the
Reduction Amount will be at least 30,000 shares, but not more than 100,000
shares, of NMC Common Stock. Consequently, subject to the escrow arrangement
described below, PRT shareholders are presently expected to be entitled to
receive a maximum of between 0.4961 and 0.5156 shares of NMC Common Stock for
each share of PRT Common Stock held. See "-- Reduction Amount."
No fractional shares of NMC Common Stock will be issued in the Merger, but
in lieu thereof each holder of PRT Common Stock who would otherwise be entitled
to a fraction of a share of NMC Common Stock (after aggregating all fractional
shares of NMC Common Stock to be received by such holder) will receive from NMC
an amount in cash (rounded to the nearest whole cent), without interest, equal
to the product of such fraction multiplied by the average closing price of NMC
Common Stock on the NYSE for the twenty (20) trading days prior to the Effective
Time. For information regarding rights of dissenting shareholders see "THE
MERGER -- Rights of Dissenting Shareholders."
As promptly as practicable after the Effective Time, NMC will cause to be
sent to each shareholder of record of PRT as of the Effective Time (other than
Dissenters' Shares) transmittal materials for use in exchanging certificates of
PRT Common Stock for certificates of NMC Common Stock. The transmittal materials
will contain information and instructions with respect to the surrender of PRT
Common Stock certificates in exchange for new certificates representing NMC
Common Stock and cash in payment for any fractional shares resulting from the
exchange. CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF TRANSMITTAL
IS RECEIVED.
Notwithstanding the foregoing, to the extent that PRT's Adjusted
Shareholders' Equity is less than the Calculation Equity, a number of shares of
NMC Common Stock otherwise issuable, on a pro-rata basis, to the shareholders of
PRT in the Merger will be held in escrow pursuant to the terms of the Merger
Agreement and an Escrow Agreement to be entered into pursuant thereto. It is
presently anticipated that at least 165,000 shares, but not more than 215,000
shares, of NMC Common Stock will be placed into escrow. Consequently, it is
presently expected that, at the Effective Time, PRT shareholders will receive
between 0.4364 and 0.4697 shares of NMC Common Stock for each share of PRT
Common Stock held. See "-- Escrow of Shares."
38
<PAGE>
TREATMENT OF PLAN OPTIONS
Upon consummation of the Merger, each then outstanding Plan Option will be
assumed by NMC subject to any applicable vesting schedule. Each Plan Option so
assumed by NMC shall continue to have, and be subject to, the same terms and
conditions set forth in the Stock Option Plan and the agreement or instrument
pursuant to which each such Plan Option was issued as in effect immediately
prior to the Effective Time, except: (i) each such Plan Option will be
exercisable for that number of shares of NMC Common Stock equal to the product
of (x) the number of shares of PRT Common Stock that were purchasable under such
Plan Option immediately prior to the Effective Time, multiplied by (y) the
Exchange Ratio (as adjusted to reflect the pro rata effect of the Reduction
Amount), rounded up to the nearest whole number of shares of NMC Common Stock;
and (ii) the per share exercise price for the shares of NMC Common Stock
issuable upon exercise of the Plan Option will be equal to the quotient
determined by dividing (x) the exercise price per share of PRT Common Stock at
which such Plan Option was exercisable immediately prior to the Effective Time,
by (y) the Exchange Ratio (as adjusted to reflect the pro rata effect of the
Reduction Amount), and rounding the resulting exercise price up to the nearest
whole cent.
BUSINESS OF POSITIVE RESPONSE PENDING THE MERGER
Pending consummation of the Merger, and except as otherwise consented to or
approved in advance by NMC in writing, PRT has agreed that PRT and its
subsidiaries will, among other things, operate their businesses in accordance
with their ordinary course of business and use reasonable commercial efforts to
preserve substantially intact their respective business organizations, to keep
available the services of their present officers, employees and consultants, to
take all reasonable action to prevent the loss, cancellation, abandonment,
forfeiture or expiration of any PRT Intellectual Property (as defined in the
Merger Agreement) and to preserve their present relationships with customers,
suppliers and other persons with whom they have significant business relations.
By way of amplification and not limitation, PRT and its subsidiaries have
agreed (subject to certain limited exceptions set forth in the Merger Agreement)
not to take any of the following actions without the prior written consent of
NMC: (i) amend or otherwise change PRT's Articles of Incorporation (the "PRT
Articles") or By-laws; (ii) 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 of PRT, any of its subsidiaries or affiliates; (iii) sell,
lease, assign, transfer, pledge, dispose of or encumber any material assets of
PRT or any of its subsidiaries; (iv) amend or change the period (or permit any
acceleration) of exercisability of Plan Options or authorize cash payments in
exchange for any Plan Options; (v) (a) declare, set aside, make or pay any
dividend or other distribution with respect to any of its capital stock, except
for certain intracompany distributions; (b) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of, in lieu of
or in substitution for shares of its capital stock; or (c) 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; (vi) sell, transfer,
license, sublicense or otherwise dispose of any material PRT Intellectual
Property, or amend or modify any existing agreements with respect to any PRT
Intellectual Property or third party intellectual property rights, other than
nonexclusive licenses in the ordinary course of business; (vii) (a) acquire any
corporation, partnership or other business organization or division thereof; (b)
incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee 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; (c) 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, profits, whether now owed or hereafter
acquired, of PRT or its subsidiaries except in the ordinary course of business;
(d) enter into or amend any contact or agreement other than in the ordinary
course of business; (e) authorize any capital expenditures or purchase of fixed
assets which are, in the aggregate, in excess of $25,000 for PRT and its
subsidiaries, taken as a
39
<PAGE>
whole; or (f) enter into or amend any contract, agreement, commitment or
arrangement to effect any of the matters prohibited by this item; (viii)
increase the compensation payable or to become payable to its officers or
employees, except for increases in salary or wages of employees of PRT or its
subsidiaries in the ordinary course of business, or grant any severance or
termination pay to, or enter into any employment or severance agreement with,
any director, officer or other employee of PRT or any of its subsidiaries, or
establish, adopt, enter into or amend any PRT employee plan; (ix) take any
action, other than as required by GAAP, to change accounting policies or
procedures; (x) 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 PRT's most recent report filed with the Commission;
(xi) pay, discharge or satisfy any claims, liabilities or obligations, other
than the payment, discharge or satisfaction in the ordinary course of business
of liabilities reflected or reserved against in the financial statements of PRT
or incurred in the ordinary course of business; (xii) 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, or amend any provision pertaining to the subordination or the
terms of payment of any such debt; (xiii) 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; (xiv) liquidate or dissolve itself; (xv) enter into
any long-term media purchase agreements; or (xvi) take, or agree in writing or
otherwise to take, any of the actions described in items (i) through (xv) above,
or any action which would make any of the representations or warranties of PRT
contained in the Merger Agreement untrue or incorrect or prevent PRT from
performing or cause PRT not to perform its covenants thereunder or result in any
of the conditions to the Merger not being satisfied.
SOLICITATION OF ALTERNATIVE TRANSACTIONS
The Merger Agreement provides that PRT shall not, except to the extent that
the PRT Board is advised in writing by counsel that failure to do so would
constitute a breach of such Board's fiduciary duties to the shareholders of PRT,
directly or indirectly, solicit or encourage the initiation of inquiries or
proposals regarding any merger, consolidation or similar transaction involving,
or any sale of a substantial amount of the assets or of any equity securities
of, or similar transaction involving PRT or any of its subsidiaries. The Merger
Agreement does not prevent the PRT Board from considering, negotiating,
approving and recommending to PRT shareholders a merger or acquisition proposal
that the PRT Board determines in good faith, after consultation with its
financial advisors and upon advice of counsel that its fiduciary duties require
it to do so, would result in a transaction more favorable to the PRT
shareholders than the Merger, nor does the Merger Agreement prevent the PRT
Board from providing material nonpublic information to a potential purchaser if
failure to do so would constitute a violation of its fiduciary duties. PRT must
inform NMC of any such competing proposal or request for material nonpublic
information and, prior to disclosing any of such information, PRT must obtain
from the requesting party an executed confidentiality and standstill agreement.
BUSINESS OF NATIONAL MEDIA PENDING THE MERGER
Pending the consummation of the Merger, and except as otherwise consented to
or approved in advance by PRT in writing, NMC has agreed that NMC and its
subsidiaries will, among other things, operate their businesses in accordance
with their ordinary and usual course of business and in a manner consistent with
past practices. In particular, NMC has agreed not to take any of the following
actions without the prior written consent of PRT: (i) amend or otherwise change
NMC's Restated Certificate of Incorporation (the "NMC Restated Certificate"), or
amend the terms of the NMC Common Stock; (ii) acquire or agree to acquire any
business organization or assets of any other person if doing so would delay or
prevent the consummation of the Merger; (iii) declare, set aside, make or pay
40
<PAGE>
any dividend or other distribution in respect of any of its capital stock,
except for certain intracompany distributions; or (iv) take or agree in writing
to take any action which would make any of NMC's representations or warranties
untrue or incorrect or prevent NMC from performing or cause NMC not to perform
its covenants under the Merger Agreement.
CORPORATE STRUCTURE AND RELATED MATTERS AFTER THE MERGER
At the Effective Time, PRT will be merged with and into Merger Sub, which
will be the surviving corporation and a wholly-owned subsidiary of NMC.
At the Effective Time the Certificate of Incorporation of Merger Sub, as in
effect immediately prior to the Effective Time, will be the Certificate of
Incorporation of the surviving corporation, until thereafter amended; provided,
however, that Article I of the Certificate of Incorporation of the surviving
corporation will be amended as of the Effective Time to read as follows: "FIRST
- -- The name of the corporation is Positive Response Television, Inc." The
By-laws of Merger Sub, as in effect immediately prior to the Effective Time,
will be the By-laws of the surviving corporation, until thereafter amended.
CERTAIN COVENANTS
The Merger Agreement provides that PRT will, to the fullest extent permitted
under applicable law or under PRT's Articles of Incorporation or By-laws and
regardless of whether the Merger becomes effective, indemnify and hold harmless,
and that after the Effective Time, Merger Sub will, to the fullest extent
permitted under applicable law or under Merger Sub's Certificate of
Incorporation or By-laws, indemnify and hold harmless, each present and former
director, officer, employee, fiduciary and agent of PRT or any of its
subsidiaries 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, or arising out of or pertaining to the transactions contemplated
by the Merger Agreement.
In addition, the Certificate of Incorporation of Merger Sub will contain
indemnification provisions substantially similar to those set forth in the
By-laws of PRT, which provisions are not to 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 PRT's directors,
officers, employees or agents, unless such modification is prospective in nature
and is required by law.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction of various
conditions, including (i) the approval and adoption of the Merger Agreement and
the Merger by the requisite vote of the shareholders of PRT; (ii) the
effectiveness of the Registration Statement of which this Proxy Statement/
Prospectus is a part (pursuant to which the NMC Common Stock to be issued in the
Merger will be registered) and the absence of any stop order or proceedings
seeking a stop order relating to such Registration Statement; (iii) any waiting
period applicable to the Merger under the HSR Act shall have expired or
terminated; (iv) the absence (a) of any temporary restraining order, preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraints or prohibitions, preventing consummation
of the Merger, (b) of any proceedings brought by any governmental authority
making consummation of the Merger illegal and (c) of any actions or threatened
actions or claims or threatened claims by a third party, which action or claim
could pose a material threat to the consummation of the Merger; (v) the receipt
of an officer's certificate by each of NMC and PRT to the effect that certain
representations and warranties made by the respective party are true and correct
in all respects on and as of the Effective Time, except where the failure to be
true and correct would not have had a Material Adverse Effect (as defined
below), and to the effect that the respective party has performed or complied in
all material respects with all agreements and covenants required by the Merger
Agreement on or prior to the Effective Time; (vi) the obtaining by NMC and PRT
of all material consents, waivers, approvals, authorizations or orders required
to be obtained and
41
<PAGE>
all filings required to be made for the authorization, execution and delivery of
the Merger Agreement and the consummation of the transactions contemplated
thereby; (vii) the receipt by NMC and PRT of the Tax Opinions; and (viii) the
approval of the NYSE, subject to notice of issuance, of the listing of the NMC
Common Stock to be issued in the Merger. In addition, it is a condition to the
obligations of NMC and PRT to consummate the Merger that the other shall not
have experienced any change, occurrence or circumstance (individually or taken
together) that is reasonably likely to be materially adverse to its or any of
its subsidiaries' business, assets, financial condition or results of operations
(a "Material Adverse Effect").
The obligations of NMC to consummate the Merger are further subject to the
satisfaction of the following conditions: (i) NMC shall have received an
executed Affiliate Agreement (as defined below under "-- Agreements of Positive
Response Affiliates") from each person who is identified as an "affiliate" of
PRT in the Affiliate Letter (as defined below under "-- Agreements of Positive
Response Affiliates"); (ii) NMC shall have received a legal opinion, dated as of
the Effective Time, from counsel to PRT regarding certain matters; (iii) (a)
each of Michael Levey, as Chief Executive Officer, and Lisa Vann Levey shall
have entered into the Employment Agreements with Merger Sub; (b) each of Michael
Levey and Lisa Vann Levey shall also have entered into an agreement with NMC, on
terms acceptable to NMC, pursuant to which each shall agree to refrain from
selling, in the aggregate, more than 75,000 shares of NMC Common Stock during
any twelve (12) month period from and after the Effective Time until the third
anniversary thereof; (c) 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
Merger Sub; (d) Stephen Weber shall have entered into the Noncompetition
Agreement with Merger Sub; (e) Michael Levey shall have entered into a cost/
recovery sharing agreement with PRT, in form reasonably acceptable to NMC,
regarding PRT's and Mr. Levey's ongoing litigation with Forbes Magazine, et al.;
(f) each of Michael Levey, Stephen Weber and, as appropriate, any other
directors, officers, consultants or employees of PRT, shall have executed
promissory notes payable to PRT, in form reasonably acceptable to NMC, regarding
any amounts payable by each of them to PRT as of the Effective Time; and (g)
Michael Levey shall have taken and passed such physical examinations as NMC may
reasonably request; (iv) NMC shall have received a written opinion from its
financial advisor, dated as of the Effective Time, that the Exchange Ratio is
fair to NMC from a financial point of view; (v) certain holders of Plan Options
shall have entered into written agreements with PRT, in form reasonably
acceptable to NMC, concerning such options and the effect of the Merger thereon;
(vi) holders of not more than a maximum of 4.9% of the outstanding shares of PRT
Common Stock shall have exercised dissenters' rights under Chapter 13 of the CCC
in connection with the Merger; and (vii) there shall have been no material
adverse change in the outlook concerning any existing litigation involving PRT
nor shall NMC have determined in good faith that the outcome of any such
litigation is likely to have a material adverse effect on the business, assets,
financial condition or results of operations of PRT.
The obligations of PRT to consummate the Merger are further subject to the
satisfaction of the following conditions: (i) PRT shall have received a legal
opinion, dated as of the Effective Time, from counsel to NMC and Merger Sub,
regarding certain matters; and (ii) PRT shall have received a written opinion
from Cruttenden, dated as of the Effective Time, that the terms of the Merger
are fair to PRT and its shareholders from a financial point of view.
REDUCTION AMOUNT
Pursuant to the terms of the Merger Agreement, each outstanding share of PRT
Common Stock (other than, in limited circumstances, Dissenter's Shares and
except for those shares of PRT Common Stock held by NMC, which shall be
cancelled, without consideration, as a result of the Merger) will be converted
into the right to receive a maximum of 0.5239 shares of NMC Common Stock, less a
pro rata portion of any Reduction Amount. The Reduction Amount is defined as
that number of shares of NMC Common Stock equal to (x) two, multiplied by (y)
the amount, if any, by which the Minimum Shareholders' Equity (as defined below)
exceeds the Calculation Equity (as defined below), divided by
42
<PAGE>
(z) $14.125. For purposes of the calculation referred to above, (i) "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; and (ii) "Calculation Equity" is defined as PRT's shareholders'
equity as of December 31, 1995 appearing in its audited financial statements for
the fiscal year ended as of such date (subject to adjustment for any material
changes thereto which occur after such date and reversing the effect of any
reserve established or writedown effected in such audited financial statements
with respect to any of the Liquidation Amounts (as defined below under "--
Escrow of Shares")), less the amount of any deferred software costs.
It is presently anticipated that the Reduction Amount will be at least
30,000 shares, but not more than 100,000 shares, of NMC Common Stock.
Consequently, subject to the escrow arrangement described below under "-- Escrow
of Shares," PRT shareholders are presently expected to be entitled to receive a
maximum of between 0.4961 and 0.5156 shares of NMC Common Stock for each share
of PRT Common Stock held.
ESCROW OF SHARES
The Merger Agreement provides that, to the extent that PRT's Adjusted
Shareholders' Equity (as defined below) is less than the Calculation Equity, at
the Effective Time, NMC will deposit in escrow a number of shares (the "Escrow
Shares") of NMC Common Stock otherwise issuable, on a pro-rata basis, to the
shareholders of PRT (the "Holders") in the Merger having an aggregate value
(based upon a price of $14.125 per share of NMC Common Stock) equal to the sum
of the Liquidation Amounts (as defined below) and the Other Holdback Amounts (as
defined below). For purposes of the calculation described above, "Adjusted
Shareholders' Equity" shall mean an amount equal to (A) the Calculation Equity,
less (B) the Liquidation Amounts, and less (C) the Other Holdback Amounts.
"Liquidation Amounts" shall mean the dollar value of certain assets included on
PRT's audited balance sheet as of December 31, 1995 and identified in the Merger
Agreement (to the extent that any or all of such assets have not either been
collected/liquidated or the value thereof demonstrated prior to the Effective
Time). "Other Holdback Amounts" shall mean the dollar value of certain
contingent obligations which would be due to be paid by PRT to its litigation
counsel if the Forbes litigation referred to herein under "POSITIVE RESPONSE
TELEVISION, INC. -- Legal Proceedings" were to be dismissed by PRT as of the
Effective Time (less any of such amounts which have already been accrued in
PRT's audited financial statements for the fiscal year ended December 31, 1995)
(the "Fee Amount").
The Escrow Shares will be registered in the name of and deposited with
Chemical Mellon Shareholder Services or another mutually acceptable escrow agent
(the "Escrow Agent") pursuant to the terms of the Merger Agreement and the
Escrow Agreement to be entered into pursuant thereto. As of September 30, 1996,
March 31, 1997 and September 30, 1997 (the "Review Dates"), NMC and the
Shareholders' Representative (as defined below) shall conduct a review of those
balance sheet items identified as Liquidation Amounts. To the extent that all or
a portion of such amounts have, as of such dates, either been
collected/liquidated or the value thereof demonstrated, NMC shall cause the
Escrow Agent to deliver to the Holders, on a pro-rata basis, a number of Escrow
Shares having an aggregate value (based upon a price of $14.125 per share) equal
to the aggregate value of the amounts which, as of such dates, have either been
collected/liquidated or the value thereof demonstrated. In addition, as of the
first Review Date to occur following the dismissal (voluntary or otherwise),
settlement or final adjudication of the Forbes litigation, to the extent that
any portion of the Fee Amount has prior thereto been paid by PRT, other than out
of the net proceeds of any such settlement or final adjudication, then a number
of Escrow Shares equal to the balance of the Fee Amount divided by $14.125 shall
be delivered to the Holders. Finally, as of the first Review Date to occur
following the date (the "Tax Determination Date") on which a final determination
is issued by the State of California as to the aggregate amount of any taxes due
and owing from PRT and its subsidiaries as of such Tax Determination Date (the
"State Tax Deficiency"), a number of Escrow Shares equal to the amount, if any,
but which the State Tax Deficiency exceeds the amount accrued with respect to
such
43
<PAGE>
taxes on PRT's financial statements as of the Closing Date, divided by $14.125,
shall be delivered back to NMC by the Escrow Agent. Following the last of such
Review Dates, any remaining Escrow Shares shall be delivered back to NMC by the
Escrow Agent. Neither NMC nor Merger Sub may compromise, forgive or otherwise
settle certain of such Liquidation Amounts for less than the full accrued amount
thereof without the Shareholders' Representative's prior approval.
It is presently anticipated that at least 165,000 shares, but not more than
215,000 shares, of NMC Common Stock will be placed into escrow. Consequently, it
is presently expected that, at the Effective Time, PRT shareholders will receive
between 0.4364 and 0.4697 shares of NMC Common Stock for each share of PRT
Common Stock held. There can be no assurance that all or any portion of the
Escrow Shares will be required to be released to the Holders pursuant to the
terms of the Escrow Agreement.
Any shares of NMC Common Stock issued with respect to the Escrow Shares
during the term of the Escrow Agreement, whether by stock split, stock dividend
or otherwise (collectively, "Additional Escrow Shares"), will also be held in
escrow by the Escrow Agent. Except for any dividends paid in shares of NMC
Common Stock declared with respect to the Escrow Shares (such shares being
defined above as "Additional Escrow Shares"), any and all dividends and other
distributions declared with respect to the Escrow Shares (or Additional Escrow
Shares, if any), whether payable in cash, securities or other property of any
kind, will be distributed currently to the Holders. Each Holder will have voting
rights with respect to the Escrow Shares (and any Additional Escrow Shares
issued with respect thereto) deposited in the Escrow Account with respect to
such Holder so long as such shares are held in escrow, and NMC and the Escrow
Agent will take all reasonable steps necessary to allow the exercise of such
rights. While the Escrow Shares (and any Additional Escrow Shares issued with
respect thereto) remain in the Escrow Agent's possession pursuant to the Escrow
Agreement, the Holders will retain and will be able to exercise all other
incidents of ownership with respect to the Escrow Shares (and any Additional
Escrow Shares issued with respect thereto) which are not inconsistent with the
terms and conditions of the Escrow Agreement. Whenever the Escrow Agent is
required to deliver Escrow Shares to either NMC or the Holders, the Escrow Agent
shall also deliver to NMC or the Holders, as the case may be, any and all
Additional Escrow Shares issued with respect to such Escrow Shares. No Escrow
Shares, Additional Escrow Shares or any beneficial interest therein may be
pledged, sold, assigned, or transferred, including by operation of law, by a
Holder or be taken or reached by any legal or equitable process in satisfaction
of any debt or other liability of a Holder, prior to their delivery to such
Holder by the Escrow Agent. The right to receive Escrow Shares (and any
Additional Escrow Shares issued with respect thereto) upon release and
distribution thereof in accordance with the Escrow Agreement shall not be
transferable or assignable except by will, the laws of intestacy, or by other
operation of law.
Pursuant to the Merger Agreement, the Shareholder's Representative shall be
Michael Levey. By voting in favor of the approval and adoption of the Merger
Agreement and the approval of the principal terms of the Merger, shareholders of
PRT thereby appoint the Shareholders' Representative as their agent to make
decisions and take all necessary and appropriate actions on their behalf with
respect to the Escrow Agreement and the Escrow Shares. A decision, act, consent
or instruction of the Shareholders' Representative shall be final, binding and
conclusive upon each Holder, and the Escrow Agent and NMC may rely upon any
decision, act, consent or instruction of the Shareholders' Representative as
being the decision, act, consent or instruction of each and all of the Holders.
The Escrow Agent and NMC may be relieved from any liability to any person for
any acts done by them in accordance with such decision, act, consent or
instruction of the Shareholders' Representative. The Shareholders'
Representative may be replaced by vote of the Holders of a majority in interest
of the Escrow Shares upon not less than ten (10) days' prior written notice to
NMC. The Holders shall indemnify the Shareholders' Representative and hold the
Shareholders' Representative harmless from and from and against any loss,
liability or expense that is incurred by the Shareholders' Representative
without willful misconduct or bad faith and which arises out of or in connection
with the acceptance or administration of the Shareholders' Representative's
duties under the Merger
44
<PAGE>
Agreement and the Escrow Agreement. With respect to Mr. Levey's acting as
Shareholders' Representative, the PRT Board has determined that Mr. Levey is
fulfilling this function in his capacity as a director of PRT and, accordingly,
that he shall be entitled to all rights of indemnification afforded a PRT
director as provided in PRT's Bylaws. The Shareholders' Representative shall not
receive compensation for his services.
TERMINATION; AMENDMENT
The Merger Agreement may be terminated and the Merger may be abandoned prior
to the Effective Time notwithstanding approval by the shareholders of PRT, under
the circumstances specified therein, including (i) by mutual written agreement
of NMC and PRT; (ii) by either NMC or PRT, if the Merger shall not have been
consummated by May 31, 1996 and if the terminating party has not caused the
failure of the Merger to be consummated by its own failure to fulfill any of its
obligations under the Merger Agreement; (iii) by either NMC or PRT if a court of
competent jurisdiction or a governmental, regulatory or administrative agency
shall have issued a non-appealable final order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting the
Merger; (iv) by either NMC or PRT, if the shareholders of PRT fail to approve
the Merger or the Merger Agreement; (v) by NMC, if the PRT Board has withdrawn,
modified or changed its recommendation of the Merger or the Merger Agreement in
a manner adverse to NMC or resolved to do so, or has taken a "neutral" position
with respect to (or shall have failed to reject as inadequate or failed to have
reaffirmed its recommendation of the Merger within ten (10) business days after
the public announcement or commencement of) an alternative proposal by a third
party for (a) the acquisition of more than 50% of the outstanding stock of PRT,
whether from PRT or pursuant to a tender offer or exchange offer or otherwise,
(b) a merger or other business combination involving PRT pursuant to which any
third party acquires more than 50% of the outstanding equity securities of PRT
or the entity surviving such business combination or (c) any other transaction
pursuant to which any third party acquires control of assets of PRT and its
subsidiaries having a fair market value equal to or greater than 50% of the fair
market value of all assets of PRT and its subsidiaries, taken as a whole,
immediately prior to such transaction (any of the above transactions shall
constitute an "Alternative Transaction"); (vi) by NMC or PRT if the PRT Board
has resolved to accept or accepted, on or before June 30, 1996, a proposal from
a third party that would result in an Alternative Transaction more favorable to
PRT's shareholders than the Merger; and (vii) by either NMC or PRT, in the event
of a material breach by PRT or NMC and Merger Sub, respectively, of any
representation, warranty, covenant or agreement contained in the Merger
Agreement or if any representation or warranty of PRT or NMC and Merger Sub,
respectively, shall have become materially untrue; provided, however, that if
such breach or failure to perform is curable prior to the expiration of thirty
(30) days from its occurrence (but in no event later than May 31, 1996), neither
NMC nor PRT may terminate the Merger Agreement on this basis as long as the
other party continues to exercise reasonable efforts to cure such breach or
failure unless such thirty (30) day period expires without such breach having
been cured.
The Merger Agreement may be amended by an agreement in writing among the
parties thereto at any time prior to the Effective Time; provided, however, that
after approval of the Merger by the shareholders of PRT, no amendment may be
made which, by law, requires further approval of such shareholders without such
further approval.
FEES AND EXPENSES
Except as described herein, all fees and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby will be paid
by the party incurring such expenses, whether or not the Merger is consummated.
PRT has agreed to pay NMC as liquidated damages a fee of $500,000 in the
event that: (i) the Merger Agreement is terminated by NMC as a result of a
material breach of any representation, warranty, covenant or agreement on the
part of PRT set forth in the Merger Agreement or if any representation or
warranty of PRT shall have become materially untrue such that (A) such breach of
45
<PAGE>
representation or warranty would have a Material Adverse Effect on PRT or (B)
such breach of covenant or agreement would result in the failure by PRT to
comply in all material respects with all agreements and covenants required under
the Merger Agreement; and (ii) PRT is sold to a third party on or before June
30, 1996. In the event that PRT fails to deliver the fee referred to above, PRT
shall be liable to NMC for one-half of all costs and expenses (including filing
fees and attorneys' fees) incurred in connection with the compliance by such
parties with the notification requirements of the HSR Act.
CONFIDENTIALITY AGREEMENT
NMC and PRT have each agreed to keep confidential, pursuant to the terms of
that certain confidentiality agreement between NMC and PRT dated July 24, 1995
(the "Confidentiality Agreement"), information provided to the other party with
respect to the business, properties and personnel of the party furnishing such
information. The Confidentiality Agreement contains terms restricting the
disclosure and use of confidential information exchanged between the two parties
in evaluating the Merger and otherwise.
AGREEMENTS OF POSITIVE RESPONSE AFFILIATES
Rule 145 promulgated under the Securities Act regulates the disposition of
securities of "affiliates" of PRT in connection with the Merger. PRT has
delivered to NMC a letter (the "Affiliate Letter") identifying all persons who
are or may be deemed to be, at the time of the Special Meeting, "affiliates" of
PRT for purposes of Rule 145 under the Securities Act. Such Affiliate Letter may
be further updated prior to the Effective Time. PRT has also agreed to use its
best efforts to cause each person (an "Affiliate") who is identified as an
"affiliate" in the Affiliate Letter to deliver to NMC, prior to the date hereof,
a written agreement (an "Affiliate Agreement"). Pursuant to such Affiliate
Agreements, every Affiliate will represent, among other things, that he or she
has been advised that the Affiliate may not sell, transfer or otherwise dispose
of NMC Common Stock issued to the Affiliate in the Merger unless such sale,
transfer or other disposition (i) has been registered under the Securities Act;
(ii) is made in compliance with the requirements of Rule 145 under the
Securities Act; or (iii) in the opinion of counsel reasonably acceptable to NMC,
is otherwise exempt from registration under the Securities Act. In addition,
pursuant to the Affiliate Agreements, each Affiliate will agree (i) to vote his
or her shares of PRT Common Stock in favor of the approval and adoption of the
Merger Agreement and in favor of the Merger; and (ii) not to exercise
dissenters' rights of appraisal in connection with the Merger.
In addition, all executive officers and directors of PRT are expected to
vote their respective shares of PRT Common Stock in favor of the Merger.
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma combined condensed financial statements
have been prepared to reflect (i) NMC's acquisition of DirectAmerica in October
1995 through the tax-free merger of such entity with and into a wholly-owned
subsidiary of NMC (the "DirectAmerica Acquisition"); and (ii) the proposed
Merger of PRT with and into Merger Sub. The DirectAmerica Acquisition was
treated as a "purchase" for accounting purposes and the Merger is expected to be
treated in the same manner.
The unaudited pro forma combined condensed balance sheet as of December 31,
1995 gives effect to the Merger as if it occurred on such date and combines (i)
NMC's unaudited condensed consolidated balance sheet as of December 31, 1995
(which reflects the DirectAmerica Acquisition in October 1995), and (ii) PRT's
unaudited condensed consolidated balance sheet as of December 31, 1995.
The unaudited pro forma combined condensed statement of operations for the
nine months ended December 31, 1995 assumes that the DirectAmerica Acquisition
and the Merger took place as of the
46
<PAGE>
beginning of the period presented and combines (i) NMC's unaudited condensed
consolidated statement of operations for the nine months ended December 31, 1995
(which reflects data for DirectAmerica for the period beginning October 25, 1995
through December 31, 1995), (ii) PRT's unaudited condensed consolidated
statement of operations for the nine month period ended December 31, 1995, and
(iii) a pro-rata portion (approximately 70%) of DirectAmerica's unaudited
historical combined statement of operations for the period January 1 to October
24, 1995.
The unaudited pro forma combined condensed statement of operations for the
fiscal year ended March 31, 1995 assumes that the DirectAmerica Acquisition and
the Merger took place as of the beginning of the period presented and combines
(i) NMC's historical condensed consolidated statement of operations for the
fiscal year ended March 31, 1995, (ii) DirectAmerica's unaudited combined
statement of operations for the twelve months ended December 31, 1994, and (iii)
PRT's unaudited condensed consolidated statements of operations for the nine
month period ended December 31, 1994 and the three month period ended March 31,
1995.
The unaudited pro forma combined condensed financial statements do not
purport to represent what NMC's results of operations or financial position
would actually have been had the DirectAmerica Acquisition and the Merger
occurred at the beginning of each period presented or on the date indicated, or
to project any future results of operations or financial position of NMC. The
pro forma adjustments are based upon available information and upon certain
assumptions that NMC's management believes are reasonable under the
circumstances. These adjustments are directly attributable to the transactions
indicated and are expected to have a continuing impact on the financial position
and results of operations of NMC. No adjustment has been made to give effect to
any synergies which may be realized as a result of the Merger.
These pro forma combined condensed financial statements should be read in
conjunction with the historical consolidated financial statements and the notes
thereto of NMC, DirectAmerica and PRT which are incorporated by reference in or
included elsewhere in this Proxy Statement/Prospectus.
47
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET AS OF DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------
POSITIVE
NATIONAL RESPONSE PRO FORMA
MEDIA TELEVISION, ADJUSTMENTS (1)
CORPORATION INC. PRT PROFORMA
---------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents.......... $13,611 $ 2,225 $15,836
Accounts Receivable (net).......... 24,730 5,550 $ (214)(2) 29,806
(250)(3)
(10)(12)
Inventories........................ 19,869 2,413 22,282
Prepaid and Other.................. 13,400 6,680 (390)(5) 19,690
---------- ---------- -------- ----------
Total Current Assets........... 71,610 16,868 (864) 87,614
Net Property, Plant and
Equipment......................... 5,624 622 6,246
Other Assets....................... 1,691 563 2,254
Excess of cost over net assets of
acquired businesses and other
intangible assets (net)........... 14,385 14,312(4)(14) 29,697
1,000(5)
---------- ---------- -------- ----------
Total Assets................... $93,310 $18,053 $14,448 $125,811
---------- ---------- ----------
---------- ---------- -------- ----------
--------
Accounts Payable................... $12,551 $ 1,001 $13,552
Accrued Expenses................... 26,503 3,567 $ (214)(2) 30,456
610(5)
(10)(12)
Notes Payable -- bank.............. 1,839 1,839
Current Portion of Long Term
Debt.............................. 717 25 742
---------- ---------- -------- ----------
Total Current Liabilities...... 39,771 6,432 386 46,589
Long Term Debt..................... 4,118 91 4,209
Other Liabilities 2,451 2,451
---------- ---------- -------- ----------
Total Liabilities.............. 46,340 6,523 386 53,249
Shareholders' Equity............... 46,970 11,530 (250)(3)(8) 72,562
25,842(4)(14)
(11,530)(4)(14)
---------- ---------- -------- ----------
Total Liabilities and
Shareholders Equity........... $93,310 $18,053 $14,448 $125,811
---------- ---------- ----------
---------- ---------- -------- ----------
--------
</TABLE>
48
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------
POSITIVE
NATIONAL RESPONSE PRO FORMA PRO FORMA
MEDIA DIRECTAMERICA TELEVISION, ADJUSTMENTS (1) ADJUSTMENTS (1)
CORPORATION CORPORATION INC. DIRECTAMERICA PRT PROFORMA
----------- -------- ----------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Product Sales................. $ 187,163 $ 0 $ 31,498 $ 218,661
Royalties..................... 3,443 1,485 1,568 $(1,157)(6) $ (802)(6) 4,537
Production Income............. 0 692 0 (270)(7) 422
Sales Commission and Other
Revenues..................... 400 8 166 574
----------- -------- ----------- ----------- ------ --------------
Net Revenues.............. 191,006 2,185 33,232 (1,427) (802) 224,194
Operating Costs and Expenses:
Media Purchases............. 57,557 0 17,822 75,379
Direct Costs................ 98,025 1,266 15,993 (1,157)(6) (802)(6) 113,305
(270)(7) 250(8)
Selling, General and
Administrative............. 22,042 1,011 4,331 290(9) 574(9) 28,148
(100)(11)
Interest Expense............ 719 0 (38) 681
----------- -------- ----------- ----------- ------ --------------
Total Operating Costs and
Expenses................. 178,343 2,277 38,108 (1,237) 22 217,513
Income (loss) before income
taxes........................ 12,663 (92) (4,876) (190) (824) 6,681
Income Taxes.................. 1,984 18 (1,656) 346
----------- -------- ----------- ----------- ------ --------------
Net Income (loss)......... $ 10,679 $ (110) $ (3,220) $ (190) $ (824) $ 6,335
----------- -------- ----------- --------------
----------- -------- ----------- ----------- ------ --------------
----------- ------
Net Income (loss) per share
Primary..................... $ 0.49 $ (0.91) $ 0.27
----------- ----------- --------------
----------- ----------- --------------
Fully-Diluted............... $ 0.45 $ (0.91) $ 0.24
----------- ----------- --------------
----------- ----------- --------------
Weighted average number of
common and common equivalent
shares outstanding
Primary..................... 22,780,000 3,550,106 554,456(13) 1,829,498(13) 25,163,954(14)
----------- ----------- --------------
----------- ----------- ----------- ------------- --------------
----------- -------------
Fully-Diluted............... 23,759,000 3,550,106 554,456(13) 1,829,498(13) 26,142,954(14)
----------- ----------- --------------
----------- ----------- ----------- ------------- --------------
----------- -------------
</TABLE>
49
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED MARCH 31, 1995
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
POSITIVE
NATIONAL RESPONSE PRO FORMA PRO FORMA
MEDIA DIRECTAMERICA TELEVISION, ADJUSTMENTS (1) ADJUSTMENTS (1)
CORPORATION CORPORATION INC. DIRECTAMERICA PRT PROFORMA
----------- ----------- ----------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Product Sales............... $ 168,689 $ 0 $ 56,611 $ 225,300
Royalties................... 5,303 2,681 3,581 $ (2,681)(6) $ (824)(6) 8,060
Production Income........... 0 1,325 0 (1,157)(7) 168
Sales Commission and Other
Revenues................... 2,175 11 278 2,464
----------- ----------- ----------- ------- ------------- ---------------
Net Revenues............ 176,167 4,017 60,470 (3,838) (824) 235,992
Operating Costs and
Expenses:
Media Purchases........... 51,961 0 31,139 83,100
Direct Costs.............. 97,605 2,120 21,589 (2,681)(6) (824)(6) 116,652
(1,157)(7)
Selling, General and
Administrative........... 20,766 1,454 4,409 385(9) 765(9) 27,604
(175)(11)
Severance for Chairman.... 2,650 0 0 2,650
Unusual Charges........... 2,868 0 0 2,868
Interest Expense.......... 689 0 (140) 549
----------- ----------- ----------- ------- ------------- ---------------
Total Operating Costs
and Expenses........... 176,539 3,574 56,997 (3,628) (59) 233,423
Income (loss) before income
taxes...................... (372) 443 3,473 (210) (765) 2,569
Income Taxes................ 300 125 1,390 (75)(10) (1,090)(10) 650
----------- ----------- ----------- ------- ------------- ---------------
Net Income (loss)....... $ (672) $ 318 $ 2,083 $ (135) $ 325 $ 1,919
----------- ----------- ----------- ------------- ---------------
----------- ----------- ----------- ------- ------------- ---------------
-------
Net Income (loss) per share
Primary................... $ (0.05) $ 0.61 $ 0.11
----------- ----------- ---------------
----------- ----------- ---------------
Fully diluted............. $ (0.05) $ 0.61 $ 0.11
----------- ----------- ---------------
----------- ----------- ---------------
Weighted average number of
common and common
equivalent shares
outstanding
Primary................... 14,023,800 3,416,244 554,456(13) 1,829,498(13) 17,195,734(14)
----------- ----------- ------------- ---------------
----------- ----------- -------------- ------------- ---------------
--------------
Fully diluted............. 14,023,800 3,435,165 554,456(13) 1,829,498(13) 17,195,734(14)
----------- ----------- ------------- ---------------
----------- ----------- -------------- ------------- ---------------
--------------
</TABLE>
50
<PAGE>
The pro forma adjustments to the unaudited pro forma combined condensed
balance sheet as of December 31, 1995 and the unaudited pro forma combined
condensed statements of operations for the nine months ended December 31, 1995
and the year ended March 31, 1995 are as follows:
(1) Represents the pro forma adjustments related to the DirectAmerica
Acquisition and the Merger.
(2) Elimination of royalties payable to PRT by NMC.
(3) Elimination of billings by PRT to NMC for shows licensed to NMC for global
airing.
(4) Represents the excess of the aggregate purchase consideration over the net
book value of the tangible assets acquired. Assumes an aggregate of
1,829,498 shares of NMC Common Stock will be issued in the Merger in
accordance with the Exchange Ratio (based upon 3,552,986 shares of PRT
Common Stock outstanding and assuming that the Reduction Amount is 31,911
shares). Such shares of NMC Common Stock have been valued at $25.8 million
based upon the price per share of NMC Common Stock as reported on the NYSE
on the date NMC publicly announced the Exchange Ratio in connection with the
Merger.
(5) Recording of estimated expenses in connection with the Merger.
(6) Elimination of royalty revenues generated by DirectAmerica and PRT (and the
related expense incurred by NMC) from shows produced by DirectAmerica and
PRT for NMC.
(7) Elimination of production income and related costs incurred by DirectAmerica
on shows produced for NMC.
(8) Elimination of rights fee income earned by PRT on shows licensed to NMC for
global airing.
(9) Represents the amortization of intangibles by the straight-line method over
twenty years.
(10) Benefit derived by DirectAmerica and PRT through utilization of available
NMC federal net operating tax loss carryforward.
(11) Reflects the base salary of major DirectAmerica shareholder under new
employment agreement as compared to salary under prior owner/operator
business structure.
(12) Elimination of PRT note receivable from NMC.
(13) Earnings per share are based upon the weighted average number of shares of
NMC Common Stock and common equivalent shares outstanding for each period
presented, including the 554,456 shares of NMC Common Stock issued in the
DirectAmerica Acquisition and 1,829,498 shares of NMC Common Stock to be
issued in connection with the Merger (as calculated pursuant to Footnote #4
above) as if such shares had been issued at the beginning of each period
presented.
(14) Does not give effect to any shares of NMC Common Stock which may be issued
to former shareholders of DirectAmerica in the event DirectAmerica achieves
certain revenue levels. See "Item 2." of NMC's Current Report on Form 8-K,
dated October 19, 1995, for a more complete description of the circumstances
under which such shares may be issued.
Does not give effect to any Escrow Shares which may, under certain
circumstances, be returned to NMC upon the termination of the escrow period.
See "THE MERGER AGREEMENT AND RELATED AGREEMENTS -- Escrow of Shares."
51
<PAGE>
POSITIVE RESPONSE TELEVISION, INC.
GENERAL
PRT is a direct marketing company and a producer of infomercials. From its
inception in 1988 through December 31, 1993, PRT derived substantially all of
its revenue by producing infomercials for NMC under the name "Amazing
Discoveries." In the context of such relationship, PRT was also responsible for
product selection, marketing strategy and package design, was reimbursed for its
out-of-pocket expenses, including production costs, and received royalties from
NMC. All other aspects of the direct marketing campaign, specifically including
the purchase of media time, the purchase and the management of product inventory
and management of order fulfillment, telemarketing and retail distribution of
the featured products, were handled by NMC.
In 1992, PRT began the effort to reduce its reliance on NMC and exercise
control over the direct marketing of the products featured in its infomercials
by producing its first infomercial for its own account, featuring "Magic Shine,"
a colored car wax, under PRT's new infomercial series called "Ask Mike," hosted
by Michael Levey. This effort was accelerated in 1993 with the production of two
additional infomercials under the "Ask Mike" banner: "The Kim Komando Komputer
Tutor" (the "Komputer Show") and "The Mystery and Power of Tai Chi" ("Tai Chi").
Both infomercials and their related products were jointly owned by PRT and its
joint venture partner, Transactional Media, Inc. ("TMI").
On May 11, 1994, PRT completed an initial public offering, issuing one
million shares of PRT Common Stock. In September 1994, PRT completed a private
placement of an additional 400,000 shares of PRT Common Stock.
The year ended December 31, 1994 marked the first year in which PRT
controlled, either directly or through independent third party representatives,
all aspects of the direct marketing function for those products and infomercials
either wholly owned by PRT or owned through venture arrangements. In January
1994, PRT acquired an in-house media-buying capability. In July 1994, PRT
established an outbound telemarketing operation to follow up on in-bound calls
and to utilize its customer database for additional sales of similar or parallel
products.
In 1994, PRT launched three wholly-owned infomercials for its own account:
"SRX 11," a cleaning product, first aired in June 1994, "The Super Slicer," a
kitchen utensil, debuted in July 1994, and "Perfect Hair," a beauty product, was
introduced in November 1994.
PRT also entered into four venture arrangements during fiscal 1994. Two of
these ventures, "Passion, Profit and Power" and "Memory Power," involved
self-improvement products and were first broadcast in June 1994. The other two
ventures, "Curiosity" and "Sophist-O-Twist," were beauty products that first
aired in the fourth quarter of 1994. Under these various arrangements, PRT
shares in approximately 50% of the net profits of the featured products. In each
of these ventures, the infomercials were produced and tested by PRT's
co-venturer, with PRT purchasing and managing the media time and inventory and
managing the fulfillment of orders. Commencing in December 1993, certain of
PRT's products have been featured on home shopping television channels through
periodic appearances by Mr. Levey and others.
During 1995, PRT entered into three venture arrangements: "The Butterfly
Ladder," a home decorating item, "Men are from Mars, Women are from Venus," a
relationship series, and "Eagle Eyes" sunglasses, all launched in the third
fiscal quarter. PRT also launched three wholly-owned infomercials during fiscal
1995: "Mathemagics," an instructional video series, "CyberEdge," a kitchen knife
set, and "Bow Dazzler," a craft project. Mathemagics first aired in June 1995,
CyberEdge in August 1995 and Bow Dazzler in November 1995.
PRT's "Super Slicer" infomercial is currently shown throughout the United
States and in many countries throughout the world. "Memory Power" is seen in the
United States and New Zealand. Many of the "Amazing Discoveries" infomercials
have also been shown in certain European countries.
52
<PAGE>
BUSINESS
Infomercial Industry Overview. The infomercial industry was created in June
1984 when the Federal Communications Commission ("FCC") rescinded its
limitations on the number of commercial minutes allowed per hour on broadcast
television stations. The subsequent deregulation of the cable television
industry and the resulting proliferation of cable channels led to further growth
of the infomercial industry. According to the National Infomercial Marketing
Association ("NIMA"), the infomercial industry's self-regulating trade
association, gross annual sales of products generated by infomercials have grown
from approximately $350 million in 1988 to $1 billion in 1994, an average annual
increase of approximately 16%. NIMA estimates that gross sales in 1995 were
approximately $1.1 billion, an increase for the year of approximately 10%.
Infomercials have gained acceptance by television viewers as a means of
making purchases from the home. A 1993 NIMA survey reported that of the more
than 3,500 surveyed consumers who had purchased a product from an infomercial,
95% indicated that they would make another infomercial purchase. In a 1993
survey by the National Retail Federation, 49% of the 502 respondents rated
television shopping as providing a safe and secure shopping environment. A
survey of more than 1,000 members of a TV Guide consumer opinion panel revealed
that, of those participating, nearly three-fourths had seen an infomercial and
that nearly one in three had purchased a product featured in an infomercial.
Infomercials have been used by major corporations such as American Airlines,
Eastman Kodak, GTE and Ford Motor Company. Infomercials are currently seen in a
number of foreign countries in addition to the United States.
Infomercial Production and Product Sales.
- PRODUCT SELECTION. The first step in the process of producing an
infomercial is the selection of a product that is believed to be suitable
for marketing through the infomercial process. PRT's product ideas are
either internally generated or brought to PRT by third parties, such as
inventors, entrepreneurs and manufacturers. At any one time, PRT typically
has more than fifty products under consideration which have been submitted
to it for infomercials. PRT looks for quality products which can be sold
at prices that will generate acceptable profits to PRT through infomercial
sales and other sales methods, preferably products which lend themselves
to continuity sales and product line extensions.
- PRODUCTION. After a product is selected, an infomercial script is written
by PRT's production staff that explains the benefits of the product and
addresses anticipated viewer questions while at the same time seeking to
entertain viewers and build credibility for the product. The infomercial
is then filmed in front of a live audience. PRT's infomercials generally
require six weeks to write and produce at a direct production cost of
approximately $150,000 to $250,000, excluding in-house production salaries
and overhead allocations. Direct production costs typically are not borne
by PRT in connection with arrangements in which it distributes third party
products.
- MARKET INTRODUCTION. The introduction of a new infomercial begins with
test marketing the product featured in the infomercial. During the testing
period, the infomercial will generally appear six to eight times at
off-peak hours (e.g., midnight to 9:00 a.m.) in about 75% of the potential
market areas on broadcast and/or cable television. The customer response
to the test infomercials is intended to enable PRT to gauge the appeal of
the product, its most effective pricing, and the probable success rate of
a broad-scale marketing effort. Normally, the testing will run for
successive weekends over a two to three-week period. The average media
cost of a test run is approximately $25,000. In general, PRT or the other
person or entity for whom the infomercial is being produced does not
purchase any significant inventory of the product until the test results
have been analyzed.
53
<PAGE>
Once it has been determined to proceed with a particular infomercial, PRT
purchases the necessary media time, orders the initial product inventory
and airs the infomercial to offer the product for sale on a broad basis.
Specific time slots, geographic markets and frequency of broadcasts within
each market are determined by the data obtained from the test.
The actual marketing schedule of an infomercial product depends on many
factors and may vary significantly from product to product. In addition,
certain products not deemed appropriate for other forms of distribution
will not be marketed beyond the telecasting phases. PRT monitors the
results of its telecasts and adjusts its media schedules and other
marketing efforts accordingly.
- MEDIA BUYING. Media buying, which generally costs from $300,000 to
$600,000 per week during the height of the infomercial telecast, is a
critical element in a successful product marketing effort. During the
period that PRT produced virtually all of its infomercials for NMC, NMC
handled all media buying for PRT's infomercials. In 1992 and 1993, PRT did
limited media buying for its infomercials featuring "Magic Shine" and the
Komputer Show, using the services of a media buying agency. In January
1994, PRT acquired an in-house media buying capacity and is currently
handling its own media buying. PRT's management believes that this
capability has reduced PRT's media buying costs significantly and has
enabled it to more efficiently utilize available media time.
- IN-BOUND TELEMARKETING. Infomercial viewers are given a toll-free 800
telephone number during the infomercial broadcast to call to order the
product or request additional information. in-bound telemarketing requires
staff and equipment to process orders, related reports and documents and
to obtain credit approvals. In addition, in-bound telemarketing requires
multiple WATS lines, call-distributing and data processing equipment and
software programs. PRT retains independent telemarketing agencies to
handle its in-bound telemarketing, but trains the operators and provides
them with all relevant market information. An important element in the
in-bound telemarketing strategy is the opportunity to increase sales
through "upselling;" that is, offering additional or related products or
services to the customer for inclusion with his or her initial order. For
example, an additional product can be included in the same package for a
reduced cost or the customer can be advised of a new or supplementing
product to the one ordered (e.g., a sequel to a video tape or an advanced
course). Although the rate of sales by upselling varies from product to
product, sales through upselling efforts make up a significant part of
PRT's profitability.
- OUTBOUND TELEMARKETING. Using the data received through the in-bound
telemarketing operation and other sources, outbound telemarketing
operations can be used to follow up with calls to prior customers,
offering similar or related products or other products with the same brand
name as a product previously ordered by the customer. PRT currently has a
telemarketing department of thirty to thirty-five telephone sales
representatives and has the capacity to expand, and on an experimental
basis has expanded, to as many as seventy-five representatives. PRT
continually improves and updates its management information system to
better manage and analyze its customer base and further expand its other
direct marketing activities.
- FULFILLMENT. Product fulfillment consists of the assembly, as required,
packaging and shipping of products pursuant to orders received through
infomercials. Fulfillment of product for PRT's existing infomercials is
currently handled by independent fulfillment houses. PRT is responsible
for ordering and ensuring that sufficient product inventory of infomercial
products exists. The fulfillment house provides the warehouse space and
staff for the fulfillment procedures.
- PRINT/SYNDICATION ADVERTISING AND RETAIL DISTRIBUTION. After an
infomercial has been on the air for approximately four months, marketing
through the print/syndication channels begins. Print/syndication
advertising consists of free-standing inserts distributed in the mail or
in Sunday newspapers with an order form or a telephone number to call to
place an order. This additional exposure is designed to prepare the
product for entrance into the retail marketplace
54
<PAGE>
and to provide incremental profits. If successful, the retail marketing of
a product generally begins eight or nine months into the infomercial run.
Typically, products are retailed at a substantially lower price than the
infomercial price and are sold to mass merchandisers such as Walmart,
Target and Costco. PRT has not and does not intend to handle retail
marketing of any infomercial products, but instead intends to work through
independent agents experienced in selling to mass merchandisers and large
discount retail chain stores.
- TRADEMARKS AND SERVICE MARKS. "Ask Mike"-TM- is a registered United
States trademark of PRT. On October 19, 1994, PRT acquired sole and
exclusive ownership of the "Amazing Discoveries" service mark from NMC.
PRT has registered trademarks or pending trademark applications for all of
its current products and products in pre-production.
Investment in Ventures. PRT enters into venture or distribution
arrangements with independent third parties who have produced and tested
promising infomercials but lack sufficient capital and marketing expertise to
effectively manage the entire direct marketing campaign. Venture arrangements
are an integral component of PRT's business strategy. The direct marketing
campaign for a venture product and for a wholly-owned product would,
theoretically, be identical, assuming the products are similar in their
print/syndication and retail potential. Venture arrangements produce a steady
source of revenue and income, increasing PRT's financial stability by reducing
financial dependency on the success of any one wholly-owned infomercial. They
also reduce PRT's risk when acquiring an equity interest in new products, since
the co-venturer has already borne the cost of developing the product and
producing the infomercial.
In 1993, PRT entered into two 50/50 ventures with TMI to produce
infomercials promoting featured products of the Komputer Show and Tai Chi. Under
the terms of the venture agreements, TMI was obligated to advance the costs of
production of the infomercials and PRT was required to repay its 50% share of
such costs to TMI out of subsequent product sales. TMI also advanced PRT's
initial contributions to the ventures. In 1994, PRT's ventures with TMI were
terminated. Pursuant to a termination agreement, PRT assigned its interest in
the Komputer Show to TMI in exchange for TMI's interest in Tai Chi. See
"POSITIVE RESPONSE TELEVISION, INC. -- Management's Discussion and Analysis of
Financial Condition and Results of Operations of Positive Response."
PRT entered into four venture arrangements during fiscal 1994. Two of these
ventures, "Passion, Profit and Power" and "Memory Power," involved
self-improvement products and were first broadcast in June 1994. The other two,
"Curiosity" and "Sophis-O-Twist," were beauty products that first aired in the
fourth fiscal quarter of 1994. During 1995, PRT entered into three additional
venture arrangements, each of which first aired in the third fiscal quarter of
1995: "Men are from Mars, Women are from Venus," a relationship series, "The
Butterfly Ladder," a home decorating item, and "Eagle Eyes" sunglasses.
In each of these ventures, the infomercials were produced and tested by
PRT's co-venturer, with PRT purchasing and managing the media time and inventory
and managing the fulfillment of orders. In each case, PRT receives approximately
50% of the net profits of the featured product.
Competition. The infomercial business is highly competitive and many of
PRT's competitors have substantially greater financial and personnel resources
than PRT. PRT believes that its primary competitors in the infomercial industry
are American Telecast Corporation, NMC, USA Direct (a subsidiary of Fingerhut
Corporation), Guthy-Renker Corporation, Information, Inc. and the Home Shopping
Network. Furthermore, the infomercial business has relatively few barriers to
entry. Using various outside agencies, it is possible to introduce a product
with only limited financial resources. There are many successful small companies
in the industry having produced only a single infomercial. There is also intense
competition for cable and broadcast television time. PRT competes for such time
with other direct marketing companies as well as with other infomercial
producers. In addition, PRT competes for product sales with other infomercial
producers as well as with a variety of retailers, including department stores,
specialty shops and discount stores and other direct marketers, such as the Home
Shopping Network and QVC Network.
55
<PAGE>
Regulatory Matters. Substantially all aspects of PRT's business are subject
to oversight and regulation by federal, state and local agencies, including the
FTC, the Consumer Product Safety Commission, the Food and Drug Administration
and the FCC. FTC regulation of infomercials has been principally under Section 5
of the Federal Trade Act, which prohibits deceptive advertising. Through
enforcement of this provision, various infomercial companies, including PRT,
have entered into consent decrees with the FTC that set forth the standards
which the companies agree to follow in connection with their infomercials. In
general, these standards require that infomercials not be misleading and that
all claims contained in infomercials be substantiated. Various state and local
governments have comparable fair practice laws which may be applicable to PRT.
In addition, the infomercial industry has set up guidelines for the truth
and substantiation of infomercial claims and products through its
self-regulating trade association, NIMA, of which PRT is a founding member. PRT
believes that all of its current infomercials comply with applicable FTC
standards and the NIMA guidelines. In order to minimize compliance problems, PRT
carefully reviews all aspects of its infomercial productions and requires
substantiation of all claims by manufacturers of the featured products. In
addition, counsel for either PRT or for the infomercial sponsor reviews all
scripts and product claims and attends all infomercial filmings.
In 1993, PRT and Mr. Levey entered into an FTC consent decree in which PRT
paid an aggregate of $275,000 for consumer redress on behalf of itself and Mr.
Levey and PRT and Mr. Levey agreed to abide by broad restrictions on their
future marketing projects. The FTC had alleged that Mr. Levey had made a variety
of false and misleading representations in three infomercials produced by Twin
Star Productions in 1987 through 1989 and in the Amazing Discoveries' "Magic
Wand" infomercial produced in 1989. The FTC also alleged that the infomercials
were deceptive in that they purported to be independent programming rather than
paid advertisements.
Employees. As of March 25, 1996, PRT employed approximately 90 people,
including 14 executive and administrative personnel, 12 in accounting and
finance, 6 in product selection, development and production, 22 in media buying
and 35-40 in telemarketing. PRT does not have any union employees.
PROPERTIES
PRT's corporate headquarters and principal executive offices are located at
14724 Ventura Boulevard, Sherman Oaks, California. PRT presently leases
approximately 12,700 square feet in this facility under the terms of a lease
which provides for aggregate minimum monthly rental payments of approximately
$19,000 and which expires on July 15, 1996. Maintenance, insurance and certain
utility costs are included in the lease payments.
LEGAL PROCEEDINGS
On January 11, 1995, PRT and Michael Levey filed suit in the United States
District Court for the Central District of California against Forbes, Inc. and
others (collectively, "Forbes"), alleging that Forbes wrote, printed and
published an article that was libelous and defamatory to PRT and Mr. Levey. PRT
is seeking $420 million in general, special and punitive damages. On November 3,
1995, PRT filed an amended complaint adding RICO causes of action. Forbes and
the other defendants filed motions to dismiss the complaint and the matter was
heard on January 22, 1996. The Court dismissed the amended complaint without
prejudice and granted PRT sixty (60) days leave to file another amended
complaint. Due to various motions and stipulations between the parties, PRT now
has until May 8, 1996 to file an amended complaint.
On May 1, 1995, a purported class action suit was filed in the United States
District for the Central District of California against PRT and its principal
executive officers alleging that PRT had made false and misleading statements in
its public filings, press releases and other public statements with respect to
its business and financial prospects. The suit was filed on behalf of all
persons who purchased PRT Common Stock during the period from January 4, 1995 to
April 28, 1995. The suit seeks unspecified compensatory damages and other
equitable relief. An amended complaint was filed
56
<PAGE>
on June 9, 1995, which added more plaintiffs and expanded the class period to
November 1994 to April 28, 1995. PRT moved to dismiss the amended complaint and
the amended complaint was dismissed in late July 1995. The plaintiffs were
granted sixty (60) days leave to file another amended complaint to allow them an
attempt to state valid claims against PRT. On or about September 25, 1995, the
plaintiffs filed a second amended complaint, which added new defendants and
attempted to set forth new facts to support plaintiffs' entitlement to legal
relief. On October 31, 1995, PRT again moved to dismissed plaintiffs' entire
action. Oral argument in connection with PRT's motion was held on December 11,
1995, at which time PRT's motion was denied. Discovery is continuing.
In addition to the foregoing, PRT is a party to various routine litigation
proceedings which are incidental to its business.
SELECTED CONSOLIDATED FINANCIAL DATA OF POSITIVE RESPONSE
The following selected consolidated statements of operations data for each
of the three years in the period ended December 31, 1995 and the consolidated
balance sheet data as of December 31, 1995 and 1994 are derived from the
financial statements and notes thereto included elsewhere herein audited by
Deloitte & Touche LLP as set forth in their report also included elsewhere
herein. The selected consolidated statements of operations data for the years
ended December 31, 1992 and 1991 and the consolidated balance sheet data as of
December 31, 1993, 1992 and 1991 are derived from audited financial statements
not included herein. The selected consolidated financial data should be read in
conjunction with the "-- Management's Discussion and Analysis of Financial
Condition and Results of Operations of Positive Response" and the consolidated
financial statements and related notes and other financial information included
in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Consolidated Statements of Operations Data:
Net revenue.............................................. $ 63,407 $ 42,520 $ 3,825 $ 2,485 $ 4,291
Income (loss) from operations............................ (4,970) 3,537 1,529 81 739
Net income (loss)........................................ (3,220) 2,291 1,298 69 731
Pro forma net income (loss)(1)........................... (3,220) 2,291 887 42 439
Income per common share:
Pro forma net income (loss)(1)........................... (0.91) 0.77 0.49 0.02 0.24
Cash dividends........................................... -- -- 0.24 0.23 0.03
Weighted average number of shares........................ 3,550 2,985 1,804 1,804 1,804
</TABLE>
- ------------------------
(1) Pro forma information assumes that PRT was a "C" corporation from 1990
through 1993 instead of an "S" corporation and paid income taxes at a rate
of 40%.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Consolidated Balance Sheet Data:
Working capital............................................ $ 10,436 $ 13,929 $ 2,023 $ 78 $ 576
Total assets............................................... 18,053 21,270 3,235 958 1,427
Long-term debt............................................. 91 116 19 -- 403
Shareholders' equity....................................... 11,530 14,733 2,290 255 593
</TABLE>
57
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF POSITIVE RESPONSE
The following discussion should be read in conjunction with PRT's
consolidated financial statements and notes thereto included elsewhere herein.
The results shown herein are not necessarily indicative of the results to be
expected in future periods and is qualified in its entirety by the foregoing.
Overview.
The most significant operating event for the year ended December 31, 1995
was the television and retail campaigns of "Perfect Hair," which, together were
responsible for approximately 64% of PRT's net loss before income taxes for the
year ended December 31, 1995. PRT does not anticipate any future losses from the
"Perfect Hair" campaigns.
PRT launched four wholly-owned infomercials for its own account during 1995.
Two of these products, "Cyberedge," a kitchen appliance product, and "Accents,"
a beauty product, were in production during 1995. Both will be released during
fiscal 1996. "Mathemagics," a self-improvement show, was launched in April 1995.
"Bowdazzler," a bow maker, was first aired in November 1995.
PRT also entered into three venture arrangements during the year ended
December 31, 1995. Two of these ventures, "Men Are From Mars," a
self-improvement product, and "Eagle Eyes," a sunglass product, first aired in
June 1995. The "Butterfly Ladder," a household decorative product, first aired
in August 1995.
58
<PAGE>
Results of Operations. The following table presents, for the three years in
the period ended December 31, 1995, certain information derived from the PRT's
audited consolidated financial statements included elsewhere herein, expressed
as a percentages of revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Product Sales.............................................................. 83% 85% --
Airtime Sales.............................................................. 12% 10% --
Royalty Income............................................................. 5% 5% 80%
Production Income.......................................................... -- -- 20%
Other...................................................................... -- -- --
--- --- ---
Total Revenues........................................................... 100% 100% 100%
--- --- ---
Operating Costs and Expenses:
Cost of Goods Sold......................................................... 22% 18% --
Other Direct Operating Costs............................................... 76% 63% 21%
Profit Participation....................................................... -- 4% --
General and Administrative................................................. 10% 8% 45%
Loss on Settlement of FTC Investigation.................................... -- -- --
Gain on Settlement of Shareholder Dispute.................................. -- -- --
Litigation Settlement, net................................................. -- -- (4)%
--- --- ---
Total Operating Costs and Expenses....................................... 108% 93% 62%
Equity in Earnings of Ventures............................................... -- 1% 2%
--- --- ---
Income (Loss) from Operations................................................ (8)% 8% 40%
--- --- ---
Other Income (Expense):
Gain on Exchange of Venture Interests...................................... -- 1% --
Other...................................................................... -- -- (1)%
--- --- ---
Total Other Income (Expense)............................................. -- 1% (1)%
--- --- ---
Income (Loss) Before Provision (Benefit) for Income Taxes.................... (8)% 9% 39%
Provision (Benefit) for Income Taxes......................................... (3)% 4% 5%
--- --- ---
Net Income (Loss)............................................................ (5)% 5% 34%
--- --- ---
--- --- ---
</TABLE>
1995 COMPARED TO 1994
The year ended December 31, 1995 resulted in a net loss of $3,220,000
compared to net income of $2,291,000 for the year ended December 31, 1994.
Revenue for the year ended December 31, 1995 increased $20,887,000 or 49% from
the year ended December 31, 1994. The primary reason for the loss despite the
growth in revenues in the current year was the significantly
higher-than-anticipated rate of product return from the television sales on the
product "Perfect Hair" and from lower-than-expected results from the retail
campaign of "Perfect Hair", which was finalized during the quarter ended
December 31, 1995.
Television sales of "Perfect Hair" during the year ended December 31, 1995
totaled $12,053,000. Returns of the product charged against these revenues
during the same period totaled $4,466,000 for a return rate of 37%. Returns of
all other products combined totaled $6,837,000 on television sales of
$46,369,000, for an overall return rate of 15%. Television sales of "Perfect
Hair" were scaled back significantly in March 1995 and substantially
discontinued during the second quarter of fiscal 1995.
59
<PAGE>
PRT exploits the domestic retail market through independent third party
distributors. The lower than expected results from this market resulted in a
combined charge against operations of $958,000 in the fourth quarter of 1995,
representing primarily a write-down of inventory and an adjustment of estimated
royalty income.
Another factor contributing to the loss for the year ended December 31, 1995
was the accelerated amortization of production costs on the "Tai Chi" and
"Mathemagics" shows, totalling approximately $590,000 in 1995.
Revenues. The increase in revenues in fiscal 1995 was primarily
attributable to product sales, which increased by $16,307,000 or 45% from
$35,932,000 for the year ended December 31, 1994 to $52,239,000 for the year
ended December 31, 1995. Additionally, royalty income increased by $954,000, or
40%, from $2,408,000 for the year ended December 31, 1994 to $3,362,000 for the
year ended December 31, 1995. Air time sales increased $3,542,000, or 87%, from
$4,068,000 for the year ended December 31, 1994 to $7,610,000 for the year ended
December 31, 1995. Production income, representing reimbursed infomercial
production costs from third parties, declined 100% from the $43,000 generated in
the year ended December 31, 1994.
- PRODUCT SALES. Product sales, net of estimated provision for returns,
primarily consisted of sales of the products "Perfect Hair," "Memory
Power," "Men Are From Mars," "Eagle Eyes," "Passion, Profit & Power," and
"Super Slicer," which combined accounted for approximately $43,833,000 or
84% of total product sales for the year ended December 31, 1995. During
the year ended December 31, 1995, the Company experienced a significantly
higher rate of return for "Perfect Hair" than originally expected. The
current year results reflect this increased rate of return.
- AIR TIME SALES. Air time sales of $7,610,000 for the year ended December
31, 1995 represented sales of television air time to third parties. Air
time sales of $4,068,000 for the year ended December 31, 1994 primarily
represented sales of air time to the unconsolidated venture of Kim
Kommando Komputer Show featuring the product, "Komputer Tutor." This
venture agreement was terminated effective April 1, 1994.
- ROYALTY INCOME. Royalty income increased by $954,000, or 40%, for the
year ended December 31, 1995 versus the year ended December 31, 1994. This
increase related primarily to third party sales of the product "Super
Slicer." The product "Perfect Hair" also contributed royalty income of
approximately $376,000 in 1995.
- PRODUCTION INCOME. Production income for the year ended December 31, 1994
consisted of the completion of two infomercials for Guthy-Renker
Corporation, "From Panic to Power" and "The Recipe Detective," which were
completed in the first quarter. PRT did not have any production income
during the year ended December 31, 1995.
Costs of Goods Sold. Cost of goods sold increased $6,128,000 or 79% from
$7,771,000 for the year ended December 31, 1994 to $13,899,000 for the year
ended December 31, 1995. The increase corresponds to the increase in product
sales discussed above. The gross margin on product sales declined from 78% for
the year ended December 31, 1994 to 73% for the year ended December 31, 1995.
This decline is primarily attributable to the effects of increased sales to
third party distributors, which are sold at a lower margin, the higher provision
for returns of the product "Perfect Hair" and losses recognized on the write
down of "Perfect Hair" inventory.
Other Direct Operating Expenses. Other direct operating expenses, which
consist of air time costs, amortization of show production costs, in-bound
telemarketing and other selling costs, increased $21,528,000, or 81%, from
$26,589,000 for the year ended December 31, 1994 to $48,117,000 for the year
ended December 31, 1995. The increase is primarily attributable to an increase
in product sale activity. The primary component of the increase in costs was air
time costs, which increased $15,847,000, or 71%, from $22,359,000 for the year
ended December 31, 1994 to $38,206,000 for the year ended December 31, 1995. In
addition, PRT incurred in-bound telemarketing expenses of
60
<PAGE>
$2,895,000 for the year ended December 31, 1995, an increase of $1,421,000, or
96%, over the $1,474,000 incurred during the year ended December 31, 1994.
Amortization of production costs also increased by $1,059,000, or 132%, from
$803,000 in 1994 to $1,862,000 in 1995.
General and Administrative Expenses. General and administrative expenses
increased $2,815,000, or 87%, from $3,232,000 for the year ended December 31,
1994 to $6,047,000 for the year ended December 31, 1995. Approximately $834,000
of the increase reflects the general and administrative costs of its
subsidiaries, Positive Response Media, Inc. ("PRMI") and Positive Response
Telemarketing, Inc. ("PRTI"), for the year ended December 31, 1995, consisting
primarily of salary and overhead. PRMI and PRTI commenced operations in January
and July, 1994, respectively.
The remaining $1,981,000 of the increase is primarily attributable to
increased overhead expenses arising from the expansion of operations of PRT.
Contributing to the increased overhead expenses were director and officer
liability and key man life insurance policies, additional professional fees and
other expenses attributable to being a public company.
Profit Participation. Profit participation payable to venture partners
decreased by $1,182,000, or 79%, from $1,496,000 for the year ended December 31,
1994 to $314,000 for the year ended December 31, 1995. The decrease is primarily
the result of reduced profits of the ventures during the year ended December 31,
1995, as compared to the year ended December 31, 1994.
Ventures. PRT accounts for ventures in which PRT does not own a majority
interest on the equity method. For the year ended December 31, 1994, PRT
recognized $105,000 in earnings from its ventures with TMI featuring "Komputer
Tutor" and "Tai Chi." The venture agreement with TMI terminated effective April
1, 1994. As part of the termination agreement, PRT assigned its interest in
"Komputer Tutor" to TMI for TMI's interest in "Tai Chi." As of December 31,
1995, PRT has no entities accounted for on the equity method.
Income Taxes. PRT became a cash basis "C" Corporation for both state and
federal income tax purposes effective January 1, 1994. Effective January 1, 1995
PRT became an accrual basis "C" Corporation.
For the year ended December 31, 1995, the operations of PRT reflected a
combined federal and state income tax benefit of $1,655,000, as against a
provision for federal and state income taxes of $1,527,000 for the year ended
December 31, 1994. In addition, PRT has available to offset potential future
federal income taxes a net operating loss carryforward of approximately
$1,522,000. The portion of this net operating loss available to offset future
financial-accounting-based federal taxable income of approximately $685,000 has
not been reflected in operations as of December 31, 1995.
1994 COMPARED TO 1993
Revenues. Revenues for the year ended December 31, 1994 increased
$38,695.000 from the year ended December 31, 1993. The increase is primarily
attributable to product sales of $35,932,000 by PRT. See "-- Cost of Goods Sold
and Other Direct Operating Expenses," below. These increases were partly offset
by a decrease in royalty revenue which declined by $667,000, or 22%, from
$3,075,000 for the year ended December 31, 1993 to $2,408,000 for the year ended
December 31, 1994. Additionally, production income, representing reimbursed
infomercial production costs from third parties, declined $707,000, or 94%, from
$750,000 for the year ended December 31, 1993 to $43,000 for the year ended
December 31, 1994.
- AIR TIME SALES. The year ended December 31, 1994 also marked the first
annual reporting period which included the operations of PRM. Gross air
time sales of $4,068,000, accounting for approximately 9% of total
revenue, included approximately $2,820,000 of sales (approximately 69% of
air time sales) to the Komputer Show venture.
61
<PAGE>
- PRODUCT SALES. The year ended December 31, 1994 marked the first annual
reporting period during which PRT sold proprietary products. Product sales
were predominantly comprised of sales of the products "Passion, Profit and
Power," "Memory Power" and "Super Slicer." The first two products began
airing in June 1994 and the third in August 1994.
- VENTURE PRODUCTS. During the year ended December 31, 1994, PRT launched
four venture products: "Memory Power," "Curiosity," "Sophist-O-Twist" and
"Passion, Profit and Power." The Komputer Show and Tai Chi ventures,
started during fiscal 1993, were also active in the first quarter of 1994.
PRT consolidates ventures in which it exercises control. Only the Komputer
Show was not consolidated, as PRT did not exercise control over it.
For the year ended December 31, 1994, $164,000 was recognized as a gain
upon termination of the venture agreements with TMI effective April 1,
1994 relating to the Komputer Show and Tai Chi. As a part of the
termination agreement, PRT assigned its interest in the Komputer Show to
TMI in exchange for TMI's interest in Tai Chi.
- ROYALTY INCOME. Royalty income comprised only 5% of total revenues for
the year ended December 31, 1994 compared to 80% for the year ended
December 31, 1993. The decline in royalty income reflects PRT's decision
to move away from royalty based arrangements in order to focus on
producing infomercials in which it has an ownership interest and managing
its own direct marketing and distribution activities.
- PRODUCTION INCOME. Production income for the year ended December 31, 1994
consisted of the completion of two infomercials for Guthy-Renker
Corporation, "From Panic to Power" and "The Recipe Detective," which were
completed in the first quarter. PRT did not have any production income
from the second quarter through the fourth quarter of 1994. For the year
ended December 31, 1993, production income was generated primarily from
the production of the "Tony Little Target Training" and "The Recipe
Detective" infomercials for NMC and Guthy-Renker Corporation,
respectively.
Cost of Goods Sold and Other Direct Operating Expenses. Direct operating
expenses, which consist of air time costs, show production costs, costs of goods
sold, in-bound telemarketing and other processing costs, increased $33,559,000
or approximately 42 times from $801,000 for the year ended December 31, 1993 to
$34,360,000 for the year ended December 31, 1994. The increase is primarily
attributable to costs of air time. The remaining increase is primarily
attributable to cost of goods sold and in-bound telemarketing expenses incurred
by PRT for PRT-owned products during the year ended December 31, 1994.
General and Administrative Expenses. General and administrative expenses
increased $1,512,000 or 88% from $1,720,000 for the year ended December 31, 1993
to $3,232,000 for the year ended December 31, 1994. Approximately $710,000 of
the increase reflects the administrative costs of PRM, consisting primarily of
payroll and related costs. The remaining $802,000 of the increase is primarily
attributable to the expansion of PRT's business and increases in overhead
expenses and in the number of employees. Additional costs were also incurred for
director and officer liability and key man life insurance policies.
Income Taxes. PRT became a cash basis "C" corporation for both state and
federal income tax purposes effective January 1, 1994. Effective January 1,
1995, PRT became an accrual basis "C" corporation.
PRT operated as a cash basis "S" corporation through December 31, 1993.
Taxation as an "S" corporation, which does not pay taxes at the federal level
and incurs a state tax at 2.5% of taxable income, is not indicative of the tax
calculation PRT would have made had it filed its federal and state income tax
returns as a "C" corporation (at an average effective federal and state tax rate
of 40%).
62
<PAGE>
1993 COMPARED TO 1992
Revenues. Total revenues for the year ended December 31, 1993 increased
$1,340,000 or approximately 54% to $3,825,000 from $2,485,000 for the year ended
December 31, 1992. The increase is attributable to royalty income, which
increased in 1993 by approximately 66% to $3,075,000 from $1,853,000 in 1992.
Royalty and production income accounted for approximately 80% and 20%,
respectively, of total revenue of the year ended December 31, 1993. For fiscal
1992, royalty and production income comprised approximately 75% and 25%,
respectively, of total revenue.
- ROYALTY INCOME. The improvement of fiscal 1993 royalty income over 1992
royalty income is primarily attributable to the success of "Tony Little
Target Training," an infomercial produced for NMC and the only infomercial
produced in fiscal 1993 by PRT outside of the ventures with TMI. "Tony
Little Target Training" generated royalty income of $2,347,000
representing approximately 76% of total 1993 royalty income. Other
infomercials that collectively generated approximately 17% of royalty
income for the 1993 fiscal year were "Jet Aire" ($328,000), "Sudden Youth"
($106,000) and "Juice Tiger" ($77,000). All three of these infomercials
were produced for NMC; "Juice Tiger" and "Jet Aire" in 1992 and "Sudden
Youth" in 1991.
- PRODUCTION INCOME AND NET PRODUCTION COSTS. Production income,
representing the costs that were reimbursed to PRT of producing certain
infomercials, increased by approximately 19% to $750,000 in 1993 from
$632,000 in 1992, reflecting the one infomercial completed ("Tony Little
Target Training") and the two infomercials under production at December
31, 1993 ("Tai Chi" and "From Panic to Power"). Production costs,
including the unreimbursed costs of producing infomercials, increased by
approximately 16% in 1993, to $801,000 from $689,000 in 1992. Production
costs for an infomercial consist of all direct costs associated with the
filming of the infomercial, including the costs of studio rental,
technicians, editing and set design.
General and Administrative Expenses. General and administrative expenses,
which consisted primarily of legal costs, payroll and profit-sharing costs,
increased approximately 6% or $101,000 to $1,720,000 in fiscal 1993 from
$1,619,000 in fiscal 1992. This increase partially reflects the efforts of PRT
to expand its business into additional direct marketing activities. With the
ongoing expansion of PRT's business, management anticipates that general and
administrative costs will rise as additional personnel are hired.
- PROFESSIONAL FEES. Professional fees of $661,000 were expensed in fiscal
1993, an increase of approximately 94% or $321,000, from the $340,000
incurred during the year ended December 31, 1992. Of this total, legal
fees were $636,000 and accounting fees were $25,000. Approximately 59%, or
$392,000, of fiscal 1993 legal fees reflect the cost of the lawsuit filed
by PRT against NMC and its subsequent settlement, both of which events
occurred in fiscal 1993. These fees were offset against the gain on
settlement of the lawsuit. See "-- Other Income and Expenses," below.
Other legal fees, which have historically been a significant cost of PRT
and are expected to continue to be significant, are incurred to ensure
that product trademarks, copyrights and/or patents are in order and that
PRT complies with FTC standards. Such legal fees accounted for
approximately 37% or $244,000 of total legal fees for the year ended
December 31, 1993 and are expected to increase as PRT's production
activity increases.
Legal fees were also the primary component of general and administrative
expenses for the year ended December 31, 1992, comprising approximately
21% or $340,000 of the $1,619,000 total. In addition to the legal fees
expected to be incurred by a company in the infomercial industry as
discussed above, PRT incurred legal fees in connection with the settlement
of a dispute with a former shareholder of PRT that resulted in a gain to
PRT of $179,000 in fiscal 1992 and the settlement of the FTC investigation
of PRT and Mr. Levey, which resulted in, among other things, the payment
by PRT of $275,000. See "POSITIVE RESPONSE TELEVISION, INC. -- Business."
63
<PAGE>
- PAYROLL COSTS. Payroll costs rose approximately 19% or $43,000 in fiscal
1993 to $272,000 from $229,000 in fiscal 1992. Officers' salaries of
$615,000 for the year ended December 31, 1993 reflects an increase of
approximately 9% or $51,000 from the $564,000 paid in fiscal 1992 due to
additional compensation paid to the Chairman and Chief Executive Officer
of PRT in fiscal 1993.
- PROFIT SHARING. PRT's decision to make a contribution to its
profit-sharing plan for the year ended December 31, 1993 accounted for
approximately 20% or $96,000 of the fiscal 1993 increase in general and
administrative expenses. No profit-sharing contribution was made in fiscal
1992.
Other Income and Expenses. In fiscal 1993, PRT's lawsuit with NMC was
settled. In the settlement, in addition to the payment of 1993 royalties due to
NMC, NMC agreed to pay PRT an additional $560,000 by way of forgiveness of a
$10,000 obligation owed by PRT to NMC, a $300,000 payment made by December 31,
1993 and payment of $250,000 in twenty-five equal monthly installments of
$10,000 each. Legal fees of $390,000 incurred in the lawsuit with NMC were
offset against the $540,000 of the settlement amount recognized during 1993, for
a net gain of $150,000. The remaining $20,000 of the settlement amount was
discounted at 8% and will be recognized over the twenty-five month period.
Liquidity and Capital Resources. PRT's cash and cash equivalents, excluding
restricted cash, decreased $2,522,000, or 78%, from $3,247,000 at December 31,
1994 to $725,000 at December 31, 1995.
The decrease is primarily due to the cash used in operating activities. The
net loss, net of depreciation and amortization accounted for $1,208,000 of the
decline. Increases in accounts receivable, inventory and infomercial production
costs totaled $6,195,000 for the year ended December 31, 1995. The decline in
cash and cash equivalents from operating activities was offset by decline in
prepaid and deferred air time costs, prepaid income taxes and royalties payable.
Cash flows used in investing activities resulted primarily from the purchase
of fixed assets.
Cash provided by financing activities primarily consisted of borrowings
under the PRT's lines of credit with two banking institutions.
Upon completion of the Merger with NMC, PRT plans to pay off the balance of
one of these lines, which at December 31, 1995 had a balance outstanding of
$1,500,000. In the event that the Merger is not consummated, PRT plans to
negotiate its agreement with the bank. Management believes that PRT's cash and
capital resources, along with cash from operations, will be sufficient to
finance current and future operations.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of PRT who will continue as directors
and/or executive officers of Merger Sub after the consummation of the Merger are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- --------------------------------------------------------
<S> <C> <C>
Michael S. Levey 47 Chairman of the Board, Chief Executive Officer and
Director
Stephen A. Weber 47 President, Chief Operating Officer, Chief Financial
Officer and Director
Douglas E. Gravink 40 Vice President -- Media
Gary L. Hewitt 39 Vice President -- Marketing
Lisa Vann Levey -- Vice President -- Production, Secretary
Steven Moore 36 Executive Manager of Production
Carolyn Stephenson 50 Vice President -- Telemarketing
Valerie Castle 30 Vice President -- Business Affairs
</TABLE>
64
<PAGE>
MICHAEL S. LEVEY founded PRT, in 1988. From 1985 to 1989, Mr. Levey was
employed by Twin Star Productions, where he produced infomercials and developed
fulfillment, outbound marketing and product selection activities. In 1985, he
founded California Cosmetics, one of the first direct response companies to use
a telemarketing strategy in conjunction with print and television advertising.
In addition to doing creative work for the company, Mr. Levey set up the
fulfillment center, Pacific Order Processing, and the advertisement and media
buying operations. From 1975 to 1985, Mr. Levey was employed by Management
Recruiters (now SearchWest). His responsibilities included training
telemarketing personnel.
STEPHEN A. WEBER, a certified public accountant, joined PRT in 1989 as the
Vice President, Chief Financial Officer and director and became the President of
PRT in August 1993. Prior thereto, he was the managing partner of Kaplan, Lim,
Sherman & Weber, a regional accounting firm.
DOUGLAS E. GRAVINK joined PRT in January 1994 as Vice President -- Media
when PRT purchased certain assets of Positive Results Media, Inc., a
media-buying/advertising agency headquartered in Scottsdale, Arizona, of which
Mr. Gravink was the sole shareholder and Chief Executive Officer during 1993. In
1991 and 1992, Mr. Gravink was Vice President of Starlite Productions, Inc., a
television marketing company located in Phoenix, Arizona. From 1986 to March
1991, he was Executive Vice President of Twin Star Productions. Twin Star
Productions filed a petition for reorganization under Chapter 11 of the
Bankruptcy Act in June 1991, which was converted into a Chapter 7 proceeding in
October 1991.
GARY L. HEWITT joined PRT in February 1994 as Vice President -- Marketing.
From 1989 until the time he joined PRT, Mr. Hewitt was Director of Merchandise
for National Syndication Inc., a print/ syndication company. Mr. Hewitt's direct
marketing experience prior to that time included positions with Ringling
Brothers Circus and the Ice Follies, promotion of Broadway theatrical
productions for Pace Management Company, and coordination of marketing efforts
for travelling productions of Sesame Street Live and the Royal Lippazon
Stallions.
LISA VANN LEVEY joined PRT as Vice President -- Production in 1989. She was
appointed Secretary of PRT in August, 1995. From 1984 to 1989, she was a
manufacturer's representative for Silver Nickels, Inc., a clothing company. Lisa
Levey is married to Michael Levey.
STEVEN MOORE joined PRT at its inception in 1988 as production director. He
was appointed Executive Manager of Production in 1993. From 1985 to 1989, Mr.
Moore was the President of 21st Century Communications, an Arizona corporation
which owned Arizona Tape Duplicating, a videotape duplication, broadcast,
syndication and fulfillment facility.
CAROLYN STEPHENSON joined PRT in March 1993 as General Manager,
Telemarketing and was promoted to Vice President in October, 1995. Prior to Ms.
Stephenson's employment with PRT, from 1990, she was a private consultant and
was engaged as such by PRT in connection with the establishment and operation of
its telemarketing department.
VALERIE CASTLE joined PRT in January 1995 as Vice President -- Business
Affairs. During 1994, Ms. Castle owned and operated a private business
consultancy and paralegal firm serving the infomercial industry. From 1991 to
1994, she was employed by Guthy-Renker Corporation.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding
compensation paid by PRT for services rendered during the fiscal years ended
December 31, 1995, 1994 and 1993 to PRT's Chief Executive Officer and its four
most highly paid executive officers other than the Chief Executive Officer whose
total annual salary and bonus for fiscal year 1995 exceeded $100,000 (together
with the Chief Executive Officer, the "Named Executive Officers").
65
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------- OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (2)(3)
- ------------------------------------------------ --------- -------------- ----------- -------------------
<S> <C> <C> <C> <C>
Michael S. Levey, Chairman of the Board and 1995 $ 300,000 -- --
Chief Executive Officer 1994 $ 260,000 -- --
1993 $ 300,000(1) $ 65,000 $ 30,000
Stephen A. Weber, President, Chief Operating 1995 $ 235,000 -- --
Officer and Chief Financial Officer 1994 $ 195,000 -- --
1993 $ 250,000(1) -- $ 30,000
Gary L. Hewitt, Vice President of Marketing (4) 1995 $ 150,000 -- --
1994 $ 135,288 -- --
1993 N/A N/A N/A
Douglas E. Gravink, Vice President of Media (5) 1995 $ 110,000 $ 225,000 --
1994 $ 110,000 -- --
1993 N/A N/A N/A
Steven Moore, Executive Manager of Production 1995 $ 125,000 -- --
1994 $ 125,000 -- --
1993 $ 100,000 $ 25,000 $ 17,000
</TABLE>
- ------------------------
(1) Does not include $328,125 and $109,265 paid to Messrs. Levey and Weber,
respectively, as dividends on the shares of PRT Common Stock held by them,
to cover their estimated tax liabilities created by the flow-through of
taxable income from PRT's earnings as an "S" corporation in 1993.
(2) Includes contributions by PRT to its Profit Sharing Plan on account of such
individuals.
(3) Does not include the value of perquisites or other personal benefits,
securities or property to any of the above officers, which did not exceed
$50,000 or 10% of such officer's annual salary and bonus.
(4) Mr. Hewitt joined PRT in February 1994.
(5) Mr. Gravink's 1995 bonus was based on the earnings of PRT's media
subsidiary, as adjusted to reflect profitability (or non-profitability) of
individual product campaigns. Mr. Gravink joined PRT in January 1994.
Compensation of Directors. PRT does not pay its directors any fee for their
services as directors; however, directors who are not employees of PRT received
stock options to purchase 5,000 shares of PRT Common Stock upon their
appointment as directors in July 1994. Directors who are employees of PRT
receive no additional compensation for their services as directors.
Employment Contracts. PRT has employment contracts with each of Messrs.
Levey and Weber. Mr. Levey's employment agreement provides for his employment by
PRT as its Chairman and Chief Executive Officer at an annual salary of $260,000.
Mr. Weber's employment agreement provides for his employment by PRT as its
President and Chief Financial Officer at an annual salary of $195,000. Each of
the agreements provides for an initial term expiring in December 1996 and will
automatically renew for one-year periods unless notice of non-renewal is given
at least three months prior to the end of a term. Bonuses may be awarded to
Messrs. Levey and Weber based on PRT's performance in amounts determined at the
discretion of the PRT Board of Directors or a committee thereof designated for
that purpose. A Compensation Committee was appointed in July 1994. The
Employment Agreements provide that they will not terminate upon a merger or
consolidation of PRT or the transfer of substantially all of PRT's assets, but
that the surviving corporation or transferee will continue to be bound by the
agreements and to obtain the benefits thereof. PRT also has employment contracts
with four other officers of PRT, providing for annual salaries ranging from
$90,000 to
66
<PAGE>
$150,000, with terms through 1996. PRT has obtained "key man" life insurance
policies on Messrs. Levey and Weber in the amounts of $5,000,000 and $2,500,000,
respectively. Mr. Levey will enter into a new employment agreement upon
consummation of the Merger. Mr. Weber's employment agreement will be amended and
he will enter into the Noncompetition Agreement. See "THE MERGER -- Interests of
Certain Persons in the Merger."
Stock Option Grants. No Named Executive Officer was granted any options
during 1995.
Stock Option Exercises and Option Holdings. The following table sets forth
certain information concerning option exercises and option holdings for the
fiscal year ended December 31, 1995 with respect to the Named Executive
Officers:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT 12/31/95 OPTIONS AT 12/31/95
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE RECEIVED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Levey................. -- -- -- -- -- --
Steven A. Weber.................. -- -- -- -- -- --
Gary L. Hewitt................... 3,000 $ 6,330 4,093 28,370 $ 13,240 $ 91,777
Douglas E. Gravink............... -- -- 6,029 24,114 $ 19,504 $ 78,009
Steven Moore..................... -- -- 35,462 53,194 $ 114,720 $ 172,082
</TABLE>
1994 Stock Option Plan. In February 1994, PRT established the Stock Option
Plan. A total of 600,000 shares of Common Stock have been reserved for issuance
under the Stock Option Plan, as amended. As of the date hereof, PRT has granted
options under the Stock Option Plan to purchase an aggregate 398,490 shares of
PRT Common Stock, 383,990 of which are currently outstanding, including options
to officers and directors covering 370,078 shares. Pursuant to the Stock Option
Plan, PRT may grant incentive stock options and non-statutory stock options to
key employees, officers, directors and consultants of PRT or any of its
subsidiaries. The Plan is administered by the stock option committee of the PRT
Board consisting of Messrs. Levey and Weber, each of whom is a "disinterested
person" within the meaning of Rule 16b-3 of the Exchange Act. The administrators
generally are empowered to interpret the Stock Option Plan, prescribe rules and
regulations relating thereto, determine the terms of the option agreements,
amend them with the consent of the optionee, determine the employees to whom
options are to be granted, and determine the number of shares subject to each
option and the exercise price thereof.
Plan Options generally vest over five years after the date of grant. The
maximum term of a Plan Option is ten years, but if the holder of an incentive
stock option has, at the time of grant, voting power over more than 10% of PRT's
outstanding capital stock, the maximum term is five years. Generally, under the
agreements granting Plan Options, if an optionee terminates his or her service
to PRT, the optionee may exercise only those Plan Options vested as of the date
of termination and must effect such exercise within 90 days of termination of
service for any reason other than death or disability and one year after
termination due to disability or death. The exercise price of incentive stock
options granted under the Stock Option Plan must be at least equal to the fair
market value of the PRT Common Stock on the date of grant. The exercise price of
non-statutory stock options is at the discretion of the administrators of the
Stock Option Plan; however, to date, all options granted under the Stock Option
Plan have been granted with an exercise price equal to the fair market value of
the PRT Common Stock on the date of grant. The exercise price of any incentive
stock options granted to an optionee who owns stock possessing more than 10% of
the voting power of PRT's outstanding capital stock must equal at least 110% of
the fair market value of the PRT Common Stock on the date of grant. Payment of
the exercise price of Plan Options may be made (i) in cash; (ii) by shares of
PRT
67
<PAGE>
Common Stock valued at the fair market value on the date of exercise; (iii) by
delivery to a broker of a notice of exercise and instructions to sell the shares
issuable upon exercise and to pay PRT the exercise price from the sale proceeds;
or (iv) by a combination of such methods of payment.
The Stock Option Plan provides that upon the occurrence of (i) the
dissolution or liquidation of PRT, (ii) a reorganization, merger or
consolidation of PRT with one or more corporations as a result of which PRT is
not the surviving corporation, or (iii) a sale of substantially all of the
assets of PRT to an unrelated party, the Board of Directors or other
administrators of the Stock Option Plan shall provide for any or all of the
following alternatives (separately or in combination) which shall, as nearly as
practicable, preserve the benefits of outstanding options which have accrued to
the holders thereof: (a) for the Plan Options to become immediately exercisable;
(b) for the assumption by the successor corporation of the Plan Options
theretofore granted or the substitution by such corporation for such Plan
Options of new options covering the stock of the successor corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and prices; (c) for the continuance of the Stock Option Plan by
such successor corporation in which event the Stock Option Plan and the Plan
Options theretofore granted shall continue in the manner and under the terms so
provided; or (d) for the payment in cash or stock in lieu of and in complete
satisfaction of such Plan Options.
Profit Sharing Plan. In April 1989, PRT adopted a defined contribution
profit sharing plan (the "Profit Sharing Plan"). All employees of PRT and
certain of PRT's subsidiaries who have completed one year of service with PRT or
the subsidiary, have attained the age of twenty one and who are not covered by a
collective bargaining agreement that provides for retirement benefits are
eligible to participate in the Profit Sharing Plan. Contributions to the Profit
Sharing Plan are discretionary with the PRT Board. Distributions may be made
from a participant's account upon termination of employment, retirement, death
or disability. Certain Named Executive Officers participate in the Profit
Sharing Plan. No contributions were made to the Profit Sharing Plan in fiscal
years 1994 and 1995.
Limitation of Liability and Indemnification. PRT's Amended and Restated
Articles of Incorporation (the "PRT Articles") limit the liability of PRT's
directors for monetary damages to the fullest extent permitted under California
law. The PRT Articles authorize PRT to indemnify agents of PRT in excess of the
indemnification otherwise permitted by Section 317 of the CCC, subject only to
applicable limits set forth in Section 204 of the CCC with respect to actions
for breach of duty to the corporation and its shareholders. PRT's By-laws
provide that PRT may indemnify agents to the fullest extent permitted by law.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Principal Shareholders. The following table sets
forth certain information with respect to the beneficial ownership of PRT Common
Stock as of March 25, 1996 by each person known by PRT to be the beneficial
owner of more than 5% of the outstanding shares of PRT Common Stock.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES CLASS
- ------------------------------------------ ----------- -----------
<S> <C> <C>
Michael S. Levey 1,329,846 36.96%
14724 Ventura Boulevard, Suite 600
Sherman Oaks, California
Stephen A. Weber 309,854 8.61%
14724 Ventura Boulevard, Suite 600
Sherman Oaks, California
</TABLE>
Security Ownership of Management. The following table sets forth certain
information regarding the beneficial ownership of the PRT's Common Stock as of
March 25, 1996, by (i) each director of PRT, (ii) each of PRT's executive
officers and (iii) all directors and executive officers of PRT as a group.
68
<PAGE>
Except as otherwise noted, and subject to applicable community property and
similar laws, each person named has sole voting and investment power with
respect to the PRT Common Stock shown as beneficially owned.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OWNED CLASS (1)
- ------------------------------------- ----------------- -------------
<S> <C> <C>
Michael S. Levey 1,329,846 36.96%
14724 Ventura Blvd., Suite 600
Sherman Oaks, CA 91403-3501
Stephen A. Weber 309,854 8.61%
14724 Ventura Blvd., Suite 600
Sherman Oaks, CA 91403-3501
David M. Wood 131,210(2) 3.52%
14724 Ventura Blvd., Suite 600
Sherman Oaks, CA 91403-3501
Steven Moore 53,194(2) 1.46%
14724 Ventura Blvd., Suite 600
Sherman Oaks, CA 91403-3501
Douglas E. Gravink 47,519(3) 1.32%
14724 Ventura Blvd., Suite 600
Sherman Oaks, CA 91403-3501
Gary L. Hewitt 11,185(2) *
14724 Ventura Blvd., Suite 600
Sherman Oaks, CA 91403-3501
Steven M. Dworman 5,000(2) *
11533 Thurston Circle
Los Angeles, CA 90049
Raymond P. Gaytan 8,773 (4) *
520 S. Lafayette Park Place
Suite 400
Los Angeles, CA 90057
All directors and executive officers
as a group (11 persons) 1,924,951 (5) 50.05 %
</TABLE>
* Less than 1%
- ------------------------
(1) Includes 3,598,077 shares of PRT Common Stock outstanding as of March 25,
1996 and to the extent set forth in the next sentence only, shares issuable
upon the exercise of Plan Options held by the persons included in the table.
For the purpose of computing the percentage of outstanding shares
beneficially owned by a particular person, any shares not outstanding which
are subject to Plan Options exercisable by that person within 60 days of
March 25, 1996, have been deemed to be outstanding, but have not been deemed
to be outstanding for the purpose of computing the percentage of the class
beneficially owned by any other person.
(2) Consists of shares issuable upon exercise of Plan Options currently
exercisable or exercisable within 60 days of March 25, 1996.
(3) Includes 12,057 shares issuable upon exercise of Plan Options currently
exercisable or exercisable within 60 days of March 25, 1996.
(4) Includes 6,773 shares issuable upon exercise of Plan Options currently
exercisable or exercisable within 60 days of March 25, 1996.
69
<PAGE>
(5) Includes 247,789 shares issuable upon exercise of Plan Options currently
exercisable or exercisable within 60 days of March 25, 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal year 1993, Messrs. Levey and Weber, PRT's then sole
shareholders, lent PRT an aggregate of $223,000. These loans were represented by
promissory notes bearing interest at rates that ranged from 6.75% to 10% per
annum. At December 31, 1993, there remained an aggregate of $289,000, including
accrued interest, owing to such shareholders. In February 1994, these amounts
were paid in full. As of December 31, 1995, an aggregate of $116,794 was owed to
PRT from Messrs. Levey and Weber representing funds advanced by PRT to such
persons during the year. Promissory notes evidencing these amounts were executed
by Messrs. Levey and Weber in March 1996, which notes provide for interest at
the rate of 8% per annum and maturity dates of December 31, 1996. In December
1995, PRT cancelled a loan from David M. Woods, a director of PRT, for an
aggregate $19,500. Advances to Douglas Gravink in the aggregate amount of
$148,298 were satisfied through an offset of a portion of his 1995 bonus.
Effective January 1, 1994, PRT acquired substantially all of the assets of
Positive Results Media, Inc., a New Mexico corporation engaged in the business
of media buying and public relations ("Media"). The consideration for such
assets was the issuance of 3,546 shares of PRT Common Stock (valued at $5.64 per
share), plus an agreement to issue an additional number of shares (not to exceed
14,185) of PRT Common Stock (the "Additional Shares") based on gross profits
generated from certain of the transferred assets. In connection with such asset
acquisition, PRT hired Media's President and sole shareholder, Douglas E.
Gravink, as its Vice President -- Media, at an annual salary rate of $110,000
plus an incentive bonus based on the net income of PRT's media subsidiary, PRM.
Prior to the asset acquisition, neither Media nor Mr. Gravink was associated
with PRT, except in Media's capacity as a media-buying agency for PRT, for which
it was paid its normal fees. Effective January 31, 1996, PRT issued 14,185
Additional Shares to Mr. Gravink.
During the fiscal years ended December 31, 1995 and 1994, PRT incurred
$266,000 and $203,000, respectively, in professional fees to Rosenthal, Gaytan &
Company, an accounting firm of which Raymond P. Gaytan, a director of PRT, is a
principal.
COMPARISON OF SHAREHOLDERS' RIGHTS
In the event that the Merger is consummated, former holders of shares of PRT
Common Stock will, at the Effective Time, own shares of NMC Common Stock.
While the rights and privileges of stockholders of a Delaware corporation
such as NMC are, in many instances, comparable to those of shareholders of a
California corporation such as PRT, there are certain differences. The following
is a summary of the material differences between the rights of holders of NMC
Common Stock and the rights of holders of PRT Common Stock at the date hereof.
These differences arise from differences between the Delaware General
Corporation Law (the "DGCL") and the CCC and between the NMC Restated
Certificate and the NMC By-laws and the PRT Articles and the PRT By-laws.
VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS
The DGCL requires the affirmative vote of a majority of the outstanding
stock entitled to vote thereon to authorize any merger or consolidation of a
corporation, except that, unless required by its certificate of incorporation,
no authorizing stockholder vote is required of a corporation surviving a merger
if (i) such corporation's certificate of incorporation is not amended in any
respect by the merger; (ii) each share of stock of such corporation outstanding
immediately prior to the effective date of the merger will be an identical
outstanding or treasury share of the surviving corporation after the effective
date of the merger and (iii) the number of shares to be issued in the merger
does not exceed 20% of such corporation's outstanding common stock immediately
prior to the effective date of the merger. The NMC Restated Certificate does not
require a greater percentage vote for such actions.
70
<PAGE>
Shareholder approval is also not required under the DGCL for mergers or
consolidations in which a parent corporation merges or consolidates with a
subsidiary of which it owns at least 90% of the outstanding shares of each class
of stock.
The CCC requires that the principal terms of a merger be approved by the
affirmative vote of a majority of the outstanding shares of each class entitled
to vote thereon, except that, unless required by its articles of incorporation,
no authorizing shareholder vote is required of a corporation surviving a merger
if the shareholders of such corporation shall own, immediately after the merger,
more than five-sixths of the voting power of the surviving corporation. The PRT
Articles do not require a greater percentage vote. The CCC further requires the
affirmative vote of a majority of the outstanding shares entitled to vote
thereon if (i) the surviving corporation's articles of incorporation will be
amended and would otherwise require shareholder approval or (ii) shareholders of
such corporation will receive shares of the surviving corporation having
different rights, preferences, privileges or restrictions (including shares in a
foreign corporation) than the shares surrendered. Shareholder approval is not
required under the CCC for mergers or consolidations in which a parent
corporation merges or consolidates with a subsidiary of which it owns at least
90% of the outstanding shares of each class of stock.
CUMULATIVE VOTING
The PRT By-laws provide for cumulative voting in director elections, but
neither the NMC Restated Certificate nor the NMC By-laws provide for cumulative
voting in director elections. Instead, the NMC By-laws provide that directors
need only receive a plurality of the votes cast to be elected.
AMENDMENT TO GOVERNING DOCUMENTS
The DGCL requires a vote of the corporation's board of directors followed by
the affirmative vote of a majority of the outstanding stock of each class
entitled to vote for any amendment to the certificate of incorporation, unless a
greater level of approval is required by the certificate of incorporation. The
NMC Restated Certificate does not require a greater level of approval for an
amendment thereto. If an amendment would alter the powers, preferences or
special rights of a particular class or series of stock so as to affect them
adversely, the class or series shall be given the power to vote as a class
notwithstanding the absence of any specifically enumerated power in the
certificate of incorporation. The DGCL also states that the power to adopt,
amend or repeal the By-laws of a corporation shall be in the stockholders
entitled to vote, provided that the corporation, in its certificate of
incorporation, may confer such power on the board of directors in addition to
the stockholders. The NMC Restated Certificate authorizes the board of directors
to adopt, amend or repeal the NMC By-laws.
Unless otherwise specified in a California corporation's articles of
incorporation, an amendment to the articles of incorporation requires the
approval of the corporation's board of directors and the affirmative vote of a
majority of the outstanding shares entitled to vote thereon, either before or
after the board approval. The PRT Articles do not require a greater level of
approval for an amendment thereto. Under the CCC, the holders of the outstanding
shares of a class are entitled to vote as a class if a proposed amendment to the
articles of incorporation would (i) increase or decrease the aggregate number of
authorized shares of such class; (ii) effect an exchange, reclassification or
cancellation of all or part of the shares of such class, other than a stock
split; (iii) effect an exchange, or create a right of exchange, of all or part
of the shares of another class into the shares of such class; (iv) change the
rights, preferences, privileges or restrictions of the shares of such class; (v)
create a new class of shares having rights, preferences or privileges prior to
the shares of such class, or increase the rights, preferences or privileges or
the number of authorized shares having rights, preferences or privileges prior
to the shares of such class; (vi) in the case of preferred shares, divide the
shares of any class into series having different rights, preferences, privileges
or restrictions or authorize the board of directors to do so or (vii) cancel or
otherwise affect dividends on the shares of such class which have accrued but
have not been paid. Under the CCC, a corporation's By-laws may be adopted,
amended or repealed either by the board of directors or the shareholders of the
corporation. The PRT By-laws provide that the PRT By-laws may be adopted,
amended or repeated either by the vote of the holders of a majority
71
<PAGE>
of the outstanding shares entitled to vote or by the board of directors;
provided, however, that the PRT Board may not amend the PRT By-laws in order to
change the authorized number of directors (except to alter the authorized number
of directors within the existing range of a minimum of five and a maximum of
nine directors; (b) if at any time the minimum number of directors is five or
more, such minimum number can only be reduced to a number less than five by the
vote of the holders of at least 83.33% of the outstanding Shares entitled to
vote and (c) no amendment may change the stated maximum number of authorized
directors to a number greater than two times the stated minimum number of
directors minus one. A By-law adopted by the shareholders may restrict or
eliminate the power of the PRT Board to adopt, amend or repeal the PRT By-laws.
DISSENTERS' RIGHTS
Under the DGCL, holders of shares of any class or series have the right, in
certain circumstances, to dissent from a merger or consolidation by demanding
payment in cash for their shares equal to the fair value (excluding any
appreciation or depreciation as a consequence or in expectation of the
transaction) of such shares, as determined by agreement with the corporation or
by an independent appraiser appointed by a court in an action timely brought by
the corporation or the dissenters. The DGCL grants dissenters' appraisal rights
only in the case of mergers or consolidations and not in the case of a sale or
transfer of assets or a purchase of assets for stock regardless of the number of
shares being issued. Further, no appraisal rights are available for shares of
any class or series listed on a national securities exchange or designated as a
national market system security on the Nasdaq National Market or held of record
by more than 2,000 stockholders, unless the agreement of merger or consolidation
converts such shares into anything other than (i) stock of the surviving
corporation; (ii) stock of another corporation which is either listed on a
national securities exchange or designated as a national market system security
on the Nasdaq National Market or held of record by more than 2,000 stockholders;
(iii) cash in lieu of fractional shares or (iv) some combinations of the above.
In addition, dissenters' rights are not available for any shares of the
surviving corporation if the merger did not require the vote of the stockholders
of the surviving corporation.
Generally, shareholders of a California corporation who dissent from a
merger or consolidation of the corporation are entitled to dissenters' rights.
See "THE MERGER -- Rights of Dissenting Shareholders."
DERIVATIVE ACTIONS
Derivative actions may be brought in Delaware by a stockholder on behalf of,
and for the benefit of, the corporation. The DGCL provides that a stockholder
must aver in the complaint that he or she was a stockholder of the corporation
at the time of the transaction of which he or she complains. A stockholder may
not sue derivatively unless he or she first makes demand on the corporation that
it bring suit and such demand has been refused, unless it is shown that such
demand would have been futile.
The CCC provides that a shareholder bringing a derivative action on behalf
of the corporation need not have been a shareholder at the time of the
transaction in question, provided that certain tests are met. The CCC also
provides that the corporation or the defendant in a derivative suit may make a
motion to the court for an order requiring the plaintiff shareholder to furnish
a security bond.
SHAREHOLDER CONSENT IN LIEU OF MEETING
Under the DGCL and the CCC, unless otherwise provided in the certificate or
articles of incorporation, any action required to be taken, or which may be
taken at an annual or special meeting of stockholders, may be taken without a
meeting if a consent in writing is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize such action at a meeting at which all shares entitled to vote were
present and voted. Neither the NMC Restated Certificate nor the PRT Articles
contain any special provisions relating to action by written consent.
72
<PAGE>
FIDUCIARY DUTIES OF DIRECTORS
Directors of corporations incorporated or organized under the DGCL and the
CCC have fiduciary obligations to the corporation and its shareholders. Pursuant
to these fiduciary obligations, the directors must act in accordance with the
so-called duties of "due care" and "loyalty". Under the DGCL, the duty of care
requires that the directors act in an informed and deliberative manner and
inform themselves, prior to making a business decision, of all material
information reasonably available to them. The duty of loyalty may be summarized
as the duty to act in good faith, not out of self-interest and in a manner which
the directors reasonably believe to be in the best interests of the corporation
and its stockholders. The duty of care requires that the directors act with such
care, including reasonable inquiry, as an ordinary prudent person in a like
position would exercise under similar circumstances.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The DGCL provides that a corporation may indemnify its present and former
directors, officers, employees and agents (each, an "indemnitee") against all
reasonable expenses (including attorneys' fees) and, except in actions initiated
by or in the right of the corporation, against all judgments, fines and amounts
paid in settlement in actions brought against them, if such individual acted in
good faith, and in a manner which he or she reasonably believed to be in, or not
opposed to, the best interests of the stockholders and, in the case of a
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The corporation shall indemnify an indemnitee to the extent that he or
she is successful, on the merits or otherwise, in the defense of any claim,
issue or matter associated with an action. The NMC Restated Certificate provides
for indemnification of its directors and officers to the fullest extent
authorized by the DGCL.
Under the CCC, (i) a corporation has the power to indemnify present and
former directors, officers, employees and agents against expenses, judgments,
fines and settlements (other than in connection with actions by or in the right
of the corporation), if that person acted in good faith and in a manner the
person reasonably believed to be in the best interests of the corporation and,
in the case of a criminal proceeding, had no reasonable cause to believe the
conduct of the person was unlawful and (ii) a corporation has the power to
indemnify, with certain exceptions, any person who is a party to any action by
or in the right of the corporation, against expenses actually and reasonably
incurred by that person in connection with the defense or settlement of the
action if the person acted in good faith and in a manner the person believed to
be in the best interests of the corporation and its shareholders.
The indemnification authorized by the CCC is not exclusive, and a
corporation may grant its directors, officers, employees or other agents certain
additional rights to indemnification. The PRT Articles and the PRT By-laws
provide for the indemnification of PRT's officers and directors to the fullest
extent permissible under the CCC, which may be in excess of the indemnification
expressly permitted by Section 317 of the CCC, subject to the limits set forth
in Section 204 of the CCC with respect to actions for breach of duty to the
corporation and its shareholders.
The DGCL and the CCC allow for the advance payment of an indemnitee's
expenses prior to the final disposition of an action, provided that the
indemnitee undertakes to repay any such amount advanced if it is later
determined that the indemnitee is not entitled to indemnification with regard to
the action for which the expenses were advanced.
DIRECTOR LIABILITY
The DGCL and the CCC each provide that the charter of the corporation may
include a provision which limits or eliminates the liability of directors to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided such liability does not arise from certain
proscribed conduct, including, in the case of the DGCL, (i) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (ii) breach of the duty of loyalty; (iii) the payment of unlawful
dividends or expenditure of funds for unlawful stock purchases or redemptions or
(iv) transactions from which such director derived an improper personal benefit
or, in the case of the CCC, (i) intentional misconduct or knowing and culpable
violation of law; (iii) acts or omissions
73
<PAGE>
that a director believes to be contrary to the best interests of the corporation
or its shareholders or that involve the absence of good faith on the part of the
director; (iii) the receipt of an improper personal benefit; (iv) acts or
omissions that show reckless disregard of the director's duty to the corporation
or its shareholders, where the director in the ordinary course of performing a
director's duties should be aware of a risk of serious injury to the corporation
or its shareholders; (v) acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
corporation and its shareholders; (vi) interested transactions between the
corporation and a director in which a director has a material financial interest
and (vii) liability for improper distributions, loans or guarantees. The NMC
Restated Certificate contains a provision that eliminates the liability of its
directors except for liability that arises from the proscribed conduct
enumerated above. The PRT Articles contain a provision limiting the lability of
its directors to the fullest extent provided by the CCC.
ANTI-TAKEOVER PROVISIONS AND INTERESTED STOCKHOLDER TRANSACTIONS
The DGCL prohibits, in certain circumstances, a "business combination"
between the corporation and an "interested stockholder" within three years of
the stockholder becoming an "interested stockholder." An "interested
stockholder" is a holder who, directly or indirectly, controls 15% or more of
the outstanding voting stock or is an affiliate of the corporation and was the
owner of 15% or more of the outstanding voting stock at any time within the
prior year period. A "business combination" includes a merger or consolidation,
a sale or other disposition of assets having an aggregate market value equal to
10% or more of the consolidated assets of the corporation or the aggregate
market value of the outstanding stock of the corporation and certain
transactions that would increase the interested stockholder's proportionate
share ownership in the corporation. This provision does not apply where: (i)
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the corporation's
board of directors prior to the date the interested stockholder acquired such
15% interest; (ii) upon the consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the outstanding voting stock of the corporation excluding,
for the purposes of determining the number of shares outstanding, shares held by
persons who are directors and also officers and by employee stock plans in which
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered; (iii) the business combination is
approved by a majority of the board of directors and the affirmative vote of
two-thirds of the outstanding votes entitled to be cast by disinterested
stockholders at an annual or special meeting; (iv) the corporation does not have
a class of voting stock that is listed on a national securities exchange,
authorized for quotation on an inter-dealer quotation system of a registered
national securities association, or held of record by more than 2,000
stockholders unless any of the foregoing results from action taken, directly or
indirectly, by an interested stockholder or from a transaction in which a person
becomes an interested stockholder or (v) the corporation has opted out of this
provision. NMC has not opted out of this provision.
Under the CCC, there is no comparable provision. However, the CCC does
provide that, except where the fairness of the terms and conditions of the
transaction have been approved by the California Commissioner of Corporations
and except in a "short-form" merger (the merger of a parent corporation with a
subsidiary in which the parent owns at least 90% of the outstanding shares of
each class of the subsidiary's stock), if the surviving corporation or its
parent corporation owns, directly or indirectly, shares of the target
corporation representing more than 50% of the voting power of the target
corporation prior to the merger, the nonredeemable common stock of a target
corporation may be converted only into nonredeemable common stock of the
surviving corporation or its parent corporation, unless all of the shareholders,
except where the majority shareholder already owns 90% or more of the voting
power of the target corporation and could, therefore, effect a short-form merger
to accomplish such a cash-out of minority shareholders.
74
<PAGE>
EXPERTS
The consolidated financial statements of NMC at March 31, 1995 and 1994, and
for each of the three years in the period ended March 31, 1995, which have been
incorporated by reference in this Proxy Statement/Prospectus which is made a
part of this Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon incorporated by
reference herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The combined financial statements of DirectAmerica at September 30, 1995 and
for the nine month period ended September 30, 1995, which have been incorporated
by reference in this Proxy Statement/Prospectus which is made a part of this
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated by reference herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements of PRT at December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995, included
in this Proxy Statement/Prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
LEGAL MATTERS
The validity of the NMC Common Stock issuable pursuant to the Merger will be
passed upon for NMC by Klehr, Harrison, Harvey, Branzburg & Ellers,
Philadelphia, Pennsylvania. Members of such firm beneficially own an aggregate
of 11,000 shares of NMC Common Stock. Irell & Manella, Los Angeles, California
is acting as counsel for PRT in connection with certain legal matters relating
to the Merger.
OTHER MATTERS
The PRT Board does not intend to bring any matters before the meeting other
than those specifically set forth in the notice of meeting and does not know of
any matters to be brought before the meeting by others. If any other matters
properly come before the meeting, it is the intention of the persons named in
the accompanying proxy to vote such proxy in accordance with the judgment of the
PRT Board.
75
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets, December 31, 1995 and 1994............................. F-3
Consolidated Statements of Operations, Years Ended December 31, 1995, 1994 and
1993............................................................................... F-4
Consolidated Statements of Shareholders' Equity, Years Ended December 31, 1995, 1994
and 1993........................................................................... F-5
Consolidated Statements of Cash Flows, Years Ended December 31, 1995, 1994 and
1993............................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Positive Response Television, Inc.
Sherman Oaks, California
We have audited the consolidated balance sheets of Positive Response
Television, Inc. and subsidiaries (the "Company") at December 31, 1995 and 1994
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Positive Response Television,
Inc. and subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Los Angeles, California
March 25, 1996
F-2
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS (NOTE 7)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
-------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................................... $ 725,000 $ 3,247,000
Restricted cash (Note 7).................................................... 1,500,000 1,500,000
Royalties receivable........................................................ 663,000 1,408,000
Accounts receivable, net of allowance for doubtful accounts of $237,000 and
152,000, at 1995 and 1994, respectively.................................... 4,887,000 1,938,000
Inventories................................................................. 2,413,000 1,676,000
Infomercial production costs, net of accumulated amortization of $2,873,000
and $969,000, at 1995 and 1994, respectively............................... 1,877,000 1,272,000
Current portion of notes receivable (Note 3)................................ 381,000 314,000
Prepaid air time............................................................ 2,024,000 2,834,000
Prepaid income taxes........................................................ 2,000 862,000
Prepaid expenses and other current assets................................... 628,000 914,000
Deferred air time........................................................... 1,647,000 4,192,000
Due from officers (Note 8).................................................. 121,000 193,000
-------------- --------------
Total current assets.................................................... 16,868,000 20,350,000
NOTES RECEIVABLE, NET OF CURRENT PORTION (Note 3)............................. 129,000 10,000
FURNITURE, FIXTURES AND EQUIPMENT, net (Note 4)............................... 622,000 615,000
OTHER ASSETS.................................................................. 434,000 295,000
-------------- --------------
TOTAL ASSETS............................................................ $ 18,053,000 $ 21,270,000
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................................ $ 1,001,000 $ 1,464,000
Accrued professional fees (Note 8).......................................... 323,000 132,000
Deferred revenues........................................................... 274,000 284,000
Allowance for returns....................................................... 1,394,000 893,000
Accrued Royalties........................................................... 497,000 164,000
Other accrued expenses...................................................... 783,000 590,000
Notes payable - bank (Note 7)............................................... 1,839,000 --
Current portion of long-term debt (Note 7).................................. 25,000 23,000
Profit participation payable (Note 5)....................................... 276,000 1,196,000
Deferred income taxes (Note 11)............................................. 20,000 1,675,000
-------------- --------------
Total current liabilities............................................... 6,432,000 6,421,000
LONG-TERM DEBT (Note 7)....................................................... 91,000 116,000
-------------- --------------
Total liabilities....................................................... 6,523,000 6,537,000
-------------- --------------
COMMITMENTS (Notes 5, 6, 7, 9, 10, 13 and 14)
SHAREHOLDERS' EQUITY (Note 10)
Preferred stock, no par value; 5,000,000 shares authorized, none issued or
outstanding................................................................
Capital stock, no par value; 15,000,000 shares authorized, 3,552,986 and
3,549,986 issued and outstanding at December 31, 1995 and 1994,
respectively............................................................... 11,352,000 11,335,000
Retained earnings........................................................... 178,000 3,398,000
-------------- --------------
Total shareholders' equity.............................................. 11,530,000 14,733,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................... $ 18,053,000 $ 21,270,000
-------------- --------------
-------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- -------------
<S> <C> <C> <C>
REVENUES
Product sales................................................... $ 52,239,000 $ 35,932,000 $ --
Air time sales.................................................. 7,610,000 4,068,000 --
Royalty income.................................................. 3,362,000 2,408,000 3,075,000
Production income............................................... -- 43,000 750,000
Other........................................................... 196,000 69,000 --
-------------- -------------- -------------
Total revenues................................................ 63,407,000 42,520,000 3,825,000
-------------- -------------- -------------
OPERATING COSTS AND EXPENSES
Cost of goods sold.............................................. 13,899,000 7,771,000 --
Other direct operating costs.................................... 48,117,000 26,589,000 801,000
Profit participation (Note 5)................................... 314,000 1,496,000 --
General and administrative...................................... 6,047,000 3,232,000 1,720,000
Litigation settlement, net (Note 6)............................. -- -- (150,000)
-------------- -------------- -------------
Total operating costs and expenses............................ 68,377,000 39,088,000 2,371,000
-------------- -------------- -------------
INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF VENTURES............... (4,970,000) 3,432,000 1,454,000
EQUITY IN EARNINGS OF VENTURES (Note 5)........................... -- 105,000 75,000
-------------- -------------- -------------
INCOME (LOSS) FROM OPERATIONS..................................... (4,970,000) 3,537,000 1,529,000
-------------- -------------- -------------
OTHER INCOME (EXPENSE)
Gain on exchange of venture interests (Note 5).................. -- 164,000 --
Interest income, net............................................ 78,000 111,000 (9,000)
Other........................................................... 17,000 6,000 (41,000)
-------------- -------------- -------------
Total other income (expense).................................. 95,000 281,000 (50,000)
-------------- -------------- -------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES................... (4,875,000) 3,818,000 1,479,000
PROVISION (BENEFIT) FOR INCOME TAXES (Note 11).................... (1,655,000) 1,527,000 181,000
-------------- -------------- -------------
NET INCOME (LOSS)................................................. $ (3,220,000) $ 2,291,000 $ 1,298,000
-------------- -------------- -------------
-------------- -------------- -------------
PRO FORMA (Note 11)
Income before provision for income taxes........................ $ 1,479,000
Provision for income taxes...................................... 592,000
-------------
Net income.................................................... $ 887,000
-------------
-------------
INCOME (LOSS) PER COMMON SHARE
Primary......................................................... $(0.91) $0.77 $0.49
Fully diluted................................................... $(0.91) $0.74 $0.49
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary......................................................... 3,550,076 2,985,498 1,804,239
Fully diluted................................................... 3,550,076 3,075,631 1,804,239
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
----------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993........................... 1,772,684 $ 9,000 $ 246,000 $ 255,000
Shares issued in private placement, net of
offering costs (Note 10)........................ 223,756 1,174,000 -- 1,174,000
Dividends........................................ -- -- (437,000) (437,000)
Net income....................................... -- -- 1,298,000 1,298,000
----------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1993......................... 1,996,440 1,183,000 1,107,000 2,290,000
Shares issued in acquisition of subsidiary (Note
1).............................................. 3,546 14,000 -- 14,000
Shares issued in public offering, net of offering
costs (Note 10)................................. 1,150,000 5,446,000 -- 5,446,000
Shares issued in private placement, net of
offering costs (Note 10)........................ 400,000 4,692,000 -- 4,692,000
Net income....................................... -- -- 2,291,000 2,291,000
----------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1994......................... 3,549,986 11,335,000 3,398,000 14,733,000
Shares issued upon exercise of stock options
(Note 10)....................................... 3,000 17,000 -- 17,000
Net loss......................................... -- -- (3,220,000) (3,220,000)
----------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1995......................... 3,552,986 $ 11,352,000 $ 178,000 $ 11,530,000
----------- -------------- -------------- --------------
----------- -------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)....................................................... $ (3,220,000) $ 2,291,000 $ 1,298,000
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization......................................... 2,161,000 933,000 65,000
Equity in earnings of ventures........................................ -- (105,000) (75,000)
Gain on exchange of venture interests................................. -- (164,000) --
Gain on disposal of assets............................................ (9,000) -- --
Write-off of receivable............................................... -- -- 24,000
Loss on write-off of leasehold improvements........................... -- -- 21,000
Deferred income taxes................................................. (1,655,000) 1,527,000 151,000
Changes in operating assets and liabilities
Restricted cash..................................................... -- (1,500,000) --
Royalties receivable................................................ 745,000 (1,000,000) (110,000)
Accounts receivable................................................. (2,949,000) (1,938,000) --
Production reimbursement receivable................................. -- -- 65,000
Inventories......................................................... (737,000) (1,676,000) --
Infomercial production costs........................................ (2,510,000) (1,846,000) --
Prepaid air time.................................................... 810,000 (2,820,000) --
Deferred air time................................................... 2,545,000 (4,192,000) --
Prepaid income taxes................................................ 860,000 (862,000) --
Prepaid expenses and other current assets........................... 275,000 (922,000) (25,000)
Notes receivable.................................................... (186,000) 206,000 (230,000)
Other assets........................................................ (209,000) (235,000) --
Accounts payable.................................................... (463,000) 1,413,000 (99,000)
Accrued professional fees........................................... 191,000 (180,000) 312,000
Deferred revenues................................................... (10,000) 284,000 --
Allowance for returns............................................... 501,000 893,000 --
Accrued Royalties................................................... 333,000 164,000 --
Other accrued expenses.............................................. 194,000 399,000 (128,000)
Profit participation payable........................................ (920,000) 1,196,000 --
------------ ------------ ------------
Net cash provided by (used in) operating activities............... (4,253,000) (8,134,000) 1,269,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment........................ (184,000) (536,000) (48,000)
Investment in ventures................................................ -- 7,000 (164,000)
Due from officers..................................................... 72,000 (193,000) --
Other................................................................. 10,000 (72,000) --
------------ ------------ ------------
Net cash used in investing activities............................. (102,000) (794,000) (212,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common shares from public offering.......... -- 5,483,000 (37,000)
Proceeds from issuance of common shares from private placement........ -- 4,692,000 1,174,000
Proceeds from issuance of common shares............................... 17,000 -- --
Proceeds from (repayment of) loans from shareholders.................. -- (223,000) 48,000
Proceeds from bank loan............................................... 1,839,000 -- --
Dividends............................................................. -- -- (437,000)
Other................................................................. (23,000) 118,000 --
------------ ------------ ------------
Net cash provided by financing activities......................... 1,833,000 10,070,000 748,000
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.................... (2,522,000) 1,142,000 1,805,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......................... 3,247,000 2,105,000 300,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................ $ 725,000 $ 3,247,000 $ 2,105,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. THE COMPANY
Positive Response Television, Inc. (the "Company"), is a California
corporation based in Sherman Oaks, California. The Company produces infomercials
(television shows featuring various consumer products designed to motivate
television viewers to place telephone orders for such products) and generates
product sales through the airing of such infomercials and through other
distribution channels. The consolidated financial statements include the Company
and its wholly owned subsidiaries, Positive Response Media, Inc. ("PRM") and
Positive Response Telemarketing, Inc. ("PRTI"). Ventures in which the Company
does not own a majority interest are accounted for on the equity method (see
Note 5). All intercompany accounts and transactions are eliminated in
consolidation. Certain prior year account balances have been reclassified to
conform to current year classifications.
PRM, which buys and sells air time, became an operating unit of the Company
on January 1, 1994, the date of its acquisition, in connection with which the
Company issued 3,546 shares of its common stock. Pro forma operating results
have not been presented because they would not differ significantly from actual
results.
PRTI, which is engaged in outbound telemarketing, was incorporated on May
11, 1994 and commenced operations in July 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents include checking
and money market accounts with original maturities of less than ninety days.
RESTRICTED CASH -- Restricted cash represents cash held by a bank as
collateral for the Company's line of credit (see Note 7). Such cash is invested
in short-term certificates of deposit.
INVENTORIES -- Inventories are valued at the lower of first-in, first-out
cost or market and consist of goods sold in the Company's infomercials.
INFOMERCIAL PRODUCTION COSTS -- Production costs are capitalized when
incurred. The Company amortizes such costs based upon the ratio of current
revenues to total expected revenues. Additionally, unamortized deferred
production costs are written off when management determines that such costs are
not recoverable.
PREPAID AIR TIME -- Prepaid air time represents purchased television air
time scheduled to air subsequent to the balance sheet date.
DEFERRED AIR TIME -- The Company defers a portion of purchased television
air time that aired during the current year based on a pro rata share of shipped
versus unshipped orders as of the balance sheet date.
PREPAID AND OTHER CURRENT ASSETS -- Prepaid and other current assets
primarily consist of prepaid fulfillment costs, deferred telemarketing costs
(which is deferred under the same basis as deferred air time) and prepaid
insurance costs.
FURNITURE, FIXTURES AND EQUIPMENT -- Furniture, fixtures and equipment are
stated at historical cost. Depreciation is provided for using the straight-line
method over the estimated useful lives of 5 to 7 years (see Note 4).
DEFERRED REVENUES -- Deferred revenues represent 1) cash received for
customer orders that have not yet been shipped at the balance sheet date, and 2)
the portion of the television airtime billed that has not yet aired as of the
balance sheet date.
F-7
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUES -- Revenues are composed of 1) product sales generated through
the airing of infomercials, 2) bulk sales to retailers and other distributors,
3) sale of television air time to third parties and ventures accounted for under
the equity method, 4) royalties based on product sales generated by companies to
whom the Company has granted certain marketing and distribution rights on its
products, and 5) production income, representing reimbursements by third parties
for approved infomercial production costs. Product sales and royalties are
recognized when products are shipped. Air time sales are recognized when aired.
Prior to 1994, substantially all of the Company's revenues (and consequently
most of the accounts receivable) were the result of production agreements with
National Media Corporation ("National Media") (see Note 14). Under the
agreement, the Company was reimbursed by National Media for all approved
production expenses. The reimbursed costs are shown as "production income" in
the accompanying statement of income. In addition, the Company receives
royalties based on products sold, as provided for under the production
agreement. These amounts are shown as "royalty income." Nonrefundable guarantees
are recognized upon delivery of the completed production.
OTHER DIRECT OPERATING COSTS -- Other direct operating costs consist
primarily of air time costs, fulfillment costs, telemarketing service costs and
other selling costs.
INCOME TAXES -- Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and income tax bases of
assets and liabilities that will result in taxable or deductible amounts in the
future. Such deferred income tax asset and liability computations are based on
enacted tax laws and rates applicable to periods in which the differences are
expected to affect taxable income. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in deferred
income tax assets and liabilities.
The Company operated as a cash-basis "S" corporation for both state and
Federal income tax purposes through December 31, 1993. Effective January 1,
1994, the Company elected to become a cash-basis "C" corporation (see Note 11).
EARNINGS PER SHARE -- Earnings per share amounts are computed based on the
actual weighted average number of common stock and dilutive common equivalent
shares (stock options and warrants) using the treasury stock method (see Note
10).
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates. The most
significant estimates relate to inventory obsolescence, infomercial production
costs and the allowance for returns.
F-8
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
3. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Note receivable from Telebrands Corp............................. $ 500,000
Note receivable from Transactional Media, Inc. ("TMI")........... $ 200,000
Note receivable from National Media.............................. 10,000 124,000
----------- -----------
Total...................................................... 510,000 324,000
Current portion.................................................. 381,000 314,000
----------- -----------
Noncurrent portion............................................... $ 129,000 $ 10,000
----------- -----------
----------- -----------
</TABLE>
The note receivable from Telebrands Corp. is due in equal monthly
installments through April 1997, including interest at the rate of 8.75% per
annum. The note receivable from TMI was related to the exchange of interest in
certain ventures and is payable in equal installments of $25,000 per month (see
Note 5). The note receivable from National Media related to the settlement of
the Company's lawsuit with National Media (see Note 14) and was payable in equal
installments of $10,000 per month through January 1996.
4. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consists of the following:
<TABLE>
<CAPTION>
1995 1994
------------- -----------
<S> <C> <C>
Furniture and fixtures......................................... $ 215,000 $ 171,000
Equipment...................................................... 608,000 467,000
Vehicles....................................................... 274,000 274,000
------------- -----------
1,097,000 912,000
Less accumulated depreciation.................................. 475,000 297,000
------------- -----------
$ 622,000 $ 615,000
------------- -----------
------------- -----------
</TABLE>
5. PROFIT PARTICIPATION AND INVESTMENT IN VENTURES
The Company operates certain infomercial campaigns through profit
participation arrangements which generally involve a sharing of the net profits
of the respective campaigns between the Company and its venture partners. The
portion of the net profits due to the venture partners is reflected as
components of operating costs and expenses and current liabilities.
In 1993, the Company entered into two ventures (the Kim Komando Komputer
Show and the Tai Chi Show -- the "TMI Ventures") with TMI to produce
infomercials promoting certain products. Under the terms of the TMI Venture
agreements, profits and losses were shared equally, as were all costs, including
those associated with production and the product marketing campaign. Both the
infomercial and the products they promoted were owned by the TMI Ventures.
Effective April 1, 1994, the TMI Ventures were terminated. Pursuant to the
termination agreement, the Company assigned its interest in the Kim Komando
Komputer Show to TMI in exchange for TMI's interest in the Tai Chi Show and a
$300,000 note (see Note 3). The Company recognized a $164,000 gain upon the
exchange in 1994.
F-9
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
5. PROFIT PARTICIPATION AND INVESTMENT IN VENTURES (CONTINUED)
The following are condensed combined financial statements of operations of
the ventures for the year ended December 31, 1993:
<TABLE>
<S> <C>
Revenues....................................................... $5,508,000
Expenses....................................................... 5,358,000
----------
Net income..................................................... $ 150,000
----------
----------
</TABLE>
6. LITIGATION
On May 1, 1995, a purported class action suit was filed in the United States
District Court for the Central District of California (the "Court") against the
Company and its principal executive officers alleging the that Company had made
false and misleading statements in its public filings, press releases and other
public statements with respect to its business and financial prospects. The suit
was filed on behalf of all persons who purchased common stock of the Company
during the period from January 4, 1995 to April 28, 1995. The suit seeks
unspecified compensatory damages and other equitable relief. An amended
complaint was filed on June 9, 1995, which complaint added more plaintiffs and
expanded the class period to November 1994 to April 28, 1995. The Company moved
to dismiss the amended complaint and the compliant was dismissed by the Court in
late July 1995. The plaintiffs were granted sixty days leave to file another
amended complaint to allow them an attempt to state valid claims against the
Company.
On or about September 25, 1995, the plaintiffs filed a Second Amended
Complaint ("SAC"). The SAC added new defendants and attempts to set forth new
facts to support plaintiffs' entitlement to legal relief. On October 31, 1995,
the Company again moved to dismiss plaintiffs' entire action. The Court denied
the motion on December 11, 1995. Discovery is continuing.
An investigation of the Company and one of its shareholders by the Federal
Trade Commission ("FTC") for alleged unfair practices in the promotion and sale
of certain products was settled April 23, 1993. The settlement agreement
required the Company to pay $275,000 and to comply with all regulatory
requirements of the FTC in the Company's future production of infomercials.
The Company is a plaintiff or defendant in a number of commercial litigation
matters. Management of the Company does not believe that the disposition of any
of these matters will have a material adverse effect on the Company's financial
condition.
7. NOTE PAYABLE AND LONG-TERM DEBT
In May 1994, the Company obtained a $1,350,000 bank line of credit (the
"Line") to finance operations and inventory purchases, pursuant to which the
Company must maintain a $1,500,000 security deposit with the bank. In addition,
$200,000 of the Line was applied as a reserve against the Company's merchant
card activity for future returns and charge-backs. The Line is renewable
annually on May 1st and bears interest at a rate per annum one-half percent
(1/2%) below the prime rate in effect from time to time. The bank's prime rate
at December 31, 1995 was 8.5%. As of December 31, 1995, the Company's borrowings
under this Line were $339,000. Net of total open letters of credit of $146,000,
the total available on the Line at December 31, 1995 was $665,000.
In May 1995, the Company obtained a $2,500,000 line of credit (the "Second
Line") from another institution to finance operations and inventory purchases.
This line of credit contains certain financial covenants, which provide, among
other things, for the maintenance of a minimum consolidated net worth, minimum
liquidity and restrictions on certain expenditures. The Second Line is secured
by certain of the Company's assets, including accounts receivable and inventory.
The Second Line is
F-10
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
7. NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED)
renewable annually on May 1st and bears interest at a rate per annum one percent
(1%) above the bank's reference rate. The bank's reference rate at December 31,
1995 was 8.5%. As of December 31, 1995, the Company had borrowed $1,500,000
under this Second Line.
As of December 31, 1995, the Company was not in compliance with several of
the financial covenants, including the minimum net worth and liquidity
requirements under the Second Line. Although the bank has not granted a waiver
for these defaults, it has elected not to pursue any of its remedies under the
Second Line at this time pending the merger with National Media (see Note 14).
In the event the merger is not consummated, the Company plans to negotiate the
agreement.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Note payable to bank, secured by vehicle, due in 1997, bearing
interest at 7.25% per annum..................................... $ 9,000 $ 16,000
Lease obligation, secured by vehicle, expiring in 1998, bearing
interest at 8% per annum........................................ 107,000 123,000
----------- -----------
Total long-term debt............................................. 116,000 139,000
Less current portion............................................. 25,000 23,000
----------- -----------
Non-current portion.............................................. $ 91,000 $ 116,000
----------- -----------
----------- -----------
</TABLE>
8. RELATED PARTY TRANSACTIONS
The Company has loans to officers totaling $121,000, which mature on
December 31, 1996, and bear interest at 8% per annum.
Certain directors and shareholders of the Company provided professional
services to the Company. The Company incurred $1,516,000, $417,000 and $409,000
in professional fees from these related parties in 1995, 1994 and 1993,
respectively. At December 1995 and 1994, a total of $216,000 and $78,000,
respectively, were accrued and payable to these parties.
9. PROFIT SHARING PLAN
The Company maintains a defined contribution profit sharing plan for all its
full-time employees. No contributions were authorized by the Board of Directors
for the years ended December 31, 1995 and 1994. Contribution by the Company to
the Plan in 1993 totaled $96,000.
10. COMMON STOCK AND STOCK OPTIONS
In December 1993, the Company completed a private placement of its common
stock. The Company issued 223,756 shares of its common stock at $5.64 per share
and realized proceeds (net of offering costs) of $1,174,000 from this offering.
On May 11, 1994, the Company completed an initial public offering, issuing
one million shares of its common stock at $6 per share. On June 16, 1994, an
additional 150,000 shares were issued upon exercise of the underwriters'
over-allotment option, at $6 per share. The Company's net proceeds, after
payment of all offering costs, were $5,446,000. As part of their consideration,
the underwriters were granted warrants to purchase up to 100,000 shares of the
Company's common stock. The warrants became exercisable on May 4, 1995 at $7.20
per share and expire on May 3, 1999.
F-11
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
10. COMMON STOCK AND STOCK OPTIONS (CONTINUED)
On September 19, 1994, the Company issued an additional 400,000 shares of
its common stock at $12.50 per share in a private placement offering. The
Company's net proceeds, after payment of fees and related expenses, were
$4,692,000.
In January 1994, the Company adopted the 1994 Stock Option Plan (the
"Plan"), which reserved 390,088 common shares to be issued for officers,
directors and key employees. In November 1994, the authorized Plan shares were
increased to 600,000 shares. As of December 31, 1995, 398,490 options had been
granted at exercise prices ranging from $5.64 per share to $14.875 per share, of
which 228,228 were exercisable. As of December 31, 1995, 3,000 options had been
exercised with an additional 11,500 options exercised in January 1996. The
remaining options become exercisable at 20 percent annual increments through
1999. All options expire ten years from the date of grant. The exercise price is
set at or above the current stock price at the date of grant.
In October 1995, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 123, "Accounting for Stock-Based Compensation." The
Company does not plan to adopt the fair value features of the statement and
instead will base its accounting on the provisions of Accounting Principles
Board Opinion No. 25.
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993 (1)
-------------- ------------- -------------
<S> <C> <C> <C>
Current
Federal........................................................... $ 20,000
State............................................................. $ 30,000
Deferred
Federal........................................................... (1,424,000) $ 1,184,000 114,000
State............................................................. (251,000) 343,000 37,000
-------------- ------------- -------------
($ 1,655,000) $ 1,527,000 $ 181,000
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
F-12
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
11. INCOME TAXES (CONTINUED)
Deferred income taxes and liabilities consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------------------------- ----------------------------
FEDERAL STATE FEDERAL STATE
------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Current Asset:
Net operating loss carryforwards.................... $ 518,000 -- $ 972,000 $ 122,000
Accounts receivable reserve......................... 47,000 $ 13,000 41,000 11,000
Reserve for returns................................. 252,000 69,000 284,000 77,000
Reserve for obsolete inventory...................... 90,000 25,000 37,000 10,000
------------- ------------- -------------- ------------
907,000 107,000 1,334,000 220,000
Valuation allowance................................. (268,000) -- (1,334,000) (220,000)
------------- ------------- -------------- ------------
Current asset net of allowance.................. 639,000 107,000 -- --
------------- ------------- -------------- ------------
Current Liability:
Cash to accrual adjustments......................... (630,000) (107,000) (1,424,000) (251,000)
Other............................................... (9,000) -- -- --
------------- ------------- -------------- ------------
Current liability............................... (639,000) (107,000) (1,424,000) (251,000)
------------- ------------- -------------- ------------
Net Current Liability........................... $ -- $ -- $ (1,424,000) $ (251,000)
------------- ------------- -------------- ------------
------------- ------------- -------------- ------------
</TABLE>
A reconciliation between the statutory federal income tax rate and the
effective income tax rates based on continuing operations is as follows:
<TABLE>
<CAPTION>
PRO FORMA
1995 1994 1993 (1)
----------- ----------- ------------
<S> <C> <C> <C>
Federal statutory income tax rate.............................................. (34.0)% 34.0% 34.0%
State taxes, net of federal benefit............................................ (5.1) 6.2 6.2
Effect of losses without current year benefit.................................. 4.8 -- --
Other.......................................................................... 0.4 (0.2) (0.2)
----------- ----------- ------
Total.................................................................... (33.9)% 40.0% 40.0%
----------- ----------- ------
----------- ----------- ------
</TABLE>
- ------------------------
(1) 1993 amounts result primarily from the conversion from an S corporation
taxpayer to a C corporation taxpayer using the cash-basis of accounting for
income taxes. The pro forma results of operations in the 1993 statements of
operations are presented as if the Company had been a C corporation with a
combined Federal and state income tax rate of 40%.
The Company has available net operating loss carryforwards for Federal
income tax purposes of $1,522,000, expiring in year 2009.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for income taxes were 0, $862,000 and $37,000 in 1995, 1994
and 1993, respectively. Cash payments for interest were $112,000, $10,000 and
$3,000 in 1995, 1994 and 1993, respectively.
In 1993, the Company purchased an automobile, financing $22,000 of the
purchase price. In 1994, the Company entered into a capital lease for an
automobile, which was capitalized at $130,000 (see Note 7).
F-13
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
13. COMMITMENTS
LEASES -- The Company leases office space through a lease which expires
July 15, 1996, with a one year renewal option. Rent expense for 1995, 1994 and
1993 was $219,000, $168,000 and $43,000, respectively.
EMPLOYMENT CONTRACTS -- The Company has employment contracts with five
officers which expire in 1996, under which annual compensation aggregating
$894,000 is to be paid in 1996.
14. NATIONAL MEDIA CORPORATION
In May, 1993, the Company filed a breach of contract and declaratory relief
action against National Media (see Note 2), alleging that National Media had not
paid royalties earned in connection with the production and airing of a number
of infomercials. The suit also asserted the Company's ownership interest in a
certain service mark and sought reimbursement for attorney's fees and FTC
consent decree damages the Company incurred as indemnifiable expenses pursuant
to a written agreement with National Media.
On December 11, 1993, the Company and National Media entered into a
settlement agreement, with National Media agreeing to pay the Company all
outstanding royalties and an additional amount aggregating $560,000. The Company
received $300,000 in December 1993, and received $250,000 of its settlement over
a 25-month period commencing January 1994 (see Note 3). In addition, the Company
was relieved of a $10,000 obligation. The settlement also provided that National
Media has sole and exclusive ownership of the service mark, but that all future
shows using that name would be produced exclusively by the Company and hosted
exclusively by Mike Levey, the majority shareholder of the Company. The gain
reported in the 1993 statements of operations are net of attorney's fees
associated with the litigation in the amount of approximately $390,000. In
connection with the settlement agreement, the Company also entered into a new
production agreement with National Media.
On October 19, 1994, the Company and National Media entered into a new
Marketing, Distribution and Service Mark Agreement (the "New Agreement"). Under
the terms of the New Agreement, the Company paid $100,000 to obtain sole right,
title and interest in and to the "Amazing Discoveries" service mark. In
addition, National Media was granted exclusive rights to distribute certain of
the Company's infomercials in certain United States television markets and
certain foreign countries. As consideration, National Media reimbursed the
Company for one-half of the infomercial production costs, up to a maximum
reimbursement of $125,000, plus royalties ranging from 23% to 25% of Adjusted
Net Revenues (as defined) for sales to end-users and 40% of Adjusted Gross
Profit (as defined) for sales to other distributors.
On January 17, 1996, the Company entered into an Agreement and Plan of
Merger and Reorganization (as amended, the "Merger Agreement"), by and among the
Company, National Media and a wholly-owned subsidiary of National Media ("Merger
Sub"), pursuant to which the Company will be merged with and into Merger Sub
(the "Merger"), the Company's separate corporate existence will be extinguished,
and the equity interest of the Company's shareholders in the Company will cease.
The surviving corporation will be renamed "Positive Response Television, Inc."
and it will continue as a wholly-owned subsidiary of National Media.
Pursuant to the terms of the Merger Agreement, each outstanding share of
common stock of the Company (other than in limited circumstances, shares as to
which dissenters' rights of appraisal have been perfected under Chapter 13 of
the California Corporations Code and shares held by National
F-14
<PAGE>
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
14. NATIONAL MEDIA CORPORATION (CONTINUED)
Media) will be converted into the right to receive a maximum .5239 shares (the
"Exchange Ratio") of National Media's common stock, $.01 par value per share
("NMC Common Stock"), less a pro rata portion of any Reduction Amount (as
defined below). The Reduction Amount is defined as that number of shares of NMC
Common Stock equal to (x) two, multiplied by (y) the amount, if any, by which
the Minimum Shareholders' Equity (as defined below) exceeds the Company's
shareholders' equity as of December 31, 1995 (subject to adjustment for any
material changes thereto which occur after such date and subject to reduction
for certain agreed upon balance sheet items), divided by (z) $14.125. For
purposes of the Merger Agreement, "Minimum Shareholders' Equity" is defined as
$13,000,000, less the amount of all costs incurred by the Company directly in
connection with the Merger Agreement, the Merger and the transactions
contemplated thereby and given effect in the Company's financial statements. The
Merger Agreement also provides that, under certain circumstances, a number of
shares of NMC Common Stock equal in dollar value (based upon a price of $14.125
per share of NMC Common Stock) to certain of the Company's balance sheet items
and otherwise issuable, on a pro rata basis, to the shareholders of the Company
(the "Escrow Shares") will be held in escrow and will be deliverable out of
escrow, if at all, within approximately 18 months after the anticipated date of
closing, only upon the realization of the value of such items and the
satisfaction of certain conditions set forth in the Merger Agreement and an
Escrow Agreement to be entered into pursuant thereto.
The Merger Agreement also provides that each outstanding option to purchase
shares of the Company's stock will be assumed by National Media upon the same
terms and conditions as set forth in the Stock Option Plan and the agreement
pursuant to which each such option was issued, subject, however, to appropriate
adjustment (as to both number of shares and exercise price) to reflect the
Exchange Ratio (and the effect of the Reduction Amount thereon). Similarly, each
outstanding stock purchase right (if any) will be assumed by National Media upon
the same terms and conditions as set forth in the agreement or instrument
pursuant to which each such stock purchase right was issued or granted, subject,
however, to appropriate adjustment (as to both number of shares and exercise or
conversion price) to reflect the Exchange Ratio (and the effect of the Reduction
amount thereon). Currently, there are no stock purchase rights outstanding.
F-15
<PAGE>
ANNEX A -- AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
A-1
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
Agreement and Plan of Merger and Reorganization, dated as of January 17,
1996 (this "Agreement"), by and among National Media Corporation, a Delaware
corporation ("Parent"), PRT Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and Positive Response
Television, Inc., a California corporation (the "Company").
Witnesseth:
Whereas, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders for the Company to be acquired by Parent pursuant to the
merger (the "Merger") of the Company with and into Merger Sub upon the terms and
subject to the conditions set forth herein;
Whereas, in furtherance thereof, the Boards of Directors of Parent, Merger
Sub and the Company have each approved the Merger in accordance with the
applicable provisions of the Delaware General Corporation Law ("Delaware Law")
and the California Corporations Code ("California Law"), and upon the terms and
subject to the conditions set forth herein;
Whereas, pursuant to the Merger, each outstanding share (a "Share") of the
Company's common stock, without par value (the "Company Common Stock"), shall be
converted into the right to receive (subject to the provisions of Section 6.04
hereof) the Merger Consideration (as defined in Section 1.07(b) hereof), upon
the terms and subject to the conditions set forth herein;
Whereas, Parent, Merger Sub and the Company intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations thereunder, and to cause the Merger to
qualify as a reorganization under the provisions of Section 368(a) of the Code;
and
Whereas, as an inducement to the Parent's willingness to enter into this
Agreement, each of the directors and executive officers of the Company have
entered into a letter agreement with Parent in substantially the form attached
hereto as Exhibit A;
Now, therefore, in consideration of the foregoing premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.01. THE MERGER.
(a) Effective Time. At the Effective Time (as defined in Section 1.02), and
subject to and upon the terms and conditions of this Agreement, California Law
and Delaware Law, respectively, the Company shall be merged with and into the
Merger Sub, the separate corporate existence of the Company shall cease, and the
Merger Sub shall continue as the surviving corporation. The Merger Sub as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
(b) Closing. Unless this Agreement shall have been terminated and the
transactions contemplated herein shall have been abandoned pursuant to Section
7.01 hereof, subject to the satisfaction or waiver of the conditions set forth
in Article VI hereof, the consummation of the Merger will take place as promptly
as practicable (and in any event within two business days) after satisfaction or
waiver of the conditions set forth in Article VI hereof, at the offices of
Klehr, Harrison, Harvey, Branzburg & Ellers, 1401 Walnut Street, Philadelphia,
Pennsylvania 19102, unless another date, time or place is agreed to in writing
by the parties hereto.
A-2
<PAGE>
Section 1.02. EFFECTIVE TIME. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI hereof, the
parties hereto shall cause the Merger to be consummated by filing articles of
merger (the "Articles of Merger"), together with any required certificates, with
the Secretary of State of the State of California and the Secretary of State of
the State of Delaware, in such forms as are required by, and executed in
accordance with, the relevant provisions of California Law and Delaware Law,
respectively (the time of the latter of such filings being the "Effective
Time").
Section 1.03. EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Articles of Merger and
the applicable provisions of California Law and Delaware Law, respectively.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
Section 1.04. CERTIFICATE OF INCORPORATION; BY-LAWS.
(a) Certificate of Incorporation. Unless otherwise determined by Parent
prior to the Effective Time, at the Effective Time the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by Delaware Law and such Certificate of
Incorporation; provided, however, that Article I of the Certificate of
Incorporation of the Surviving Corporation shall be amended as of the Effective
Time to read as follows: "FIRST" The name of the corporation is Positive
Response Television, Inc."
(b) By-Laws. At the Effective Time, the By-Laws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation until thereafter amended as provided by Delaware Law, the
Certificate of Incorporation of the Surviving Corporation and such By-Laws.
Section 1.05. DIRECTORS AND OFFICERS. The directors and officers of Merger
Sub immediately following the Effective Time shall be as indicated on Exhibit B
attached hereto, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation.
Section 1.06. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, the Company
or the holders of any of the following securities:
(a) Conversion of Securities. Each Share issued and outstanding immediately
prior to the Effective Time (excluding any Shares to be cancelled pursuant to
Section 1.06(b) and any Dissenting Shares (as defined in Section 1.09)) shall be
converted, subject to Section 1.06(f), into the right to receive (subject to the
provisions of Section 6.04 hereof) .5239 (the "Exchange Ratio") validly issued,
fully paid and nonassessable shares of common stock of Parent, $.01 par value
per share (the "Parent Common Shares").
(b) Cancellation. Each Share held in the treasury of the Company and each
Share owned by Parent, Merger Sub or any direct or indirect wholly-owned
subsidiary of the Company or Parent immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, be cancelled and retired without payment of
any consideration therefor and cease to exist.
(c) Stock Options and Stock Purchase Rights. All Stock Options (as defined
in Section 5.05 hereof) then outstanding under the Company's 1994 Stock Option
Plan (the "Company Option Plan") shall be assumed by Parent in accordance with
Section 5.05 hereof. All Stock Purchase Rights (as defined in Section 5.06
hereof) then outstanding shall be converted into the right to purchase Parent
Common Shares in accordance with Section 5.06 hereof.
(d) Capital Stock of Merger Sub. Each share of common stock, $.01 par value
per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall become shares of the
A-3
<PAGE>
Surviving Corporation after the Merger and shall thereafter constitute all of
the issued and outstanding shares of the capital stock of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock splits, reverse splits, stock dividends
(including any dividends or distributions of securities convertible into Parent
Common Shares or Company Common Stock), reorganizations, recapitalizations or
other like changes with respect to Parent Common Shares or Company Common Stock
occurring after the date hereof and prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Parent Common Shares will
be issued, but in lieu thereof each holder of Company Common Stock who would
otherwise be entitled to a fraction of a share of Parent Common Shares (after
aggregating all fractional shares of Parent Common Shares to be received by such
holder) shall receive from Parent an amount of cash (rounded to the nearest
whole cent), without interest, equal to the product of (i) such fraction,
multiplied by (ii) the average closing price of the Parent Common Shares on the
New York Stock Exchange ("NYSE") for the twenty (20) trading days prior to the
consummation of the Merger.
Section 1.07. EXCHANGE OF CERTIFICATES.
(a) Exchange Agent. Subject to the provisions of Section 6.04 hereof,
Parent shall supply, or shall cause to be supplied, to or for the account of an
exchange agent designated by Parent (the "Exchange Agent"), in trust for the
benefit of the holders of Company Common Stock (other than Dissenting Shares),
for exchange in accordance with this Section 1.07, through the Exchange Agent,
certificates evidencing the Parent Common Shares issuable pursuant to Section
1.06 in exchange for outstanding Shares.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each holder
of record of a certificate or certificates which immediately prior to the
Effective Time evidenced outstanding Shares (other than Dissenting Shares) (the
"Certificates") (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon prior delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Parent may reasonably specify)
and (ii) instructions to effect the surrender of the Certificates in exchange
for the certificates evidencing shares of Parent Common Shares and, in lieu of
any fractional shares thereof, cash. Upon surrender of a Certificate for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed and such other customary documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor, subject to the provisions of Section 6.04 hereof, (A)
certificates evidencing that number of whole Parent Common Shares which such
holder has the right to receive in accordance with the Exchange Ratio in respect
of the Shares formerly evidenced by such Certificate, (B) any dividends or other
distributions to which such holder is entitled pursuant to Section 1.07(c) and
(C) cash in lieu of fractional Parent Common Shares to which such holder is
entitled pursuant to Section 1.06(f) (the Parent Common Shares, dividends,
distributions and cash described in this clause (C) being, collectively, the
"Merger Consideration"), and the Certificate(s) so surrendered shall forthwith
be cancelled. In the event of a transfer of ownership of Shares which is not
registered in the transfer records of the Company as of the Effective Time,
Parent Common Shares and cash may be issued and paid in accordance with this
Article I to a transferee if the Certificate evidencing such Shares is presented
to the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer pursuant to this Section 1.07(b) and by evidence that any
applicable stock transfer taxes have been paid. Until so surrendered, each
outstanding Certificate that, prior to the Effective Time, represented shares of
the Company Common Stock will be deemed, from and after the Effective Time, for
all corporate purposes other than the payment of dividends, to evidence the
ownership of the number of full shares of Parent
A-4
<PAGE>
Common Shares into which such shares of the Company Common Stock have been so
converted and the right to receive an amount in cash in lieu of the issuance of
any fractional shares in accordance with Section 1.06(f) hereof.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Parent
Common Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate until the holder of such Certificate
shall surrender such Certificate. Subject to applicable law, following surrender
of any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Shares issued in
exchange therefor, without interest, at the time of such surrender, the amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Shares.
(d) Transfers of Ownership. If any certificate for shares of Parent Common
Shares is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any person designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Shares in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(e) No Liability. Neither Parent, Merger Sub nor the Company shall be
liable to any holder of Company Common Stock for any Merger Consideration (or
dividends or distributions with respect thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(f) Withholding Rights. Parent, the Surviving Corporation and the Exchange
Agent shall be entitled to deduct and withhold from the Merger Consideration
otherwise payable pursuant to this Agreement to any holder of Company Common
Stock such amounts as Parent, the Surviving Corporation or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment under
the Code or any provision of state, local, provincial or foreign law. To the
extent that amounts are so withheld, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the Shares
in respect of which such deduction and withholding was made.
Section 1.08. STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of the Company Common Stock thereafter on the records
of the Company.
Section 1.09. DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary, any
holder of Shares falling within the definition of "dissenting shares", as such
term is defined under Section 1300(b) of California Law (any such Shares being
hereinafter referred to as "Dissenting Shares"), and who, as of the Effective
Time, has not effectively withdrawn or lost dissenters' rights with respect to
such Dissenting Shares pursuant to an event described in Section 1308 of
California Law, shall be entitled to such rights with respect to such Dissenting
Shares as are granted by California Law.
(b) Notwithstanding the provisions of subsection (a) hereof, if any holder
of Dissenting Shares shall effectively withdraw or lose (through failure to
perfect or otherwise) such holder's dissenters' rights, then, as of the later of
the Effective Time or the occurrence of such event, such holder's Shares shall
automatically be converted into and represent only the right to receive the
Merger Consideration, without interest thereon, upon surrender of the
Certificate or Certificates representing such Shares.
A-5
<PAGE>
(c) The Company shall give Parent (i) prompt notice of any written demands
received by the Company to require the Company to purchase shares of capital
stock of the Company pursuant to Chapter 13 of California Law, withdrawals of
such demands, and any other instruments served pursuant to California Law and
received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, voluntarily make any
payment with respect to any such demands or offer to settle or settle any such
demands.
(d) To the extent required by applicable California Law, the Company shall
establish an escrow account and adopt procedures in connection therewith to
carry out the foregoing.
Section 1.10. NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. The
Merger Consideration delivered upon the surrender for exchange of Shares in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
Shares which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be cancelled and exchanged as provided in this Article I.
Section 1.11. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such Parent Common
Shares as may be required pursuant to Section 1.06; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
Section 1.12. TAX CONSEQUENCES. It is intended by the parties hereto that
the Merger shall constitute a reorganization within the meaning of Section 368
of the Code. The parties hereto hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
Section 1.13. TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of Parent,
Merger Sub and the Company in good faith will take all such commercially
reasonable and lawful action as may be necessary or appropriate in order to
effectuate the Merger in accordance with this Agreement as promptly as possible.
If, at any time after the Effective Time, any such further action is necessary
or desirable to carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company and Merger
Sub, the officers and directors of the Company and Merger Sub are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
Section 1.14. MATERIAL ADVERSE EFFECT; ORDINARY COURSE OF BUSINESS. When
used in connection with the Company or any of its subsidiaries, or Parent or any
of its subsidiaries, as the case may be, the term "Material Adverse Effect", or
any derivation thereof, means any change or effect that, individually or when
taken together with all other such related changes or effects that have occurred
prior to the date of determination of the occurrence of the Material Adverse
Effect, is or is reasonably likely to be materially adverse to the business,
assets (including intangible assets), financial condition or results of
operations of the Company and its subsidiaries or Parent and its subsidiaries,
as the case may be, in each case taken as a whole.
When used in connection with the Company or any of its subsidiaries, or
Parent or any of its subsidiaries, as the case may be, the term "ordinary course
of business", or any derivation thereof,
A-6
<PAGE>
means the normal conduct of business consistent with past practice, except that
no action which is contrary to law, order, rule or regulation, or otherwise
contrary to commercial reasonableness, shall be considered to be in the ordinary
course of business.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that:
Section 2.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of the
Company and its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has the requisite corporate power and authority and is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders (collectively "Approvals") necessary to own,
lease and operate the properties it purports to own, operate or lease and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power, authority
and Approvals would not have a Material Adverse Effect. Each of the Company and
its subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that would not have a
Material Adverse Effect. A true and complete list of all of the Company's
subsidiaries, together with the jurisdiction of incorporation of each subsidiary
and the percentage of each subsidiary's outstanding capital stock owned by the
Company or another subsidiary, is set forth in Section 2.01 of that certain
written disclosure schedule, dated of even date herewith, delivered by the
Company to Parent (the "Company Disclosure Schedule"), except as is noted
therein. Except as set forth in Section 2.01 of the Company Disclosure Schedule,
the Company does not directly or indirectly own any equity or similar interest
in, or any interest convertible into or exchangeable or exercisable for, any
equity or similar interest in any corporation, partnership, joint venture or
other business association or entity which is material to the Company's
financial condition or results of operations.
Section 2.02. ARTICLES OF INCORPORATION AND BY-LAWS. The Company has
heretofore delivered to Parent complete and correct copies of its Articles of
Incorporation and By-Laws, as amended to date, and, except as is set forth in
Section 2.02 of the Company Disclosure Schedule, equivalent organizational
documents of each of its subsidiaries. Such Articles of Incorporation, By-Laws
and equivalent organizational documents of it and each of its subsidiaries are
in full force and effect. Neither the Company nor any of its subsidiaries is in
violation of any of the provisions of its Articles of Incorporation or By-Laws
or equivalent organizational documents.
Section 2.03. CAPITALIZATION. The authorized capital stock of the Company
consists of 15,000,000 shares of Company Common Stock and 5,000,000 shares of
the Company's preferred stock, without par value (the "Company Preferred
Stock"), none of which have been designated. As of the date hereof, (i)
3,549,986 shares of Company Common Stock are issued and outstanding, all of
which are validly issued, fully paid and nonassessable, (ii) 398,490 shares of
Company Common Stock are reserved for future issuance pursuant to the exercise
of Stock Options previously granted under the Company Option Plan, (iii) 106,666
shares of Company Common Stock are reserved for future issuance pursuant to the
exercise or conversion, as applicable, of Stock Purchase Rights, and (iv) no
shares of Company Preferred Stock are issued and outstanding. No material change
in such capitalization has occurred between September 30, 1995 and the date
hereof. Except as set forth in this Section 2.03 or in Section 2.03 of the
Company Disclosure Schedule, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of the Company or any of its subsidiaries or
obligating the Company or any of its subsidiaries to issue or sell any shares of
capital stock of, or other equity interests in, the Company or any of its
subsidiaries. All shares of Company Common Stock subject to issuance as
aforesaid, upon
A-7
<PAGE>
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be duly authorized, validly issued, fully paid
and nonassessable. There are no obligations, contingent or otherwise, of the
Company or any of its subsidiaries to repurchase, redeem or otherwise acquire
any shares of Company capital stock or the capital stock of any subsidiary or to
provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such subsidiary or any other entity other than
guarantees of bank obligations of subsidiaries or joint ventures or similar
arrangements entered into in the ordinary course of business or which would not,
in the aggregate, have a Material Adverse Effect. All of the outstanding shares
of capital stock of each of the Company's subsidiaries are duly authorized,
validly issued, fully paid and nonassessable, and all such shares are owned by
the Company or another subsidiary free and clear of all security interests,
liens, claims, pledges, agreements, limitations on the Company's voting rights,
charges or other encumbrances of any nature whatsoever.
Section 2.04. AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby
(subject to the satisfaction of the conditions to consummation set forth herein)
have been duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated
(other than the approval and adoption of the Merger by the holders of at least a
majority of the outstanding shares of the Company Common Stock entitled to vote
in accordance with California Law and the Company's Articles of Incorporation
and By-Laws). The Board of Directors of the Company has determined that it is
advisable and in the best interest of the Company's shareholders for the Company
to enter into a business combination with Parent upon the terms and subject to
the conditions of this Agreement. This Agreement has been duly and validly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Parent and Merger Sub, as applicable, constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms (subject to stockholder approval, as
aforesaid), except as the enforceability thereof may be limited by (i) the
effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to or
affecting the rights and remedies of creditors generally, and (ii) the effect of
general principles of equity, whether enforcement is considered in a proceeding
in equity or at law, and the discretion of the court before which any proceeding
therefor may be brought.
Section 2.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Section 2.05(a) of the Company Disclosure Schedule includes a list of
(i) all contracts, including distribution agreements, of the Company and its
subsidiaries calling for aggregate payments, either to or from the Company and
its subsidiaries, of $50,000 or more and (ii) all agreements which, as of the
date hereof, have been (or which are, in connection with the Company's next
filing pursuant to the Securities Exchange Act of 1934, required to be) filed by
the Company with the Securities and Exchange Commission (the "SEC") pursuant to
the requirements of the Securities Exchange Act of 1934, as amended, and the
rules promulgated thereunder (collectively, the "Exchange Act") as "material
contracts" ((i) and (ii) being, collectively, the "Material Contracts") of the
Company and its subsidiaries. The Company has delivered to Parent true and
correct copies of all Material Contracts.
(b) Except as set forth in Section 2.05(b) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company do not,
and the performance of this Agreement by the Company will not, (i) conflict with
or violate the Articles of Incorporation or By-Laws or equivalent organizational
documents of the Company or any of its subsidiaries, (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to the
Company or any of its subsidiaries or by which its or any of their respective
properties is bound or affected, or (iii) result in any breach of or constitute
a default (or an event that, with notice or lapse of time or both, would become
a default), or
A-8
<PAGE>
impair the Company's or any of its subsidiaries' rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any Material Contract,
or result in the creation of a lien or encumbrance on any of the properties or
assets of the Company or any of its subsidiaries pursuant to, any material note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
its or any of their respective properties is bound or affected, other than when
such occurrence would not have a Material Adverse Effect.
(c) Except as set forth in Section 2.05(c) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
for applicable requirements, if any, of the Securities Act of 1933, as amended
(the "Securities Act"), the Exchange Act, state securities laws ("Blue Sky
Laws") and the pre-merger notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the filing
and recordation of appropriate merger or other documents as required by
California Law and Delaware Law, and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the Merger, or
otherwise prevent or delay the Company from performing its obligations under
this Agreement, or would not otherwise have a Material Adverse Effect.
Section 2.06. COMPLIANCE; PERMITS.
(a) Neither the Company nor any of its subsidiaries is in conflict with, or
in default or violation of, (i) any law, rule, regulation, order, writ, judgment
or decree applicable to the Company or any of its subsidiaries or by which the
Company or any of its subsidiaries or its or any of their respective properties
is bound or affected or (ii) except as set forth in Section 2.06(a) of the
Company Disclosure Schedule, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or its or any of their respective properties
is bound or affected, except for any such conflicts, defaults or violations
which would not have a Material Adverse Effect.
(b) The Company and its subsidiaries hold all material permits, licenses,
easements, variances, exemptions, consents, certificates, orders and approvals
from governmental authorities which are material to the operation of the
business of the Company and its subsidiaries taken as a whole (collectively, the
"Company Permits"). The Company and its subsidiaries are in compliance with the
terms of the Company Permits, except where the failure to so comply would not
have a Material Adverse Effect.
Section 2.07. SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has filed all forms, reports and documents required to be
filed with the SEC and has delivered to Parent (i) its Annual Report on Form
10-KSB for the year ended December 31, 1994, (ii) its Quarterly Reports on Form
10-QSB for the periods ended March 31, 1995, June 30, 1995 and September 30,
1995, respectively, (iii) all proxy statements relating to the Company's
meetings of shareholders (whether annual or special) held since May 11, 1994,
(iv) all other reports or registration statements filed by the Company with the
SEC (other than Reports on Forms 3, 4 and 5 and Schedules 13D and/or 13G filed
with the SEC and copied to the Company) since December 31, 1993, and (v) all
amendments and supplements to all such reports and registration statements filed
with the SEC (collectively, the "Company SEC Reports"). The Company SEC Reports
(i) were prepared in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements
A-9
<PAGE>
therein, in the light of the circumstances under which they were made, not
misleading. The Company is not aware of any material discrepancies in the
Company's SEC Reports which have not been corrected. None of the Company's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports was prepared in
accordance with United States generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved (except as may be
indicated therein or in the notes thereto) and each fairly present the
consolidated financial position of the Company and its subsidiaries at and as of
the respective dates thereof and the consolidated results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount.
(c) The Company has heretofore delivered to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by the Company with the SEC pursuant
to the Securities Act or the Exchange Act.
Section 2.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 2.08 of the Company Disclosure Schedule and the Company SEC Reports,
since September 30, 1995, the Company has conducted its business in the ordinary
course and there have not occurred: (i) any amendments or changes in the
Articles of Incorporation or Bylaws of the Company; (ii) any material damage to,
destruction or loss of any assets of the Company (whether or not covered by
insurance); (iii) any material change by the Company in its accounting methods,
principles or practices (except as required by GAAP); (iv) any revaluation by
the Company of any of its assets, including, without limitation, writing down
the value of capitalized inventory, or writing off notes or accounts receivable,
other than in the ordinary course of business; (vi) any redemption or other
acquisition of Company Common Stock by the Company or any of the subsidiaries or
any declaration or payment of any dividend or other distribution in cash, stock
or property with respect to Company Common Stock, except for purchases
heretofore made pursuant to the terms of the Company's Employee Plans (as
defined in Section 2.11 hereof); (vii) any transfer of, or rights granted under,
any material leases, licenses, agreements, patents, trademarks, trade names or
copyrights other than those transferred or granted in the ordinary course of
business and consistent with past practice; or (viii) any mortgage, pledge,
security interest or imposition of lien or other encumbrance on any asset of the
Company or any of the subsidiaries, except those that are immaterial and
incurred in the ordinary course of business.
Section 2.09. NO UNDISCLOSED LIABILITIES OR COMMITMENTS. Except as is
disclosed in Section 2.09 of the Company Disclosure Schedule or incurred in
connection with the Company's obligations under this Agreement, neither the
Company nor any of its subsidiaries has any liabilities, obligations or
commitments (absolute, accrued, contingent or otherwise) which are, in the
aggregate, material to the business, operations or financial condition of the
Company and its subsidiaries taken as a whole, except liabilities (a) adequately
provided for in the Company's audited balance sheet (including any related notes
thereto) for the fiscal year ended December 31, 1994 included in the Company SEC
Reports (the "1994 Balance Sheet"), (b) incurred in the ordinary course of
business and not required under GAAP to be reflected on the 1994 Balance Sheet,
or (c) incurred since December 31, 1994 in the ordinary course of business which
would not have a Material Adverse Effect and, to the extent applicable,
disclosed in the unaudited balance sheets included in the Company SEC Reports
for such period or not required under GAAP to be so reflected.
Section 2.10. ROYALTIES AND PRODUCTION SCHEDULES. Section 2.10 of the
Company Disclosure Schedule sets forth each product for which either the Company
or any of its subsidiaries has produced or has agreed to produce an infomercial
or other program and for which either the Company or any of its subsidiaries
expects to receive royalties or other revenues. True and correct copies of each
contract or other agreement (and each amendment thereto) pursuant to which such
royalties or other revenues
A-10
<PAGE>
are to be derived has been provided to Parent and each of such contracts and
agreements is in full force and effect. The Company and each of its subsidiaries
have provided Parent the production schedule and budget for each infomercial or
other program currently being produced by the Company or any of its subsidiaries
or which any of them has agreed to produce. The budgets and production schedules
previously delivered represent the Company's good faith estimate of the
aggregate costs associated with each such infomercial as presently contemplated.
Section 2.11. ABSENCE OF LITIGATION. Except as set forth in Section 2.11
of the Company Disclosure Schedule or the Company SEC Reports, there are no
claims, actions, suits, proceedings or investigations pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries, or any properties or rights of the Company or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that could have a Material
Adverse Effect.
Section 2.12. EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS.
(a) Section 2.12(a) of the Company Disclosure Schedule lists all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), regardless of whether ERISA is
applicable thereto, all other bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance or termination pay,
medical or life insurance, supplemental unemployment benefits, profit-sharing,
pension or retirement plans, agreements or arrangements and other similar fringe
or employee benefit plans, programs or arrangements, and any current or former
employment or executive compensation or severance agreements, written or
otherwise, for the benefit of, or relating to, any employee of the Company, any
trade or business (whether or not incorporated) which is a member of a
controlled group including the Company or which is under common control with the
Company (an "ERISA Affiliate") within the meaning of Section 414 of the Code, or
any subsidiary of the Company, to which the Company, an ERISA Affiliate, or any
Subsidiary is a party, with respect to which the Company, an ERISA Affiliate, or
any Subsidiary has or could have any obligation, as well as each plan with
respect to which the Company or an ERISA Affiliate could incur liability if such
plan has been or were terminated (together, the "Employee Plans"), and a true
and correct copy of each such written Employee Plan has been delivered to
Parent.
(b) Except as set forth in Section 2.12(b) of the Company Disclosure
Schedule, (i) none of the Employee Plans promises or provides retiree medical or
other retiree welfare benefits to any person and none of the Employee Plans is a
"multiemployer plan" as such term is defined in Section 3(37) of ERISA; (ii)
there has been no transaction or failure to act with respect to any Employee
Plan, which could result in any material liability of the Company or any of its
subsidiaries; (iii) all Employee Plans are in compliance in all material
respects with the requirements prescribed by any and all statutes, orders, or
governmental rules and regulations currently in effect with respect thereto, and
the Company and each of its subsidiaries have performed all material obligations
required to be performed by them under, are not in any material respect in
default under or violation of, and have no knowledge of any default or violation
by any other party to, any of the Employee Plans except as to which such
non-compliance, non-performance or default would not result in a Material
Adverse Effect; (iv) each Employee Plan intended to qualify under Section 401(a)
of the Code is the subject of a favorable determination letter from the IRS, and
nothing has occurred which may reasonably be expected to impair such
determination; (v) all contributions required to be made to any Employee Plan,
pursuant to the terms of the Employee Plan or any collective bargaining
agreement, have been made on or before their due dates and a reasonable amount
has been accrued for contributions to each Employee Plan for the current plan
years; (vi) with respect to each Employee Plan, no "reportable event" within the
meaning of Section 4043 of ERISA (excluding any such event for which the thirty
(30) day notice requirement has been waived under the regulations to Section
4043 of ERISA) nor any event described in Sections 4062, 4063 and 4041 of ERISA
has occurred; and (vii) neither the
A-11
<PAGE>
Company nor any ERISA Affiliate has incurred, nor reasonably expects to incur,
any liability under Title IV of ERISA (other than liability for premium payments
to the Pension Benefit Guaranty Corporation arising in the ordinary course).
(c) Each Employee Plan that is required or intended to be qualified under
applicable law or registered or approved by a governmental agency or authority,
has been so qualified, registered or approved by the appropriate governmental
agency or authority, and nothing has occurred since the date of the last
qualification, registration or approval to adversely affect, or cause the
appropriate governmental agency or authority to revoke, such qualification,
registration or approval.
(d) All contributions (including premiums) required by law or contract to
have been made or approved by the Company under or with respect to Employee
Plans have been paid or accrued by the Company. Except as disclosed in Section
2.12(d) of the Company Disclosure Schedule, without limiting the foregoing,
there are no material unfunded liabilities under any Employee Plan.
(e) There are no pending or, to the knowledge of the Company, threatened
investigations, litigation or other enforcement actions against the Company with
respect to any of the Employee Plans.
(f) There are no actions, suits or claims pending or, to the best knowledge
of the Company, threatened by former or present employees of the Company (or
their beneficiaries) with respect to Employee Plans or the assets or fiduciaries
thereof (other than routine claims for benefits).
(g) No condition or event has occurred with respect to the Employee Plans
which has or could reasonably be expected to result in a material liability to
the Company.
(h) Section 2.12(h) of the Company Disclosure Schedule sets forth a true and
complete list of each current or former employee, officer or director of the
Company or any of its subsidiaries who holds any option to purchase Company
Common Stock as of the date hereof, together with the number of shares of
Company Common Stock subject to such option, the date of grant of such option,
the extent to which such option is vested, the option price of such option (to
the extent determined as of the date hereof), whether such option is intended to
qualify as an incentive stock option within the meaning of Section 422(b) of the
Code (an "ISO"), whether such option was issued pursuant to the Company Option
Plan, and the expiration date of such option. Section 2.12(h) of the Company
Disclosure Schedule also sets forth the total number of such ISOs and such
nonqualified options.
(i) The Company has delivered to Parent (i) true and correct copies of all
employment agreements with officers of the Company; (ii) true and correct copies
of all agreements with consultants or independent contractors obligating the
Company to make annual cash payments in an amount exceeding $25,000; (iii) a
schedule listing all officers of the Company who have executed a non-competition
agreement with the Company, (iv) true and correct copies of all plans, programs,
agreements and other arrangements of the Company with or relating to its
employees which contain change in control provisions; and (v) the form of
standard employment agreement, if any, of the Company for its non-executive
employees.
Section 2.13. LABOR MATTERS. There are no controversies pending or, to the
knowledge of the Company or any of its subsidiaries, threatened, between the
Company or any of its subsidiaries and any of their respective employees, which
controversies have or may have a Material Adverse Effect; neither the Company
nor any of its subsidiaries is a party to any collective bargaining agreement or
other labor union contract applicable to persons employed by the Company or its
subsidiaries nor does the Company or any of its subsidiaries know of any
activities or proceedings of any labor union to organize any such employees; and
neither the Company nor any of its subsidiaries has any knowledge of any
strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with
respect to any employees of the Company or any of its subsidiaries.
Section 2.14. REGISTRATION STATEMENT; PROXY STATEMENT. None of the
information supplied or to be supplied by the Company for inclusion or
incorporation by reference in (i) the Registration
A-12
<PAGE>
Statement on Form S-4 to be filed with the SEC by Parent in connection with the
issuance of Parent Common Shares in the Merger (the "Registration Statement") or
(ii) the proxy statement relating to the meeting of the Company's shareholders
(the "Company Shareholders' Meeting") to be held in connection with the Merger
(the "Proxy Statement" and, together with the Prospectus contained in the
Registration Statement, the "Proxy Statement/Prospectus") will, (A) in the case
of the Proxy Statement/Prospectus, at the date it or any amendments or
supplements thereto are mailed to shareholders, at the time of the Company
Shareholders' Meeting and at the Effective Time and (B) in the case of the
Registration Statement, when it becomes effective under the Securities Act and
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements included therein, in light of the circumstances under
which they are made, not misleading. The Proxy Statement will comply as to form
in all material respects with the applicable provisions of the Exchange Act and
the rules and regulations thereunder. If at any time prior to the Effective
Time, any event relating to the Company or any of its respective affiliates,
officers or directors should be discovered by the Company which should be set
forth in an amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, the Company shall promptly inform Parent and Merger Sub.
Section 2.15. RESTRICTIONS ON BUSINESS ACTIVITIES. Except for this
Agreement or as disclosed in Section 2.15 of the Company Disclosure Schedule,
there is no existing material agreement, judgment, injunction, order or decree
binding upon the Company or any of its subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of the Company or any of its subsidiaries, the acquisition
of property by the Company or any of its subsidiaries or the conduct of business
by the Company or any of its subsidiaries as currently conducted or as proposed
to be conducted by the Company.
Section 2.16. TITLE TO PROPERTY. The Company owns no real property.
Section 2.16(b) of the Company Disclosure Schedule sets forth a true and
complete list of all real property leased by the Company or any of its
subsidiaries requiring annual lease payments of more than $25,000, and the
aggregate monthly rental or other fee payable under such lease. Except as set
forth in Section 2.16 of the Company Disclosure Schedule, the Company and each
of its subsidiaries have good, marketable and defensible title to all of their
material properties and assets, free and clear of all liens, charges and
encumbrances, except liens for taxes not yet due and payable and such liens or
other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby or
which would not have a Material Adverse Effect; and, to the Company's knowledge,
all leases pursuant to which the Company or any of its subsidiaries lease from
others material amounts of real or personal property are in good standing, valid
and effective in accordance with their respective terms, and there is not, to
the Company's knowledge, under any of such leases, any existing material default
or event of default (or event which with notice or lapse of time, or both, would
constitute a material default and in respect of which the Company or such
subsidiary has not taken adequate steps to prevent such a default from
occurring) except where the lack of such good standing, validity and
effectiveness or the existence of such default or event of default would not
have a Material Adverse Effect. All the facilities of the Company and its
subsidiaries are in good operating condition and repair, except where the
failure of such plants, structures and equipment to be in such good operating
condition and repair would not, individually or in the aggregate, have a
Material Adverse Effect.
Section 2.17. TAXES.
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean taxes, fees,
levies, duties, tariffs, imposts and governmental impositions or charges of any
kind in the nature of (or similar to ) taxes, payable to any federal, state,
provincial, local or foreign taxing authority, including (without limitation)
(i) income, franchise, profits, gross receipts, ad valorem, net worth, value
added, sales, use, service, real or personal property, special assessments,
capital stock, license, payroll, withholding, employment, social security,
workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premiums, windfall profits, transfer and
gains taxes and
A-13
<PAGE>
(ii) interest, penalties, additional taxes and additions to taxes imposed with
respect thereto; and "Tax Returns" shall mean returns, reports and information
statements with respect to Taxes required to be filed with the United States
Internal Revenue Service (the "IRS") or any other taxing authority, domestic or
foreign, including, without limitation, consolidated, combined and unitary tax
returns.
(b) Other than as disclosed on Section 2.17(b) of the Company Disclosure
Schedule, the Company and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which the Company or
any of its subsidiaries is or has been a member, have filed all United States
federal income Tax Returns and all other material Tax Returns required to be
filed by them or any of them, and have paid and discharged all Taxes shown
therein to be due and there are no other Taxes that would be due if asserted by
a taxing authority, except such as are being contested in good faith by
appropriate proceedings (to the extent that any such proceedings are required)
or with respect to which the Company is maintaining reserves in accordance with
GAAP in its financial statements to the extent currently required in all
material respects adequate for their payment, except, in each instance, to the
extent the failure to do so would not have a Material Adverse Effect. Except as
disclosed in Section 2.17(b) of the Company Disclosure Schedule, neither the IRS
nor any other taxing authority or agency is now asserting or, to the best of the
Company's knowledge, threatening to assert against the Company or any of its
subsidiaries any deficiency or claim for additional Taxes other than additional
Taxes with respect to which the Company is maintaining reserves in accordance
with GAAP in its financial statements which are in all material respects
adequate for their payment, except, in each instance, to the extent the failure
to do so would not have a Material Adverse Effect. Except as disclosed in
Section 2.17(b) of the Company Disclosure Schedule, no Tax Return of either the
Company or any of its subsidiaries is currently being audited by any taxing
authority except as would not have a Material Adverse Effect. No material Tax
claim has become a lien on any assets of the Company or any subsidiary thereof
and neither the Company nor any of its subsidiaries has, except as would not
have a Material Adverse Effect, granted any waiver of any statute of limitations
with respect to, or any extension of a period for the assessment of, any Tax.
Neither the Company nor any of its subsidiaries is required to include in income
(i) any material items in respect of any change in accounting principles or any
deferred intercompany transactions, or (ii) any installment sale gain where, in
each case, the inclusion in income would result in a Tax liability materially in
excess of the reserves therefor.
(c) The Company on behalf of itself and all its subsidiaries hereby
represents that, other than as disclosed on Section 2.17(c) of the Company
Disclosure Schedule, and other than with respect to items the inaccuracy of
which would not have a Material Adverse Effect: (i) neither the Company nor any
of its subsidiaries is a party to any agreement, contract or arrangement that
may result, separately or in the aggregate, in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code, determined
without regard to Section 280G(b)(4) of the Code; (ii) neither the Company nor
any of its subsidiaries has been subject to any accumulated earning tax or
personal holding company tax; neither the Company nor any of its subsidiaries
owns stock in a passive foreign investment company within the meaning of Section
1296 of the Code; (iii) neither the Company nor any of its subsidiaries is
obligated under any agreement with respect to industrial development bonds or
other obligations with respect to which the excludeability from gross income of
the holder for United States federal or state income tax purposes could be
affected by the transactions contemplated hereunder; (iv) neither the Company
nor any of its subsidiaries has entered into any deferred intercompany
transaction within the meaning of Section 1.1502-13(a)(2) of the United States
Treasury Regulations as to which material items of deferred gain or loss have
not been restored, and (v) no material excess loss account within the meaning of
Section 1.1502-19 of the United States Treasury Regulations exists with respect
to the stock of any of the Company's subsidiaries.
(d) No power of attorney, which is currently in force, has been granted by
the Company or any of its subsidiaries with respect to any matter relating to
Taxes.
A-14
<PAGE>
(e) Except as set forth in Section 2.17(e) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to any
agreement or arrangement (written or oral) providing for the allocation or
sharing of Taxes.
(f) The Company and each of its subsidiaries have withheld from each payment
made (or other form of compensation given) to any of their respective past or
present employees, officers or directors the amount of all Taxes and other
deductions required to be withheld therefrom and paid the same to the proper tax
or other receiving officers within the time required by law.
(g) Except as set forth in Section 2.17(g) of the Company Disclosure
Schedule, the Company has remitted to the appropriate Tax authority when
required by law to do so all amounts collected by it on account of all retail
sales Tax.
(h) Except as disclosed in Section 2.17(h) of the Company Disclosure
Schedule, there has been no material debt to a third party of the Company or any
of its subsidiaries which has been forgiven and which has given rise to (or is
expected to give rise to) "cancellation of indebtedness income" under the
provisions of the Code.
(i) Section 2.17(i) of the Company Disclosure Schedule sets forth a true,
correct and complete list of all unpaid Taxes (other than Taxes which, in the
aggregate, are immaterial in amount) relating to all periods up to and including
the date hereof, whether or not yet due and owing, of the Company and its
subsidiaries existing as of the date hereof, which list is itemized by category
and type of Tax.
Section 2.18. ENVIRONMENTAL MATTERS. (a) Except in all cases, in the
aggregate, as have not had and could not reasonably be expected to have a
Material Adverse Effect, the Company and each of its subsidiaries (i) have
obtained all applicable permits, licenses and other authorizations which are
required under federal, state, provincial or local laws relating to pollution or
protection of the environment, including laws relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants or hazardous or
toxic materials or wastes into ambient air, surface, water, ground water or land
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants
or hazardous or toxic materials or wastes by the Company or its subsidiaries (or
their respective agents); (ii) are in compliance with all terms and conditions
of such required permits, licenses and authorizations, and also are in
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
such laws or contained in any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder;
(iii) as of the date hereof, are not aware of nor have received notice of any
event, condition, circumstance, activity, practice, incident, action or plan
which is reasonably likely to interfere with or prevent continued compliance
with or which would give rise to any common law or statutory liability, or
otherwise form the basis of any claim, action, suit or proceeding, based on or
resulting from the Company's or any of its subsidiary's (or any of their
respective agent's) manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge or release
into the environment, of any pollutant, contaminant or hazardous or toxic
material or waste; (iv) have taken all actions necessary under applicable
requirements of federal, state or local laws, rules or regulations to register
any products or materials required to be registered by the Company or its
subsidiaries (or any of their respective agents) thereunder; and (v) have
complied with all applicable occupational safety and health requirements of
federal, state or local laws, rules or regulations relating to the use or
storage of any hazardous, toxic or carcinogenic substances.
(b) Set forth on Section 2.18 of the Company Disclosure Schedule are all
known or suspected environmental conditions or problems at each site of
operation of the Company and its subsidiaries, including but not limited to the
presence of asbestos (friable or encapsulated), transformers containing PCBs,
radon and any aboveground or underground storage tanks.
(c) None of the sites of operation of the Company and its subsidiaries is a
Superfund site under the Comprehensive Environmental Response, Cleanup and
Liability Act, 42 U.S.C. Section 9601 et seq. or
A-15
<PAGE>
has been proposed for listing on the National Priorities List under that Act.
Any deed restriction or public notice required by any federal, state or local
law, rule or regulation because any site of operation of the Company or any of
its subsidiaries is contaminated has been complied with, and each such deed
restriction or public notice has been disclosed on Schedule 2.18 of the Company
Disclosure Schedule.
Section 2.19. BROKERS. Other than as set forth below, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company. The Company has
heretofore furnished to Parent complete and correct copies of all agreements
between the Company and Cruttenden & Company pursuant to which such firm would
be entitled to any payment relating to the transactions contemplated hereunder.
Section 2.20. FULL DISCLOSURE. No statement contained herein or in any
certificate or schedule furnished or to be furnished by the Company or its
subsidiaries to Parent or Merger Sub in, or pursuant to the provisions of, this
Agreement contains or shall contain any untrue statement of a material act or
omits or will omit to state any material fact necessary, in the light of the
circumstances under which it was made, to make the statements herein or therein
not misleading.
Section 2.21. INTELLECTUAL PROPERTY.
(a) Except as set forth in Section 2.21(a) of the Company Disclosure
Schedule, the Company owns, or is licensed or otherwise possesses legally
sufficient rights to use, all patents, trademarks, trade names, service marks,
copyrights and any applications therefor, technology, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material that are used or proposed to be used in the business of
the Company as currently conducted or planned to be conducted in any material
respect. Section 2.21(a) of the Company Disclosure Schedule lists all current
and past (lapsed, expired, abandoned or cancelled) patents, registered and
material unregistered trademarks and service marks, registered and material
unregistered copyrights, trade names and any applications therefor owned by the
Company (the "Company Intellectual Property Rights"), and specifies the
jurisdictions in which each such Company Intellectual Property Right has been
issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners. Section 2.21(a) of
the Company Disclosure Schedule includes and specifically identifies all
third-party patents, trademarks, service marks, tradenames or copyrights (the
"Third Party Intellectual Property Rights"), to the knowledge of the Company,
which are incorporated in, are, or form a part of any Company product now being
marketed, presently contemplated to be marketed or marketed since May 11, 1994.
Section 2.21(a) of the Company Disclosure Schedule lists (i) any requests the
Company has received to make any registration of the type referred to in the
penultimate sentence prior hereto, including the identity of the requestor and
the item requested to be so registered, and the jurisdiction for which such
request has been made; (ii) all material licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which any person
is authorized to use any Company Intellectual Property Right, or any trade
secret material to the Company; (iii) all material licenses, sublicenses and
other agreements as to which the Company is a party and pursuant to which the
Company is authorized to use any Third Party Intellectual Property Rights, or
other trade secret of a third party in or as any product, and includes the
identity of all parties thereto, a description of the nature and subject matter
thereof, the applicable royalty and the term thereof; and (iv) all agreements
between the Company and any third party pursuant to which either party is
subject to a non-disclosure agreement.
(b) Except as set forth in Section 2.21(b) of the Company Disclosure
Schedule, the Company is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations hereunder, in
violation of any license, sublicense or agreement described in Section 2.21(a)
of the Company Disclosure Schedule. No claims with respect to the Company
Intellectual Property Rights, any trade secret material to the Company, or Third
Party Intellectual Property
A-16
<PAGE>
Rights to the extent arising out of any use, reproduction or distribution of
such Third Party Intellectual Property Rights by or through the Company, are
currently pending or, to the knowledge of the Company, are threatened by any
person, nor does the Company know of any valid grounds for any bona fide claims
(i) to the effect that the manufacture, sale, licensing or use of any product as
now used, sold or licensed or proposed for use, sale or license by the Company
infringes on any copyright, patent, trademark, service mark or trade secret;
(ii) against the use by the Company of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how or computer software programs
and applications used in the Company's business as currently conducted or as
proposed to be conducted by the Company (iii) challenging the ownership,
validity or effectiveness of any of the Company Intellectual Property Rights or
other trade secret material to the Company; or (iv) challenging the Company's
license or legally enforceable right to use of the Third Party Intellectual
Property Rights. To the Company's knowledge, after reasonable investigation, all
patents, registered trademarks, trade names and copyrights held by the Company
are valid and subsisting. Except as set forth in Section 2.21(b) of the Company
Disclosure Schedule, to the Company's knowledge, there is no unauthorized use,
infringement or misappropriation of any of the Company Intellectual Property
Rights by any third party, including any employee or former employee of the
Company or any of its subsidiaries. Except as set forth in Section 2.21(b) of
the Company Disclosure Schedule, neither the Company nor any of its subsidiaries
(i) has been sued or charged in writing as a defendant in any claim, suit,
action or proceeding which involves a claim or infringement of trade secrets,
any patents, trademarks, service marks, trade names or copyrights and which has
not been finally terminated prior to the date hereof or been informed or
notified by any third party that the Company may be engaged in such infringement
or (ii) has knowledge of any infringement liability with respect to, or
infringement by, the Company or any of its subsidiaries of any trade secret,
patent, trademark, service mark, trade names or copyright of another.
(c) Neither the Company nor any subsidiary of the Company is aware that any
of its employees is obligated under any contract or contracts (including
licenses, agreements, covenants and other commitments of any nature), or is
subject to any order, writ, judgment, injunction, decree, determination or award
of any court, administrative agency or other tribunal, that restricts the
employee's activities on behalf of the Company or such subsidiary as presently
conducted or interfere with the use of such employee's best efforts to promote
the interests of the Company or such subsidiary.
Section 2.22. INTERESTED PARTY TRANSACTIONS. Except as set forth in
Section 2.22 of the Company Disclosure Schedule or in the Company SEC Reports,
since December 31, 1993, no event has occurred that would be required to be
reported as a Certain Relationship or Related Transaction, pursuant to Item 404
of Regulation S-K promulgated by the SEC.
Section 2.23. INSURANCE. Section 2.23 of the Company Disclosure Schedule
lists all material insurance policies and fidelity bonds covering the assets,
business, equipment, properties, operations, employees, officers and directors
of the Company and its subsidiaries. There is no claim by the Company or any of
its subsidiaries pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. Except as set forth in Section 2.23 of the Company Disclosure
Schedule, all premiums payable under all such policies and bonds have been paid
and the Company and its subsidiaries are otherwise in full compliance with the
terms of such policies and bonds for other policies and bonds providing
substantially similar insurance coverage). Except as set forth in Section 2.23
of the Company Disclosure Schedule, such policies of insurance and bonds are of
the type and in amounts customarily carried by persons conducting business
similar to those of the Company and its subsidiaries. The Company does not know
of any threatened termination of, or material premium increase with respect to,
any such policies.
Section 2.24. COMPANY OPTION PLAN. Except as set forth in Section 2.24 of
the Company Disclosure Schedule, the Board of Directors of the Company, or the
authorized committee thereof, has taken all necessary action (or refrained from
taking action, where appropriate) under the Company
A-17
<PAGE>
Option Plan so that no Stock Options (or any portion thereof) will be
accelerated or entitled to receive cash or other property as a result of the
consummation of the transactions contemplated hereby, but instead shall be
assumed as provided in Section 1.06(c) hereof.
Section 2.25. VOTE REQUIRED. The affirmative vote of the holders of at
least a majority of the outstanding shares of the Company Stock is the only vote
of the holders of any class or series of the Company's capital stock necessary
to approve the Merger.
Section 2.26. OPINION OF FINANCIAL ADVISOR. The Company has been advised
by its financial advisor, Cruttenden Roth, Incorporated, that in its opinion, as
of the date hereof, the terms of the Merger are fair to the shareholders of the
Company from a financial point of view, and has delivered a written copy of such
opinion to Parent.
Section 2.27. ANTITAKEOVER PROVISIONS INAPPLICABLE. There are no
provisions of California Law or, to the best of the Company's knowledge, the
laws of any other jurisdiction which are in the nature of anti-takeover measures
which apply to this Agreement, the Merger, the letter agreements executed by
certain of the directors and executive officers of the Company in the form
attached hereto as Exhibit A or the transactions contemplated hereby or thereby.
ARTICLE III
REPRESENTATION AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company that:
Section 3.01. ORGANIZATION AND QUALIFICATION. Parent and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority and is in possession of all Approvals
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power, authority and Approvals would not have a Material Adverse Effect. Parent
and each of its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would not
have a Material Adverse Effect.
Section 3.02. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Merger Sub and the consummation by Parent and
Merger Sub of the transactions contemplated hereby (subject to the satisfaction
of the conditions to consummation set forth herein) have been duly and validly
authorized by all necessary corporate action on the party of Parent and Merger
Sub, and no other corporate proceedings on the part of Parent or Merger Sub are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. The Board of Directors of Parent has determined that it is
advisable and in the best interest of Parent's stockholders for Parent to enter
into and perform this Agreement. This Agreement has been duly and validly
executed and delivered by Parent and Merger Sub and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of Parent and Merger Sub, enforceable against each of
them in accordance with its terms, except as the enforceability thereof may be
limited by (i) the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect relating
to or affecting the rights and remedies of creditors generally, and (ii) the
effect of general principles of equity, whether enforcement is considered in a
proceeding in equity or at law, and the discretion of the court before which any
proceeding therefor may be brought.
A-18
<PAGE>
Section 3.03. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Except as set forth in Section 3.03 of that certain written disclosure
schedule, dated of even date herewith, delivered by Parent and Merger Sub to the
Company (the "Parent Disclosure Schedule"), the execution and delivery of this
Agreement by Parent and Merger Sub does not, and the performance of this
Agreement by Parent and Merger Sub shall not, (i) conflict with or violate the
Certificate of Incorporation or By-Laws of Parent or Merger Sub, (ii) conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to Parent or any of its subsidiaries or by which its or their respective
properties are bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or impair Parent's rights or alter the rights or obligations of
any third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any Material Contract or result in the creation
of a lien or encumbrance on any of the properties or assets of Parent or any of
its subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or any of its subsidiaries is a party or by which
Parent or any of its subsidiaries or its or any of their respective properties
are bound or affected, except in any such case for any such breaches, defaults
or other occurrences that would not have a Material Adverse Effect.
(b) Except as set forth in Section 3.03 of the Parent Disclosure Schedule,
the execution and delivery of this Agreement by Parent and Merger Sub does not,
and the performance of this Agreement by Parent and Merger Sub will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the Securities Act, the
Exchange Act, the Blue Sky Laws and the pre-merger notification requirements of
the HSR Act, and the filing and recordation of appropriate merger or other
documents as required by California Law and Delaware Law, (ii) that Parent is
required to provide notice of the Merger to the Federal Trade Commission (the
"FTC") pursuant to the terms of those certain consent orders between Parent and
the FTC, and (iii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the Merger, or otherwise prevent or delay
Parent or Merger Sub from performing their respective obligations under this
Agreement, or would not otherwise have a Material Adverse Effect.
Section 3.04. CERTIFICATE OF INCORPORATION AND BY-LAWS. Parent has
heretofore furnished to the Company complete and correct copies of its and
Merger Sub's Certificates of Incorporation and By-Laws, as amended to date. Such
Certificates of Incorporation and By-Laws are in full force and effect. Neither
Parent nor Merger Sub is in violation of any of the provisions of its
Certificate of Incorporation or By-Laws.
Section 3.05. CAPITALIZATION. As of December 31, 1995, the authorized
capital stock of Parent consisted of (i) 50,000,000 shares of Parent Common
Shares of which: 16,552,429 shares were issued and outstanding, 686,710 shares
were held in treasury, 1,977,333 shares were reserved for issuance pursuant to
outstanding options under Parent's stock option plans (including shares issuable
pursuant to options granted contingent on shareholder approval), 6,713,537
shares were reserved for future issuance pursuant to the exercise or conversion,
as applicable, of other outstanding options, warrants and other similar rights
to acquire Parent Common Shares, and 1,706,250 shares were reserved for future
issuance with respect to the conversion of Parent's outstanding Series B
Convertible Preferred Stock; and (ii) 10,000,000 shares of preferred stock, $.01
par value per share ("Parent Preferred Stock"), 170,625 shares of Series B
Convertible Preferred Stock of which were issued and outstanding. The authorized
capital stock of Merger Sub consists of 1,000 shares of common stock, $.01 par
value per share, all of which, as of the date hereof, are issued and
outstanding. All of the outstanding shares of Parent's and Merger Sub's
respective capital stock have been duly authorized and are validly existing,
fully paid and nonassessable. Parent owns all of the capital stock of Merger
Sub.
A-19
<PAGE>
Section 3.06. COMPLIANCE; PERMITS.
(a) Except as set forth in Section 3.06(a) of the Parent Disclosure
Schedule, neither Parent nor any of its subsidiaries is in conflict with, in
default with respect to or in violation of (i) any law, rule, regulation, order,
judgment or decree application to Parent or any of its subsidiaries or by which
its or any of their respective properties is bound or affected or (ii) any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which Parent or any of its subsidiaries is or any
of their respective properties is bound or affected, except for any such
conflicts, defaults or violations which would not have a Material Adverse
Effect.
(b) Parent and its subsidiaries hold all material permits, licenses,
easements, variances, exemptions, consents, certificates, orders and approvals
from governmental authorities which are material to the operation of the
business of the Company and its subsidiaries taken as a whole as it is now being
conducted (collectively, the "Parent Permits"). Parent and its subsidiaries are
in compliance with the terms of the Parent Permits, except where the failure to
so comply would not have a Material Adverse Effect.
Section 3.07. SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has filed all forms, reports and documents required to be filed
with the SEC, and has heretofore delivered to the Company, in the form filed
with the SEC, (i) its Annual Reports on Form 10-K for the fiscal years ended
March 31, 1995 and 1994, and its Quarterly Reports on Form 10-Q for the fiscal
quarters ended June 30, 1995 and September 30, 1995, (ii) all proxy statements
relating to Parent's meetings of stockholders (whether annual or special) held
since March 31, 1995, (iii) all other reports or registration statements (other
than Reports on Forms 3, 4 and 5 and Schedules 13D and/or 13G filed with the SEC
and copied to Parent) filed by Parent with the SEC since March 31, 1995 and (iv)
all amendments and supplements to all such reports and registration statements
filed with the SEC (collectively, the "Parent SEC Reports"). The Parent SEC
Reports (i) were prepared in accordance with the requirements of the Securities
Act or the Exchange Act, as the case may be, and (ii) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of Parent's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports has been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto) and each fairly
presents the consolidated financial position of Parent and its subsidiaries at
and as of the respective dates thereof and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in
amount.
(c) There are no amendments or modifications which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Parent with the SEC
pursuant to the Securities Act or the Exchange Act.
Section 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 3.08 of the Parent Disclosure Schedule, since September 30, 1995, Parent
has conducted its business in the ordinary course and there has not occurred:
(i) any Material Adverse Effect; (ii) any amendments or changes in the
Certificate of Incorporation or By-Laws of Parent; (iii) any damages to,
destruction or loss of any assets of the Parent (whether or not covered by
insurance) that could have a Material Adverse Effect; (iv) any revaluation by
Parent of any of its assets, including, without limitation, writing down the
value of capitalized inventory or writing off notes or accounts receivable other
than
A-20
<PAGE>
in the ordinary course of business; or (v) except as disclosed in Section 3.08
of the Parent Disclosure Schedule, any other action or event that would have
required the consent of the Company pursuant to Section 4.03 had such action or
event occurred after the date of this Agreement.
Section 3.09. RESTRICTIONS ON BUSINESS ACTIVITIES. Except for this
Agreement and as set forth in Section 3.09 of the Parent Disclosure Schedule,
there is no existing material agreement, judgment, injunction, order or decree
binding upon Parent or any of its subsidiaries which has or could reasonably be
expected to have the effect of prohibiting or materially impairing any business
practice of Parent or any of its subsidiaries, any acquisition of property by
Parent or any of its subsidiaries or the conduct of business by Parent or any of
its subsidiaries as currently conducted or as proposed to be conducted by
Parent.
Section 3.10. TITLE TO PROPERTY. Except as set forth in Section 3.10 of
the Parent Disclosure Schedule, Parent and each of its subsidiaries have good,
marketable and defensible title to all of their properties and assets, free and
clear of all liens, charges and encumbrances except liens for taxes not yet due
and payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or interfere with the present use of the
property affected thereby or which would not have a Material Adverse Effect;
and, to Parent's knowledge, all leases pursuant to which Parent or any of its
subsidiaries lease from others material amounts of real or personal property are
in good standing, are valid and effective in accordance with their respective
terms, and there is not, to the knowledge of Parent, under any of such leases,
any existing material default or event of default (or event which, with notice
or lapse of time, or both, would constitute a material default and in respect of
which Parent or such subsidiary has not taken adequate steps to prevent such a
default from occurring) except where the lack of such good standing, validity
and effectiveness, or the existence of such default or event of default would
not have a Material Adverse Effect.
Section 3.11. FULL DISCLOSURE. No statement contained herein or in any
certificate or schedule furnished or to be furnished by Parent or Merger Sub to
the Company in, or pursuant to the provisions of, this Agreement contains or
will contain any untrue statement of a material fact or omits or shall omit to
state any material fact necessary, in the light of the circumstances under which
it was made, to make the statements herein or therein not misleading.
Section 3.12. NO UNDISCLOSED LIABILITIES.
(a) Except as is disclosed in Section 3.12 of the Parent Disclosure Schedule
or the Parent SEC Reports or incurred in connection with this Agreement, neither
Parent nor any of its subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise) which are, in the aggregate, material to the business,
operations or financial condition of Parent and its subsidiaries taken as a
whole, except liabilities (i) adequately provided for in Parent's audited
balance sheet (including any related notes thereto) for the fiscal year ended
March 31, 1995 included in the Parent SEC Reports (the "March 31 Balance
Sheet"), (ii) incurred in the ordinary course of business and not required under
GAAP to be reflected on the March 31 Balance Sheet, or (iii) incurred since
March 31, 1995 in the ordinary course of business which would not have a
Material Adverse Effect and, to the extent applicable, disclosed in the
unaudited balance sheets included in the Parent SEC Reports for such period or
not required under GAAP to be so reflected.
(b) As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement and except for this Agreement
and any other agreements or arrangements contemplated by this Agreement, Merger
Sub has not and will not have incurred, directly or indirectly, through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
Section 3.13. ABSENCE OF LITIGATION. Except as set forth in Section 3.13
of the Parent Disclosure Schedule or as reflected in the Parent SEC Reports,
there are no claims, actions, suits, proceedings or
A-21
<PAGE>
investigations pending or, to the knowledge of Parent, threatened against Parent
or any of its subsidiaries, or any properties or rights of Parent or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that could have a Material
Adverse Effect.
Section 3.14. INSURANCE. Parent and its subsidiaries maintain fire and
casualty, general liability, business interruption, product liability and
sprinkler and water damage insurance that Parent believes to be reasonably
prudent for its business.
Section 3.15. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. Subject
to the accuracy of the representations of the Company in Section 2.14, the
Registration Statement pursuant to which the Parent Common Shares to be issued
in the merger will be registered with the SEC shall not, at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements included therein, in
light of the circumstances under which they were made, not misleading. Subject
to the accuracy of the representations of the Company in Section 2.13, the
information supplied by Parent for inclusion in the Proxy Statement/Prospectus
will not, on the date the Proxy Statement/ Prospectus is first mailed to
shareholders, at the time of the Company Shareholders' Meeting and at the
Effective Time, contain any statement which at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or will omit to state any material fact required to be
stated therein or necessary in order to make the statements included therein not
false or misleading. If at any time prior to the Effective Time any event
relating to Parent, Merger Sub or any of their respective affiliates, officers
or directors should be discovered by Parent or Merger Sub which should be set
forth in an amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Parent or Merger Sub will promptly inform the Company.
Notwithstanding the foregoing, Parent makes no representation or warranty with
respect to any information supplied by the Company which is contained in, or
furnished in connection with the preparation of, any of the foregoing.
Section 3.16. TAXES. Other than as disclosed on Section 3.16 of the Parent
Disclosure Schedule, Parent and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which Parent or any of
its subsidiaries is or has been a member, have filed all United States federal
income Tax Returns and all other material Tax Returns required to be filed by
them or any of them, and have paid and discharged all Taxes shown therein to be
due and there are not other Taxes that would be due if asserted by a taxing
authority, except such as are being contested in good faith by appropriate
proceedings (to the extent that any such proceedings are required) or with
respect to which Parent is maintaining reserves in accordance with GAAP in its
financial statements to the extent currently required which are in all material
respects adequate for their payment, except, in each instance, to the extent the
failure to do so would not have a Material Adverse Effect. Neither the IRS nor
any other taxing authority or agency is now asserting or, to the best of
Parent's knowledge, threatening to assert against Parent or any of its
subsidiaries any deficiency or claim for additional Taxes other than additional
Taxes with respect to which Parent is maintaining reserves in accordance with
GAAP in its financial statements which are in all material respects adequate for
their payment, except, in each instance, to the extent that the failure to do so
would not have a Material Adverse Effect. Except as set forth in Section 3.16 of
the Parent Disclosure Schedule, no Tax Return of either Parent or any of its
subsidiaries is currently being audited by any taxing authority except as would
not have a Material Adverse Effect. Except as set forth in Section 3.16 of the
Parent Disclosure Schedule, no material tax claim has become a lien on any
assets of Parent or any subsidiary thereof and neither Parent nor any of its
subsidiaries has, except as would not have a Material Adverse Effect, granted
any waiver of any statute of limitations with respect to, or any extension of a
period for the assessment of, any Tax.
A-22
<PAGE>
Section 3.17. BROKERS. No broker, finder or investment banker (other than
InterAtlantic Securities Corp. and Howard, Lawson & Co.) is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or Merger Sub.
Section 3.18. OPINION OF FINANCIAL ADVISOR. Parent has been advised in
writing by Howard, Lawson & Co. that in its opinion, as of the date hereof, the
Exchange Ratio is fair from a financial point of view to Parent, and has
delivered a written copy of such opinion to the Company.
Section 3.19. NO STOCKHOLDER VOTE. No vote of the stockholders of Parent
is necessary to approve the Merger or the issuance of Parent Common Shares
pursuant to the terms thereof.
Section 3.20. EMPLOYEE BENEFIT PLANS.
(a) Section 3.20 of the Parent Disclosure Schedule lists all employee
benefit plans (as defined in Section 3(3) of ERISA), regardless of whether ERISA
is applicable thereto, all other bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, medical or life insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement plans
and other similar fringe benefit plans or programs, written or otherwise, for
the benefit of, or relating to, any current employee of Parent or any trade or
business (whether or not incorporated) which is a member of a control group
which includes Parent or which is under common control with Parent (an "ERISA
Affiliate of Parent") within the meaning of Section 414 of the Code, to which
Parent or an ERISA Affiliate of Parent is a party, with respect to which Parent
or an ERISA Affiliate of Parent has or could have any obligation, as well as
each plan with respect to which Parent or an ERISA Affiliate of Parent could
incur liability if such plan has been or were terminated (together, the "Parent
Employee Plans"), and a true and correct copy of each such written Parent
Employee Plan has been delivered to the Company.
(b) Except as set forth in Section 3.20 of the Parent Disclosure Schedule,
(i) none of the Parent Employee Plans promises or provides retire medical or
other retiree welfare benefits to any person and none of the Parent Employee
Plans is a "multiemployer plan" as such term is defined in Section 3(37) of
ERISA; (ii) there has been no transaction or failure to act with respect to any
Parent Employee Plan which could result in any material liability of Parent;
(iii) all Parent Employee Plans are in compliance in all material respects with
the requirements prescribed by any and all statutes, orders, or governmental
rules and regulations currently in effect with respect thereto, and Parent has
performed all material obligations required to be performed by it under, is not
in any material respect in default under or violation of, and has no knowledge
of any default or violation by any other party to, any of the Parent Employee
Plans except as to which such non-compliance, non-performance or default would
not result and is not reasonably likely to result in a Material Adverse Effect;
(iv) each Parent Employee Plan intended to qualify under Section 401(a) of the
Code is the subject of a favorable determination letter from the IRS, and
nothing has occurred which may reasonably be expected to impair such
determination; (v) all contributions required to be made to any Parent Employee
Plan, pursuant to the terms of the Parent Employee Plan or any collective
bargaining agreement, have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Parent Employee
Plan for the current plan years; (vi) with respect to each Parent Employee Plan,
no "reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the thirty (30) day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Sections 4062, 4063 and 4041 of ERISA has occurred; and (vii) neither Parent nor
any ERISA Affiliate of Parent has incurred, nor reasonably expects to incur, any
liability under Title IV of ERISA.
(c) Each Parent Employee Plan that is required or intended to be qualified
under applicable law, or registered or approved by a governmental agency or
authority, has been so qualified, registered or approved by the appropriate
governmental agency or authority, and nothing has occurred since the date of the
last qualification, registration or approval to adversely affect, or cause the
appropriate governmental agency or authority to revoke, such qualification,
registration or approval.
A-23
<PAGE>
(d) All contributions (including premiums) required by law or contract to
have been made or approved by Parent under or with respect to Parent Employee
Plans have been paid or accrued by Parent. Except as disclosed in Section
3.20(d) of the Parent Disclosure Schedule, without limiting the foregoing, there
are no material unfunded liabilities under any Parent Employee Plan.
(e) There are no pending or, to the knowledge of Parent, threatened
investigations, litigation or other enforcement actions against Parent with
respect to any of the Parent Employee Plans.
(f) There are no actions, suits or claims pending or, to the best knowledge
of Parent, threatened by former or present employees of Parent (or their
beneficiaries) with respect to Parent Employee Plans or the assets or
fiduciaries thereof (other than routine claims for benefits).
(g) No condition or event has occurred with respect to the Parent Employee
Plans which has or could reasonably be expected to result in a material
liability to Parent.
Section 3.21. INTELLECTUAL PROPERTY.
(a) Except as set forth in Section 3.21(a) of the Parent Disclosure
Schedule, Parent and its subsidiaries own, or are licensed or otherwise possess
legally sufficient rights to use, all material patents, trademarks, trade names,
service marks, copyrights and any applications therefor, technology, know-how,
computer software programs or applications and tangible or intangible
proprietary information or material that are used or proposed to be used in the
business of Parent or any of its subsidiaries as currently conducted or planned
to be conducted in any material respect.
(b) Except as set forth in Section 3.21(b) of the Parent Disclosure
Schedule, to Parent's knowledge, there is no material unauthorized use,
infringement or misappropriation of any of Parent's or its subsidiaries'
material patents, registered and unregistered trademarks and service marks,
registered and unregistered copyrights, trade names and any applications
therefor, by any third party, including any employee or former employee of
Parent or any of its subsidiaries. Except as set forth in Section 3.21(b) of the
Parent Disclosure Schedule, neither Parent nor any of its subsidiaries (i) has
been sued or charged in writing as a defendant in any claim, suit, action or
proceeding which involves a claim or infringement of trade secrets, any patents,
trademarks, service marks, trade names or copyrights and which has not been
finally terminated prior to the date hereof or been informed or notified by any
third party that Parent may be engaged in such infringement or (ii) has
knowledge of any infringement liability with respect to, or infringement by,
Parent or any of its subsidiaries of any trade secret, patent, trademark,
service mark, trade names or copyright of another.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
Section 4.01. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE
MERGER. During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, the
Company covenants and agrees that, unless Parent shall otherwise agree in
writing, the Company shall conduct its business and shall cause the businesses
of its subsidiaries to be conducted only in, and the Company and its
subsidiaries shall not take any action except in, the ordinary course of
business; and the Company shall use reasonable commercial efforts to preserve
substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and its subsidiaries (to the extent deemed
material to the Company's business), to take all reasonable action in the
ordinary course of business necessary to prevent the loss, cancellation,
abandonment forfeiture or expiration of any material Company Intellectual
Property, and to preserve the present relationships of the Company and its
subsidiaries with customers, suppliers and other persons with which the Company
or any of its subsidiaries has significant business relations except where the
loss of any such relationship would not have a Material Adverse Effect. By way
of amplification and not limitation, except as contemplated by this Agreement,
neither the Company nor any of its subsidiaries shall, during the
A-24
<PAGE>
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, directly or indirectly do,
or propose or agree to do, any of the following without the prior written
consent of Parent:
(a) amend or otherwise change the Company's Articles of Incorporation or
By-Laws;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or
other rights of any kind to acquire any shares of capital stock, or any
other ownership interest (including, without limitation, any phantom
interest) of the Company, any of its subsidiaries or affiliates (except for
the issuance of shares pursuant to the exercise of Stock Options (as defined
in Section 5.05 hereof) or pursuant to the exercise or conversion, as
applicable, of Stock Purchase Rights (as defined in Section 5.06 hereof),
which Stock Options or Stock Purchase Rights, as the case may be, are
outstanding and vested on the date hereof or which vest hereafter in
accordance with their terms, and except for the issuance of not more than an
aggregate of 14,184 shares to Doug Gravink pursuant to the Company's
commitments to him as set forth in that certain Purchase Agreement, dated
February 28, 1994, by and between the Company, Doug Gravink and the other
parties thereto);
(c) sell, lease, assign, transfer, pledge, dispose of or encumber any
material assets of the Company or any of its subsidiaries (except for (i)
sales of assets in the ordinary course of business and (ii) dispositions of
obsolete or worthless assets to any unrelated party);
(d) other than as specifically provided for in Sections 5.05 and 5.06
hereof, amend or change the period (or permit any acceleration, amendment or
change) of exercisability or conversion, as applicable, of Stock Options or
Stock Purchase Rights or authorize cash payments in exchange for any Stock
Options or Stock Purchase Rights;
(e) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof)
in respect of any of its capital stock, except that a wholly-owned
subsidiary of the Company may declare and pay a dividend to its parent, (ii)
split, combine or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or (iii) amend the terms of,
repurchase, redeem or otherwise acquire, or permit any subsidiary to
repurchase, redeem or otherwise acquire, any of its securities or any
securities of its subsidiaries, or propose to do any of the foregoing;
(f) sell, transfer, license, sublicense or otherwise dispose of any
material Company Intellectual Property Rights, or amend or modify any
existing agreements with respect to any Company Intellectual Property Rights
or Third Party Intellectual Property Rights, other than licenses in the
ordinary course of business;
(g) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; (ii) incur any indebtedness for borrowed money or issue
debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any person, or make
any loans or advances, except in the ordinary course of business; (iii)
create, incur, assume or suffer to exist, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind or nature upon the
property or assets, income or profits, whether now owned or hereafter
acquired, of the Company or its subsidiaries, except in the ordinary course
of business; (iv) enter into or amend any contract or agreement other than
in the ordinary course of business; (v) authorize any capital expenditures
or purchase of fixed assets which are, in the aggregate, in excess of
$25,000 for the Company and its subsidiaries, taken as a whole; or (vi)
enter into or amend any contract, agreement, commitment or arrangement to
effect any of the matters prohibited by this Section 4.01(g);
A-25
<PAGE>
(h) increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of employees
of the Company or its subsidiaries in the ordinary course of business, or
grant any severance or termination pay to (except as may be required by law
or agreement existing as of the date hereof), or enter into any employment
or severance agreement with, any director, officer or other employee of the
Company or any of its subsidiaries, or establish, adopt, enter into or amend
any Employee Plan;
(i) take any action, other than as required by GAAP, to change
accounting policies or procedures (including, without limitation, procedures
with respect to revenue recognition, payments of accounts payable and
collection of accounts receivable);
(j) make any material Tax election inconsistent with past practices or
settle or compromise any material, federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations for any
assessment of any Tax, except to the extent the amount of any such
settlement has been reserved for on the Company's most recent SEC Report;
(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) against
or of the Company, other than the payment, discharge or satisfaction in the
ordinary course of business of liabilities reflected or reserved against in
the financial statements of the Company or incurred in the ordinary course
of business;
(l) pay, discharge or satisfy any principal of any debt, with a maturity
of more than one year, for borrowed money or for the deferred purchase price
of property or services, except at the stated maturity of such debt or as
required by mandatory prepayment provisions relating thereto (subject to any
subordination provisions thereto), or amend any provision pertaining to the
subordination or the terms of payment of any such debt;
(m) except as may be required by law, take any action to terminate or
amend any of its Employee Plans other than in connection with the Merger;
(n) liquidate or dissolve itself (or suffer any liquidation or
dissolution);
(o) enter into any long-term media purchase agreement; or
(p) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.01(a) through (o) above, or any action which would
prevent the Company from performing or cause the Company not to perform its
covenants hereunder or result in any of the conditions to the Merger set
forth herein not being satisfied except as contemplated by this Agreement.
* * *
Notwithstanding the prohibitions of this Section 4.01, Parent and Merger Sub
acknowledge that the Company is in the process of renegotiating the terms of its
third party debt financing with the intention of reaching an agreement with
Wells Fargo Bank to handle all of such debt financing (the "Debt Financing").
The parties agree that the negotiation, execution and consummation of, and/or
the Company's compliance with, the terms of the Debt Financing (including the
repayment of all indebtedness to the Bank of America with proceeds received from
Wells Fargo) shall not be deemed to be a breach of this Section 4.01 if
undertaken by the Company in good faith and in the ordinary course of its
business.
Section 4.02. NO SOLICITATION.
(a) Except to the extent that the Company's Board of Directors is advised in
writing by such Board's counsel that failure to do so would constitute a breach
of the Board's fiduciary duties to the shareholders of the Company, actionable
in a court of competent jurisdiction, the Company agrees that neither it nor any
of its subsidiaries nor any of the respective officers and directors of the
Company and its subsidiaries shall, and the Company shall direct and use its
best efforts to cause its employees, agents, directors and representatives
(including, without limitation, any investment
A-26
<PAGE>
banker, attorney or accountant retained by it or any of its subsidiaries) not
to, initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any proposals or offers (including, without limitation, any proposals
or offers to shareholders of the Company) with respect to a merger,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities of, the Company or
any of its subsidiaries or a change in composition of a majority of directors on
the Company's Board of Directors (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal") or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal;
provided, however, that nothing contained in this Agreement shall prevent the
Board of Directors of the Company from referring any third party to this Section
4.02(a). Nothing contained in this Section 4.02(a) or any other provision of
this Agreement shall prevent the Board of Directors of the Company from
considering, negotiating, approving and recommending to the shareholders of the
Company a bona fide, unsolicited or solicited (if solicited in accordance with
Board's fiduciary duties as advised in writing by its counsel as described
above), written Acquisition Proposal which the Board of Directors of the Company
determines in good faith (after consultation with its financial advisors, and
after receiving a written opinion of outside counsel, or the advice of outside
counsel that is reflected in the minutes of the Board of Directors of the
Company, to the effect that the Board of Directors is required to do so in order
to discharge properly its fiduciary duties) would result in a transaction more
favorable to the Company's shareholders than the transaction contemplated by
this Agreement (any such Acquisition Proposal being referred to herein as a
"Superior Proposal").
(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal or any request for nonpublic information relating to the
Company or any of its subsidiaries in connection with an Acquisition Proposal or
for access to the properties, books or records of the Company or any subsidiary
by any person or entity that informs the Board of Directors of the Company or
such subsidiary that it is considering making, or has made, an Acquisition
Proposal. Such notice to Parent shall be made orally and in writing. Such notice
shall indicate in reasonable detail the identity of the offeror and the terms
and conditions of such proposal, inquiry or contact, unless in the case of an
unsolicited offer, the terms of an unsolicited offer specifically prohibits such
disclosure and the Company's Board of Directors is advised in writing by its
counsel that such disclosure would constitute a violation of the Board's
fiduciary duties to the Company's shareholders, actionable in a court of
competent jurisdiction.
(c) If the Board of Directors of the Company receives a request for material
nonpublic information and if the Board is advised in writing by its counsel that
failure to comply with the request would constitute a violation of its fiduciary
obligations to the Company's shareholders, actionable in a court of competent
jurisdiction, then, and only in such case, the Company may, subject to the
execution of a confidentiality and standstill agreement substantially similar to
that then in effect between the Company and Parent, provide such party with
access to information regarding the Company.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any parties (other than Parent and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from any confidentiality or
standstill agreement to which the Company is a party except pursuant to the
terms of such agreement.
(e) The Company shall ensure that the officers, directors and employees of
the Company and its subsidiaries and any investment banker or other advisor or
representative retained by the Company are aware of, and shall direct and use
its best efforts to cause such persons to comply with, the restrictions
described in this Section.
Section 4.03. CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Parent covenants and agrees
that, unless the Company shall otherwise agree in writing, Parent shall conduct
its business, and cause the businesses of its subsidiaries to be conducted,
A-27
<PAGE>
in the ordinary course of business, other than actions taken by Parent or its
subsidiaries in contemplation of the Merger, and shall not directly or
indirectly do, or propose to do, any of the following without the prior written
consent of the Company:
(a) amend or otherwise change Parent's Certificate of Incorporation, or
amend the terms of the Parent Common Shares;
(b) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets of any other person, which, in each case, would
materially delay or prevent the consummation of the transactions
contemplated by this Agreement;
(c) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of any of its capital stock, except that a wholly-owned subsidiary of Parent
may declare and pay a dividend to its parent; or
(d) take or agree in writing or otherwise to take any action which would
make any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect or prevent Parent from performing or cause
Parent not to perform its covenants hereunder or result in any of the
conditions to the Merger set forth herein not being satisfied except as
contemplated by this Agreement.
ARTICLE V
ADDITIONAL COVENANTS
Section 5.01. PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. As
promptly as practicable after the execution of this Agreement, the Company and
Parent shall prepare and file with the SEC preliminary proxy materials which
shall constitute the Proxy Statement of the Company and the Prospectus contained
in the Registration Statement of Parent with respect to the Parent Common Shares
to be issued in connection with the Merger. As promptly as practicable after
comments are received from the SEC thereon and after the furnishing by the
Company and Parent of all information required to be contained therein, the
Company and Parent shall file with the SEC a combined Proxy and Registration
Statement on Form S-4 (or on such other form as shall be appropriate) relating
to the approval of the Merger and the transactions contemplated hereby by the
shareholders of the Company and shall use all reasonable efforts to cause the
Registration Statement to become effective as soon thereafter as practicable.
The Proxy Statement shall include the recommendation of the Board of Directors
of the Company in favor of the Merger, subject to the second sentence of Section
4.02.
Section 5.02. SHAREHOLDERS' MEETING. The Company shall in accordance with
California Law and the Company's Articles of Incorporation and Bylaws call and
hold the Company Shareholders' Meeting as promptly as practicable for the
purpose of voting upon the approval of the Merger. Subject to the provisions of
Section 4.02, the Company shall use its reasonable best efforts to hold the
Company Shareholders' Meeting as soon as practicable after the date on which the
Registration Statement becomes effective. The Company shall use its reasonable
best efforts to solicit from its shareholders proxies in favor of the approval
of the Merger, and shall take all other action necessary or advisable to secure
the vote or consent of shareholders required by California Law to obtain such
approvals.
Section 5.03. ACCESS TO INFORMATION; CONFIDENTIALITY. Upon reasonable
notice and subject to restrictions contained in confidentiality agreements to
which such party is subject, the Company and Parent shall each (and shall cause
each of their subsidiaries to) afford to the officers, employees, accountants,
counsel and other representatives of the other, reasonable access, during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, the Company and Parent each
shall (and shall cause each of their subsidiaries to) furnish promptly to the
other all information concerning its business, properties and personnel as such
other
A-28
<PAGE>
party may reasonably request, and each shall make available to the other the
appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and personnel
as either party may reasonably request. Each party shall keep such information
confidential in accordance with the terms of that certain confidentiality
agreement (the "Confidentiality Agreement") between Parent and the Company dated
July 24, 1995.
Section 5.04. CONSENTS; APPROVALS. The Company and Parent shall each use
their best efforts to obtain all consents, waivers, approvals, authorizations or
orders (including, without limitation, all United States and foreign
governmental and regulatory rulings and approvals), and the Company and Parent
shall make all filings (including, without limitation, all filings with United
States and foreign governmental or regulatory agencies) required in connection
with the authorization, execution and delivery of this Agreement by the Company
and Parent and the consummation by them of the transactions contemplated hereby.
The Company and Parent shall furnish all information required to be included in
the Proxy Statement and the Registration Statement, or for any application or
other filing to be made pursuant to the rules and regulations of any United
States or foreign governmental body in connection with the transactions
contemplated by this Agreement.
Section 5.05. STOCK OPTIONS.
(a) At the Effective Time, the Company's obligations with respect to each
outstanding option to purchase shares of Company Common Stock (each, a "Stock
Option") under the Company Option Plan will be assumed by Parent, subject to any
applicable vesting schedule (except as otherwise specifically agreed in writing
by the Company). Except as otherwise specifically agreed in writing by the
Company, each Company Option so assumed by Parent under this Agreement shall
continue to have, and be subject to, the same terms and conditions set forth in
the Company Option Plan and the agreement pursuant to which such Stock Option
was issued as in effect immediately prior to the Effective Time, except that (i)
such Stock Option will be exercisable for that number of Parent Common Shares
equal to the product of (x) the number of shares of Company Common Stock that
were purchasable under such Stock Option immediately prior to the Effective
Time, multiplied by (y) the Exchange Ratio, rounded up to the nearest whole
number of shares of Parent Common Shares, and (ii) the per share exercise price
for the shares of Parent Common Shares issuable upon exercise of such assumed
Stock Option will be equal to the quotient determined by dividing (x) the
exercise price per share of Company Common Stock at which such Stock Option was
exercisable immediately prior to the Effective Time, by (y) the Exchange Ratio,
and rounding the resulting exercise price up to the nearest whole cent.
(b) After the Effective Time, Parent will issue to each holder of any
outstanding Stock Option a document evidencing the foregoing assumption by
Parent.
(c) After the Effective Time, Parent will prepare and file with the SEC, at
the earliest time which Parent, in its reasonable discretion, deems prudent, a
registration statement on Form S-8 with respect to the offer and sale by Parent
of Parent Common Shares issuable upon the exercise of Stock Options under the
Company Option Plan and with respect to the resale by Michael Levey of Parent
Common Shares issuable upon the exercise of stock options to be granted to Mr.
Levey pursuant to the employment agreement referred to in Section 6.02(h)
hereof.
Section 5.06. STOCK PURCHASE RIGHTS.
(a) At the Effective Time, the Company's obligations with respect to each
outstanding option (excluding Stock Options, as defined in Section 5.05 above),
warrant, convertible security or other similar right of any kind or nature to
acquire Company Common Stock (each, a "Stock Purchase Right") will be assumed by
Parent, subject to any applicable vesting schedule. Each Stock Purchase Right so
assumed by Parent under this Agreement shall continue to have, and be subject
to, the same terms and conditions set forth in the agreement or instrument
pursuant to which each such Stock Purchase Right was issued or granted as in
effect immediately prior to the Effective Time, except that (i) each such Stock
Purchase Right will be exercisable or convertible, as the case may be, for that
number of Parent Common Shares equal to the product of (x) the number of shares
of Company
A-29
<PAGE>
Common Stock that were purchasable under such Stock Purchase Right immediately
prior to the Effective Time, multiplied by (y) the Exchange Ratio, rounded up to
the nearest whole number of shares of Parent Common Shares, and (ii) the per
share exercise or conversion price, as the case may be, for the shares of Parent
Common Shares issuable upon exercise or conversion, as applicable, of such Stock
Purchase Right will be equal to the quotient determined by dividing (x) the
exercise or conversion price, as applicable, per share of Company Common Stock
at which such Stock Purchase Right was exercisable or convertible, as the case
may be, immediately prior to the Effective Time, by (y) the Exchange Ratio, and
rounding the resulting exercise or conversion price, as applicable, up to the
nearest whole cent.
(b) The Company shall take all such actions (including, but not limited to,
obtaining any and all consents, approvals or waivers from the holders of the
Stock Purchase Rights) as are necessary under the terms and conditions of the
agreements and instruments governing each such Stock Purchase Right to ensure
that all such Stock Purchase Rights may be assumed by Parent as provided in
Section 5.06(a) above. Parent shall have the prior right to review and approve
or disapprove any such agreements.
Section 5.07. AGREEMENTS OF AFFILIATES. The Company shall deliver to
Parent, prior to the date the Registration Statement is filed with the SEC, a
letter (the "Affiliate Letter") identifying all persons, who are, or may be
deemed to be, as of such date, "affiliates" of the Company for purposes of Rule
145 under the Securities Act. The Company shall cause each person who is
identified as an "affiliate" in the Affiliate Letter to deliver to Parent, prior
to the date on which the Proxy Statement/ Prospectus is mailed to the
shareholders of the Company for use at the Company Shareholders' Meeting, an
executed agreement (the "Affiliate Agreement") in substantially the form of
Exhibit C attached hereto.
Section 5.08. INDEMNIFICATION AND INSURANCE.
(a) The Certificate of Incorporation of the Surviving Corporation shall
contain provisions with respect to indemnification substantially similar to
those set forth in the By-Laws of the Company (to the extent allowable under
applicable Delaware law), which provisions shall not be amended, repealed or
otherwise modified in any manner that would adversely affect the rights
thereunder of individuals who at or prior to the Effective Time were directors,
officers, employees or agents of the Company, unless such modification is
prospective in nature and is required by law.
(b) The Company shall, to the fullest extent permitted under applicable law
or under the Company's Articles of Incorporation or By-Laws and regardless of
whether the Merger becomes effective, indemnify and hold harmless, and after the
Effective Time, the Surviving Corporation shall, to the fullest extent permitted
under applicable law or under the Surviving Corporation's Certificate of
Incorporation or By-Laws (including provisions pertaining to advances of legal
fees), indemnify and hold harmless, each present and former director, officer,
employee, fiduciary and agent of the Company or any of its subsidiaries
(collectively, the "Indemnified Parties") against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement of, or in connection with, any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or
omission occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement). In the event of
any such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) any counsel retained by the Indemnified
Parties for any period after the Effective Time shall be reasonably satisfactory
to the Surviving Corporation, (ii) after the Effective Time, the Surviving
Corporation shall pay the reasonable fees and expenses of such counsel, and
(iii) the Surviving Corporation will cooperate in the defense of any such
matter; provided, however, that the Surviving Corporation shall not be liable
for any settlement
A-30
<PAGE>
effected without its written consent (which consent shall not be unreasonably
withheld). The Indemnified Parties as a group may retain only one law firm to
represent them with respect to any single action unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties.
Section 5.09. NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate, and (ii) any failure of
the Company, Parent or Merger Sub, as the case may be, materially to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant to
this Section shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice; and provided, further, that
failure to give such notice shall not be treated as a breach of covenant for the
purposes of Sections 6.02(a) and 6.03(a) unless the failure to give such notice
results in material prejudice to the other party.
Section 5.10. FURTHER ACTION; TAX TREATMENT; ACCOUNTING TREATMENT. Upon
the terms and subject to the conditions hereof, each of the parties hereto in
good faith shall use all commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all other things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the transactions contemplated by this Agreement, to obtain in a timely manner
all necessary filings, and to otherwise satisfy or cause to be satisfied all
conditions precedent to its obligations under this Agreement. Without limiting
the foregoing, the Company shall take all actions and do all other things
necessary to obtain a tax clearance letter from the State of California prior to
the Closing. Each of Parent, Merger Sub and the Company shall use its best
efforts to (i) cause the Merger to qualify, and will not (both before and after
consummation of the Merger) take any actions which could prevent the Merger from
qualifying, as a reorganization under the provisions of Section 368 of the Code
and the regulations promulgated thereunder; and (ii) cause the Merger to be
accounted for, and will not (both before and after consummation of the Merger)
take any action which would mitigate against or prevent the Merger from being
accounted for, as a pooling of interests. Each of Parent, Merger Sub and the
Company shall report the Merger as a reorganization under the provisions of
Section 368 of the Code and the regulations promulgated thereunder and, to the
extent permitted, on all state and local Tax returns filed after the Effective
Time of the Merger.
Section 5.11. PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to the Merger or this Agreement and shall not issue any
such press release or make any such public statement without the prior consent
of the other party, which consent shall not be unreasonably withheld; provided,
however, that a party may, without the prior consent of the other party, issue
such press release or make such public statement as may, upon the advice of
counsel, be required by law, the National Association of Securities Dealers or
the NYSE if it has used all reasonable efforts to consult with the other party.
Section 5.12. LISTING OF PARENT COMMON SHARES. Parent shall use its
reasonable best efforts to cause the shares of Parent Common Shares to be issued
in the Merger to be approved for listing on the New York Stock Exchange.
Section 5.13. CONVEYANCE TAXES. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable in connection with the transactions contemplated hereby that are
required or permitted to be filed on or before the Effective Time.
A-31
<PAGE>
Section 5.14. ACCOUNTANTS' LETTERS. The Company shall cause Deloitte &
Touche LLP to deliver to Parent, as of a date just prior to the time the
Registration Statement is declared effective by the SEC (and to be updated as of
a date just prior to the Effective Time), a letter covering such matters as are
requested by Parent and as are customarily addressed in accountant's "comfort"
letters.
Section 5.15. UPDATE TO COMPANY DISCLOSURE SCHEDULE. The Company shall
deliver to Parent, as of the Effective Time, an update to the Company Disclosure
Schedule current through the Effective Date.
ARTICLE VI
CONDITIONS TO THE MERGER; ESCROW HOLDBACK
Section 6.01. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Effectiveness of the Registration Statement. The Registration Statement
shall have been declared effective by the SEC under the Securities Act. No stop
order suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose and no similar proceeding
in respect of the Proxy Statement shall have been initiated or, to the knowledge
of Parent or the Company, threatened by the SEC.
(b) Shareholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the shareholders of the Company.
(c) HSR Act. Any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(d) No Injunctions or Restraints; Illegality; Material Threat. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by any administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; there shall not be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal; and no third party
shall have taken any action, or threatened to take any action, or asserted any
claim, or threatened to assert any claim, which action or claim could pose a
material threat to the consummation of the Merger;
(e) Tax Opinions. Parent and the Company shall have each received
substantially identical written opinions from their respective counsel, Klehr,
Harrison, Harvey, Branzburg & Ellers and Irell & Manella, in form and substance
reasonably satisfactory to them to the effect that the Mergers will constitute a
reorganization within the meaning of Section 368 of the Code, and such opinions
shall not have been withdrawn. In rendering such opinions, counsel shall be
entitled to rely upon representations of Parent, Merger Sub and the Company and
certain affiliates and shareholders of the Company; and
(f) NYSE Listing. The Parent Common Shares shall have been approved for
listing, subject to notice of issuance, on the NYSE.
Section 6.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER
SUB. The obligations of Parent and Merger Sub to effect the Merger are also
subject to the following conditions.
(a) Representations and Warranties. The representations and warranties of
the Company contained in this Agreement (together with the Company Disclosure
Schedule) shall be true and correct in all respects on and as of the Effective
Time, except for (i) changes contemplated by this Agreement, (ii) those
representations and warranties which address matters only as of a particular
date (which
A-32
<PAGE>
shall remain true and correct as of such date) and (iii) instances where the
failure to be true and correct would not have a Material Adverse Effect on the
Company, with the same force and effect as if made on and as of the Effective
Time, and Parent and Merger Sub shall have received a certificate to such effect
signed by the Chairman/Chief Executive Officer and President/Chief Financial
Officer of the Company in their capacities as executive officers of the Company;
(b) Agreements and Covenants. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time, and Parent and Merger Sub shall have received a certificate to such effect
signed by the Chairman/Chief Executive Officer and President/Chief Financial
Officer of the Company in their capacities as executive officers of the Company;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to be
made, by the Company for the authorization, execution and delivery of this
Agreement and the consummation by it of the transactions contemplated hereby
shall have been obtained or made by the Company;
(d) Governmental Actions. There shall not have been instituted, pending or
threatened any action or proceeding (or any investigation or other inquiry that
might result in such an action or proceeding) by any governmental authority or
administrative agency before any governmental authority, administrative agency
or court of competent jurisdiction, in either case, seeking to prohibit or limit
Parent from exercising all material rights and privileges pertaining to its
ownership of the Surviving Corporation or the ownership or operation by Parent
or any of its subsidiaries of all or a material portion of the business or
assets of Parent or any of its subsidiaries, or seeking to compel Parent or any
of its subsidiaries to dispose of or hold separate all or any material portion
of the business or assets of Parent or any of its subsidiaries, as a result of
the Merger or the transactions contemplated by this Agreement;
(e) Material Adverse Change. Since the date of this Agreement, there shall
have been no change, occurrence or circumstance in the business, results of
operations or financial condition of the Company or any subsidiary of the
Company, including, but not limited to, (i) the threat or filing of any action,
claim, suit or proceeding against or involving the Company or (ii) any
development in existing litigation of the Company, in any such case having or
reasonably likely to ha ve a Material Adverse Effect. In entering into this
Agreement, Parent has relied in part upon the representations of the Company and
its legal counsel concerning ongoing litigation involving the Company, the
anticipated outcome thereof and the costs attendant thereto. Following the date
hereof, there shall have been no materially adverse change in the outlook
concerning such litigation, nor shall Parent have in good faith determined that
the outcome of any of such litigation matters will have a Material Adverse
Effect;
(f) Affiliate Agreements. Parent shall have received an Affiliate Agreement
from each person who is identified in the Affiliate Letter as an "affiliate" of
the Company, and each such Affiliate Agreement shall be in full force and
effect;
(g) Legal Opinions. Parent shall have received opinions, dated the Effective
Date, from counsel to the Company, in substantially the forms attached hereto as
Exhibit D;
(h) Employment Agreements; Restrictions on Resale; Other Matters. (i) Each
of Michael Levey, as Chairman and Chief Executive Officer of the Company, and
Lisa Levey shall have entered into five (5) year employment agreements with the
Surviving Corporation in substantially the forms attached hereto as Exhibits E
and F, respectively; (ii) each of Michael Levey and Lisa Levey shall also have
entered into an agreement with Parent, on terms acceptable to Parent, pursuant
to which each shall agree to refrain from selling, in the aggregate, more than
75,000 Parent Common Shares during any twelve (12) month period from and after
the Effective Time until the third anniversary thereof; (iii) Stephen Weber
shall have entered into an amendment to his existing employment agreement, as
previously amended April 14, 1994, reflecting that, following the Effective
Time, he shall occupy the
A-33
<PAGE>
position of Vice Chairman, not President/Chief Operating Officer/Chief Financial
Officer, of the Surviving Corporation; (iv) Stephen Weber shall have entered
into a one (1) year non-competition agreement with the Surviving Corporation,
commencing January 1, 1997, on terms acceptable to Parent; (v) Michael Levey
shall have entered into a cost/recovery sharing agreement with the Company, in
form reasonably acceptable to Parent, regarding the Company's and Mr. Levey's
ongoing litigation with Forbes Magazine, et al.; (vi) each of Michael Levey,
Stephen Weber, Doug Gravink and, as appropriate, any other directors, officers,
consultants or employees of the Company, shall have executed promissory notes
payable to the Company, in form reasonably acceptable to Parent, regarding any
amounts payable by each of them to the Company as of the Effective Time; and
(vii) Michael Levey shall have taken and passed such physical examinations as
Parent shall reasonably request;
(i) Opinion of Financial Advisor. Parent shall have received a written
opinion, dated the Effective Date, from Howard, Lawson & Co. that in its
opinion, as of the Effective Date, the Exchange Ratio is fair from a financial
point of view to Parent;
(j) Cruttenden Warrant. Cruttenden Roth, Incorporated shall have executed
and accepted an amended and restated warrant concerning the Stock Purchase
Rights held by Cruttenden Roth, Incorporated in form reasonably satisfactory to
Parent;
(k) Stock Options and Stock Purchase Rights. Each of Valerie Castle and
Charles McGlade shall have entered into written agreements with the Company, in
form reasonably acceptable to Parent, concerning such person's Stock Option and
Stock Purchase Right, respectively, to acquire 20,000 shares and 6,666 shares,
respectively, of Company Common Stock and the effect of the Merger thereon;
(l) Dissent. The holders of no more than a maximum of 4.9 percent of the
Company's Common Stock shall have exercised their rights under California Law to
dissent from the transaction; and
(m) Escrow. The Escrow calculations (as described in Section 6.04 below)
shall have been made and, to the extent required by Section 6.04 below, the
Escrow Holdback (as defined in Section 6.04 below) shall have been accomplished.
Section 6.03. ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub contained in this Agreement (together with the Parent
Disclosure Schedule) shall be true and correct in all respects on and as of the
Effective Time, except for (i) changes contemplated by this Agreement, (ii)
those representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date) and (iii)
instances where the failure to be true and correct would not have a Material
Adverse Effect on Parent and Merger Sub, with the same force and effect as if
made on and as of the Effective Time, and the Company shall have received a
certificate to such effect signed by the President and Chief Financial Officer
of Parent;
(b) Agreements and Covenants. Parent and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Effective Time, and the Company shall have received a certificate to such effect
signed by the President and Chief Financial Officer of Parent;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to be
made, by Parent and Merger Sub for the authorization, execution and delivery of
this Agreement and the consummation by them of the transactions contemplated
hereby shall have been obtained or made by Parent and Merger Sub;
(d) Material Adverse Change. Since the date of this Agreement, there shall
have been no change, occurrence or circumstance in the business, results of
operations or financial condition of Parent or any subsidiary of Parent having
or reasonably likely to have a Material Adverse Effect;
A-34
<PAGE>
(e) Legal Opinion. The Company shall have received an opinion, dated the
Effective Date, from Klehr, Harrison, Harvey, Branzburg & Ellers, counsel to
Parent, in substantially the form attached hereto as Exhibit G; and
(f) Opinion of Financial Advisor. The Company shall have received a written
opinion, dated the Effective Date, from Cruttenden Roth, Incorporated that in
its opinion, as of the Effective Date, the terms of the Merger are fair to the
shareholders of the Company from a financial point of view. A copy of such
opinion shall be delivered by the Company to Parent upon the receipt of such
opinion by the Company.
Section 6.04. MINIMUM SHAREHOLDERS' EQUITY; ESCROW.
(a) (i) The Company shall cause Deloitte & Touche LLP (the "Auditors") to
complete their audit of the Company's financial statements for the year ended
December 31, 1995 (the "Balance Sheet Date") (the "1995 Year-End Financial
Statements") promptly following the date hereof on a basis consistent with past
practices. The Company's balance sheet as of the Balance Sheet Date shall
include as liabilities any bonus(es) payable to Doug Gravink and/or any other
Company personnel for the 1995 or any prior fiscal year as well as any
additional insurance premiums payable by the Company pertaining to any period
prior to the Balance Sheet Date.
(ii) To the extent that the Company's shareholders' equity as of the
Balance Sheet Date, subject to any material adjustment thereto occurring as
a result of post-Balance Sheet Date occurrences which the parties may agree
upon in good faith, minus an amount equal to the aggregate Writedown
Amounts, as defined below (to the extent that such Writedown Amounts have
not already been written off), is less than the Minimum Shareholders'
Equity, as defined below, the aggregate maximum number of shares of NMC
common stock issuable to the Holders (as defined below) shall be reduced by
an amount equal to such shortfall, multiplied by two (2) and then divided by
$14.125. Notwithstanding the foregoing, any reserve established or writedown
effected in the Company's 1995 Year End Financial Statements corresponding
to any of the Liquidation Amounts, as defined below, shall not be given
effect in making the calculation described in this subparagraph (a)(ii). The
amount calculated by reversing the effect of any such writedowns or reserves
shall hereinafter be referred to as the "Calculation Equity".
(iii) "Minimum Shareholders' Equity" shall mean an amount equal to (A)
$13,000,000 less (B) an amount equal to all costs incurred by the Company
directly in connection with this Agreement, the Merger and the transactions
contemplated hereby and thereby and given effect in the Company's financial
statements (the "Transaction Costs").
(iv) The Auditors shall deliver their preliminary calculation of the
Company's shareholders' equity as of the Balance Sheet Date to Parent and
the Company as soon as practicable. Each party shall have ten (10) days
after such delivery to raise objections or propose changes (delivered to
both the Auditors and the other party) and an additional two days to respond
to proposals of the other party. Thereafter, the Auditors shall complete
their audit as soon as practicable. The Company's shareholders' equity as
reflected on the audited balance sheet as of the Balance Sheet Date shall be
conclusive and binding on Parent, Merger Sub and the Company as of that date
for purposes of the calculations to be made pursuant to this Section 6.04.
The Company shall advise Parent as to, and the Auditors shall verify to
Parent, the amount of the Transaction Costs.
(b) (i) To the extent that the Adjusted Shareholders' Equity (as defined
below) is less than the Calculation Equity, then certain of the Parent Common
Shares otherwise to be delivered to the Company's Shareholders shall be
deposited, upon consummation of the Merger, into escrow subject to the
provisions of subparagraph (c) below.
(ii) Adjusted Shareholders' Equity shall mean the sum of (A) the
Company's shareholders' equity as of the Balance Sheet Date, subject to any
material adjustment thereto necessitated by post-Balance Sheet Date
occurrences which the parties hereto may agree upon in good faith;
A-35
<PAGE>
MINUS (B) the Writedown Amounts (to the extent such Writedown Amounts have
not already been written off); MINUS (C) the Liquidation Amounts; and MINUS
(D) the Other Holdback Amounts (as defined below).
(iii) "Writedown Amounts" shall mean (A) the amount of any deferred
software costs; and (B) the amount of any note receivable from David Wood.
Just prior to the Effective Time, the Company shall write-off such Writedown
Amounts as the Parent shall deem reasonable.
(iv) The "Liquidation Amounts" shall mean (A) the amount of any
unsupported deferred media credits; (B) the amount of any cash deposits held
by Lytle (in excess of $100,000) and/or by the Perfect Hair manufacturer;
(C) the amount of any Telebrands receivable(s); (D) any unamortized
production costs of the Tai Chi show; (E) any unamortized production costs
of the Mathemagics Show; (F) the amount of any Perfect Hair inventory; (G)
the amount of any insurance recovery receivable; and (H) the amount of any
third party media receivables.
(v) The "Other Holdback Amounts" shall mean any amounts which would be
due to be paid to the law firm of Russ, August & Kabat ("R,A&K") as of the
Effective Time pursuant to that certain Attorney-Client Representation
Agreement by and between the Company, Michael Levey and R,A&K (the "Fee
Agreement") if the litigation matter referred to therein (the "Litigation")
were dismissed by the Company as of the Effective Time, less any of such
amounts which have already been accrued in the Company's financial
statements (the "Fee Amount").
(c) The Parent Common Shares to be placed into escrow (the "Escrow Shares")
shall have an aggregate Value (as defined below) equal to the difference between
the Calculation Equity and the Adjusted Shareholders' Equity, less the sum of
the Liquidation Amounts which have been collected and/or the value thereof
demonstrated on or prior to the Effective Date. The "Value" of each Parent
Common Share shall be $14.125. An escrow account (the "Escrow Account") shall be
established at Parent's transfer agent, or such other third party as shall be
mutually acceptable to Parent and the Company (the "Escrow Agent"), pursuant to
the terms of an Escrow Agreement between Parent and the Escrow Agent (the
"Escrow Agreement") in a form to be agreed upon by Parent and the Company. The
Escrow Shares shall be released as provided in subparagraph (d) below and in
accordance with the terms of the Escrow Agreement.
(d) As of September 30, 1996, March 31, 1997 and September 30, 1997 (the
"Review Dates"), Parent and the Shareholders' Representative (as defined below)
shall conduct a review of those balance sheet items pertaining to the
Liquidation Amounts. To the extent that all or a portion of the Liquidation
Amounts (net of any third party costs of collection in the case of (B), (C), (G)
and (H)) have, as of such dates, either been collected/liquidated (in the case
of items (A), (B), (C), (F), (G) and (H)) or the value thereof demonstrated (in
the case of items (D) and (E)), Parent shall cause Escrow Agent to deliver out
of the Escrow Account, on a pro-rata basis to those persons who held Company
Common Stock as of the Effective Time (the "Holders"), a number of Escrow Shares
equal to the quotient of (x) the aggregate dollar amount which, as of the date
of such review, has either been collected/liquidated or the value thereof
demonstrated with respect to the Liquidation Amounts, divided by (y) the per
share Value. In addition, as of the first Review Date to occur following the
dismissal (voluntary or otherwise), settlement or final adjudication of the
Litigation, to the extent that any portion of the Fee Amount has prior thereto
been paid to R,K&A other than out of net proceeds of any such settlement or
final adjudication, then a number of Escrow Shares equal to such portion of the
Fee Amount divided by $14.125 shall be delivered back to Parent in accordance
with the terms of the Escrow Agreement and a number of Escrow Shares equal to
the balance of the Fee Amount divided by $14.125 shall be delivered to the
Holders. Notwithstanding the foregoing, in no event shall the aggregate number
of Parent Common Shares to be delivered to the Holders pursuant to the
provisions of this subparagraph (d) exceed the aggregate number of Escrow Shares
initially deposited into the Escrow Account and nothing herein shall be
construed as granting any such rights upon such Holders. Following the last of
such Review Dates and any delivery of Parent Common Shares thereby called for,
any Escrow Shares remaining in the Escrow Account shall be delivered back
A-36
<PAGE>
to Parent in accordance with the terms of the Escrow Agreement. Parent and
Merger Sub shall not compromise, forgive or otherwise settle for less than the
full accrued amount thereof any of items (A), (B), (C), (F) or (G) of the
Liquidation Amounts without the Shareholders' Representative's prior approval.
The Shareholders' Representative shall be Michael Levey.
ARTICLE VII
TERMINATION
Section 7.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
shareholders of the Company:
(a) by mutual written consent duly authorized by the Boards of Directors of
Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by April 30, 1996 (provided that the right to terminate this
Agreement under this Section 7.01(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date); or
(c) by either Parent or the Company if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued a non-appealable final order, decree or ruling or taken any other action,
in each case having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger; or
(d) by Parent or the Company, if, at the Company Shareholders' Meeting
(including any adjournment or postponement thereof), the requisite vote of the
shareholders of the Company shall not have been obtained; or
(e) by Parent, if (i) the Board of Directors of the Company shall withdraw,
modify or change its recommendation of this Agreement or the Merger in a manner
adverse to Parent or shall have resolved to do so; or (ii) the Board of
Directors of the Company shall have taken a "neutral" position with respect to
(or shall have failed to reject as inadequate or failed to have reaffirmed its
recommendation of this Agreement and the Merger within ten (10) business days
after the public announcement or commencement of) an Acquisition Proposal; or
(f) by Parent or the Company, upon a material breach of any representation,
warranty, covenant or agreement on the part of the Company or Parent and Merger
Sub, respectively, set forth in this Agreement or if any representation or
warranty of the Company or Parent and Merger Sub, respectively, shall have
become materially untrue, in either case, such that the conditions set forth in
Section 6.02(a) or 6.02(b), or Section 6.03(a) or 6.03(b), would not be
satisfied (a "Terminating Breach"); provided that, if such Terminating Breach is
curable prior to the expiration of thirty (30) days from its occurrence (but in
no event later than April 30, 1996) by Parent or the Company, as the case may
be, through the exercise of its reasonable best efforts and for so long as
Parent or the Company, as the case may be, continues to exercise such reasonable
best efforts, neither the Company nor Parent, respectively, may terminate this
Agreement under this Section 7.01(f) unless such thirty (30) day period expires
without such Terminating Breach having been cured; or
(g) by the Company or Parent, if the Board of Directors of the Company shall
have resolved to accept, or accepted, a Superior Proposal on or before June 30,
1996.
Section 7.02. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 7.01, this Agreement shall forthwith become
null and void and there shall be no liability on the part of any party hereto or
any of its affiliates, directors, officers or stockholders except (i) as set
forth in Section 7.03 and Section 8.01 hereof, and (ii) nothing herein shall
relieve any party from liability for any willful breach hereof (provided that
any fee paid by the Company pursuant to Section 7.03(b) hereof shall be credited
towards any such liability of the Company). If the Board of Directors of the
Company, in good faith, after receiving the advice of outside counsel, concludes
that it
A-37
<PAGE>
would be in violation of its fiduciary duties if it did not take or omit to take
the actions enumerated in Section 7.01(e) or 7.01(g) as giving rise to a right
of termination by Parent, then any such action or omission shall not be
considered a willful breach of this Agreement.
Section 7.03. FEES AND EXPENSES.
(a) Except as set forth in this Section 7.03, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated. Notwithstanding the foregoing, in the event of a termination of
this Agreement by Parent pursuant to Section 7.01(f) hereof, the Company and
Parent agree to share equally all costs and expenses, including filing fees
and/or attorney's fees, incurred in connection with their compliance with the
pre-merger notification requirements of the HSR Act; provided, however, that in
the event the Company is required to pay to Parent the fee referred to in
Section 7.03(b) below and the Company delivers such fee in accordance with
Section 7.03(c) below, the Company shall not be responsible to Parent for any
portion of such costs and expenses.
(b) The Company shall pay Parent a fee of $500,000 in the event that:
(i) the Agreement is terminated by Parent pursuant to Section 7.01(f);
and
(ii) the Company is sold to a third party on or before June 30, 1996.
(c) The fee payable pursuant to Section 7.03(b) shall be paid within one
business day after the last to occur of the events described in Section 7.03(b).
If the Company pays such fee to Parent, such payment shall be deemed to be in
lieu of all other recoveries which Parent may otherwise have the right to pursue
from the Company or any of its affiliates, directors, officers or shareholders.
In no event shall the Company be required to pay any fee pursuant to Section
7.03(b) if, immediately prior to the termination of the Agreement, Parent is in
material breach of its obligations under this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Except as otherwise provided in this Section 8.01, the
representations, warranties, covenants and agreements of each party hereto shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any other party hereto, any person controlling any such
party or any of their officers or directors, whether prior to or after the
execution of this Agreement. Any disclosure made with reference to one or more
sections of the Company Disclosure Schedule or the Parent Disclosure Schedule
shall be deemed disclosed with respect to each other section therein as to which
such disclosure is relevant provided such relevance is reasonably apparent.
Except as otherwise expressly provided herein, the representations, warranties,
covenants and agreements in this Agreement and all certificates of any officer
of Parent or the Company delivered pursuant hereto shall terminate at the
Effective Time or upon termination of this Agreement pursuant to Section 7.01,
as the case may be; provided, however, that the covenants and agreements set
forth in Sections 5.05 and 5.06 shall survive the Effective Time indefinitely
and those set forth in Sections 5.03 and 7.03 shall survive termination
indefinitely. The Confidentiality Agreement shall survive termination of this
Agreement as provided therein.
Section 8.02. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered personally, three days after being
sent by registered or certified mail (postage prepaid, return receipt
requested), one day after dispatch by recognized overnight courier (provided
delivery is
A-38
<PAGE>
confirmed by the carrier) and upon transmission by telecopy, confirmed received,
to the parties at the following addresses (or at such other address for a party
as shall be specified by like changes of address):
(a) If to Parent or Merger Sub:
National Media Corporation
1700 Walnut Street, 9th Floor
Philadelphia, PA 19103
Telecopier No.: (215) 772-5013
Attention: Constantinos I. Costalas, Vice Chairman
With a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telecopier No.: (215) 568-6603
Attention: Gerald F. Stahlecker, Esq.
(b) If to the Company:
Positive Response Television, Inc.
14724 Ventura Boulevard
Sixth Floor
Sherman Oaks, CA 91407
Telecopier No.: (818) 380-6966
Attention: Michael Levey, Chairman
With a copy to:
Irell & Manella
1800 Avenue of the Stars (Century City)
Suite 900
Los Angeles, CA 90067-4276
Telecopier No.: (310) 203-7199
Attention: Alvin G. Segel, Esq.
Section 8.03. CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "affiliates" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person, including, without limitation, any partnership
or joint venture in which the Company (either alone, or through or together with
any other subsidiary) has, directly or indirectly, an interest of 10 percent or
more;
(b) "business day" means any day other than a day on which banks in New York
are required or authorized to be closed.
(c) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d)(3)) of the Exchange Act); and
(d) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, Parent or such other person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or indirectly,
more than 50% of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
Section 8.04. AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time;
A-39
<PAGE>
provided, however, that, after approval of the Merger by the shareholders of the
Company, no amendment may be made which by law requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
Section 8.05. WAIVER. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
Section 8.06. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 8.07. SEVERABILITY. If any term or other provision of this
Agreement is held to be invalid, illegal or incapable of being enforced under
any rule of law or public policy by a court of competent jurisdiction, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner so that the transactions
contemplated hereby are fulfilled to the extent possible.
Section 8.08. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
undertakings (other than the Confidentiality Agreement), both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
and, except as otherwise expressly provided herein, is not intended to confer
upon any other person any rights or remedies hereunder.
Section 8.09. ASSIGNMENT, MERGER SUB. This Agreement shall not be assigned
by operation of law or otherwise, except that Parent and Merger Sub may assign
all or any of their rights hereunder to any affiliate provided that no such
assignment shall relieve the assigning party of its obligations hereunder.
Parent guarantees the full and punctual performance by Merger Sub of all of the
obligations hereunder of Merger Sub.
Section 8.10. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 5.08 (which is intended to be for the
benefit of the Indemnified Parties and may be enforced by such Indemnified
Parties).
Section 8.11. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 8.12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF DELAWARE
APPLICABLE TO CONTRACTS EXECUTED AND FULLY PERFORMED WITHIN THE STATE OF
DELAWARE (WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES).
A-40
<PAGE>
Section 8.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 8.14. WAIVER OF JURY TRIAL. EACH OF PARENT, MERGER SUB AND THE
COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED
UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
National Media Corporation
By: /s/ Mark Hershhorn
-----------------------------------
Name: Mark Hershhorn
Title: PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PRT Acquisition Corp.
By: /s/ Constantinos I. Costalas
-----------------------------------
Name: Constantinos I. Costalas
Title: VICE PRESIDENT
Positive Response Television, Inc.
By: /s/ Michael Levey
-----------------------------------
Name: Michael Levey
Title: CHIEF EXECUTIVE OFFICER
A-41
<PAGE>
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Amendment (the "Amendment") to that certain Agreement and Plan of
Merger and Reorganization (the "Agreement"), dated as of January 17, 1996, by
and among National Media Corporation, a Delaware corporation ("Parent"), PRT
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Merger Sub"), and Positive Response Television, Inc., a California
corporation (the "Company"), is entered into as of the 4th day of April, 1996 by
and among the parties to the Agreement. Capitalized terms used in this Amendment
and not otherwise defined herein shall have the meaning ascribed thereto in the
Agreement.
Whereas, Parent, Merger Sub and the Company desire to amend certain terms of
the Agreement;
Now, therefore, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein and in the Agreement, and intending to
be legally bound hereby, Parent, Merger Sub and the Company hereby agree to
amend the Agreement as follows:
1. Section 5.10 of the Agreement is amended by deleting the second and
third sentences of such section and replacing them with the following:
"Each of Parent, Merger Sub and the Comany shall use its best
efforts to cause the Merger to qualify, and will not (either
before or after consummation of the Merger) take any actions which
could prevent the Merger from qualifying, as a reorganization
under the provisions of Section 368 of the Code and the
regulations promulgated thereunder."
2. Section 6.04(d) of the Agreement is amended to add a new sentence after
the third sentence of such section as follows:
"Finally, Parent shall be entitled to receive, as of the first
Review Date to occur following the date (the "Tax Determination
Date") on which a final determination is issued by the State of
California as to the aggregate amount of any Taxes due and owing
from the Company and its subsidiaries as of the Tax Determination
Date (the "State Tax Deficiency"), a number of Escrow Shares equal
to (x) the amount, if any, by which the State Tax Deficiency
exceeds the amount accrued with respect to such Taxes on the
Company's financial statements as of the Closing Date, divided by
(y) $14.125."
3. Section 7.01(b) of the Agreement is amended by deleting "April 30, 1996"
from the second line thereof and replacing it with "May 31, 1996".
4. Section 7.01(f) of the Agreement is amended by deleting "April 30, 1996"
from the eighth line thereof and replacing it with "May 31, 1996".
5. The terms and provisions of the Agreement shall remain in full force and
effect, except as such terms and provisions are amended hereby.
A-42
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
National Media Corporation
By: /s/ MARK HERSHHORN
-----------------------------------
Name: Mark Hershhorn
Title: PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PRT Acquisition Corp.
By: /s/ CONSTANTINOS I. COSTALAS
-----------------------------------
Name: Constantinos I. Costalas
Title: VICE PRESIDENT
Positive Response Television, Inc.
By: /s/ MICHAEL LEVEY
-----------------------------------
Name: Michael Levey
Title: CHIEF EXECUTIVE OFFICER
A-43
<PAGE>
ANNEX B -- OPINION OF CRUTTENDEN ROTH INCORPORATED
B-1
<PAGE>
CRUTTENDEN ROTH
December 7, 1995
Special Committee of the Board of Directors
Positive Response Television, Inc.
14724 Ventura Blvd., Suite 600
Sherman Oaks, CA 91403-3501
Attention: David Wood
Gentlemen:
You have requested that Cruttenden Roth Incorporated ("Cruttenden Roth")
provide our opinion as to the fairness, from a financial point of view, to
Positive Response Television, Inc. ("PRTV" or "the Company") and to the
shareholders of PRTV of the proposed terms of the acquisition of PRTV by
National Media Corporation.
Cruttenden Roth is actively engaged in the investment banking business,
regularly undertakes the valuation of investment securities in connection with
public offerings, private placements, business combinations and similar
transactions. For our services including the rendering of this opinion, the
Company will pay us a fee upon the issuance of this opinion. In addition, the
Company has agreed to indemnify us against certain liabilities arising out of
the rendering of this opinion.
In order to render our opinion, we performed the following:
1) Reviewed the terms of the proposed acquisition of PRTV by National
Media;
2) Reviewed those budgets, financial statements, projections, market
studies, material contracts, internal analyses and all other relevant
documentation provided by the Company concerning its financial condition,
historical performance and future prospects;
3) Compared the proposed acquisition terms of PRTV to recent comparable
acquisitions in the informercial, advertising and related industries and
compared the acquisition cost of PRTV to the stock market value of
comparable public companies, and used such other valuation methods as we
deemed appropriate; and
4) Reviewed publicly available information regarding National Media.
In connection with our work, we have assumed and relied upon the accuracy
and completeness of all financial and other information that was publicly
available or furnished or otherwise communicated to us by the Company and have
not independently verified such information. We have not made an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of PRTV or National Media. With respect to financial forecasts, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of applicable management, and we
have relied upon each party to advise us promptly if any information previously
provided become inaccurate or was required to be updated during the period of
our review.
Our opinion as to the fairness of the terms of the acquisition is based upon
the facts and circumstances, including stock market conditions, which existed
and were disclosed to us as of December 6, 1995. No consideration has been given
to any subsequent events nor should our opinion be assumed to be correct as of
any future date. Nothing in our opinion or work should be construed to be an
appraisal. Our opinion is not a recommendation as to how any shareholder should
vote on the acquisition of PRTV.
B-2
<PAGE>
We express no opinion as to the underlying business decision of National
Media to acquire PRTV, the risks associated with National Media's contingent
liabilities, the structure or tax acquisition of PRTV or the advisability of any
alternatives to the acquisition of PRTV. Cruttenden Roth did not structure or
negotiate the terms of the acquisition of PRTV.
In the ordinary course of our business, we actively trade in the equity
securities of PRTV for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Cruttenden Roth has in the past published investment research on PRTV.
Cruttenden Roth has performed investment banking services for PRTV in the past
and served as managing underwriter of the Company's initial public offering in
May 1994. Cruttenden Roth and certain of its shareholders and employees are
beneficial holders of the Company's outstanding common stock warrants.
Subject to the foregoing and based on our experience as investment bankers,
our work described above, and other factors we deemed relevant, it is our
opinion that the terms of the acquisition of PRTV are fair, from a financial
point of view, to PRTV and to the shareholders of PRTV.
Very truly yours,
/S/ Cruttenden Roth Incorporated
Cruttenden Roth Incorporated
- --------------------------------------------------------------------------------
18301 VON KARMAN -- IRVINE, CALIFORNIA 92715 -- (714) 757-5700 -- (714) 852-9603
FAX -- MEMBER NASD/SIPC
B-3
<PAGE>
ANNEX C -- CALIFORNIA APPRAISAL RIGHTS PROVISION
C-1
<PAGE>
ANNEX C
CHAPTER 13
DISSENTERS' RIGHTS
Section 1300. SHAREHOLDER IN SHORT-FORM MERGER; PURCHASE AT FAIR MARKET
VALUE; "DISSENTING SHARES;" "DISSENTING SHAREHOLDER."
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisions in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
Section 1301. NOTICE TO HOLDER OF DISSENTING SHARES OF REORGANIZATION
APPROVAL; DEMAND FOR PURCHASE OF SHARES; CONTENTS OF DEMAND.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days
C-2
<PAGE>
after the date of such approval, accompanied by a copy of Sections 1300, 1302,
1303, 1304 and this section, a statement of the price determined by the
corporation to represent the fair market value of the dissenting shares, and a
brief description of the procedure to be followed if the shareholder desires to
exercise the shareholder's right under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in subparagraph (A) or (B) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
Section 1302. STAMPING OR ENDORSING DISSENTING SHARES. Within 30 days
after the date on which notice of the approval by the outstanding shares or the
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, the shareholder shall submit to the corporation at its principal
office or at the office of any transfer agent thereof, (a) if the shares are
certificated securities, the shareholder's certificates representing any shares
which the shareholder demands that the corporation purchase, to be stamped or
endorsed with a statement that the shares are dissenting shares or to be
exchanged for certificates of appropriate denomination so stamped or endorsed or
(b) if the shares are uncertificated securities, written notice of the number of
shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
Section 1303. DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST
THEREON; WHEN PRICE
TO BE PAID.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
C-3
<PAGE>
Section 1304. ACTION BY DISSENTERS TO DETERMINE WHETHER SHARES ARE
DISSENTING SHARES OR FAIR MARKET VALUE OF DISSENTING SHARES OR BOTH; JOINDER OF
SHAREHOLDERS; CONSOLIDATION OF ACTIONS; DETERMINATION OF ISSUES; APPOINTMENT OF
APPRAISERS.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
Section 1305. DUTY AND REPORT OF APPRAISERS; COURT'S CONFIRMATION OF
REPORT; DETERMINATION OF FAIR MARKET VALUE BY COURT; JUDGMENT AND PAYMENT;
APPEAL; COSTS OF ACTION.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
Section 1306. PREVENTION OF PAYMENT TO HOLDERS OF DISSENTING SHARES OF FAIR
MARKET VALUE; EFFECT. To the extent that the provisions of Chapter 5 prevent the
payment to any holders of dissenting shares of their fair market value, they
shall become creditors of the corporation for the amount thereof together with
interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceeding, such debt to
be payable when permissible under the provisions of Chapter 5.
C-4
<PAGE>
Section 1307. DISPOSITION OF DIVIDENDS UPON DISSENTING SHARES. Cash
dividends declared and paid by the corporation upon the dissenting shares after
the date of approval of the reorganization by the outstanding shares (Section
152) and prior to payment for the shares by the corporation shall be credited
against the total amount to be paid by the corporation therefor.
Section 1308. RIGHTS AND PRIVILEGES OF DISSENTING SHARES; WITHDRAWAL OF
DEMAND FOR PAYMENT. Except as expressly limited in this chapter, holders of
dissenting shares continue to have all the rights and privileges incident to
their shares, until the fair market value of their shares is agreed upon or
determined. A dissenting shareholder may not withdraw a demand for payment
unless the corporation consents thereto.
Section 1309. WHEN DISSENTING SHARES LOSE THEIR STATUS. Dissenting shares
lose their status as dissenting shares and the holders thereof cease to be
dissenting shareholders and cease to be entitled to require the corporation to
purchase their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice
of the approval by the outstanding shares or notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
Section 1310. SUSPENSION OF PROCEEDINGS FOR COMPENSATION OR VALUATION
PENDING LITIGATION. If litigation is instituted to test the sufficiency or
regularity of the votes of the shareholders in authorizing a reorganization, any
proceedings under Section 1304 and 1305 shall be suspended until final
determination of such litigation.
Section 1311. SHARES TO WHICH CHAPTER INAPPLICABLE. This chapter, except
Section 1312, does not apply to classes of shares whose terms and provisions
specifically set forth the amount to be paid in respect to such shares in the
event of a reorganization or merger.
Section 1312. ATTACK ON VALIDITY OF REORGANIZATION OR SHORT-FORM MERGER;
RIGHTS OF SHAREHOLDERS; BURDEN OF PROOF.
(a) No shareholders of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amounts to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger,
C-5
<PAGE>
subdivision (a) shall not apply to any shareholder of such party who has not
demanded payment of cash for such shareholder's shares pursuant to this chapter;
but if the shareholder institutes any action to attack the validity of the
reorganization or short-term merger or to have the reorganization or short-form
merger set aside or rescinded, the shareholder shall not thereafter have any
right to demand payment of cash for the shareholder's shares pursuant to this
chapter. The court in any action attacking the validity of the reorganization or
short-form merger or to have the reorganization or short-form merger set aside
or rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination by
the court that clearly no other remedy will adequately protect the complaining
shareholder or the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
C-6
<PAGE>
PROXY
POSITIVE RESPONSE TELEVISION, INC.
SPECIAL MEETING OF SHAREHOLDERS
MAY 17, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
The undersigned, a shareholder of POSITIVE RESPONSE TELEVISION, INC., a
California corporation (the "Company"), acknowledges receipt of a copy of the
Notice of Special Meeting of Shareholders and the accompanying Proxy Statement/
Prospectus, each dated April 19, 1996, and, revoking any proxy previously given,
hereby constitutes and appoints MICHAEL S. LEVEY and STEPHEN A. WEBER and each
of them, his or her true and lawful agents and proxies with full power of
substitution in each, to vote the shares of Common Stock of the Company standing
in the name of the undersigned at the Special Meeting of Shareholders of the
Company to be held at 14724 Ventura Boulevard, First Floor, Sherman Oaks,
California on Friday, May 17, 1996 at 9:00 a.m. local time and at any
adjournments and postponements thereof, in all matters coming before said
meeting, as follows:
<PAGE>
PLEASE MARK YOUR
VOTES AS IN THIS
/X/ EXAMPLE.
1. Approval and adoption of the Agreement and Plan of FOR AGAINST ABSTAIN
Merger and Reorganization, dated as of January 17, / / / / / /
1996 and amended as of April 4, 1996 (the "Merger
Agreement"), by and among National Media Corporation,
a Delaware corporation ("NMC"), PRT Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary
of NMC ("Merger Sub"), and the Company, and approval
of the principal terms of the merger (the "Merger")
of the Company with and into Merger Sub pursuant to
the Merger Agreement.
2. In their discretion, upon any other matters as may properly come before the
meeting or at any adjournment or postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN
THE MANNER DIRECTED HEREBY BY THE UNDERSIGNED
SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
PROMPTLY IN THE ENVELOPE PROVIDED
Signature(s) Dated:
--------------------------------------------- -----------------
This Proxy must be signed, exactly as your name appears on your stock
certificate(s). Executors, administrators, trustees, etc. should give full
title, as such. If the shareholder is a corporation or partnership, a duly
authorized officer or other authorized person should sign on behalf of such
shareholder and should indicate his or her title.
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has adopted in its Certificate of Incorporation and Bylaws
the provisions of Section 102(b)(7) of the Delaware General Corporation Law
which eliminate or limit the personal liability of a director to the Registrant
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except that this provision shall not eliminate or limit the liability
of a director for any breach of the director's duty of loyalty to the Registrant
or its stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, under Section 174 of the
Delaware General Corporation Law, or for any transaction from which the director
derived an improper personal benefit.
Further, the Registrant's Certificate of Incorporation and Bylaws provide
that the Registrant shall indemnify all persons whom it may indemnify pursuant
to Section 145 of the Delaware Corporation Law to the full extent permitted
therein. Section 145 provides, subject to various exceptions and limitations,
that the Registrant may indemnify its directors or officers if such director or
officer is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director or officer of the Registrant, or is or was serving at the request of
the Registrant as a director or officer of another corporation, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Registrant, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The determination of whether indemnification is proper
under the circumstances, unless made by a court, shall be made by a majority of
a quorum of disinterested members of the Board of Directors, independent legal
counsel or the stockholders of the Registrant. In addition, the Registrant
shall indemnify its directors or officers to the extent that they have been
successful on the merits or otherwise in defense of any such action, suit or
proceeding, or in the defense of any claim, issue or matter therein, against
expenses (including attorneys' fees) actually and reasonably incurred by them in
connection therewith.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as a part of this Registration Statement.
(Exhibit numbers correspond to the exhibits required by Item 601 of Regulation
S-K for a Registration Statement on Form S-4.)
(a) Exhibits
The following exhibits are filed herewith or incorporated herein by
reference.
EXHIBIT NO.
2.1 Agreement and Plan of Merger and Reorganization, dated as of January
17, 1996 and amended as of April 4, 1996, by and among the Registrant,
PRT Acquisition Corp. and Positive Response Television, Inc.
(incorporated by reference to Annex A to the Proxy
Statement/Prospectus included as part of this Registration Statement).
*5.1 Opinion of Klehr, Harrison, Harvey, Branzburg & Ellers as to the
legality of the Registrant's Common Stock being registered hereby.
*8.1 Tax opinion of Klehr, Harrison, Harvey, Branzburg & Ellers.
II-1
<PAGE>
*8.2 Tax opinion of Irell & Manella.
*23.1 Consent of Klehr, Harrison, Harvey, Branzburg & Ellers with respect to
the legality of securities being registered (contained in Exhibit
5.1).
*23.2 Consent of Klehr, Harrison, Harvey, Branzburg & Ellers with respect to
certain tax matters (contained in Exhibit 8.1).
*23.3 Consent of Irell & Manella with respect to certain tax matters
(contained in Exhibit 8.2).
*23.4 Consent of Ernst & Young LLP, independent auditors, with respect to
financial statements of the Registrant.
*23.5 Consent of Ernst & Young LLP, independent auditors, with respect to
the combined financial statements of DirectAmerica Corporation and
California Production Group, Inc.
*23.6 Consent of Deloitte & Touche LLP, independent auditors, with respect
to financial statements of Positive Response Television, Inc.
*23.7 Consent of Cruttenden Roth Incorporated with respect to its fairness
opinion.
+24.1 Power of Attorney.
- -------------------
* Filed herewith.
+Previously filed.
(b) Financial Statement Schedules
Financial statement schedules with respect to National Media
Corporation have been omitted since they are either not required, not
applicable, or the required schedules are contained in Item 14 of NMC's Annual
Report on Form 10-K for the fiscal year ended March 31, 1995, which is
incorporated by reference herein.
Financial statement schedules with respect to Positive Response
Television, Inc. have been omitted since they are either not required, not
applicable, or the required information is shown in the consolidated financial
statements or notes thereto contained in the Proxy Statement/Prospectus filed as
a part of this Registration Statement.
(c) Reports, Opinions and Appraisals
The opinion of Cruttenden Roth Incorporated (attached as Annex B to
the Proxy Statement/Prospectus filed as a part of this Registration Statement).
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
II-2
<PAGE>
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(d) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that such a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(f) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Philadelphia,
Commonwealth of Pennsylvania, on this 15th day of April, 1996.
NATIONAL MEDIA CORPORATION
BY: /s/ Mark P. Hershhorn
------------------------------
Mark P. Hershhorn, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title(s) Date
--------- -------- ----
* Chairman of the Board, April 15, 1996
- ---------------------------- Chairman of the
Brian McAdams Executive Committee and
Director
/s/ Mark P. Hershhorn President, Chief April 15, 1996
- ---------------------------- Executive Officer and
Mark P. Hershhorn Director
/s/ John J. Sullivan Senior Vice President, April 15, 1996
- ---------------------------- Administration,
John J. Sullivan Planning and Investor
Relations (Principal
Accounting Officer)
* Executive Vice April 15, 1996
- ---------------------------- President
David J. Carman and Director
* Director April 15, 1996
- ----------------------------
Charles L. Andes
<PAGE>
/s/ Constantinos I. Costalas Vice Chairman of the April 15, 1996
- ---------------------------- Board (Principal
Constantinos I. Costalas Financial Officer) and
Director
April 15, 1996
* Director
- ----------------------------
Albert R. Dowden
April 15, 1996
Director
*
- ----------------------------
Michael J. Emmi
* Director April 15, 1996
- ----------------------------
Frederick S. Hammer
Director April 15, 1996
*
- ----------------------------
Ira M. Lubert
* Director April 15, 1996
- ----------------------------
Jon W. Yoskin II
* An original Power of Attorney authorizing Mark P. Hershhorn and John J.
Sullivan, and each of them, to sign any amendment to this Registration Statement
on behalf of certain officers and directors of the Registrant was included with
the signature pages to the originally filed Registration Statement to which this
Amendment No. 1 relates.
By: /s/Mark P. Hershhorn
-------------------------------------
Mark P. Hershhorn, Attorney-in -Fact
<PAGE>
EXHIBIT 5.1
[KLEHR, HARRISON, HARVEY, BRANZBURG & ELLERS LETTERHEAD]
April 17, 1996
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Gentlemen:
We have acted as counsel to National Media Corporation, a Delaware
corporation (the "Company"), in connection with the preparation of the Company's
registration statement on Form S-4 (Reg. No. 333-00975) filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act") (the "Registration Statement"). The
Registration Statement relates to the registration of an aggregate of 1,885,033
shares of the Company's common stock, par value $.01 per share (the "Common
Stock"), to be issued in connection with the merger of Positive Response
Television, Inc. ("PRT") with and into a wholly-owned subsidiary of the Company
pursuant to the terms of an Agreement and Plan of Merger and Reorganization,
dated as of January 17, 1996 and amended as of April 4, 1996, by and among the
Company, PRT Acquisition Corp. and PRT (the "Merger Agreement").
We have examined and relied upon the original, or copies certified to our
satisfaction, of (i) the Amended and Restated Certificate of Incorporation
(including all Certificates of Designation filed in connection therewith) and
the By-Laws of the Company, as amended; (ii) the minutes and records of the
corporate proceedings with respect to the issuance of the shares of Common Stock
described above; (iii) the Merger Agreement; and (iv) such other corporate
documents, records and other certificates as we have deemed necessary as a basis
for the opinion hereinafter set forth.
In our examination of the foregoing documents, we have assumed, without any
independent investigation or verification of any kind, (i) the genuineness of
all signatures on, and the authenticity and completeness of, all documents
submitted to us as originals; and (ii) the conformity to original documents and
completeness of all documents submitted to us as certified, conformed or
photostatic copies.
As to various questions of fact material to this opinion, we have relied,
to the extent we deemed reasonably appropriate, upon representations or
certificates of officers of the Company, without independent verification of
their accuracy.
<PAGE>
National Media Corporation
April 17, 1996
Page 2
Based upon and subject to the foregoing and subject to the qualifications
contained below, we are of the opinion that the 1,885,033 shares of Common Stock
which are the subject of the Registration Statement have been duly authorized
and, when issued in accordance with the terms of the Merger Agreement, will be
validly issued, fully-paid and non-assessable.
We have made such examinations of Federal law and the Delaware General
Corporation Law as we have deemed relevant for this opinion. We do not express
any opinion as to the laws of any state or jurisdiction other than the Delaware
General Corporation Law and the Federal laws of the United States of America.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the captions "THE
MERGER-Certain Federal Income Tax Consequences" and "LEGAL MATTERS" in the
Prospectus forming a part of the Registration Statement. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Act, or the Rules and
Regulations of the Commission promulgated thereunder.
Very truly yours,
KLEHR, HARRISON, HARVEY,
BRANZBURG & ELLERS
<PAGE>
EXHIBIT 8.1
[KHHB&E LETTERHEAD]
April 17, 1996
(215) 569-4143
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Gentlemen:
We have acted as counsel to National Media Corporation, a corporation
organized under the laws of the State of Delaware ("NMC") in connection with the
proposed merger (the "Merger") of Positive Response Television, a corporation
organized under the laws of the State of California ("PRT"), with and into PRT
Acquisition Corp. ("Acquisition"), a corporation organized under the laws of the
State of Delaware and a wholly owned subsidiary of NMC. You have requested our
opinion regarding the U.S. federal income tax consequences of the Merger.
In rendering our opinion, we have reviewed the Agreement and Plan of Merger
and Reorganization, dated as of January 17, 1996 and amended as of April 4,
1996, by and among NMC, Acquisition and PRT (the "Merger Agreement"), the Proxy
Statement/Prospectus to stockholders of PRT, dated April 19, 1996 (the "Proxy
Statement/Prospectus"), and such other materials as we have deemed necessary or
appropriate as a basis for our opinion.
In rendering our opinion, we have assumed that the Merger will be
consummated in accordance with the Merger Agreement and that the Proxy
Statement/Prospectus accurately reflects the material facts of the Merger and
those surrounding PRT, Acquisition and NMC. In addition, as to any facts
material to this opinion which we did not independently establish or verify, we
have relied upon the facts contained in the statements and representations of
officers and other
<PAGE>
National Media Corporation
April 17, 1996
Page 2
representatives of PRT, NMC and others, which facts may in certain instances
derive from the best knowledge of such persons without duty of inquiry. Certain
of the representations of PRT and NMC are attached hereto as Exhibits A and B,
respectively.
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986 (the "Code"), Treasury regulations, pertinent
judicial authorities, rulings of the Internal Revenue Service, and such other
authorities as we have considered relevant.
Based upon the foregoing, it is our opinion that, under present law, for
U.S. federal income tax purposes (1) the Merger pursuant to which the shares of
PRT held by the stockholders of PRT will be converted into shares of the common
stock of NMC will be treated as a reorganization within the meaning of Section
368(a) of the Code and (2) the discussion presented under the heading "Certain
Federal Income Tax Consequences" in the Proxy Statement/Prospectus, although
general in nature, sets forth the material federal income tax consequences of
the Merger to PRT and the stockholders of PRT. We express no opinion as to
whether such discussion addresses all of the U.S. federal income tax
consequences of the Merger that may be applicable to any particular stockholder
of PRT. In addition, we express no opinion as to the U.S. federal, state,
local, foreign or other tax consequences, other than as set forth above.
The opinion is being furnished pursuant to Section 6.01(e) of the Merger
Agreement. Any material changes in the facts from those set forth or assumed
herein or in the Proxy Statement/Prospectus may affect the conclusions stated
herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-4 (Reg. No. 333-00975) of NMC and to the
reference to our firm under the captions "THE MERGER--Certain Federal Income Tax
Consequences" and "LEGAL MATTERS" in the Prospectus forming a part of the
Registration Statement. In giving such consent, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the Rules and Regulations of the
Commission promulgated thereunder.
Very truly yours,
KLEHR, HARRISON, HARVEY,
BRANZBURG & ELLERS
<PAGE>
EXHIBIT A
[PRT LETTERHEAD]
April 17, 1996
Irell & Manella
1800 Avenue of the Stars
Suite 900
Los Angeles, California 90067
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Dear Sirs:
In connection with the opinion to be delivered by you pursuant to Section
6.01(e) of the Agreement and Plan of Merger and Reorganization dated January 17,
1996 (the "Merger Agreement"), by and among National Media Corporation, a
Delaware corporation ("NMC"), PRT Acquisition Corp., a Delaware Corporation
("Acquisition") and Positive Response Television, Inc., a California corporation
("PRT"), relating to the proposed merger (the "Merger") of PRT with and into
Acquisition, and recognizing that you will rely on this letter in rendering said
opinion, the undersigned, a duly authorized officer of PRT and acting as such,
hereby certifies that to the best knowledge of the undersigned after reasonable
inquiry, the facts relating to the Merger as described in the Merger Agreement,
including attachments thereto, are true, correct and complete in all material
respects and hereby certifies, to the best knowledge of the undersigned after
reasonable inquiry, to the following as of the date hereof. Insofar as such
certification pertains to any person (including NMC and Acquisition) other than
PRT and any of its subsidiaries, the voting stock of which PRT owns at least
eighty percent (80%) (an "Affiliate"), such certification is only as to the
knowledge of the undersigned without specific inquiry. We understand that you
will reaffirm your opinion at the time of the Merger and that, in connection
with such reaffirmation, you will require that we reaffirm this certification at
that time.
<PAGE>
Irell & Manella
Klehr, Harrison, Harvey, Branzburg & Ellers
April 17, 1996
Page 2
A. REPRESENTATIONS OF PRT
1. The Merger will be consummated in accordance with the material terms
of the Merger Agreement and none of the material conditions therein have been
waived or modified and PRT has no plan or intention to waive or modify any such
material conditions.
2. The ratio for the exchange of shares of common stock of PRT (the "PRT
Common Stock") for common stock of NMC (the "NMC Common Stock") in the Merger
was negotiated through arm's length bargaining.
3. No stock of Acquisition will be issued in the Merger.
4. PRT is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
5. PRT is not under the jurisdiction of a court in a Title 11 or similar
case within the meaning of Section 368(a)(3)(A) of the Code.
6. Other than in the ordinary course of its business, PRT has made no
transfer of any of its assets in contemplation of the Merger or during the
period ending at the effective time of the Merger (the "Effective Time") and
beginning with the commencement of negotiations (whether formal or informal)
with NMC regarding the Merger (or any other form of disposition of the assets or
stock of PRT other than in the ordinary course of business) (the "Pre-Merger
Period"). For purposes of this paragraph, a transfer of assets includes any
distribution of assets with respect to stock or in redemption of stock other
than the distribution of regular dividends or the repurchase of unvested shares
of stock held by employees.
7. The fair market value of the assets of PRT exceeds the aggregate
liabilities of PRT plus the amount of any other liabilities to which such assets
are subject that are not included in the aggregate.
8. In connection with the Merger, no stockholder of PRT is acting on
behalf of, or as agent for, NMC or Acquisition.
9. Pursuant to the Merger, PRT will merge with and into Acquisition and
Acquisition will acquire all of the assets and liabilities of PRT. The assets
transferred in the
<PAGE>
Irell & Manella
Klehr, Harrison, Harvey, Branzburg & Ellers
April 17, 1996
Page 3
Merger represent at least ninety percent (90%) of the fair market value of the
net assets and at least seventy percent (70%) of the fair market value of the
gross assets held by PRT immediately prior to the Merger. For purposes of the
preceding, the following assets will be treated as property held by PRT
immediately prior to the Merger in determining the percentage of PRT's net and
gross assets held by Acquisition immediately following the Merger: (i) assets
disposed of by PRT (other than assets transferred from PRT to Acqusition in the
Merger) prior to or subsequent to the Merger and in contemplation thereof or
pursuant to the "plan of reorganization" within the meaning of Treas. Reg.
Section 1.368-1(c) (including without limitation any asset disposed of by PRT,
other than in the ordinary course of business, pursuant to a plan or intent
existing during the Pre-Merger Period), (ii) assets used to pay expenses
incurred in connection with the Merger and to make redemption or distribution
payments (except for regular, normal dividends, if any) prior to the Merger and
in contemplation thereof or related thereto, and (iii) assets used to make
payments to stockholders of PRT who exercise their dissenters' rights in
connection with the Merger.
10. NMC, Acquisition, PRT and the stockholders of PRT will each pay
separately its or their own expenses incurred in connection with the Merger.
11. Any compensation paid to stockholders of PRT who enter (or who have
entered) into an employment, consulting or non-competition contract, if any,
with PRT (or any member of a controlled group, as defined in Section 1563 of the
Code, in which PRT is also a member) before the Effective Time will be for
services actually rendered or to be rendered (or compliance with restrictions on
competition) and such amounts are considered to be fair compensation for such
services (or compliance). None of such compensation represents consideration
for the exchange of shares of PRT Common Stock for NMC Common Stock. None of
the shares of NMC Common Stock received by PRT stockholders in the Merger is
separate consideration for or otherwise allocable to anything other than PRT
Common Stock, such as for services or any covenant not to compete.
12. PRT has no current plan or intention to acquire after the Merger any
of the NMC Common Stock to be issued in the Merger.
13. There is no present plan or intention on the part of the stockholders
of PRT who own five percent (5%) or more of PRT Common Stock, and to the best
knowledge of the management of PRT, any plan or intention on the part of PRT's
stockholders (a "Plan"), to engage in a sale, exchange, transfer, reduction of
risk of ownership or any other direct or indirect disposition (a "Sale") of (i)
shares of NMC Common Stock to be issued to them in the Merger, which shares have
an aggregate fair market value, as of the Effective Time, in excess
<PAGE>
Irell & Manella
Klehr, Harrison, Harvey, Branzburg & Ellers
April 17, 1996
Page 4
of fifty percent (50%) of the aggregate fair market value, immediately prior to
the Merger, of Outstanding PRT Common Stock (including shares of PRT Common
Stock issued after the date hereof and prior to the Effective Time pursuant to
exercise of options to acquire PRT Common Stock issued to present or former
employees or directors of PRT in the ordinary course of business (the "PRT
Options")), or (ii) more than fifty percent (50%) of the shares of NMC Common
Stock received by such stockholders in the Merger. For purposes of the
foregoing, a Sale of NMC Common Stock shall be considered to have occurred
pursuant to a Plan if such Sale occurs in a transaction that is in contemplation
of or related to the Merger (a "Related Transaction"). In addition, shares of
PRT Common Stock with respect to which a Sale occurred in a Related Transaction
prior to the Merger shall be considered to have been Outstanding PRT Common
Stock that was exchanged for NMC Common Stock in the Merger and then disposed of
pursuant to a Plan. Neither NMC nor any of its affiliates own any PRT Common
Stock.
14. There is no intercorporate indebtedness existing between NMC or
Acquisition and PRT that was issued, acquired or will be settled at a discount.
15. None of the shares of NMC Common Stock received by any party pursuant
to the Merger is separate consideration for or allocable to the PRT Options.
16. No fractional shares of NMC Common Stock will be issued in the Merger.
In lieu thereof, cash will be paid to PRT stockholders otherwise entitled to a
fractional share of NMC Common Stock. The payment of cash in lieu of fractional
shares of NMC Common Stock is made solely for the purpose of avoiding the
expense and inconvenience of issuing and transferring fractional shares and is
not separately bargained for consideration. The total amount of cash that any
holder of PRT Common Stock will receive in lieu of a fractional share interest
will not equal or exceed the fair market value (as determined in accordance with
the Merger Agreement) of one full share of NMC Common Stock on the last trading
day prior to the Effective Time, and the total cash consideration that will be
paid in the transaction to PRT stockholders in lieu of issuing fractional shares
of NMC Common Stock will not exceed one percent (1%) of the total consideration
that will be issued in the transaction to the PRT stockholders in exchange for
their shares of PRT Common Stock. The consideration for fractional shares will
be paid by NMC.
17. PRT will distribute all Common Stock and other property, if any, it
receives in the Merger, and its other properties, in pursuance of the Merger
Agreement.
<PAGE>
Irell & Manella
Klehr, Harrison, Harvey, Branzburg & Ellers
April 17, 1996
Page 5
18. The liabilities of PRT to be assumed by Acquisition in the Merger and
liabilities to which PRT's assets are subject, if any, were incurred by PRT in
the ordinary course of its business.
19. PRT hereby confirms the truth and accuracy in all material respects of
each of the representations made by it in the Merger Agreement.
20. PRT's Board of Directors has authorized management to make all the
representations made by them and set forth herein.
B. LIMITATIONS ON OPINION: RELIANCE
1. PRT has read and understands all the limitations and qualifications to
which your opinion is subject and the items upon which you have relied.
2. PRT recognizes that your opinion will be based, in part, on the
representations herein and that such opinion will not be effective if any of
such representations is not accurate and complete in all material respects at
all relevant times.
This letter is being furnished to you solely for your benefit and for use
in rendering your opinion and is not to be used, circulated, quoted or otherwise
referred to for any purpose (other than inclusion in your opinion) without the
express written consent of PRT. All of the foregoing certifications are true to
the best knowledge of the management of PRT.
Very truly yours,
Positive Response Television, Inc.
By: /S/ VALERIE CASTLE
------------------------------
Valerie Castle
Vice President of Business Affairs
<PAGE>
EXHIBIT B
[NMC LETTERHEAD]
April 17, 1996
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Irell & Manella
1800 Avenue of the Stars
Suite 900
Los Angeles, California 90067
Dear Sirs:
In connection with the opinion to be delivered by you pursuant to Section
6.01(e) of the Agreement and Plan of Merger and Reorganization dated January 17,
1996 (the "Merger Agreement"), by and among National Media Corporation, a
Delaware corporation ("NMC"), PRT Acquisition Corp., a Delaware Corporation
("Acquisition") and Positive Response Television, Inc., a California corporation
("PRT"), relating to the proposed merger (the "Merger") of PRT with and into
Acquisition, and recognizing that you will rely on this letter in rendering said
opinion, the undersigned, a duly authorized officer of NMC and acting as such,
hereby certifies that to the best knowledge of the undersigned after reasonable
inquiry, the facts relating to the Merger as described in the Merger Agreement,
including attachments thereto, are true, correct and complete in all material
respects and hereby certifies, to the best knowledge of the undersigned after
reasonable inquiry, to the following as of the date hereof. Insofar as such
certification pertains to any person (including PRT) other than NMC and any of
its subsidiaries, the voting stock of which NMC owns at least eighty percent
(80%) (an "Affiliate"), such certification is only as to the knowledge of the
undersigned without specific inquiry. We understand that you will reaffirm your
opinion at the time of the Merger and that, in connection with such
reaffirmation, you will require that we reaffirm this certification at that
time.
<PAGE>
Klehr, Harrison, Harvey, Branzburg & Ellers
Irell & Manella
April 17, 1996
Page 2
A. REPRESENTATIONS OF NMC
1. The Merger will be consummated in accordance with the material terms
of the Merger Agreement and none of the material conditions therein have been
waived or modified and NMC has no plan or intention to waive or modify any such
material conditions.
2. The ratio for the exchange of shares of common stock of PRT (the "PRT
Common Stock") for common stock of NMC (the "NMC Common Stock") in the Merger
was negotiated through arm's length bargaining.
3. Prior to the Merger, NMC will be in control of Acquisition within the
meaning of Section 368(c) of the Internal Revenue Code of 1986, as amended (the
"Code").
4. No stock of Acquisition will be issued in the Merger.
5. NMC has no plan or intention to redeem or otherwise reacquire any of
the NMC Common Stock to be issued in the Merger other than the fractional shares
of such stock that NMC will be deemed to reacquire as part of the Merger.
6. Acquistion has no plan or intention to issue additional shares of its
stock following the Merger, that would result in parent losing control of
Acquisition within the meaning of Section 368(c) of the Code.
7. Following the Merger, Acquisition will either continue the historic
business of PRT or continue to use a significant portion of PRT's historic
business assets in a business.
8. NMC has no plan or intention to liquidate Acquisition; to merge
Acquisition with and into another corporation; to sell or otherwise dispose of
the stock of Acquistion; or to cause Acquisition to sell, distribute or
otherwise dispose of or transfer any of PRT's assets acquired in the Merger,
except for dispositions made in the ordinary course of business or transfers
described in Section 368(a)(2)(C) of the Code.
9. The liabilities of PRT to be assumed by Acquisition in the Merger and
liabilities to which PRT's assets are subject, if any, were incurred by PRT in
the ordinary course of its business.
10. Neither NMC nor Acquisition is an "investment company" as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
<PAGE>
Klehr, Harrison, Harvey, Branzburg & Ellers
Irell & Manella
April 17, 1996
Page 3
11. Neither NMC nor Acquisition is under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
12. In connection with the Merger, no stockholder of PRT is acting on
behalf of, or as an agent for, NMC or Acquisition.
13. Pursuant to the Merger, PRT will merge with and into Acquisition and
Acquisition will acquire all of the assets and liabilities of PRT. To the best
knowledge of the management of NMC, the assets transferred in the Merger
represent at least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value of the gross
assets held by PRT immediately prior to the Merger. For purposes of the
preceding, the following assets will be treated as property held by PRT
immediately prior to the Merger in determining the percentage of PRT's net and
gross assets held by Acquisition immediately following the Merger: (i) assets
disposed of by PRT (other than assets transferred from PRT to Acqusition in the
Merger) prior to or subsequent to the Merger and in contemplation thereof or
pursuant to the "plan of reorganization" within the meaning of Treas. Reg.
Section 1.368-1(c) (including without limitation any asset disposed of by PRT,
other than in the ordinary course of business, pursuant to a plan or intent
existing during the period ending at the effective time of the Merger (the
"Effective Time") and beginning with the commencement of negotiations (whether
formal or informal) with NMC regarding the Merger (or any other form of
disposition of the assets or stock of NMC other than in the ordinary course of
business)), (ii) assets used to pay expenses incurred in connection with the
Merger and to make redemption or distribution payments (except for regular,
normal dividends, if any) prior to the Merger and in contemplation thereof or
related thereto, and (iii) assets used to make payments to stockholders of PRT
who exercise their dissenters' rights in connection with the Merger.
14. No fractional shares of NMC Common Stock will be issued in the Merger.
In lieu thereof, cash will be paid to PRT stockholders otherwise entitled to a
fractional share of NMC Common Stock. The payment of cash in lieu of fractional
shares of NMC Common Stock is made solely for the purpose of avoiding the
expense and inconvenience of issuing and transferring fractional shares and is
not separately bargained for consideration. The total amount of cash that any
holder of PRT Common Stock will receive in lieu of a fractional share interest
will not equal or exceed the fair market value (as determined in accordance with
the Merger Agreement) of one full share of NMC Common Stock on the last trading
day prior to the Effective Time, and the total cash consideration that will be
paid in the transaction to PRT stockholders in lieu of issuing fractional shares
of NMC Common Stock will not exceed one percent (1%) of the total consideration
that will be issued in the transaction to the PRT
<PAGE>
Klehr, Harrison, Harvey, Branzburg & Ellers
Irell & Manella
April 17, 1996
Page 4
stockholders in exchange for their shares of PRT Common Stock. The
consideration for fractional shares will be paid by NMC.
15. The NMC Common Stock issued pursuant to the Merger will not be subject
to any restriction, other than any restrictions imposed under any applicable
securities laws or under employment agreements with Michael Levey and Lisa Vann
Levey.
16. NMC, Acqusition, PRT and the stockholders of PRT will each pay
separately its or their own expenses, if any, incurred in connection with the
Merger.
17. Any compensation paid to stockholders of PRT who enter (or who have
entered) into an employment, consulting or non-competition contract, if any,
with NMC (or any member of a controlled group, as defined in Section 1563 of the
Code, in which NMC is also a member) at any time or with Acquisition after the
Effective Time will be for services actually rendered or to be rendered (or
compliance with restrictions on competition) and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services
(or compliance). None of such compensation represents consideration for the
exchange of shares of PRT Common Stock for NMC Common Stock. None of the shares
of NMC Common Stock received by PRT stockholders in the Merger is separate
consideration for or otherwise allocable to anything other than PRT Common
Stock, such as for services or any covenant not to compete.
18. To the knowledge of NMC's management, there is no present plan or
intention on the part of the stockholders of PRT who own five percent (5%) or
more of PRT Common Stock, or, any plan or intention on the part of PRT's
stockholders (a "Plan"), to engage in a sale, exchange, transfer, reduction of
risk of ownership or any other direct or indirect disposition (a "Sale") of (i)
shares of NMC Common Stock to be issued to them in the Merger, which shares have
an aggregate fair market value, as of the Effective Time, in excess of fifty
percent (50%) of the aggregate fair market value, immediately prior to the
Merger, of Outstanding PRT Common Stock (including shares of PRT Common Stock
issued after the date hereof and prior to the Effective Time pursuant to
exercise of options to acquire PRT Common Stock issued to present or former
employees or directors of PRT in the ordinary course of business (the "PRT
Options")), or (ii) more than fifty percent (50%) of the shares of NMC Common
Stock received by such stockholders in the Merger. For purposes of the
foregoing, a Sale of NMC Common Stock shall be considered to have occurred
pursuant to a Plan if such Sale occurs in a transaction that is in contemplation
of or related to the Merger (a "Related Transaction"). In addition, shares of
PRT Common Stock (or the portion thereof) (i) held by NMC or a NMC Controlled
Group Member, (ii) exchanged for cash in lieu of fractional shares of NMC Common
Stock, or
<PAGE>
Klehr, Harrison, Harvey, Branzburg & Ellers
Irell & Manella
April 17, 1996
Page 5
(iii) with respect to which a Sale occurred in a Related Transaction prior to
the Merger shall be considered to have been Outstanding PRT Common Stock that
was exchanged for NMC Common Stock in the Merger and then disposed of pursuant
to a Plan.
19. There is no intercorporate indebtedness existing between NMC or
Acquisition and PRT that was issued, acquired or will be settled at a discount.
20. The fair market value of the assets of PRT exceeds the aggregate
liabilities of PRT plus the amount of any other liabilities to which such assets
are subject that are not included in such aggregate.
21. None of the shares of NMC Common Stock received by any party pursuant
to the Merger is separate consideration for or allocable to the PRT Options.
22. NMC hereby confirms the truth and accuracy in all material respects of
each of the representations made by it in the Merger Agreement.
23. NMC is authorized to make all the representations made by them and set
forth herein.
B. LIMITATIONS ON OPINION: RELIANCE
1. NMC has read and understands all the limitations and qualifications to
which your opinion is subject and the items upon which you have relied.
2. NMC recognizes that your opinion will be based, in part, on the
representations herein and that such opinion will not be effective if any of
such representations is not accurate and complete in all material respects at
all relevant times.
<PAGE>
Klehr, Harrison, Harvey, Branzburg & Ellers
Irell & Manella
April 17, 1996
Page 6
This letter is being furnished to you solely for your benefit and for use
in rendering your opinion and is not to be used, circulated, quoted or otherwise
referred to for any purpose (other than inclusion in your opinion) without the
express written consent of NMC. All of the foregoing certifications are true to
the best knowledge of the management of NMC.
Very truly yours,
National Media Corporation
By: /S/ BRIAN J. SISKO
------------------------------
Brian J. Sisko
Vice President, Corporate Development
<PAGE>
EXHIBIT 8.2
[I&M LETTERHEAD]
(310) 203-7055
April 17, 1996
Positive Response Television, Inc.
14724 Ventura Blvd., Suite 600
Sherman Oaks, CA 91403-3501
Gentlemen:
We have acted as counsel to Positive Response Television, Inc., a
corporation organized under the laws of the State of California ("PRT"), in
connection with the proposed merger (the "Merger") of PRT with and into PRT
Acquisition Acquisition Corp. ("Acquisition"), a corporation organized under the
laws of the State of Delaware and a wholly owned subsidiary of National Media
Corporation, a corporation organized under the laws of Delaware ("NMC"). You
have requested our opinion regarding the U.S. federal income tax consequences of
the Merger.
In rendering our opinion, we have reviewed the Agreement and Plan of Merger
and Reorganization, dated as of January 17, 1996 and amended as of April 4,
1996, by and among NMC, Acquistion and PRT (the "Merger Agreement"), the Proxy
Statement/Prospectus to stockholders of PRT, dated April 19, 1996 (the "Proxy
Statement/Prospectus"), and such other materials as we have deemed necessary or
appropriate as a basis for our opinion.
In rendering this opinion, we have assumed that the Merger will be
consummated in accordance with the Merger Agreement and that the Proxy
Statement/Prospectus accurately reflects the material facts of the Merger and
those surrounding PRT, Acquistion and NMC. In addition, as to any facts
material to this opinion which we did not independently establish or verify, we
have relied upon the facts contained in the statements and representations of
officers and other representatives of PRT, NMC and others, which facts may in
certain instances derive from the best knowledge of such persons without duty of
inquiry. Certain of the representations of PRT and NMC are attached hereto as
Exhibits A and B, respectively.
<PAGE>
Positive Response Television, Inc.
April 17, 1996
Page 2
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986 (the "Code"), Treasury regulations, pertinent
judicial authorities, rulings of the Internal Revenue Service, and such other
authorities as we have considered relevant.
Based upon the foregoing, it is our opinion that, under present law, for
U.S. federal income tax purposes (1) the Merger pursuant to which the shares of
PRT held by the stockholders of PRT will be converted into shares of the common
stock of NMC will be treated as a reorganization within the meaning of Section
368(a) of the Code (2) the discussion presented under the heading "Certain
Federal Income Tax Consequences" in the Proxy Statement/Prospectus, although
general in nature, sets forth the material federal income tax consequences of
the Merger to PRT and the stockholders of PRT. We express no opinion as to
whether such discussion addresses all of the U.S. federal income tax
consequences of the Merger that may be applicable to any particular stockholder
of PRT. In addition, we express no opinion as to the U.S. federal, state,
local, foreign or other tax consequences, other than as set forth above.
The opinion is being furnished pursuant to Section 6.01(e) of the Merger
Agreement. Any material changes in the facts from those set forth or assumed
herein or in the Proxy Statement/Prospectus may affect the conclusions stated
herein.
We hereby consent to the filing of this opinion as an exhibit to the Form
S-4 and to the reference to us under the captions "THE MERGER--Certain Federal
Income Tax Consequences" and "LEGAL MATTERS" in the Prospectus/Proxy Statement
forming part of the Form S-4 and any amendments thereto. In giving such
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
IRELL & MANELLA, LLP
<PAGE>
EXHIBIT A
[PRT LETTERHEAD]
April 17, 1996
Irell & Manella
1800 Avenue of the Stars
Suite 900
Los Angeles, California 90067
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Dear Sirs:
In connection with the opinion to be delivered by you pursuant to Section
6.01(e) of the Agreement and Plan of Merger and Reorganization dated January 17,
1996 (the "Merger Agreement"), by and among National Media Corporation, a
Delaware corporation ("NMC"), PRT Acquisition Corp., a Delaware Corporation
("Acquisition") and Positive Response Television, Inc., a California corporation
("PRT"), relating to the proposed merger (the "Merger") of PRT with and into
Acquisition, and recognizing that you will rely on this letter in rendering said
opinion, the undersigned, a duly authorized officer of PRT and acting as such,
hereby certifies that to the best knowledge of the undersigned after reasonable
inquiry, the facts relating to the Merger as described in the Merger Agreement,
including attachments thereto, are true, correct and complete in all material
respects and hereby certifies, to the best knowledge of the undersigned after
reasonable inquiry, to the following as of the date hereof. Insofar as such
certification pertains to any person (including NMC and Acquisition) other than
PRT and any of its subsidiaries, the voting stock of which PRT owns at least
eighty percent (80%) (an "Affiliate"), such certification is only as to the
knowledge of the undersigned without specific inquiry. We understand that you
will reaffirm your opinion at the time of the Merger and that,
<PAGE>
Irell & Manella
Klehr, Harrison, Harvey, Branzburg & ellers
April 17, 1996
Page 2
in connection with such reaffirmation, you will require that we reaffirm this
certification at that time.
A. REPRESENTATIONS OF PRT
1. The Merger will be consummated in accordance with the material terms
of the Merger Agreement and none of the material conditions therein have been
waived or modified and PRT has no plan or intention to waive or modify any such
material conditions.
2. The ratio for the exchange of shares of common stock of PRT (the "PRT
Common Stock") for common stock of NMC (the "NMC Common Stock") in the Merger
was negotiated through arm's length bargaining.
3. No stock of Acquisition will be issued in the Merger.
4. PRT is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
5. PRT is not under the jurisdiction of a court in a Title 11 or similar
case within the meaning of Section 368(a)(3)(A) of the Code.
6. Other than in the ordinary course of its business, PRT has made no
transfer of any of its assets in contemplation of the Merger or during the
period ending at the effective time of the Merger (the "Effective Time") and
beginning with the commencement of negotiations (whether formal or informal)
with NMC regarding the Merger (or any other form of disposition of the assets or
stock of PRT other than in the ordinary course of business) (the "Pre-Merger
Period"). For purposes of this paragraph, a transfer of assets includes any
distribution of assets with respect to stock or in redemption of stock other
than the distribution of regular dividends or the repurchase of unvested shares
of stock held by employees.
7. The fair market value of the assets of PRT exceeds the aggregate
liabilities of PRT plus the amount of any other liabilities to which such assets
are subject that are not included in the aggregate.
<PAGE>
Irell & Manella
Klehr, Harrison, Harvey, Branzburg & ellers
April 17, 1996
Page 3
8. In connection with the Merger, no stockholder of PRT is acting on
behalf of, or as agent for, NMC or Acquisition.
9. Pursuant to the Merger, PRT will merge with and into Acquisition and
Acquisition will acquire all of the assets and liabilities of PRT. The assets
transferred in the Merger represent at least ninety percent (90%) of the fair
market value of the net assets and at least seventy percent (70%) of the fair
market value of the gross assets held by PRT immediately prior to the Merger.
For purposes of the preceding, the following assets will be treated as property
held by PRT immediately prior to the Merger in determining the percentage of
PRT's net and gross assets held by Acquisition immediately following the Merger:
(i) assets disposed of by PRT (other than assets transferred from PRT to
Acqusition in the Merger) prior to or subsequent to the Merger and in
contemplation thereof or pursuant to the "plan of reorganization" within the
meaning of Treas. Reg. Section 1.368-1(c) (including without limitation any
asset disposed of by PRT, other than in the ordinary course of business,
pursuant to a plan or intent existing during the Pre-Merger Period), (ii) assets
used to pay expenses incurred in connection with the Merger and to make
redemption or distribution payments (except for regular, normal dividends, if
any) prior to the Merger and in contemplation thereof or related thereto, and
(iii) assets used to make payments to stockholders of PRT who exercise their
dissenters' rights in connection with the Merger.
10. NMC, Acquisition, PRT and the stockholders of PRT will each pay
separately its or their own expenses incurred in connection with the Merger.
11. Any compensation paid to stockholders of PRT who enter (or who have
entered) into an employment, consulting or non-competition contract, if any,
with PRT (or any member of a controlled group, as defined in Section 1563 of the
Code, in which PRT is also a member) before the Effective Time will be for
services actually rendered or to be rendered (or compliance with restrictions on
competition) and such amounts are considered to be fair compensation for such
services (or compliance). None of such compensation represents consideration
for the exchange of shares of PRT Common Stock for NMC Common Stock. None of
the shares of NMC Common Stock received by PRT stockholders in the Merger is
separate consideration for or otherwise allocable to anything other than PRT
Common Stock, such as for services or any covenant not to compete.
12. PRT has no current plan or intention to acquire after the Merger any
of the NMC Common Stock to be issued in the Merger.
<PAGE>
Irell & Manella
Klehr, Harrison, Harvey, Branzburg & ellers
April 17, 1996
Page 4
13. There is no present plan or intention on the part of the stockholders
of PRT who own five percent (5%) or more of PRT Common Stock, and to the best
knowledge of the management of PRT, any plan or intention on the part of PRT's
stockholders (a "Plan"), to engage in a sale, exchange, transfer, reduction of
risk of ownership or any other direct or indirect disposition (a "Sale") of (i)
shares of NMC Common Stock to be issued to them in the Merger, which shares have
an aggregate fair market value, as of the Effective Time, in excess of fifty
percent (50%) of the aggregate fair market value, immediately prior to the
Merger, of Outstanding PRT Common Stock (including shares of PRT Common Stock
issued after the date hereof and prior to the Effective Time pursuant to
exercise of options to acquire PRT Common Stock issued to present or former
employees or directors of PRT in the ordinary course of business (the "PRT
Options")), or (ii) more than fifty percent (50%) of the shares of NMC Common
Stock received by such stockholders in the Merger. For purposes of the
foregoing, a Sale of NMC Common Stock shall be considered to have occurred
pursuant to a Plan if such Sale occurs in a transaction that is in contemplation
of or related to the Merger (a "Related Transaction"). In addition, shares of
PRT Common Stock with respect to which a Sale occurred in a Related Transaction
prior to the Merger shall be considered to have been Outstanding PRT Common
Stock that was exchanged for NMC Common Stock in the Merger and then disposed of
pursuant to a Plan. Neither NMC nor any of its affiliates own any PRT Common
Stock.
14. There is no intercorporate indebtedness existing between NMC or
Acquisition and PRT that was issued, acquired or will be settled at a discount.
15. None of the shares of NMC Common Stock received by any party pursuant
to the Merger is separate consideration for or allocable to the PRT Options.
16. No fractional shares of NMC Common Stock will be issued in the Merger.
In lieu thereof, cash will be paid to PRT stockholders otherwise entitled to a
fractional share of NMC Common Stock. The payment of cash in lieu of fractional
shares of NMC Common Stock is made solely for the purpose of avoiding the
expense and inconvenience of issuing and transferring fractional shares and is
not separately bargained for consideration. The total amount of cash that any
holder of PRT Common Stock will receive in lieu of a fractional share interest
will not equal or exceed the fair market value (as determined in accordance with
the Merger Agreement) of one full share of NMC Common Stock on the last trading
day prior to the Effective Time, and the total cash consideration that will be
paid in the transaction to PRT stockholders in lieu of issuing fractional shares
of NMC Common Stock will not exceed one percent (1%) of the total consideration
that will be issued in the transaction to the PRT
<PAGE>
Irell & Manella
Klehr, Harrison, Harvey, Branzburg & ellers
April 17, 1996
Page 5
stockholders in exchange for their shares of PRT Common Stock. The
consideration for fractional shares will be paid by NMC.
17. PRT will distribute all Common Stock and other property, if any, it
receives in the Merger, and its other properties, in pursuance of the Merger
Agreement.
18. The liabilities of PRT to be assumed by Acquisition in the Merger and
liabilities to which PRT's assets are subject, if any, were incurred by PRT in
the ordinary course of its business.
19. PRT hereby confirms the truth and accuracy in all material respects of
each of the representations made by it in the Merger Agreement.
20. PRT's Board of Directors has authorized management to make all the
representations made by them and set forth herein.
B. LIMITATIONS ON OPINION: RELIANCE
1. PRT has read and understands all the limitations and qualifications to
which your opinion is subject and the items upon which you have relied.
2. PRT recognizes that your opinion will be based, in part, on the
representations herein and that such opinion will not be effective if any of
such representations is not accurate and complete in all material respects at
all relevant times.
<PAGE>
Irell & Manella
Klehr, Harrison, Harvey, Branzburg & Ellers
April 17, 1996
Page 6
This letter is being furnished to you solely for your benefit and for use
in rendering your opinion and is not to be used, circulated, quoted or otherwise
referred to for any purpose (other than inclusion in your opinion) without the
express written consent of PRT. All of the foregoing certifications are true to
the best knowledge of the management of PRT.
Very truly yours,
Positive Response Television, Inc.
By: /S/ VALERIE CASTLE
--------------------------------------
Valerie Castle
Vice President of Business Affairs
<PAGE>
EXHIBIT B
[NMC LETTERHEAD]
April 17, 1996
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Irell & Manella
1800 Avenue of the Stars
Suite 900
Los Angeles, California 90067
Dear Sirs:
In connection with the opinion to be delivered by you pursuant to Section
6.01(e) of the Agreement and Plan of Merger and Reorganization dated January 17,
1996 (the "Merger Agreement"), by and among National Media Corporation, a
Delaware corporation ("NMC"), PRT Acquisition Corp., a Delaware Corporation
("Acquisition") and Positive Response Television, Inc., a California corporation
("PRT"), relating to the proposed merger (the "Merger") of PRT with and into
Acquisition, and recognizing that you will rely on this letter in rendering said
opinion, the undersigned, a duly authorized officer of NMC and acting as such,
hereby certifies that to the best knowledge of the undersigned after reasonable
inquiry, the facts relating to the Merger as described in the Merger Agreement,
including attachments thereto, are true, correct and complete in all material
respects and hereby certifies, to the best knowledge of the undersigned after
reasonable inquiry, to the following as of the date hereof. Insofar as such
certification pertains to any person (including PRT) other than NMC and any of
its subsidiaries, the voting stock of which NMC owns at least eighty percent
(80%) (an "Affiliate"), such certification is only as to the knowledge of the
undersigned without specific inquiry. We understand that you will reaffirm your
opinion at the time of the Merger and that, in connection with such
reaffirmation, you will require that we reaffirm this certification at that
time.
<PAGE>
Klehr, Harrison, Harvey, Branzburg & Ellers
Irell & Manella
April 17, 1996
Page 2
A. REPRESENTATIONS OF NMC
1. The Merger will be consummated in accordance with the material terms
of the Merger Agreement and none of the material conditions therein have been
waived or modified and NMC has no plan or intention to waive or modify any such
material conditions.
2. The ratio for the exchange of shares of common stock of PRT (the "PRT
Common Stock") for common stock of NMC (the "NMC Common Stock") in the Merger
was negotiated through arm's length bargaining.
3. Prior to the Merger, NMC will be in control of Acquisition within the
meaning of Section 368(c) of the Internal Revenue Code of 1986, as amended (the
"Code").
4. No stock of Acquisition will be issued in the Merger.
5. NMC has no plan or intention to redeem or otherwise reacquire any of
the NMC Common Stock to be issued in the Merger other than the fractional shares
of such stock that NMC will be deemed to reacquire as part of the Merger.
6. Acquistion has no plan or intention to issue additional shares of its
stock following the Merger, that would result in parent losing control of
Acquisition within the meaning of Section 368(c) of the Code.
7. Following the Merger, Acquisition will either continue the historic
business of PRT or continue to use a significant portion of PRT's historic
business assets in a business.
8. NMC has no plan or intention to liquidate Acquisition; to merge
Acquisition with and into another corporation; to sell or otherwise dispose of
the stock of Acquistion; or to cause Acquisition to sell, distribute or
otherwise dispose of or transfer any of PRT's assets acquired in the Merger,
except for dispositions made in the ordinary course of business or transfers
described in Section 368(a)(2)(C) of the Code.
9. The liabilities of PRT to be assumed by Acquisition in the Merger and
liabilities to which PRT's assets are subject, if any, were incurred by PRT in
the ordinary course of its business.
<PAGE>
Klehr, Harrison, Harvey, Branzburg & Ellers
Irell & Manella
April 17, 1996
Page 3
10. Neither NMC nor Acquisition is an "investment company" as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
11. Neither NMC nor Acquisition is under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
12. In connection with the Merger, no stockholder of PRT is acting on
behalf of, or as an agent for, NMC or Acquisition.
13. Pursuant to the Merger, PRT will merge with and into Acquisition and
Acquisition will acquire all of the assets and liabilities of PRT. To the best
knowledge of the management of NMC, the assets transferred in the Merger
represent at least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value of the gross
assets held by PRT immediately prior to the Merger. For purposes of the
preceding, the following assets will be treated as property held by PRT
immediately prior to the Merger in determining the percentage of PRT's net and
gross assets held by Acquisition immediately following the Merger: (i) assets
disposed of by PRT (other than assets transferred from PRT to Acqusition in the
Merger) prior to or subsequent to the Merger and in contemplation thereof or
pursuant to the "plan of reorganization" within the meaning of Treas. Reg.
Section 1.368-1(c) (including without limitation any asset disposed of by PRT,
other than in the ordinary course of business, pursuant to a plan or intent
existing during the period ending at the effective time of the Merger (the
"Effective Time") and beginning with the commencement of negotiations (whether
formal or informal) with NMC regarding the Merger (or any other form of
disposition of the assets or stock of NMC other than in the ordinary course of
business)), (ii) assets used to pay expenses incurred in connection with the
Merger and to make redemption or distribution payments (except for regular,
normal dividends, if any) prior to the Merger and in contemplation thereof or
related thereto, and (iii) assets used to make payments to stockholders of PRT
who exercise their dissenters' rights in connection with the Merger.
14. No fractional shares of NMC Common Stock will be issued in the Merger.
In lieu thereof, cash will be paid to PRT stockholders otherwise entitled to a
fractional share of NMC Common Stock. The payment of cash in lieu of fractional
shares of NMC Common Stock is made solely for the purpose of avoiding the
expense and inconvenience of issuing and transferring fractional shares and is
not separately bargained for consideration. The total amount of cash that any
holder of PRT Common Stock will receive in lieu of a fractional share interest
will not equal or exceed the fair market value (as determined in accordance with
the
<PAGE>
Klehr, Harrison, Harvey, Branzburg & Ellers
Irell & Manella
April 17, 1996
Page 4
Merger Agreement) of one full share of NMC Common Stock on the last trading day
prior to the Effective Time, and the total cash consideration that will be paid
in the transaction to PRT stockholders in lieu of issuing fractional shares of
NMC Common Stock will not exceed one percent (1%) of the total consideration
that will be issued in the transaction to the PRT stockholders in exchange for
their shares of PRT Common Stock. The consideration for fractional shares will
be paid by NMC.
15. The NMC Common Stock issued pursuant to the Merger will not be subject
to any restriction, other than any restrictions imposed under any applicable
securities laws or under employment agreements with Michael Levey and Lisa Vann
Levey.
16. NMC, Acqusition, PRT and the stockholders of PRT will each pay
separately its or their own expenses, if any, incurred in connection with the
Merger.
17. Any compensation paid to stockholders of PRT who enter (or who have
entered) into an employment, consulting or non-competition contract, if any,
with NMC (or any member of a controlled group, as defined in Section 1563 of the
Code, in which NMC is also a member) at any time or with Acquisition after the
Effective Time will be for services actually rendered or to be rendered (or
compliance with restrictions on competition) and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services
(or compliance). None of such compensation represents consideration for the
exchange of shares of PRT Common Stock for NMC Common Stock. None of the shares
of NMC Common Stock received by PRT stockholders in the Merger is separate
consideration for or otherwise allocable to anything other than PRT Common
Stock, such as for services or any covenant not to compete.
18. To the knowledge of NMC's management, there is no present plan or
intention on the part of the stockholders of PRT who own five percent (5%) or
more of PRT Common Stock, or, any plan or intention on the part of PRT's
stockholders (a "Plan"), to engage in a sale, exchange, transfer, reduction of
risk of ownership or any other direct or indirect disposition (a "Sale") of (i)
shares of NMC Common Stock to be issued to them in the Merger, which shares have
an aggregate fair market value, as of the Effective Time, in excess of fifty
percent (50%) of the aggregate fair market value, immediately prior to the
Merger, of Outstanding PRT Common Stock (including shares of PRT Common Stock
issued after the date hereof and prior to the Effective Time pursuant to
exercise of options to acquire PRT Common Stock issued to present or former
employees or directors of PRT in the ordinary course of business (the "PRT
<PAGE>
Klehr, Harrison, Harvey, Branzburg & Ellers
Irell & Manella
April 17, 1996
Page 5
Options")), or (ii) more than fifty percent (50%) of the shares of NMC Common
Stock received by such stockholders in the Merger. For purposes of the
foregoing, a Sale of NMC Common Stock shall be considered to have occurred
pursuant to a Plan if such Sale occurs in a transaction that is in contemplation
of or related to the Merger (a "Related Transaction"). In addition, shares of
PRT Common Stock (or the portion thereof) (i) held by NMC or a NMC Controlled
Group Member, (ii) exchanged for cash in lieu of fractional shares of NMC Common
Stock, or (iii) with respect to which a Sale occurred in a Related Transaction
prior to the Merger shall be considered to have been Outstanding PRT Common
Stock that was exchanged for NMC Common Stock in the Merger and then disposed of
pursuant to a Plan.
19. There is no intercorporate indebtedness existing between NMC or
Acquisition and PRT that was issued, acquired or will be settled at a discount.
20. The fair market value of the assets of PRT exceeds the aggregate
liabilities of PRT plus the amount of any other liabilities to which such assets
are subject that are not included in such aggregate.
21. None of the shares of NMC Common Stock received by any party pursuant
to the Merger is separate consideration for or allocable to the PRT Options.
22. NMC hereby confirms the truth and accuracy in all material respects of
each of the representations made by it in the Merger Agreement.
23. NMC is authorized to make all the representations made by them and set
forth herein.
B. LIMITATIONS ON OPINION: RELIANCE
1. NMC has read and understands all the limitations and qualifications to
which your opinion is subject and the items upon which you have relied.
2. NMC recognizes that your opinion will be based, in part, on the
representations herein and that such opinion will not be effective if any of
such representations is not accurate and complete in all material respects at
all relevant times.
<PAGE>
Klehr, Harrison, Harvey, Branzburg & Ellers
Irell & Manella
April 17, 1996
Page 6
This letter is being furnished to you solely for your benefit and for use
in rendering your opinion and is not to be used, circulated, quoted or otherwise
referred to for any purpose (other than inclusion in your opinion) without the
express written consent of NMC. All of the foregoing certifications are true to
the best knowledge of the management of NMC.
Very truly yours,
National Media Corporation
By: /S/ BRIAN J. SISKO
------------------------------------
Brian J. Sisko
Vice President, Corporate Development
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-4 No. 333-00975) and related
Prospectus of National Media Corporation for the registration of 1,885,033
shares of its common stock, and to the incorporation by reference therein of our
report dated May 12, 1995, with respect to the consolidated financial statements
and schedule of National Media Corporation included in its Annual Report (Form
10-K) for the year ended March 31, 1995, filed with the Securities and Exchange
Commission.
Philadelphia, Pennsylvania Ernst & Young LLP
April 16, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-4 No. 333-00975) and related
Prospectus of National Media Corporation for the registration of 1,885,033
shares of its common stock, and to the incorporation by reference therein of our
report dated December 12, 1995 with respect to the Combined Financial Statements
of DirectAmerica Corporation and California Production Group, Inc., included in
the Current Report of National Media Corporation (Form 8-K/A) dated January 4,
1995, filed with the Securities and Exchange Commission.
Philadelphia, Pennsylvania Ernst & Young LLP
April 16, 1996
<PAGE>
EXHIBIT 23.6
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Amendment No. 1 to the Registration Statement No.
333-00975 of National Media Corporation on Form S-4 of our report dated
March 25, 1996 appearing in the Registration Statement and to the reference to
us under the headings "Selected Consolidated Financial Data of Positive
Response" and "Experts" in the Registration Statement.
Deloitte & Touche LLP
Los Angeles, California
April 16, 1996
<PAGE>
EXHIBIT 23.7
[LETTERHEAD OF CRUTTENDEN ROTH INCORPORATED]
FINANCIAL ADVISOR'S CONSENT
The undersigned hereby consents to the inclusion as an exhibit to this
Registration Statement on Form S-4 of National Media Corporation of our opinion
to the Board of Directors of Positive Response Television, Inc. ("PRT"), dated
December 7, 1995.
We also consent to the references under "SUMMARY - Recommendation; Fairness
Opinion," "THE MERGER - Background of the Merger," "- Positive Response's
Reasons for the Merger; Recommendation of the Positive Response Board,"
"- Opinion of Positive Response's Financial Advisor" and "THE MERGER AGREEMENT
AND RELATED AGREEMENTS - Conditions to the Merger" in such Registration
Statement to such opinion and to Cruttenden Roth Incorporated as PRT's
financial advisor.
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under, and we do not admit and we disclaim
that we are "experts" for the purposes of, the Securities Act of 1993, and the
rules and regulations thereunder.
CRUTTENDEN ROTH INCORPORATED
Irvine, California
April 16, 1996
