-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FnF2KxacheK0Yj666hvdZglMUwcbl0pQ7TqbBiSZIw46lt+LTdSRrzljMZfTyL+V EQCk3+kXPnJivYJSoNBX1A== 0000950116-97-002111.txt : 19971117 0000950116-97-002111.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950116-97-002111 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL MEDIA CORP CENTRAL INDEX KEY: 0000070412 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 132658741 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06715 FILM NUMBER: 97721254 BUSINESS ADDRESS: STREET 1: ELEVEN PENN CTR STE 1100 STREET 2: 1835 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2159884600 MAIL ADDRESS: STREET 1: ELEVEN PENN CENTER SUITE 1100 STREET 2: 1835 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL PARAGON CORP DATE OF NAME CHANGE: 19870827 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to ________________________ Commission file number 1-6715 NATIONAL MEDIA CORPORATION ----------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 13-2658741 - ------------------------------------------ ------------------ (State or Jurisdiction of Incorporation or (I.R.S. Employer Organization) Identification No.) Eleven Penn Center, 1835 Market Street, Suite 1100, Philadelphia, PA 19103 - ------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (215) 988-4600 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No [ ] There were 26,212,716 issued and outstanding shares of the registrant's common stock, par value $.01 per share, at October 31, 1997. In addition, there were 705,280 shares of treasury stock as of such date. NATIONAL MEDIA CORPORATION AND SUBSIDIARIES INDEX
Page ---- Facing Sheet ............................................................................................1 Index....................................................................................................2 Part I. Financial Information Item 1. Financial Statements (unaudited) Condensed Consolidated Balance Sheets at September 30, 1997 and March 31, 1997................................................3 Condensed Consolidated Statements of Operations Three months ended September 30, 1997 and September 30, 1996.........................4 Condensed Consolidated Statements of Operations Six months ended September 30, 1997 and September 30, 1996...........................5 Condensed Consolidated Statements of Cash Flows Six months ended September 30, 1997 and September 30, 1996...........................6 Notes to Condensed Consolidated Financial Statements...................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................12 Part II. Other Information Item 1. Legal Proceedings ....................................................................19 Item 2. Changes in Securities and Use of Proceeds.............................................19 Item 6. Exhibits and Reports on Form 8-K......................................................19 Signatures..............................................................................................21
-2- Part I. Financial Information Item 1. Financial Statements (Unaudited) NATIONAL MEDIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except number of shares and per share amounts)
September 30, March 31, 1997 1997 ------------- ------------ (Unaudited) (See Note Below) ASSETS Current assets: Cash and cash equivalents ........................................................... $ 21,727 $ 4,058 Accounts receivable, net ............................................................ 27,796 40,179 Inventories, net .................................................................... 27,917 30,919 Prepaid media ....................................................................... 3,016 3,563 Prepaid show production ............................................................. 5,095 6,765 Deferred costs ...................................................................... 3,762 3,318 Prepaid expenses and other current assets ........................................... 2,474 2,505 Deferred income taxes ............................................................... 2,628 2,591 --------- --------- Total current assets .............................................................. 94,415 93,898 Property and equipment, net ............................................................ 13,830 14,182 Excess of cost over net assets of acquired businesses and other intangible assets, net . 54,193 50,732 Other assets ........................................................................... 2,712 6,820 --------- --------- Total assets ........................................................................ $ 165,150 $ 165,632 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable .................................................................... $ 17,149 $ 21,810 Accrued expenses .................................................................... 25,415 30,830 Deferred revenue .................................................................... 1,244 686 Income taxes payable ................................................................ 339 552 Deferred income taxes ............................................................... 2,351 2,351 Current portion of long-term debt and capital lease obligations ..................... 23,893 17,901 --------- --------- Total current liabilities ......................................................... 70,391 74,130 Long-term debt and capital lease obligations ........................................... 4,064 959 Deferred income taxes .................................................................. 240 240 Other liabilities ...................................................................... 3,633 1,743 Shareholders' equity: Preferred stock, $.01 par value; authorized 10,000,000 shares; issued 91,250 and 95,000 shares Series B convertible preferred stock, respectively; and .. 1 1 20,000 and 0 shares Series C convertible preferred stock, respectively ............ -- -- Common stock, $.01 par value; authorized 75,000,000 shares; issued 26,162,716 and 24,752,792 shares, respectively ............................. 262 248 Additional paid-in capital .......................................................... 155,097 127,764 Retained earnings ................................................................... (57,027) (29,122) --------- --------- 98,333 98,891 Treasury stock, 707,311 shares, at cost ............................................. (4,244) (4,244) Note receivable, officer ............................................................ (139) -- Foreign currency translation adjustment ............................................. (7,128) (6,087) --------- --------- Total shareholders' equity ........................................................ 86,822 88,560 --------- --------- Total liabilities and shareholders' equity ........................................ $ 165,150 $ 165,632 ========= =========
Note: The balance sheet at March 31, 1997 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. -3- NATIONAL MEDIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In thousands, except per share amounts)
Three months ended September 30, -------------------------------- 1997 1996 --------- -------- Revenues: Product sales ........................................................... $ 53,756 $ 89,742 Retail royalties ........................................................ -- 8,578 Sales commissions and other revenues .................................... 807 1,336 -------- -------- Net revenues ................................................... 54,563 99,656 Operating costs and expenses: Media purchases ......................................................... 17,582 34,060 Direct costs ............................................................ 36,887 45,557 Selling, general and administrative ..................................... 13,681 11,997 Interest expense ........................................................ 1,322 408 -------- -------- Total operating costs and expenses ............................. 69,472 92,022 -------- -------- (Loss) income before income taxes ......................................... (14,909) 7,634 Income taxes .............................................................. 7 2,640 -------- -------- Net (loss) income ......................................................... $(14,916) $ 4,994 ======== ======== Net (loss) income per common and common equivalent share: Primary ................................................................. $ (.59) $ 0.18 ======== ======== Fully-diluted ........................................................... $ (.59) $ 0.18 ======== ======== Weighted average number of common and common equivalent shares outstanding: Primary ................................................................. 25,156 28,422 ======== ======== Fully-diluted ........................................................... 25,156 28,422 ======== ========
See notes to condensed consolidated financial statements. -4- NATIONAL MEDIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In thousands, except per share amounts)
Six months ended September 30, -------------------------------- 1997 1996 --------- -------- Revenues: Product sales .......................................................... $ 119,777 $ 192,664 Retail royalties ....................................................... -- 13,765 Sales commissions and other revenues ................................... 1,941 2,527 --------- --------- Net revenues ......................................................... 121,718 208,956 Operating costs and expenses: Media purchases ........................................................ 40,800 71,636 Direct costs ........................................................... 78,115 98,798 Selling, general and administrative .................................... 28,450 23,125 Interest expense ....................................................... 1,947 713 --------- --------- Total operating costs and expenses ................................... 149,312 194,272 --------- --------- (Loss) income before income taxes ......................................... (27,594) 14,684 Income taxes .............................................................. 311 5,140 --------- --------- Net (loss) income ......................................................... $ (27,905) $ 9,544 ========= ========= Net (loss) income per common and common equivalent share: Primary ................................................................ $ (1.13) $ 0.36 ========= ========= Fully-diluted .......................................................... $ (1.13) $ 0.36 ========= ========= Weighted average number of common and common equivalent shares outstanding: Primary ................................................................ 24,652 26,887 ========= ========= Fully-diluted .......................................................... 24,652 26,887 ========= =========
See notes to condensed consolidated financial statements. -5- NATIONAL MEDIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (In thousands)
Six months ended September 30, -------------------------------- 1997 1996 --------- -------- Cash flows from operating activities: Net (loss) income ....................................... $(27,905) $ 9,544 Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation and amortization ...................... 3,515 1,960 Tax benefit from exercise of stock options ......... -- 2,262 Amortization of loan discount ...................... 767 258 Changes in operating assets and liabilities, net of effects from acquisitions ..................... 6,885 (26,458) Other .............................................. 5,070 (4,077) -------- -------- Net cash used in operating activities ...................... (11,668) (16,511) Cash flows from investing activities: Additions to property and equipment ..................... (1,356) (3,163) Investment in common stock .............................. -- (1,250) Proceeds from sale of common stock investment ........... 1,025 -- Cost of companies acquired, net of cash acquired ........ -- (630) -------- -------- Net cash used in investing activities ...................... (331) (5,043) Cash flows from financing activities: Net proceeds from issuance of preferred stock ........... 19,813 -- Proceeds from borrowings ................................ 8,759 9,400 Payments on long-term debt, notes payable and capital lease obligations ..................................... (956) (11,241) Exercise of stock options and warrants .................. 1,602 5,998 Net proceeds from issuance of common stock .............. -- 28,891 -------- -------- Net cash provided by financing activities .................. 29,218 33,048 Effect of exchange rate changes on cash and cash equivalents 450 (333) -------- -------- Net increase in cash and cash equivalents .................. 17,669 11,161 Cash and cash equivalents at beginning of period ........... 4,058 18,405 -------- -------- Cash and cash equivalents at end of period ................. $ 21,727 $ 29,566 ======== ========
See notes to condensed consolidated financial statements. -6- NATIONAL MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) September 30, 1997 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending March 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended March 31, 1997, as amended by Form 10-K/A. Certain prior-year amounts have been reclassified to conform to current presentation. 2. Per Share Amounts Net income (loss) per share amounts have been computed based upon the weighted average number of common shares and dilutive common equivalent shares (stock options, warrants and preferred stock) outstanding using the "if converted method". In February, 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share, which is required to be adopted for annual and quarterly periods ending after December 15, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods presented. Under the new requirements for calculating primary earnings per share (referred to as Basic EPS under SFAS No. 128), the dilutive effect of stock options will be excluded. Earnings per share was not impacted for the quarter ended September 30, 1997 and the new guidance is not expected to have a material impact on the Company's current and prior full year earnings per share. The impact of SFAS No. 128 would result in an increase in primary earnings per share of approximately $0.04 for the three months ended September 30, 1996, and $0.10 per share for the six months ended September 30, 1996; and would have immaterial impact on fully diluted earnings per share for these periods. 3. Income Taxes The Company recorded minimal income tax expense for the three months ended September 30, 1997 and $.3 million for six months ended September 30, 1997, due to tax liabilities relating to its Asian and South Pacific operations. Income tax benefits on domestic and European losses have been fully reserved until realized. This compares to income tax expense of $2.6 million for the three months ended September 30, 1996 and $5.1 million for the six months ended September 30, 1996. 4. Contingent Matters NATIONAL MEDIA LITIGATION Ab Roller Plus Patent Litigation On March 1, 1996, Precise Exercise Equipment ("Precise") filed suit in the United States District Court for the Central District of California against certain parties, including the Company, alleging patent infringement, unfair competition and other intellectual property claims. Such claims related to an alleged infringement of Precise's -7- initial US patent for an exercise device. The suit claimed that a product marketed by the Company pursuant to a license granted by a third party violated Precise's initial US patent. The suit sought an injunction and treble damages. On July 16, 1997, the Company and certain of the other defendants to the action entered into a settlement agreement with the plaintiffs. The Company recorded a charge of approximately $6.0 million in the fourth quarter of fiscal 1997 in connection with this matter. 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 and believes it has meritorious defenses to the plaintiff's claims for damages. At this stage, it is not possible to predict the outcome of this matter. Parkin In early October 1997, John Parkin, an on air personality appearing in certain of the Company's infomercials, brought an action for injunctive relief and unspecified damages in the United States District Court for the Eastern District of Pennsylvania, alleging principally breach of contract and intellectual property based claims. Following court hearings, plaintiff's claims for injunctive relief were dismissed. While at this stage it is not possible to predict the outcome of this matter, the Company believes that any resolution of this matter will not have a material adverse effect on the Company's results of operations or financial condition. PRTV LITIGATION PRTV Shareholders' California Class Action On May 1, 1995, prior to the acquisition of Positive Response Television, Inc. ("PRTV") by the Company in May 1996, a purported class action suit was filed in the United States District Court for the Central District of California against PRTV and its principal executive officers alleging that PRTV 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 PRTV common stock during the period from January 4, 1995 to April 28, 1995. The suit sought unspecified compensatory damages and other equitable relief. 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 plaintiff's entitlement to legal relief. The Company reached an agreement in principle to settle this action in fiscal year 1997 which provides for the payment of $550,000 to the class, 66% of which has been paid by PRTV's insurance carrier. The Company recorded a charge of $187,000 during fiscal 1997 in connection with this matter. Such settlement is contingent upon final court approval. Suntiger In late March 1997, Suntiger, Inc., a distributor of sunglasses, filed suit against PRTV and certain other parties in the United States District Court for the Eastern District of Virginia alleging patent infringement. The Company has reached a settlement with the plaintiffs involving a going-forward business relationship that will have no material adverse impact upon the Company's financial condition or results of operations. REGULATORY MATTERS As a result of prior settlements with the Federal Trade Commission ("FTC"), the Company has agreed to two consent orders. Prior to the Company's May 1996 acquisition of PRTV, PRTV and its Chief Executive Officer, Michael S. Levey, also agreed to a consent order with the FTC. Among other things, such consent orders require the Company, PRTV and Mr. Levey to submit compliance reports to the FTC staff. The Company, PRTV and Mr. Levey have submitted compliance reports as well as additional information requested by the FTC staff. In June -8- 1996, the Company received a request from the FTC for additional information regarding two of the Company's infomercials in order to determine whether the Company is operating in compliance with the consent orders referred to above. The Company responded to such request. 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, which is now indemnified against any damages sustained as a result of any action taken by the FTC in connection with such infomercial, 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, especially given the indemnification protection available to it, any remedies to which it may become subject will have a material adverse effect on the Company's results of operations or financial condition. In addition, in Spring 1997, in accordance with applicable regulations, the Company notified the Consumer Product Safety Commission ("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, on November 5, 1997, informed the Company that the CPSC compliance staff had made a preliminary determination that the product and the upgraded components present a substantial product hazard, as defined under applicable law. The Company and the staff are discussing voluntary action to address the CPSC's concerns, including replacement of the affected components. At present, it is not anticipated 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. At this point, it is not possible to 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. Other Matters The Company, in the normal course of business, is a party to litigation relating to trademark and copyright infringement, product liability, contract-related disputes, and other actions. It is the Company's policy to vigorously defend all such claims and enforce its rights in these areas. Except as disclosed herein, the Company does not believe any of these other miscellaneous actions, either individually or in the aggregate, will have a material adverse effect on the Company's results of operations or financial condition. 5. Debt In June, 1996, the Company increased its revolving line of credit (the "Line") from $5,000,000 to $20,000,000. The Line was available pursuant to its terms until September 30, 1997. In September 1997, the Company and its principal lender (the "Bank") signed a Loan Modification Agreement (the "Agreement"). The Agreement limited the maximum outstanding amount of cash advances under the Line to $19,000,000 less the amount of permitted outstanding letters of credit; the maximum amount of outstanding standby letters of credit to an additional $475,000; the maximum amount of outstanding commercial letters of credit to $5,000,000 and the maximum amount of cash advances combined with the maximum amount of standby letters of credit, in the aggregate, to $19,475,000. In addition, the Line was extended until December 31, 1998, and the payment terms of the $4.0 million Term Loan were revised as follows: $50,000 per month on the first day of each month from December 1997 through March 1998; $800,000 on April 1, 1998; and $1,000,000 on each of December 1, 1998, 1999 and 2000. The Agreement increased the interest rates on the Line from prime to prime plus 3%, and the rate on the Term Loan from prime plus .5% to prime plus 3%. Interest is payable at the rate of prime plus 1.5% on the first day of each month through May 31, 1998. The remaining 1.5% will be accrued and repaid in seven equal installments starting June 1, 1998. As of and after June 1, 1998 interest is payable monthly at the rate of prime plus 3.0%. The Agreement includes a provision for an interest rate increase of 1.0% during any period during which the Company fails to be in compliance with certain financial covenants, including tangible net worth and working capital minimums and other financial ratios. The Company is also required to pay a loan restructuring fee of $304,000, payable in equal installments over 16 months starting September 18, 1997, the date of the Agreement. On a monthly basis, the Company must compute a borrowing base (as defined in the Agreement) which must be -9- greater than the outstanding amount of debt owed under the Agreement, and submit certain financial information. In addition, the Company is subject to certain restrictions including payment of dividends, and must be in compliance with various financial covenants, including tangible net worth and working capital minimums and other financial ratios on a quarterly basis through December 31, 1997 and on a continuous basis during the remaining term of the Agreement. As of September 30, 1997, the Company is in compliance with these requirements. The Term Loan and the Line are secured by a lien on substantially all the assets of the Company except a lien on the assets pledged in connection with the ASB Bank credit facility and the subordination of a lien on approximately $1.0 million of certain non-domestic assets pledged to Barclays Bank PLC. At September 30, 1997, the Company had outstanding cash advances of $19,000,000 and $475,000 in a stand-by letter of credit under the Line. In connection with the above Agreement, the Company granted to the Bank warrants to acquire 125,000 shares of the Company's common stock at a price of $5 3/16 per share, the market price of the Company's common stock as of the date of the grant. These warrants have a term of 5 years and contain standard antidilution provisions. The Company is currently having an independent valuation prepared concerning these warrants. The value accorded the warrants will be accounted for as a loan discount which will be amortized over the remaining term of the Line (15 months) at the date of the Agreement and included in interest expense. The remaining loan discount of $572,000 related to warrants issued in connection with the original Term Loan have been charged to interest expense in the current period. In July 1997, the Bank notified the Company that its foreign currency line under the credit facility had been reduced to cover only the current outstanding amount of the Company's forward contracts of $6.0 million. As part of the Agreement, the Company and the Bank agreed that, thereafter the Bank would not extend any new, or rollover any existing, forward contract under such facility, effectively terminating the facility on a rolloff basis. The Company had no borrowings outstanding under its $1.0 million overdraft line with Barclays Bank PLC as of September 30, 1997. In July 1997, the Company obtained a credit facility from ASB Bank through its Prestige Marketing Limited subsidiary (collectively with Prestige Marketing International Limited, "Prestige") consisting of a working capital facility (overdraft and letter of credit) of $1.0 million New Zealand dollars (approximately $.7 million US dollars) and a short term loan of $4.3 million New Zealand dollars (approximately $2.8 million US dollars). At September 30, 1997, the Company had no amounts outstanding under the working capital facility and $4.3 million New Zealand dollars under the short term loan. The working capital facility is due on demand, bears interest at the ASB Bank Banking Business Rate (BBBR rate) plus 1% payable monthly, and expires on February 15, 1998. The short term loan bears interest at the BBBR rate plus 2% and matures on January 24, 1998. Under the facility, Prestige is subject to certain financial covenants including tangible net worth and working capital minimums and various financial ratios and the Company is limited in its ability to obtain future financing from Prestige. The Company's remaining debt consists of a note payable to Edmark Industries in the amount of $1,050,000 (original amount of $1,400,000) relating to the settlement of a legal case in fiscal year 1997. Payment terms are $50,000 per month plus 8% interest. The remaining debt of $1.1 million relates to capital leases and two notes payable in connection with various prior year acquisitions. 6. Equity Financing On September 18, 1997, the Company sold to two institutional investors (the "Series C Investors") 20,000 shares of its Series C Convertible Preferred Stock, $.01 par value per share (the "Series C Preferred Stock") with a face value of $1,000 per share for an aggregate purchase price of $20.0 million. The Series C Preferred Stock has a four year term and is automatically converted into the Company's common stock at maturity. Each share of Series C Preferred Stock is convertible at the holder's option into such number of shares of the Company's common stock, as is determined by dividing the face value ($1,000) of the Series C Preferred Stock (plus a 6% per annum premium accrued as of the conversion date) by (i) if the conversion occurs on or before March 17, 1998, a conversion price equal to $6.06 per share (subject to adjustment), or (ii) in the case of conversion after March 18, 1998, a conversion price equal to the lower of $6.06 per share and the lowest daily volume weighted average sale price during the 5 days immediately prior to such conversion. The $6.06 conversion price was based on 120% of the volume weighted average sales price on the date of issuance of the Series C Preferred Stock. If converted at September 30, 1997, the Series C -10- Preferred Stock would be convertible into approximately 3,300,330 shares of common stock. Depending on market conditions at the time of conversion, the number of shares issuable could prove to be significantly greater in the event of a decrease in the trading price of the Company's common stock. In connection with the issuance of the Series C Preferred Stock, the Company issued warrants (the "Series C Warrants") to purchase an aggregate of 989,413 shares of the Company's common stock to the Series C Investors. The Series C Warrants are exercisable until September 17, 2002 at an exercise price of $6.82 per share of the Company's common stock (subject to adjustment). The exercise price of $6.82 per share represents 135% of the volume weighted average price at the date of issuance of the Series C Preferred Stock. The Series C Preferred Stock carries a 6% annual premium payable in cash or common stock, at the Company's option, at the time of conversion. The premium is being recorded as a deemed dividend from the date of issuance to the date of conversion, solely for the purpose of calculating earnings per share. During the three months ended September 30, 1997 the Company recognized approximately $43,000 as a deemed dividend. Except under limited circumstances, no holder of the Series C Preferred Stock and Series C Warrants is entitled to convert or exercise such securities to the extent that the shares to be received by such holder upon such conversion or exercise would cause such holder to beneficially own more than 4.9% of the Company's common stock. The Series C Preferred Stock carries no voting power except as otherwise provided by Delaware General Corporation Law. Its liquidation preference is equal to the face amount ($1,000 per share) plus any accrued premiums, and it ranks prior to the Company's common stock and Series A Junior Participating Preferred Stock and junior to the Company's Series B Convertible Preferred Stock. The Company has reserved 10.0 million shares of common stock for issuance in connection with the conversion of the Series C Preferred Stock and exercise of the Series C Warrants. 7. Subsequent Events Subsequent to September 30, 1997, the Company and its President and Chief Executive Officer reached agreement in principle concerning certain terms of his employment, which agreements are currently being reduced to writing. The agreement provides for the issuance of options to acquire 750,000 shares of the Company's common stock with an initial exercise price of $4.75. During the three month period ended September 30, 1997, the Company recorded approximately $25,000 in compensation expense related to these options. In addition, the agreement provides that, upon the occurance of certain triggering events (such as a sale or merger of the Company, or significant investment) to be defined in the written agreement being prepared, the executive can realize a reduction of up to an aggregate of $3.0 million in the exercise price of his options. This charge will be recognized from the date of the agreement through June 30, 1998. The ultimate aggregate non-cash charge, if any, will be determined based upon whether a triggering event occurs by June 30, 1998, the expiration date for that provision of the agreement, and the market price or sale price of the Company's common stock upon the occurrence of a triggering event. -11- CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS This Report contains "forward-looking" statements regarding potential future events and developments affecting the business of the Company. Such statements relate to, among other things, (i) competition for customers for its products and services; (ii) 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; (iii) the limited market life of the Company's products; and (iv) other statements about the Company or the direct response industry. The Company's ability to predict 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. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General The Company is engaged in the direct marketing of consumer products, primarily through the use of infomercials, in both domestic and international markets. Domestically, the Company has historically been dependent on a limited number of successful products to generate a significant portion of its net revenues. The Company's strategies for future periods are designed to reduce the risk associated with relying on a limited number of successful products for a disproportionate amount of its revenues and tailoring the Company's domestic operations to more efficiently deal with the cyclical nature of the Company's business. These include the more effective utilization and leveraging of its global presence, the continued development and marketing of innovative products to enhance its library of infomercial programs, and engineering the most efficient business model for the Company's future operations. International expansion has resulted in an increasing amount of the Company's revenues being generated from the international infomercial marketplace. As the Company enters new markets overseas, it is able to air the shows from its existing library, prolonging the life of products and related productions. The Company takes advantage of product awareness created by its infomercials and also extends the sales life of its products through non-infomercial distribution channels. These include retail arrangements and agreements with the Company's strategic partners who supply new products and retail distribution channels. Results of Operations The Company's operating results for the six months ended September 30, 1996 include the operating results of certain of the Company's operating subsidiaries, namely Positive Response Television, Inc. ("PRTV") from May 17, 1996 (date of acquisition) to September 30, 1996, and Prestige and Suzanne Paul Holdings Pty Limited and its operating subsidiaries (collectively "Prestige") from July 2, 1996 (date of acquisitions) to September 30, 1996. -12- The following table sets forth the operating data of the Company as a percentage of net revenues for the periods indicated below:
Three Months Ended Six Months Ended September 30, September 30, ------------------------------ ----------------------------- 1997 1996 1997 1996 -------------- ------------ ------------ ------------ Statement of Operations Data: Net Revenues 100.0% 100.0% 100.0% 100.0% Operating costs and expenses: Media purchases 32.2% 34.2% 33.5% 34.3% Direct costs 67.6% 45.7% 64.2% 47.3% Selling, general and administrative 25.1% 12.0% 23.4% 11.1% Interest expense 2.4% 0.4% 1.6% 0.3% -------------- ------------ ------------ ------------ Total operating costs and expenses 127.3% 92.3% 122.7% 93.0% Income before income taxes (27.3%) 7.7% (22.7%) 7.0% Income taxes 0.0% 2.7% 0.3% 2.4% -------------- ------------ ------------ ------------ Net income (27.3%) 5.0% (23.0%) 4.6% ============== ============ ============ ============
Three months ended September 30, 1997 compared to September 30, 1996 Net Revenues Net revenues were $54.6 million for the three months ended September 30, 1997 as compared to $99.7 million for the three months ended September 30, 1996, a decrease of $45.1 million or 45.2%. Domestic net revenues for the three months ended September 30, 1997 were $15.6 million as compared to $52.7 million for the three months ended September 30, 1996, a decrease of $37.1 million or 70.4%. This decrease was a result of the lack of continuing significant revenue streams relating to products being distributed during the prior quarter and the Company's inability to fully realize the benefits of two new shows which tested successfully during the current period. Due to manufacturing/sourcing difficulties, these shows did not contribute significantly to revenues until very late in the quarter ended September 30, 1997. In addition, the quarter ended September 30, 1996 included strong revenues relating to the Ab Roller Plus, especially revenues relating to retail and print sales. The Ab Roller Plus accounted for approximately 46% of domestic net revenues in the three months ended September 30, 1996; including approximately $8.6 million of retail royalties. Approximately 44% of net revenues for the three months ended September 30, 1997 were generated by sales of the Company's Great North American Slim Down product. Current period domestic net revenues were also unfavorably impacted by an increased return rate, relating principally to the Company's Great North American Slim Down product. International net revenues for the three months ended September 30, 1997 were $39.0 million as compared to $47.0 million for the three months ended September 30, 1996, a decrease of $8.0 million or 17.0%. The majority of this decrease was due to the approximate 52% decline in revenues earned in the Asian marketplace, of which approximately 8% was due to currency devaluation. The Company believes that this decline was the result of increased competition from traditional programming and other infomercial competitors and the fact that additional Japanese airtime was not obtained in the quantity or as quickly as anticipated. In addition, the Company's Asian revenues were negatively impacted by the economic downturn being experienced throughout that region. The Company's South Pacific revenues and operating results were negatively impacted in the three months ended September 30, 1997 due to significant returns associated with its Fitness Strider product. All of these factors are expected to have a continuing impact on third quarter revenues in these regions. -13- Operating Costs Total operating costs and expenses were $69.5 million for the three months ended September 30, 1997 as compared to $92.0 million for the three months ended September 30, 1996, a decrease of $22.5 million or 24.5%. This decline was due principally to the 45.2% decline in net revenues. Media Purchases Media purchases were $17.6 million (net of $.5 million in media sales) for the three months ended September 30, 1997 as compared to $34.1 million (net of $2.1 million in media sales) for the three months ended September 30, 1996, a decrease of $16.5 million or 48.4%. This decrease was directly related to the 45.2% decline in net revenues. The ratio of media purchases to net revenues improved to 32.2% for the three months ended September 30, 1997 from 34.2% for the three months ended September 30, 1996. A higher domestic ratio in the current quarter was offset by the favorable impact of a higher percentage of revenues being earned in the international marketplace in which media rates are generally more favorable. Recent trends indicate an increase in international media rates due to increased competition and a trend towards minimum guarantees of media purchases. Direct Costs Direct costs consist of the cost of materials, freight, infomercial production, commissions and royalties, order fulfillment, in-bound telemarketing, credit card authorization, warehousing and profit participation payments. Direct costs were $36.9 million for the three months ended September 30, 1997 as compared to $45.6 million for the three months ended September 30, 1996, a decrease of $8.7 million or 19.1%, primarily related to the decrease in net revenues. As a percentage of net revenues, direct costs were 67.6% for the three months ended September 30, 1997 and 45.7% for the three months ended September 30, 1996. Direct costs as a percentage of net revenues increased in both the domestic and international marketplace. Domestically, the ratio was unfavorably impacted by the 70.4% decrease in net revenues. The lower volume, coupled with certain fixed costs associated with the Company's fulfillment operations and a significant increase in the domestic return rate, negatively impacted the ratio. The three months ended September 30, 1996 benefited from retail royalties ($0 for September 30, 1997 as compared to $8.6 million for September 30, 1996) which carry minimal direct costs. Internationally, a change in product mix, higher licensee and other non-infomercial type revenues (which carry higher direct costs), and increased show customization costs adversely affected the ratio. In Japan, fulfillment and warehousing costs increased as a percentage of revenues as a result of the lower sales volume and higher inventory levels, respectively. Selling, General and Administrative Selling, general and administrative expenses were $13.7 million for the three months ended September 30, 1997 as compared to $12.0 million for the three months ended September 30, 1996, an increase of $1.7 million or 14.2%. The increase was primarily a result of higher professional fees, including $400,000 paid to a management/financial consulting firm retained at the request of the Bank, whose services were completed as of September 30, 1997, increased depreciation primarily associated with the Company's new MIS system and higher occupancy expense, primarily due to the Company's new California office. Selling, general and administrative expenses as a percentage of net revenues increased from 12.0% for the three months ended September 30, 1996 to 25.1% for the three months ended September 30, 1997 due to the aforementioned cost increases combined with the 45.2% decrease in net revenues. Interest Expense Interest expense was approximately $1.3 million for the three months ended September 30, 1997 compared to $.4 million for the three months ended September 30, 1996, an increase of $.9 million. This increase was primarily due to the write-off, in connection with the Agreement referred to in Note 5 to the financial statements, of the $.6 million unamortized portion of the loan discount related to the Term Loan, and an increase in the Company's average outstanding indebtedness from approximately $10.6 million during the second quarter of fiscal 1997 to approximately $27.1 million during the second quarter of fiscal 1998. -14- Income Taxes The Company recorded minimal income tax expense for the three months ended September 30, 1997 resulting from tax liabilities generated on its Asian and South Pacific profits. Income tax benefits have not been recorded during the current quarter on domestic and European losses. These benefits will be recorded when realized, reducing the effective tax rate on future domestic and European earnings. This compares to approximately $2.6 million of income tax expense recorded for the second quarter of fiscal 1997, a 34.5% effective tax rate. Net Income The Company incurred a net loss of $14.9 million for the three months ended September 30, 1997 compared to net income of $5.0 million for the three months ended September 30, 1996. Six months ended September 30, 1997 compared to September 30, 1996 Net Revenues Net revenues were $121.7 million for the six months ended September 30, 1997 as compared to $209.0 million for the six months ended September 30, 1996, a decrease of $87.3 million or 41.7%. Domestic net revenues for the six months ended September 30, 1997 were $42.2 million as compared to $128.3 million for the six months ended September 30, 1996, a decrease of $86.1 million or 67.1%. This decrease was due primarily to the Ab Roller Plus performing strongly in the six months ended September 30, 1996 on television and in print and retail. The Ab Roller Plus accounted for approximately 62% of domestic net revenues in the six months ended September 30, 1996. Approximately 45% of the net revenues for the six months ended September 30, 1997 were generated by sales of the Company's Great North American Slim Down product. The decrease in net revenues was also due to the Company's inability to roll out enough new successful shows during the period to match the success of the Company's Ab Roller Plus show during the same period in the prior fiscal year. The shows planned to be rolled out were delayed due to show production delays, to product manufacturing/sourcing difficulties, and to the Company's tight cash position which affected, among other things, inventory purchasing and media acquisition. Certain new shows began to be aired late in the second quarter of fiscal 1998, and minimally impacted net revenues for the six month period. Current period domestic net revenues were also unfavorably impacted by an increased return rate. International net revenues for the six months ended September 30, 1997 were $79.5 million as compared to $80.7 million for the six months ended September 30, 1996, a decrease of $1.2 million or 1.5%. The current year included six months of revenues from the Prestige and Suzanne Paul acquisitions compared to approximately three months in the prior year; as well as a 13.3% increase in European net revenues due to expansion in Eastern Europe. These increases offset the approximate 42.2% decline in revenues generated in the Asian marketplace. This decline is a result of increased competition from traditional programming and other infomercial competitors and the fact that additional Japanese airtime was not obtained in the quantity or as quickly as anticipated. In addition, the Company's Asian revenues were negatively impacted by the recent economic downturn in that region. This is expected to continue to have an adverse impact in the coming quarter in this region. Operating Costs Total operating costs and expenses were $149.3 million for the six months ended September 30, 1997 as compared to $194.3 million for the six months ended September 30, 1996, a decrease of $45.0 million or 23.1%. This is due to the 41.7% decline in net revenues. Media Purchases Media purchases were $40.8 million (net of $1.0 million in media sales) for the six months ended September 30, 1997 as compared to $71.6 million (net of $3.5 million in media sales) for the six months ended September 30, 1996, a decrease of $30.8 million or 43.0%. This decrease was directly related to the 41.7% decline in net revenues. The ratio -15- of media purchases to net revenues improved slightly to 33.5% for the six months ended September 30, 1997 as compared to 34.3% for the six months ended September 30, 1996. A higher domestic ratio in the current six months resulted mainly from the absence of retail royalties compared to the same period of fiscal 1997. Retail royalties carry no direct media costs and therefore produce a more favorable ratio. This increase was offset by the favorable impact of a higher percentage of revenues being earned in the international marketplace in which media rates are generally more favorable. Direct Costs Direct costs were $78.1 million for the six months ended September 30, 1997 as compared to $98.8 million for the six months ended September 30, 1996, a decrease of $20.7 million or 20.9%, primarily related to the decrease in net revenues. As a percentage of net revenues, direct costs were 64.2% for the six months ended September 30, 1997 and 47.3% for the six months ended September 30, 1996. Direct costs as a percentage of net revenues increased in both the domestic and international marketplace. Domestically, the ratio was unfavorably impacted by the 67.1% decrease in net revenues. The lower volume, coupled with certain fixed costs associated with the Company's fulfillment operations and a significant increase in the domestic return rate, negatively impacted the ratio. The six months ended September 30, 1996 benefited from retail royalties ($0 for September 30, 1997 as compared to $13.8 million for September 30, 1996) which carry minimal direct costs. Internationally, a change in product mix, higher licensee and other non-infomercial type revenues which carry higher direct costs, and increased show customization costs adversely affected the ratio. In Japan, fulfillment and warehousing costs increased as a percentage of revenues as a result of the lower sales volume and higher inventory levels, respectively. Selling, General and Administrative Selling, general and administrative expenses were $28.5 million for the six months ended September 30, 1997 as compared to $23.1 million for the six months ended September 30, 1996, an increase of $5.4 million or 23.0%. In excess of $2.5 million of the increase relates to selling, general and administrative expenses associated with the operations of Prestige which was acquired in July of 1996 resulting in three months of expense in the six month period of fiscal year 1997 compared to the six months during the current fiscal year. In addition, the current period includes $1.5 million of goodwill amortization, as compared to only $1.0 million in the prior period. The increase is due to the current year containing a full six months of expense compared to partial expense during the prior six months period in which the Company purchased PRTV and Prestige. The remainder of the increase was primarily a result of higher professional fees, increased depreciation expense primarily associated with the Company's new MIS system, and higher occupancy expense. Selling, general and administrative expenses as a percentage of net revenues increased from 11.1% for the six months ended September 30, 1996 to 23.4% for the six months ended September 30, 1997 due to the aforementioned cost increases combined with the 41.7% decrease in net revenues. Interest Expense Interest expense was approximately $1.9 million for the six months ended September 30, 1997 compared to $.7 million for the six months ended September 30, 1996, an increase of $1.2 million. This increase was primarily due to the write-off of the $.6 million unamortized portion of the loan discount on the Term Loan in the second quarter of fiscal 1998, and an increase in the Company's average outstanding indebtedness from approximately $8.3 million during the six months ended September 30, 1996 to approximately $24.9 million during the six months ended September 30, 1997. Income Taxes The Company recorded income tax expense of approximately $.3 million for the six months ended September 30, 1997 resulting from tax liabilities generated on its Asian and South Pacific profits. Income tax benefits have not been recorded during the current period on domestic and European losses. These benefits will be recorded when realized, reducing the effective tax rate on future domestic and European earnings. This compares to approximately $5.1 million of income tax expense recorded for the six months ended September 30, 1996, a 35.0% effective tax rate. -16- Net Income The Company incurred a net loss of $27.9 million for the six months ended September 30, 1997 compared to net income of $9.4 million for the six months ended September 30, 1996. Liquidity and Capital Resources The Company's working capital was $24.0 million at September 30, 1997 compared to working capital of $19.8 million at March 31, 1997, an increase of $4.2 million. The Company met its current period cash needs primarily through its cash flow from borrowings, liquidation of accounts receivable and inventory and an equity infusion of $20.0 million which occurred late in the second quarter. Operating activities for the six months ended September 30, 1997 resulted in a use of cash of $11.7 million. The Company's cash flow from operations in the six months ended September 30, 1997 was adversely affected by the net loss of approximately $27.9 million. Consolidated accounts receivable decreased by $12.4 million, or 30.8%, primarily due to the decrease in domestic accounts receivable. This decrease was principally due to the 67.1% decrease in revenues in the month of September 1997 as compared to the month of March 1997, and a $7.0 million reduction in the installment receivable balance due to the continued decline in domestic net revenues. On September 18, 1997 the Company sold to two institutional investors 20,000 shares of Series C Convertible Preferred Stock (as more fully described in Note 6), which included the issuance of warrants to acquire 989,413 shares of the Common Stock. This transaction generated proceeds of approximately $19.8 million, net of approximately $200,000 in offering costs. At the present date, the Series C Preferred Stock would be convertible into 3,300,330 shares of the Common Stock. The proceeds from this transaction are primarily being used for working capital purposes, a portion of which was used to repay accounts payable at September 30, 1997. In September 1997, the Company also reached an agreement (the "Agreement") with its principal lender for the extension of its principal credit facility through December 31, 1998. The Company's $20.0 million Line has been reduced to $19.475 million, with the maximum amount of cash advances outstanding under the Line limited to $19.0 million, and the maximum amount of outstanding letters of credit limited to $5.0 million. In connection with the extension the interest rate on the Company's Line and Term Loan were increased from prime and prime plus .5%, respectively, to prime plus 3.0%. The payment of the Company's Term Loan was restructured on a basis more favorable to the Company as follows: $50,000 per month from December 1, 1997 to March 1, 1998; $800,000 on April 1, 1998; and $1.0 million on each of December 1, 1998, 1999 and 2000. The Agreement also contains certain financial covenants including tangible net worth and working capital minimums and other financial ratios with which the Company must be in compliance on a quarterly basis through December 31, 1997 and on a continuous basis during the remainder of the term. Certain violations may trigger an increase in the interest rate of 1.0% and/or an event of default. As previous defaults under the old facility have been waived, $3.0 million of the $4.0 million Term Loan has been classified as long term debt at September 30, 1997. The Line and Term Loan are secured by a lien on substantially all the assets of the Company and its subsidiaries, excluding the assets of Prestige which are pledged to ASB Bank. Such lien on certain non-domestic assets of the Company is subordinated to a lien held by Barclays Bank PLC. The Company has an overdraft line of approximately $1.0 million with Barclays, which was unused at September 30, 1997. In July 1997, the Company obtained a credit facility from ASB Bank through its Prestige subsidiary consisting of a working capital facility (overdraft and letter of credit) of $1.0 million New Zealand dollars (approximately $.7 million US dollars) and a short term loan of $4.3 million New Zealand dollars (approximately $2.8 million US dollars). The working capital facility is due on demand, bears interest at the ASB Bank Banking Business Rate (BBBR rate) plus 1% payable monthly, and expires on February 15, 1998. The short term loan bears interest at the BBBR rate plus 2% and matures on January 24, 1998. Amounts outstanding under short term loan totalled $4.3 million New Zealand dollars at September 30, 1997. The working capital facility was not utilized at September 30, 1997. Under the facility, Prestige is subject to certain financial covenants including tangible net worth and working capital minimums and various financial ratios and the Company is limited in its ability to obtain future financing from Prestige. The Company's international revenues are subject to foreign exchange risk. To the extent that the Company incurs local currency expenses that are based on locally denominated sales volume (order fulfillment and media costs), this exposure -17- is reduced significantly. The Company monitors exchange rate movements and can protect short term cash flows through the use of options and/or forward contracts when appropriate. Until July 1997, the Company maintained a foreign exchange line with its principal lender for such purposes. Pursuant to the Agreement described in Note 5 to the financial statements, the Company and the Bank agreed to terminate the foreign exchange line on a run off basis. The results of the Company's hedge did not have a material impact in the current six month period. The Company's future ability to hedge may be negatively impacted as a result of its tight cash position. All forward contracts must now be cash collateralized. In the long term, the Company has the ability to change prices in a timely manner in order to react to major currency fluctuations; thus reducing the risk associated with local currency movements. The Company is currently revising its pricing in the Far East in an effort to offset the recent significant currency devaluation. However, the Company still expects that the currency devaluation and the economic downturn being experienced in this region will have a negative impact on the Company's operating results and cash flows in the third quarter. Currently, the Company's two major foreign currencies are the German deutsch mark and the Japanese yen, each of which has been subject to significant recent fluctuations. During July 1996, the Company acquired two direct response marketing companies, Prestige and Suzanne Paul. The aggregate consideration paid by the Company for Prestige and Suzanne Paul was approximately $21.7 million in a combination of cash, a note payable and Common Stock. Included in the Prestige and Suzanne Paul acquisition agreements were provisions concerning the future payment of additional purchase price, up to an aggregate of an additional $5.0 million in the Company's Common Stock, valued at then present market prices, in 1997 and 1998, contingent upon the levels of net income achieved in those years by Prestige and Suzanne Paul. During the quarter ended September 30, 1997, the Company amended the acquisition agreements which accelerated the $5.0 million contingent purchase price amount and revised certain other provisions of the agreements. In connection with such amendments, the Company issued 909,091 shares of the Company's Common Stock to the principals of these entities based on the closing price of the Company's Common Stock on the New York Stock Exchange on July 16, 1997. This additional amount represents an increase in the purchase price and is included in goodwill. The decrease in other assets at September 30, 1997 was a result of payment of $3.0 million from an escrow account in connection with the Ab Roller settlement (as more fully described in Note 4) and the sale of the Company's investment in Earthlink for approximately $1.0 million. The Company has retained Lehman Brothers, as a financial advisor, to assist it in continuing discussions regarding potential strategic partnerships and other matters with interested parties. On November 7, 1997, the Company confirmed that it is actively pursuing a strategic partnership or merger but also cautioned that it can give no assurance regarding the completion of any such transaction. The Company's cash position continues to be pressured as a result of the losses incurred in the first half of fiscal 1998 and the continued downturn in both Japanese and domestic revenues. While the Company anticipates showing significant improvement in its operating results, it expects to report a net loss for the third quarter of fiscal year 1998. While benefitting from the proceeds of the recent preferred stock offering, the extension of its credit facility with its principal lender and its strategy, which focuses on cost reductions, the restructuring of PRTV and the re-negotiation of a number of its media contracts to terms that are more favorable to the Company, the Company's ability to continue as a going concern is dependent on its ability to implement certain plans and actions designed to rebuild its business, including the introduction of successful new shows, to return the Company to profitability, and to improve its liquidity. No assurance can be given that any of these actions will be successful. -18- Part II. Other Information Item 1. Legal Proceedings The information contained in Note 4 (Contingent Matters) to the Condensed Consolidated Financial Statements in Part I of this report is incorporated herein by reference. Certain of the matters referred to in Note 4 (Contingent Matters) have been the subject of disclosure in prior reports on Form 10-Q and/or 10-K. Other Matters The Company, in the normal course of business, is a party to litigation relating to trademark and copyright infringement, product liability, contract-related disputes and other actions. It is the Company's policy to vigorously defend all such claims and to enforce its rights in these areas. Except as disclosed herein, the Company does not believe any of these actions, either individually or in the aggregate, will have a material adverse effect on the Company's results of operations or financial condition. Item 2. Changes in Securities and Use of Proceeds On September 18, 1997, the Company issued and sold an aggregate of 20,000 shares of its Series C Preferred Stock to the Series C Investors. The Company completed the offering of the Series C Preferred Stock in reliance upon an exemption from registration provided by Regulation D as promulgated by Securities and Exchange Commission under the Securities Act of 1933, as amended. The Series C Preferred Stock has a four year term and is automatically converted into common stock at maturity. Each share of Series C Preferred Stock is convertible into such number of shares of the Company's common stock, as is determined by dividing the stated value ($1,000) of the Series C Preferred Stock (plus a 6% per annum premium accrued as of the conversion date) by (i) if the conversion occurs on or before March 17, 1998, a conversion price equal to $6.06 per share (subject to adjustment), or (ii) in the case of conversion after March 18, 1998, a conversion price equal to the lower of $6.06 per share and the lowest daily volume weighted average sale price during a specified trading period immediately prior to such conversion. The $6.06 conversion price was based on 120% of the volume weighted average sales price on the date of issuance of the Series C Preferred Stock. If converted at September 30, 1997, the Series C Preferred Stock would be convertible into approximately 3,300,330 shares of common stock. Depending on market conditions at the time of conversion, the number of shares issuable could prove to be significantly greater in the event of a decrease in the trading price of the Company's common stock. In connection with the issuance of the Series C Preferred Stock, the Company issued the Series C Warrants to purchase an aggregate of 989,413 shares of the Company's common stock to the Series C Investors. The Series C Warrants are exercisable until September 17, 2002 at an exercise price of $6.82 per share of the Company's common stock (subject to adjustment). The exercise price of $6.82 per share represents 135% of the volume weighted average price at the date of issuance of the Series C Preferred Stock. The Series C Preferred Stock carries a 6% annual premium payable in cash or common stock, at the Company's option, at the time of conversion. The premium is being recorded as a deemed dividend from the date of issuance to the date of conversion, solely for the purpose of calculating earnings per share. During the three months ended September 30, 1997 the Company recognized approximately $43,000 as a deemed dividend. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are included herein: 4.1 Amendment No. 5 to Rights Agreement, dated as of August 14, 1997, between Registrant and ChaseMellon Shareholder Services, LLC. 10.1 Employment Agreement, dated May 12, 1997, by and between Registrant and Paul R. Brazina. 10.2 Facility Agreement, dated July 23, 1997, between ASB Bank Limited and Prestige Marketing Limited. -19- 10.3 Short Term Facility, dated May 19, 1997, between Quantum International Limited and Barclays Bank PLC. 10.4 Amended and Restated Loan and Security Agreement, dated June 26, 1996, by and between Registrant, Quantum North America, Inc., Quantum International Limited, Positive Response Television, Inc. and DirectAmerica Corporation and Meridian Bank. 10.5 Loan Modification Agreement, dated September 18, 1997, by and between Registrant, Quantum North America, Inc., Quantum International Limited, Positive Response Television, Inc. and DirectAmerica Corporation and Corestates Bank, N.A. 10.6 Agreement, dated as of July 16, 1997, by and among Registrant, Paul Meier, Suzanne Kilworth, Alan Meier and Tancot Pty Limited. 10.7 Agreement, dated as of July 16, 1997, by and among Registrant, Paul Meier, Suzanne Kilworth, Alan Meier, P&S Holdings Limited (formerly known as Prestige Marketing Holdings Limited). 11.1 Statement Re: Computation of Per Share Earnings. 27.1 Financial Data Schedule. (b) The Company filed the following Current Reports on Form 8-K during the three month period ended September 30, 1997: The Company filed a Current Report on Form 8-K, dated September 18, 1997, reporting the completion of a private placement of $20 million of the Company's Series C Convertible Preferred Stock. -20- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NATIONAL MEDIA CORPORATION Registrant Date: November 14, 1997 /s/ Robert N. Verratti ------------------------------------------------ Robert N. Verratti President, Chief Executive Officer and Director Date: November 14, 1997 /s/ Paul R. Brazina ------------------------------------------------ Paul R. Brazina Vice President and Chief Financial Officer -21- EXHIBIT INDEX Exhibit No. - ----------- 4.1 Amendment No. 5 to Rights Agreement, dated as of August 14, 1997, between Registrant and ChaseMellon Shareholder Services, LLC. 10.1 Employment Agreement, dated May 12, 1997, by and between Registrant and Paul R. Brazina. 10.2 Facility Agreement, dated July 23, 1997, between ASB Bank Limited and Prestige Marketing Limited. 10.3 Short Term Facility, dated May 19, 1997, between Quantum International Limited and Barclays Bank PLC. 10.4 Amended and Restated Loan and Security Agreement, dated June 26, 1996, by and between Registrant, Quantum North America, Inc., Quantum International Limited, Positive Response Television, Inc. and DirectAmerica Corporation (without exhibits). 10.5 Loan Modification Agreement, dated September 18, 1997, by and between Registrant, Quantum North America, Inc., Quantum International Limited, Positive Response Television, Inc. and DirectAmerica Corporation. 10.6 Agreement, dated as of July 16, 1997, by and among Registrant, Paul Meier, Suzanne Kilworth, Alan Meier and Tancot Pty Limited. 10.7 Agreement, dated as of July 16, 1997, by and among Registrant, Paul Meier, Suzanne Kilworth, Alan Meier, P&S Holdings Limited (formerly known as Prestige Marketing Holdings Limited). 11.1 Statement Re: Computation of Per Share Earnings. 27.1 Financial Data Schedule. EX-4 2 EXHIBIT 4.1 EXHIBIT 4.1 AMENDMENT NO. 5 TO RIGHTS AGREEMENT ("Amendment No. 5") between NATIONAL MEDIA CORPORATION, a Delaware corporation (the "Company"), and ChaseMellon Shareholder Services, LLC, a New Jersey Corporation, as Rights Agent (the "Rights Agent"). W I T N E S S E T H WHEREAS, on January 3, 1994, the Company and the Rights Agent entered into that certain Rights Agreement (as amended by Amendments Nos. 1 through 4 to Rights Agreement, the "Rights Agreement"); and WHEREAS, pursuant to Section 27 of the Rights Agreement, this Amendment No. 5 may be entered into by the Company and the Rights Agent without the approval of any holders of Rights. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto hereby agree as follows: 1. The definition of "Acquiring Person" set forth in Section 1(a) of the Rights Agreement is hereby amended by adding to the second sentence thereof, after the words "(v) the execution or consummation of the transaction contemplated by those certain Securities Purchase Agreements by and among National Media Corporation and each of the persons listed on Exhibit A hereof; or (vi)," the following new language: "the execution or consummation of the transactions contemplated by that certain Securities Purchase Agreement between National Media Corporation and the Purchasers named therein, dated September 4, 1997, or the conversion of the Series C Preferred Stock or the exercise of the Warrants to be issued pursuant to such Securities Purchase Agreement, or (vii)" 2. Section 3(a) of the Rights Agreement is hereby amended by adding as a new sentence (to be inserted after language added by Amendment No. 4 to the Rights Agreement, dated November 30, 1994) the following: "Notwithstanding the foregoing, no Distribution Date shall occur as a result of the execution or consummation of the transaction contemplated by that certain Securities Purchase Agreement between National Media Corporation and the Purchasers named therein, dated September 4, 1997, or the conversion of the Series C Preferred Stock or the exercise of the Warrants to be issued pursuant to such Securities Purchase Agreement." 3. Capitalized terms used but not defined in this Amendment No. 5 shall have the respective meanings ascribed thereto in the Rights Agreement. 4. Except as expressly amended by this Amendment No. 5, the Rights Agreement shall remain in full force and effect as the same was in effect immediately prior to the effectiveness of this Amendment No. 5. 5. This Amendment No. 5 shall be governed and construed on the same basis as the Rights Agreement, as set forth therein. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5 to the Rights Agreement to be executed by their respective officers thereunto duly authorized as of August 14, 1997. NATIONAL MEDIA CORPORATION By: /s/ Brian J. Sisko --------------------------------- Name: Brian J. Sisko Title: Senior Vice President CHASEMELLON SHAREHOLDER SERVICES, LLC By: /s/ Donald P. Messmer --------------------------------- Name: Donald P. Messmer Title: Relationship Manager EX-10 3 EXHIBIT 10.1 EXHIBIT 10.1 Brian J. Sisko General Counsel and Senior Vice President Phone: 215-988-4604 Fax: 215-988-4869 May 12, 1997 Mr. Paul Brazina 552 Manayunk Road Merion Station, PA 19066 Dear Paul: National Media Corporation ("NMC") is pleased to offer to employ you on the following terms: 1. Position. Chief Financial Officer. 2. Salary. $150,000 per year, payable in semimonthly installments (or in such other installments as NMC may subsequently pay its employees). Salary subject to periodic review, in NMC's sole discretion. 3. Bonus. You will participate in NMC's Management Incentive Plan and be entitled to a total of 80 Units in the plan. Any awards which are payable to you under the plan will be paid at the same time as other plan participants receive their awards. 4. Parking Allowance. The Company will reimburse you for the monthly cost of parking in the Company's Philadelphia office building. 5. Options. You are hereby granted options to purchase 100,000 shares of the Company's common stock exercisable at a price equal to the closing price of the stock on the New York Stock Exchange on July 15, 1997. Such options shall be issued outside of the Company's 1991 Stock Option Plan but shall be issued on such terms as if they had been issued under such plan. The options shall be for a term of ten (10) years and shall vest in four (4) equal increments on July 15, 1997 and on the next three (3) successive six (6) month anniversaries of such date. 6. Benefits. Standard benefit package provided to all employees. 7. Termination of Employment. This is to be and remain an employment at will, which NMC may terminate at any time, regardless of reason, subject to NMC's agreement that it will give you notice of termination eight (8) months in advance of the date of termination. Notwithstanding the foregoing, your employment will be deemed immediately terminated upon your death or disability (i.e., a mental or physical condition which, in the opinion of a physician selected by NMC, renders you unable or incompetent to carry out your duties). You may, of course, resign your employment at any time. In addition, NMC may terminate your employment for "Cause" (i.e., conduct by you which is detrimental to the interests of NMC, including, without limitation, material breach of your duties without adequate justification, conviction of a felony, habitual intoxication or addiction to any controlled substance or other drug, conversion of funds or property of NMC or any of its clients/customers to your own use, or any other form of self-dealing detrimental to the interests of NMC), at any time, without any prior notice. 8. Noncompetition. So long as you remain employed by NMC, and for six months following either (i) the termination of your employment by NMC for Cause or (ii) your resignation for any reason other than NMC's failure to comply with any material provision of this letter agreement, you may not participate, directly or indirectly, or have any direct or indirect financial interest, in any business primarily engaged in, or hiring you to be engaged in, the production and/or distribution of infomercials and/or direct response spot advertising within any geographical area in which NMC and its subsidiaries conducted such business during your employment with NMC. If any court should enter a binding order or judgment to the effect that the duration, range of proscribed activities or geographical area of this Noncompetition covenant is unreasonable, then this Noncompetition covenant shall be deemed modified, but only to the extent necessary to make it reasonable and enforceable. 9. Confidentiality. Unless otherwise required by law, you shall not, directly or indirectly, disclose to any person or entity or use for your own personal benefit any Confidential Information (as defined below), either while you are employed by NMC or thereafter. Moreover, you shall at all times take all precautions reasonably necessary to protect Confidential Information from loss or disclosure to third parties. After you cease being employed by NMC, you shall promptly return to NMC all documents and other tangible property in your possession or control which constitute or contain Confidential Information, whether prepared by you or others. The term "Confidential Information" means all nonpublic information, whether in written, electronic or oral form, disclosed or known to you in the course of your employment concerning the operations of the business of NMC or any of its subsidiaries, including, without limitation, (i) marketing and promotional plans and strategies, (ii) information relating to products conceived, developed and in the process of development, (iii) information relating to the contractual arrangements with licensors, suppliers, producers, performers and program providers (iv) information relating to the purchase and placement of media, results of media placement and media monitoring and tracking systems, (v) information relating to rates, costs and facilities for telemarketing, order processing, fulfillment and credit card processing services, (vi) financial information beyond that which is publicly reported by NMC, and (vii) all other proprietary and competitively sensitive information. Confidential Information shall not include information which (a) is public knowledge or becomes generally known by those engaged in the infomercial industry (other than as a result of disclosure by you), and (b) is in your possession prior to your employment by NMC. 10. Miscellaneous Provision. (a) This letter agreement contains the parties' entire understanding with respect to the subject matter hereof (and thereof) and supersedes all prior negotiations, understandings and agreements, whether oral or written, between the parties with respect to such subject matter. (b) No amendment of this agreement shall be effective unless it is in a writing signed by both of you and an authorized officer of NMC. (c) This letter agreement shall be governed by and interpreted in accordance with the internal laws of Pennsylvania, without regard to conflict of laws principles. Any litigation arising under this letter agreement shall be brought in the Court of Common Pleas for the Eastern District of Pennsylvania (to whose jurisdiction both parties consent). (d) All of the provisions of this letter agreement are intended to be distinct and severable. If any provision of this Agreement is declared to be invalid or unenforceable, it shall be ineffective only to the extent of such invalidity or unenforceability, and such invalidity or unenforceability shall neither affect nor render invalid any of the remaining provisions hereof. If the foregoing terms of employment are acceptable to you, please so indicate by signing a copy of this letter and returning it to me. Very truly yours, Brian J. Sisko ACCEPTED AND AGREED By:______________________ Paul Brazina Dated: May 12, 1997 EX-10 4 EXHIBIT 10.2 EXHIBIT 10.2 ASIS BANK LIMITED FACILITY AGREEMENT Dated 1997 BETWEEN: 1. ASB BANK LIMITED (the "Bank"); and 2. PRESTIGE MARKETING LIMITED (the "Customer"). 1. Facilities: The Bank and the Customer agree that this Facility Agreement records the terms on which the Bank makes the following facilities available to the Customer (a) Overdraft Facility - see attached Schedule 1 - and (b) Short Term Loan Facility - see attached Schedule 2. These terms are subject to the General Terms and Conditions. 2. Interpretation: (a) This is a Facility Agreement within the meaning of the General Terms and Conditions relating to credit facilities in force from time to time. Accordingly those General Terms and Conditions apply to this Facility Agreement. (b) Words and expressions defined and references construed in the General Terms and Conditions and not otherwise defined or construed in this Facility Agreement have the same meanings and constructions where used in this Facility Agreement, unless the context otherwise requires. (c) A party to this Facility Agreement or another agreement includes its successors and, in the case of the Bank, its assignees and transferees. (d) Headings are to be ignored in interpreting this Facility Agreement. SIGNED for and an behalf of ) the Bank by ) ________________________________ (Authorised Signatory) PRESTIGE MARKETING LIMITED by: /s/ P. Meier - ------------------------ Director /s/ S. Barnes - ------------------------ Director Witness to signatures: Name: John Stephen Kirkwood Address: Auckland Occupation: Solicitor Signature: /s/ John Kirkwood SCHEDULE 1 OVERDRAFT FACILITY This Schedule sets out the terms specific to the Overdraft Facility, being a facility for debit drawings on current account up to the Facility Limit (in this Schedule called the "Facility"). These terms are subject to the General Terms and Conditions. FINANCIAL DETAILS. 1. Facility Limit: The Facility Limit is $1,000,000 less the face value of all documentary letters of credit issued pursuant to a trade services/letter of credit facility agreement dated on or about the date hereof between the Customer and the Bank. 2. Overdraft Interest Rate: The Overdraft Interest Rate will be the ASB Bank Business Banking Base Rate from time to time plus a margin of 1.0% per annum. The Overdraft Interest Rate will change from time to time to reflect any change to the ASB Bank Business Banking Base Rate. The Overdraft Interest Rate is initially 12.5% per annum. 3. ASB Bank Banking Business Base Rate: The ASB Bank Banking Business Base Rate is 11.5% per annum as at the date of this Facility Agreement. The ASB Bank Banking Business Base Rate may be altered by the Bank at any time by: (a) notice in writing to the Customer, or (b) at the Bank's election, advertising the amended rate in such local newspapers as the Bank deems appropriate. 4. Fees: The Customer will pay to the Bank such bank and transaction charges for the Overdraft Account as the Bank may charge in accordance with its usual practice. AVAILABILITY 5. Conditions Precedent: This Facility will only become available once the Bank has received and found satisfactory (in form and substance) the following items: -1- (a) the Facility Agreement and General Terms and Conditions as executed by the Customer; (b) a Certificate from a director of the Customer in favor of the Bank and its solicitors; (c) Unqualified audit confirmation dated 31 March 1997 in relation to the Customer; (d) the following security and guarantee documents: (i) Debenture from the Customer, together with Companies Office Registration Certificate; (ii) Letter of Comfort from National Media Corporation; (e) legal opinion from the Bank's solicitors; (f) insurance confirmation; (g) payment of all fees (including reasonable legal fees). 6. Termination Date: The initial Termination Date is 15 February 1998. The Bank may (at its absolute discretion) notify the Customer in writing that it offers to extend the Termination Date by a further one year from its then current Termination Date. An extended Termination Date will not become operative until accepted by the Customer in writing. PAYMENTS 7. Repayment: The Facility is on demand, so that the Bank may at any time by notice in writing to the Customer cancel the Facility. if not canceled earlier, then the Facility is automatically canceled on the Termination Date. On cancellation: (a) the Facility Unit will be immediately reduced to zero; and (b) the debit balance of the Overdraft Account, together with all accrued interest and fees, will be immediately payable. -2- 8. Interest Payments: Interest will accrue on daily debit balances in the Overdraft Account at the Overdraft Interest Rate (provided that the Bank may elect to charge interest on any debit balance of the Overdraft Account in excess of the Facility Unit at the default rate specified in paragraph 7.2 of the General Terms and Conditions). Interest will be payable on demand and pending demand will be debited to the Overdraft Account monthly on such day of the month as the Bank from time to time determines. 9. Method of Payment: The Bank may debit any payment or other amount due under the Facility to the Overdraft Account, even though the account may become overdrawn in excess of the Facility Limit. 10. Overdraft Account: [Intentionally left blank] -3- SCHEDULE 2 Short Term Loan Facility This SCHEDULE sets out the terms specific to the Short Term Loan Facility (in this SCHEDULE called the "Facility". These terms are subject to the GENERAL TERMS AND CONDITIONS. Financial Details 1. Loan: An amount of $4,400,000. 2. Ordinary Interest Rate: The Bank Bill Rate plus a margin of 2% per annum. The Bank Bill Rate will change an each Specified Date. 3. Bank Bill Rate: The Bank Bill Rate will be the Bank's buying rate for bank accepted bills of exchange having a tenor of 90 days (expressed as a percentage yield per annum). The Bank Bill Rate will be determined by the Bank an the date the Loan is advanced (the "Drawdown Date") and redetermined an 30 June, 30 September, 30 December and 30 March of each year ("Specified Dates"). However where a Specified Date falls an a day which is not a business day, the Bank Bill Rate will be determined on the following business day (but will be effective from the Specified Date). The Bank will notify the Customer of each determination of the Ordinary Interest Rate. 4. Drawdown: The Customer may draw the Loan in one amount by giving not less than 2 business days' written notice of the Drawdown Date to the Bank (or such shorter term as the Bank may agree). 5. Conditions Precedent to Drawdown: This Facility will only become available once the Bank has received and found satisfactory (in form and substance) the items set out in paragraph 5 of Schedule I. 6. Fees: The Customer will pay to the Bank a facility fee of $12,500.00 payable on or before the date of this Facility Agreement. 7. Termination of Offer: If the Customer does not drawdown the Loan in full by 31 July 1997, the Bank may in its absolute discretion: -4- (a) require the Customer to (and the Customer will be obliged to) pay to the Bank on demand a fee equal to the amount of interest which would have accrued on the Loan (if drawn down) in the period from that date through to the date an which either the Loan is actually drawn down or this Facility is canceled under paragraph (b) below; and/or (b) cancel the Facility either immediately or at any time afterwards and retain any fee charged in relation to it. Payments 8. Payment of Interest: The Customer will pay interest on the Loan in arrears. The first payment will be due on the date one month following the Drawdown Date and subsequent payments due monthly thereafter ("Payment Date"). This interest will accrue at the Ordinary Interest Rate from time to time and (subject to paragraph 10 below) will be calculated on the daily balance of the Loan. 9. Repayment Schedule: The Customer will repay the Loan by making one principal repayment of $4,400,000 on the earlier of: (a) the date six months from the drawdown date, or (b) 15 February 1998. 10. Early Repayment: The Customer may prepay the Loan in full or in part (a part payment to be in a multiple of $10,000) on any Payment Date, or such other date as the Bank may agree in writing. The Customer must give the Bank at least 2 business days written notice of its intention to prepay. This notice is irrevocable, and is to specify the prepayment date and the amount to be prepaid. The Customer will be obliged to make the prepayment specified on that date. If an amount is prepaid on a date which is not a Payment Date interest will continue to accrue on that amount until the next Payment Date. 11. Deduction Account: The Customer nominates the following account as the account from which payments due under the Facility -5- may be deducted. [Intentionally left blank] The Customer acknowledges that this nomination is not to prejudice the Bank's rights under the Facility and the General Terms and Conditions to debit any amount due from the Customer to the Bank to any account of the Customer with the Bank. 11. Bills: At the request of the Bank, the Customer will draw bills in the following form: Drawer : Customer Acceptor : Bank Payee and Endorser : Bank Such bills shall have face values and maturities specified by the Bank provided that the aggregate face value of all bills outstanding at any time will not exceed the amount outstanding under the Loan (including interest due), and no bill shall mature after the final repayment date of the Loan. The Customer shall not be required to pay any such bills on maturity. The Bank is irrevocably authorised by the Customer to sign (by its authorised signatory) as drawer, complete and deliver bills on behalf of the Customer in accordance with this clause if the Customer fails to do so in accordance with this Facility Agreement. -6- ASB BANK LIMITED General Terms and conditions BETWEEN: 1. ASB BANK LIMITED (the "Bank"): and 2. PRESTIGE MARKETING LIMITED (the "Customer") IT IS AGREED: These General Terms and Conditions (the "Terms") apply to all Facilities (as defined in paragraph 1.1 of these Terms). If there is any conflict between these Terms and the terms of any Facility Agreement (as defined in paragraph 1.1 of these Terms), the terms of that Facility Agreement will prevail. DATED THE DAY OF 1997 SIGNED for and on behalf ) of the Bank by ) _____________________________ (Authorised Signatory) Initial Address for Notices: Address: Fax No: Phone No: Attention: Reference: -7- EXECUTED by the Customer ) by /s/ Paul Ernest Meier ) ) /s/ Paul Meier ) --------------------- and /s/ Suzanne Barnes ) Director each being a director of ) the Customer in the presence ) /s/ Suzanne Barnes of: ) --------------------- ) Director /s/ John Kirkwood - -------------------------- John Stephen Kirkwood - -------------------------- Name of Witness Hesketh Henry, Auckland - -------------------------- Address -8- 1. INTERPRETATION 1.1 Definitions: In these Terms, unless the context otherwise requires, capitalised terms defined an the front page have the meanings so given to them, and: "Bank" means ASB Bank Limited and its successors, assigns and transferees; "Cancellation Event" means any of the events specified in paragraph 5 of these Terms and any other event or circumstance which, with the giving of notice, lapse of time or fulfilment of any other requirement, would constitute such an event; "Debenture" means a debenture of even date between the Customer and the Bank; "Distribution" means a distribution as defined in section 2 of the Companies Act 1993 (but as though a company under the Companies Act 1955 was included within the meaning of a "company" as used in that section), and includes any reduction of capital, any acquisition by a company of any share in itself or in its holding company, and any financial assistance provided by a company to enable another person to acquire any such share; "Documents" means these Terms, any Facility Agreement, any Security Document and any other agreement, present or future, required by or relating to a Facility; "Facility" means: (a) a credit facility; or (b) any other facility for financial accommodation which expressly incorporates these Terms, which the Bank provides or has agreed to provide to the Customer, "Facility Agreement" means any agreement in writing signed by the Bank and the Customer relating to one or more Facilities; "Group Member" means a subsidiary of the Customer, "Relevant Party" means the Customer and each of the other parties to the Documents (other than the Bank); "Security Documents" means the Debenture and each agreement at any time executed or delivered to secure the Customer's indebtedness under a Facility (whether or not it secures other obligations as well); and "Solvency Test" has the meaning ascribed to that term by section 4 of the Companies Act 1993. 1.2 Construction of Certain References: In these Terms, unless the context otherwise requires any reference to: -9- the provision or making available of "accommodation" includes the making of a loan, the discounting of bills, the provision of overdraft accommodation on current account or the provision of any other banking or financial services or accommodation; an "agreement" also includes a contracts deed, licence, franchise, undertaking or other document (in each case, oral and written) and includes that agreement as modified, supplemented, novated or substituted from time to time; "assets" also includes the whole and any part of the relevant person's business, undertaking, property, revenues and rights (in each case, present and future), and reference to an asset includes any legal or equitable interest in it; a "business day" means a day on which registered banks are open for general banking business in New Zealand; a "directive" includes a present or future directive, regulation or requirement of any agency of state or other regulatory, monetary or accounting authority (whether or not having the force of law but, if not having the force of law, the compliance with which is in accordance with the general practice of persons to whom the directive relates or is addressed); the "dissolution" of a person also includes the winding-up, bankruptcy or liquidation of that person and an equivalent and analogous procedure under the law of any jurisdiction in which that person is incorporated, domiciled, resident, carried an business or has assets; "Indebtedness" includes an obligation (whether present or future, actual or contingent, secured or unsecured, joint or several, as principal, surety or otherwise) relating to the payment of money; something having a "material adverse effect" on a person is a reference to it having a material adverse effect on that person's commercial or financial prospects or on its ability to comply with its obligations under a Facility or a Document and references to "material adverse change" shall be construed accordingly; a "person" includes an individual, a body corporate, an association of persons (whether corporate or not), a trust, a state and an agency of a state (in each case, whether or not having a separate legal personality); a "security interest" includes a mortgage, pledge, charge, lien, hypothecation, encumbrance, deferred purchase, title retention, or other security arrangement of any kind, the practical effect of which is to secure a creditor; a "statement" includes a representation or warranty; a "subsidiary" of a person includes; (a) a subsidiary as defined in the Companies Act 1993; and (b) any other person to be treated as a subsidiary in terms of any statement of accounting practice issued from time to time by the Now Zealand Society of Accountants; -10- a gender includes each other gender and a reference to "its" includes a reference to "his or "her" as the context requires; the singular includes the plural and vice versa; any legislation includes a modification and re-enactment of, legislation enacted in substitution for and a regulation, order-in-council and other instrument from time to time issued or made under, that legislation; and a party to these Terms or to any other agreement includes its successors and. in the case of the Bank, its assignees and transferees. indebtedness which is payable "on demand" is due and payable an the date an which demand is made (or, if a later date is specified in the demand, on that date). Headings are to be ignored in construing these Terms, 1.3 Consent/Opinion: Where the consent of the Bank is required under a Facility or these Terms, such consent will not be arbitrarily or unreasonably withheld. If the Bank is to exercise an opinion under a Facility or these Terms, such opinion will be exercised reasonably. 1.4 Conflict: In the event of any conflict between the terms of a Facility or these Terms and the terms of the Debenture, the following order of priority shall apply: (a) the Facility: (b) these Terms; (c) the Debenture. 2. AVAILABILITY AND REPAYMENT 2.1 Availability of Accommodation: The Bank is not obliged to provide accommodation under a Facility if: (a) Cancellation Event: a Cancellation Event has occurred, or will occur as a result of the accommodation being provided; or (b) Statements: any statement made in or in connection with a Facility or a Document is untrue, inaccurate or misleading in any material respect. 2.2 Purpose: The Customer agrees to use each Facility for the purpose (if any) set out in the relevant Facility Agreement and, until so used, the Customer will hold the proceeds of the Facility on trust for the Bank. 2.3 Repayment: Unless otherwise agreed in writing (including, without limitation, under a Facility Agreement), all indebtedness of the Customer to the Bank is payable on demand made by the Bank (which demand may be made by the Bank at any time at its absolute discretion). -11- 3. REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of Customer: The Customer represents and warrants that: (a) Obligations Binding: (i) each Relevant Party has full power and authority to enter into and comply with its obligations under each Facility or Document to which it is expressed to be a party and has obtained all consents needed to enable it to do so, (ii) each Document has been (or when executed will have been) duly authorised and entered into by each Relevant Party expressed to be party to it; and (iii) the Documents are (or when executed will be) legal, valid, binding and enforceable against each Relevant Party: (b) No Cancellation Event: other than as disclosed to the Bank in writing, no Cancellation Event has occurred; (c) Information: all information provided by any Relevant Party to the Bank in connection with a Facility or a Document was true and accurate when provided and except as disclosed to and accepted in writing by the Bank remains so, and there are no facts or circumstances which have not been disclosed to the Bank which would make that information untrue, inaccurate or misleading; (d) Accounts: its latest financial statements (and, if it has subsidiaries, its latest consolidated financial statements) as delivered to the Bank: (i) were, except as stated in the notes to them, prepared in accordance with generally accepted accounting practice as defined in section 4 of the Financial Reporting Act 1993; (ii) give a true and fair view of its financial position and the consolidated financial position of it and its subsidiaries as at the date and for the period to which they relate in accordance with generally accepted accounting practice; and (iii) include a true and complete copy of any auditors' report; (e) No Security Interest: except as disclosed to and accepted in writing by the Bank, no security interest exists over or affects, nor is there any agreement to give or permit to exist any security interest over or affecting, any assets of the Customer or any Group Member, and (f) Solvency: the Customer satisfies the Solvency Test. 3.2 Representations and Warranties Continuing: Each of the statements in paragraph 3.1 will be deemed to be repeated continuously so long as any Facility is available to the Customer or the Customer is indebted to the Bank, by reference to the facts and circumstances then existing. -12- 4. UNDERTAKINGS 4.1 General Undertakings: The Customer undertakes to the Bank that it will: (a) Cancellation Events: notify the Bank of the occurrence of any Cancellation Event and any event or circumstance which may have a material adverse effect on it, immediately upon becoming aware of it; (b) Information to be True: ensure that all information provided to the Bank in Connection with a Facility or a Document is true and accurate when provided, and does not omit to state anything which would make that information materially untrue, inaccurate or misleading; (c) Insurance. ensure that it and each of its subsidiaries: (i) keeps insured with reputable insurers all its assets of an insurable nature which are customarily insured against loss or damage by fire, earthquake and war damage, and other risks normally insured against by persons carrying on the same class of business as that carried on by it (and any other risks which the Bank may from time to time reasonably require) for their full insurable value and, if requested by the Bank, ensure that the Bank is named as co-insured for its interest an all such policies; and (ii) promptly pays all premiums and does all other things necessary to maintain the insurances required by this clause; and (d) Compliance with Laws: duly and promptly comply with all laws, directives and consents the non-compliance with which might adversely affect the rights or security of the Bank in any respect which the Bank considers material. 4.2 Reporting and Financial Undertakings: The Customer undertakes to the Bank that it will: (a) Accounts: as soon as available and, in any event, within 90 days after the end of each financial year and, if accounts are prepared for each half year, for each half-year, deliver to the Bank its financial statements and, if it has subsidiaries, its consolidated financial statements as at the end of that financial year or half-year, and (b) Other Information: promptly deliver to the Bank within 7 days of request, any other information relating to the business affairs, financial condition or operations of the Customer or any Group Member which the Bank may, from time to time, reasonably request 4.3 Negative Undertakings: The Customer undertakes to the Bank that it will not, and will ensure that each of its subsidiaries will not, without the prior written consent of thBank: (a) Change of Business. make or threaten to make a substantial change in the nature or scope of its business; nor -13- (b) Security Interest: create or permit to exist any security interest over or affecting any of its assets except any created or permitted by the Documents or securing indebtedness of not more than $250,000: nor (c) Loans and Guarantees: lend money to another person or give a guarantee except, in the case of a non-related company, in the ordinary course of business, and then only on proper commercial terms and other than the loan to National Media Corporation; nor (d) Subsidiaries: form or acquire any subsidiary unless such subsidiary guarantees all the Customer's obligations to the Bank (such guarantee to be in a form acceptable to the Bank and provided within one month of the formation or acquisition of that Subsidiary); nor (e) Distribution: make or attempt to make a Distribution (other than by a subsidiary to the Customer); nor (f) Further Borrowing, borrow or raise money from any shareholder or other person unless: (i) its indebtedness in respect of the money borrowed or raised is subordinated to the prior payment in full of all indebtedness to the Bank by means of a deed of subordination in a form acceptable to the Bank; or (ii) immediately after incurring that indebtedness, the Customer complies with the financial ratios set out in paragraph 4.4 below. (g) Disposals: (i) either by a single transaction or series of transactions, whether related or not and whether voluntary or involuntary, dispose of all or a substantial part of its assets except that the disposals in the ordinary course of business are not to be taken into account; (ii) dispose of any shares in a subsidiary of the Customer, nor (h) Amalgamation: pass any resolution for or in contemplation of the amalgamation of the Company with, or involving, any other company then existing or yet to be formed; nor (i) Re-issue of Securities: re-issue any debenture or security redeemed by it. In this paragraph 4.3 a "disposal" of an asset includes the grant of an option in respect of it and the payment of money and an agreement for any of these, but excludes the creation of a security interest (and references to "dispose" are to be construed accordingly). 4.4 Financial Covenants: The Customer undertakes to the Bank that it will ensure that: (a) Total Borrowed Moneys will at no time exceed 50% of Tangible Net Worth; (b) Tangible Net Worth will at no time be less than 40% of Total Tangible Assets; -14- (c) Total Borrowed Moneys will at no time exceed the Aggregate of Debtors and Inventory; (d) Current Assets are at least two times Current Liabilities, in each case on the last day of each calendar month. 4.5 Directors' Report: at the same time as delivering the financial statements required under paragraph 4.2. deliver to the Bank a report signed by two directors of the Customer setting out calculations of the amounts of: (i) Tangible Net Worth; (ii) Total Borrowed Moneys: (iii) Total Tangible Assets; (iv) Current Assets and Current Liabilities; and (v) Aggregate of Debtors and Inventory; as at the end of that financial year or half-year and each report is also to include calculations of the financial ratios referred to in paragraph 4.4 as at the end of, or for, that period; and 4.6 Definitions, In clause 4: "Aggregate of Debtors and Inventory" means, on any day, the aggregate amount of all Inventory and Debtors of the Group Members scaled at 60%. "Balance Sheet" means a consolidated balance sheet of the Group Members prepared as at any date, or in respect of any period, which complies with the Financial Reporting Act 1993; "Borrowed Money" means indebtedness for or in respect of money borrowed or raised by any means including without limitation acceptances, deposits, debt factoring with recourse, sale and repurchase arrangements and redeemable preference shares or for the deferred purchase price of assets or services but for the avoidance of doubt excluding: (a) indebtedness under bona fide operating leases; and (b) indebtedness to trade creditors and others in respect of assets and services obtained in the ordinary course of ordinary business on normal trade terms; "Current Assets" means all assets which are considered by GAAP to be current assets: "Current Liabilities" means all assets which are considered by GAAP to be current liabilities; "GAAP" means generally accepted accounting practices within the meaning of the Financial Reporting Act 1993; "Inventory" means, on any day, the aggregate of all stock held by the Group Members on that day (including all stock on the water on that day); -15- "Subordinated Advances" means, at any time, the then current principal amount of any Borrowed Money of the Customer which is to the satisfaction of the Bank effectively subordinated to all indebtedness of the Customer to the Bank; "Tangible Assets" means all assets except: (a) future tax benefits, patents, trade names, trademarks, goodwill; and (b) all other assets which should, according to GAAP, be regarded as intangible assets; "Tangible Net Worth" means, at any time, the total on a consolidated basis of: (a) the paid up share capital (excluding minority interests) and reserves of the Group Members as would be disclosed in a Balance Sheet if such balance sheet was then prepared; and (b) Subordinated Advances, adjusted by deducting the aggregate amount on a consolidated basis of all future tax benefits, patents, trademarks, goodwill and other assets of the Group Members which should, according to GAAP, be regarded as intangible assets; "Total Borrowed Moneys" means the aggregate amount an a consolidated basis of all Borrowed Money of the Group Members, including, without limitation: (a) money borrowed or raised from any shareholder of the Customer. (b) money utilised pursuant to the Facilities, and capitalised interest thereon but excluding all Subordinated Advances; "Total Tangible Assets" means, at any time, the aggregate amount on a consolidated basis of the Tangible Assets of the Group Members as would be disclosed in a Balance Sheet if such balance sheet was then prepared. 4.7 Privacy Act Authority. The Customer authorises the Bank during the term hereof to discuss its financial statements and financial affairs at any time with: (a) its accountants and auditors , and irrevocably authorises and requests its accountants, auditors and solicitors to provide to the Bank during the term hereof any information regarding the Customer upon request by the Bank; and (b) any guarantor of any indebtedness or other obligation of the Customer to the Bank. Nothing in this clause shall oblige the Bank to provide any information concerning the financial statements, financial affairs (including, without limitation, details of any indebtedness) or any other matter concerning the Customer to a guarantor or any other person. 5. CANCELLATION EVENTS -16- 5.1 Cancellation Events: If at any time and for any reason, whether or not within the control of a party; (a) Non-Payment: the Customer fails to pay within two days of its due date any amount payable under a Facility or a Document; or (b) Breach of Undertaking: the Customer does not perform or comply with any of its obligations under a Facility or a Document in any respect which the Bank considers material; or (c) Statements Incorrect: any statement by the Customer made in, or in connection with, a Facility or a Document is not true, accurate and complied with in a material respect when made or repeated; or (d) Insolvency: the Customer is insolvent or unable to pay its indebtedness as it falls due or proceedings are commenced (and not dismissed within 30 days) or an order is made or any step is taken for the dissolution of the Customer,- or (e) Enforcement: any legal process for an amount in excess of $150,000 is levied or enforced against the Customer or its assets, and is not discharged or stayed within 5 days or a receiver, trustee, statutory manager or similar officer is appointed in respect of it or any of its assets; or (f) Cross Default: any indebtedness of the Customer exceeding $150,000 is not paid when due or any security interest affecting any of its assets becomes enforceable; or (g) Material Adverse Change: in the opinion of the Bank, a material adverse change occurs in relation to the Customer; or (h) Avoidance or Repudiation: the enforceability of any Document is contested by any person or it becomes unlawful for the Customer to comply with any of its obligations under any Document; or (i) Relevant Parties: any event specified in sub-paragraphs (c) or (b) of this paragraph 5 occurs with respect to a Group Member or another Relevant Party (as if references in those sub-paragraphs to the Customer were references to each Group Member or other Relevant Party); or (j) Documents: an event of default or termination event (however described) occurs under a Facility or any other Document; or (k) Change in Control: without the prior written consent of the Bank there is any change in the control of the Customer or any person controlling the Customer; or (l) Minority Buy Out: the Customer agrees to purchase all or any of the shares of a shareholder following receipt by the Customer of a notice by that shareholder pursuant to section 111(1) of the Companies Act 1993. then the Bank may, at any time, by notice to the Customer: -17- (m) cancel each or any Facility; and/or (n) declare any or all indebtedness of the Customer to the Bank which is repayable other than on demand to be, and that indebtedness will be due and payable either immediately or at such later date as the Bank may specify and/or (o) require the Customer to pay (and the Customer will pay) to the Bank either immediately or upon demand or at a later date as the Bank may specify an amount equal to the aggregate face values of all bills of exchange outstanding under any bill Facility (or any lesser amount which the Bank may specify in writing). 5.2 Review Event: (a) Review Event: If at any time a Relevant Party is insolvent or unable to pay its indebtedness as it falls due or proceedings are commenced (and not dismissed within 30 days) or an order is made or any step is taken for the dissolution of the Customer (or any similar or equivalent step or procedure is taken or occurs in any other jurisdiction) then the Bank may, by notice to the Customer (a "review notice"), advise the Customer that it wishes to review any Facility. (b) Bank may Refuse: Following its issue of a review notice in respect of a Facility, the Bank may, notwithstanding any other provision of any Document, at its absolute discretion refuse to provide accommodation under the Facility unless and until: (i) it has agreed with the Customer the terms on which the Bank will continue with the Facility, and (ii) those terms are given effect to (to the satisfaction of the Bank). (c) Consultations: Following its issue of a review notice in respect of a Facility, the Bank will consult with the Customer with a view to determining whether or not the parties can agree on the terms on which the Bank will continue with the Facility. it is specifically acknowledged and agreed that the Bank is under no obligation whatsoever to continue with the Facility an the existing terms beyond the expiry of 30 days after the date of issue of a review notice or to agree to any amended terms. (d) Termination: If the Bank has issued a review notice in respect of a Facility and either. (i) the Customer has declined or failed to so consult with the Bank within the period of 30 days following the date of issue of that review notice, or (ii) having so consulted with the Customer, the Bank at the end of the period of 30 days commencing on the date of issue of that review notice wishes to cancel the Facility (notwithstanding any terms proposed or the status of any negotiations); or (iii) although the Bank and the Customer have negotiated the terms on which the Bank will continue with the Facility, those terms are not given effect to (to the satisfaction of the Bank) within such time as the Bank may stipulate, -18- then the Bank may, at any time thereafter, by notice to the Customer (a "cancellation notice"): (iv) cancel the Facility; and (v) to the extent that any indebtedness of the Customer to the Bank under the Facility does not fall due for payment earlier, declare such indebtedness to be, and that Indebtedness will be, due and payable an such date as nominated by the Bank, but not earlier than 60 days after the date of issue of the review notice. 6. CHANGE IN CIRCUMSTANCES 6.1 Illegality: If, at any time, the Bank determines that it is or may become unlawful to provide a Facility or allow all or part of the accommodation under a Facility to remain outstanding, or to discount bills, or to receive interest or to comply with any of its obligations or exercise any of its rights under any Document then the Bank may, at any time, by notice to the Customer (a) cancel each Facility; and/or (b) declare all indebtedness of the Customer to the Bank which is repayable other then an demand and If the Bank directs the aggregate face values of all bills of exchange outstanding under any bill Facility to be, and that indebtedness and other amounts outstanding will be, due and payable either immediately or at such later date as the Bank may specify. 6.2 Increased Costs: if, as a result of: (a) the introduction of, or a change in, a law or directive or a change in its interpretation, application or administration; or (b) compliance by the Bank with a directive, the Bank determines that: (c) the cost to the Bank of making, funding or maintaining a Facility is increased; or (d) any amount payable to the Bank or the effective return to the Bank under a Facility is reduced; or (e) there is a reduction in the Bank's effective rate of return on its overall capital which, in its view, is attributable to either of paragraphs (a) or (b) applying in relation to its obligations under a Facility or to any class of obligations of which they form part; or (f) the Bank makes any payment or forgoes any interest or other return on or calculated by reference to any sum received or receivable by it from the Customer in an amount which the Bank considers material, then, upon demand from time to time by the Bank, the Customer will pay to the Bank the amount certified by the Bank to be necessary to compensate it for that increased cost, reduction, -19- payment or forgone interest or other return (or that portion of it as in the Bank's opinion is attributable to the relevant Facility). 7. INDEMNITY AND DEFAULT INTEREST 7.1 General Indemnity: The Customer will on demand indemnify and hold the Bank harmless against each loss, expense and liability sustained or incurred by the Bank as a result of: (a) the occurrence or continuation of a Cancellation Event, or a Relevant Party not complying with its obligations under a Facility or a Document; (b) an amount payable to the Bank under a Facility or a Document not being paid when due; (c) any accommodation not being drawn on the intended date for drawing; or (d) any indebtedness being paid earlier than originally due (even if that prepayment is permitted by the Documents or is required by the Bank), by payment to the Bank of the amount the Bank certifies is required to indemnify it for that loss, expense or other liability, 7.2 Default Interest: If the Bank does not receive, when due (in the case of principal) or within five business days (in the case of any other amount), an amount payable to it by the Customer then the Customer shall pay interest on that overdue amount calculated from its due date to the date of its receipt by the Bank (after as well as before judgment) compounded and payable at intervals selected by the Bank at its discretion. This obligation to pay default interest is to arise without the need for a notice or demand. The rate of default interest is to be the rate 2% per annum above the rate certified by the Bank to be the cost of funding the overdue amount from time to time. 8. PAYMENTS AND SET-OFF 8.1 Mode of Payments: Each payment by the Customer to the Bank is to be made by 3.00 p.m. on the due date in immediately available freely transferable funds in the manner and to the account which the Bank specifies from time to time. 8.2 Payments to be Free and Clear: Each payment by the Customer to the Bank is to be unconditional and is to be in full, without any deduction or withholding whatsoever (whether in respect of tax, set-off, counterclaim, charges or otherwise) unless such deduction or withholding is required by law. If any deduction or withholding is required by law, the Customer will pay to the Bank an additional amount so that the net amount actually received and retained by the Bank an the due date (free from any liability in respect of any deduction or withholding, and ignoring any amount which the Bank is deemed to have received by reason of any legislation) equals the full amount which the Bank would have received and retained had no such deduction or withholding been made or required. 8.3 Set Off: The Customer authorises the Bank to apply (without prior notice or demand) any credit balance of the Customer on any account in any currency and at any of the Bank's offices, in or towards satisfaction of any indebtedness of the Customer then due to the Bank and unpaid- If -20- at any time after a Cancellation Event has occurred an amount is contingently due to the Bank or an amount due is not quantified, the Bank may retain and withhold repayment of any such credit balance and the payment of interest or other moneys pending that amount becoming due or being quantified and may set off the maximum liability which may at any time be or become owing to the Bank by the Customer and in each case without prior notice or demand. The Bank: (a) may use any credit balance to buy other currencies and may break any term deposit to effect that application; and (b) need not exercise its rights under this paragraph, which are without prejudice and in addition to the rights of the Bank under any other Document and any right of set-off, combination of accounts, lien or other right to which it is at any time otherwise entitled (whether by law or contract). The Bank's rights under this paragraph are contractual rights affecting the terms upon which a credit balance is held and the creation of those rights does not constitute the creation of a security interest in that credit balance. 8.4 Authority to Debit: The Bank is authorised to debit any account of the Customer with any amount of indebtedness then due to the Bank from time to time. The Bank may exercise this right even if the account concerned is already in debit, and even if the amount debited takes the debit balance of the account over any approved limit. The Bank may debit any amount due on any day on or after the due date. 8.5 Deposits with Bank: Each credit balance of the Customer with the Bank will be held on the following basis; (a) the credit balance, and all the Customer's rights in relation to it, are incapable of assignment or of being the subject of a security interest (other than in favor of, or with the prior written consent of, the Bank): and (b) if at any time a Cancellation Event has occurred and has not been remedied, the Customer will have no right to withdraw (and the Bank will have no obligation to repay) any moneys from that credit balance (other than with the prior written consent of the Bank). 9. CALCULATIONS AND EVIDENCE 9.1 Basis of Calculation: Unless otherwise agreed in writing, all interest will be calculated an the basis of the number of days elapsed and a 365 day year. 9.2 Conclusive Evidence: A certificate by the Bank of an amount payable, under a Facility or a Document is to be conclusive evidence for all purposes including for any proceedings. 10. ASSIGNMENT 10.1 The Bank: The Bank may not assign or transfer all or part of its rights or obligations under a Facility or a Document without the consent of the Customer (not to be unreasonably withheld). Each assignee or transferee is to have the same rights against the Customer under each relevant -21- Facility or Document (or relevant portion of those rights if it is the assignee or transferee of part only) as if it were the Bank. 10.2 Disclosure of Information: The Bank may disclose, on a confidential basis, to a potential assignee, transferee or other person with whom contractual relations in connection with a Facility are contemplated, any information about the Customer whether or not that information was obtained in confidence and whether or not that information is publicly available. 10.3 The Customer The Customer may not assign or transfer any of its rights or obligations under any Facility or Document without the prior written consent of the Bank. 11. NOTICES 11.1 Addresses and References: Each notice or other communication is to be made in writing and sent by facsimile, personal delivery or by post to the addressee at the facsimile number or address, and marked for the attention of the person (if any), from time to time designated for that purpose. 11.2 Deemed Delivery: No communication will be effective until received. Communications to the Customer, however, will be deemed to be received: (a) in the case of a letter, on the third business day after posting; and (b) in the case of a facsimile, on the business day on which it is despatched or, if received after 5.00 p.m. in the place of receipt, on the next business day after the date of despatch. 12. EXPENSES AND TAXES 12.1 Expenses: The Customer will pay each cost and expense (including all legal expenses on a solicitor and own client basis) sustained or incurred by the Bank in connection with: (a) the preparation, negotiation and entry into of each Facility and Document, and each other transaction required or contemplated thereby; (b) each amendment to a Facility or Document or any other transaction required or contemplated by a Facility or Document; and (c) the exercise of, or in protecting or enforcing or otherwise in connection with, the Bank's rights under a Facility or Document or another transaction required or contemplated by a Facility or Document, in each case on demand and an a full indemnity basis and, in the case of (a) and (b), to the extent such costs or expenses are reasonable. 12.2 Taxes: The Customer will pay promptly any stamp or similar duty and any tax (including GST) and registration fee payable in connection with: (a) the entry into, performance, registration, enforcement or admissibility in evidence of any Facility or Document: and -22- (b) an amendment to, or waiver in respect of, any Facility or Document, and will indemnify and hold the Bank harmless against any liability resulting from any failure to pay any duty, tax or fee when due. 13. MISCELLANEOUS 13.1 Rights: Time is of the essence in respect of all dates and times for performance by the Customer of its obligations under each Facility and Document. The rights of the Bank under the Documents are cumulative, may be exercised as often as it considers appropriate and are in addition to any other contractual rights it may have against the Customer and its rights provided by law. 13.2 Amendments: No amendment to a Document will be effective unless it is in writing signed by all the parties to that Document. 13.3 Partial Invalidity: The illegality, invalidity or unenforceability of a provision of a Document under any law will not affect the legality, validity or enforceability of that provision under another law or the legality, validity or enforceability of another provision. 13.4 Further Assurance: The Customer irrevocably appoints the Bank as its attorney to do any act which may be done by the Customer, or which ought to be done by the Customer, under any Document. 13.5 Waivers: No failure to exercise, and no delay in exercising, any right under a Document will operate as a waiver of that right, nor will a single or partial exercise of a right preclude another or further exercise of that right or the exercise of another right. No waiver by the Bank of its rights under a Document will be effective unless it is in writing signed by the Bank. 13.6 Governing Law: Each Document is governed by and is to be construed in accordance with New Zealand law. -23- EX-10 5 EXHIBIT 10.3 EXHIBIT 10.3 Barclays Bank PLC Soho Square Business Centre 27 Soho Square, London W1AW4A Telephone: (0171) 445-5700 The Directors Quantum International Ltd. Manor House 21 Soho Square LONDON W1V 5VD May 19, 1997 Dear Sirs: We are pleased to advise you that Barclays Bank PLC (the "Bank") has agreed to provide in aggregate short term facilities of up to L650,000 (six hundred and fifty thousand pounds sterling) or its currency equivalent (the "Facility") to Quantum International Limited (the "Borrower") as detailed below. 1. OPTIONS AVAILABLE WITHIN AND UTILIZATION OF THE FACILITY The Facility may be utilised by way of the following options and in accordance with the provisions of the Schedules related thereto: Sterling Overdraft and/or Foreign Currency Overdraft With the Facility the aggregate of the liabilities due, owing or incurred thereunder shall not at any time exceed L650,000 (or its currency equivalent). The Sterling equivalent of the currencies utilised or available to be utilised under the Facility may be calculated by the Bank at any time by reference to the Bank's spot rate of exchange in the London Foreign Exchange Market for the sale of the relevant currency or currencies for Sterling. SCHEDULES (a) Sterling Overdraft The Sterling Overdraft will be available on the Borrower's current account at the Branch with interest charged at a rate of 2% per annum over the Bank's Base Rate current from time to time. Borrowings in excess of the agreed limit will be charged at a rate of 15% over Barclays Base Rate. Interest together with other charges will be debited to the Borrower's current account at the Branch quarterly in arrears in March, June, September and December each year or at such other times as may be determined by the Bank, and such interest will be calculated on the basis of actual days elapsed over a 365 day year. (b) Currency Foreign Overdraft The Foreign Currency Overdraft will be made available on US Dollar and or German Mark currency current account as previously agreed by and arranged with the Bank, and which currency is freely transferable and available to the Bank in the normal course of business. The Foreign Currency Overdraft will be available on the Borrower's foreign currency accounts with interest charged at 2% per annum over the Bank's call loan rate current from time to time. Interest together with other charges will be debited to the Borrower's foreign currency account quarterly in arrears in March, June, September and December each year or at such other times as may be determined by the Bank, and such interest will be calculated on the basis of actual days elapsed over 365 day year. Following completion of the (security/guarantee(s) and of the) acceptance formalities detailed below, the Facility will be available for the Borrower, subject to the following terms and conditions. 2. AVAILABILITY All monies owing under the Facility are repayable upon written demand by the Bank. Following demand and/or cancellation, no further utilization may be made under the Facility. The Borrower shall indemnify the Bank on demand against any loss, liability or expense which the Bank may reasonably sustain or incur as a consequence of making such demand or as a consequence of non-performance by the Borrower of any obligation under this letter. Any monies not paid following a demand under this clause shall continue to bear interest in respect of any outstanding interest period under the Sterling Overdraft, the Foreign Currency Overdraft, calculated above, as well after as before judgment. The Bank reserves the right at any time following a demand under this clause, to purchase with Sterling any currency necessary to convert any amounts outstanding under the Facility, together with interest accrued thereon to Sterling, whereupon the Borrower shall then become liable to pay the Bank forthwith the relevant Sterling amounts, together with all costs and expenses incurred by the Bank.Interest will continue to be charged as detailed above. In the absence of demand or cancellation by the Bank, the Facility is available for utilization until 19th May 1998. However, the Bank will be pleased to discuss the Borrower's future requirements shortly before that date. 3. SECURITY AND/OR GUARANTEE(S) The Borrower's obligations hereunder will be secured by the following on the Bank's standard form(s). 1. The existing Debenture on the Bank's stand form. 2. A deed of priority from other Debenture holders to confirm that the Bank has first call under the Bank's Debenture limited to US$1,000,000 standing ahead of other charges registered on the company's assets. 3. A deed of postponement in respect of the inter-company loans to ensure that after postponement the net tangible worth of the company's a minimum of L2,500,000. This security together with any other security which is now held, or hereafter may be held, by the Bank will secure all moneys and liabilities which shall from time to time be due, owing or incurred to the Bank by the Borrower, whether actually or contingently. The Bank reserves the right at its sole discretion to revalue security held at the Borrower's expense. 4. FFFS (a) Negotiation Fee A negotiation fee of L3,250 will be payable by the Borrower to the Bank on acceptance of this offer. There will be a quarterly management fee of L2.50 to cover the cost of meetings and monitoring of management accounts. If the facility is across more than one currency this fee will be increased to L400 per quarter. (b) Security Fee Any legal and security fees and expenses and other out of pocket expenses incurred by the Bank in connection with the negotiation and granting of the Facility will be reimbursed by the Borrower on demand by the Bank. (c) Renewal Fee A renewal fee is payable if the Facility is continued at expiry. 5. INFORMATION - The Borrower undertakes to provide the Bank with copies of its audited Consolidated Profit and Loss account and balance Sheet as soon as they are available and not later than 180 days from the end of each accounting reference period together with any other information which the Bank may reasonably request from time to time. - The borrower undertakes to provide the Bank with Management Accounts within 28 days of the month end. 6. CHANGE OF CIRCUMSTANCES In the event of any change in applicable law or regulation or the existing requirements of, or any new requirements being imposed by, the Bank of England or other regulatory authority the result of which, in the sole opinion of the Bank, is to increase the cost of it of finding, maintaining or making available the Facility or to reduce the effective return to the Bank, then the borrower shall pay to the Bank such sum as may be certified by the Bank to the Borrower as shall compensate the Bank for such increased cost or such reduction. 7. SET-OFF Any sum of money at any time standing to the credit of the Borrower with the Bank in any currency upon any account or otherwise (whether or not any such account is held in the Borrower's name) or provided to the Bank as cash cover for any bills and/or any outstanding liabilities may be applied by the Bank at any time (without notice to the Borrower) in or towards the discharge of any money or liabilities now or hereafter due, owing or incurred to the Bank by the Borrower hereunder (whether presently payable or not). 8. APPLICABLE LAW This letter shall be governed by and construed and take effect in accordance with the English Law. 9. ACCEPTANCE Prior to the Facility being utilised, the Borrower shall provide the Soho Square Branch for the Bank (the "Branch") with the following: (a) the enclosed duplicate of this letter duly signed on the Borrower's behalf as evidence of acceptance of the terms and conditions stated herein, (b) a certified true copy of a resolution of the Borrower's Board of Directors: (i) accepting the Facility on the terms and conditions stated herein, (ii) authorising a specified person, or persons, to sign and return to the Bank the duplicate of this letter, (iii) authorising the Bank to accept instructions any confirmations in connection with the Facility signed in accordance with the Bank's signing mandate current from time to time. (c) confirmed specimens of the signatures of those officers referred to in (b)(ii) above. This offer will remain available for a period of one month from the date of this letter until 19th June 1997, after which it will lapse if not accepted. Yours faithfully, FOR AND ON BEHALF OF BARCLAYS BANK PLC /s/ RS Allen ---------------------------------------- RS ALLEN Corporate Manager Accepted on the terms and conditions stated herein, pursuant to a resolution of the Board of Directors (a certified true copy of which is attached hereto). For and on behalf of QUANTUM INTERNATIONAL LIMITED /s/ Frederick S. Hammer Director ----------------------- 5/30/97 Date EX-10 6 EXHIBIT 10.4 EXHIBIT 10.4 AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (the "Agreement") is made effective the 26th day of June, 1996, by and between NATIONAL MEDIA CORPORATION ("National Media"), QUANTUM NORTH AMERICA, INC., formerly known as MEDIA ARTS INTERNATIONAL, LTD. ("Media Arts"). QUANTUM INTERNATIONAL LIMITED ("Quantum"), POSITIVE RESPONSE TELEVISION, INC., ("PRT"), DIRECTAMERICA CORPORATION ("DAC") and MERIDIAN BANK ("Bank"). National Media, Media Arts, Quantum, PRT and DAC are herein collectively referred to as the "Borrowers" and each individually as a "Borrower". National Media, Media Arts and Quantum are sometimes herein collectively referred to as the "Original Borrowers." BACKGROUND A. By a Note and Warrant Purchase Agreement dated October 19, 1994, by and between the Original Borrowers, as sellers, and Safeguard Scientifics (Delaware), Inc. ("Safeguard"), as purchaser (the "Note and Warrant Purchase Agreement"), National Media and certain of its Subsidiaries ("Media Consolidated") agreed to issue and sell to Safeguard, inter alia, their Secured Subordinated Notes due September 30, 1999, in the original principal amount of Five Million Dollars ($5,000,000.00) (the "Secured Subordinated Notes"). B. By a Purchase Agreement dated April 20, 1995, by and between Safeguard and others, as holders of the Subordinated Secured Notes, and Bank (the "Purchase Agreement"), Bank agreed to purchase from the holders, inter alia, all their right, title and interest in, to and under the Secured Subordinated Notes, the Note Security Documents and the Note Pledge Documents, subject to the Barclays Lien. C. By a certain Loan and Security Agreement dated November 28, 1995 by and between the Original Borrowers, (as amended, supplemented, replaced and modified from time to time the "Existing Loan Agreement"), Bank extended to the Original Borrowers a revolving line of credit and a foreign exchange contract line, secured by all assets of the Original Borrowers and subject to the terms and conditions set forth therein. D. National Media has acquired all of the stock of PRT and DAC. E. At Borrowers' request, Bank has agreed, inter alia, to (i) increase the amount of the existing line of credit to Twenty Million Dollars ($20,000,000.00), (ii) add PRT and DAC as Borrowers hereunder, and (ii) amend certain covenants of Borrowers hereunder, all of which Bank is willing to do upon and subject to the terms and conditions of this Agreement. F. Capitalized terms not otherwise defined herein will have the meanings set forth therefor in Section 16 of this Agreement. -1- NOW, THEREFORE, in consideration of the terms and conditions contained herein, and of any extensions of credit now or hereafter made to or for the benefit of Borrowers by Bank, the parties hereto, intending to be legally bound hereby, agree as follows: 1. CONFIRMATION OF BACKGROUND. Borrowers hereby jointly and severally ratify, confirm and acknowledge that the statements contained in the foregoing Background are true and complete in all respects and that the Indebtedness Documents are valid, binding and in full force and effect as of the date hereof and fully enforceable against the Original Borrowers and their assets in accordance with the terms thereof. 2. GENERAL ACKNOWLEDGMENTS. Borrowers hereby acknowledge and agree that: (a) Except as expressly provided herein, neither this Agreement nor any other agreement entered in connection herewith or pursuant to the terms hereof shall be deemed or construed to be a compromise, satisfaction, reinstatement, accord and satisfaction, novation or release of any of the Indebtedness Documents, or any rights or obligations thereunder, or a waiver by Bank of any of its rights under the Indebtedness Documents or at law or in equity; (b) AR liens, security interests, rights and remedies granted to the Bank in the Indebtedness Documents are hereby renewed, confirmed and continued, and shall also secure the performance by Borrowers of their respective obligations hereunder; and (c) No Borrower has any defense, set-off, counterclaim or challenge against the payment of any sums owing under the Indebtedness Documents, or the enforcement of any of the terms or conditions thereof. 3. THE LINE; THE FOREIGN EXCHANGE CONTRACT LINE; USE OF PROCEEDS. 3.1. Line of Credit. Bank will establish for Borrowers for and during the period from the date hereof and until September 30, 1997 (the "Contract Period"), subject to the terms and conditions hereof, a revolving line of credit (the "Line") pursuant to which Bank will from time to time make loans or other extensions of credit to Borrowers in an aggregate amount not exceeding at any time the Line Amount. Borrowers may borrow, repay (without penalty or premium except with respect to LIBOR Loans) and reborrow under the Line. The Line shall be subject to all terms and conditions set forth in all of the Loan Documents which terms and conditions are incorporated herein. Borrowers' obligation to repay the loans and extensions of credit under the Line shall be evidenced by Borrowers' amended and restated promissory note (the "Line Note") in the face amount of Twenty Million Dollars ($20,000,000.00), which shall be in the form attached hereto as Exhibit "A", with the blanks appropriately filled in. The Line may be renewed, at Bank's discretion, based upon Bank's review of Borrowers' annual financial statements for the fiscal year ending March 31, 1997 and such other information available to Bank and/or which Bank reasonably requests from Borrowers. 3.2. Use of Proceeds. Borrowers agree to use advances under the Line for proper working capital purposes, short-term borrowings, the acquisition of the stock of the Prestige Group and other acquisitions permitted under Section 8.7 hereof and permitted Capital Expenditures. 3.3. Method of Advances. On any Business Day, Borrowers may request an advance under the Line by delivering to the bank officer designated by Bank no later than 11:00 a.m. Philadelphia time on the Business Day such advance is requested to be funded such documentation as Bank may from time to time reasonably require. Subject to the terms and conditions of this Agreement, Bank shall make the proceeds -2- of a cash advance available to Borrowers by crediting such proceeds to Borrowers' deposit account with Bank. Such request may be by telephone, unless Bank has advised Borrowers in writing that written requests are required. Bank may require prompt written confirmation of any telephone request and additional back-up documentation, from time to time. Each request for an advance under the Line shall be conclusively presumed to be made by a person authorized by Borrowers to do so. In addition to the foregoing, Borrowers authorize Bank, without further authorization or notice, to make advances under the Line into Borrowers' operating account(s) with Bank. Such advances will be in amounts sufficient to honor checks drawn on such account, provided that (a) the aggregate of such advances plus the then outstanding principal balance under the Line does not exceed the Line Amount, and (b) no Event of Default has occurred and is continuing. Bank reserves the right not to honor any checks drawn on such account, if such honor would result in the outstanding principal balance of the Line exceeding the Line Amount, or if an Event of Default has occurred and is continuing. All advances made by Bank into such account shall be deemed to be Commercial Rate Loans under the Line. Such account arrangements may be terminated by Bank at any time upon five (5) days' written notice. 3.4. Letters of Credit. Bank will issue for the account of Borrowers merchandise and standby letters of credit in form and content reasonably satisfactory to Bank, at its sole discretion, with a term not to exceed the earlier to occur of (a) one hundred twenty (120) days (for merchandise letters of credit), (b) twelve (12) months (for standby letters of credit), or (c) the expiration date of the Contract Period of the Line. Notwithstanding the foregoing, at no time shall the principal balance of the Line, plus the aggregate face amount of all outstanding letters of credit issued under the Line exceed the Line Amount. Bank will issue letters of credit with a term expiring after the expiration date of the Contract Period if Borrowers deposit with Bank, at the time of issuance, cash collateral in an amount equal to the face value of such letters of credit, plus all fees which will accrue thereunder. Borrowers will execute a letter of credit application and letter of credit agreement, and such other documents as may be reasonably required by Bank in connection with the issuance of letters of credit hereunder. The outstanding face amount of all letters of credit issued by Bank pursuant hereto will reduce Borrowers' ability to borrow under the Line as if such face amount were an advance under the Line. In the event that Bank pays any sums due pursuant to such letters of credit for any reason, such payment shall be deemed to be an advance under the Line repayable by Borrowers pursuant to the terms hereof. In the event that the Line is terminated for any reason or demand is made thereunder, Borrowers will deposit with Bank an amount equal to the face amount of all letters of credit then outstanding which have been issued hereunder, plus all fees related thereto or to accrue thereunder. Such funds will be held by Bank as cash or cash equivalents collateral to secure Borrowers' obligations hereunder. 3.5. Foreign Exchange Contracts. As requested by Borrowers, Bank will issue and/or rollover for the account of Borrowers foreign currency spot contracts and foreign currency forward contracts with an aggregate Foreign Exchange Contract Risk to the Bank not to exceed Ten Million Dollars ($10,000,000- 00) in form and content reasonably satisfactory to Bank, in its sole discretion. Borrowers will execute such documentation as requested by Bank in connection with the issuance and/or rollover of any foreign currency contract, including, without limitation, that certain International Foreign Exchange Master Agreement (the "Foreign Exchange Agreement"). The Bank retains the right to reject, in its sole discretion, any request by Borrowers for the issuance or rollover of any foreign currency contract which Bank deems imprudent.' -3- 4. INTEREST RATE. 4.1. Interest on the Line. Interest will accrue on cash advances under the Line from date of advance until final payment thereof at one or more of the following rates as selected by Borrowers from time to time: (a) National Commercial Rate. The National Commercial Rate in effect from time to time (such interest rate to change immediately upon any change in the National Commercial Rate); or (b) LIBOR. By giving Notification, Borrowers may request to have a portion of the outstanding principal of the Line as hereinafter permitted accrue interest at a rate equal to the LIBOR Rate as follows: (i) with respect to the principal amount of any advance under the Line, from the date of such advance until the end of the Rate Period specified in the Notification; and/or (ii) with respect to the principal amount of any portion of the Line outstanding and earning interest at a LIBOR Rate at the time of the Notification related to such principal amount, from the expiration of the then current Rate Period related to such principal amount until the end of the Rate Period specified in the Notification; and/or (iii) with respect to all or any portion of the principal amount of the Line outstanding and earning interest at the National Commercial Rate at the time of Notification, from the date set forth in the Notification until the end of the Rate Period specified in the Notification. (c) Multiple Rates. Borrowers understand and agree that: (i) subject to the provisions of this Agreement, the National Commercial Rate and the LIBOR Rate may apply simultaneously to different parts of the outstanding principal balance of the Line, (ii) the LIBOR Rate applicable to any portion of outstanding principal of the Line may be different from the LIBOR Rate applicable to any other portion of outstanding principal of the Line, (iii) portions of the Line bearing interest at the LIBOR Rate must be in a minimum increment of Two Hundred Fifty Thousand Dollars ($250,000.00) and multiples of Fifty Thousand Dollars ($50,000.00), (iv) as of any one time or from time to time, there will be no more than eight (8) different rates of interest applicable to advances and loans made under the Line (for example, seven (7) LIBOR Loans bearing different LIBOR Rates and all remaining outstandings bearing interest at the National Commercial Rate); and (v) Bank shall have the right to terminate any Rate Period and the LIBOR Rate applicable thereto, prior to maturity of such Rate Period (without any prepayment penalty payable by Borrower as a result of such termination), if Bank determines in good faith (which determination shall be conclusive) that continuance of such interest rate has been made unlawful by any law, statute, rule or regulation, to which Bank may be subject, in which event the principal to which such terminated Rate Period relates thereafter shall earn interest at the National Commercial Rate. 4.2. Default Interest. Interest will accrue on the principal balance of the Line after the occurrence and during the continuation of an Event of Default or expiration of the Contract Period at a rate which is two percent (2%) in excess of the applicable non-default rate otherwise set forth above for the Line. Bank agrees to provide prior written notice to Borrowers of the accrual of interest at the Default Rate. 4.3. Post Judgment Interest. Any judgment obtained for sums due hereunder or under the Loan Documents will accrue interest at the applicable default rate set forth above until paid. 4.4. Calculation. Interest will be computed on the basis of a year of 360 days and paid for the actual number of days elapsed. 4.5. Limitation of Interest to Maximum Lawful Rate. In no event will the rate of interest payable hereunder exceed the maximum rate of interest permitted to be charged by applicable law (including the -4- choice of law rules) and any interest paid in excess of the permitted rate will be refunded to Borrowers. Such refund will be made by application of the excessive amount of interest paid against any sums outstanding hereunder and will be applied in such order as Bank may determine. If the excessive amount of interest paid exceeds the sums outstanding, the portion exceeding the sums outstanding will be refunded in cash by Bank. Any such crediting or refunding will not cure or waive any default by Borrowers. Borrowers agree, however, that in determining whether or not any interest payable hereunder exceeds the highest rate permitted by law, any nonprincipal payment, including without limitation prepayment fees and late charges, will be deemed to the extent permitted by law to be an expense, fee, premium or penalty rather than interest. 5. PAYMENTS AND FEES. 5.1. Interest Payments on the Line. Borrowers will pay interest on the principal balance of the Line as follows: (a) for advances bearing interest based on the National Commercial Rate, interest will be payable on the first day of each calendar month as billed by Bank, and (b) for advances bearing 'interest based on the LIBOR Rate, interest will be payable at the end of the applicable Rate Period. 5.2. Principal Payments on the Line. Borrowers will pay the outstanding principal balance of the Line, together with any accrued and unpaid interest thereon, and any other sums due pursuant to the terms hereof, ON DEMAND after the occurrence of an Event of Default or after expiration of the Contract Period. Notwithstanding the foregoing, if the Line Amount is reduced as a result of Borrowers' failure to consummate the Secondary Offering by or before December 31, 1996, Borrowers shall immediately repay to Bank any and all principal outstanding under the Line in excess of the Line Amount. 5.3. Letter of Credit and Bankers Acceptances Fees. For each issuance or renewal of a merchandise letter of credit, Borrowers will pay to Bank an issuance or renewal fee in an amount equal to one-quarter of one percent (1/4 of 1 %) of the face amount of such merchandise letter of credit, payable coincident with and as a condition of the issuance or renewal of such merchandise letter of credit, together with a one and one-half percent (1 1/2%) commission per annum on any banker's acceptances arising out of such merchandise letters of credit, payable coincident with and as a condition of this issuance of such banker's acceptances. For each issuance or renewal of a standby letter of credit hereunder, Borrowers will pay to Bank an issuance or renewal fee in an amount equal to one and one-half percent (1 1/2%) per annum of the face amount of such standby letter of credit, payable coincident with and as a condition of the issuance or renewal of such standby letter of credit. In addition, Borrowers shall pay such other fees and charges in connection with the negotiation or cancellation of each merchandise and standby letter of credit and banker's acceptances as may be customarily charged by Bank. Such fees shall be computed on the basis of a year of 360 days for the actual number of days elapsed. 5.4. Foreign Exchange Contract Fees. Borrowers shall pay to Bank all fees as offered by Bank in connection with the issuance or rollover of a foreign currency contract. 5.5. Commitment Fee. Contemporaneously with the execution and delivery of this Agreement, Borrowers shall pay to Bank a non-refundable commitment fee of One Hundred Thousand Dollars ($100,000.00). -5- 5.6. Usage Fee. So long as the Line is outstanding and has not been terminated, Borrowers shall unconditionally pay to Bank a fee equal to one-quarter of one percent (1/4 of 1 %) per annum of the daily unused portion of the Line (which shall be calculated as the difference between Line Amount (or such greater amount if the maximum committed amount for the Line is ever increased), minus the outstanding principal balance of cash advances under the Line at the close of business on the date such calculation is made, plus the face amount of all outstanding letters of credit and bankers acceptances) which fee shall be computed by Bank on a quarterly basis in arrears and shall be due and payable within thirty (30) days after the Borrowers' receipt of an invoice therefor. If Borrowers fail to pay all or any part of the bill within the prescribed time period, Bank will automatically charge Borrower's checking account(s) for any unpaid balance. 5.7. Late Charge. In the event that Borrowers fail to pay any principal or interest due under the Line for a period of at least fifteen (15) days, in addition to paying such sums, Borrowers will pay to Bank a late charge equal to the greater of (a) five percent (5%), of such past due payment as compensation for the expenses incident to such past due payment, or (b) Fifteen Dollars (S15.00). 5.8. Prepayment. Except as provided in Section 4.1(c)(y), Borrowers may not prepay all or any part of any LIBOR Loan prior to the end of the applicable Rate Period. 5.9. Payment Method. Borrowers irrevocably authorize Bank to debit all payments required to be made by Borrowers hereunder or under the Line (for which invoices have been delivered to Borrowers, whether by telecopier or otherwise), on the date due, from any deposit account maintained by any Borrower with Bank. Otherwise, Borrowers will be obligated to make such payments directly to Bank. All payments are to be made in immediately available funds. If Bank accepts payment in any other form, such payment shall not be deemed to have been made until the funds comprising such payment have actually been received by or made available to Bank. 5.10. Application of Payments. Absent the occurrence and continuation of an Event of Default, any and all payments on account of the Line will be applied first to outstanding principal, then to accrued and unpaid interest and other sums due hereunder or under the Loan Documents. After the occurrence and during the continuation of an Event of Default, Bank may apply payments on account to the Line in such order as Bank, in its discretion, elects. If Borrowers make a payment or payments and such payment or payments, or any part thereof, are subsequently invalidated, declared to be fraudulent or preferential, set aside or are required to be repaid to a trustee, receiver, or any other person under any bankruptcy act, state or federal law, common law or equitable cause, then to the extent of such payment or payments, the obligations or part thereof hereunder intended to be satisfied shall be revived and continued in full force and effect as if said payment or payments had not been made. 5.11. Loan Account. Bank will open and maintain on its books a loan account (the "Loan Account") with respect to advances made, repayments, prepayments, the computation and payment of interest and fees and the computation and final payment of all other amounts due and sums paid to Bank under this Agreement. Except in the case of manifest error in computation, the Loan Account will be presumptive evidence as to the amount at any time due to Bank from Borrower under this Agreement or the Note. 5.12. Indemnity; Loss of Margin. Borrowers will indemnify Bank against any loss or expense which Bank sustains or 'incurs as a consequence of any prepayment by Borrowers of a LIBOR Loan prior to the end of the applicable Rate Period. If Bank sustains or incurs any such loss or expense it will from time to time notify Borrowers in writing of the amount determined in good faith by the Bank to be necessary to -6- indemnify Bank for the loss or expense. Such amount will be due and payable by Borrowers to Bank within sixty (60) days after presentation by Bank of a statement setting forth a brief explanation of and Bank's calculation of such amount, which statement shall be presumptively deemed correct absent manifest error. Any amount payable to the Bank under this Section will bear interest at the default rate payable under the Line from the due date until paid, both before and after judgment. In the event that any-present or future law, rule, regulation, treaty or official directive or the interpretation or application thereof by any central bank, monetary authority or governmental authority, or the compliance with any guideline or request of any central bank, monetary authority or governmental authority (whether or not having the force of law): (a) subjects Bank to any tax with respect to any amounts payable under this Agreement or the other Loan Documents by Borrowers or otherwise with respect to the transactions contemplated under this Agreement or the other Loan Documents (except for taxes on the overall net income of Bank imposed by the United States of America or any political subdivision thereof); or (b) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit, capital maintenance, capital adequacy, or similar requirement against assets held by, or deposits in or for the account of, or loans or advances or commitment to make loans or advances by, or letters of credit or banker's acceptances issued or commitment to issue letters of credit by, or foreign exchange contracts issued or rollovered by the Bank; or (c) imposes upon Bank any other condition with respect to advances or extensions of credit or the commitment to make advances or extensions of credit under this Agreement, and the result of any of the foregoing is to increase the costs of Bank, reduce the income receivable by or return on equity of Bank or impose any expense upon Bank with respect to any advances or extensions of credit or commitments to make advances or extensions of credit under this Agreement, Bank shall so notify Borrower in writing. Borrowers agree to pay Bank the amount of such increase in cost, reduction in income, reduced return on equity or capital, or additional expense within sixty (60) days after presentation by Bank of a statement concerning such increase in cost, reduction in income, reduced return on equity or capital, or additional expense. Such statement shall set forth a brief explanation of the amount and Bank's calculation of the amount (in determining such amount the Bank may use any reasonable averaging and attribution methods), which statement shall be presumptively deemed correct absent manifest error. If the amount set forth in such statement is not paid within sixty (60) days after such presentation of such statement, interest will be payable on the unpaid amount at the default rate payable under the Line from the due date until paid, both before and after judgment. 6. SECURITY; COLLECTION OF RECEIVABLES AND PROCEEDS OF COLLATERAL. 6.1. Personal Property. As security for the full and timely payment and performance of all Bank Indebtedness, the Original Borrowers hereby confirm their grant of a security interest in all the following as evidenced by the Note Security Documents, as amended, the Note Pledge Documents, as amended, and the Indebtedness Documents and each Borrower hereby grants to Bank a security interest in all of the following: (a) All of that Borrower's present and future accounts, contract rights, chattel paper, instruments and documents and all other rights to the payment of money whether or not yet earned, for services rendered or goods sold, consigned, leased or furnished by that Borrower or otherwise, together with (i) all goods (including any returned, rejected, repossessed or consigned goods), the sale, consignment, lease -7- or other furnishings of which shall be given or may give rise to any of the foregoing, (ii) all of that Borrower's rights as a consignor, consignee, unpaid vendor or other lienor in connection therewith, including stoppage in transit, set-off, detinue, replevin and reclamation, (iii) all general intangibles related thereto, (iv) all guaranties, mortgages, security interests, assignments, and other encumbrances on real or personal property, leases and other agreements or property securing or relating to any accounts, (v) choses-in-action, claims and judgments, (vi) any return or unearned premiums, which may be due upon cancellation of any insurance policies, and (vii) all products and proceeds of any of the foregoing. (b) All of that Borrower's present and future inventory (including but not limited to goods held for sale or lease or furnished or to be furnished under contracts for service, raw materials, work-in-process, finished goods and goods used or consumed in that Borrower's business) whether owned, consigned or held on consignment, together with all merchandise, component materials, supplies, packing, packaging and shipping materials, and all returned, rejected or repossessed goods sold, consigned, leased or otherwise furnished by that Borrower and all products and proceeds of any of the foregoing. (c) All of that Borrower's present and future general intangibles (including but not limited to tax refunds and rebates, manufacturing and processing rights, designs, patent rights and applications therefor, trademarks and registration or applications therefor, tradenames, brand names, logos, inventions, copyrights and all applications and registrations therefor), licenses, permits, approvals, software and computer programs, license rights, royalties, trade secrets, methods, processes, know-how, formulas, drawings, specifications, descriptions, label designs, plans, blueprints, patterns and all memoranda, notes and records with respect to any research and development, and all products and proceeds of any of the foregoing. (d) All of that Borrower's present and future machinery, equipment, furniture, fixtures, motor vehicles, tools, dies, jigs, molds and other articles of tangible personal property of every type together with all parts, substitutions, accretions, accessions, attachments, accessories, additions, components and replacements thereof, and all manuals of operation, maintenance or repair, and all products and proceeds of any of the foregoing. (e) All of that Borrower's present and future general ledger sheets, files, records, customer lists, books of account, invoices, bills, certificates or documents of ownership, bills of sale, business papers, correspondence, credit files, tapes, cards, computer runs and all other data and data storage systems whether in the possession of that Borrower or any service bureau. (f) All letters of credit now existing or hereafter issued naming that Borrower as a beneficiary or assigned to that Borrower, including the right to receive payment thereunder, and all documents and records associated therewith. (g) All of the stock of all Subsidiaries now owned or hereafter acquired by that Borrower, which shares shall be freely assignable and transferable to Bank, together with such stock pledge agreements and blank stock powers with signatures guaranteed as Bank may require. (h) All deposits, funds, instruments, documents, policies and evidence and certificates of insurance, securities, chattel paper and other assets of that Borrower or in which that Borrower has an interest and all proceeds thereof, now or at any time hereafter on deposit with or in the possession or control of Bank or owing by Bank to that Borrower or in transit by mail or carrier to Bank or in the possession of any other Person acting on Bank's behalf, without regard to whether Bank received the same in pledge, for safekeeping, as agent for collection or otherwise, or .whether Bank has conditionally released the same, and -8- in all assets of that Borrower in which Bank now has or may at any time hereafter obtain a lien, mortgage, or security interest for any reason. 6.2. General. The collateral described above in Section 6.1 and in the Note Security Documents and the Note Pledge Documents is collectively referred to herein as the "Collateral". The above-described security interests, assignments, liens shall not be rendered void by the fact that no Bank Indebtedness exists as of any particular date, but shall continue in full force and effect until the Bank Indebtedness has been repaid, Bank has no agreement or commitment outstanding pursuant to which Bank may extend credit to or on behalf of Borrowers and Bank has executed termination statements or releases with respect thereto. IT IS THE EXPRESS INTENT OF THE BORROWERS THAT ALL OF THE COLLATERAL SHALL SECURE NOT ONLY THE OBLIGATIONS UNDER THE INDEBTEDNESS DOCUMENTS, BUT ALSO ALL OTHER PRESENT AND FUTURE OBLIGATIONS OF BORROWER TO BANK. 6.3. Collection of Receivables; Proceeds of Collateral. (a) Accounts Receivable. Borrowers will collect their accounts receivable only in the ordinary course of business. Immediately upon receipt, Borrowers will forward to Bank all accounts receivable collections of Borrowers and all other checks, drafts and other monies received by Borrowers which are proceeds of the Collateral. Upon request by Bank after the occurrence and during the continuation of an Event of Default, Borrowers will notify all of its account debtors to forward all accounts receivable collections owed to Borrowers to a lockbox maintained by Bank and will forward all other checks, drafts and monies received by Borrowers which are proceeds of the Collateral to such lockbox. Borrowers will execute such lockbox. agreements as may be required by Bank and will pay to Bank all customary fees in connection with any lockbox arrangement. (b) Operating Account. All accounts receivable collections of Borrowers and all checks, drafts and other monies received by Borrowers which are proceeds of the Collateral will be deposited in Borrowers' operating account maintained at Bank (the "Operating Account"). (c) Collected Funds. The Operating Account will be cleared by Bank daily on mutually agreed upon days as to collected funds, and such collected funds will be applied to the principal balance of and accrued interest then due and payable on the Line. Upon the occurrence and during the continuance of an Event of Default, Bank may apply such collected funds to the Bank Indebtedness in such order as it may elect. (d) Proceeds of Collateral. Borrowers agree that all monies, checks, notes, instruments, drafts or other payments relating to or constituting proceeds of any accounts receivable or other Collateral of Borrowers which come into the possession or under the control of Borrowers or any employees, agents or other persons acting for or in concert with any Borrower, shall be received and held in trust for Bank and such items shall be the sole and exclusive property of Bank. Promptly upon receipt thereof, Borrowers and such other persons shall remit the same or cause the same to be remitted, in kind, to Bank. Borrowers shall deliver or cause to be delivered to Bank, with appropriate endorsement and assignment to Bank with full recourse to Borrowers, all instruments, notes and chattel paper constituting an account receivable or proceeds thereof or other Collateral. Bank is granted a power of attorney by Borrowers with full power of substitution to execute on behalf of Borrowers and in Borrowers' name or to endorse Borrowers' name on any check, draft, instrument, note or other item of payment or to take any other action or sign any document in order to effectuate the foregoing. Such power of attorney being coupled with an interest is irrevocable. -9- 6.4. Release of Collateral. Bank hereby releases its security interest in and lien on a certain Certificate of Deposit in the face amount of One Million Dollars ($1,000,000.00) as pledged to Bank pursuant to a certain Pledge Agreement dated November 28, 1995. 7. REPRESENTATIONS AND WARRANTIES. Borrowers represent and warrant as follows: 7.1. Valid Organization. Good Standing and Qualification. Each Borrower is a corporation duly incorporated, validly existing and in good standing or subsisting under the laws of the state of its incorporation, as set forth on Schedule 7.1, has full power and authority to execute, deliver and comply with the Loan Documents, and to carry on its business as it is now being conducted and is duly licensed or qualified as a foreign corporation in good standing or subsisting under the laws of each other jurisdiction in which the character or location of the properties owned by it or the business transacted by it requires such licensing or qualification, except where the failure to be so licensed or qualified would not have a material adverse effect on the Collateral, assets, business, operations or financial condition of any Borrower or the ability of Borrowers to perform their obligations under the Loan Documents. 7.2. Licenses. Borrowers and their respective employees, servants and agents have all licenses, registrations, approvals and other authority as may be necessary to enable them to own and operate its business and perform all services and business which they have agreed to perform in any state, municipality or other jurisdiction, except where the failure to do so would not have a material adverse effect on the Collateral, assets, business, operations or financial condition of any Borrower or the ability of Borrowers to perform their obligations under the Loan Documents. 7.3. Subsidiaries. Except as set forth on Schedule 7.3 attached hereto, no Borrower owns any shares of stock or other equity interests in any Person, directly or indirectly (by any Subsidiary or otherwise). 7.4. Financial Statements. Borrowers have furnished to Bank the audited consolidated financial statements of Borrowers and their Subsidiaries certified without qualification by independent public accountants as of March 31, 1996 and all management and comment letters from such accountants in correction therewith, and its internally prepared interim financial statements as of April 30, 1996. Such financial statements of Borrowers and their Subsidiaries (together with the related notes and comments), are correct and complete, fairly present the financial condition and the NW assets and liabilities of Borrowers and their Subsidiaries at such date, and have been prepared in accordance with GAAP. With respect to the interim statements, such statements are subject to year end adjustment and any accompanying footnotes. 7.5. No Material Adverse Change in Financial Condition. There has been no material adverse change in the financial condition of any Borrower since March 31, 1996. 7.6. Pending Litigation or Proceedings. Except as set forth on Schedule 7.6 attached hereto, there are no judgments outstanding or actions, suits or proceedings pending or, to the best of Borrowers' knowledge, threatened against or affecting any Borrower at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. 7.7. Due Authorization, No Legal Restrictions. The execution and delivery by Borrowers of the Loan Documents, the consummation of the transactions contemplated by the Loan Documents and the fulfillment and compliance with the respective terms, conditions and provisions of the Loan Documents: (a) have been duly authorized by all requisite corporate action of each Borrower, (b) will not conflict with or result in a breach of, or constitute a default (or would, upon the passage of time or the giving of notice or -10- both, constitute a default) under, any of the terms, conditions or provisions of any applicable statute, law, rule, regulation or ordinance or any Borrower's Certificates or Articles of Incorporation or By-Laws or any indenture, mortgage, loan or credit agreement or instrument to which any Borrower is a party or by which any Borrower may be bound or affected, or any judgment or order of any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, and (c) will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of any Borrower under the terms or provisions of any such agreement or instrument, except liens in favor of Bank. 7.8. Enforceability. The Loan Documents have been duly executed by Borrowers and delivered to Bank and constitute legal, valid and binding obligations of Borrowers enforceable in accordance with their terms, except as enforceability may be limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws or equitable principles affecting creditors' rights generally. 7.9. No Default Under Other Obligations, Orders or Governmental Regulations. No Borrower is in violation of its Certificate or Articles of Incorporation or in default in the performance or observance of any of its material obligations, covenants or conditions contained in any indenture or other agreement creating, evidencing or securing any Indebtedness or pursuant to which any such Indebtedness is issued and no Borrower is in violation of or in default under any other material agreement or instrument or any material judgment, decree, order, statute, rule or governmental regulation, applicable to it or by which its properties may be bound or affected. 7.10. Governmental Consents. No consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of any Borrower is required in connection with the execution, delivery or performance by Borrowers of the Loan Documents or the consummation of the transactions contemplated thereby. 7.11. Taxes. Borrowers have filed all tax returns which they are required to file and have paid, or made provision for the payment of, all taxes which have or may have become due pursuant to such returns or pursuant to any assessment received by either of them, except such taxes (other than real estate taxes which must be paid regardless of challenge), if any, as are being contested in good faith and as to which adequate reserves have been provided. Such tax returns are complete and accurate in all material respects. No Borrower knows of any proposed additional assessment or basis for any assessment of additional taxes; however, Borrowers acknowledge that their tax returns for the fiscal years ending March 31, 1989 through March 31, 1992 are currently under examination by the Internal Revenue Service. 7.12. Title to Collateral. The Collateral is and will be owned by Borrowers free and clear of all liens and other encumbrances of any kind (including liens or other encumbrances upon properties acquired or to be acquired under conditional sales agreements or other title retention devices), excepting only liens in favor of the Bank, the Barclays Lien and those liens and encumbrances permitted under Section 8.9 below. Borrowers will defend the Collateral against any claims of all persons or entities other than the Bank. 7.13. Addresses. During the past five (5) years, no Borrower has been known by any names (including tradenames) other than those set forth in Schedule 7.13 attached hereto and has not been located at any addresses other than those set forth on Schedule 7.13 attached hereto. The portions of the Collateral which are tangible property and Borrowers' books and records pertaining thereto will at all times be located at the addresses set forth on Schedule 7.13; or such other location determined by Borrowers after prior notice -11- to Bank and delivery to Bank of any items requested by Bank to maintain perfection and priority of Bank's security interests and access to Borrowers' books and records. Schedule 7.13 identifies the chief executive office of Borrowers. 7.14. Current Compliance. Borrowers are currently in compliance with all of the terms and conditions of the Loan Documents. 7.15. Pension Plans. Except as disclosed on Schedule 7.15 hereto, (a) no Borrower has any obligations with respect to any employee pension benefit plan ("Plan") (as such term is defined in the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), (b) no events including, without limitation, any 'Reportable Event' or "Prohibited Transaction" (as those term; are defined under ERISA), have occurred in connection with any Plan of any Borrower which would constitute grounds for the termination of any such Plan by the Pension Benefit Guaranty Corporation ("PBGC") or for the appointment by any United States District Court of a trustee to administer any such Plan, (c) all of the Borrowers' Plans meet with the minimum funding standards of Section 302 of ERISA, and (d) no Borrower has any existing liability to the PBGC. No Borrower is subject to or bound to make contributions to any "multi-employer plan" as such term is defined in Section 4001(a)(3) of ERISA. 7.16. Leases and Contracts. Borrowers have complied in all material respects with the provisions of all material leases, contracts or commitments of any kind (such as employment agreements, collective bargaining agreements, powers of attorney, distribution agreements, patent license agreements, contracts for future purchase or delivery of goods or rendering of services, bonus, pension and retirement plans or accrued vacation pay, insurance and welfare agreements) to which it is a party and is not in default thereunder. No other party is in default under any such leases, contracts or other commitments and no event has occurred which, but for the giving of notice or the passage of time or both, would constitute an event of default thereunder. 7.17. Intellectual Property. Borrowers own or possess the irrevocable right to use all of the patents, trademarks, service marks, trade names, copyrights, licenses, franchises and permits and rights with respect to the foregoing necessary to own and operate the Borrowers' properties and to carry on their businesses as presently conducted and presently planned to be conducted without conflict with the rights of others. Schedule 7.17 sets forth an accurate list and description of each registered patent, trademark, service mark, trade name and copyright owned or possessed by any Borrower. 7.18. Business Interruptions. Within five (5) years prior to the date hereof, neither the business, Collateral nor operations of any Borrower have been materially and adversely affected in any way by any casualty, strike, lockout, combination of workers, order of the United States of America, or any state or local government, or any political subdivision or agency thereof, directed against such Borrower. There are no pending or threatened labor disputes, strikes, lockouts or similar occurrences or grievances against the business being operated by Borrowers. 7.19. Accuracy of Representations and Warranties. No representation or warranty by Borrowers contained herein or in any certificate or other document furnished by Borrowers pursuant hereto or in connection herewith fails to contain any statement of material fact necessary to make such representation or warranty not misleading in light of the circumstances under which it was made. There is no fact which Borrowers know or should know and has not disclosed to Bank, which does or may materially and adversely affect Borrowers, or any of their operations. -12- 8. GENERAL COVENANTS. Except with the prior written consent of Bank which consent will not be unreasonably withheld or delayed, Borrowers will comply with the following: 8.1. Payment of Principal, Interest and Other Amounts Due. Borrowers will pay when due all Bank Indebtedness and all other amounts payable by them hereunder. 8.2. Limitation on Sale and Leaseback. Borrowers will not enter into any arrangement whereby any of them will sell or transfer any real property or improvements thereon or other fixed assets owned by any of them and then or thereafter rent or lease as lessee such property, improvements or assets or any part thereof, or other property which any Borrower shall intend to use for substantially the same purposes as the property sold or transferred. 8.3. Limitation on Indebtedness. No Borrower will have at any time outstanding to any Person other than Bank, any Indebtedness for borrowed money or Indebtedness under Capitalized Leases, or any outstanding letters of credit, except: (a) current accounts payable incurred in the ordinary course of Borrowers' business, accrued expenses and other current items arising out of transactions (other than borrowings) in the ordinary course of Borrowers' business; (b) existing Indebtedness for borrowed money and Capitalized Lease Obligations described on Schedule 8.3; (c) intercompany Indebtedness permitted under Section 8.19 hereof; (d) the Barclays Loan; (e) Indebtedness for purchase money financing and/or Capitalized Leases not listed on Schedule 8.3 not to exceed at any time Seven Hundred Fifty Thousand Dollars ($750,000.00) in the aggregate; and (f) Foreign currency forward contracts and foreign currency spot contracts between Borrowers and Brown Brothers; provided that the aggregate Gross Foreign Exchange Contract Risk of all such contracts whether issued or rolled over by Brown Brothers shall not exceed Ten Million Dollars ($10,000,000.00). Any of such existing permitted Indebtedness may not be refinanced or replaced without the consent of the Bank. 8.4. Investments and Loans. No Borrower will have or make any investments in all or a material portion of the capital stock or securities of any Person, or any loans, advances or extensions of credit to any Person, except: (a) Investments in direct or indirect obligations of, or obligations unconditionally guaranteed by, the United States of America and maturing within twelve (12) months from the date of acquisition; (b) Investments in commercial paper of Bank or commercial paper rated "Prime-1" by Moody's Investors Services or "A-l" by Standard & Poor's Corporation, or with an equivalent rating by -13- another rating agency of nationally recognized standing, maturing within three hundred sixty-five (365) days from the date of acquisition; (c) Certificates of deposit maturing within twelve (12) months from the date of acquisition issued by the Bank; (d) Bona fide advances to employees and officers of Borrowers for the purpose of paying travel and related expenses incurred for proper business purposes of Borrowers; and (e) Investments and loans listed on Schedule 8.4 attached hereto. 8.5. Guaranties. Except for guarantees of obligations of other Borrowers or Subsidiaries incurred in the ordinary course of business and those listed on Schedule 8.5 attached hereto, no Borrower will directly or indirectly guarantee, endorse (other than for collection or deposit in the ordinary course of business), discount, sell with recourse or for less than the face value or agree (contingently or otherwise) to purchase or repurchase or otherwise acquire, or otherwise become directly or indirectly liable for, or agree (contingently or otherwise) to supply or advance funds (whether by loan, stock purchase, capital contribution or otherwise) in respect of, any Indebtedness, obligations or liabilities of any Person. 8.6. Disposition of Assets. No Borrower will sell, lease, transfer or otherwise dispose of all, substantially all, or any material portion of its property or assets, except for sales of inventory in the ordinary course for fair consideration and the sale for fair consideration of obsolete equipment. 8.7. Merger; Consolidation; Business Acquisitions; Subsidiaries. Except for stock for stock acquisitions in an aggregate amount up to Ten Million Dollars ($10,000,000.00) and stock and/or asset acquisitions for cash in an aggregate amount up to One Million Five Hundred Thousand Dollars ($1,500,000.00), which result in no assumption by any Borrower of senior Indebtedness, no Borrower will merge into or consolidate with any Person, acquire any material portion of the stock, ownership interests, assets or business of any Person, permit any Person to merge into it, or form any new Subsidiaries. Notwithstanding the foregoing, Bank hereby consents to the acquisition by National Media of 100 % of the stock of Prestige Marketing Limited, Prestige Marketing International Limited, Suzanne Paul Holdings Pty Limited, Suzanne Paul (Australia) Pty Limited and Telemall Shopping Pty Limited (the "Prestige Group") in exchange for cash, unsecured debt payable to principals of the Prestige Group not to exceed Two Million Eight Hundred Thousand Dollars ($2,800,000.00), in the aggregate, which debt is payable in full by December 31, 1996, and stock of National Media, provided that (a) the acquisition is completed substantially in accordance with the terms and conditions of (i) a certain Acquisition Agreement dated May 29, 1996, by and among National Media, Paul Meier, Susan Barnes and Prestige Marketing Holdings Limited, and (ii) a certain Acquisition Agreement dated May 30, 1996 by and among National Media, Paul Meier, Susan Barnes, Alan Meier and Tancot Pty Limited, true and complete copies of which have been provided by Borrowers to Bank, (b) within thirty (30) days of consummation of the acquisition, all entities within the Prestige Group shall execute and deliver to Bank a consent and joinder agreement, in form and content acceptable to Bank, pursuant to which such entities shall agree to assume all obligations of the Borrowers hereunder and grant to Bank a security interest in and lien upon all their assets, and (c) copies of all documents evidencing the acquisition are provided to Bank. 8.8. Taxes; Claims for Labor and Materials. Borrowers will pay or cause to be paid when due all taxes, assessments, governmental charges or levies imposed upon them or their respective income, profits, payroll or any property belonging to either of them, including without limitation all withholding taxes, and all claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon any of their -14- properties or assets; provided that Borrowers shall not be required to pay any such tax (other than real estate taxes which must be paid regardless of challenge), assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings promptly initiated and diligently conducted by them, and neither execution nor foreclosure sale or similar proceedings shall have been commenced in respect thereof (or such proceedings shall have been stayed pending the disposition of such contest of validity), and they shall have set aside on their books, or at the request of Bank (after the occurrence and during the continuation of an Event of Default) deposited with Bank, adequate reserves with respect thereto. No Borrower will file or consent to the filing of, any consolidated income tax return with any Person other than a Subsidiary or the other Borrower. 8.9. Liens. No Borrower will create, incur or permit to exist any mortgage, pledge, encumbrance, lien, security interest or charge of any kind (including liens or charges upon properties acquired or to be acquired under conditional sales agreements or other title retention devices) on its property or assets, whether -now owned or hereafter acquired, or upon any income, profits or proceeds therefrom, except: (a) Security interests and mortgages held by Bank; (b) Liens incurred or deposits made in the ordinary course of business (i) in connection with worker's compensation, unemployment insurance, social security and other like laws or (ii) to secure the performance of statutory obligations, not incurred in connection with either (A) the borrowing of money or (B) the deferred purchase price of goods or inventory; (c) Encumbrances consisting of zoning restrictions, easements, restrictions on the use of real property or minor irregularities of title thereto, none of which impairs the use of such property by Borrowers in the operation of their business; (d) The Barclays Lien; or (e) Liens and security interests listed on Schedule 8.9 attached hereto. No Borrower shall enter into any agreement with any other Person which shall prohibit the Borrowers from granting, creating or suffering to exist, or otherwise restrict in any way (whether by covenant, by identifying such event as a default under such agreement or otherwise) the ability of the Borrowers to grant, create or suffer to exist, any lien, security interest or other charge or encumbrance upon or with respect to any of its assets in favor of the Bank. No Borrower will apply for or obtain any letters of credit for the payment of or to secure the payment for any inventory or other assets to be acquired by Borrowers, except letters of credit issued by Bank hereunder. 8.10. Existence; ApprovalS; Oualification; Business Operations; Compliance with Laws. Each Borrower (a) will obtain, preserve and keep in full force and effect its separate corporate existence and all rights, licenses, registrations and franchises necessary to the proper conduct of its business or affairs except where the failure to be so licensed or qualified would not have a material adverse effect on the Collateral, assets, business, operations or financial condition of any -Borrower or the ability of Borrowers to perform their obligations under the Loan Documents; (b) will qualify and remain qualified as a foreign corporation in each Jurisdiction in which the character or location of the properties owned by it or the business transacted by it requires such qualification except where the failure to obtain or maintain such qualification would not have a material adverse effect on the Collateral, assets, business, operations or financial condition of -15- Borrower or the ability of Borrower to perform its obligations under the Loan Documents; (c) will continue to operate its business as presently operated; and (d) will comply with the requirements of all applicable laws and all rules, regulations (including environmental regulations) and orders of regulatory agencies and authorities having jurisdiction over it. 8.11. Maintenance of Properties, Intellectual Property. Each Borrower will maintain, preserve, protect and keep or cause to be maintained, preserved, protected and kept its real and personal property used or useful in the conduct of its business in good working order and condition, reasonable wear and tear excepted, and will pay and discharge when due the cost of repairs to and maintenance of the same. With respect to any and all trademarks, registrations, copyrights, patents, patent rights and applications for any of the foregoing necessary to the operation of Borrowers' business, each Borrower shall maintain and protect the same and shall take and assert any and all remedies available to that Borrower to prevent any other Person from infringing upon or claiming any interest in any such trademarks, registrations, copyrights, patents, patent rights or application for any of the foregoing. Borrowers will notify Bank promptly of (a) the filing of any patent or trademark application, whether domestic or foreign, by any Borrower; (b) the grant o f any patent or trademark, whether domestic or foreign, to any Borrower; or (c) any Borrower's intent to abandon a patent or trademark. Borrowers will, if requested by Bank, (i) execute and deliver to Bank assignments, financing statements, patent mortgages or such other documents, in for-in and substarice reasonably acceptable to Bank, necessary to perfect and maintain Bank's security interest in all existing and future patents, patent applications, trademarks, trademark applications, and other general intangibles owned by Borrowers; (ii) furnish Bank with evidence satisfactory to Bank, in its sole discretion, that all actions necessary to maintain and protect each trademark and patent owned by Borrowers or their respective employees have been taken in a timely manner; and (iii) execute and deliver to Bank an agreement permitting Bank to exercise all of Borrowers' rights in, to and under any patent or trademark owned by any Borrower or any of its employees. 8.12. Insurance. Borrowers will carry adequate insurance issued by an insurer acceptable to Bank, in amounts acceptable to Bank (at least adequate to comply with any co-insurance provisions) and against all such liability and hazards as are usually carried by entities engaged in the same or a similar business similarly situated or as may be required by Bank, and in addition, will carry business interruption insurance in such amounts as may be required by Bank. In the case of insurance on any of the Collateral Borrowers shall carry insurance in an amount equal to the greater of (a) eighty percent (80%) of the full insurable value thereof, or (b) one hundred percent (100%) maximum availability under the Line, and cause Bank to be named as insured mortgagee with respect to all real property, loss payee (with a lender's loss payable endorsement) with respect to all personal property, and additional insured with respect to all liability insurance, as its interests mgj_appear with thirty (30) days' notice to be given Bank by the insurance carrier prior to cancellation or material modification of such insurance coverage. Borrowers shall cause to be delivered to Bank the insurance policies therefor or in the alternative, evidence of insurance and at least thirty (30) business days prior to the expiration of any such insurance, additional policies or duplicates thereof or in the alternative, evidence of insurance evidencing the renewal of such insurance and payment of the premiums therefor. Borrowers shall direct all insurers that in the event of any loss thereunder or the cancellation of any insurance policy, the insurers shall make payments for such loss and pay all return or unearned premiums directly to Bank and not to Borrowers and.Bank jointly. -16- In the event of any loss, Borrowers will give Bank immediate notice thereof and Bank may make proof of loss whether the same is done by Borrowers. Bank is granted a power of attorney by Borrowers with full power of substitution to file any proof of loss in Borrowers' or Bank's name, to endorse Borrowers' name on any check, draft or other instrument evidencing insurance proceeds, and to take any action or sign any document to pursue any insurance loss claim. Such power being coupled with an interest is irrevocable. In the event of any loss, Bank, at its option, may (a) retain and apply all or any part of the insurance proceeds to reduce, in such order and amounts as Bank may elect, the Bank Indebtedness, or (b) disburse all or any part of such insurance proceeds to or for the benefit of Borrowers for the purpose of repairing or replacing Collateral after receiving proof satisfactory to Bank of such repair or replacement, in either case without waiving or impairing the Bank Indebtedness or any provision of this Agreement; provided, however, that for any loss of Five Hundred Thousand Dollars ($500,000.00) or less or losses in any twelve (12) month consecutive monthly period aggregating One Million Five Hundred Thousand Dollars ($1,500,000.00) or less, Borrower shall have the right to receive and utilize the proceeds therefor without Bank's consent, absent the existence of an Event of Default. Any deficiency thereon shall be paid by Borrowers to Bank upon demand. Borrowers shall not take out any insurance without having Bank named as loss payee or additional insured thereon. Borrowers shall bear the full risk of loss from any loss of any nature whatsoever with respect to the Collateral. Notwithstanding the foregoing, in the event that any Borrower suffers a casualty loss in excess of Five Hundred Thousand Dollars ($500,000.00) or losses in any twelve (12) consecutive month period aggregating in excess of One Million Five Hundred Thousand Dollars ($1,500,000.00) and desires to use the proceeds of its casualty loss insurance to repair or replace damaged equipment or inventory which was Collateral hereunder, Bank will permit Borrowers to utilize the proceeds of such insurance solely to purchase such replacement equipment and inventory or to repair such equipment, provided that: (i) Borrowers confirm to Bank in writing that they intend to continue their business operations and have business interruption insurance in effect providing for the payment of proceeds in amounts acceptable to Bank, (ii) Borrowers submit to Bank their business plan for operations after such casualty loss, which plan must be in form and content satisfactory to Bank, (iii) Bank will hold such insurance proceeds and will disburse such proceeds upon receipt by Bank of evidence satisfactory to Bank that such proceeds will be used to purchase equipment and inventory as required above, ('v) disbursement of proceeds will be in compliance with such procedures as Bank may require, e.g. checks payable to the equipment vendor or inventory supplier, (v) no Event of Default, or event which with the giving of notice or passage of time, or both, would constitute an Event of Default has occurred, and (vi) such loss does not occur within four (4) months of the contract termination date of the Line set forth herein. 8.13. Inspections; Examinations. After the occurrence and during the continuation of an Event of Default, all accountants and auditors employed by Borrowers at any time to exhibit and deliver to Bank copies of any and all of Borrowers' financial statements, trial balances or other accounting records of any sort in the accountant's or auditor's possession and copies of all reports submitted to Borrowers by such accountants or auditors, including management letters, "comment" letters and audit reports, and to disclose to Bank any information they may have concerning Borrower's financial status and business operations. Borrowers ftirther authorize all federal, state and municipal authorities to furnish to Bank copies of reports or examinations relating to Borrowers, whether made by Borrowers or otherwise. The officers of Bank, or such Persons as any of them may designate, may visit and inspect any of the properties of Borrowers, examine (either by Bank's employees or by independent accountants) any of the Collateral or other assets of Borrowers, including the books of account of Borrowers, and discuss the affairs, finances and accounts of Borrowers with their respective officers at such times as Bank may desire. -17- Bank may conduct upon reasonable notice and during normal business hours two (2), and Borrowers will fully cooperate with, field examinations of the inventory, accounts receivable and business affairs of Borrowers per year. The Bank may conduct additional field examinations in any year if the Bank provides Borrowers with reasonable notice. Borrowers shall pay Bank One Thousand Two Hundred Fifty Dollars ($1,250.00) for each field examination. If an Event of Default has occurred and is continuing, Borrowers will reimburse Bank for all costs, expenses and charges as may be required by Bank in connection with all field examinations. 8.14. Default Under Other Indebtedness. No Borrower will permit any of its Indebtedness for borrowed money or Capitalized Leases to be in default. If any Indebtedness for borrowed money or Capitalized Leases of any Borrower is declared or becomes due and payable before its expressed maturity by reason of default or otherwise or to the knowledge of Borrowers, the holder of any such Indebtedness shall have the right (or upon the giving of notice or the passage of time, or both, shall have the right) to declare such Indebtedness to be so due and payable, Borrowers will immediately give Bank written notice of such declaration, acceleration or right of declaration. 8.15. Pension Plans. Borrowers shall (a) keep in full force and effect any and all Plans which are presently in existence or may, from time to time, come into existence under ERISA, unless such Plans can be terminated without material liability to Borrowers in connection with such termination (as distinguished from any continuing funding obligation); (b) make contributions to all of Borrowers' Plans in a timely manner an ' d in a sufficient amount to comply with the requirements of ERISA; (c) comply with all material requirements of ERISA which relate to such Plans so as to preclude the occurrence of -any Reportable Event, Prohibited Transaction or material "accumulated funding deficiency" as such term is' defined in EFJSA; and (d) notify Bank immediately upon receipt by Borrowers of any notice of the institution of any proceeding or other action which may result in the termination of any Plan and deliver to Bank, promptly after the filing or receipt thereof, copies of all reports or notices which Borrowers file or receive under ERISA with or from the Internal Revenue Service, the PBGC, or the U.S. Department of Labor. 8.16. Bank of Account. Borrowers will maintain Bank as their primary domestic bank of account and CoreStates Asset Management as one of its primary investment manager, unless otherwise agreed by Bank in writing. 8.17. Maintenance of Management. Borrowers will cause their businesses to be continuously managed by their present management or such other persons (serving in such management positions) as may be reasonably satisfactory to Bank. National Media will (a) notify Bank promptly in writing (i) of any change in its board of directors or principal executive officers, or (ii) if David Carman is no longer an officer of Quantum or if either Paul Meier or Alan Meier is no longer an officer of the Prestige Group, and (b) will provide Bank with a copy of any material amendment to its Articles of Incorporation or By-Laws, prior to adoption. National Media shall not make any amendment to its Articles of Incorporation or By-Laws without the prior written consent of Bank. 8.18. Capital Stock; Dividends. Except in accordance with existing employee benefit plans, no Borrower will redeem, repurchase or otherwise make any payment or distribution to acquire any of its capital stock. No Borrower will pay dividends or make other distributions on account of its capital stock, except for dividends or distributions to another Borrower. 8.19. Transactions with Affiliates. No Borrower shall enter into or conduct any transaction with any Affiliate except on terms that would be usual and customary in a similar transaction between Persons not affiliated with each other and except as disclosed to Bank. Except in the ordinary course of business and -18- unless prohibited herein, no Borrower will make any loans or extensions of credit to any of its Affiliates, shareholders, directors or officers, except for the existing loans described in Schedule 8.19 attached hereto. Each Borrower will cause all of its Indebtedness at any time owed to its Affiliates, shareholders, directors and officers to be subordinated in all respects to all present and future Bank Indebtedness and will not make any payments thereon other than in the ordinary course of business, except as approved by Bank in writing. 8.20. Restriction on Stock Transfer. Except for stock for stock acquisitions permitted under Section 8.7 hereof, none of Media Arts, Quantum, PRT or DAC shall directly or indirectly issue, transfer, sell or otherwise dispose of, or part with control of, or permit the transfer of, any shares of its capital stock. 8.21. Name or Address Change. No Borrower shall change its name or address except upon thirty (30) days prior written notice to Bank and delivery to Bank of any items requested by Bank to maintain perfection and priority of Bank's security interests and access to that Borrower's books and records. 8.22. Notices. Borrowers will promptly notify Bank of (a) any action or proceeding brought against any Borrower wherein such action or proceeding would, if determined adversely to any Borrower result in liability of that Borrower in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) individually, or One Million Dollars ($1,000,000.00) in the aggregate, (b) the occurrence of any Event of Default, (c) any fact, condition or event which, with the giving of notice or the passage of time or both, could become an Event of Default, (d) the failure of any Borrower to observe any of its undertakings under the Loan Documents, or (e) any material adverse change in the assets, business, operations or financial condition of any Borrower. 8.23. Additional Documents and Future Actions. Borrowers will, at their sole cost, take such actions and provide Bank from time to time with such agreements, financing statements and additional instruments, documents or information as the Bank may in its discretion deem necessary or advisable to perfect, protect, maintain or enforce the security interests in the Collateral, to permit Bank to protect or enforce its interest in the Collateral, or to carry out the terms of the Loan Documents. If Borrowers fail to take any action reasonably requested by Bank or after the occurrence and during the continuation of an Event of Default, Borrowers hereby authorize and appoint Bank as their attorney-in-fact, with full power of substitution, to take such actions as Bank may deem advisable to protect the Collateral and its interests thereon and its rights hereunder, to execute on Borrowers' behalf and file at Borrowers' expense financing statements, and amendments thereto, in those public offices deemed necessary or appropriate by Bank to establish, maintain and protect a continuously perfected security interest in the Collateral, and to execute on Borrowers' behalf such other documents and notices as Bank may deem advisable to protect the Collateral and its interests therein and its rights hereunder. Such power being coupled with an interest is irrevocable. Borrowers irrevocably authorize the filing of a carbon, photographic or other copy of this Agreement, or of a financing statement, as a financing statement and agrees that such filing is sufficient as a financing statement. 8.24. Accounts Receivable. Unless Bank notifies Borrowers in writing that it dispenses with any one or more of the following requirements, Borrowers will (a) immediately notify Bank if any of its accounts arise out of contracts with the United States or any department, agency or instrumentality thereof, and execute any instruments and take any steps required by Bank in order that all monies due and to become due under such contract shall be assigned to Bank and notice thereof given to the Government under the Federal Assignment of Claims Act; and (b) deliver to Bank, with appropriate endorsement or assignment, any instrument or chattel paper representing an account or contract right. Any permission granted to Borrowers by Bank to omit any of the requirements of this Section 8.Z4 may be revoked by Bank at any time. -19- Borrowers will, if requested by Bank (a) give Bank assignments, in form acceptable to Bank, of specific accounts or groups of accounts and monies due and to become due under specific contracts and specific general intangibles; (b) furnish to Bank a copy, with such duplicate copies as Bank may request, of the invoice applicable to each account specifically assigned to Bank or arising out of a contract right, bearing a statement that such account has been assigned to Bank and such additional statements as Bank may require; (c) mark its records evidencing its accounts in a manner satisfactory to Bank so as to show which accounts have been assigned to Bank; (d) furnish to Bank satisfactory evidence of the shipment and receipt of any goods specified by Bank and the performance of any services or obligations covered by accounts or contracts in which Bank has a security interest; (e) join with Bank in executing a financing statement, notice, affidavit or similar instrument, in form satisfactory to Bank, and such continuation statements and other instruments as Bank may from time to time request and pay the cost of filing the same in any public office deemed advisable by Bank; (f) give Bank such financial statements, reports, certificates, lists of purchasers (showing names, addresses, and amounts owing) and other data concerning its accounts, contracts, collections, inventory, general intangibles and other matters as Bank may from time to time specify; (g) after the occurrence and during the continuation of an Event of Default, segregate cash proceeds of Collateral so that they may -be identified readily, and deliver the same to the Bank at such time or times and in such manner and form as the Bank may direct, (h) after the occurrence and during the continuation of an Event of Default, furnish such witnesses as may be necessary to establish legal proof of the Collateral or records relating to the Collateral; and (i) use their best efforts to obtain from any owner, encumbrancer or other person having an interest in the property where any Collateral is located, written consent to Bank's removal of the Collateral therefrom, without liability on the part of the Bank to such owner, encumbrancer or other person, or from any such owner, encumbrancer or other person such waivers of any interest in the Collateral as the Bank may require. 8.25. Material Adverse Contracts. No Borrower will become or be a party to any contract or agreement which has a materially adverse impact on Borrowers' ability to perform under this Agreement or any other agreement with Bank to which any Borrower is a party. 8.26. Restrictions on Use of Proceeds. No Borrower will carry or purchase with the proceeds of the Line any 'margin security" within the meaning of Regulations U, G, T or X of the Board of Governors of the Federal Reserve System. 9. FINANCIAL COVENANTS. Except with the prior written consent of Bank, Borrowers will comply with the following: 9.1. Tangible Net Worth. Borrowers shall maintain Tangible Net Worth of not less than $35,000,000.00 as of the end of each fiscal quarter of Borrower; provided, however, that upon consummation of the Secondary Offering, Borrowers shall maintain Tangible Net Worth of not less than $55,000,000.00 as of the date of such consummation and as of the end of each fiscal quarter of Borrower thereafter. 9.2. Working Capital. Borrowers shall maintain Working Capital of not less than $25,000,000.00 as of the end of each fiscal quarter of Borrowers; provided, however, that upon consummation of the Secondary Offering, Borrowers shall maintain Working Capital of not less than $40,000,000.00 as of the date of such consummation and as of the end of each fiscal quarter of Borrower thereafter. 9.3. Indebtedness to Tangible Net Worth Ratio. Borrowers shall maintain a ratio of Indebtedness to Tangible Net Worth of not more than 2.25 to 1.0 as of the end of each fiscal quarter of Borrowers; provided, however, that upon consummation of the Secondary Offering, Borrowers shall maintain a ratio of Indebtedness to Tangible Net Worth of not more than 1.50 to 1.0 as of the date of such consummation and -20- as of the end of each fiscal quarter of Borrower thereafter. If the Secondary Offering is not consummated by December 31, 1996, Borrowers shall maintain a ratio of Indebtedness to Tangible Net Worth of not more than 2.00 to 1.0 as of March 31, 1997 and as of the end of each fiscal quarter of Borrowers thereafter. 9.4. Capital Expenditures. Borrowers shall not cause, suffer or permit Borrowers' aggregate annual Capital Expenditures to exceed $6,000,000.00 for the fiscal year ending March 31, 1997. 9.5. Indebtedness to EBITDA. Borrowers shall maintain a ratio of Indebtedness to EBITDA of not more than (a) 3.5 to 1.0 as of the end of each fiscal quarter of Borrowers, commencing with the fiscal quarter ending March 31, 1996, or (b) 2.75 to 1.0 as of the end of each fiscal quarter of Borrowers, commencing with the fiscal quarter ending March 31, 1997, all as determined on a rolling four (4) quarters basis. 9.6. Working Capital Ratio. Borrowers shall maintain a Working Capital Ratio of not less than 2.0 to 1.0 as of the end of each fiscal quarter of Borrowers. 9.7. Changes to Financial Covenants. The Bank may condition extension of the Line after the Contract Period upon revision of the foregoing financial covenants, including without limitation revisions for periods after September 30, 1997, as Bank in its sole discretion may require. 10. ACCOUNTING RECORDS, REPORTS AND FINANCIAL STATEMENTS. Borrowers will maintain books of record and account in which MI, correct and current entries in accordance with GAAP will be made of all of its dealings, business and affairs, and Borrowers will deliver to Bank the following (all in form and content acceptable to Bank): 10.1. Annual Statements. As soon as available and in any event within five (5) Business Days after filing with the SEC: (a) the audited consolidated and consolidating income and retained earnings statements of Borrowers and their Subsidiaries for such fiscal year, (b) the audited consolidated and consolidating balance sheet of Borrowers and their Subsidiaries as at the end of such fiscal year, and (c) the audited consolidated and consolidating statement of cash flow of Borrowers and their Subsidiaries for such fiscal year, and (d) the 10-K report of Borrowers and their Subsidiaries for such fiscal year, setting forth in comparative form the corresponding figures as at the end of the previous fiscal year, all in reasonable detail, including all supporting schedules and comments. The foregoing statements and balance sheets shall be prepared in accordance with GAAP and shall be audited by independent certified public accountants of recognized standing acceptable to Bank in the reasonable exercise of its discretion (the "Accountants") with respect to which such Accountants shall deliver their unqualified opinion. 10.2. Ouarterly 10-Q Statements. As soon as available and in any event within five (5) Business Days after filing with the SEC the 10-Q report of Borrowers and their Subsidiaries for such fiscal quarter. 10.3. Monthly Statements. As soon as available and in any event within forty (40) days after the end of each calendar month: -21- (a) the consolidated and consolidating income and retained earnings statements of Borrowers and their Subsidiaries for such month, and (b) the consolidated and consolidating balance sheet of Borrowers and their Subsidiaries as of the end of such month. 10.4. Accounts Receivable Agings. Within fifty (50) days of the end of each fiscal quarter, statements of Borrowers' domestic accounts receivable and any aging thereof, certified as to accuracy by the chief financial officer of Borrowers. 10.5. Audit Reports. Promptly upon receipt thereof, one copy of each other report submitted to Borrowers, by the independent accountants primarily engaged by Borrowers to prepare the audited financial statements of Borrowers pursuant to Section 10.1 hereof, including management letters, "comment" letters, in connection with any annual, interim or special audit report made by them of the books of Borrowers. 10.6. Reports to Governmental Agencies and Other Creditors. With reasonable promptness, copies of all such financial reports, statements and returris which Borrowers shall file with any federal or state department, commission, board, bureau, agency or instrumentality, including, without limitation, the SEC, and any report or statement delivered by Borrowers to any supplier or other creditor in connection with any payment restructuring. 10.7. Requested Information. With reasonable promptness, all such other data and information in respect of the condition, operation and affairs of Borrowers as Bank may reasonably request from time to time. 10.8. Compliance Certificates. Within fifty (50) days of the end of each fiscal quarter of Borrowers, a certificate of the chief financial officer of Borrowers: (a) stating that Borrowers have observed, performed and complied with each and every undertaking contained herein, (b) setting forth the information and computations (in sufficient detail) required in order to establish whether Borrowers were operating in compliance with the financial covenants in Section 9 of this Agreement, and (c) certifying that as of the date of such certification, there does not exist any Event of Default of affairs which with the 9' ing of notice, Passage of time or both would or any occurrence or state IV constitute an Event of Default. Such certificate will be in the form of Exhibit "B" attached hereto. 10.9. Litigation Summaries. Within fifty (50) days of the end of each fiscal quarter of Borrowers, a summary of all Borrowers' pending and threatened litigation. 11. ENVIRONMENTAL REPRESENTATIONS AND COVENANTS. 11.1. Representations. Borrowers represent to Bank as follows: (a) the Environmental Affiliates are in material compliance with all Environmental Requirements and no Borrower has any knowledge of any circumstances which may prevent or interfere with such compliance in the future; (b) the Environmental Affiliates have all material licenses, permits, approvals and authorizations required under applicable Environmental Requirements; (c) there are no pending or, to the best of their knowledge, threatened claims against any of the Environmental Affiliates or any of their assets related to the failure to comply with any Environmental Requirements, or any facts or circumstances which could give rise to such a claim; (d) to the best of their knowledge, no facility or property now or previously owned, operated or leased by any Environmental Affiliate is an Environmental Cleanup Site; (e) other than in the ordinary course of their business and in compliance with applicable law, no Environmental Affiliate has treated, stored, transported, -22- handled or disposed of Special Materials at or adjacent to any Environmental Cleanup Site; (f) there are no liens or claims for cost reimbursement outstanding or, to the best of their knowledge, threatened against any Environmental Affiliate or any of their assets, or, to the best of their knowledge, any facts or circumstances which could give rise to such a lien or claim; and (g) to the best of their knowledge, there are no facts or circumstances which, under the provisions of any Environmental Requirements, could restrict the use, occupancy or transferability of any of the Collateral or any of the facilities owned, leased or operated by any Environmental Affiliate. 11.2. Real Property. Borrowers represent and warrant to Bank that, to the best of their knowledge, there are no Special Materials presently located on or, to the best of their knowledge, near any real property owned, leased or operated by any Environmental Affiliate (collectively, "Real Property") except for Special Materials which are and have at all times been treated, stored, transported, handled and disposed of in compliance with all Environmental Requirements. Borrowers represent to Bank that the Real Property is not now being used nor, to the best of Borrowers' knowledge, has it ever been used in the past for activities involving Special Materials, including but not limited to the use, generation, collection, storage, treatment, or disposal of any Special Materials except for Special Materials which are and have at all times been treated, stored, transported, handled and disposed of in compliance with all Environmental Requirements. Without limiting the generality of the foregoing, the Real Property is not being used nor, to the best of Borrowers' knowledge, has it ever been used in the past for a landfill, surface impoundment or other area for the treatment, storage or disposal of solid waste (including solid waste such as sludge). 11.3. Covenant Regarding Compliance. Borrowers shall take or cause all Environmental Affiliates to take, at Borrowers' and such Environmental Affiliate's sole expense, such actions as may be necessary to comply with all Environmental Requirements, as hereinafter defined. If any Environmental Affiliate shall fail to take such action, Bank may make advances or payments towards performance or satisfaction of the same -but shall be under no obligation to do so. All sums so advanced or paid, including all sums advanced or paid by Bank in connection with any judicial or administrative investigation or proceeding relating thereto, including, without limitation, attorney's fees, firies, or other penalty payments, shall be at once repayable by Borrowers and all sums so advanced or paid shall become a part of the Bank Indebtedness. The Environmental Affiliates will maintain all licenses, permits, approvals and authorizations required under applicable Environmental Requirements. In connection with off-site treatment, storage, handling, transportation or disposal of Special Materials, the Environmental Affiliates will conduct such activities only at facilities and with carriers who operate in compliance with all Environmental Requirements and will obtain certificates of compliance or disposal from all contractors retained in connection with such activities. 11.4. Notices. In the event any Borrower becomes aware of any past, present or ftiture facts or circumstances which have given rise or could give rise to a claim against any Environmental Affiliate related to a failure to comply with any Environmental Requirements, Borrowers will promptly give Bank notice thereof, together with a written statement of an officer of Borrowers setting forth the details thereof and the action with respect thereto taken or proposed to be taken by the Environmental Affiliates. 11.5. Indemnity. Borrowers agree to indemnify, defend and hold harmless Bank, its parents, subsidiaries, successors and assigns, and any officer, director, shareholder, employee, Affiliate or agent of Bank, for all loss, liability, damage, cost and expenses, including, without limitation, attorney's fees and disbursements (including the reasonable allocated cost of in-house counsel and staff) arising from or related to (a) the release of any Special Materials at any facility at any time owned, leased or operated by Borrowers or any of their Subsidiaries, (b) the release of any Special Materials treated, stored, transported, handled, -23- generated or disposed of by or on behalf of Borrowers or any of their Subsidiaries at any third party owned site, (c) any claim against any Environmental Affiliate that they have failed to comply with all Environmental Requirements, and (d) the breach by Borrowers of any representation or covenant in this Section 11. 11.6. Testing. After the occurrence and during the continuation of an Event of Default, Bank shall have the right from time to time to designate such persons ("Envirolumental Consultants") as Bank may select to visit, inspect, examine and test all properties owned, leased or operated by and all products and wastes generated, treated, stored, transported, handled or disposed of by or on behalf of any Environmental Affiliate, for the purpose of investigating compliance with Environmental Requirements, any actual or potential claims related thereto, and any condition which could result in potential liability, cost or expenses to the Bank. Borrowers will permit, and will cause all Environmental Affiliates to permit, such Environmental Consultants to have access to all of such properties, products and wastes and all books, records and reports related to compliance by the Environmental Affiliates with all Environmental Requirements. Borrowers will supply, and will cause all Environmental Affiliates to supply, Bank or the Environmental Consultants with all information, records, correspondence, audits, reviews and materials related to compliance by the Environmental Affiliates with all Environmental Requirements and will make available to Bank or the Environmental Consultants appropriate personnel employed by or consultants retained by the Environmental Affiliates having knowledge of such matters. The cost of such visits, inspections, examination and tests shall be borne by the Borrowers. In the event Bank pays such costs, such sums shall be at once repayable by Borrowers and all sums so advanced or paid by Bank shall become part of the Bank Indebtedness. Notwithstanding the foregoing, the Bank shall have no obligation to perform any tests, examinations or inspections or to monitor the Environmental Affiliates' compliance with all Environmental Requirements. 11.7. Survival. The representations and covenants of Borrowers contained in this Section 11, including without limitation the indemnification obligation of Borrowers, shall survive the occurrence of any event whatsoever, including the payment of the Bank Indebtedness or any investigation by or knowledge of Bank. 11.8. Definitions. For purposes of the foregoing: (a) "Environmental Cleanup Site" shall mean any location which is listed or proposed for listing on the National Priorities List, on CERCLIS or on any similar state list of sites requiring investigation or cleanup, or which is the subject of any pending or threatened action, suit, proceeding or investigation related to or arising from any alleged violation of any Environmental Requirements. (b) "Environmental Requirements" means any and all applicable federal, state or local laws, statutes, ordinances, regulations or standards, administrative or court orders or decrees, common law doctrines or private agreements, relating to (i) pollution or protection of the environment and natural resources, (H) exposure of employees or other persons to Special Materials, (iii) protection of the public health and welfare from the effects of Special Materials and their products, by-products, wastes, emissions, discharges or releases, and (iv) regulation, licensing, approval or authorization of the manufacture, generation, use, formulation, packaging, labeling, transporting, distributing, handling, storing or disposing of any Special Materials. (c) "Special Materials" means any and all materials which, under Environmental Requirements, require special handling in use, generation, collection, storage, treatment or disposal, or -24- payment of costs associated with responding to the lawful directives of any court or agency of competent jurisdiction. Special Materials shall include, without limitation: (i) any flanunable substance, explosive, radioactive material, hazardous material, hazardous waste, toxic substance, solid waste, pollutant, contaminant or any related material, raw material, substance, product or byproduct of any substance specified in or regulated or otherwise affected by any Environmental Requirements (including but -not limited to any "hazardous substance" as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended or any similar state or local law), (H) any toxic chemical or other substance from or related to industrial, commercial or institutional activities, and (iii) asbestos, gasoline, diesel fuel, motor oil, waste and used oil, heating oil and other petroleum products or compounds, polycholorinated biphenyls, radon, urea formaldehyde and lead-containing materials. 12. CONDITIONS OF CLOSING. The obligation of Bank to make available the Line is subject to the performance by Borrowers of all of their agreements to be performed hereunder and to the following further conditions (any of which may be waived by Bank): 12.1. Loan Documents. Borrowers and all other required persons and entities will have executed and delivered to Bank the Loan Documents. 12.2. Representations and Warranties. All representations and warranties of Borrowers set forth in the Loan Documents will be true at and as of the date hereof. 12.3. No Default. No condition or event shall exist or have occurred which would constitute an Event of Default'hereunder (or would, upon the giving of notice or the passage of time or both, constitute such an Event of Default). 12.4. Proceedings and Documents. All proceedings taken by Borrowers in connection with the transactions contemplated by this Agreement and all documents incident to such transactions shall be satisfactory in form and substance to Bank and Bank's counsel, and Bank shall have received all documents or other evidence which it reasonably may request in connection with such proceedings and transactions. Borrowers shall have delivered to Bank a certificate, in form and substance satisfactory to Bank, dated the date hereof and signed on behalf of the Borrowers by an officer of Borrowers, certifying (a) true copies of the Articles of Incorporation and bylaws of the Borrowers in effect on such date, (b) true copies of all corporate actions taken by Borrowers relative to the Loan Documents, and (c) the names, true signatures and incumbency of the officers of the Borrowers authorized to execute and deliver this Agreement and the other Loan Documents. Bank may conclusively rely on such certificate unless and until a later certificate revising the prior certificate has been received by Bank. 12.5. Certification for Phoenix Location. Bank shall have received the certification, in the form attached hereto as Exhibit 'C", of Borrowers regarding the status of the lease for the Borrowers' Phoenix location. 12.6. Delivery of Other Documents. The following documents shall have been delivered by or on behalf of Borrowers to Bank: (a) Good Standing and Tax Lien Certificates. A good standing subsistence certificate certifying to the good standing subsistence and corporate status of each Borrower, good standing/foreign qualification certificates from all other jurisdictions in which each Borrower is required to be qualified to do business, and tax lien certificates for that Borrower from each jurisdiction in which that Borrower is required to be qualified to do business. -25- (b) Authorization Documents. Evidence of authorization of Borrowers' execution and full performance of this Agreement, the Loan Documents and all other documents and actions required hereunder. (c) Insurance. Evidence of the insurance coverage required under Section 8.12. (d) Opinion of Counsel. An opinion of counsel for Borrowers in form and content satisfactory to Bank. (e) Lien Search. Copies of record searches (including UCC searches and judgments, suits, tax and other lien searches) confirming that Bank has a first priority security interest in the Collateral, except as otherwise provided in this Agreement, acceptable to Bank. (f) No Material Adverse Change. Evidence satisfactory to the Bank that no material adverse change has occurred with respect to the Borrowers since March 31, 1996. (g) Licenses and Approvals. Copies of all licenses, approvals, consents, authorizations and filings of Borrowers, required or necessary for the operation by Borrowers of their business. (h) Other Documents. Such other documents as may be required to be submitted to Bank by the terms hereof or of any Loan Document. 13. CERTAIN CONDITIONS TO SUBSEQUENT ADVANCES. Without limiting Bank's discretion to make advances under the Line subsequent to the date hereof, subsequent advances shall be conditioned upon the following conditions and each request by Borrowers for an advance shall constitute a representation by Borrowers to Bank that each condition has been met or satisfied: 13.1. Representations and Warranties. All representations and warranties of Borrowers contained herein, other than those set forth in Sections 7.4. 7.5 and 7.6 or in the Loan Documents, shall be true at and as of the date of such advance as if made on such date, and each request for an advance shall constitute reaffirmation by Borrowers that such representations and warranties are then true. 13.2. No Default. No condition or event shall exist or have occurred at or as of the date of such advance which would constitute an Event of Default hereunder (or would, upon the giving of notice or the passage of time or both, constitute such an Event of Default). 13.3. Other Requirements. Bank shall have received all certificates, authorizations, affidavits, schedules and other documents which are provided for hereunder or under the Loan Documents, or which Bank may reasonably request. 14. DEFAULT AND REMEDIES. 14.1. Events of Default. The occurrence of any one or more of the following events shall constitute an Event or Events of Default hereunder: (a) The failure of Borrowers to pay any amount of principal or interest on the Line Note, Secured Subordinated Notes or any fee or other sums payable hereunder, or any other Bank Indebtedness within three (3) Business Days of the date on which such payment is due, whether on demand, at the stated -26- maturity or due date thereof, or by reason of any requirement for the prepayment thereof, by acceleration or otherwise; (b) The failure of Borrowers to duly perform or observe any obligation, covenant or agreement on their part contained herein or in any other Loan Document or any Secured Subordinated Note Document not otherwise specifically constituting an Event of Default under tills Section 14.1 and such failure continues unremedied for a period of thirty (30) days after the earlier of (i) notice from Bank to Borrowers of the existence of such failure, or (ii) any officer or principal of any Borrower knows or should have known of the existence of such failure, provided that, in the event such failure is incapable of remedy or consists of a default of any of the financial covenants in Section 9, or was wilfully caused or permitted by a Borrower, Borrowers shall not be entitled to any notice or grace hereunder; (c) The failure of any Borrower to pay any Indebtedness for borrowed money due to any third Person in an amount in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) or the existence of any other event of default under any loan agreement, security agreement, mortgage or other agreement pertaining to any such Indebtedness binding any Borrower, after the expiration of any notice and/or grace periods permitted in such documents; (d) The failure of any Borrower to pay or perform any other obligation to Bank under any other agreement or note or otherwise arising, whether or not related to this Agreement or any other Indebtedness Documents, after the expiration of any notice and/or grace periods permitted in such documents; (e) The adjudication of any Borrower as a bankrupt or insolvent, or the entry of an Order for Relief against any Borrower or the entry of an order appointing a receiver or trustee for any Borrower of any of its property or approving a petition seeking reorganization or other similar relief under the bankruptcy or other similar laws of the United States or any state or any other competent Jurisdiction; (f) A proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law is filed by or (unless dismissed within 90 days) against any Borrower or any Borrower makes an assignment for the benefit of creditors, or any Borrower takes any action to authorize any of the foregoing; (g) The suspension of the operation of any Borrower's present business, or any Borrower becoming unable to meet its debts as they mature, or the admission in writing by any Borrower to such effect, or any Borrower calling any meeting of all or any material portion of its creditors for the purpose of debt restructure; (h) All or any part of the Collateral or the assets of any Borrower are attached, seized, subjected to a writ or distress warrant, or levied upon, or come within the possession or control of any receiver, trustee, custodian or assignee for the benefit of creditors; (i) The entry of a final judgment for the payment of money against any Borrower which, within thirty (30) days after such entry, shall not have been discharged or execution thereof stayed pending appeal or shall not have been discharged within thirty (30) days after the expiration of any such stay; (j) Any representation or warranty of Borrowers in any of the Indebtedness Documents is discovered to be untrue in any material respect or any statement, certificate or data furnished by Borrowers -27- pursuant hereto is discovered to be untrue in any material respect as of the date as of which the facts therein set forth are stated or certified; (k) A Borrower voluntarily or involuntarily dissolves or is dissolved, terminates or is terminated; (l) Any Borrower is enjoined, restrained, or in any way prevented by the order of any court or any administrative or regulatory agency, the effect of which order restricts any Borrower from conducting all or any material part of its business, (m) A material and adverse change occurs in any of any Borrower's operations, management or financial condition or in the value of the Collateral; (n) Any uninsured damage to, or loss, theft, or destruction of, any of the Collateral occurs in an amount in excess of Five Hundred Thousand Dollars ($500,000.00); (o) Any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty loss occurs resulting in the cessation or substantial curtailment of production or other revenue producing activities at any facility of any Borrower for more than thirty (30) consecutive days; (p) Any change in the stock ownership of any Subsidiary, any issuance of stock, debentures, warrants or other securities of any Borrower which would cause a breach of Section 8.20 or any pledge of the stock of any Borrower other than National Media; (q) The validity or enforceability of this Agreement, or any of the Loan Documents, is contested by a Borrower; any stockholder of a Borrower; or any Borrower denies that it has any or any further liability or obligation hereunder or thereunder; or All time periods for notice, grace and cure provided in this Section 14.1 shall run concurrently with any notice, grace or cure periods provided for Borrowers' benefit under any of the Loan Documents or any of the Secured Subordinated Note Documents. 14.2. Remedies. At the option of the Bank,-upon the occurrence and during the continuance of an Event of Default, or at any time thereafter: (a) The entire unpaid principal of the Line, the Secured Subordinated Notes, all other Bank Indebtedness, or any part thereof, all interest accrued thereon, all fees due hereunder and all other obligations of Borrowers to Bank hereunder or under any other agreement, note or otherwise arising will become immediately due and payable without any further demand or notice. Bank agrees to provide written notice to Borrowers of its acceleration of the Bank Indebtedness pursuant to this provision; (b) The Line will immediately terminate and the Borrowers will receive no further extensions of credit thereunder; (c) Bank may increase the interest rate on the Line and the Secured Subordinated Note to the applicable default rate set forth herein, without notice (except as specifically required hereunder); (d) Bank may enter the premises occupied by any Borrower and take possession of the Collateral and any records relating thereto; and/or -28- (e) Bank may exercise each and every right and remedy granted to it under the Loan Documents, under the Uniform Commercial Code and under any other applicable law or at equity. If an Event of Default occurs under Section 14.1(e) or M, all Bank Indebtedness shall become immediately due and payable. 14.3. Sale or Other Disposition of Collateral. The sale, lease or other disposition of the Collateral, or any part thereof, by Bank after an Event of Default may be for cash, credit or any combination thereof, and Bank may purchase all or any part of the Collateral at public or, if permitted by law, private sale, and in lieu of actual payment of such purchase price, may set-off the amount of such purchase price against the Bank Indebtedness then owing. Any sales of the Collateral may be adjourned from time to time with or without notice. The Bank may cause the Collateral to remain on Borrowers' premises or otherwise or to be removed and stored at premises owned by other persons, at Borrowers' expense, pending sale or other disposition of the Collateral. Borrowers, at Bank's request, shall assemble the Collateral consisting of inventory and tangible assets and make such assets available to Bank at a place to be designated by Bank. Bank shall have the right to conduct such sales on Borrowers' premises, at Borrowers' expense, or elsewhere, on such occasion or occasions as Bank may see fit. Any notice required to be given by Bank of a sale, lease or other disposition or other intended action by Bank with respect to any of the Collateral which is deposited in the United States mail, postage prepaid and duly addressed to Borrowers at the address specified in Section 15.1 below, at least five (5) business days prior to such proposed action, shall constitute fair and reasonable notice to Borrowers of any such action. The net proceeds realized by Bank upon any such sale or other disposition, after deduction for the expenses of retaking, holding, storing, transporting, preparing for sale, selling or otherwise disposing of the Collateral incurred by Bank in connection therewith and other costs and expenses related thereto including attorney fees, shall be applied in such order as Bank, in its sole discretion, elects, toward satisfaction of the Bank indebtedness. Bank shall account to Borrowers for any surplus realized upon such sale or other disposition, and Borrowers shall remain liable for any deficiency. The commencement of any action, legal or equitable, or the rendering of any judgment or decree for any deficiency shall not affect Bank's security interest in the Collateral. Borrowers agree that Bank has no obligation to preserve rights to the Collateral against any other parties. Bank is hereby granted a license or other right to use, after an Event of Default, without charge, Borrowers' labels, general intangibles, intellectual property, equipment, real estate, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any inventory or other Collateral and Borrowers' rights under all contracts, licenses, approvals, permits, leases and franchise agreements shall inure to Bank's benefit. Bank shall be under no obligation to marshall any assets in favor of Borrowers or any other parry or against or in payment of any or all of the Bank Indebtedness. 14.4. Actions with Respect to Accounts. Borrowers hereby irrevocably make, constitute and appoint Bank (and any of Bank's designated officers, employees or agents) as their true and lawful attorney-in-fact, with full power of substitution, with power to sign its name and to take any of the following actions, in its name or the name of Bank, as Bank may determine, without notice to Borrowers and at Borrowers' expense: (a) Verify the validity and amount of or any other matter relating to the Collateral by mail, telephone, telecopy or otherwise; (b) Notify all account debtors that Borrowers' accounts have been assigned to Bank and that Bank has a security interest therein, provided that such notification shall only be given prior to the -29- occurrence of an Event of Default if notice is required to protect or perfect the Bank's security interests in the Collateral; (c) Upon the occurrence and during the continuation of an Event of Default direct all account debtors to make payment of all Borrowers' accounts directly to Bank and forward invoices directly to such account debtors; (d) Upon the occurrence and during continuation of an Event of Default take control in any manner of any cash or non-cash items of payment or proceeds of such accounts; (e) Upon the occurrence and during continuation of an Event of Default notify the United States Postal Service to change the address for delivery of mail addressed to any Borrower to such address as Bank may designate; (f) Upon the occurrence and during continuation of an Event of Default have access to any lockbox or postal boxes into which Borrowers' mail is deposited and receive, open and dispose of all mail addressed to any Borrower (any sums received pursuant to the exercise of the rights provided in Sections 14.4(a) through (f) above may, at Bank's option, be deposited in the cash collateral account provided for herein); (g) Upon the occurrence and during continuation of an Event of Default take control in any manner of any rejected, returned, stopped in transit or repossessed goods relating to any accounts; (h) Upon the occurrence and during continuation of an Event of Default, enforce payment of and collect any accounts, by legal proceedings or otherwise, and for such purpose Bank may: (i) Demand payment of any accounts or direct any account debtors to make payment of accounts directly to Bank; (ii) Receive and collect all monies due or to become due to any Borrower; (iii) Exercise all of Borrowers' rights and remedies with respect to the collection of accounts; (iv) Settle, adjust, compromise, extend, renew, discharge or release the accounts; (v) Sell or assign the accounts on such terms, for such amount and at such times as Bank deems advisable; (vi) Prepare, file and sign Borrowers' name or names on any Proof of Claim or similar document in any proceeding filed under federal or state bankruptcy, insolvency, reorganization or other similar law as to any account debtor; (vii) Prepare, file and sign Borrowers' name or names on any Notice of Lien, Claim of Mechanic's Lien, Assignment or Satisfaction of Lien or Mechanic's Lien or similar document in connection with the Collateral; -30- (viii) Endorse the name of any Borrower upon any chattel papers, documents, instruments, invoices, freight bills, bills of lading or similar documents or agreements relating to the accounts or goods pertaining thereto or upon any checks or other media of payment or evidences of a security interest that may come into Bank's possession; (ix) Sign the name of any Borrower to verifications of accounts and notices thereof sent by account debtors to Borrowers; or (x) Take all other actions necessary or desirable to protect Borrowers' or Bank's interest in the accounts. Borrowers ratify and approve all acts of said attorneys and agrees that said attorneys shall not be liable for any acts of cornmission or omission, nor for any error of judgment or mistake of fact or law, except willful misconduct. This power, being coupled with an interest, is irrevocable. Borrowers agree to assist the Bank in the collection and enforcement of its accounts and not to hinder, delay or impede the Bank in its collection or enforcement of said accounts. 14.5. Set-Off. Without limiting the rights of Bank under applicable law, Bank has and may exercise a right of set-off, a lien against and a security interest in all property of Borrowers now or at any time in Bank's possession in any capacity whatsoever, including but not limited to any balance of any deposit, trust or agency account, or any other bank account with Bank, as security for all Bank Indebtedness. At any time and from time to time following the occurrence of an Event of Default, or an event which with the giving of notice or passage of time or both would constinite an Event of Default, Bank may without notice or demand, set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by Bank to or for the credit of Borrowers against any or all of the Bank Indebtedness and the Borrowers' obligations under the Loan Documents. If any bank account of any Borrower with Bank is attached or otherwise liened or levied upon by any third party, Bank need not await the running of any applicable grace period hereunder, but Bank shall have and be deemed to have the immediate right of set-off and may apply the funds or amount thus set-off against Borrowers obligations to the Bank. 14.6. Delay or Omission Not Waiver. Neither the failure nor any delay on the part of Bank to exercise any right, remedy, power or privilege under the Loan Documents upon the occurrence of any Event of Default or otherwise shall operate as a waiver thereof or impair any such right, remedy, power or privilege. No waiver of any Event of Default shall affect any later Event of Default or shall impair any rights of Bank. No single, partial or full exercise of any rights, remedies, powers and privileges by the Bank shall preclude ftu-ther or other exercise thereof. No course of dealing between Bank and Borrowers shall operate as or be deemed to constitute a waiver of Bank's rights under the Loan Documents or affect the duties or obligations of Borrowers. 14.7. Remedies Cumulative; Consents. The rights, remedies, powers and privileges provided for herein shall not be deemed exclusive, but shall be cumulative and shall be in addition to all other rights, remedies, powers and privileges in Bank's favor at law or in equity. Whenever the Bank's consent or approval is required or permitted, such consent or approval shall be at the sole and absolute discretion of Bank. 14.8. Certain Fees, Costs, Expenses and Expenditures. Borrowers agree to pay on demand all costs and expenses of Bank, including without limitation: -31- (a) all costs and expenses in connection with the preparation, review, negotiation, execution and delivery of the Indebtedness Documents, and the other documents to be delivered in connection therewith, or any amendments, extensions and increases to any of the foregoing (including, without limitation, reasonable attorney's fees and expenses, and the cost of appraisals and reappraisals of Collateral performed after the occurrence or during the continuation of an Event of Default), and the cost of periodic lien searches and tax clearance certificates, as Bank deems advisable; (b) all losses, costs and expenses in connection with the enforcement, protection and preservation of the Bank's rights or remedies under the Indebtedness Documents, or any other agreement relating to any Bank Indebtedness, or in connection with legal advice relating to the rights or responsibilities of Bank (including without limitation court costs, attorney's fees and expenses of accountants and appraisers); and (c) any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of the Indebtedness Documents, and all liabilities to which Bank may become subject as the result of delay in paying or omission to pay such taxes. In the event Borrowers shall fail after written notice form the Bank to pay taxes, insurance, assessments, costs or expenses which it is required to pay hereunder, or fails to keep the Collateral free from security interests or lien (except as expressly permitted herein), or fails to maintain or repair the Collateral as required hereby, or otherwise breaches any obligations under the Indebtedness Documents, Bank in its discretion, may make expenditures for such purposes and the amount so expended (including reasonable attorney's fees and expenses, filing fees and other charges) shall be payable by Borrowers on demand and shall constitute part of the Bank Indebtedness. Nothing contained in this provision shall preclude the Bank from taking any immediate action it deems necessary to preserve and protect its interest in the Collateral. Borrowers agree to pay the costs and expenses incurred by the Bank associated with any such immediate action. With respect to any amount required to be paid by Borrowers under this Section, in the event Borrowers fail to pay such amount on demand, Borrowers shall also pay to Bank interest thereon at the default rate set forth in Section 4.2 for the Line. Borrowers' obligations under this Section shall survive termination of this Agreement. 14.9. Time is of the Essence. Time is of the essence in Borrowers' performance of its obligations under the Loan Documents. 14.10. Acknowledgement of Confession of Judgment Provisions. BORROWERS ACKNOWLEDGE AND AGREE THAT THE NOTE AND THE LOAN DOCUMENTS CONTAIN PROVISIONS WHEREBY BANK MAY ENTER JUDGMENT BY CONFESSION AGAINST BORROWERS. BEING FULLY AWARE OF THEIR RIGHTS TO PRIOR NOTICE AND HEARING ON THE QUESTION OF THE VALIDITY OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST THEM BY BANK UNDER THE NOTE AND LOAN DOCUMENTS, BEFORE JUDGMENT CAN BE ENTERED, BORROWERS HEREBY WAIVE THESE RIGHTS AND AGREE AND CONSENT TO BANK ENTERING JUDGMENT AGAINST BORROWERS BY CONFESSION. ANY PROVISION IN A CONFESSION OF JUDGMENT IN ANY OF THE LOAN DOCUMENTS FOR AN ATTORNEY'S COLLECTION COMMISSION SHALL IN NO WAY LIMIT BORROWERS' LIABILITY TO REIMBURSE BANK FOR ALL LEGAL FEES ACTUALLY INCURRED BY BANK, EVEN IF SUCH FEES ARE IN EXCESS OF THE ATTORNEY'S COLLECTION COMMISSION PROVIDED FOR IN SUCH CONFESSION OF JUDGMENT. -32- 15. COMMUNICATIONS AND NOTICES. 15.1. Communications and Notices. All notices, requests and other communications made or given in connection with the Loan Documents shall be in writing and, unless receipt is stated herein to be required, shall be deemed to have been validly given if delivered personally to the individual or division or department to whose attention notices to a party are to be addressed, or by private carrier, or registered or certified mail, return receipt requested, or by telecopy with the original forwarded by first-class mail, in all cases, with charges prepaid, addressed as follows, until some other address (or individual or division or department for attention) shall have been designated by notice given by one party to the other: To Borrowers: National Media Corporation 1700 Market Street Philadelphia, PA 19103 Attention: James Gallagher, Chief Financial Officer Telecopy Number: (215) 772-5038 With a copy to: Klehr, Harrison, Harvey, Branzburg, & Ellers 1401 Walnut Street Philadelphia, PA 19102 Attention: Richard Roisman, Esquire Telecopy Number: (215) 568-6603 To Bank: Meridian Bank Great Valley Corporate Center, Suite 200 55 Valley Stream Parkway Malvern, PA 19355 Attention: Ash R. Lilani, Banking Officer Telecopy Number: (610) 251-5929 With a copy to: Lesser & Kaplin,P.C. 350 Sentry Parkway, Building 640 Blue Bell, Pennsylvania 19422 Attention: Sara Lee Keller-Smith, Esquire Telecopy Number: (610) 828-1555/0461 16. DEFINITIONS. The following words and phrases as used in capitalized form in this Agreement, whether in the singular or plural, shall have the meanings indicated: 16.1. "Accounting Terms", as used in this Agreement, or any certificate, report or other document made or delivered pursuant to this Agreement, accounting terms not defined elsewhere in this Agreement shall have the respective meanings given to them under GAAP. -33- 16.2. "Affiliate", as to any Person, means each other Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person in question. 16.3. "Bank Indebtedness" shall mean all obligations and Indebtedness of Borrowers to Bank, whether now or hereafter owing or existing, including, without limitation, all obligations under the Indebtedness Documents, all Foreign Exchange Contract Risk incurred by Bank for the benefit of Borrowers, all obligations to reimburse Bank for payments made by Bank pursuant to any letter of credit issued for the account or benefit of Borrowers by Bank all other obligations or undertakings now or hereafter made by or for the benefit of Borrowers to or for the benefit of Bank under any other agreement, promissory note or undertaking now existing or hereafter entered into by Borrowers with Bank, including, without limitation, all obligations of Borrowers to Bank under any guaranty or surety agreement and all obligations of Borrowers to immediately pay to Bank the amount of any overdraft on any deposit account maintained with Bank, together with all interest and other sums payable in connection with any of the foregoing. 16.4. "Barclays Lien" means those certain security interests, liens and pledges given by Quantum and the foreign Subsidiaries of National Media, Media Arts and Quantum to Barcilays Bank PLC to secure the Barclays Loan. 16.5. "Barclays Loan" means that certain overdraft line extended by Barclays Bank PLC to Quantum in an aggregate amount not to exceed One Million Dollars ($1,000,000.00). 16.6. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in Philadelphia, Pennsylvania are authorized by law to close. 16.7. "Capital Expenditures" means any expenditure that would be classified as a capital expenditure on a statement of cash flow of Borrowers prepared in accordance with GAAP. 16.8. "Capitalized Leases" means all-lease obligations which have been or should be, in accordance with GAAP, capitalized on the books of the lessee. 16.9. "Capitalized Lease Obligations" means all amounts payable with respect to a Capitalized Lease. 16.10. "Commercial Rate Loans" means loans and advances extended by Bank to Borrowers under the Line bearing interest at the National Commercial Rate. 16.11. "Corporation" means a corporation, partnership, trust, unincorporated organization, association or joint stock company. 16.12. "Current Assets" at a particular date means the aggregate amount of all assets of Borrowers which would be classified as current assets on a balance sheet at such date, in accordance with GAAP. 16.13. "Current Liabilities" at a particular date means the liabilities (including tax and other proper accruals) of Borrowers which would be included as current liabilities on a balance sheet of Borrowers at such date, in accordance with GAAP. 16.14. "EUMA" for any period, means earnings of Borrowers for such period, plus the aggregate amounts deducted in determining such earnings in respect of (i) interest payable on Indebtedness of -34- Borrowers for such period, (ii) income taxes for period, and (iii) depreciation and amortization for such period, each determined in accordance with GAAP. 16.15. "Environmental Afriliate" means Borrowers and any other Person for whom Borrowers at any time has any liability (contingent or otherwise) with respect to any claims arising out of the failure of Borrowers or such Person to comply with all applicable Environmental Requirements. 16.16. "Event of Default" means each of the events specified in Section 14.1. 16.17. "Foreign Exchange Agreerment" means that certain International Foreign Exchange Master Agreement dated April 19, 1996 by and between Borrowers and CoreStates Bank, N.A. 16.18. "Foreign Exchange Contract Risk" means, as to any issuer, as follows: (a) a twenty percent (20%) market risk reserve of the total dollar value of all outstanding foreign currency forward contracts between that issuer and Borrowers; provided that the Gross Foreign Exchange Contract Risk shall not exceed Fifty Million Dollars ($50,000,000.00) at any time, and (b) a one hundred percent (100%) delivery risk reserve for the total dollar value of each foreign currency forward contracts or foreign currency spot contracts; provided that the issuer's delivery risk on any one forward or spot contract shall not exceed Ten Million Dollars ($10,000,000.00) and all issuers will not deliver on any one day forward and/or spot contracts with an aggregate value in excess of Ten Million Dollars ($10,000,000.00). 16.19. "GAAP" means generally accepted accounting principles in the United States of America, in effect from time to time, consistently applied and maintained. 16.20. "Gross Foreizn Exchanee Contract Risk" means the total dollar value of all outstanding foreign currency contracts between all issuers and Borrowers. 16.21. "Indebtedness", as applied to a Person, means: (a) all items (except items of capital stock or of surplus) which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as at the date as of which Indebtedness is to be determined; (b) to the extent not included in the foregoing, all indebtedness, obligations, and liabilities secured by any mortgage, pledge, lien, conditional sale or other title retention agreement or other security interest to which any property or asset owned or held by such Person is subject, whether or not the indebtedness, obligations or liabilities secured thereby shall have been assumed by such Person; and (c) to the extent not included in the foregoing, all indebtedness, obligations and liabilities of others which such Person has directly or indirectly guaranteed, endorsed (other than for collection or deposit in the ordinary course of business), sold with recourse, or agreed (contingently or otherwise) to purchase or repurchase or otherwise acquire or in respect of which such Person has agreed to supply or advance funds (whether by way of loan, stock purchase, capital contribution or otherwise) or otherwise to become directly or indirectly liable. -35- 16.22. "Indebtedness Documents" means all the Loan Documents, all Secured Subordinated Note Documents and the Foreign Exchange Agreement. 16.23. "LIBOR Loans" means loans and advances extended by Bank to Borrowers under the Line bearing interest at the LIBOR Rate. 16.24. "LIBOR Rate" means for any day during each Rate Period the per annum rate of interest (computed on a basis of a year of 360 days and actual days elapsed) determined by Bank by adding (a) the per annum rate of interest estimated in good faith by Bank in accordance with its usual procedures (which determination shall be conclusive) to be the average of the rate per annum for deposits, in an amount of U.S. Dollars comparable to the amount of principal relating to such Rate Period and having maturities comparable to such Rate Period, offered to major money center banks in the London interbank market at or about 11:00 a.m., London time, two London business days prior to such Rate Period, and (b) one and one-quarter percent (1 1/4 %). In the event that the LIBOR Rate is unavailable or cannot be ascertained, Bank shall have the right to designate the LIBOR Rate on such basis as it shall reasonably determine. 16.25. "Line Amount" shall mean Twenty Million Dollars ($20,000,000.00); provided however, that if Borrowers fail to consummate the Secondary Offering on or before December 31, 1996, the Line Amount shall automatically reduce to Fifteen Million Dollars ($15,000,000.00). 16.26 "Loan Documents" means this Agreement, the Existing Loan Agreement, the Line Note, and all other documents, executed or delivered by Borrowers pursuant to this Agreement or the Existing Loan Agreement, as they may be amended from time to time. 16.27. "Media Consolidated" shall have the meaning set forth in Paragraph A of the Background. 16.28. "National Commercial Rate" means a floating annual rate of interest that is designated from time to time by the Bank as the National Commercial Rate and is used by the Bank as a reference base with respect to different interest rates charged to borrowers. The Bank's determination and designation from time to time of the National Commercial Rate shall not in any way preclude the Bank from making loans to other borrowers at a rate which is higher or lower than or different from the National Commercial Rate. 16.29. "Note and Purchase Agreement" shall have the meaning set forth in Paragraph A of the Background. 16.30. "Note Pledze Documents" means those certain Pledge Agreements dated October 19, 1994 given by National Media and Media Arts to Safeguard, as assigned to Bank pursuant to the Purchase Agreement, together with all blank stock powers, original stock certificates and any other documents and agreements executed and/or delivered in connection with any of the foregoing, as the same may be amended from time to time. 16.31. "Note Security Documents" means those certain Security Agreements and Trademark Security Agreements dated October 19, 1994 given by National Media and Media Arts to Safeguard and that certain Copyright Collateral Assignment and Agreement dated October 19, 1994 given by Media Arts to Safeguard, all as assigned to Bank pursuant to the Purchase Agreement, together with all UCC-1 financing statements, UCC-3 assignment statements and any other documents and agreements executed and/or delivered in connection with any of the foregoing, as the same may be amended from time to time. -36- 16.32. "Notification" means telephonic notice (which shall be irrevocable) by Borrowers to Bank that Borrowers have requested that LIBOR Rate or the Certificate Rate shall apply to some portion of the principal amount of the Line in accordance with the provisions of Section 3.1 hereof, which notice shall be given no later than 10:00 a.m. Philadelphia time, on the day which at least two (2) Business Days prior to the day (for LIBOR Loans) or the day (for Certificate Rate Loans) (which shall be a day on which Bank is open for business) on which such election is to become effective, which notice shall specify (a) which interest rate option is selected; (b) the principal amount of the Line to be subject to such rate(s); (c) whether such amount is a new advance, a renewal of a previous request of such rate, a conversion from one interest rate to another, or a combination thereof; (d) the Rate Period(s) (if required) selected; and (e) the date on which such request is to become effective. 16.33. "Person" means an individual, a Corporation or a government or any agency or subdivision thereof, or any other entity. 16.34. "Prestige Group" shall have the meaning set forth in Section 8.7 hereof. 16.35. "Purchase Agreement" shall have the meaning set forth in Paragraph C of the Background. 16.36. "Rate Period" in eans for any portion of principal of the Line for which Borrowers elect the LIBOR Rate, the period of time for which such rate shall apply to such principal portion. Rate Periods for principal earning interest at the LIBOR Rate shall be for periods of 30, 60 or 90 days, and for no other lengths of time, provided that, no Rate Period may end after the Contract Period. 16.37. "Safeguard" shall have the meaning set forth in Paragraph A of the Background. 16.38. "Secondary Offering" means a certain proposed public offering for sale by National Media of its stock to occur between the date of this Agreement and December 31, 1996, pursuant to which National Media will attempt to raise at least Twenty Million Dollars ($20,000,000.00) of additional capital. 16.39. "Secured Subordinated Notes Documents" means the Note and Purchase Agreement, the Secured Subordinated Notes, the Note Security Documents, the Note Pledge Agreements and any other documents and agreements executed and/or delivered in connection with any of the foregoing, as the same may be amended from time to time. 16.40. "Secured Subordinated Notes" shall have the meaning set forth in Paragraph A of the Background. 16.41. "Subsidiary" means a Corporation (a) which is organized under the laws of the United States or any State thereof, or any other county or jurisdiction, (b) which conducts substantially all of its business and has substantially all of its assets within the United States, and (c) of which more than fifty percent (50%) of its outstanding voting stock of every class (or other voting equity interest) is owned by Borrowers or one or more of their Subsidiaries. 16.42. "Tangible Net Worth", as applied to Borrowers means the remainder after deducting from the sum of all assets (net of reserve for uncollectible accounts, depreciation, amortization, obsolescence and the like) properly appearing on a balance sheet of Borrowers prepared in accordance with GAAP, the following: -37- (a) all Indebtedness of Borrowers; and (b) to the extent reflected as an asset in such balance sheet, (i) the book amount of all assets which would be treated as intangibles under GAAP, including without limitation such items as organizational costs (as currently reflected on Borrowers' financial statements), goodwill. trademarks, trade names, service marks, brand names, franchises, copyrights, patents, licenses and rights with respect to the foregoing, and specifically excluding leasehold improvements and unamortized debt discount and expense, (H) all deferred charges (excluding deferred charges related to show production, media, telemarketing and income taxes), (iii) any write-up in the book value of any asset resulting from a re-evaluation thereof subsequent to the acquisition thereof (except writeups to actual value specifically approved by Bank), (iv) the amount, if any, at which securities (other than Indebtedness in good standing) of any Person which is not readily marketable appear on the asset side of such balance sheet, (v) the amount, if any, at which inventories or securities appearing on the asset side of such balance sheet exceed the lower of cost or current market value thereof or the price at which such Person has agreed to sell such inventories or securities on an aggregate basis, (vi) the book amount of any asset which is subject to pledge, lien, encumbrance or charge (including any escrow or similar deposit) to secure the payment of any obligation or indemnity to the extent that the amount of such obligation or indemnity does not constitute Indebtedness of Borrowers or to the extent that the amount of such obligation or indemnity cannot be ascertained and (vii) loans and notes payable due to Borrowers from Affiliates, directors or officers of Borrowers. 16.43. "Working Capital" as applied to Borrowers means the amount, as of the date of determination thereof, equal to the difference between the aggregate Current Assets and the aggregate Current Liabilities (including without limitation all accrued dividends) of any Person, determined in accordance with GAAP. 16.44. "Working Capital Ratio" as applied to Borrowers means the ratio, as of the date of determination thereof, of (a) the sum of (i) cash, plus (ii) accounts receivables, plus (iii) inventory, plus (iv) prepaid media, over (b) the sum of (i) the Bank Indebtedness (excluding any of Bank's Foreign Exchange Contract Risk) then outstanding, plus (ii) twenty percent (20%) of the Bank's committed Foreign Exchange Contract Risk." 17. WAIVERS. 17.1. Waivers. In connection with any proceedings under the Indebtedness Documents, including without limitation any action by Bank in replevin, foreclosure or other court process or in connection with any other action related to the Indebtedness Documents or the transactions contemplated hereunder, Borrowers waive: (a) all procedural errors, defects and imperfections in such proceedings; (b) all benefits under any present or future laws exempting any property, real or personal, or any part of any proceeds thereof from attachment, levy or sale under execution, or providing for any stay of execution to be issued on any judgment recovered under any of the Indebtedness Documents or in any replevin or foreclosure proceeding, or otherwise providing for any valuation, appraisal or exemption; -38- (c) all rights to inquisition on any real estate, which real estate max be levied upon pursuant to ajudgment obtained under any of the Indebtedness Documents and sold upon any writ of execution issued thereon in whole or in part, in any order desired by Bank; (d) presentment for payment, demand, notice of demand, notice of nonpayment, protest and notice of protest of any of the Indebtedness Documents, including the Note; (e) any requirement for bonds, security or sureties required by statute, court rule or otherwise; (f) any demand for possession of Collateral prior to commencement of any suit; and (g) all rights to claim or recover attorney's fees and costs in the event that Borrowers are successful in any action to remove, suspend or enforce a judgment entered by confession. 17.2. Forbearance. Bank may release, compromise, forbear with respect to, waive, suspend, extend or renew any of the terms of the Loan Documents, without notice to Borrowers. 17.3. Limitation on Liability. Borrowers shall be responsible for and Bank is hereby released from any claim or liability in connection with: (a) Safekeeping any Collateral; (b) Any loss or damage to any Collateral; (c) Any diminution in value of the Collateral; or (d) Any act or default of another Person. Bank shall only be liable for any act or omission on its part constituting wilful misconduct. In the event that Bank breaches its required standard of conduct, Borrowers agrees that their liability shall be only for direct damages suffered and shall not extend to consequential or incidental damages. In the event Borrowers bring suit against Bank in connection with the transactions contemplated hereunder and Bank is found not to be liable, Borrowers will indemnify and hold Bank harmless from all costs and expenses, including attorney's fees, incurred by Bank in connection with such suit. This Agreement is not intended to obligate Bank to take any action with respect to the Collateral or to incur expenses or perform any obligation or duty of Borrowers. 18. SUBMISSION TO JURISDICTION. 18.1. Submission to Jurisdiction. Borrowers hereby consent to the exclusive jurisdiction of any state or federal court located within the Commonwealth of Pennsylvania, and irrevocably agrees that, subject to the Bank's election, all actions or proceedings relating to the Indebtedness Documents or the transactions contemplated hereunder shall be litigated in such courts, and Borrowers waive any objection which they may have based on lack of personal Jurisdiction, improper venue or forum non conveniens to the conduct of any proceeding in any such court and waives personal service of any and all process upon them, and consents that all such service of process be made by mail or messenger directed to them at the address set forth in Section 15.1. Borrowers hereby irrevocably appoint Marshall Fleisher as their agent for the purpose of accepting service of any process within the Commonwealth of Pennsylvania. Nothing contained in this -39- Section 18.1 shall affect the right of Bank to serve legal process in any other manner permitted by law or affect the right of Bank to bring any action or proceeding against Borrowers or their property in the courts of any other jurisdiction. 19. MISCELLANEOUS. 19.1. Brokers. The transaction contemplated hereunder was brought about and entered into by Bank and Borrowers acting as principals and without any brokers, agents or finders being the effective procuring cause hereof. Borrowers represent to Bank that Borrowers have not committed Bank to the payment of any brokerage fee or commission in connection with this transaction. Whether any such claim is made against Bank by any broker, finder or agent or any other Person, Borrowers agree to indemnify, defend and hold Bank harmless against any such claim, at Borrowers' own cost and expense, including Bank's attorneys' fees. Borrowers farther agree that until any such claim or demand is adjudicated in Bank's favor, the amount claimed and/or demanded shall be deemed part of the Bank Indebtedness secured by the Collateral. 19.2. Use of Bank's Name. No Borrower shall use Bank's name or the name of any of Bank's Affiliates in connection with any of its business or activities except as may otherwise be required by the rules and regulations of the Securities and Exchange Commission or any like regulatory body and except as may be required in its dealings with any governmental agency. 19.3. No Joint Venture. Nothing contained herein is intended to permit or authorize Borrowers to make any contract on behalf of Bank, nor shall this Agreement be construed as creating a partnership, joint venture or making Bank an investor in Borrowers. 19.4. Survival. All covenants, agreements, representations and warranties made by Borrowers 'in the Loan Documents or made by or on its behalf in connection with the transactions contemplated here shall be true at all times this Agreement is in effect and shall survive the execution and delivery of the Loan Documents, any investigation at any time made by Bank or on its behalf and the making by Bank of the loans or advances to Borrowers. All statements contained in any certificate, statement or other document delivered by or on behalf of Borrowers pursuant hereto or in connection with the transactions contemplated hereunder shall be deemed representations and warranties by Borrowers. 19.5. No Assignment by Borrower. No Borrower may assign any of its rights hereunder without the prior written consent of Bank, and Bank shall not be required to lend hereunder except to Borrowers as they presently exist. 19.6. Assignment or Sale by Bank. Bank may sell, assign or participate all or a portion of its interest in the Indebtedness Documents and in connection therewith may make available to any prospective purchaser, assignee or participant any information relative to Borrowers in its possession. 19.7. Binding Effect. This Agreement and all rights and powers granted hereby will bind and inure to the benefit of the parties hereto and their respective permitted successors and assigns. 19.8. Severability. The provisions of this Agreement and all other Indebtedness Documents are deemed to be severable, and the invalidity or unenforceability of any provision shall not affect or impair the remaining provisions which shall continue in Ml force and effect. 19.9. No Third Party Beneficiaries. The rights and benefits of this Agreement and the Indebtedness Documents shall not inure to the benefit of any third party. -40- 19.10. Modifications. No modification of this Agreement or any of the Indebtedness Documents shall be binding or enforceable unless in writing and signed by or on behalf of the party against whom enforcement is sought. 19.11. Holidays. If the day provided herein for the payment of any amount or the taking of any action falls on a Saturday, Sunday or public holiday at the place for payment or action, then the due date for such payment or action will be the next succeeding Business Day. 19.12. Law Governing. This Agreement has been made, executed and delivered in the Commonwealth of Pennsylvania and will be construed in accordance with and governed by the laws of such Commonwealth. 19.13. Integration. The Indebtedness Documents shall be construed as integrated and complementary of each other, and as augmenting and not restricting Bank's rights, powers, remedies and security. The Indebtedness Documents contain the entire understanding of the parties thereto with respect to the matters contained therein and supersede all prior agreements and understandings between the parties with respect to the subject matter thereof and do not require parol or extrinsic evidence in order to reflect the intent of the parties. In the event of any inconsistency between the terms of this Agreement and the terms of the other Indebtedness Documents, the terms of this Agreement shall prevail. 19.14. Exhibits and Schedules. All exhibits and schedules attached hereto are hereby made a part of this Agreement. 19.15. Headings. The headings of the Articles, Sections, paragraphs and clauses of this Agreement are inserted for convenience only and shall not be deemed to constinite a part of this Agreement. 19.16. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. 19.17. Joint and Several Liability. If there is more than one Borrower, all agreements, conditions, covenants and provisions of the Loan Documents shall be the joint and several obligation of each Borrower. 19.18. Restatement. This Agreement amends and restates, but does not satisfy or repay, the obligations of the Borrowers as set forth in the Existing Loan Agreement. All references in the Indebtedness Documents to the "Loan Agreement" are hereby deemed to refer to this Agreement. 19.19. Waiver of Right to Trial by Jury. BORROWERS AND BANK WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER ANY OF THE INDEBTEDNESS DOCUMENTS OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF BORROWERS OR BANK WITH RESPECT TO ANY OF THE INDEBTEDNESS DOCUMEENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. BORROWERS AND BANK AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMEENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF BORROWERS AND BANK TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. BORROWERS ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL -41- REGARDING THIS SECTION, THAT THEY FULLY UNDERSTAND THEIR TERMS, CONTENT AND EFFECT, AND THAT THEY VOLUNTARILY AND KNOWINGLY AGREE TO THE TERMS OF THIS SECTION. -42- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. NATIONAL MEDIA CORPORATION By: /s/ Constantinos I. Costalas ----------------------------------------- Constantinos I. Costalas, Vice Chairman (CORPORATE SEAL) QUANTUM NORTH AMERICA, INC. By: /s/ John J. Sullivan ----------------------------------------- John J. Sullivan, Treasurer (CORPORATE SEAL) QUANTUM INTERNATIONAL LIMITED By: /s/ John J. Sullivan ----------------------------------------- John J. Sullivan, Treasurer (CORPORATE SEAL) POSITIVE RESPONSE TELEVISION, INC. By: /s/ Constantinos I. Costalas ----------------------------------------- Constantinos I. Costalas, Vice President (CORPORATE SEAL) DIRECTAMERICA CORPORATION By: /s/ Constantinos I. Costalas ----------------------------------------- Constantinos I. Costalas, Vice President (CORPORATE SEAL) MERIDIAN BANK By: /s/ Ash Lilani ----------------------------------------- Ash R. Lilani, Banking Officer (CORPORATE SEAL) -43- EX-10 7 EXHIBIT 10.5 EXHIBIT 10.5 LOAN MODIFICATION AGREEMENT This Loan Modification Agreement ("Modification Agreement") is made this 18th day of September, 1997, by and between NATIONAL MEDIA CORPORATION ("National Media"), QUANTUM NORTH AMERICA, INC. (formerly known as MEDIA ARTS INTERNATIONAL, LTD.) ("Quantum"), QUANTUM INTERNATIONAL LIMITED ("Quantum International"), POSITIVE RESPONSE TELEVISION, INC. and DIRECTAMERICA CORPORATION (severally called "Borrower" and collectively called the "Borrowers"), and CORESTATES BANK, N.A.("Bank"). BACKGROUND A. Borrowers are indebted to Bank with respect to a certain Line of Credit (the "Line") and pursuant to certain Secured Subordinated Notes (the "Term Notes"), all as more fully described in a certain Amended and Restated Loan and Security Agreement ("Loan Agreement") dated as of June 26, 1996 among Borrowers and Meridian Bank ("Meridian"). Meridian has been merged into Bank which thereby succeeded to the rights and interest of Meridian with respect to its financing arrangements with Borrowers and to all loans, liens, instruments, agreements and documents related thereto. B. For the purposes hereof, the Loan Agreement and all instruments, agreements and documents relating thereto or otherwise reflecting or related to financing arrangements between Bank and Borrowers, or any of them, are hereinafter collectively referred to as the "Loan Documents" and the outstanding advances under the Line and the unpaid balance under the Tenn Notes shall be collectively referred to as the "Loans". Capitalized terms used but not otherwise defined in this Modification Agreement shall have the respective meanings ascribed thereto in the Loan Agreement. C. The parties have agreed pursuant to the terms and conditions of this Modification Agreement to modify certain terms and conditions of their financing arrangements and the Loan Documents. NOW, THEREFORE, for the foregoing background incorporated by reference herein and made part hereof, the parties hereto, intending to be legally bound, promise and agree as follows: 1 . Borrowers hereby unconditionally acknowledge and agree that (a) the present outstanding principal balance of cash advances under the Line is $19,000,000 and the present aggregate face amount of the outstanding standby letter of credit is $475,000, (b) the present outstanding principal -1- balance under the Term Notes is $4,000,000, and (c) interest as set forth in the Loan Documents has accrued and is outstanding from September 1, 1997, and (d) all of the foregoing obligations described in clauses (a) through (c) above are owing without defense, offset, deduction, or counterclaim. 2. (a) The "Contract Period" of the Line is hereby extended from September 30, 1997 to December 31, 1998 ('Maturity Date"). The entire unpaid principal balance under the Line (unless sooner accelerated following the occurrence of an Event of Default) shall be due and payable on the Maturity Date, without further notice or demand. (b) The maximum outstanding amount of cash advances under the Line shall not at any one time exceed $19,000,000; the maximum face amount of outstanding standby letters of credit shall not exceed $475,000 in the aggregate at any time and the maximum face amount of outstanding commercial letters of credit shall not exceed $5,000,000 in the aggregate at any time; and the maximum outstanding amount of cash advances under the Line together with the maximum face amount of outstanding letters of credit shall not at any one time exceed, in the aggregate, $19,475,000. No letter of credit now or hereafter outstanding shall have an expiry date later than the Maturity Date. If no Event of Default is outstanding and subject to the terms hereof, including without limitation the foregoing limits and the provisions of paragraph 11 hereof, Borrowers may repay and reborrow advances under the Line. No bankers' acceptances shall hereafter be issued or made available by Bank on behalf of Borrowers. 3. Installment payments in the following amounts shall be made on the Term Notes (unless such Term Notes are sooner accelerated following the occurrence of an Event of Default): $50,000 on the first day of each month from December, 1997 through March, 1998; $800,000 on April 1, 1998; and $ 1,000,000 on December 1 of each of 1998, 1999 and 2000. Prepayment of the Term Notes may be made at any time, but applied in the inverse order of the due date of unpaid installments (balloon payment first). 4. (a) The interest rate on the Loans shall, as of the date hereof, be increased to and accrue at 300 basis points ("Contract Rate Margin") in excess of the prime rate ("Prime Rate") of Bank (that rate designated by Bank from time to time as its prime or reference rate but which rate is not necessarily the best or lowest rate available to its customers or any particular customer). Interest shall be paid monthly on the first day of each month through May 31, 1998 at the rate of 150 basis points ("Pay Rate Margin") in excess of the Prime Rate. The remaining interest of 150 basis points (such aggregate accrued and unpaid interest referred to as the "Accrued Interest") shall be accrued and paid on the earlier of (i) the first day of each month from June, 1998 through December, 1998 in equal installments each in the amount of 1/7th of the Accrued Interest, (ii) the date the Bank Indebtedness is accelerated, or (iii) the date the Loans are sooner paid in full. As of and after June 1, 1998, interest shall be paid monthly on the first day of each month at a rate equal to the Prime Rate plus the Contract Rate Margin. No portion of the Loans shall hereafter accrue interest at a LIBOR based rate. Upon the occurrence of a Rate Triggering Event (as defined in paragraph 4(b) below), and during the continuance thereof, (any rate change to be effective as of the first day of the -2- month following the month for which financial statements are provided, regardless of when such statements are actually delivered to Bank) the Contract Rate Margin and the Pay Rate Margin shall each be increased by 100 basis points. Nothing herein contained shall replace, eliminate, impair or otherwise alter provisions in the Loan Documents providing for a default rate of interest. (b) A "Rate Triggering Event" shall mean Borrowers' failure to achieve or maintain any of the following: (i) Borrowers' failure to have a consolidated Tangible Net Worth of at least $18,000,000 as of September 30,1997 and from December 31, 1997 through March 30, 1998; $20,000,000 from March 31, 1998 through June 29, 1998; $25,000,000 from June 30, 1998 through September 29, 1998; $30,000,000 from September 30, 1998 through December 30, 1998; and $35,000,000 thereafter. (ii) Borrowers' failure to have a consolidated Working Capital of at least $10,000,000 as of September 30, 1997 and from December 31, 1997 through March 31, 1998; $15,000,000 from April 1, 1998 through June 30, 1998; $20,000,000 from July 1, 1998 through December 30, 1998; and $25,000,000 thereafter. (iii) Borrowers' failure to have a ratio of Indebtedness (excluding foreign exchange obligations) to Tangible Net Worth of equal to or less than 3.5 to 1 as of September 30, 1997 and from December 31, 1997 through March 30,1998; 3.0 to 1 from March 31, 1998 through September 29, 1998; and 2.0 to 1 thereafter. (iv) Borrowers' failure to have a consolidated Net Liquidity Ratio of at least 1.1 to 1 as of September 30, 1997; 1.25 to 1 from December 31, 1997 through March 30, 1998; 1.5 to 1 from March 31, 1998 through December 30, 1998; and 2.0 to 1 thereafter. For the purposes hereof, "Net Liquidity Ratio" shall mean the ratio of all cash and accounts receivables of all Borrowers and subsidiaries of any Borrower (excluding Prestige Marketing Limited) to the principal amount of the Bank Indebtedness (excluding foreign exchange obligations). (c) The third line of paragraph 5.3 of the Loan Agreement is modified to increase the fee applicable to commercial (merchandise) letters of credit from 1/4% to 1/2% of the face amount of each such letter of credit. 5. As of and after the date hereof, Bank shall not issue or rollover for the account of any Borrower any foreign currency spot contract or any foreign currency forward contract. 6. Borrowers represent and warrant that no Events of Default are outstanding under the Loan Agreement and Note and Warrant Purchase Agreement excepting only those Events of Default listed on Schedule A attached hereto and made a part hereof ("Known Defaults"). In consideration of all of the terms, conditions and undertakings set forth in this Modification Agreement, Bank hereby waives the Known Defaults. To the extent the existing officer loans referred to on Schedule -3- A continue unpaid after the date hereof, Bank further waives any Event of Default resulting from a violation of any covenant prohibiting such existing loans (such waiver to have no impact on Borrower's undertakings under paragraphs 4(b) and 8 hereof Subject to the preceding sentence, no such waiver, however, shall in any way discharge, reduce, limit or alter the Borrowers' ongoing obligation and responsibility to comply with and perform all covenants, obligations and duties contained in the Loan Documents, as modified by this Modification Agreement. 7. Borrowers represent and agree that pursuant to a certain Securities Purchase Agreement and related agreements and documents ("Securities Purchase Documents") dated as of September 4, 1997 by and among National Media with various purchasers named therein ("Securities Purchasers") the Borrowers are receiving on this date cash equity of $20,000,000 in exchange for the issuance of National Media's Series C Convertible Preferred Stock, warrants and related consideration. The Borrowers represent that they have delivered to Bank copies of the final signed Securities Purchase Documents and certify that such agreements have not been amended or terminated. The parties acknowledge and agree that the proceeds of such investment (National Media's receipt of which being a condition to the effectiveness of this Modification Agreement) shall be used by the Borrowers as described therein. 8. Notwithstanding anything to the contrary contained in Section 9 of the Loan Agreement, Borrowers shall comply with the following (which financial covenants shall replace and supersede all of the financial covenants presently contained in, and shall, in substitution therefor, be incorporated into and be deemed the financial covenants of, Section 9): (a) Borrowers shall have a consolidated Tangible Net Worth of not less than $18,000,000 as of September 30, 1997 and from December 31, 1997 through March 31, 1998; and $20,000,000 at all times thereafter. (b) Borrowers shall have a consolidated Working Capital of not less than $10,000,000 as of September 30, 1997 and from December 31, 1997 through March 31, 1998; $15,000,000 from April 1, 1998 through June 30, 1998; and $20,000,000 at all times thereafter. (c) Borrowers shall have a ratio of Indebtedness (excluding foreign exchange obligations) to Tangible Net Worth of not more than 3.5 to 1 as of September 30, 1997 and from December 31, 1997 through June 30, 1998; and 3.0 to 1 at all times thereafter. (d) Borrowers shall have a consolidated Net Liquidity Ratio of not less than 1.1 to 1 as of September 30, 1997 and from December 31, 1997 through March 31, 1998; 1.25 to 1 from April 1, 1998 through September 30, 1998; and 1.50 to 1 at all times thereafter. For the purposes hereof, "Net Liquidity Ratio" shall mean the ratio of all cash and accounts receivables of all Borrowers and subsidiaries of any Borrower (excluding Prestige Marketing Limited) to the principal amount of the Bank Indebtedness (excluding foreign exchange obligations). -4- 9. (a) Paragraph 16-42 of the Loan Agreement is hereby modified to delete the definition of "Tangible Net Worth" contained therein and replace it with the following: "Tangible Net Worth", as applied to Borrowers, including subsidiaries of Borrowers, means the shareholders' equity of National Media and its consolidated subsidiaries (as would be shown on a consolidated balance sheet for such entities prepared in accordance with GAAP) less the sum of (i) the book amount of all assets which would be treated as intangibles under GAAP, including without limitation such items as organizations costs (as currently reflected on National Media's consolidated financial statements), goodwill, trademarks, trade names, service marks, brand names, franchises, copyrights, patents, licenses and unamortized debt discount and expense, (ii) any write-up in the book value of any asset resulting from a re-evaluation thereof subsequent to the acquisition thereof (except write-ups to actual value specifically approved by Bank), and (iii) loans and notes payable due to any Borrower(s) or any subsidiary of a Borrower from any Affiliate(s), director(s) or officer(s) of any Borrower(s), except to the extent any such loan(s) and note(s) payable are secured by valid, enforceable liens on collateral and Bank then agrees, in its discretion, that, as a consequence thereof, such loan(s) and note(s) payable may be removed from the exception reflected by this clause (iii). (b) The term "Bank Indebtedness" as defined and hereinafter used with respect to the Loan Agreement, as amended hereby, shall not include the obligations of National Media under the warrants described in paragraph 12 below and any related warrant agreements. 10. In consideration for the undertakings and agreements of Bank contained in this Modification Agreement, Bank shall be entitled to receive from Borrowers and shall have fully earned an amendment and restructuring fee of $304,000. Such fee shall be paid as follows: $19,000 on the date of this Modification Agreement and $19,000 on the first day of each calendar month, commencing October 1, 1997. Notwithstanding the foregoing, the entire unpaid balance of such fee shall be due and payable in full upon the earlier to occur of (a) repayment in full of the outstanding Loans and (b) acceleration of the Bank Indebtedness following the occurrence of an Event of Default. 11. (a) The outstanding principal amount of all Bank Indebtedness (excluding foreign exchange obligations) shall at all times be less than the Borrowing Base. The Borrowers shall provide a written certification (on a borrowing base certificate in form acceptable to Bank) on a monthly basis (within 30 days of each month end) to reflect Borrowers' compliance with this covenant. (b) For the purposes hereof, "Borrowing Base" shall mean (i) 100% of all cash (free balances only) of Borrowers and Borrowers' non-dormant subsidiaries (excluding Prestige -5- Marketing Limited) in United States dollars located in the United States, (ii) 85% of domestic (United States and Canada) Eligible Accounts Receivables and 65% of foreign Eligible Accounts Receivables of Borrowers and Borrowers' non-dormant subsidiaries (excluding Prestige Marketing Limited) and (iii) 45% (reducing to 30% as of January 31, 1998) of domestic Eligible Inventory of Borrowers and Borrowers' non-dormant subsidiaries (excluding Prestige Marketing Limited) and 30% (reducing to 0% as of January 1, 1998) of foreign Eligible Inventory of Borrowers and Borrowers' non-dormant subsidiaries (excluding Prestige Marketing Limited). (c) (i) With respect to all Eligible Receivables from time to time scheduled, listed or referred to in any certificate, statement or report prepared by or for Borrowers and delivered to Bank, each account receivable shall only be an Eligible Receivable if (1) the account is genuine, is in all respects what it purports to be, and is not evidenced by any chattel paper, note, instrument or judgment unless such chattel paper, note or other instrument has been duly endorsed or assigned to Bank and Bank agrees to treat such account as an Eligible Receivable; (2) a Borrower has absolute title to such account and the account represents an undisputed, bona fide transaction completed in accordance with the terms thereof and as represented to Bank; (3) no payments have been thereon; (4) there are no setoffs, counterclaims or disputes existing or validly asserted with respect thereto and no Borrower has made any agreement with any account debtor for any deduction therefrom; (5) there are no facts, events or occurrences which impair the validity or enforcement thereof or reduce the amount payable thereunder as shown on any certificates, statements or reports prepared by or for Borrowers and delivered to Bank, Borrowers' books and records and all invoices and statements delivered to Bank with respect thereto; (6) to the best of Borrowers' knowledge, the account debtor has the capacity to contract, is solvent and is not a debtor in a case commenced under the Federal Bankruptcy Code; (7) the goods sold giving rise thereto are not subject to any lien, claim, encumbrance or security interest except that of Bank or of Barclays Bank (as to Quantum International only); (8) to the best of Borrowers' knowledge, there are no proceedings or actions which are threatened or pending against any account debtor which are reasonably likely result in any material adverse change in such account debtor's financial condition; (9) the account is not an account with respect to which the account debtor is an Affiliate of any Borrower or a director, officer or employee of any Borrower or its Affiliates; (10) the account does not arise with respect to goods which have not been shipped or arise with respect to services which have not been fully performed and accepted as satisfactory by the account debtor; (11) other than in the ordinary course of business, the account is not an account with respect to which the account debtor's obligation to pay the account is conditional upon the account debtor's approval or is otherwise subject to any repurchase obligation or return right, as with sales made on a bill-and-hold, guaranteed sale, sale-and-return, or sale on approval basis; (12) the amounts shown on the applicable certificates, statements, on Borrowers' books and records and all invoices and statements which may be delivered to Bank with respect to such accounts are actually and absolutely owing to Borrowers and are not in any way contingent; (13) the account has not been sold, assigned or transferred to any other Person and no Person except Borrowers has any claim thereto or (with the exception of the applicable account debtor) any claims to the goods sold; (14) the account should not be and has not been considered as a bad debt in accordance with GAAP or in accordance with Borrowers' standard procedures for writing off bad -6- debts; and (15) the account and all other accounts of the account debtor (or that portion thereof being considered as an Eligible Account) represent less than 20% of all Eligible Accounts. (ii) With respect to Eligible Inventory from time to time scheduled, listed or referred to in any certificate, statement or report prepared by or for Borrowers and delivered to Bank, inventory shall only be Eligible Inventory if (1) such inventory is located at the address or addresses listed on Schedule C attached hereto and made part hereof (as amended from time to time prior to any contemplated change in the location of inventory) or is in transit; (2) Borrowers have good, indefeasible and merchantable title to such inventory and such inventory is not subject to any lien or security interest (whether consensual, statutory, judicial, or common law) whatsoever except for the perfected security interest granted to Bank or to Barclays Bank (as to Quantum International only); (3) such inventory is of good and merchantable quality, free from any defects; (4) such inventory is not precluded from sale by Borrowers as a result of the termination of, or injunction or court order with respect to, any licensing, patent, royalty, trademark, trade name or copyright agreements with any third parties; and (5) the completion of the manufacture and sale or other disposition of such inventory by Bank following an Event of Default shall not require the consent of any person and shall not constitute a breach or default under any contract or agreement to which any Borrower is a party or to which the inventory is subject. 12. Bank shall receive, as additional consideration for its agreements and undertakings set forth in this Modification Agreement, warrants establishing a unconditional right for Bank (or its affiliated nominee) to acquire 125,000 shares of common stock of National Media, to be executed and delivered to Bank within 10 days of the date hereof. The strike price relating thereto shall be $5-3/16 per share. The warrants shall be for a term of 5 years and shall contain standard antidilution provisions (including without limitation provisions using a weighted average basis for share issuances below the then current market price) and other terms and rights reasonably acceptable to the Bank. The resale by Bank of the common shares underlying the warrants received by the Bank shall be registered on the initial registration statement required by the Securities Purchase Documents (to be filed on or before October 15, 1997), provided that Bank will respond in a timely manner to the reasonable requests of National Media or its counsel for information and input in connection with the preparation, filing and effectiveness of such registration statement. Such registration shall be maintained by National Media in effect until the warrants have been exercised or have expired. National Media represents that as of the date hereof there are 25,455,405 issued and outstanding shares of National Media's common stock and that sufficient shares of its common stock have been duly authorized and reserved to cover the exercise of the warrants to be granted to Bank as well as all other outstanding warrants. All outstanding warrants to acquire common stock of National Media are described on Schedule B attached hereto. 13. National Media shall be managed by Robert Verratti or by a replacement selected by National Media which shall be reasonably acceptable to Bank. There shall be no material change in other executive management of National Media without the prior written consent of Bank, which consent shall not unreasonably be withheld. It is understood and agreed that continuity of the -7- existing executive management of Borrowers who negotiated this Modification Agreement is an essential inducement for Bank to enter into this Modification Agreement. 14. If any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total voting power of the issued and outstanding voting stock of National Media normally entitled to vote in the election of directors of National Media, such occurrence shall constitute an Event of Default under the Loan Agreement. 15. Without limiting, altering or replacing any other undertakings of Borrowers or any other parties or any other rights of Bank hereunder, each subsidiary of each Borrower shall comply with the covenants set forth in paragraphs 8.1 through 8.15 and 8.18 through 8.22 of the Loan Agreement as if it were a party to the Loan Agreement. 16. It is understood and agreed that all obligations and liabilities of Borrowers to Bank (due or to become due, matured or contingent, joint or several) shall be secured by a first lien and security interest in all existing and future assets of Borrowers and all subsidiaries of Borrowers (including without limitation stock of all of such companies other than stock in National Media), provided, however, that Bank shall have (a) a second hen on assets of Quantum International subject to the existing lien held therein by Barclays Bank and (b) no lien on the assets of Prestige Marketing Limited. To the extent that any subsidiary of a Borrower is not presently obligated to Bank with respect to all or any portion of the Loans, such entity other than Prestige Marketing Limited shall, immediately upon Bank's request, execute such guaranty, joinder agreement or other agreement required by Bank so that such entity shall be jointly and severally liable with Borrowers for repayment of the Bank Indebtedness. Each such entity shall also execute such security agreement, financing statements, debentures or other agreements as may be required by Bank so that Bank shall have a first lien upon all of such assets. Borrowers acknowledge that Bank shall engage counsel in other countries for assistance in connection with this documentation and analysis and that any and all such agreements may have special provisions and requirements as recommended by such counsel. Borrowers shall fully cooperate in this process and upon request immediately execute any and all such agreements as may be presented to them on behalf of Bank. For the purposes of each provision of this Modification Agreement, all references to 66 subsidiaries" of any Borrower shall mean all domestic and foreign subsidiaries directly or indirectly owned. Borrowers acknowledge that their undertakings in this paragraph are an essential inducement for Bank's agreements set forth herein. 17. In addition to all other reports, certificates and statements to be provided by Borrowers to Bank, Bank shall receive: (a) a weekly cash flow report, on a 10 week rolling basis; -8- (b) a monthly products run schedule, new products schedule and advertising versus sale schedule; (c) all monthly statements to be provided by Borrowers shall be separated on the basis of North American and international operations; (d) delivery of annual financial statements shall be accompanied by delivery of any management letter Borrowers may receive from their independent accountants; (e) Bank shall have the option to conduct, at Borrowers' expense, on a semiannual basis, an audit of Borrowers assets and operations by Boston & Associates or such other independent organization as Bank may select; and (f) notwithstanding any provisions of Section 10 of the Loan Agreement to the contrary, all reports, financial statements and certificates to be delivered under the Loan Agreement shall pertain to Borrowers as well as all to other companies constituting domestic and foreign subsidiaries of any Borrower. 18. (a) CoreStates and National Media acknowledge that the Loan and Security Agreement dated November 18, 1995 ("1995 Agreement") among National Media, Quantum and Quantum International with Meridian was amended, restated and replaced by the Loan Agreement, provided, however, that the execution and delivery of the Loan Agreement and related agreements did not satisfy, release, extinguish, novate or reduce any outstanding indebtedness created or evidenced by the 1995 Agreement or release, terminate or limit any liens or security interests created or evidenced by the 1995 Agreement. (b) CoreStates further acknowledges that the financial covenants contained in paragraphs 7.7(c), (m), (n), (o), (p) and (q) of the Note and Warrant Purchase Agreement are intended to be replaced and superseded by the financial covenants contained in paragraph 8 hereof. 19. Borrowers shall pay, on demand, all reasonable costs and expenses of Bank, including the reasonable fees and costs of its legal counsel, in connection with the preparation, execution and delivery of this Modification Agreement, all agreements related hereto and the transactions contemplated hereby. 20. Borrowers also agree to execute and deliver to Bank, or cause to be executed and delivered to Bank, such additional documents and to take such additional actions as Bank may reasonably request to carry out and effectuate the purposes of this Modification Agreement. 21. This Modification Agreement shall be incorporated into and made part of the Loan Documents. To the extent of any inconsistency between the terms hereof and the terms of the Loan Documents, the terms hereof shall control. Except as expressly set forth in this Modification Agreement, the terms and conditions of the Loan Documents remain in full force and affect. -9- 22. Borrowers represent and wan-ant that the execution and delivery by Borrowers of this Modification Agreement and performance by them of the transactions and undertakings herein set forth (a) are and will be within Borrowers' corporate powers, (b) have been authorized by all necessary corporate action, (c) are not and will not be in contravention of any order of any court or other agency or government, of law, or of any other indenture, agreement or undertaking to which any Borrower is a party or by which any property of any Borrower is bound, or to be in conflict with or result in a breach of or constitute (with due notice and/or lapse of time) a default under any such indenture, agreement undertaking or result in the imposition of any lien charge or encumbrance of any nature upon any property of any Borrower, and (d) this Modification Agreement is valid, binding and enforceable in accordance with its respective terms. 23. The addresses for notices contained in Section 15 of the Loan Agreement shall be replaced by the addresses set forth on Exhibit D attached hereto and made part hereof. IN WITNESS WHEREOF, the undersigned have executed this Modification Agreement by their respective duly authorized officers as of the day and year first above written. CORESTATES BANK, N.A. NATIONAL MEDIA CORPORATION /s/ Patricia A. Barford By: /s/ Paul R. Brazina ----------------------- ------------------------------ Patricia A. Barford Paul R. Brazina ----------------------- ------------------------------ (Print Name and Title) ` (Print Name and Title) Attest: /s/ James M. Gallagher ------------------------------- -10- QUANTUM NORTH AMERICA, INC. By: /s/ Constantinos I. Costalas ------------------------------------ Constantinos I. Costalas, Vice Chairman ------------------------------------ (Print Name and Title) Attest: /s/ Paul R. Brazina ------------------------------------ -11- QUANTUM INTERNATIONAL LIMITED By: /s/ Constantinos I. Costalas ------------------------------------- Constantinos I. Costalas, Vice Chairman ----------------------------------------- (Print Name and Title) Attest: /s/ Paul R. Brazina ------------------------------------- POSITIVE RESPONSE TELEVISION, INC. By: /s/ Constantinos I. Costalas ------------------------------------- Constantinos I. Costalas, Vice Chairman ----------------------------------------- (Print Name and Title) Attest: /s/ Paul R. Brazina ------------------------------------- DIRECTAMERICA CORPORATION By: /s/ Constantinos I. Costalas ------------------------------------- Constantinos I. Costalas, Vice Chairman ----------------------------------------- (Print Name and Title) Attest: /s/ Paul R. Brazina ----------------------------------- -12- EX-10 8 EXHIBIT 10.6 EXHIBIT 10.6 AGREEMENT THIS AGREEMENT (the "Agreement") is entered into as of this 16th day of July, 1997, by and among National Media Corporation, a Delaware corporation ("Parent"), Paul Meier, an adult individual ("PM"), Suzanne Kilworth, an adult individual formerly known as Susan Barnes ("SK"), Alan Meier, an adult individual ("AM"), and Tancot Pty Limited, an Australian corporation ("TPL"). PM, SK, AM and TPL are sometimes hereinafter collectively referred to as the "Shareholders." W I T N E S S E T H WHEREAS, Parent, PM, SK, AM and TPL are parties to that certain Acquisition Agreement, dated as of May 30, 1996 (the "Acquisition Agreement"), pursuant to which, among other things, Parent acquired Suzanne Paul (Australia) Pty Limited ("Subsidiary") and Telemall Shopping Pty Limited ("Telemall") from the Shareholders (the "Acquisition"); WHEREAS, in connection with the consummation of the transactions contemplated by the Acquisition Agreement, Subsidiary and AM entered into that certain Employment Agreement (the "Employment Agreement") pursuant to which, among other things, Subsidiary agreed to employ AM as an officer of Subsidiary and certain other corporations affiliated with Parent; and WHEREAS, the parties hereto desire to amend, revise and modify certain provisions contained in the Acquisition Agreement and in the Employment Agreement subject to the terms and conditions contained herein. NOW, THEREFORE, with the foregoing deemed incorporated herein, in consideration of the mutual covenants, conditions and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Covenants of Parent. In consideration of the covenants and agreements of the Shareholders set forth in Section 2 below, effective upon the execution of this Agreement by the parties hereto, Parent agrees as follows: (a) Issuance of Parent Shares. Parent hereby waives satisfaction of the conditions contained in Sections 1.3(c)(i) and (ii) of the Acquisition Agreement and agrees that such conditions shall be deemed to have been met and satisfied as of the date hereof. Accordingly, Parent covenants and agrees to issue to the Shareholders as soon as practicable after the date hereof, in the aggregate, a number of shares (the "Parent Shares") of Parent common stock, par value $.01 per share (the "Common Stock"), equal to the quotient arrived at by dividing (i) U.S. $1,729,000 by (ii) the closing price of the Common Stock as reported on the New York Stock Exchange on the date hereof. -1- Such issuance of Parent Shares shall be deemed to be in full satisfaction of any obligation of Parent pursuant to Section 1.3(c) of the Acquisition Agreement. (b) Waiver of "Lock-up". Parent hereby irrevocably waives and releases, and causes Subsidiary to waive and release, the restrictions contained in Section 6 of the Employment Agreement on AM's ability to transfer the shares of Common Stock received by AM from Parent in connection with the Acquisition. 2. Covenants of Shareholders. (a) Release. In consideration of the covenants and agreements of Parent set forth in Section 1 above, effective upon the execution of this Agreement by the parties hereto, each of PM, SK, AM and TPL does hereby remise, release and forever discharge Parent, Subsidiary and Telemall and their respective predecessors, successors, subsidiaries and affiliates and their present and former agents, employees, assigns, directors and officers (collectively, the "National Media Parties") of and from any and all debts, demands, actions, causes of action, manner of actions, suits, accounts, dues, covenants, contracts, agreements, judgments, controversies, damages and any and all claims, cross claims, third-party claims, impleader or interpleader claims, demands and liabilities whatsoever, of any nature whatsoever, both in law and in equity, whether known or unknown (collectively "Claims"), which any of such Shareholders ever had, now has as of the date hereof and may ever have had as of the date hereof, prior to the date hereof or hereafter, including, but not limited to, any and all Claims against any and all of the National Media Parties arising from, pursuant to, or in connection with: (i) any representation, warranty, covenant, agreement or obligation of any National Media Party contained in the Acquisition Agreement or any other contract, instrument or agreement executed in connection therewith; (ii) the consummation of the Acquisition in accordance with the terms of the Acquisition Agreement; (iii) the issuance of shares of Common Stock in connection with the Acquisition; (iv) any action or omission of any National Media Party in connection with the consummation of the transactions contemplated by the Acquisition Agreement and any other contract, instrument or agreement executed in connection therewith; and (v) any action or inaction by the National Media Parties in connection with the management, operations or financial condition of Parent, Subsidiary and/or Telemall on or prior to the date hereof. (b) Limitations on Release. The release contained in Section 2(a) above shall not be deemed to apply to: (i) any covenant or obligation of Subsidiary pursuant to the Employment Agreement; (ii) any covenant or obligation of Prestige Marketing Limited, a New Zealand corporation ("Prestige"), pursuant to that certain Employment Agreement by and between Prestige and PM; or (iii) any covenant or obligation of Prestige pursuant to that certain Employment Agreement by and between Prestige and SK. 3. Reaffirmation of Representations. Parent hereby acknowledges and reaffirms its representations and warranties contained in Section 3.20 of the Acquisition Agreement with respect to the issuance of Parent Shares pursuant to Section 1(a) above. Each of the Shareholders hereby -2- acknowledges and reaffirms each of its representations and warranties contained in Sections 2.24, 2.25, 2.26, 2.27, 2.29 and 2.30 of the Acquisition Agreement with respect to the issuance of Parent Shares pursuant to Section 1(a) above and further acknowledges and agrees that the Parent Shares to be issued pursuant to Section 1(a) above may not be offered, sold or otherwise transferred in the United States or to a U.S. person (as defined in Rule 902(o) of Regulation S under the Securities Act of 1933, as amended (the "Securities Act")) unless (i) such Parent Shares are registered under the Securities Act, (ii) such offers, sales or transfers are made pursuant to an available exemption from the registration requirements of the Securities Act or (iii) such Parent Shares are sold pursuant to and in accordance with Rule 144 promulgated under the Securities Act (or any successor rule thereto). 4. Miscellaneous Provisions. (a) Entire Agreement. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. Except as otherwise expressly provided herein, this Agreement may not be amended, modified or terminated at any time or times without the unanimous agreement in writing of the parties hereto. (b) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement shall be governed by and construed in accordance with the laws of New South Wales, Australia in effect from time to time, notwithstanding any conflict of laws doctrines of such jurisdiction to the contrary, and without the aid of any canon, custom or rule of law requiring construction against the draftsman. (c) Binding Nature of Agreement; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns, except that no party may assign or transfer its rights or obligations under this Agreement except as otherwise expressly provided herein. (d) Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one (1) or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. (e) Paragraph Headings. The paragraph headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. -3- IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. National Media Corporation By: /s/ Robert N. Verratti ----------------------------------------------- Name: Robert N. Verratti Title: President and Chief Executive Officer ` /s/ Paul Meier ----------------------------------------------- Paul Meier ` /s/ Suzanne Kilworth ----------------------------------------------- Suzanne Kilworth (formerly known as Susan Barnes) ` /s/ Alan Meier ----------------------------------------------- Alan Meier Tancot Pty Limited By: /s/ Paul Meier ----------------------------------------------- Name: Paul Meier Title: President -4- EX-10 9 EXHIBIT 10.7 EXHIBIT 10.7 AGREEMENT THIS AGREEMENT (the "Agreement") is entered into as of this 16th day of July, 1997, by and among National Media Corporation, a Delaware corporation ("Parent"), Paul Meier, an adult individual ("PM"), Suzanne Kilworth, an adult individual formerly known as Susan Barnes ("SK"), and P&S Holdings Limited (formerly known as Prestige Marketing Holdings Limited), a New Zealand corporation ("Holdings"). PM, SK and Holdings are sometimes hereinafter collectively referred to as the "Shareholders." W I T N E S S E T H WHEREAS, Parent, PM, SK and Holdings are parties to that certain Acquisition Agreement, dated as of May 29, 1996 (the "Acquisition Agreement"), pursuant to which, among other things, Parent acquired Prestige Marketing Limited ("Subsidiary") and Prestige Marketing International Limited ("International") from the Shareholders (the "Acquisition"); WHEREAS, in connection with the consummation of the transactions contemplated by the Acquisition Agreement, Subsidiary entered into those certain Employment Agreements (the "Employment Agreements") with each of PM and SK pursuant to which, among other things, Subsidiary agreed to employ each of PM and SK as officers of Subsidiary and certain other corporations affiliated with Parent; and WHEREAS, the parties hereto desire to amend, revise and modify certain provisions contained in the Acquisition Agreement and in the Employment Agreements subject to the terms and conditions contained herein. NOW, THEREFORE, with the foregoing deemed incorporated herein, in consideration of the mutual covenants, conditions and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Covenants of Parent. In consideration of the covenants and agreements of the Shareholders set forth in Section 2 below, effective upon the execution of this Agreement by the parties hereto, Parent agrees as follows: (a) Issuance of Parent Shares. Parent hereby waives satisfaction of the conditions contained in Sections 1.3(c)(i) and (ii) of the Acquisition Agreement and agrees that such conditions shall be deemed to have been met and satisfied as of the date hereof. Accordingly, Parent covenants and agrees to issue to the Shareholders as soon as practicable after the date hereof, in the aggregate, a number of shares (the "Parent Shares") of Parent common stock, par value $.01 per share (the "Common Stock"), equal to the quotient arrived at by dividing (i) U.S. $3,271,000 by (ii) the -1- closing price of the Common Stock as reported on the New York Stock Exchange on the date hereof. Such issuance of Parent Shares shall be deemed to be in full satisfaction of any obligation of Parent pursuant to Section 1.3(c) of the Acquisition Agreement. (b) Waiver of "Lock-up". Parent hereby irrevocably waives and releases, and causes Subsidiary to waive and release, the restrictions contained in Section 6 of the Employment Agreements on PM's and SK's ability to transfer the shares of Common Stock received by them from Parent in connection with the Acquisition. 2. Covenants of Shareholders. (a) Release. In consideration of the covenants and agreements of Parent set forth in Section 1 above, effective upon the execution of this Agreement by the parties hereto, each of PM, SK and Holdings does hereby remise, release and forever discharge Parent, Subsidiary and International and their respective predecessors, successors, subsidiaries and affiliates and their present and former agents, employees, assigns, directors and officers (collectively, the "National Media Parties") of and from any and all debts, demands, actions, causes of action, manner of actions, suits, accounts, dues, covenants, contracts, agreements, judgments, controversies, damages and any and all claims, cross claims, third-party claims, impleader or interpleader claims, demands and liabilities whatsoever, of any nature whatsoever, both in law and in equity, whether known or unknown (collectively "Claims"), which any of such Shareholders ever had, now has as of the date hereof and may ever have had as of the date hereof, prior to the date hereof or hereafter, including, but not limited to, any and all Claims against any and all of the National Media Parties arising from, pursuant to, or in connection with: (i) any representation, warranty, covenant, agreement or obligation of any National Media Party contained in the Acquisition Agreement or any other contract, instrument or agreement executed in connection therewith; (ii) the consummation of the Acquisition in accordance with the terms of the Acquisition Agreement; (iii) the issuance of shares of Common Stock in connection with the Acquisition; (iv) any action or omission of any National Media Party in connection with the consummation of the transactions contemplated by the Acquisition Agreement and any other contract, instrument or agreement executed in connection therewith; and (v) any action or inaction by the National Media Parties in connection with the management, operations or financial condition of Parent, Subsidiary and/or International on or prior to the date hereof. (b) Limitations on Release. The release contained in Section 2(a) above shall not be deemed to apply to any covenant or obligation of Subsidiary pursuant to the Employment Agreements. 3. Reaffirmation of Representations. Parent hereby acknowledges and reaffirms its representations and warranties contained in Section 3.20 of the Acquisition Agreement with respect to the issuance of Parent Shares pursuant to Section 1(a) above. Each of the Shareholders hereby acknowledges and reaffirms each of its representations and warranties contained in Sections 2.24, 2.25, 2.26, 2.27, 2.29 and 2.30 of the Acquisition Agreement with respect to the issuance of Parent -2- Shares pursuant to Section 1(a) above and further acknowledges and agrees that the Parent Shares to be issued pursuant to Section 1(a) above may not be offered, sold or otherwise transferred in the United States or to a U.S. person (as defined in Rule 902(o) of Regulation S under the Securities Act of 1933, as amended (the "Securities Act")) unless (i) such Parent Shares are registered under the Securities Act, (ii) such offers, sales or transfers are made pursuant to an available exemption from the registration requirements of the Securities Act or (iii) such Parent Shares are sold pursuant to and in accordance with Rule 144 promulgated under the Securities Act (or any successor rule thereto). 4. Miscellaneous Provisions. (a) Entire Agreement. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. Except as otherwise expressly provided herein, this Agreement may not be amended, modified or terminated at any time or times without the unanimous agreement in writing of the parties hereto. (b) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement shall be governed by and construed in accordance with the laws of New Zealand in effect from time to time, notwithstanding any conflict of laws doctrines of such jurisdiction to the contrary, and without the aid of any canon, custom or rule of law requiring construction against the draftsman. (c) Binding Nature of Agreement; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns, except that no party may assign or transfer its rights or obligations under this Agreement except as otherwise expressly provided herein. (d) Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one (1) or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. (e) Paragraph Headings. The paragraph headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. -3- IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. National Media Corporation By: /s/ Robert N. Verratti ----------------------------------------- Name: Robert N. Verratti Title: President ` /s/ Paul Meier ----------------------------------------- Paul Meier ` /s/ Suzanne Kilworth ----------------------------------------- Suzanne Kilworth (formerly known as Susan Barnes) P&S Holdings Limited (formerly known as Prestige Marketing Holdings Limited) By: /s/ Paul Meier ----------------------------------------- Name: Paul Meier Title: President -4- EX-11 10 EXHIBIT 11.1 EXHIBIT 11.1 STATEMENT RE: COMPUTATION OF EARNINGS (In thousands, except per share data)
Three Months Ended Six Months Ended September 30, September 30, Primary 1997 1996 1997 1996 ------------ ----------- ------------ ------------ Average shares outstanding 25,156 22,580 24,652 20,630 Conversion of preferred stock - 1,364 - 1,263 Net effect of common stock equivalents (2)(3) - 4,478 - 4,994 ------------ ----------- ------------ ------------ Total 25,156 28,422 24,652 26,887 ============ =========== ============ ============ Net income $(14,916) $ 4,994 $(27,905) $ 9,544 Adjustments to net income: Reduction of interest expense (net of tax) related to retired debt - 35 - - Deemed dividend on convertible preferred stock (43) - (43) - ------------ ----------- ------------ ------------ Adjusted net income $(14,959) $ 5,029 $(27,948) $ 9,544 ============ =========== ============ ============ Per share earnings: Net income $(0.59) $ .18 $(1.13) $ .36 ============ =========== ============ ============ Fully Diluted Average shares outstanding 25,156 22,580 24,652 20,630 Conversion of preferred stock - 1,364 - 1,263 Net effect of common stock equivalents (2)(4) - 4,478 - 4,994 ------------ ----------- ------------ ------------ Total 25,156 28,422 24,652 26,887 ============ =========== ============ ============ Net income $(14,916) $ 4,994 $(27,905) $ 9,544 Adjustments to net income: Reduction of interest expense (net of tax) related to retired debt - 35 - - Deemed dividend on convertible preferred stock (43) - (43) - ------------ ----------- ------------ ------------ Adjusted net income $(14,959) $ 5,029 $(27,948) $ 9,544 ============ =========== ============ ============ Per share earnings: Net income (1) $(0.59) $ .18 $(1.13) $ .36 ============ =========== ============ ============
(1) This calculation is submitted in accordance with the requirements of Regulation S-K although not required by APB Opinion No. 15 because it results in dilution of less than 3%. (2) Common stock equivalents include the effect of the exercise of stock options and warrants. (3) Based on common stock equivalents using the if converted method and average market price. (4) Based on common stock equivalents using the if converted method and the period-end market price, if higher than the average market price. EX-27 11 FINANCIAL DATA SCHEDULE
5 6-MOS MAR-31-1998 SEP-30-1997 21,727 0 32,354 (4,558) 27,917 94,415 13,830 2,037 165,150 70,391 0 0 1 262 86,559 165,150 121,718 121,718 118,915 147,365 0 0 1,947 (27,594) 311 (27,905) 0 0 0 (27,905) (1.13) (1.13)
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