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FILE NO. 333-64295
RULE 424(b)(3)
PROSPECTUS
NATIONAL MEDIA CORPORATION
15821 Ventura Boulevard
Suite 570
Encino, California 91416
(818) 461-6400
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10,068,579 Shares of Common Stock
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This prospectus concerns the offer and sale by the selling stockholder
named herein (the "Selling Stockholder"), from time to time, of up to 10,068,579
common shares (the "Offered Shares"), par value $.01 per share (the "Common
Stock") of National Media Corporation (together with its subsidiaries, the
"Company" or the "Registrant").
The Offered Shares (the "Conversion Shares") consist of the shares of
Common Stock issuable by the Company upon conversion by the Selling Stockholder
of a promissory note executed by the Company held by the Selling Stockholder, as
amended by a letter agreement, dated August 11, 1998, between NM Acquisition
Co., LLC, the Selling Stockholder and the Company (the "ValueVision Note") and
upon exercise of the 1995 Warrants and 1998 Warrants issued by the Company to
the Selling Stockholder. Certain shares of Common Stock issuable by the Company
upon conversion by the Selling Stockholder of the ValueVision Note and exercise
of the 1995 Warrants and 1998 Warrants were registered for resale pursuant to a
Registration Statement on Form S-3 (Reg. No. 333-48205) declared effective by
the Securities and Exchange Commission on April 16, 1998. The conversion price
of the ValueVision Note is $1.073125 per share of Common Stock. The exercise
price of the 1995 Warrants and the 1998 Warrants is $2.74 per share of Common
Stock.
Pursuant to Rule 416(a) under the Securities Act of 1933, as amended
(the "Securities Act"), the number of Offered Shares issuable in respect of the
ValueVision Note, the 1995 Warrants and the 1998 Warrants is subject to
adjustment by reason of stock splits, stock dividends and other similar
transactions in the Common Stock.
None of the proceeds from the sale of the Offered Shares by ValueVision
will be received by the Company. The Company will pay substantially all of the
expenses with respect to the offering and sale of the Offered Shares to
the public, including the costs associated with registering the Offered Shares
under the Securities Act and preparing and printing this Prospectus. Any
underwriting commission and broker fees, however, as well as any applicable
transfer taxes, are payable individually by the Selling Stockholder.
The Company's Common Stock is listed on the New York Stock Exchange
("NYSE") and the Philadelphia Stock Exchange ("PHLX") under the symbol "NM." On
November 3, 1998, the closing sale price for the Common Stock, as quoted on the
New York Stock Exchange ("NYSE"), was $5.25 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY OTHER AUTHORITY
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is November 5, 1998.
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Pursuant to this Prospectus, the Offered Shares may be sold by the
Selling Stockholder, from time to time while the Registration Statement to which
this Prospectus relates is effective, on the NYSE, the PHLX or otherwise at
prices and terms prevailing at the time of sale, at prices and terms related to
such prevailing prices and terms, in negotiated transactions or at fixed prices.
The Selling Stockholder has advised the Company that it currently intends to
sell all or a portion of the Offered Shares pursuant to this Registration
Statement from time to time in any manner described under "Plan of
Distribution." See "Plan of Distribution." Notwithstanding the registration of
the offer and sale of Offered Shares hereunder to subsequent purchasers, the
Selling Stockholder to whom the Offered Shares were initially issued by the
Company, whether or not an affiliate of the Company, that acquires the
Conversion Shares will be required to deliver this Prospectus in accordance with
the Securities Act in connection with any transaction involving the resale of
such securities.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE SELLING STOCKHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO BUY
THE SECURITIES TO WHICH THIS PROSPECTUS RELATES IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR SINCE THE DATE AS
OF WHICH INFORMATION IS SET FORTH HEREIN.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Commission.
Such reports, proxy and information statements and other information 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. Such reports and other information filed with the
Commission can be reviewed through the Commission's Electronic Data Gathering
Analysis and Retrieval System, which is publicly available through the
Commission's website (http:www.sec.gov). The Common Stock of the Company is
listed on the NYSE and the PHLX and reports, proxy and information material and
other information concerning the Company may be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005 and the PHLX, 1900 Market
Street, Philadelphia, Pennsylvania 19103.
This Prospectus constitutes a part of a registration statement on Form
S-3 (the "Registration Statement") filed by the Company with the Commission
under the Securities Act with respect to the securities offered hereby. This
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. Reference is hereby made to the Registration
Statement and to the exhibits thereto for further information with respect to
the Company and the securities offered hereby. Copies of the Registration
Statement and the exhibits thereto are on file at the offices of the Commission
and may be obtained upon payment of the prescribed fee or may be examined
without charge at the Public Reference Section of the Commission described
above. Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1998 (the "Form 10-K");
(b) Amendment No. 1 on Form 10-K/A;
(c) The Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998;
(d) The Company's Current Reports on Form 8-K, dated April 8,
1998, June 1, 1998 , July 15, 1998, August 13, 1998 and
October 23, 1998;
(e) The Company's proxy statement on Schedule 14A, dated September
23, 1998; and
(f) The description of the Company's Common Stock contained in the
Company'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 documents filed pursuant to Section 13(a), 13(c), 14 or 15 (d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
completion or termination of this offering shall be deemed to be incorporated by
reference in this Prospectus and to be part hereof from the date of filing of
such documents. Any statement contained
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in a document, all or a portion of which is incorporated or deemed to be
incorporated by reference herein, shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document, which also is or is deemed to be
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 Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request, a copy of any or all of such documents which are incorporated herein by
reference (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into the documents that this Prospectus
incorporates). Written or oral requests for copies should be directed to
National Media Corporation, c/o Quantum Television, 15821 Ventura Boulevard,
Suite 570, Encino, California 91416; Attention: Director of Investor Relations,
phone number 818-461-6400.
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FORWARD-LOOKING STATEMENTS
This Prospectus contains "forward-looking" statements regarding
potential future events and developments affecting the business of the Company.
Such statements relate to, among other things, (i) the transactions described
under "Recent Developments" below; (ii) competition for customers for the
Company's products and services; (iii) the uncertainty of developing or
obtaining rights to new products that will be accepted by the market and the
timing of the introduction of new products into the market; (iv) the limited
market life of the Company's products; and (v) other statements about the
Company or the direct response consumer marketing industry.
The Company's ability to predict the results or the effect of any
pending events on the Company's operating results is inherently subject to
various risks and uncertainties, including competition for products, customers
and media access; the risks of doing business abroad; the uncertainty of
developing or obtaining rights to new products that will be accepted by the
market; the limited market life of the Company's products; and the effects of
government regulations. Reference is made in particular to the discussion under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 1998 Annual Report and Quarterly Report on Form
10-Q incorporated in this Prospectus by reference. Such forward-looking
statements include those preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends,""plans," "estimates" or similar
expressions.
THE COMPANY
The Company is principally engaged in the use of direct response
transactional television programming, known as infomercials, to sell consumer
products. The Company manages all phases of direct marketing for the majority of
its products in both the United States and international markets, including
product selection and development, manufacturing by third parties, production
and broadcast of infomercials, order processing and fulfillment and customer
service.
The Company is engaged in direct marketing of consumer products in the
United States and Canada through its wholly-owned subsidiary, Quantum North
America, Inc. (formerly Media Arts International, Ltd.), which the Company
acquired in 1986, and internationally through its wholly-owned subsidiaries:
Quantum International Limited, which the Company acquired in 1991; Quantum Far
East Ltd., through which the Company operates in all Asian countries other than
Japan; Quantum International Japan Company Limited, which the Company formed in
June 1995; and Prestige Marketing Limited ("Prestige") and Suzanne Paul Holdings
Pty Limited and its operating subsidiaries (collectively, "Suzanne Paul"), which
the Company acquired in July 1996. The Company produces infomercials through
Quantum Television (formerly d/b/a DirectAmerica Corporation), which the Company
acquired in October 1995.
The Company is a Delaware corporation, with its principal executive
offices located at 15821 Ventura Boulevard, Suite 570, Encino, California 91416
and its telephone number is 818-461-6400.
RECENT DEVELOPMENTS
On October 23, 1998, the Company announced the consummation of a
transaction (the "Transaction") pursuant to which, among other things,
operational control of the Company was assumed by an investor group led by
Stephen C. Lehman, Eric R. Weiss and Daniel M. Yukelson. At a special meeting of
the Company's stockholders held earlier on October 23rd, the Company's
stockholders approved the Transaction, elected nine directors, approved an
amendment to the Company's 1991 Stock Option Plan and ratified the appointment
of Ernst & Young LLP as the Company's auditors for the fiscal year ending March
31, 1999.
In connection with the Transaction, NM Acquisition Co., LLC, a Delaware
limited liability company ("ACO"), invested an additional $20,000,000 into the
Company in exchange for shares of newly-created Series E Convertible Preferred
Stock ("Series E Stock") which shares are convertible into 13,333,333 shares of
the Company's common stock, par value $.01 per share ("Common Stock"). ACO is
managed by Temporary Media Co., LLC, a Delaware limited liability company
("TMC") of which Messrs. Lehman, Weiss and Yukelson are the managing members. As
part of the Transaction, TMC was granted a five-year option to purchase up to
212,500 shares of Common Stock, subject to certain vesting requirements, at an
exercise price of $1.32 and warrants to purchase up to 2,762,500 shares of
Common Stock at an exercise price ranging from $1.32 to $3.00. Financing for the
Transaction was obtained through the private placement of equity interests in
ACO. A portion of the $20,000,000 was used to repay in full the Company's
obligations to its secured lender. The remainder of the funds were used to pay
certain expenses of the Transaction and for working capital purposes.
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As of the closing of the Transaction, members of ACO and TMC
beneficially owned an aggregate of 26,619,854 shares of Common Stock (which
included shares of Common Stock underlying the Series E Stock, the Series D
Preferred Stock, the Series D Common Stock Warrants and the Series C Common
Stock Warrants (collectively, the "Securities")), representing approximately 34%
of the outstanding Common Stock on a fully diluted basis. Immediately following
consummation of the Transaction, ACO was dissolved and the Securities were
distributed to its members pro rata according to their membership interests in
ACO. In connection with the dissolution of ACO, each of its members granted TMC
an irrevocable proxy to vote their respective shares with regard to any election
of Directors.
Pursuant to the terms of the Transaction, (i) the stockholders of the
Company elected Messrs. Lehman and Weiss and Andrew M. Schuon to the Company's
Board of Directors, (ii) each of Albert R. Dowden, William M. Goldstein,
Frederick S. Hammer, Robert N. Verratti and Jon W. Yoskin resigned from the
Board of Directors, effective October 23, 1998, (iii) the size of the Board of
Directors was reduced from nine to seven members and (iv) Stuart D. Buchalter,
David E. Salzman and Robert W. Crawford were appointed to the Board of
Directors. Following consummation of the Transaction, Mr. Lehman was appointed
Chairman of the Board and Chief Executive Officer, Mr. Weiss was appointed Vice
Chairman of the Board and Chief Operating Officer, John W. Kirby was appointed
President and Mr. Yukelson was appointed Executive Vice President of Finance,
Chief Financial Officer and Secretary of the Company.
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RISK FACTORS
The purchase of the shares of Common Stock offered hereby involve
certain risks. In addition to the other information set forth and incorporated
by reference in this Prospectus, the following factors should be considered
carefully by prospective investors in evaluating an investment in the shares of
Common Stock offered hereby. The Company's fiscal year ends on March 31.
References to fiscal 1998, fiscal 1997 etc. refer to the fiscal period ending in
the indicated calendar year.
Recent Losses; Cash Flow
The Company has suffered net losses in four of its last five fiscal
years, including net losses of approximately $56.8 million in fiscal 1998,
approximately $45.7 million in fiscal 1997, approximately $670,000 in fiscal
1995 and approximately $8.7 million in fiscal 1994. The Company also reported a
net loss of approximately $3.2 million for the first quarter of fiscal 1999.
Based upon the deterioration which occurred in the Company's financial condition
during fiscal 1997 and 1998 and the presence of certain other conditions, as of
June 29, 1998, the Company's independent auditors opined that substantial doubt
existed as to the Company's ability to continue as a going concern. During
calendar year 1998, the Company has also experienced, as result of such losses
and other circumstances, significant cash flow difficulties. While the Company
has developed a business plan and implemented a number of programs designed to
reduce costs and return the Company to profitability, there can be no assurance
that the Company's business plan adequately addresses the circumstances and
situations which resulted in the Company's performance in the periods referred
to above. Unless the Company has adequately addressed the reasons for its recent
results of operations, there can be no assurance as to the Company's future
results of operations.
Nature of the Infomercial Industry
The worldwide infomercial industry is now characterized by extreme
competition for products, customers and media access. The Company's future in
this industry will depend in part on its access to, and efficient management of,
media time; the introduction of successful products and the full exploitation of
such products through not only direct marketing but also traditional retail
marketing and other channels of distribution, including the Internet; its
ability to enhance its product lines and support product marketing and sales
with efficient order fulfillment and customer services; and its ability to
successfully integrate the entities or businesses the Company has or may acquire
into an efficient global company. The future revenues of the business will
depend substantially on the Company's ability to create and maintain an
effective, integrated organization to develop, introduce and market products
that (i) address changing consumer needs on a timely basis; (ii) establish and
maintain effective distribution channels (infomercial and non-infomercial) for
its products; and (iii) develop new geographic markets while expanding
profitable established geographic markets. There can be no assurance that the
Company will be able to achieve these goals. While the Company maintains an
internal product development group responsible for seeking out new products from
third parties, there can be no assurance that present and potential third party
product providers will choose to market products through the Company in the
future. Delays in product introductions and short falls in successful product
introductions played a significant part in the Company's fiscal 1997, 1998 and
subsequent results of operations. Any significant delays or reductions in
product introductions in the future periods could have a material adverse effect
on the Company's future results of operations.
Dependence on Foreign Sales
The Company had no sales outside the United States and Canada prior to
June 1991. The Company now markets products to consumers in over 70 countries.
In fiscal 1998, 1997 and 1996, approximately 54.9%, 47.4% and 51.6%,
respectively, of the Company's net revenues were derived from sales to customers
outside the United States and Canada. In fiscal 1998, 1997 and 1996, sales in
Germany accounted for approximately 7.5%, 5.7% and 7.0%, respectively, of the
Company's net revenues. In early 1994, the Company began airing its infomercials
in Asia. Sales of the Company's products in Asia accounted for approximately
15.2% of the Company's net revenues for fiscal 1998, down from 19.8% in fiscal
1997. Sales of the Company's products in Japan, which represented a significant
portion of Asian revenues, accounted for approximately 11.5% of the Company's
net revenues in fiscal 1998, down from 17.7% in fiscal 1997. The economic
downturn in these markets has materially adversely affected the Company. A
turnaround is not yet expected. Geographical expansion of sales activity has
resulted in increased working capital requirements as a result of additional
lead time for delivery of and payment for product prior to receipt of sale
proceeds. While the Company's foreign operations have the advantage of airing
infomercials that have already proven successful in the United States market, as
well as successful infomercials produced by domestic and other international
companies with limited media access and distribution capabilities, there can be
no assurance that the Company's foreign operations will continue to generate
similar levels of net revenues. Competition in the Company's international
marketplace is increasing rapidly. In addition, the Company is subject to many
risks associated with 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
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occurrence of any one or more of the foregoing could have a material adverse
effect on the Company's results of operations.
Entering into New Markets
As the Company enters into new markets, including countries in Asia and
South America, it is faced with the uncertainty of never having done business in
those commercial, political and social settings. Accordingly, despite the
Company'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 the Company's apparently successful entrance into a new
market, some unforeseen circumstance could arise which would limit the Company's
ability to continue to do business or to expand in that new market.
Dependence on New Products; Unpredictable Market Life; Inventory Management and
Product Returns
The Company is dependent on its continuing ability to develop or obtain
rights to new products to supplement or replace existing products as they mature
through their product life cycles. The Company's future results of operations
will also be dependent upon its ability to proactively manage its products
through their life cycles. The Company's five most successful products in each
of fiscal 1998, 1997 and 1996 accounted for approximately 40.3%, 41.2% and
46.0%, respectively, of the Company's net revenues for such periods. For the
most part, the Company's five most successful products change from year to year.
Revenues are dependent from year to year on the introduction of new products.
Even if the Company is able to introduce new products, there can be no assurance
that such new products will be successful. The Company's future results of
operations depend on its ability to spread its revenue (sales) stream over a
larger number of products in a given period and to more effectively exploit the
full revenue potential of each product it introduces through all levels of
consumer marketing, whether directly or through third parties.
Product sales and results of operations for a given period will depend
upon, among other things, a positive customer response to the Company's
infomercials, the Company's effective management of product inventory and the
stage in their life cycles of products sold during such period. Customer
response to infomercials depends on many variables, including, the appeal of the
products being marketed, the effectiveness of the infomercials, the availability
of competing products and the timing and frequency of air-time. There can be no
assurance that the Company's new products will receive market acceptance.
In the event the Company does not have an adequate supply of inventory,
as a result of production delays or shortages or inadequate inventory management
or cash flow difficulties, it may lose potential product sales. The ability of
the Company to maintain systems and procedures to more effectively manage its
inventory (and its infomercial airings), in the domestic as well as
international markets, is of critical importance to the Company's continuing
cash flow and results of operations. It is possible that, during a product's
life, unanticipated obsolescence of such product may occur or problems may arise
regarding regulatory, intellectual property, product liability or other issues
which may affect the continued viability of the product for sale despite the
fact that the Company may still hold a sizable inventory position in such
product. Most of the Company's products have a limited market life. Accordingly,
it is extremely important that the Company fully realize the potential of each
successful product.
Historically, the majority of products generate their most significant
domestic revenue in their introductory year. Foreign revenues have tended to be
generated more evenly over a somewhat 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 assurance that a
product which has produced significant sales will continue to produce
significant, or any, sales in the future. As a result, the Company is dependent
on its ability to adapt to market conditions and competition as well as other
factors which affect the life cycles of its products and its ability 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 the Company's results of
operations in terms of both lost opportunity cost and actual loss of dollars
invested.
Even when market acceptance for the Company's new products occurs, the
Company's results of operations may be adversely impacted by returns of such
products, either pursuant to the Company's warranties or otherwise. While the
Company establishes reserves against such returns which it believes are adequate
based upon historic levels and product mix, there can be no assurance that the
Company will not experience unexpectedly high levels of returns (in excess of
its reserves) for certain products. In the event that returns exceed reserves,
the Company's results of operations would be adversely affected.
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Dependence on Third Party Manufacturers and Service Providers
The Company has historically been dependent on third party sources,
both foreign and domestic, to manufacture all of its products. From time to
time, the Company has also been dependent to an extent upon a number of
companies which serve to fulfill orders placed for the Company's products and/or
provide telemarketing services. The inability of the Company, either temporarily
or permanently, to obtain a timely supply of product to fulfill sales orders for
a specific product or to satisfy orders for such product could have a material
adverse effect on the Company's results of operations. Moreover, because the
time from this initial approval of a product by the Company's product
development personnel to the first sale of such product is relatively short, the
Company's ability to cause its manufacturing sources to meet its production and
order fulfillment deadlines at reasonable costs and produce a high-quality
product or render quality service is important to its business. There can be no
assurance that the Company will successfully manage this process in such a way
to maximize its sales of its products. Since the Company often relies on foreign
manufacturers, it must allow longer lead times for products to fulfill customer
orders. Utilizing such foreign manufacturers exposes the Company to the general
risks of doing business abroad.
Dependence on Media Access; Effective Management of Media Time
The Company has historically been dependent on having access to media
time to televise its infomercials on cable networks, network affiliates and
local stations. The Company's future results of operation will also depend upon
the Company's ability to manage its media time, taking advantage of long-term
purchases where prudent and spot purchases where necessary. This media
management function must also include a meaningful coordination between
available infomercials and available media time. In the normal course of
business, the Company's media contracts expire pursuant to their terms from time
to time. There can be no assurance that, as existing contracts expire, the
Company will be able to purchase or renew media time on a long-term basis or at
favorable price levels. The Company purchases a significant amount of its media
time from cable television and satellite networks. These cable television and
satellite networks assemble programming for transmission to multiple and local
cable system operators. These cable system operators may not be required to
carry all of the network's programming. The Company currently does not pay and
is not paid for the "privilege" of being broadcast by these operators. It is
possible that, if demand for air time grows, these operators will begin to
charge the Company to continue broadcasting the Company's infomercials or limit
the amount of time available for broadcast. 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 the
Company's access to media time, domestically or internationally, including, but
not limited to, any failure to renew or extend existing agreements, could have a
material adverse effect on its results of operations. There can also be no
assurances that, even if the Company secures media access, its programming will
attract viewers or that its products will enjoy consumer acceptance. In
addition, periodically, due to world events, media access and the number of
persons viewing the Company's infomercials in one or more markets may be
substantially diminished. In such circumstances, the Company's results of
operations for such periods may be adversely affected. In recent periods the
Company has experienced an increase in the demand by international media
suppliers for fixed rates and/or for minimum revenue guarantees, both of which
increase the Company's risk.
Whenever the Company makes advance purchases and commitments to
purchase media time, if the Company does not manage such media time effectively,
such failure could have a material adverse effect on the Company's results of
operations. In the event the Company is unable to utilize all of the media time
it has acquired, it attempts to arrange to sell a portion of its media time to
others. There can be no assurance, however, that the Company will be able to use
all of its media time or sell it to others or that, upon expiration of such
long-term contracts, the Company will be able to successfully negotiate
extensions of such contracts on terms favorable to the Company. The Company's
existing agreement with Mitsui & Co., Ltd. ("Mitsui") regarding its operations
in Japan will terminate on January 1, 1999. The Company and Mitsui are involved
in negotiations to restructure their relationships in Japan and Asia in order to
address changes in that market and other circumstances which have arisen. The
inability of the Company to extend one or more of such contracts on reasonable
terms as they expire could have a material adverse effect on the Company's
results of operations. In April 1998 the Company began leasing a twenty-four
hour transponder on a newly-launched Eutelstat satellite, the "Hotbird IV," the
coverage of which reaches across the European continent. The Company expects to
incur significant start up costs in connection with the transponder lease. There
can be no assurance that the Company will be able to effectively utilize such
media time. Failure to do so could have a material adverse effect on the Company
and its results of operations.
Litigation Involving the Company
The infomercial industry has historically been very litigious and the
Company in recent years has been involved in significant legal proceedings and
has incurred significant charges in prior periods related to such litigation.
Abbreviated information regarding the status of current material pending
litigation involving the Company is set forth
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below. However, as it pertains to previously reported matters, 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 the Company pursuant to the Exchange Act and incorporated by reference
herein. Such descriptions variously include information relating to the status
of the proceedings and the Company'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, the
Company consummated the acquisition of DirectAmerica in October 1995 and the
acquisition of Positive Response Television, Inc. ("Positive Response") in May
1996. As a result of these acquisitions, all liabilities of DirectAmerica and
Positive Response became liabilities of the respective wholly-owned subsidiary
of the Company into which each of DirectAmerica and Positive Response was
merged. The Company also acquired Prestige and Suzanne Paul in July 1996,
including all of their respective liabilities.
WWOR Litigation
In March 1997, WWOR-TV filed a breach of contract action in the United
States District Court for New Jersey against one of the Company's operating
subsidiaries alleging that the subsidiary wrongfully terminated a contract for
the purchase of media time, seeking in excess of $1,000,000 in compensatory
damages. The Company is contesting the action. At this stage, the Company cannot
predict the outcome of this matter; however, even if plaintiffs were to succeed
on all of their claims, the Company does not believe that such result would have
a material adverse impact on the Company's results of operations.
Regulatory Matters
As a result of prior settlements with the FTC, the Company has agreed
to two consent orders. Prior to the Company's acquisition of Positive Response,
Positive Response and its Chief Executive Officer, Michael S. Levey, also agreed
to a consent order with the FTC. Among other things, such consent orders require
Positive Response and Mr. Levey to submit compliance reports to the FTC staff.
The Company and Mr. Levey submitted compliance reports as well as additional
information requested by the FTC staff. In June 1996, the Company received a
request from the FTC for additional information regarding certain of the
Company's infomercials in order to determine whether the Company was operating
in compliance with the consent orders referred to above. The FTC later advised
the Company that it believed the Company had violated one of the consent orders
by allegedly failing to substantiate certain claims made in one of its
infomercials which it no longer airs in the United States. The Company has
provided information to the FTC to demonstrate substantiation. If the Company's
substantiation is deemed to be insufficient by the FTC, the FTC has a variety of
enforcement mechanisms available to it, including, but not limited to, monetary
penalties. While no assurances can be given, the Company does not believe that
any remedies to which it may become subject will have a material adverse effect
on the Company's results of operations or financial condition. The FTC recently
notified the Company that it had concerns about claims being made in one of the
Company's current infomercials and also raised questions concerning certain
aspects of the Company's pricing practices in certain of its current
infomercials. The Company is responding to the FTC's inquiries.
In addition, in Spring 1997, in accordance with applicable regulations,
the Company notified the CPSC of breakages which were occurring in its Fitness
Strider product. The Company also notified the CPSC of its replacement of
certain parts of the product with upgraded components. The CPSC reviewed the
Company's testing results in order to assess the adequacy of the Company's
upgraded components. The CPSC also undertook its own testing of the product and,
in November 1997, informed the Company that the CPSC compliance staff had made a
preliminary determination that the Fitness Strider product and upgraded
component present a substantial product hazard, as defined under applicable law.
The Company and the CPSC staff are discussing voluntary action to address the
CPSC's concerns, including replacement of the affected components. At present,
management of the Company does not anticipate that any action agreed upon, or
action required by the CPSC, will have any material adverse impact on the
Company's financial condition or results of operations. The Company has also
been contacted by Australian consumer protection regulatory authorities
regarding the safety and fitness of the Fitness Strider product and an exercise
rider product marketed only in Australia and New Zealand. At this point, the
Company cannot predict whether the outcome of these matters regarding the
Fitness Strider will have a material adverse impact upon the Company's financial
condition or results of operations.
In August 1998, the Company received notice from the NYSE that the
Company did not meet the NYSE's standards for continued listing. The NYSE also
requested that the Company provide information regarding any actions taken or
proposed by the Company to restore the Company to compliance with the NYSE
standards. The Company is formulating its response to the NYSE notification and
request. The delisting of the Company's Common Stock from trading on the NYSE
would have a material adverse effect on the Company.
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<PAGE>
Product Liability Claims
Products sold by the Company may expose it to potential liability from
claims by users of such products, subject to the Company's rights, in certain
instances, to indemnification against such liability from the manufacturers of
such products. The Company generally requires the manufacturers of its products
to carry product liability insurance, although in certain instances where a
limited quantity 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, 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 coverage in amounts which it believes to
be adequate. There can be no assurance that the Company 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
The Company competes directly with many companies which generate sales
from infomercials. The Company also competes with a large number of consumer
product companies and retailers which have substantially greater financial,
marketing and other resources than the Company, some of which have recently
commenced, or indicated their intent to conduct, direct response marketing. The
Company also competes with companies that make imitations of the Company's
products at substantially lower prices. Products similar to the Company's
products may be sold in department stores, pharmacies, general merchandise
stores and through magazines, newspapers, direct mail advertising and catalogs.
Dependence on Key Personnel
The Company's executive officers have substantial experience and
expertise and make significant contributions to the Company's growth and
success. In particular, the Company is highly dependent on certain of its
employees responsible for product development and production of infomercials.
The unexpected loss of the services of one or more of such individuals could
have a material adverse effect on the Company. The employment agreement of John
W. Kirby, the Company's President, expires in September 1998. There is no
assurance that the Company will be able to reach a new agreement with Mr. Kirby.
Year 2000 Issues
The efficient operation of the Company's business is dependent in part
on its computer hardware, software programs and operating systems (collectively,
"Programs and Systems"). These Programs and Systems are used in several key
areas of the Company's business, including merchandise purchasing, inventory
management, pricing, sales, shopping and financial reporting, as well as in
various administrative functions. The Company has been evaluating its Programs
and Systems to identify potential Year 2000 compliance issues. These actions are
necessary to ensure that the Programs and Systems will recognize and process the
Year 2000 and beyond. It is anticipated that modification or replacement of some
of the Company's Programs and Systems will be necessary to make such Programs
and Systems Year 2000 compliant. The Company is also communicating with
suppliers, financial institutions and others to coordinate Year 2000 conversion.
Based on present information, the Company believes that it will be able
to achieve such Year 2000 compliance through a combination of modification of
some existing Programs and Systems, and the replacement of other Programs and
Systems with new Programs and Systems that are already Year 2000 compliant.
However, no assurance can be given that these efforts will be successful. The
Company does not expect that the expenses and capital expenditures associated
with achieving Year 2000 compliance will have a material effect on its financial
condition or results of operations.
Convertible Securities; Shares Eligible for Future Sale
Sales of substantial amounts of the shares of Common Stock currently
issued, issuable upon conversion or exercise of securities convertible into or
exercisable for Common Stock or of the shares of Common Stock offered hereby
could adversely affect the market value of the Common Stock, depending upon the
timing of such sales, and, in the case of convertible and exercisable
securities, may effect a dilution of the book value per share of Common Stock.
As of September 25, 1998, there were 25,466,937 shares of Common Stock
outstanding, nearly all of which were freely tradeable without restriction under
the Securities Act unless held by affiliates. In addition, as of September 25,
1998, approximately 44,000,000 shares of Common Stock were reserved for issuance
upon exercise of outstanding warrants (including the TMC Warrants), options
(including the TMC Options), the Company's Series B Convertible Preferred Stock
and the Company's Series D Convertible Preferred Stock. In the event that the
Transactions
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<PAGE>
are consummated, the Company will be required to reserve for issuance an
additional 13,333,333 shares of Common Stock for issuance upon conversion of the
Series E Preferred Stock (assuming the purchase by ACO of $20,000,000 of Series
E Preferred Stock) and the Company will be obligated to file and have declared
effective a registration statement registering for resale by ACO (or its
designee) the shares of Common Stock issuable upon conversion and/or exercise of
the Series E Preferred Stock, the TMC Warrants and the TMC Options.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Conversion Shares offered hereby. The Selling Stockholders will receive all of
the net proceeds from the sale of the Conversion Shares offered hereby.
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<PAGE>
SELLING STOCKHOLDER
The following table sets forth the name of the Selling Stockholder, the
number of shares of Common Stock beneficially owned by the Selling Stockholder
as of September 25, 1998 and the number of Offered Shares which may be offered
for sale pursuant to this Prospectus by such Selling Stockholder. During the
past three years, the Selling Stockholder and the Company have engaged in
certain business transactions, including a merger agreement which was terminated
prior to consummation in June 1998. See the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1998. The Offered Shares may be offered from
time to time by the Selling Stockholder named below. See "Plan of Distribution."
However, the Selling Stockholder is under no obligation to sell all or any
portion of the Offered Shares, nor is the Selling Stockholder obligated to sell
any such Offered Shares immediately under this Prospectus. Because the Selling
Stockholder may sell all or part of the Offered Shares, no estimate can be given
as to the number of shares of Common Stock that will be held by the Selling
Stockholder upon termination of any offering made hereby.
Pursuant to Rule 416(a) under the Securities Act, the shares of Common
Stock issuable in respect of the ValueVision Note are subject to adjustment by
reason of stock splits, stock dividends, and other similar transactions in the
Common Stock.
<TABLE>
<CAPTION>
Common Shares Beneficially
Owned After Offering (1)
---------------------------
Number of Common
Shares Beneficially Common Shares Percent of
Name of Selling Stockholder Owned Prior to Offering Offered Hereby Number Outstanding
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ValueVision International, Inc. 750,000(2) 10,068,579 0(2) -
</TABLE>
- ------------------------------
(1) Assumes the sale of all Offered Shares.
(2) In accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the terms of the ValueVision Note, does not
include shares of Common Stock which may be issued upon conversion of
the ValueVision Note, including 5,000,000 shares of Common Stock that
were previously registered for resale on a Registration Statement on
Form S-3 (Reg. No. 333-48205) declared effective by the Commission on
April 16, 1998, and 4,318,570 shares of Common Stock being registered
for resale pursuant hereto. The 9,318,570 shares of Common Stock
issuable upon conversion of the ValueVision Note represents the number
of shares issuable upon conversion of $10,000,000 in principal due to
ValueVision pursuant to the terms of the ValueVision Note at a
conversion price of $1.073125 per share of Common Stock. The exercise
price of the 1995 Warrants and 1998 Warrants is $2.74 per share of
Common Stock.
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<PAGE>
PLAN OF DISTRIBUTION
The Offered Shares are being offered on behalf of the Selling
Stockholder and the Company will not receive any proceeds from the Offering. The
Offered Shares may be sold or distributed from time to time by the Selling
Stockholder, or by pledgees, donees or transferees of, or other successors in
interest to, the Selling Stockholder, directly to one or more purchasers
(including pledgees) or through brokers, dealers or underwriters who may act
solely as agent or may acquire Offered Shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed. The sale
of the Offered Shares may be effected in one or more of the following methods:
(i) ordinary brokers' transactions, which may include long or short sales; (ii)
transactions involving cross or block trades or otherwise on the NYSE and PHLX;
(iii) purchases by brokers, dealers or underwriters as principal and resale by
such purchasers for their own accounts pursuant to this Prospectus; (iv) "at the
market" to or through market makers or into established trading markets,
including direct sales to purchasers or sales effected through agents; (vi) any
combination of the foregoing, or by any other legally available means. In
addition, the Selling Stockholder or its successor in interest may enter into
hedging transactions with broker-dealers who may engage in short sales of
Offered Shares in the course of hedging the position they assume with the
Selling Stockholder. The Selling Stockholder or its successor in interest may
also enter into option or other transactions with broker-dealers that require
the delivery by such broker-dealers of the Offered Shares, which Offered Shares
may be resold thereafter pursuant to this Prospectus. There can be no assurance
that all or any of the Offered Shares will be issued to, or sold by, the Selling
Stockholder.
Brokers, dealers, underwriters or agents participating in the sale of
the Offered Shares as agents may receive compensation in the form of
commissions, discounts or concessions from the Selling Stockholder and/or
purchasers of the Offered Shares for whom such broker-dealers may act as agent,
or to whom they may sell as principal, or both (which compensation to a
particular broker-dealer may be less than or in excess of customary
commissions). The Selling Stockholder and any broker-dealers or other persons
who act in connection with the sale of Offered Shares hereunder may be deemed to
be "Underwriters" within the meaning of the Securities Act, and any commission
they receive and proceeds of any sale of Offered Shares may be deemed to be
underwriting discounts and commissions under the Securities Act. Neither the
Company nor the Selling Stockholder can presently estimate the amount of such
compensation. The Company knows of no existing arrangements between the Selling
Stockholders any other shareholders, broker, dealer, underwriter or agent
relating to the sale or distribution of the Offered Shares.
The Selling Stockholder and any other persons participating in the sale
or distribution of the Shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Offered Shares by the
Selling Stockholder or any other such persons. The foregoing may affect the
marketability of the Offered Shares.
The Company will pay substantially all of the expenses incident to the
registration, offering and sale of the Offered Shares to the public other than
commissions or discounts of underwriters, broker-dealers or agents. The Company
has also agreed to indemnify the Selling Stockholder and certain related persons
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Offered Shares has been passed upon for the Company
by Brian J. Sisko, Esq., Senior Vice President and General Counsel of the
Company.
EXPERTS
The consolidated financial statements and schedule of National Media
Corporation appearing in the Company's Annual Report (Form 10-K) for the year
ended March 31, 1998 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon (which contains an explanatory
paragraph indicating that matters exist that raise substantial doubt as to the
Company's ability to continue as a going concern) included therein and
incorporated herein by reference. Such consolidated financial statements and
schedule have been incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
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<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offering described herein and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or the Selling Stockholder. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy a security other than the
shares of Common Stock offered hereby, nor does it constitute an offer to sell
or a solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information contained herein is correct as of any date subsequent to
the date hereof.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
<S> <C>
Available Information........................................................................................... 3
Incorporation of Certain
Documents by Reference.......................................................................................... 3
Forward-Looking Statements...................................................................................... 5
The Company..................................................................................................... 5
Recent Developments............................................................................................. 5
Risk Factors..................................................................................................... 7
Use of Proceeds..................................................................................................12
Selling Stockholder..............................................................................................13
Plan of Distribution.............................................................................................14
Legal Matters....................................................................................................14
Experts..........................................................................................................14
</TABLE>
10,068,579 Shares of Common Stock
NATIONAL MEDIA CORPORATION
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PROSPECTUS
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November 5, 1998
