-----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, Von930D8sJj52ixax7F1cFATy2gkNtMW2GeXMcZybsWTjcf4PzE9y4iQ/yTjlpmS ZAXXRdjn0NY3Z22S764+Ug== 0000950116-96-000080.txt : 19960216 0000950116-96-000080.hdr.sgml : 19960216 ACCESSION NUMBER: 0000950116-96-000080 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960214 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: 1934 Act SEC FILE NUMBER: 001-06715 FILM NUMBER: 96519274 BUSINESS ADDRESS: STREET 1: 1700 WALNUT ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2157725000 MAIL ADDRESS: STREET 1: 1700 WALNUT STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL PARAGON CORP DATE OF NAME CHANGE: 19870827 10-Q 1 FORM 10-Q 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 December 31, 1995 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 (I.R.S. Employer Identification No.) incorporation or organization) 1700 Walnut Street, Philadelphia, PA 19103 - -------------------------------------------------------------------------------- (Address of principal executive officers) (Zip Code) Registrant's telephone number, including area code: (215) 772-5000 -------------- 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 15,865,719 issued and outstanding shares of the registrant's common stock, par value $.01 per share, at December 31, 1995. In addition there were 686,710 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 December 31, 1995 and March 31, 1995......................3 Condensed Consolidated Statements of Operations Three months ended December 31, 1995 and 1994.............4 Condensed Consolidated Statements of Operations Nine months ended December 31, 1995 and 1994..............5 Condensed Consolidated Statements of Cash Flows Nine months ended December 31, 1995 and 1994..............6 Notes to Condensed Consolidated Financial Statements........7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............11 Part II. Other Information Item 1. Legal Proceedings .........................................16 Item 6. Exhibits and Reports on Form 8-K...........................17 Signatures...................................................................18 -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)
December 31, March 31, 1995 1995 ------------ --------- (Unaudited) (See Note Below) Current Assets: Cash and cash equivalents........................................ $ 13,611 $ 13,467 Accounts receivable (net) ....................................... 24,730 14,344 Inventories ..................................................... 19,869 15,387 Prepaid media ................................................... 2,076 2,660 Prepaid show production ......................................... 4,550 3,463 Deferred costs .................................................. 2,554 1,820 Prepaid expenses and other assets ............................... 2,222 1,228 Deferred income taxes ........................................... 1,998 1,782 ----------- ----------- Total current assets .......................................... 71,610 54,151 Property and equipment (net) ....................................... 5,624 4,413 Excess of cost over net assets of acquired businesses and other intangible assets (net) ................................. 14,385 4,659 Other assets ....................................................... 1,691 920 ----------- ----------- Total assets .................................................. $ 93,310 $ 64,143 =========== =========== Current liabilities: Accounts payable ................................................ $ 12,551 $ 12,093 Accrued expenses ................................................ 21,984 17,786 Deferred revenue ................................................ 490 279 Income taxes payable ............................................ 1,897 300 Deferred income taxes ........................................... 2,132 1,428 Current portion of long-term debt and capital lease obligations.................................................... 717 184 ----------- ----------- Total current liabilities ..................................... 39,771 32,070 Long-term debt and capital lease obligations ....................... 4,118 3,613 Deferred income taxes .............................................. 354 354 Other liabilities .................................................. 2,097 1,481 Shareholders' equity: Preferred stock, $.01 par value; authorized 10,000,000 shares; issued 170,625 and 255,796 shares of Series B convertible preferred stock (liquidation preference of $6,825 and $10,232), respectively .................................................. 2 3 Common stock, $.01 par value; authorized 50,000,000 shares; issued 16,552,429 and 14,879,542 shares, respectively ......... 172 149 Additional paid-in capital ...................................... 43,426 31,877 Retained earnings ............................................... 10,669 (10) Treasury stock, 686,710 shares at cost .......................... (3,791) (3,791) Notes receivable, directors, officers, employees, consultants and others .................................................... (674) (1,868) Foreign currency translation adjustment ......................... (2,834) 265 ----------- ----------- Total shareholders' equity .................................... 46,970 26,625 ----------- ----------- Total liabilities and shareholders' equity .................... $ 93,310 $ 64,143 =========== ===========
Note: The balance sheet at March 31, 1995 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 number of shares and per share amounts) Three months ended December 31, ------------------------- 1995 1994 ----------- ----------- Revenues: Product sales ............................. $ 67,192 $ 39,544 Retail royalties .......................... 1,085 976 Sales commissions and other revenues ...... 76 734 ----------- ----------- Net revenues ............................ 68,353 41,254 Operating costs and expenses: Media purchases ........................... 19,602 11,754 Direct costs .............................. 34,378 23,219 Selling, general and administrative ....... 8,318 4,673 Unusual charges ........................... -0- 1,192 Interest expense .......................... 246 181 ----------- ----------- Total operating costs and expenses ...... 62,544 41,019 ----------- ----------- Income before income taxes ................... 5,809 235 Income taxes ................................. 877 -0- ----------- ----------- Net income ................................... $ 4,932 $ 235 =========== =========== Income per common and common equivalent share: Primary ................................... $ .21 $ .02 =========== =========== Fully-diluted ............................. $ .20 $ .02 =========== =========== Weighted average number of common and common equivalent shares outstanding: Primary ................................... 23,781,000 14,815,000 =========== =========== Fully-diluted ............................. 24,414,000 14,815,000 =========== =========== See notes to condensed consolidated financial statements. -4- NATIONAL MEDIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In thousands, except number of shares and per share amounts)
Nine months ended December 31, --------------------------- 1995 1994 ------------ ------------ Revenues: Product sales .................................... $ 187,163 $ 113,763 Retail royalties ................................. 3,443 4,454 Sales commissions and other revenues ............. 400 1,969 ------------ ------------ Net revenues ................................... 191,006 120,186 Operating costs and expenses: Media purchases .................................. 57,557 36,355 Direct costs ..................................... 98,025 65,876 Selling, general and administrative .............. 22,042 14,513 Severance expense for former Chairman and Chief Executive Officer .............................. -0- 2,650 Unusual charges .................................. -0- 1,768 Interest expense ................................. 719 410 ------------ ------------ Total operating costs and expenses ............. 178,343 121,572 ------------ ------------ Income (loss) before income taxes ................... 12,663 (1,386) Income taxes ........................................ 1,984 -0- ------------ ------------ Net income (loss) ................................... $ 10,679 $ (1,386) ============ ============ Income (loss) per common and common equivalent share: Primary .......................................... $ .49 $ (0.10) ============ ============ Fully-diluted .................................... $ .45 $ (0.10) ============ ============ Weighted average number of common and common equivalent shares outstanding: Primary .......................................... 22,780,000 13,969,000 ============ ============ Fully-diluted .................................... 23,759,000 13,969,000 ============ ============
See notes to condensed consolidated financial statements. -5- NATIONAL MEDIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In thousands) Nine months ended December 31, -------------------- 1995 1994 -------- -------- Cash flows from operating activities: Net income (loss) ..................................... $ 10,679 $ (1,386) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization .................... 1,396 1,203 Changes in operating assets and liabilities net of effects from acquisitions ..................... (12,523) (1,347) Other ............................................ (7) 446 -------- -------- Net cash used in operating activities .................... (455) (1,084) Cash flows from investing activities: Additions to property and equipment ................... (2,156) (671) Cost of companies acquired, net of cash acquired ...... (897) -0- -------- -------- Net cash used in investing activities .................... (3,053) (671) Cash flows from financing activities: Net proceeds from issuance of investment units ........ -0- 9,628 Payments on long-term debt ............................ (132) (909) Proceeds from borrowings .............................. -0- 5,000 Net repayments under lines of credit .................. -0- (3,819) Exercise of stock options and warrants ................ 2,958 240 Payments received on notes receivable ................. 1,719 492 -------- -------- Net cash provided by financing activities ................ 4,545 10,632 Effect of exchange rate changes on cash and cash equivalents ............................................. (893) 214 -------- -------- Net increase in cash and cash equivalents ................ 144 9,091 Cash and cash equivalents at beginning of period ......... 13,467 1,595 -------- -------- Cash and cash equivalents at end of period ............... $ 13,611 $ 10,686 ======== ========
See notes to condensed consolidated financial statements. -6- NATIONAL MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) December 31, 1995 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 three and nine month periods ended December 31, 1995 are not necessarily indicative of the results that may be expected for the year ending March 31, 1996. 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, 1995. 2. Per Share Amounts 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". 3. Unusual Charges The unusual charges of $1,192,000 for the three months ended December 31, 1994 consisted of costs related to the settlement of various litigation. The nine months ended December 31, 1994 included unusual charges of $1,768,000 comprised of costs associated with the terminated ValueVision tender offer, referred to in Note 4 below, and costs related to the settlement of various litigation. 4. Contingent Matters Terminated Tender Offer and Merger Agreement with ValueVision International, Inc. On April 22, 1994, the Company filed suit in federal court against ValueVision International, Inc. ("ValueVision") alleging that ValueVision had wrongfully terminated its tender offer to acquire the Company. In May 1994, ValueVision answered the Company's complaint and set forth various counterclaims. On April 17, 1995, the Company, ValueVision, and all other parties to this litigation entered into a settlement agreement, pursuant to which the parties agreed to dismiss with prejudice all claims and counterclaims. In connection with the settlement agreement, the Company and ValueVision executed a Telemarketing, Production and Post-Production Agreement (the "Telemarketing Agreement") and a Joint Venture Agreement. The settlement agreement became effective upon receipt of shareholder approval at the Company's August 30, 1995 annual meeting. Pursuant to the Telemarketing Agreement, ValueVision is obligated to provide to the Company, over a three-year period, inbound telephone call-taking services at favorable rates. ValueVision is also obligated to provide to the Company certain -7- production and post-production services. As additional consideration for the services to be provided by ValueVision under the Telemarketing Agreement, the Company granted to ValueVision warrants (the "Warrants") to purchase up to 500,000 shares of the Company's common stock at a price of $8.865 per share (subject to adjustment pursuant to the antidilution provisions of the Warrants). This price was based on a premium over the average 20-day market value of the Company's common stock prior to the date of settlement. The Warrants will vest with respect to an equal number of shares on each of the thirteen-month, 2-year and 3-year anniversaries of the Effective Date (as defined below) provided that ValueVision satisfies certain conditions. The Warrants will expire on the tenth anniversary of the Effective Date. The Telemarketing Agreement became effective on November 24, 1995 (the "Effective Date"). The issuance of the Warrants to ValueVision required the prior consent of the holders (the "Noteholders") of the Company's promissory notes issued pursuant to that certain Note and Warrant Purchase Agreement, dated October 19, 1994. As an inducement to the Noteholders to permit the issuance of the Warrants, the Company agreed to issue the Noteholders warrants (the "Waiver Warrants") to purchase 500,000 shares of the Company's common stock at a price of $10.00 per share (subject to adjustment pursuant to the antidilution provisions of the Waiver Warrants). The issuance of the Waiver Warrants was approved by the Company's stockholders at the Company's annual meeting held on August 30, 1995. The Waiver Warrants were issued on the Effective Date and expire on December 1, 1996. Shareholders' Delaware and LaChance and Effron and Cohen Class Actions In 1994, class action lawsuits were filed in Federal Court and in Delaware Chancery Court against the Company and certain of its present and former officers and directors in connection with the ValueVision tender offer matters referred to above. On April 17, 1995, the Company and other parties to the litigation entered into agreements in principal to settle these actions providing for cash payments of $1.5 million, 75% of which will be paid by the Company's insurer. The Company's financial statements for the year ended March 31, 1995 included a charge of $375,000 for its portion of the settlement. Consummation of these settlements is subject, among other things, to the final approval of the court. The Company is currently in the process of obtaining such approval. Consumer Product Safety Commission Investigation On February 24, 1994, the staff of the Consumer Product Safety Commission (CPSC) notified the Company that it had made a preliminary determination that a particular model of the Company's Juice Tiger(R) product presents a "substantial product hazard" under the Consumer Product Safety Act. The CPSC staff requested the Company to take voluntary corrective action to ameliorate such alleged product hazard. While the Company has disputed that the model in question presents a substantial product hazard, the Company and the CPSC staff are presently discussing the form and nature of voluntary action proposed by the Company to assuage the CPSC staff's concerns. The CPSC staff has also indicated that, upon agreement on the implementation of a corrective action plan, it may investigate and assess whether the Company failed to comply with reporting requirements under the Consumer Product Safety Act such as to warrant imposition of a civil penalty. Management believes that this issue may be resolved in the near future and that the cost of implementing any such corrective action plan and the amount of any such civil penalty, alone or together, will not have a material adverse effect on the Company's results of operations and financial conditions. -8- Campbell v. National Media Corporation In July 1994, a former officer of the Company filed a complaint in federal court against the Company and its former Chairman and Chief Executive Officer containing various allegations. The former officer sought to recover compensatory and punitive damages and to rescind all debts owed to the Company by him. The parties reached a confidential settlement of the action in November 1995 and the court dismissed the case with prejudice. The definitive settlement did not have a material adverse effect on the financial position or results of operations of the Company. 5. Acquisitions On October 25, 1995, the Company completed the acquisition of all of the issued and outstanding capital stock of DirectAmerica Corporation and California Production Group, Inc. (collectively, "Direct America") for 554,456 shares of the Company's common stock valued at $7.0 million as of the date the parties reached agreement on the transaction. The Company may be required to issue additional shares of common stock to the shareholders of DirectAmerica if royalties from sales of products for which DirectAmerica produced infomercials exceed $5.0 million. The acquisition was accounted for as a purchase and is included in the Company's financial statements from the date of acquisition. A total of $8.5 million in assets were acquired and included excess of cost over acquired assets of $7.6 million, which is being amortized over 20 years. Had this purchase been made at April 1, 1994, pro forma unaudited condensed results from operations would have been as follows: (in thousands, except per share data) Nine Months Ended December 31, 1995 1994 ---- ---- Net Revenues .................... $191,870 $120,320 Net Income (loss)................ 10,958 (1,228) Primary Income (loss) per share . $ .48 $ (.09) These pro forma amounts do not give effect to any contigent shares of the Company's common stock which may be issued to the shareholders of DirectAmerica if certain revenue levels are achieved. On October 16, 1995, the Company completed the purchase of assets related to the "Flying Lure" business from United Brands International Corp. and Langer Technologies, Inc. The purchase price of $1.9 million included $1.0 million payable in cash and a two year promissory note bearing interest at 9.0% in the principal amount of $.9 million. In addition, the Company agreed to pay $596,000 over three years for a covenant not to compete. The Company may be required to make additional payments of up to $6.0 million if worldwide sales of "Flying Lure" products exceed certain targeted levels. Total assets acquired, principally the brand name and product rights, non-compete and product development talent, were approximately $2.5 million. These amounts are included in excess of cost over net assets of acquired businesses and other intangible assets. 6. Debt On November 28, 1995, the Company entered into a Loan and Security Agreement (the "Agreement") with a bank pursuant to which it obtained a $5.0 million revolving line of credit (the "Line") secured by a first priority security interest and lien upon all of the Company's (and its subsidiaries') assets and a pledge of a certificate of a deposit in the amount of $1,000,000. The line of credit will be available until September 30, 1996 at which time its continuation will be considered. -9- Interest on cash advances under the Line will accrue at varying rates based, at the Company's option, on the bank's national commercial rate, the London Interbank Offering Rate (LIBOR) plus 1.0% or for outstandings up to a maximum amount of $1,000,000, a rate of 1.0% over the bank's certificate of deposit rate. The agreement requires the Company to pay an annual fee of .5% on the unused portion of the line and maintain an average quarterly compensating balance of $2.5 million subject to a .25% deficiency fee. Advances under the Line are limited to 70% of qualified domestic receivables, 30% of domestic inventory with a $1.5 million maximum cap and 20% of prepaid media. At December 31, 1995, there were no borrowings outstanding under this facility, however, $2.1 million of the line was used for the issuance of letters of credit. In connection with the Agreement, the terms of the Company's existing term loan with the same bank were modified to provide for annual payments of $1.0 million commencing December 1, 1996 with the remaining balance due September 30, 1999 and the elimination of the guarantee of the original investor under that certain Note and Warrant Purchase Agreement dated October 19, 1994. Under the Agreement, the Company is subject to certain restrictions and must comply with covenants including the maintenance of specific financial ratios. 7. Subsequent Events On January 17, 1996, the Company signed a definitive Agreement and Plan of Merger and Reorganization (the "Merger Agreement") with Positive Response Television, Inc. ("PRTV"), pursuant to which PRTV will be merged with and into a subsidiary of the Company (the "Merger"). PRTV is a publicly traded direct marketing company and a producer of infomercials. Pursuant to the terms of the Merger Agreement, each outstanding share of common stock of PRTV (other than, in limited circumstances, shares as to which dissenters' rights of appraisal have been perfected and except for those shares held in the treasury of PRTV) will be converted into the right to receive a maximum of .5239 shares of the Company's common stock, less a pro rata portion of any Reduction Amount (as defined below). The Reduction Amount is defined as that number of shares of the Company's common stock equal to (x) two, multiplied by (y) the amount, if any, by which the Minimum Shareholders' Equity (as defined below) exceeds PRTV's shareholders' equity as of December 31, 1995 (subject to adjustment for any material changes thereto which occur after such date and subject to reduction for certain agreed upon balance sheet items), divided by (z) $14.125. For purposes of the Merger Agreement, "Minimum Shareholders' Equity" is defined as $13,000,000, less the amount of all costs incurred by PRTV directly in connection with the Merger and given effect in PRTV's financial statements. The Merger Agreement also provides that, under certain circumstances, a number of shares of the Company's common stock equal in dollar value (based upon a price of $14.125 per share of the Company's common stock) to certain of PRTV's balance sheet items and otherwise issuable, on a pro rata basis, to the shareholders of PRTV will be held in escrow and will be deliverable out of escrow, if at all within approximately 18 months after the anticipated date of closing, only upon the realization of the value of such items and the satisfaction of certain conditions set forth in the Merger Agreement and an Escrow Agreement to be entered into pursuant thereto. The acquisition will be accounted for using the purchase method. Consummation of the Merger is subject to the satisfaction of a number of conditions, including the approval of PRTV's shareholders. It is presently anticipated that the Merger will be consummated during the first quarter of the Company's 1997 fiscal year. -10- 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 the domestic and international marketplaces. The Company continually attempts to introduce and sell new products. The Company continues to diversify and expand its product offerings. The Company has historically been dependent on its most successful products to generate a significant portion of its net revenue. The Company's diversification efforts are designed to reduce the risk associated with relying on a limited number of successful products for a disproportionate amount of its revenues. Such efforts include the expansion of its presence in the international marketplace, thereby creating new markets for its products, and joining forces with strategic partners to increase its product base. International expansion has resulted in an increasing percentage of the Company's revenues being generated from the international infomercial marketplace. As the Company enters new markets overseas, it is able to air shows from its existing library, thus reducing its dependence on new products and new show productions. The Company takes advantage of the product awareness created by its infomercials by extending the sales life of its infomercial products through non-infomercial distribution channels, such as retail arrangements and by entering into agreements with manufacturers of consumer products in which the Company's strategic partners supply new products and retail distribution channels for product sales. Results of Operations 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 Nine Months Ended December 31, December 31, ------------ ------------ 1995 1994 1995 1994 ---- ---- ---- ---- Statement of Operations Data: Net revenues .................................... 100.0% 100.0% 100.0% 100.0% Operating costs and expenses: Media Purchases ............................... 28.7 28.5 30.1 30.3 Direct costs .................................. 50.3 56.3 51.3 54.8 Selling, general and administrative ........... 12.1 11.3 11.6 12.1 Severance expense for former Chairman and Chief Executive Officer ................ -0- -0- -0- 2.2 Unusual charges ............................... -0- 2.9 -0- 1.5 Interest expense .............................. .4 .4 .4 .3 ---------------------------------- ------------------------------------- Total operating costs and expenses ................ 91.5 99.4 93.4 101.2 ---------------------------------- ------------------------------------- Income (loss) before income taxes ................. 8.5 .6 6.6 (1.2) ---------------------------------- ------------------------------------- Net income (loss) ................................. 7.2% .6% 5.6% (1.2)% ================================== =====================================
-11- Three months ended December 31, 1995 compared to three months ended December 31, 1994 Net revenues Net revenues were $68.4 million for the three months ended December 31, 1995 as compared to $41.3 million for the three months ended December 31, 1994, an increase of $27.1 million or 65.6%. Domestic net revenues. Domestic net revenues were $27.2 million for the three months ended December 31, 1995 as compared to $20.7 million for the three months ended December 31, 1994, an increase of $6.5 million or 31.4%. Approximately 32.3% and 18.2% of the Company's domestic net revenues for the three months ended December 31, 1995 were generated from sales of Regal's Royal Diamond Cookware and the Ionic Toothbrush, respectively. Foreign net revenues. Foreign net revenues were $41.2 million for the three months ended December 31, 1995 as compared to $20.6 million for the three months ended December 31, 1994, an increase of $20.6 million or 100%. The growth was a result of the significant expansion of the Company's operations in the Asian marketplace and the continued growth of the Company's European operations. Operating costs Total operating costs and expenses were $62.5 million for the three months ended December 31, 1995 as compared to $41.0 million for the three months ended December 31, 1994, an increase of $21.5 million or 52.4%. Media purchases Media purchases were $19.6 million (net of $3.6 million in media sales) for the three months ended December 31, 1995 as compared to $11.8 million (net of $4.1 million in media sales) for the three months ended December 31, 1994, an increase of $7.8 million or 66.1%. The increase was directly attributable to the growth in sales. The ratio of media purchases to net revenues increased slightly from 28.5% in the three months ended December 31, 1994 to 28.7% in the three months ended December 31, 1995. Direct costs Direct costs consist of the cost of materials, freight, infomercial production, commissions and royalties, fulfillment, inbound telemarketing, credit card authorization, and warehousing. Direct costs were $34.4 million for the three months ended December 31, 1995 as compared to $23.2 million for the three months ended December 31, 1994, an increase of $11.2 million or 48.3%. This is reflective of the 65.6% increase in net revenues during the three months ended December 31, 1995 as compared to the three months ended December 31, 1994. The ratio of direct costs to net revenues decreased from 56.3% in the three months ended December 31, 1994 to 50.3% in the three months ended December 31, 1995. The decline in direct costs as a percentage of revenues reflects the Company's continued efforts to lower its costs and become a more efficient operator. -12- Selling, general and administrative Selling, general and administrative expenses increased approximately 76.6% from $4.7 million for the three months ended December 31, 1994 to $8.3 million for the three months ended December 31, 1995, primarily due to costs associated with domestic and international expansion. Selling, general and administrative expenses as a percentage of net revenues increased from 11.3% for the three months ended December 31, 1994 to 12.1% for the three months ended December 31, 1995. Unusual charges The Company experienced $1.2 million of unusual charges in the three months ended December 31, 1994 which related to the settlement of various litigation. Interest expense Interest expense was $246,000 for the three months ended December 31, 1995 as compared to $181,000 for the three months ended December 31, 1994. This increase was due to an increase in the Company's average outstanding debt balance as well as $90,000 of amortization related to the discount on the Company's $5.0 million term loan. Income taxes The Company's effective tax rate was 15.1% for the three months ended December 31, 1995. The effective tax rate of 0% for the three months ended December 31, 1994 was a result of the Company's low net income position. Nine months ended December 31, 1995 compared to Nine months ended December 31, 1994 Net revenues Net revenues were $191 million for the nine months ended December 31, 1995 as compared to $120.2 million for the nine months ended December 31, 1994, an increase of $70.8 million or 58.9%. Domestic net revenues. Domestic net revenues were $78.3 million for the nine months ended December 31, 1995 as compared to $71.8 million for the nine months ended December 31, 1994, an increase of $6.5 million or 9.1%. Approximately 31.4% and 19.3% of the Company's domestic net revenues for the nine months ended December 31, 1995 were generated from sales of the E-Force and Regal's Royal Diamond Cookware, respectively. Non-infomercial net revenue decreased by $1.5 million, primarily due to a decrease in royalty revenues and sales commissions. Foreign net revenues. Foreign net revenues were $112.7 million for the nine months ended December 31, 1995 as compared to $48.4 million for the nine months ended December 31, 1994, an increase of $64.3 million or 132.9%. This increase was primarily a result of the current period including nine months of revenues generated in the Asian marketplace, as compared to the prior period which contained only five full months of revenues generated in the Asian marketplace, as well as the continued growth in Asian sales. The Company initially began airing its infomercials in the Asian marketplace in late July 1994. European sales also increased from the prior period. The current nine month period also benefited from the Company's acquisition and utilization of additional air time in Europe and Asia. -13- Operating costs Total operating costs and expenses were $178.3 million for the nine months ended December 31, 1995 as compared to $121.6 million for the nine months ended December 31, 1994, an increase of $56.7 million or 46.6%. Media purchases Media purchases were $57.6 million (net of $11.6 million in media sales) for the nine months ended December 31, 1995 as compared to $36.4 million (net of $10.3 million in media sales) for the nine months ended December 31, 1994, an increase of $21.2 million or 58.2%. The increase was directly attributable to the growth in sales. The ratio of media purchases to net revenues decreased from 30.3% in the nine months ended December 31, 1994 to 30.1% in the nine months ended December 31, 1995. Direct costs Direct costs were $98.0 million for the nine months ended December 31, 1995 as compared to $65.9 million for the nine months ended December 31, 1994, an increase of $32.1 million or 48.7%. This is reflective of the 58.9% increase in net revenues during the nine months ended December 31, 1995 as compared to the nine months ended December 31, 1994. The ratio of direct costs to net revenues decreased from 54.8% in the nine months ended December 31, 1994 to 51.3% in the nine months ended December 31, 1995, reflecting the Company's continued efforts to lower its costs and become more efficient. Selling, general and administrative Selling, general and administrative expenses increased from $14.5 million for the nine months ended December 31, 1994 to $22.0 million for the nine months ended December 31, 1995, primarily due to costs associated with domestic and international expansion. Selling, general and administrative expenses as a percentage of net revenues decreased from 12.1% for the nine months ended December 31, 1994 to 11.6% for the nine months ended December 31, 1995. Severance Expense for former Chairman and Chief Executive Officer Severance expense of $2.65 million in the nine months ended December 31, 1994 related to the resignation of the Company's former Chairman and Chief Executive Officer. Unusual charges The nine months ended December 31, 1994 included unusual charges of $1.8 million, comprised of costs associated with the terminated ValueVision tender offer and agreement of merger and costs associated with the settlement of various litigation. -14- Interest expense Interest expense was $719,000 for the nine months ended December 31, 1995 as compared to $410,000 for the nine months ended December 31, 1994, an increase of 75.4%. This increase was due to an increase in the Company's average outstanding debt balance as well as $270,000 of amortization related to the discount on the Company's $5.0 million term loan. Income taxes The Company' effective tax rate for the nine months ended December 31, 1995 was 15.7%. The effective tax rate of 0% for the nine months ended December 31, 1994 was a result of the Company's loss position. Liquidity and Capital Resources The Company's working capital was $31.8 million at December 31, 1995 compared to $22.1 million at March 31, 1995, an increase of $9.7 million. This was principally due to an increase in accounts receivable and inventory associated with the Company's increased sales volume and with the Company's domestic and international expansion. Cash flow used in operations was $455,000 for the nine months ended December 31, 1995 as compared to $1.1 million in the comparable period of the prior year. The $12.1 million increase in net income for the period was offset by the aforementioned increase in working capital accounts. The Company expects that available cash, cash from operations and its existing credit facility will be sufficient to meet its normal operating requirements for the near term. The Company intends to continue to pursue acquisition and expansion opportunities as they may arise. In connection with such situations, it may be necessary to pursue sources of funding of such transactions outside of the Company's existing sources. In November 1995, the Company obtained a $5.0 revolving line of credit (the "Line") increasing its credit facility to $10.0 million. The Line will primarily be used for working capital purposes, including the issuance of letters of credit. At December 31, 1995 the Company had letters of credit outstanding in the amount of $2.1 million. As part of this agreement, the Company agreed to make annual payments of $1.0 million commencing December 1, 1996 on its term loan due September 30, 1999. In addition, the bank released the guarantee of the original investors on the term loan under the October 1994 Note and Warrant Purchase Agreement thus initiating the 12 month exercise period on warrants to purchase 500,000 shares of the Company's common stock at $10.00 per share held by such former guarantors. In February 1996, the Company received a capital infusion of approximately $2.3 million from the exercise of previously issued stock options and the repayment of existing loans by certain executive officers. This infusion of capital will be utilized to continue the Company's global expansion. The pending PRTV acquisition, if consummated, is not expected to have a material adverse effect on the Company's liquidity and/or capital resources. -15- 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. All 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. As a result of prior settlements with the Federal Trade Commission (FTC), the Company has agreed to two consent orders which, among other things, require the Company to submit compliance reports to the FTC staff. The Company has submitted the compliance reports as well as additional information requested by the FTC staff. In connection with one of these orders, the Company received a request from the FTC for certain information regarding the Company's infomercials in order to determine whether the Company is in compliance with such order. The Company is cooperating with such request and as of the current date believes itself to be in compliance with the consent orders and other FTC requirements. As discussed in Note 5 (Acquisitions) in Part I of this report, the Company consummated its acquisition of DirectAmerica on October 25, 1995. As of such date, DirectAmerica was a party to several litigation proceedings. As a result of the Merger, any liability which DirectAmerica may have in connection with such litigation becomes the responsibility of the Company. Although certain of the former shareholders of DirectAmerica have agreed to indemnify the Company against certain of such liabilities, it is not possible to predict with any accuracy what, if any, liability the Company may have in connection with such matters. Other Matters The Company in the normal course of its 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 operation or financial condition. -16- Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are included herein: * 2.1 Agreement and Plan of Merger and Reorganization, dated as of January 17, 1996, by and among the Company, PRT Acquisition Corp. and Positive Response Television, Inc. 4.1 Form of Warrant to Purchase Common Stock of the Company, dated November 24, 1995, issued to ValueVision International, Inc. concerning an aggregate of 500,000 shares at an exercise price of $8.865 per share. 4.2 Form of Warrants to Purchase Common Stock of the Company, dated November 24, 1995, issued to various persons concerning an aggregate of 500,000 shares at an exercise price of $10.00 per share. 10.1 Loan and Security Agreement, dated November 28, 1995, by and between the Company, certain of its subsidiaries and Meridian Bank. 10.2 Allonge, dated November 28, 1995, by the Company and certain of its subsidiaries for the benefit of Meridian Bank. 11.1 Statement RE: Computation of Per Share Earnings. 27.1 Financial Data Schedule. * Incorporated by reference to Registrant's Current Report on Form 8-K dated January 17, 1996. (b) The Company filed the following reports on Form 8-K during the three month period ended December 31, 1995. Form 8-K dated October 19, 1995 Item 2. Acquisition or Disposition of Assets - Announcement by the Company of its acquisition of DirectAmerica; the execution of employment agreements with the two key executives of DirectAmerica; and the formation of the DirectAmerica Employee Bonus Plan. It was impractical for the Company to provide the required financial statements and pro forma financial information relating to the Merger at the time of the filing of this report. The Company undertook to file such information as an amendment to the Form 8-K as soon as practical after the date thereof, but in no event later than sixty (60) days from the date by which the report on Form 8-K was required to be filed. Such amendment was filed on Form 8-K/A on or about January 6, 1996. Item 5. Other Matters - Announcement by the Company of its entrance into a letter of intent to acquire PRTV. -17- SIGNATURES Pursuant to the requirements of the Securities and 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: February 13, 1996 /s/ Mark P. Hershhorn --------------------- Mark P. Hershhorn President, Chief Executive Officer and Director Date: February 13, 1996 /s/ Constantinos I. Costalas ---------------------------- Constantinos I. Costalas Vice Chairman of the Board, Principal Financial Officer and Director -18- EXHIBIT INDEX Exhibit No. 4.1 Form of Warrant to Purchase Common Stock of the Company, dated November 24, 1995, issued to ValueVision International, Inc. concerning an aggregate of 500,000 shares at an exercise price of $8.865 per share. 4.2 Form of Warrants to Purchase Common Stock of the Company, dated November 24, 1995, issued to various persons concerning an aggregate of 500,000 shares at an exercise price of $10.00 per share. 10.1 Loan and Security Agreement, dated November 28, 1995, by and between the Company, certain of its subsidiaries and Meridian Bank. 10.2 Allonge, dated November 28, 1995, by the Company and certain of its subsidiaries for the benefit of Meridian Bank. 11.1 Statement RE: Computation of Per Share Earnings. 27.1 Financial Data Schedule. EX-4.1 2 EXHIBIT 4.1 EXHIBIT 4.1 NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND THE TERMS AND CONDITIONS HEREOF. THE HOLDER OF THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE RESTRICTIONS HEREIN SET FORTH. THESE SECURITIES ARE HELD SUBJECT TO THE TERMS, COVENANTS AND CONDITIONS OF TELEMARKETING, PRODUCTION AND POST-PRODUCTION AGREEMENT DATED APRIL 13, 1995 BY AND AMONG THE COMPANY AND VALUEVISION INTERNATIONAL, INC. AND MAY NOT BE SOLD IN AN OPEN MARKET TRANSACTION EXCEPT IN ACCORDANCE WITH THE TERMS AND PROVISIONS THEREOF. A COPY OF SAID AGREEMENT IS ON FILE AND MAY BE INSPECTED AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY. VOID AFTER 5:00 P.M., PHILADELPHIA, PENNSYLVANIA TIME, NOVEMBER 23, 2005 *************************************** WARRANT to PURCHASE COMMON STOCK of NATIONAL MEDIA CORPORATION *************************************** This certifies that, for good and valuable consideration, National Media Corporation, a Delaware corporation (the "Company"), grants to ValueVision International, Inc. ("VVI") or permitted registered assigns (the "Warrantholder" or "Warrantholders"), the right to subscribe for and purchase from the Company, at $8.865 per share (the "Exercise Price"), from and after 9:00 A.M. Philadelphia, Pennsylvania time on the first anniversary of the date hereof (the "Initial Exercise Date"), and to and including 5:00 P.M. New York -1- City time on November 23, 2005 (the "Expiration Date"), 500,000 shares, as such number of shares may be adjusted from time to time (the "Warrant Shares"), of the Company's Common Stock, par value $0.01 per share (the "Common Stock"), subject to the provisions and upon the terms and conditions herein set forth. The Exercise Price and the number of Warrant Shares are subject to adjustment from time to time as provided in Section 6. SECTION 1. Exercise of Warrant; Limitation on Exercise; Payment of Taxes. 1.1 Exercise of Warrant. (a) Subject to Section 1.1(d) hereof, this Warrant shall vest and become exercisable with respect to 166,667 Warrant Shares on the date which is thirteen (13) months after the date hereof and on the date which is two (2) years after the date hereof and with respect to 166,666 Warrant Shares on the date which is three (3) years after the date hereof (each date on which Warrants may vest is referred to herein as a "Vesting Date"). At any time and from time to time after the Initial Exercise Date, the Warrantholder may exercise this Warrant, in whole or in part (subject to the vesting of the Warrant as set forth in the immediately preceding sentence), by presentation and surrender of this Warrant to the Company at its principal executive offices or at the office of its stock transfer agent, if any, with the Subscription Form annexed hereto duly executed and accompanied by cash payment of the full Exercise Price for each Warrant Share to be purchased (subject to VVI's ability to apply certain amounts payable by the Company to VVI under the Telemarketing Agreement (as defined in Section 1.1(d) hereof) against the Exercise Price as set forth in Section 1.3 hereof). (b) Upon receipt of this Warrant, with the Subscription Form duly executed and accompanied by payment of the aggregate Exercise Price for the Warrant Shares for which this Warrant is then being exercised, the Company shall cause to be issued certificates for the total number of whole shares of Common Stock for which this Warrant is being exercised (adjusted to reflect the effect of the antidilution provisions contained in Section 6 hereof, if any, and as provided in Sections 5 and 8.8 hereof) in such denominations as are requested for delivery to the Warrantholder, and the Company shall thereupon deliver such certificates to the Warrantholder. The stock certificates so delivered shall be in such denominations as may be specified by the Warrantholder and shall be issued in the name of the Warrantholder or, if permitted by Section 5 and in accordance with the provisions thereof, such other name as shall be designated in the Subscription Form. The Warrantholder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Warrantholder. If at the time this Warrant is exercised, a registration statement is not in effect to register under the Securities Act of 1933, the Warrant Shares issuable upon exercise of this Warrant, the Company may require the Warrantholder to make such customary representations, and may place such customary legends on certificates representing the Warrant Shares, as may be reasonably required in the opinion of counsel to the Company to permit the Warrant Shares to be issued without such registration. -2- (c) If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the certificates for the Warrant Shares, deliver to the Warrantholder a new Warrant evidencing the rights to purchase the remaining Warrant Shares, which new Warrant shall in all other respects be identical with this Warrant. No adjustments or payments shall be made on or in respect of Warrant Shares issuable on the exercise of this Warrant for any regular cash dividends paid or payable to holders of record of Common Stock prior to the date as of which the Warrantholder shall be deemed to be the record holder of such Warrant Shares. (d) Notwithstanding anything herein to the contrary, no Warrants shall vest on a Vesting Date in the event (i) VVI shall be in material breach of that certain Telemarketing, Production and Post-Production Agreement dated April 13, 1995 by and between the Company and VVI (the "Telemarketing Agreement") on such Vesting Date unless the Company shall thereafter fail to terminate the Telemarketing Agreement as a result of such breach; (ii) any representation made by VVI in Section 9 of that certain Settlement Agreement dated April 13, 1995 by and between the Company and VVI (the "Settlement Agreement") shall not be true on such Vesting Date or (iii) VVI shall have failed, after receiving written notice of such failure from the Company at least sixty (60) days prior to such Vesting Date, to make available to NMC sufficient capacity to provide to NMC inbound telephone call-taking services for at least one million (1,000,000) inbound telephone calls (at a rate not to exceed 100,000 inbound telephone calls in any month) during the thirteen (13) month period (in the case of the first Vesting Date hereunder) or the twelve (12) month period (in the case of the second and third Vesting Dates hereunder) preceding such Vesting Date in accordance with Section 1(a) of the Telemarketing Agreement. 1.2 Limitation on Exercise. If this Warrant is not exercised prior to 5:00 P.M. on the Expiration Date (or the next succeeding Business Day, if the Expiration Date is a Saturday, Sunday or a day on which the New York Stock Exchange is authorized to close or on which the Company is otherwise closed for business (a "Nonbusiness Day"), this Warrant, or any new Warrant issued pursuant to Section 1.1, shall cease to be exercisable and shall become void and all rights of the Warrantholder hereunder shall cease. This Warrant shall not be exercisable and no Warrant Shares shall be issued hereunder, prior to 9:00 A.M. New York City time on the Initial Exercise Date. 1.3 Payment of Exercise Price. Payment of the Exercise Price shall be made to the Company in cash; by certified or official bank check payable in United States dollars to the order of the Company; or by any combination of the foregoing. Notwithstanding the foregoing, VVI may apply all or any part of the aggregate amount of any Telemarketing Differential (as defined in the Telemarketing Agreement) and any Production and Post Production Differential (as defined in the Telemarketing Agreement) against payment of the Exercise Price by providing irrevocable notice of such election to the Company on the Subscription Form. Any election by VVI to apply Telemarketing Differential or Production and Post Production Differential against all or any portion of the Exercise Price due hereunder shall be irrevocable and shall reduce the amount of Telemarketing Differential and Production and Post Production Differential available for application against future exercises of this Warrant. -3- 1.4 Payment of Taxes. The issuance of certificates for Warrant Shares shall be made without charge to the Warrantholder for any stock transfer or other issuance tax in respect thereto; provided, however, that the Warrantholder shall be required to pay any and all taxes which may be payable in respect to any transfer involved in the issuance and delivery of any certificates for Warrant Shares in a name other than that of the then Warrantholder as reflected upon the books of the Company. SECTION 2. Reservation and Listing of Shares, Etc. All Warrant Shares which are issued upon the exercise of the rights represented by this Warrant shall, upon issuance and payment of the Exercise Price, be validly issued, fully paid and nonassessable and free from all taxes, liens, security interests, charges and other encumbrances with respect to the issue thereof other than taxes in respect of any transfer occurring contemporaneously with such issue. During the period within which this Warrant may be exercised, the Company shall at all times have authorized and reserved, and keep available free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of this Warrant, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the exercise of this Warrant (and all other Warrants and securities of the Company convertible into or exercisable or exchangeable for Common Stock), in addition to such other remedies as shall be available to a Warrantholder, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. In addition, prior to the issuance of any Warrant Shares, the Company shall at its expense procure the listing of the Warrant Shares (or any other issues of capital stock issuable upon the exercise of this Warrant if such other class of capital stock is then so listed) which shall be issued upon exercise of this Warrant (subject to official notice of issuance) as then may be required on all stock exchanges or interdealer quotation systems on which the Common Stock is then listed and shall maintain such listing if and so long as any shares of the same class shall be listed on such stock exchanges or interdealer quotation systems. The Company shall, from time to time, take all such action as may be required to assure that the par value per share of the Warrant Shares is at all times equal to or less than the then effective Exercise Price. SECTION 3. Exchange, Loss or Destruction of Warrant. If permitted by Section 5 and in accordance with the provisions thereof, upon surrender of this Warrant to the Company with a duly executed instrument of assignment and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant of like tenor in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be cancelled. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of such bond or indemnification as the Company may reasonably require, and, in the case of such mutilation, upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant of like tenor. The term "Warrant" as used herein includes any Warrants issued in substitution or exchange of this Warrant. -4- SECTION 4. Ownership of Warrant; Certain Rights of Warrantholders. (a) The Company may deem and treat the person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in subsection 1.1, Section 3 or Section 5. (b) Nothing contained in this Warrant shall be construed as conferring upon the Warrantholder or its transferees the right to vote or to receive dividends or to consent or to receive notice as a stockholder in respect of any meeting of stockholders for the election of directors of the Company or of any other matter, or any rights whatsoever as stockholders of the Company. The Company shall give notice to the Warrantholder by registered mail if at any time prior to the expiration or exercise in full of the Warrants, any of the following events shall occur: (i) the Company shall authorize the payment of any dividend payable in any securities upon shares of Common Stock or authorize the making of any distribution (other than a regular cash dividend paid out of net profits legally available therefor) to all holders of Common Stock; (ii) the Company shall authorize the issuance to all holders of Common Stock of any additional shares of Common Stock or securities that are convertible into or exercisable for shares of Common Stock ("Common Stock Equivalents") or of rights, options or warrants to subscribe for or purchase Common Stock or Common Stock Equivalents or of any other subscription rights, options or warrants; (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation, merger, or sale or conveyance of the property of the Company as an entirety or substantially as an entirety); or (iv) a capital reorganization or reclassification of the Common Stock (other than a subdivision or combination of the outstanding Common Stock and other than a change in the par value of the Common Stock) or any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and that does not result in any reclassification or change of Common Stock outstanding) or in the case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety. Such giving of notice shall be initiated at least 20 days prior to the date fixed as a record date or effective date or the date of closing of the Company's stock transfer books for the determination of the stockholders entitled to such dividend, distribution, issuance or subscription rights, or for the determination of the stockholders entitled to vote on such proposed merger, consolidation, sale, conveyance, dissolution, liquidation or winding up. Such notice shall specify such record date or the date of closing the stock transfer books, as the case may be. Failure to provide such notice shall not affect the validity of any action taken in connection with such dividend, distribution, issuance or subscription rights, or proposed merger, consolidation, sale, conveyance, dissolution, liquidation or winding up. -5- SECTION 5. Split-Up, Combination, Exchange and Transfer of Warrants. (a) Subject to the provisions of Section 5(b), this Warrant may be split up, combined or exchanged for another Warrant or Warrants containing the same terms to purchase a like aggregate number of Warrant Shares. If the Warrantholder desires to split up, combine or exchange this Warrant, he, she or it shall make such request in writing delivered to the Company and shall surrender to the Company this Warrant and any other Warrants to be so split up, combined or exchanged. Upon any such surrender for a split up, combination or exchange, the Company shall execute and deliver to the person entitled thereto a Warrant or Warrants, as the case may be, as so requested. The Company shall not be required to effect any split up, combination or exchange which will result in the issuance of a warrant entitling the Warrantholder to purchase upon exercise a fraction of a share of Common Stock or a fractional Warrant. The Company may require such Warrantholder to pay a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any split up, combination or exchange of Warrants. (b) Prior to the termination of the Telemarketing Agreement, neither this Warrant nor any of Warrantholder's rights hereunder may be disposed of or encumbered (any such action, a "Transfer") without the prior written consent of the Company. Neither this Warrant not the Warrant Shares may be Transferred except in accordance with and subject to the provisions of the Securities Act and the rules and regulations promulgated thereunder. If at the time of a Transfer, a registration statement is not in effect to register this Warrant or the Warrant Shares, the Company may require the Warrantholder to make such customary representations, and may place such customary legends on certificates representing this Warrant, as may be reasonably required in the opinion of counsel to the Company to permit a Transfer without such registration. SECTION 6. Certain Adjustments. (a) If at any time or from time to time the Company shall (i) take a record of the holders of the Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock into a larger number of shares of Common Stock or (iii) combine the outstanding shares of Common Stock into a smaller number of shares of Common Stock, then the number of shares of Common Stock thereafter issuable upon exercise of this Warrant and the Exercise Price then in effect shall be adjusted so that this Warrant shall be exercisable for the same number of shares that a record holder of the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to the happening of such event would own or be entitled to receive after the happening of such event and so that the aggregate Exercise Price payable for the purchase of all Warrant Shares pursuant to this Warrant shall remain unchanged. Any adjustments required by this Section 6(a) shall be made whenever and as often as any specified event requiring an adjustment shall occur. If the Company shall take a record of the holders of the Common Stock for the purpose -6- of effecting such distribution, subdivision or combination and shall, thereafter and before such distribution, subdivision, or combination, legally abandon its plan to pay or deliver such distribution or effect such subdivision or combination, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (b) If at any time prior to the exercise of this Warrant in full, the Company shall (i) issue or sell any Common Stock or Common Stock Equivalents without consideration or for consideration per share (in cash, property or other assets) less than the current market price per share on the date of such issuance or sale as determined pursuant to Section 6(d) or (ii) fix a record date for the issuance of subscription rights, options or warrants to all holders of Common Stock entitling them to subscribe for or purchase Common Stock (or Common Stock Equivalents (as hereinafter defined)) at a price (or having an exercise or conversion price per share) less than the current market price of the Common Stock (as determined pursuant to Section 6(d)) on the record date described below, the Exercise Price shall be adjusted so that the Exercise Price shall equal the price determined by multiplying the Exercise Price in effect immediately prior to the date of such sale or issuance (which date in the event of a distribution to stockholders shall be deemed to be the record date set by the Company to determine stockholders entitled to participate in such distribution) by a fraction, the numerator of which shall be (i) the number of shares of Common Stock outstanding on the date of such sale or issuance, plus (ii) the number of additional shares of Common Stock which the aggregate consideration received by the Company upon such issuance or sale (plus the aggregate of any additional amount to be received by the Company upon the exercise of such subscription rights, options or warrants) would purchase at such current market price per share of the Common Stock and the denominator of which shall be (i) the number of shares of Common Stock outstanding on the date of such issuance or sale, plus (ii) the number of additional shares of Common Stock offered for subscription or purchase (or into which the Common Stock Equivalents so offered are exercisable or convertible). Whenever the Exercise Price payable upon exercise of this Warrant is adjusted pursuant to this Section 6(b), the number of Warrant Shares issuable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Warrant Shares issuable upon exercise of this Warrant by the Exercise Price in effect on the date of such adjustment and dividing the product so obtained by the Exercise Price, as adjusted. Any adjustments required by this Section 6(b) shall be made immediately after such issuance or sale or record date, as the case may be. Such adjustments shall be made successively whenever such event shall occur. To the extent that shares of Common Stock (or Common Stock Equivalents) are not delivered in connection with such subscription rights, options or warrants, the Exercise Price shall be readjusted to the Exercise Price which would then be in effect had the adjustments made upon the issuance of such rights, options or warrants been made upon the basis of delivery of only the number of shares of Common Stock (or Common Stock Equivalents) actually delivered. In the case of an issue of additional Common Stock or Common Stock Equivalents for cash, the consideration received by the Company therefor, before deducting therefrom any discount or commission or other expenses allowed, paid or incurred by the Company for underwriting of, or otherwise in connection with, the issuance thereof, shall be deemed to be the amount received by the Company therefor. In the case of an issue of additional Common Stock or Common Stock Equivalents for consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by -7- the Company's Board of Directors, irrespective of any accounting treatment. No adjustments to the Exercise Price or the number of Warrant Shares issuable upon exercise of this Warrant shall be made pursuant to this Section 6(b) for (x) any transaction for which adjustment thereto is required to be made pursuant to Section 6(a) hereof, (y) the exercise of Warrants or (2) the conversion, exchange or exercise of any Common Stock Equivalents. (c) For purposes of this Section 6, "Common Stock Equivalents" shall mean any options, warrants or other securities or rights convertible into, or exercisable or exchangeable for, shares of Common Stock. (d) For the purpose of any computation under this Section 6, the current market price per share of Common Stock at any date shall be deemed to be the average of the daily closing prices for the 20 consecutive trading days immediately preceding such date. The closing price for each day shall be the last sale price of the Common Stock or, in case no such reported sales take place on such day, the average of the last reported bid and asked prices of the Common Stock in either case on the principal national securities exchange on which the Common Stock is admitted to trading or listed, or if not listed or admitted to trading on any such exchange, the representative closing bid price of the Common Stock as reported by NASDAQ, or other similar organization if NASDAQ is no longer reporting such information, or if not so available, the fair market price of the Common Stock as determined by the Company's Board of Directors. The term "issue" shall include the sale other disposition of shares held by or on account of the Company or in the treasury of the Company but until so sold or otherwise disposed of such shares shall not be deemed outstanding. (e) In the event that at any time, as a result of any adjustment made pursuant to Section 6, the Warrantholder thereafter shall become entitled to receive any shares of the Company other than Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Section 6. (f) In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock (other than a dividend, distribution, subdivision or combination of the outstanding Common Stock provided for in Section 6(a) and other than a change in the par value of the Common Stock or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant)) or in case of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall, as a condition precedent to such transaction, cause such successor or purchasing corporation, as the case may be, to execute with the Warrantholder an agreement granting the Warrantholder the right thereafter, upon payment of the Exercise Price in effect immediately prior to such action, to receive upon exercise of this Warrant the kind and amount of shares and other -8- securities and property which it, he or she would have owned or have been entitled to receive after the happening of such reclassification, change, consolidation, merger, sale or conveyance had this Warrant been exercised immediately prior to such action. Such agreement shall provide for adjustments in respect of such shares of stock and other securities and property, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. In the event that in connection with any such reclassification, capital reorganization, change, consolidation, merger, sale or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole or in part, for, or of, a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of this Section 6. The provisions of this Section 6 shall similarly apply to successive reclassifications, capital reorganizations, consolidations, mergers, sales or conveyances. (g) Liquidating Dividends, Etc. If the Company at any time while Warrants are outstanding and unexpired makes a distribution of its assets to the holders of its Common Stock as a dividend in liquidation or by way of return of capital or other than as a dividend payable out of earnings or surplus legally available for dividends under applicable law or any distribution to such holders made in respect of the sale of all or substantially all of the Company's assets (other than under the circumstances provided for in the foregoing subsections (a) through (f)), the holder of this Warrant shall be entitled to receive upon the exercise hereof, in addition to the shares of Common Stock receivable upon such exercise, and without payment of any consideration other than the Exercise Price, an amount in cash equal to the value of such distribution per share of Common Stock multiplied by the number of shares of Common Stock which, on the record date for such distribution, are issuable upon exercise of this Warrant (with no further adjustment being made following any event which causes a subsequent adjustment in the number of shares of Common Stock issuable upon the exercise hereof), and an appropriate provision therefor should be made as part of any such distribution. The value of a distribution which is paid in other than cash shall be determined in good faith by the Board of Directors. (h) If at any time prior to the date of the original issuance of this Warrant, or at any time thereafter while this Warrant is outstanding, a Distribution Date (as defined in the Company's Rights Agreement as of January 3, 1994 by and between the Company and Mellon Securities Trust Company (the "Rights Plan") shall occur and all of the Rights (as defined in the Rights Plan) then issued and outstanding pursuant to such Rights Plan shall not be redeemed by the Company for nominal consideration of $.001 per Right within the redemption period provided for in Section 23 of the Rights Plan, then in such event there shall be promptly issued to the holder of this Warrant, that number of Rights under the Rights Plan as would have been issued to such holder if immediately prior to the Distribution Date the holder had exercised his right to purchase, and the Company had issued to him, all Warrant Shares issuable to him upon exercise of this Warrant and he was the record owner of such Warrant Shares on the date provided for in the Rights Plan for determining the stockholders of record entitled to receive Rights Certificates (as defined in the Rights Plan). If the Company shall be prohibited from issuing such Rights to the Warrant holder by law or by the terms of the Rights Plan, then the Warrant Holder shall have the right under this paragraph (h) to purchase or acquire (by exchange of securities or otherwise) the same number and class of equity securities of the -9- Company as such holder would have had the right to so purchase or otherwise acquire if the Rights described in the preceding sentence had been issued to him, for the same consideration as the holder would have paid or tendered under such Rights and on the same other terms and conditions as would have been applicable under such Rights if such Rights had been issued to such holder as provided in the preceding sentence. The intent of this paragraph (h) is to protect the holder of the Warrant from the dilution of and diminution in the value of his investment in the Company that would occur if the Rights under the Rights Plan become exercisable or exchangeable for stock of the Company following the occurrence of a Distribution Date and the provisions of this Warrant shall be liberally interpreted in order to give effect to this intention. The Board of Directors of the Company shall also take such other actions as may be necessary to carry out the purpose and intent of this paragraph. (i) No Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 6 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Warrantholders against impairment. (j) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Exercise Price pursuant to this Section 6, the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each Warrantholder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of any Warrantholder, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Exercise Price at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the exercise of this Warrant. SECTION 7. Registration Rights. Each present and future holder of Warrant Shares shall be entitled to the benefits of the registration rights granted pursuant to this Section 7. The Company covenants and agrees as follows: (a) Definitions. For purposes of this Section 7: (i) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document; (ii) The term "Registrable Securities" means the Warrant Shares and all shares of Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued -10- as) a dividend or other distribution with respect to, or in exchange for or in replacement of, any of the Warrant Shares excluding in all cases, however, any Registrable Securities (x) sold by a person in a transaction in which his rights under this Section 7 are not assigned, (y) sold in a public offering registered under the Securities Act or (z) sold pursuant to Rule 144 promulgated under the Securities Act; (iii) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities; (iv) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 5(b) hereof; and (v) The term "Form S-3" means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (b) Request for Registration. (i) If the Company shall receive at any time, on or after the first anniversary hereof, a written request from the Holders of a majority of the Registrable Securities then outstanding that the Company file a registration statement under the Securities Act covering the registration of at least sixty percent (60%) of the Registrable Securities then outstanding, then the Company shall, within ten (10) business days of the receipt thereof, give written notice of such request to all Holders, and shall, subject to the limitations of Section 7(b)(ii), effect as soon as practicable, and in any event within 90 days of the receipt of such request, the registration under the Securities Act of the Registrable Securities which the Holders request to be registered within twenty (20) days of the mailing of such notice by the Company. If within fifteen (15) days of the exercise of a demand registration right granted under this Section 7(b), the Company notifies the Holders of the Registrable Securities making such demand that the Company wishes to register securities of the same class for its own account on the registration statement being filed pursuant to the demand for offering to the public via a firm commitment underwriting, then the Company may include securities for its own account in such registration statement; provided, however, that if the managing underwriter determines and advises in writing that the inclusion of any or all such securities for the Company's account in the registration statement covered by the requests for registration made under this Section 7(b)(ii) would be detrimental to the offering of the Registrable Securities being sold in such registration, then the requisite number of securities for the Company's account shall be excluded from registration hereunder and, provided, further, that if the Company includes any securities for its own account on the registration statement filed pursuant to this Section 7(b), such registration shall not be counted as one of Holders' demand registrations pursuant to this Section 7(b) -11- and the Holders shall not be required to reimburse the Company for any expenses incurred by it in connection with such registration. (ii) If the Holders initiating the registration request hereunder (the "Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 7(b) and the Company shall include such information in the written notice referred to in Section 7(b)(i). In such event, the right of any Holder to include its, his or her Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 7(d)(v)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders. VVI acknowledges that the Preference Holders (as hereinafter defined) have the right to include certain securities in any registration under this Section 7(b). Notwithstanding any other provision of this Section 7(b), if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of securities that may be included in the underwriting shall be allocated first among all holders (the "Preference Holders") of Company securities covered by the registration rights ("Other Securities") granted pursuant to either that certain Securities Purchase Agreement dated as of September 30, 1994 (as amended as of December 19, 1994) by and among the Company and the purchasers named therein or that certain Registration Rights Agreement dated as of December 19, 1994 by and among the Company and the other signatories thereto or those certain Warrants to purchase an aggregate of up to 66,264 shares of the Company's Common Stock issued pursuant to that certain Release and Settlement Agreement dated February 10, 1995 by and between the Company and The Wall Street Group, Inc. (the "Preferred Rights"); and next among all Initiating Holders and other Holders who have been provided the notice required by Section 7(b)(i) in proportion (as nearly as practicable) to the number of shares of Registrable Securities requested to be included in such registration by such Holder and which would be eligible for inclusion in the registration but for the application of this sentence. In the event Holders are not permitted to include at least seventy-five (75%) percent of the shares of Registrable Securities that they requested pursuant to Section 7(b)(i) to be included in a demand registration as a result of the application of the immediately preceding sentence, such registration shall not be counted as one of the Holders' demand registrations pursuant to this Section 7(b) and the Holders shall not be required to reimburse the Company for any expenses incurred by it in connection with such registration. In the event, as a result of the second immediately preceding sentence, Holders are permitted to include at least seventy-five (75%) percent but less than one hundred (100%) percent of the shares of Registrable Securities that they requested pursuant to Section 7(b)(i) to be included in any registration which would be the last demand registration to which the Holders would be entitled pursuant to this Section 7(b) but for the application of this sentence, the Holders shall be entitled to effect an additional demand registration in accordance with the provisions set forth in -12- this Section 7(b) and the Holders shall not be required to reimburse the Company for any expenses incurred by it in connection with any such additional registration. (iii) Subject to the last sentences of Sections 7(b)(ii) and (v) hereof, the Company is obligated to effect only two (2) registrations pursuant to this Section 7(b). (iv) Notwithstanding the foregoing, the Company shall not be required to file a registration statement pursuant to a request of the Initiating Holders during either (i) the one hundred twenty (120) day period following the effective date of any registration of Company securities which includes Registrable Securities or Other Securities or (ii) the period of time beginning on the date the Company files a registration statement with the SEC covering Other Securities in a firm commitment underwriting and ending on the earlier to occur of (x) the date which is 120 days after such registration becomes effective, (y) the date on which the Company withdraws such registration with the SEC or (z) the date which is 180 days after the date the Company files such registration statement. In addition, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 7(b) a certificate signed by the President of the Company stating that in the good faith judgment of the board of directors of the Company it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve (12) month period. (v) VVI acknowledges that the Company has granted the Preferred Holders the right to participate in registrations of the Company's securities required to be undertaken pursuant to this Section 7(b). If within forty-five (45) days of the exercise of a demand registration right granted pursuant to this Section 7(b), the Company notifies the Holders of the Registrable Securities that the Preferred Holders wish to include Other Securities for their account in such registration, then the Company may include Other Securities for the account of such Preferred Holders in such registration and, in the case of an underwritten offering, may reduce the number of shares of Registrable Securities included in such registration in accordance with the provisions set forth in Section 7(b)(ii); provided, however, that if the Holders are not permitted to include at least seventy-five (75%) percent of the shares of Registrable Securities that they requested pursuant to Section 7(b)(i) to be included in a demand registration as a result of the applications of this sentence, such registration shall not be counted as one of Holders' demand registrations pursuant to this Section 7(b) and the Holders shall not be required to reimburse the Company for any expenses incurred by it in connection with such registration. In the event, as a result of the immediately preceding sentence, Holders are permitted to include at least seventy-five (75%) percent but less than one hundred (100%) percent of the shares of Registrable Securities that they requested pursuant to Section 7(b)(i) to be included in any registration which would be the last demand registration to which the Holders would be entitled pursuant to this Section 7(b) but for the application of this sentence, the Holders shall be entitled to effect an additional demand registration in accordance with the provisions set forth in this Section 7(b) and the Holders shall not be required to reimburse the Company for any expenses incurred by it in connection with any such additional registration. -13- (vi) In the event that the Warrant would expire at any time when the Holders have requested registration of Registrable Securities pursuant to Section 7(b)(i) and either (x) NMC is not required to file a registration statement during such time pursuant to Section 7(b)(iv) or (y) the Holders are not permitted to include all of the Registrable Securities that they requested to be included in such demand registration pursuant to Section 7(b)(ii) or (v), then the term of the Warrant (but only with respect to Registrable Securities that were not included in such demand registration by reason of the circumstances described in clause (x) or (y)) shall be extended until a registration statement registering such Registrable Securities is effective. (c) Company Registration. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any shares of its Common Stock under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to employees pursuant to stock option awards and/or to participants in a Company employee benefit or stock plan, or a registration on any form which does not include substantially the same information, other than information related to the selling stockholders or their plan of distribution, as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company, the Company shall, subject to the provisions of the immediately preceding sentence and Section 7(h) hereof, cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be so registered. Notwithstanding anything herein to the contrary, in the case of a registration required to be undertaken by the Company pursuant to the Preferred Rights (a "Limited Piggyback Registration"), the Company shall not be required to include any Registrable Securities in such Limited Piggyback Registration if either (i) the Preferred Holders (whose determination shall be made by Preferred Holders holding a majority of the securities covered by such demand registration rights which are to be included in such registration) or the managing underwriter (in the case of an underwritten offering) determine in good faith that the inclusion of any or all of the Registrable Securities would be detrimental to the offering of the Preferred Holders' securities or any securities to be sold in such registration for the Company's account or (ii) the number of Other Securities to be included in such registration would be reduced by the inclusion of the Registrable Securities in such registration. In the event the number of shares of Registrable Securities requested by Holders to be included in a registration is reduced by application of the immediately preceding sentence, the number of Registrable Securities to be included in the registration statement shall be allocated among the Holders who have provided the notice required by this Section 7(c) in proportion (as nearly as practicable) to the number of Registrable Securities requested to be included in such registration by such Holder and which would be eligible for inclusion in such registration but for the application of the immediately preceding sentence. (d) Obligations of the Company. Whenever required under this Section 7 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: -14- (i) Prepare and file with the Securities and Exchange Commission (the "SEC") a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to one hundred twenty (120) days. (ii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. (iii) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (iv) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (v) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (vi) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (vii) In the case of an underwritten public offering, furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 7, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 7, (A) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in such form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters and (B) a letter dated such date, from the independent certified public accountants of the Company, in such form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters. -15- (e) Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 7 with respect to the Registrable Securities of any selling Holder that such Holder shall have furnished to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. (f) Expenses of Demand Registration. Except as set forth in this Section 7(f), the Company shall bear and pay all expenses incurred by it in connection with any registrations, filings or qualifications pursuant to Section 7(b), including without limitation all registration, filing and qualification fees, printers, and accounting fees, and fees and disbursements of counsel for the Company; provided, however, that (subject to Sections 7(b)(ii) and (v) hereof) the Holders participating in any registration pursuant to Section 7(b) shall reimburse the Company for (i) all such expenses (up to a maximum of Twenty Five Thousand ($25,000.00) Dollars per registration) pro rata based upon the number of Registrable Securities included in such registration by all Holders (excluding, however, any expenses attributable to the inclusion of any other securities therein, including, without limitation, any Other Securities) and (ii) for any expenses of any registration proceeding begun pursuant to Section 7(b) if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all Holders participating in such withdrawn registration shall bear such expenses pro rata based upon the number of Registrable Securities to be included in such registration), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 7(b); provided further, however, that, in the case of clause (ii) hereof, if at the time of such withdrawal the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request, then the Holders shall not be required to reimburse the Company for any of such expenses and shall retain their rights pursuant to Section 7(b). In no event shall the Company be required to pay any expenses incurred by a Holder in connection with any registration, filing or qualification pursuant to Section 7(b). (g) Expenses of Company Registration. The Company shall bear and pay all expenses incurred by it in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 7(c), including without limitation all registration, filing, and qualification fees, printers and accounting fees and all fees and disbursements of counsel for the Company relating or allocable thereto. The Company shall not pay any expenses incurred by a Holder in connection with any such registration, filing or qualification, including, but not limited to underwriting discounts and commissions relating to Registrable Securities and the fees and disbursements of any professional advisors (including attorneys and accountants) utilized by the selling Holders in connection with such registration, filing or qualification. (h) Reduction of Registrable Securities Included in Piggyback Registration Statement. In connection with any offering involving an underwriting of shares being issued by the Company, the Company shall not be required under Section 7(c) hereof to include any of the Holders' securities in such underwriting unless they accept the customary and reasonable terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity as will not, in the opinion of the -16- underwriters, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters reasonably believe compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters believe will not jeopardize the success of the offering (the securities so included to be allocated first among all holders of Other Securities and next apportioned pro rata among the Holders who have provided notice required by Section 7(c) and all other holders (other than holders of Other Securities) of securities subject to registration rights granted by the Company in proportion (as nearly as practicable) to the number of shares of securities requested to be included in such registration by such Holder and such other holders and which would have been eligible for inclusion in such registration but for the application of this sentence, or in such other proportions as shall mutually be agreed to by such selling stockholders). For purposes of the provision of the preceding sentence concerning pro rata apportionment amongst the selling stockholders, for any selling stockholder which is a partnership or corporation, the partners, retired partners and stockholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling stockholder," and any pro rata reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling stockholder," as defined in this sentence. (i) Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration by the Company as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 7. (j) Indemnification and Contribution. In the event any Registrable Securities are included pursuant to a registration statement under this Section 7: (i) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Securities Act) and each person if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act") against any losses, claims, damages or liabilities (joint or several) to which they or any of them may become subject under the Securities Act, the Exchange Act or any other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (A) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus (but only if such is not corrected in the final prospectus) contained therein or any amendments or supplements thereto, (B) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading (but only if such is not corrected in the final prospectus), or (C) any violation or alleged violation by the Company in connection with the registration of Registrable Securities under the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities -17- law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 7(j)(i) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (ii) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this Section 7(j)(ii), in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 7(j)(ii) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided that in no event shall any indemnity under this Section 7(j)(ii) exceed the net proceeds from the offering received by such Holder. (iii) Promptly after receipt by an indemnified party under this Section 7(j) of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 7(j), deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 7(j), but the omission so to deliver -18- written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 7(j). (iv) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in Section 7(j)(i) and (ii) is applicable but for any reason is held to be unavailable from the Company with respect to all Holders or any Holder, the Company and the Holder or Holders, as the case may be, shall contribute to the aggregate losses, claims, damages and liabilities (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted) to which the Company and one or more of the Holders may be subject in such proportion as is appropriate to reflect the relative fault of the Company on the one hand, and the Holder or Holders on the other, in connection with statements or omissions which resulted in such losses, claims, damages or liabilities. Notwithstanding the foregoing, no Holder shall be required to contribute any amount in excess of the net proceeds received by such Holder from the Registrable Securities as the case may be, sold by such Holder pursuant to the registration statement. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Each person, if any, who controls a Holder within the meaning of the Securities Act shall have the same rights to contribution as such Holder. (v) The obligations of the Company and Holders under this Section 7(j) shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 7 or otherwise. (k) Reports Under the Exchange Act. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144 of the SEC; (ii) at all times take all such action as may be necessary or advisable to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities; (iii) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (iv) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon its request (i) a written statement by the Company as to its compliance with the reporting requirements of SEC Rule 144, the Securities Act and the Exchange Act, or as to its qualified status as a registrant whose securities may be resold pursuant to Form S-3, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or -19- regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. (l) Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (i) to include such securities in any registration filed under Section 7(b) hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of this securities will not reduce the amount of the Registrable Securities of the Holders which is included in such registration; (ii) to make a demand registration which could result in such registration statement being declared effective within one hundred twenty (120) days after the effective date of any registration effected pursuant to Section 7(b) hereof or (iii) to include such securities in any registration in which the Holders may include Registrable Securities pursuant to Section 7(c) hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only on a basis no more favorable than pro rata with all Holders of Registrable Securities in proportion (as nearly as practicable) to the number of shares of securities to be included in such registration by such Holder and such other holders. (m) The provisions of this Section 7 shall survive any expiration of the Warrants evidenced hereby until the earlier to occur of (i) the date that all Warrant Shares held by all Holders may be sold for resale pursuant to Rule 144 under the Exchange Act without reduction as a result of Rule 144(e) thereunder and (ii) the date that no Warrants or Warrant Shares are held by any Holder. SECTION 8. Miscellaneous. 8.1 Entire Agreement. This Warrant constitutes the entire agreement between the Company and the Warrantholders with respect to this Warrant and Warrant Shares. 8.2 Binding Effects; Benefits. This Warrant shall inure to the benefit of and shall be binding upon the Company, the Warrantholders and holders of Warrant Shares and their respective heirs, legal representatives, successors and assigns. Nothing in this Warrant, expressed or implied, is intended to or shall confer on any person other than the Company, the Warrantholders and holders of Warrant Shares, or their respective heirs, legal representatives, successors or assigns, any rights, remedies, obligations or liabilities under or by reason of this Warrant or the Warrant Shares. 8.3 Amendments and Waivers. This Warrant may not be modified or amended except by an instrument in writing signed by the Company and Warrantholders that hold Warrants entitling them to purchase at least 50% of the Warrant Shares. The Company, any Warrantholder or holders of Warrant Shares may, by an instrument in writing, waive compliance by the other party with any term or provision of this Warrant on the part of such other party hereto to be performed or complied -20- with. The waiver by any such party of a breach of any term or provision of this Warrant shall not be construed as a waiver of any subsequent breach. 8.4 Section and Other Headings. The section and other headings contained in this Warrant are for reference purposes only and shall not be deemed to be a part of this Warrant or to affect the meaning or interpretation of this Warrant. 8.5 Further Assurances. Each of the Company, the Warrantholders and holders of Warrant Shares shall do and perform all such further acts and things (including, without limitation, any required filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and execute and deliver all such other certificates, instruments and/or documents (including without limitation, such proxies and/or powers of attorney as may be necessary or appropriate) as any party hereto may, at any time and from time to time, reasonably request in connection with the performance of any of the provisions of this Warrant. 8.6 Notices. All demands, requests, notices and other communications required or permitted to be given under this Warrant shall be in writing and shall be deemed to have been duly given if delivered personally or sent by United States certified or registered first class mail, postage prepaid, to the parties hereto at the following addresses or at such other address as any party hereto shall hereafter specify by notice to the other party hereto: (a) if to the Company, addressed to: National Media Corporation 1700 Walnut Street Philadelphia, Pennsylvania 19103 Attention: Chairman (b) if to any Warrantholder or holder of Warrant Shares, addressed to the address of such person appearing on the books of the Company. Except as otherwise provided herein, all such demands, requests, notices and other communications shall be deemed to have been received on the date of personal delivery thereof or on the third business day after the mailing thereof. 8.7 Separability. Any term or provision of this Warrant which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable any other term or provision of this Warrant or affecting the validity or enforceability of any of the terms or provisions of this Warrant in any other jurisdiction. 8.8 Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Warrantholder an amount in cash equal to such -21- fraction multiplied by the current market price (as determined as of the date of exercise, and with reference to the applicable trading market, in accordance with Section 1.1(a)(ii)) of a share of such stock as of the date of such exercise. 8.9 Rights of the Holder. The Warrantholder shall not, solely by virtue of this Warrant, be entitled to any rights of a stockholder of the Company, either at law or in equity. 8.10 Governing Law. This Warrant shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and performed in Delaware. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer. NATIONAL MEDIA CORPORATION By:_______________________________________ Name: Title: Dated: November 24, 1995 -22- ASSIGNMENT (To be executed only upon assignment of Warrant Certificate) For value received, ____________________ hereby sells, assigns and transfers unto _____________________ the within Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _________________ attorney, to transfer said Warrant Certificate on the books of the within-named Company with respect to the number of Warrants set forth below, with full power of substitution in the premises: Name(s) of Assignee(s) Address No. of Warrant Shares ----------- ------- --------------------- And if said number of Warrants shall not be all the Warrants represented by the Warrant Certificate, a new Warrant Certificate is to be issued in the name of said undersigned for the balance remaining of the Warrants represented by said Warrant Certificate. Dated: ________________, 19___ ------------------------------------------ Note: The above signature should correspond exactly with the name on the face of this Warrant Certificate. -23- SUBSCRIPTION FORM (To be executed upon exercise of Warrant pursuant to Section 1.1(a)) The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant Certificate for, and to purchase thereunder,__________ shares of Common Stock, as provided for therein, and delivers payment in full of the Exercise Price in the amount of $ __________ as follows: Cash $__________ Certified or Official bank check $__________ Application of Telemarketing Differential and Production and Post Production Differential $__________ Please issue a certificate or certificates for such Common Stock in the name of, and pay any cash for any fractional share to: Name: ______________________________________ Address: ______________________________________ ______________________________________ ______________________________________ Social Security No.: ______________________________________ (Please Print Name, Address and Social Security No.) Signature: ________________________________________ NOTE: The above signature should correspond exactly with the name on the first page of this Warrant Certificate or with the name of the assignee appearing in the assignment form delivered herewith. And if said number of shares shall not be all the shares purchasable under the within Warrant Certificate, a new Warrant Certificate is to be issued in the name of said undersigned for the balance remaining of the shares purchasable thereunder rounded up to the next higher number of shares. -24- EX-4.2 3 EXHIBIT 4.2 EXHIBIT 4.2 NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND THE TERMS AND CONDITIONS HEREOF. THE HOLDER OF THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE RESTRICTIONS HEREIN SET FORTH. VOID AFTER 5:00 P.M., PHILADELPHIA, PENNSYLVANIA TIME, DECEMBER 1, 1996 *************************************** WARRANT to PURCHASE COMMON STOCK of NATIONAL MEDIA CORPORATION *************************************** This certifies that, for good and valuable consideration, National Media Corporation, a Delaware corporation (the "Company"), grants to _____________________ or permitted registered assigns (the "Warrantholder" or "Warrantholders"), the right to subscribe for and purchase from the Company, at $10.00 per share (the "Exercise Price"), from and after the date hereof, and to and including 5:00 P.M. Philadelphia, Pennsylvania time on December 1, 1996 (the "Expiration Date"), _______ shares, as such number of shares may be adjusted from time to time (the "Warrant Shares"), of the Company's Common Stock, par value $0.01 per share (the "Common Stock"), subject to the provisions and upon the terms and conditions herein set forth. The Exercise Price and the number of Warrant Shares are subject to adjustment from time to time as provided in Section 6. -1- SECTION 1. Exercise of Warrant; Limitation on Exercise; Payment of Taxes. 1.1 Exercise of Warrant. (a) The Warrantholder may exercise this Warrant, at any time and from time to time after the date hereof, in whole or in part, by presentation and surrender of this Warrant to the Company at its principal executive offices or at the office of its stock transfer agent, if any, with the Subscription Form annexed hereto duly executed and accompanied by cash payment of the full Exercise Price for each Warrant Share to be purchased against the Exercise Price as set forth in Section 1.3 hereof). (b) Upon receipt of this Warrant, with the Subscription Form duly executed and accompanied by payment of the aggregate Exercise Price for the Warrant Shares for which this Warrant is then being exercised, the Company shall cause to be issued certificates for the total number of whole shares of Common Stock for which this Warrant is being exercised (adjusted to reflect the effect of the antidilution provisions contained in Section 6 hereof, if any, and as provided in Sections 5 and 8.8 hereof) in such denominations as are requested for delivery to the Warrantholder, and the Company shall thereupon deliver such certificates to the Warrantholder. The stock certificates so delivered shall be in such denominations as may be specified by the Warrantholder and shall be issued in the name of the Warrantholder or, if permitted by Section 5 and in accordance with the provisions thereof, such other name as shall be designated in the Subscription Form. The Warrantholder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Warrantholder. If at the time this Warrant is exercised, a registration statement is not in effect to register under the Securities Act of 1933, the Warrant Shares issuable upon exercise of this Warrant, the Company may require the Warrantholder to make such customary representations, and may place such customary legends on certificates representing the Warrant Shares, as may be reasonably required in the opinion of counsel to the Company to permit the Warrant Shares to be issued without such registration. (c) If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the certificates for the Warrant Shares, deliver to the Warrantholder a new Warrant evidencing the rights to purchase the remaining Warrant Shares, which new Warrant shall in all other respects be identical with this Warrant. No adjustments or payments shall be made on or in respect of Warrant Shares issuable on the exercise of this Warrant for any regular cash dividends paid or payable to holders of record of Common Stock prior to the date as of which the Warrantholder shall be deemed to be the record holder of such Warrant Shares. 1.2 Limitation on Exercise. If this Warrant is not exercised prior to 5:00 P.M. on the Expiration Date (or the next succeeding Business Day, if the Expiration Date is a Saturday, Sunday or a day on which the New York Stock Exchange is authorized to close or on which the Company is otherwise closed for business (a "Nonbusiness Day"), this Warrant, or any new Warrant issued -2- pursuant to Section 1.1, shall cease to be exercisable and shall become void and all rights of the Warrantholder hereunder shall cease. 1.3 Payment of Exercise Price. Payment of the Exercise Price shall be made to the Company in cash; by certified or official bank check payable in United States dollars to the order of the Company; or by any combination of the foregoing. 1.4 Payment of Taxes. The issuance of certificates for Warrant Shares shall be made without charge to the Warrantholder for any stock transfer or other issuance tax in respect thereto; provided, however, that the Warrantholder shall be required to pay any and all taxes which may be payable in respect to any transfer involved in the issuance and delivery of any certificates for Warrant Shares in a name other than that of the then Warrantholder as reflected upon the books of the Company. SECTION 2. Reservation and Listing of Shares, Etc. All Warrant Shares which are issued upon the exercise of the rights represented by this Warrant shall, upon issuance and payment of the Exercise Price, be validly issued, fully paid and nonassessable and free from all taxes, liens, security interests, charges and other encumbrances with respect to the issue thereof other than taxes in respect of any transfer occurring contemporaneously with such issue. During the period within which this Warrant may be exercised, the Company shall at all times have authorized and reserved, and keep available free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of this Warrant, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the exercise of this Warrant (and all other Warrants and securities of the Company convertible into or exercisable or exchangeable for Common Stock), in addition to such other remedies as shall be available to a Warrantholder, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. In addition, prior to the issuance of any Warrant Shares, the Company shall at its expense procure the listing of the Warrant Shares (or any other issues of capital stock issuable upon the exercise of this Warrant if such other class of capital stock is then so listed) which shall be issued upon exercise of this Warrant (subject to official notice of issuance) as then may be required on all stock exchanges or interdealer quotation systems on which the Common Stock is then listed and shall maintain such listing if and so long as any shares of the same class shall be listed on such stock exchanges or interdealer quotation systems. The Company shall, from time to time, take all such action as may be required to assure that the par value per share of the Warrant Shares is at all times equal to or less than the then effective Exercise Price. SECTION 3. Exchange, Loss or Destruction of Warrant. If permitted by Section 5 and in accordance with the provisions thereof, upon surrender of this Warrant to the Company with a duly executed instrument of assignment and funds sufficient to pay any transfer tax, -3- the Company shall, without charge, execute and deliver a new Warrant of like tenor in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of such bond or indemnification as the Company may reasonably require, and, in the case of such mutilation, upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant of like tenor. The term "Warrant" as used herein includes any Warrants issued in substitution or exchange of this Warrant. SECTION 4. Ownership of Warrant; Certain Rights of Warrantholders. (a) The Company may deem and treat the person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in subsection 1.1, Section 3 or Section 5. (b) Nothing contained in this Warrant shall be construed as conferring upon the Warrantholder or its transferees the right to vote or to receive dividends or to consent or to receive notice as a stockholder in respect of any meeting of stockholders for the election of directors of the Company or of any other matter, or any rights whatsoever as stockholders of the Company. The Company shall give notice to the Warrantholder by registered mail if at any time prior to the expiration or exercise in full of the Warrants, any of the following events shall occur: (i) the Company shall authorize the payment of any dividend payable in any securities upon shares of Common Stock or authorize the making of any distribution (other than a regular cash dividend paid out of net profits legally available therefor) to all holders of Common Stock; (ii) the Company shall authorize the issuance to all holders of Common Stock of any additional shares of Common Stock or securities that are convertible into or exercisable for shares of Common Stock ("Common Stock Equivalents") or of rights, options or warrants to subscribe for or purchase Common Stock or Common Stock Equivalents or of any other subscription rights, options or warrants; (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation, merger, or sale or conveyance of the property of the Company as an entirety or substantially as an entirety); or (iv) a capital reorganization or reclassification of the Common Stock (other than a subdivision or combination of the outstanding Common Stock and other than a change in the par value of the Common Stock) or any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and that does not result in any reclassification or change of Common Stock outstanding) or in the case of any sale or conveyance to another -4- corporation of the property of the Company as an entirety or substantially as an entirety. Such giving of notice shall be initiated at least 20 days prior to the date fixed as a record date or effective date or the date of closing of the Company's stock transfer books for the determination of the stockholders entitled to such dividend, distribution, issuance or subscription rights, or for the determination of the stockholders entitled to vote on such proposed merger, consolidation, sale, conveyance, dissolution, liquidation or winding up. Such notice shall specify such record date or the date of closing the stock transfer books, as the case may be. Failure to provide such notice shall not affect the validity of any action taken in connection with such dividend, distribution, issuance or subscription rights, or proposed merger, consolidation, sale, conveyance, dissolution, liquidation or winding up. SECTION 5. Split-Up, Combination, Exchange and Transfer of Warrants. (a) Subject to the provisions of Section 5(b), this Warrant may be split up, combined or exchanged for another Warrant or Warrants containing the same terms to purchase a like aggregate number of Warrant Shares. If the Warrantholder desires to split up, combine or exchange this Warrant, he, she or it shall make such request in writing delivered to the Company and shall surrender to the Company this Warrant and any other Warrants to be so split up, combined or exchanged. Upon any such surrender for a split up, combination or exchange, the Company shall execute and deliver to the person entitled thereto a Warrant or Warrants, as the case may be, as so requested. The Company shall not be required to effect any split up, combination or exchange which will result in the issuance of a warrant entitling the Warrantholder to purchase upon exercise a fraction of a share of Common Stock or a fractional Warrant. The Company may require such Warrantholder to pay a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any split up, combination or exchange of Warrants. (b) Neither this Warrant not the Warrant Shares may be Transferred except in accordance with and subject to the provisions of the Securities Act and the rules and regulations promulgated thereunder. If at the time of a Transfer, a registration statement is not in effect to register this Warrant or the Warrant Shares, the Company may require the Warrantholder to make such customary representations, and may place such customary legends on certificates representing this Warrant, as may be reasonably required in the opinion of counsel to the Company to permit a Transfer without such registration. SECTION 6. Certain Adjustments. (a) If at any time or from time to time the Company shall (i) take a record of the holders of the Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock into a larger number of shares of Common Stock or (iii) combine the outstanding shares of Common Stock into a smaller number of shares of Common Stock, then the number of shares of Common Stock thereafter issuable upon exercise of this Warrant and the Exercise Price then in effect shall be adjusted so that this Warrant shall -5- be exercisable for the same number of shares that a record holder of the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to the happening of such event would own or be entitled to receive after the happening of such event and so that the aggregate Exercise Price payable for the purchase of all Warrant Shares pursuant to this Warrant shall remain unchanged. Any adjustments required by this Section 6(a) shall be made whenever and as often as any specified event requiring an adjustment shall occur. If the Company shall take a record of the holders of the Common Stock for the purpose of effecting such distribution, subdivision or combination and shall, thereafter and before such distribution, subdivision, or combination, legally abandon its plan to pay or deliver such distribution or effect such subdivision or combination, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (b) If at any time prior to the exercise of this Warrant in full, the Company shall (i) issue or sell any Common Stock or Common Stock Equivalents without consideration or for consideration per share (in cash, property or other assets) less than the current market price per share on the date of such issuance or sale as determined pursuant to Section 6(d) or (ii) fix a record date for the issuance of subscription rights, options or warrants to all holders of Common Stock entitling them to subscribe for or purchase Common Stock (or Common Stock Equivalents (as hereinafter defined)) at a price (or having an exercise or conversion price per share) less than the current market price of the Common Stock (as determined pursuant to Section 6(d)) on the record date described below, the Exercise Price shall be adjusted so that the Exercise Price shall equal the price determined by multiplying the Exercise Price in effect immediately prior to the date of such sale or issuance (which date in the event of a distribution to stockholders shall be deemed to be the record date set by the Company to determine stockholders entitled to participate in such distribution) by a fraction, the numerator of which shall be (i) the number of shares of Common Stock outstanding on the date of such sale or issuance, plus (ii) the number of additional shares of Common Stock which the aggregate consideration received by the Company upon such issuance or sale (plus the aggregate of any additional amount to be received by the Company upon the exercise of such subscription rights, options or warrants) would purchase at such current market price per share of the Common Stock and the denominator of which shall be (i) the number of shares of Common Stock outstanding on the date of such issuance or sale, plus (ii) the number of additional shares of Common Stock offered for subscription or purchase (or into which the Common Stock Equivalents so offered are exercisable or convertible). Whenever the Exercise Price payable upon exercise of this Warrant is adjusted pursuant to this Section 6(b), the number of Warrant Shares issuable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Warrant Shares issuable upon exercise of this Warrant by the Exercise Price in effect on the date of such adjustment and dividing the product so obtained by the Exercise Price, as adjusted. Any adjustments required by this Section 6(b) shall be made immediately after such issuance or sale or record date, as the case may be. Such adjustments shall be made successively whenever such event shall occur. To the extent that shares of Common Stock (or Common Stock Equivalents) are not delivered in connection with such subscription rights, options or warrants, the Exercise Price shall be readjusted to the Exercise Price which would then be in effect had the adjustments made upon the issuance of such rights, options or warrants been made upon the basis of delivery of only the number of shares of -6- Common Stock (or Common Stock Equivalents) actually delivered. In the case of an issue of additional Common Stock or Common Stock Equivalents for cash, the consideration received by the Company therefor, before deducting therefrom any discount or commission or other expenses allowed, paid or incurred by the Company for underwriting of, or otherwise in connection with, the issuance thereof, shall be deemed to be the amount received by the Company therefor. In the case of an issue of additional Common Stock or Common Stock Equivalents for consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by the Company's Board of Directors, irrespective of any accounting treatment. No adjustments to the Exercise Price or the number of Warrant Shares issuable upon exercise of this Warrant shall be made pursuant to this Section 6(b) for (x) any transaction for which adjustment thereto is required to be made pursuant to Section 6(a) hereof, (y) the exercise of Warrants or (2) the conversion, exchange or exercise of any Common Stock Equivalents. (c) For purposes of this Section 6, "Common Stock Equivalents" shall mean any options, warrants or other securities or rights convertible into, or exercisable or exchangeable for, shares of Common Stock. (d) For the purpose of any computation under this Section 6, the current market price per share of Common Stock at any date shall be deemed to be the average of the daily closing prices for the 20 consecutive trading days immediately preceding such date. The closing price for each day shall be the last sale price of the Common Stock or, in case no such reported sales take place on such day, the average of the last reported bid and asked prices of the Common Stock in either case on the principal national securities exchange on which the Common Stock is admitted to trading or listed, or if not listed or admitted to trading on any such exchange, the representative closing bid price of the Common Stock as reported by NASDAQ, or other similar organization if NASDAQ is no longer reporting such information, or if not so available, the fair market price of the Common Stock as determined by the Company's Board of Directors. The term "issue" shall include the sale other disposition of shares held by or on account of the Company or in the treasury of the Company but until so sold or otherwise disposed of such shares shall not be deemed outstanding. (e) In the event that at any time, as a result of any adjustment made pursuant to Section 6, the Warrantholder thereafter shall become entitled to receive any shares of the Company other than Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Section 6. (f) In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock (other than a dividend, distribution, subdivision or combination of the outstanding Common Stock provided for in Section 6(a) and other than a change in the par value of the Common Stock or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which the Company is the continuing corporation and that does not result in any -7- reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant)) or in case of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall, as a condition precedent to such transaction, cause such successor or purchasing corporation, as the case may be, to execute with the Warrantholder an agreement granting the Warrantholder the right thereafter, upon payment of the Exercise Price in effect immediately prior to such action, to receive upon exercise of this Warrant the kind and amount of shares and other securities and property which it, he or she would have owned or have been entitled to receive after the happening of such reclassification, change, consolidation, merger, sale or conveyance had this Warrant been exercised immediately prior to such action. Such agreement shall provide for adjustments in respect of such shares of stock and other securities and property, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 6. In the event that in connection with any such reclassification, capital reorganization, change, consolidation, merger, sale or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole or in part, for, or of, a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of this Section 6. The provisions of this Section 6 shall similarly apply to successive reclassifications, capital reorganizations, consolidations, mergers, sales or conveyances. (g) Liquidating Dividends, Etc. If the Company at any time while Warrants are outstanding and unexpired makes a distribution of its assets to the holders of its Common Stock as a dividend in liquidation or by way of return of capital or other than as a dividend payable out of earnings or surplus legally available for dividends under applicable law or any distribution to such holders made in respect of the sale of all or substantially all of the Company's assets (other than under the circumstances provided for in the foregoing subsections (a) through (f)), the holder of this Warrant shall be entitled to receive upon the exercise hereof, in addition to the shares of Common Stock receivable upon such exercise, and without payment of any consideration other than the Exercise Price, an amount in cash equal to the value of such distribution per share of Common Stock multiplied by the number of shares of Common Stock which, on the record date for such distribution, are issuable upon exercise of this Warrant (with no further adjustment being made following any event which causes a subsequent adjustment in the number of shares of Common Stock issuable upon the exercise hereof), and an appropriate provision therefor should be made as part of any such distribution. The value of a distribution which is paid in other than cash shall be determined in good faith by the Board of Directors. (h) If at any time prior to the date of the original issuance of this Warrant, or at any time thereafter while this Warrant is outstanding, a Distribution Date (as defined in the Company's Rights Agreement as of January 3, 1994 by and between the Company and Mellon Securities Trust Company (the "Rights Plan") shall occur and all of the Rights (as defined in the Rights Plan) then issued and outstanding pursuant to such Rights Plan shall not be redeemed by the Company for nominal consideration of $.001 per Right within the redemption period provided for in Section 23 of the Rights Plan, then in such event there shall be promptly issued to the holder of this Warrant, that number of Rights under the Rights Plan as would have been issued to such holder if immediately -8- prior to the Distribution Date the holder had exercised his right to purchase, and the Company had issued to him, all Warrant Shares issuable to him upon exercise of this Warrant and he was the record owner of such Warrant Shares on the date provided for in the Rights Plan for determining the stockholders of record entitled to receive Rights Certificates (as defined in the Rights Plan). If the Company shall be prohibited from issuing such Rights to the Warrant holder by law or by the terms of the Rights Plan, then the Warrant Holder shall have the right under this paragraph (h) to purchase or acquire (by exchange of securities or otherwise) the same number and class of equity securities of the Company as such holder would have had the right to so purchase or otherwise acquire if the Rights described in the preceding sentence had been issued to him, for the same consideration as the holder would have paid or tendered under such Rights and on the same other terms and conditions as would have been applicable under such Rights if such Rights had been issued to such holder as provided in the preceding sentence. The intent of this paragraph (h) is to protect the holder of the Warrant from the dilution of and diminution in the value of his investment in the Company that would occur if the Rights under the Rights Plan become exercisable or exchangeable for stock of the Company following the occurrence of a Distribution Date and the provisions of this Warrant shall be liberally interpreted in order to give effect to this intention. The Board of Directors of the Company shall also take such other actions as may be necessary to carry out the purpose and intent of this paragraph. (i) No Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 6 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Warrantholders against impairment. (j) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Exercise Price pursuant to this Section 6, the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each Warrantholder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of any Warrantholder, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustment and readjustment, (ii) the Exercise Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the exercise of this Warrant. SECTION 7. Registration Rights. Each present and future holder of Warrant Shares shall be entitled to the benefits of the registration rights granted pursuant to this Section 7. The Company covenants and agrees as follows: (a) Definitions. For purposes of this Section 7: -9- (i) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document; (ii) The term "Registrable Securities" means the Warrant Shares, all shares of Common Stock ("Other Warrant Shares") issued upon exercise of any other Warrants issued by the Company on the date hereof (other than the VVI Warrant (as defined herein)) and all shares of Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, any of the Warrant Shares or Other Warrant Shares excluding in all cases, however, any Registrable Securities (x) sold by a person in a transaction in which his rights under this Section 7 are not assigned, (y) sold in a public offering registered under the Securities Act or (z) sold pursuant to Rule 144 promulgated under the Securities Act; (iii) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities; (iv) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 5(b) hereof; and (v) The term "Form S-3" means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (b) Request for Registration. (i) If the Company shall receive at any time, on or after the first anniversary hereof, a written request from the Holders of a majority of the Registrable Securities then outstanding that the Company file a registration statement under the Securities Act covering the registration of at least sixty percent (60%) of the Registrable Securities then outstanding, then the Company shall, within ten (10) business days of the receipt thereof, give written notice of such request to all Holders, and shall, subject to the limitations of Section 7(b)(ii), effect as soon as practicable, and in any event within 90 days of the receipt of such request, the registration under the Securities Act of the Registrable Securities which the Holders request to be registered within twenty (20) days of the mailing of such notice by the Company. If within fifteen (15) days of the exercise of a demand registration right granted under this Section 7(b), the Company notifies the Holders of the Registrable Securities making such demand that the Company wishes to register securities of the same class for its own account on the registration statement being filed pursuant to the demand for offering to the public via a firm commitment underwriting, then the Company may include securities for its own -10- account in such registration statement; provided, however, that if the managing underwriter determines and advises in writing that the inclusion of any or all such securities for the Company's account in the registration statement covered by the requests for registration made under this Section 7(b)(ii) would be detrimental to the offering of the Registrable Securities being sold in such registration, then the requisite number of securities for the Company's account shall be excluded from registration hereunder and, provided, further, that if the Company includes any securities for its own account on the registration statement filed pursuant to this Section 7(b), such registration shall not be counted as one of Holders' demand registrations pursuant to this Section 7(b) and the Holders shall not be required to reimburse the Company for any expenses incurred by it in connection with such registration. (ii) If the Holders initiating the registration request hereunder (the "Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 7(b) and the Company shall include such information in the written notice referred to in Section 7(b)(i). In such event, the right of any Holder to include its, his or her Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 7(d)(v)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders. The Warrantholder acknowledges that the Preference Holders (as hereinafter defined) have the right to include certain securities in any registration under this Section 7(b). Notwithstanding any other provision of this Section 7(b), if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of securities that may be included in the underwriting shall be allocated first among all holders (the "Preference Holders") of Company securities covered by the registration rights ("Other Securities") granted pursuant to either that certain Securities Purchase Agreement dated as of September 30, 1994 (as amended as of December 19, 1994) by and among the Company and the purchasers named therein or that certain Registration Rights Agreement dated as of December 19, 1994 by and among the Company and the other signatories thereto or those certain Warrants to purchase an aggregate of up to 66,264 shares of the Company's Common Stock issued pursuant to that certain Release and Settlement Agreement dated February 10, 1995 by and between the Company and The Wall Street Group, Inc. (the "Preferred Rights"); and next among all Initiating Holders and other Holders who have been provided the notice required by Section 7(b)(i) in proportion (as nearly as practicable) to the number of shares of Registrable Securities requested to be included in such registration by such Holder and which would be eligible for inclusion in the registration but for the application of this sentence. In the event Holders are not permitted to include at least seventy-five (75%) percent of the shares of Registrable Securities that they requested pursuant to Section 7(b)(i) to be included in a demand registration as a result of the application of the immediately preceding sentence, such registration shall not be counted as one of the Holders' demand registrations pursuant to this Section 7(b) and the Holders shall not be -11- required to reimburse the Company for any expenses incurred by it in connection with such registration. In the event, as a result of the second immediately preceding sentence, Holders are permitted to include at least seventy-five (75%) percent but less than one hundred (100%) percent of the shares of Registrable Securities that they requested pursuant to Section 7(b)(i) to be included in any registration which would be the last demand registration to which the Holders would be entitled pursuant to this Section 7(b) but for the application of this sentence, the Holders shall be entitled to effect an additional demand registration in accordance with the provisions set forth in this Section 7(b) and the Holders shall not be required to reimburse the Company for any expenses incurred by it in connection with any such additional registration. (iii) Subject to the last sentences of Sections 7(b)(ii) and (v) hereof, the Company is obligated to effect only two (2) registrations pursuant to this Section 7(b). (iv) Notwithstanding the foregoing, the Company shall not be required to file a registration statement pursuant to a request of the Initiating Holders during either (i) the one hundred twenty (120) day period following the effective date of any registration of Company securities which includes Registrable Securities, Other Securities or shares of Common Stock ("VVI Securities") issued pursuant to the Warrant (the "VVI Warrant") issued to ValueVision International, Inc. ("VVI") pursuant to that certain Telemarketing, Production and Post-Production Agreement dated April 13, 1995 by and between VVI and the Company (ii) the period of time beginning on the date the Company files a registration statement with the SEC covering Other Securities and/or VVI Securities in a firm commitment underwriting and ending on the earlier to occur of (x) the date which is 120 days after such registration becomes effective, (y) the date on which the Company withdraws such registration with the SEC or (z) the date which is 180 days after the date the Company files such registration statement. In addition, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 7(b) a certificate signed by the President of the Company stating that in the good faith judgment of the board of directors of the Company it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve (12) month period. (v) The Warrantholder acknowledges that the Company has granted the Preferred Holders and VVI the right to participate in registrations of the Company's securities required to be undertaken pursuant to this Section 7(b). If within forty-five (45) days of the exercise of a demand registration right granted pursuant to this Section 7(b), the Company notifies the Holders of the Registrable Securities that the Preferred Holders wish to include Other Securities for their account in such registration, then the Company may include Other Securities for the account of such Preferred Holders in such registration and, in the case of an underwritten offering, may reduce the number of shares of Registrable Securities included in such registration in accordance with the provisions set forth in Section 7(b)(ii); provided, however, that if the Holders are not permitted to include at least seventy-five (75%) percent of the shares of Registrable Securities that they requested pursuant to Section 7(b)(i) to be included in a demand registration as a result of the -12- applications of this sentence, such registration shall not be counted as one of Holders' demand registrations pursuant to this Section 7(b) and the Holders shall not be required to reimburse the Company for any expenses incurred by it in connection with such registration. In the event, as a result of the immediately preceding sentence, Holders are permitted to include at least seventy-five (75%) percent but less than one hundred (100%) percent of the shares of Registrable Securities that they requested pursuant to Section 7(b)(i) to be included in any registration which would be the last demand registration to which the Holders would be entitled pursuant to this Section 7(b) but for the application of this sentence, the Holders shall be entitled to effect an additional demand registration in accordance with the provisions set forth in this Section 7(b) and the Holders shall not be required to reimburse the Company for any expenses incurred by it in connection with any such additional registration. (vi) In the event that the Warrant would expire at any time when the Holders have requested registration of Registrable Securities pursuant to Section 7(b)(i) and either (x) the Company is not required to file a registration statement during such time pursuant to Section 7(b)(iv) or (y) the Holders are not permitted to include all of the Registrable Securities that they requested to be included in such demand registration pursuant to Section 7(b)(ii) or (v), then the term of the Warrant (but only with respect to Registrable Securities that were not included in such demand registration by reason of the circumstances described in clause (x) or (y)) shall be extended until a registration statement registering such Registrable Securities is effective. (c) Company Registration. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any shares of its Common Stock under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to employees pursuant to stock option awards and/or to participants in a Company employee benefit or stock plan, or a registration on any form which does not include substantially the same information, other than information related to the selling stockholders or their plan of distribution, as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company, the Company shall, subject to the provisions of the immediately preceding sentence and Section 7(h) hereof, cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be so registered. Notwithstanding anything herein to the contrary, in the case of a registration required to be undertaken by the Company pursuant to the Preferred Rights (a "Limited Piggyback Registration"), the Company shall not be required to include any Registrable Securities in such Limited Piggyback Registration if either (i) the Preferred Holders (whose determination shall be made by Preferred Holders holding a majority of the securities covered by such demand registration rights which are to be included in such registration) or the managing underwriter (in the case of an underwritten offering) determine in good faith that the inclusion of any or all of the Registrable Securities would be detrimental to the offering of the Preferred Holders' securities or any securities to be sold in such registration for the Company's account or (ii) the number of Other Securities to be included in such registration would be reduced by the inclusion of the Registrable Securities in such registration. In the -13- event the number of shares of Registrable Securities requested by Holders to be included in a registration is reduced by application of the immediately preceding sentence, the number of Registrable Securities to be included in the registration statement shall be allocated among the Holders who have provided the notice required by this Section 7(c) and VVI in proportion (as nearly as practicable) to the number of Registrable Securities or VVI Securities requested to be included in such registration by such Holder or VVI and which would be eligible for inclusion in such registration but for the application of the immediately preceding sentence or application of a similar provision contained in the VVI Warrant. Moreover, in the case of a registration required to be undertaken by the Company pursuant to registration rights granted to VVI pursuant to the VVI Warrant (a "VVI Piggyback Registration"), the Company shall not be required to include any Registrable Securities in such VVI Piggyback Registration if the number of VVI Securities to be included in such registration would be reduced by the inclusion of the Registrable Securities in such registration. In the event the number of shares of Registrable Securities requested by Holders to be included in a registration is reduced by application of the immediately preceding sentence, the number of Registrable Securities to be included in the registration statement shall be allocated among the Holders who have provided the notice required by this Section 7(c) in proportion (as nearly as practicable) to the number of Registrable Securities requested to be included in such registration by such Holder and which would be eligible for inclusion in such registration but for the application of the immediately preceding sentence. (d) Obligations of the Company. Whenever required under this Section 7 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (i) Prepare and file with the Securities and Exchange Commission (the "SEC") a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to one hundred twenty (120) days. (ii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. (iii) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (iv) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required to qualify to do -14- business or to file a general consent to service of process in any such states or jurisdictions. (v) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (vi) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (vii) In the case of an underwritten public offering, furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 7, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 7, (A) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in such form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters and (B) a letter dated such date, from the independent certified public accountants of the Company, in such form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters. (e) Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 7 with respect to the Registrable Securities of any selling Holder that such Holder shall have furnished to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. (f) Expenses of Demand Registration. Except as set forth in this Section 7(f), the Company shall bear and pay all expenses incurred by it in connection with any registrations, filings or qualifications pursuant to Section 7(b), including without limitation all registration, filing and qualification fees, printers, and accounting fees, and fees and disbursements of counsel for the Company; provided, however, that (subject to Sections 7(b)(ii) and (v) hereof) the Holders participating in any registration pursuant to Section 7(b) shall reimburse the Company for (i) all such expenses (up to a maximum of Twenty Five Thousand ($25,000.00) Dollars per registration) pro nm based upon the number of Registrable Securities included in such registration by all Holders (excluding, however, any expenses attributable to the inclusion of any other securities therein, including, without limitation, any Other Securities) and (ii) for any expenses of any registration proceeding begun pursuant to Section 7(b) if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all Holders participating in such withdrawn registration shall bear such expenses pro nm based upon the number of Registrable Securities to be included -15- in such registration), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 7(b); provided further, however, that, in the case of clause (ii) hereof, if at the time of such withdrawal the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request, then the Holders shall not be required to reimburse the Company for any of such expenses and shall retain their rights pursuant to Section 7(b). In no event shall the Company be required to pay any expenses incurred by a Holder in connection with any registration, filing or qualification pursuant to Section 7(b). (g) Expenses of Company Registration. The Company shall bear and pay all expenses incurred by it in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 7(c), including without limitation all registration, filing, and qualification fees, printers and accounting fees and all fees and disbursements of counsel for the Company relating or allocable thereto. The Company shall not pay any expenses incurred by a Holder in connection with any such registration, filing or qualification, including, but not limited to underwriting discounts and commissions relating to Registrable Securities and the fees and disbursements of any professional advisors (including attorneys and accountants) utilized by the selling Holders in connection with such registration, filing or qualification. (h) Reduction of Registrable Securities Included in Piggyback Registration Statement. In connection with any offering involving an underwriting of shares being issued by the Company, the Company shall not be required under Section 7(c) hereof to include any of the Holders' securities in such underwriting unless they accept the customary and reasonable terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity as will not, in the opinion of the underwriters, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters reasonably believe compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters believe will not jeopardize the success of the offering (the securities so included to be allocated first among all holders of Other Securities and next apportioned pro nm among the Holders who have provided notice required by Section 7(c) and all other holders (other than holders of Other Securities) of securities subject to registration rights granted by the Company in proportion (as nearly as practicable) to the number of shares of securities requested to be included in such registration by such Holder and such other holders and which would have been eligible for inclusion in such registration but for the application of this sentence, or in such other proportions as shall mutually be agreed to by such selling stockholders). For purposes of the provision of the preceding sentence concerning pro nm apportionment amongst the selling stockholders, for any selling stockholder which is a partnership or corporation, the partners, retired partners and stockholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling stockholder," and any pro nm reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all -16- entities and individuals included in such "selling stockholder," as defined in this sentence. (i) Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration by the Company as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 7. (j) Indemnification and Contribution. In the event any Registrable Securities are included pursuant to a registration statement under this Section 7: (i) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Securities Act) and each person if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act") against any losses, claims, damages or liabilities (joint or several) to which they or any of them may become subject under the Securities Act, the Exchange Act or any other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (A) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus (but only if such is not corrected in the final prospectus) contained therein or any amendments or supplements thereto, (B) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading (but only if such is not corrected in the final prospectus), or (C) any violation or alleged violation by the Company in connection with the registration of Registrable Securities under the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 7(j)(i) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (ii) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any -17- Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this Section 7(j)(ii), in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 7(j)(ii) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided that in no event shall any indemnity under this Section 7(j)(ii) exceed the net proceeds from the offering received by such Holder. (iii) Promptly after receipt by an indemnified party under this Section 7(j) of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 7(j), deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 7(j), but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 7(j). (iv) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in Section 7(j)(i) and (ii) is applicable but for any reason is held to be unavailable from the Company with respect to all Holders or any Holder, the Company and the Holder or Holders, as the case may be, shall contribute to the aggregate losses, claims, damages and liabilities (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted) to which the Company and one or more of the Holders may be subject in such proportion as is appropriate to reflect the relative fault of the Company on the one hand, and the Holder or Holders on the other, in connection with statements or omissions which resulted in such losses, claims, damages or liabilities. Notwithstanding the foregoing, no Holder shall be required to contribute any amount in excess of the net proceeds received by such Holder from the Registrable Securities as the case may be, sold by such Holder pursuant to the registration statement. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Each person, if any, who controls a Holder within the meaning of the Securities Act shall have the same rights to contribution as such Holder. -18- (v) The obligations of the Company and Holders under this Section 7(j) shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 7 or otherwise. (k) Reports Under the Exchange Act. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144 of the SEC; (ii) at all times take all such action as may be necessary or advisable to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities; (iii) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (iv) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon its request (i) a written statement by the Company as to its compliance with the reporting requirements of SEC Rule 144, the Securities Act and the Exchange Act, or as to its qualified status as a registrant whose securities may be resold pursuant to Form S-3, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. (l) Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (i) to include such securities in any registration filed under Section 7(b) hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of this securities will not reduce the amount of the Registrable Securities of the Holders which is included in such registration; (ii) to make a demand registration which could result in such registration statement being declared effective within one hundred twenty (120) days after the effective date of any registration effected pursuant to Section 7(b) hereof or (iii) to include such securities in any registration in which the Holders may include Registrable Securities pursuant to Section 7(c) hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only on a basis no more favorable than pro nm with all Holders of Registrable Securities in proportion (as nearly as practicable) to the number of shares of securities to be included in such registration by such Holder and such other holders. -19- (m) The provisions of this Section 7 shall survive any expiration of the Warrants evidenced hereby until the earlier to occur of (i) the date that all Warrant Shares held by all Holders may be sold for resale pursuant to Rule 144 under the Exchange Act without reduction as a result of Rule 144(e) thereunder and (ii) the date that no Warrants or Warrant Shares are held by any Holder. SECTION 8. Miscellaneous. 8.1 Entire Agreement. This Warrant constitutes the entire agreement between the Company and the Warrantholders with respect to this Warrant and Warrant Shares. 8.2 Binding Effects; Benefits. This Warrant shall inure to the benefit of and shall be binding upon the Company, the Warrantholders and holders of Warrant Shares and their respective heirs, legal representatives, successors and assigns. Nothing in this Warrant, expressed or implied, is intended to or shall confer on any person other than the Company, the Warrantholders and holders of Warrant Shares, or their respective heirs, legal representatives, successors or assigns, any rights, remedies, obligations or liabilities under or by reason of this Warrant or the Warrant Shares. 8.3 Amendments and Waivers. This Warrant may not be modified or amended except by an instrument in writing signed by the Company and Warrantholders that hold Warrants entitling them to purchase at least 50% of the shares of Common Stock then issuable pursuant to this Warrant and the other Warrants issued by the Company on the date hereof (other than the VVI Warrant). The Company, any Warrantholder or holders of Warrant Shares may, by an instrument in writing, waive compliance by the other party with any term or provision of this Warrant on the part of such other party hereto to be performed or complied with. The waiver by any such party of a breach of any term or provision of this Warrant shall not be construed as a waiver of any subsequent breach. 8.4 Section and Other Headings. The section and other headings contained in this Warrant are for reference purposes only and shall not be deemed to be a part of this Warrant or to affect the meaning or interpretation of this Warrant. 8.5 Further Assurances. Each of the Company, the Warrantholders and holders of Warrant Shares shall do and perform all such further acts and things (including, without limitation, any required filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and execute and deliver all such other certificates, instruments and/or documents (including without limitation, such proxies and/or powers of attorney as may be necessary or appropriate) as any party hereto may, at any time and from time to time, reasonably request in connection with the performance of any of the provisions of this Warrant. 8.6 Notices. All demands, requests, notices and other communications required or permitted to be given under this Warrant shall be in writing and shall be deemed to have been duly given if delivered personally or sent by United States certified or registered first class mail, postage prepaid, to the -20- parties hereto at the following addresses or at such other address as any party hereto shall hereafter specify by notice to the other party hereto: (a) if to the Company, addressed to: National Media Corporation 1700 Walnut Street Philadelphia, Pennsylvania 19103 Attention: Chairman (b) if to any Warrantholder or holder of Warrant Shares, addressed to the address of such person appearing on the books of the Company. Except as otherwise provided herein, all such demands, requests, notices and other communications shall be deemed to have been received on the date of personal delivery thereof or on the third business day after the mailing thereof. 8.7 Separability. Any term or provision of this Warrant which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable any other term or provision of this Warrant or affecting the validity or enforceability of any of the terms or provisions of this Warrant in any other jurisdiction. 8.8 Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Warrantholder an amount in cash equal to such fraction multiplied by the current market price (as determined as of the date of exercise, and with reference to the applicable trading market, in accordance with Section 1.1(a)(ii)) of a share of such stock as of the date of such exercise. 8.9 Rights of the Holder. The Warrantholder shall not, solely by virtue of this Warrant, be entitled to any rights of a stockholder of the Company, either at law or in equity. 8.10 Governing Law. This Warrant shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and performed in Delaware. -21- IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer. NATIONAL MEDIA CORPORATION By:_______________________________________ Name: Title: Dated: November 24, 1995 -22- ASSIGNMENT (To be executed only upon assignment of Warrant Certificate) For value received, ____________________ hereby sells, assigns and transfers unto _____________________ the within Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _________________ attorney, to transfer said Warrant Certificate on the books of the within-named Company with respect to the number of Warrants set forth below, with full power of substitution in the premises: Name(s) of Assignee(s) Address No. of Warrant Shares ----------- ------- --------------------- And if said number of Warrants shall not be all the Warrants represented by the Warrant Certificate, a new Warrant Certificate is to be issued in the name of said undersigned for the balance remaining of the Warrants represented by said Warrant Certificate. Dated: ________________, 19___ ------------------------------------------ Note: The above signature should correspond exactly with the name on the face of this Warrant Certificate. -23- SUBSCRIPTION FORM (To be executed upon exercise of Warrant pursuant to Section 1.1(a)) The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant Certificate for, and to purchase thereunder, ___________ shares of Common Stock, as provided for therein, and delivers payment in full of the Exercise Price in the amount of $ __________ as follows: Cash $__________ Certified or Official bank check $__________ Please issue a certificate or certificates for such Common Stock in the name of, and pay any cash for any fractional share to: Name: ______________________________________ Address: ______________________________________ ______________________________________ ______________________________________ Social Security No.: ______________________________________ (Please Print Name, Address and Social Security No.) Signature: ______________________________________ NOTE: The above signature should correspond exactly with the name on the first page of this Warrant Certificate or with the name of the assignee appearing in the assignment form delivered herewith. And if said number of shares shall not be all the shares purchasable under the within Warrant Certificate, a new Warrant Certificate is to be issued in the name of said undersigned for the balance remaining of the shares purchasable thereunder rounded up to the next higher number of shares. -24- EX-10.1 4 EXHIBIT 10.1 EXHIBIT 10.1 LOAN AND SECURITY AGREEMENT By and Between NATIONAL MEDIA CORPORATION, MEDIA ARTS INTERNATIONAL, LTD., QUANTUM INTERNATIONAL, LTD. and MERIDIAN BANK _____________________ Dated: November 28, 1995 _____________________ LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made effective the 28th day of November, 1995, by and between NATIONAL MEDIA CORPORATION ("National Media"), MEDIA ARTS INTERNATIONAL, LTD. ("Media Arts") and QUANTUM INTERNATIONAL, LTD. ("Quantum") and MERIDIAN BANK ("Bank"). National Media, Media Arts and Quantum are herein collectively referred to as the "Borrowers" and each individually as a "Borrower". BACKGROUND A. By a Note and Warrant Purchase Agreement dated October 19, 1994, by and between 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. Media Consolidated's obligations under the Secured Subordinated Notes are secured, inter alia, by (i) security interests in and liens upon all present and future accounts, general intangibles, inventory, instruments, trademarks, tradenames, servicemarks, copyrights, machinery, equipment and fixtures of Borrowers, as evidenced by the Note Security Documents, and (ii) a pledge of all stock issued to and held by Borrowers, as evidenced by the Note Pledge Documents, subject to certain security interests, liens and pledges given by the Foreign Subsidiaries (the "Barclay's Lien") to Barclays Bank PLC to secure an overdraft Line extended by Barclays to Quantum in an aggregate amount not to exceed One Million Dollars (the "Barclays Loan"). C. 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. D. By a Surety Agreement dated April 20, 1995, Safeguard, Safeguard Scientifics, Inc., Technology Leaders II L.P., Technology Leaders II Offshore C.V., Ira Lubert and Gary Erlbaum (collectively, the "Safeguard Sureties") agreed to guarantee and become sureties for Media Consolidated's obligations to Bank under the Secured Subordinated Notes. E. At Borrowers' request, Bank has agreed, inter alia, to (i) extend to Borrowers a Five Million Dollar ($5,000,000.00) revolving line of credit secured by a first priority security interest in and lien on all assets of Borrowers subject only to the Barclays Lien, and a first priority pledge of all stock of -1- all Subsidiaries of the Borrowers, and (ii) release the Safeguard Sureties, 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. 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 Secured Subordinated Notes Documents are valid, binding and in full force and effect as of the date hereof and fully enforceable against Borrowers and their assets in accordance with the terms thereof. 2. GENERAL ACKNOWLEDGEMENTS. 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 Secured Subordinated Notes Documents, or any rights or obligations thereunder, or a waiver by Bank of any of its rights under the Secured Subordinated Notes Documents or at law or in equity; (b) All liens, security interests, rights and remedies granted to the Bank in the Secured Subordinated Notes 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 Secured Subordinated Notes Documents, or the enforcement of any of the terms or conditions thereof. 3. THE LINE; TERM LOAN; 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, 1996 (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 lesser of: (a) the sum of (i) the then face value of the Certificate of Deposit and any other cash or cash equivalents pledged to the Bank; (ii) an amount equal to seventy percent (70%) of the amount of Borrowers' Eligible Receivables, plus (iii) an amount equal to thirty percent (30%) of the Value of Borrowers' Eligible Inventory, plus (iv) an amount equal to twenty percent (20%) of Borrower's prepaid media time, or (b) Five Million Dollars ($5,000,000.00). Notwithstanding the foregoing, the aggregate maximum amount of advances against -2- the Value of Borrowers' Eligible Inventory will at no time exceed One Million Five Hundred Thousand Dollars ($1,500,000.00) and the aggregate maximum amount of advances for the issuance and rollover of Foreign Exchange Contracts and Letters of Credit is Five Million Dollars ($5,000,000.00). Within the limitations set forth above, 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' promissory note (the "Line Note") in the face amount of Five Million Dollars ($5,000,000.00), which shall be in the form attached hereto as Exhibit "A", with the blanks appropriately filled in. The Line shall be subject to review and renewal, at the sole discretion of Bank. 3.2. Use of Proceeds. Borrowers agree to use advances under the Line for proper working capital purposes and short-term borrowings. 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 collateral and back-up documentation as Bank may from time to time require. Subject to the terms and conditions of this Agreement, Bank shall make the proceeds 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. However, Bank may require that specified officers of Borrowers sign each borrowing base certificate. Availability for advances under the Line shall be based upon the most recent borrowing base certificate required pursuant to Section 10.4. 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 Borrowers have sufficient availability for advances under Section 3.1 and 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 an advance under the Line in excess of availability under Section 3.1 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 written notice. 3.4. Closing. Closing hereunder will take place at the offices of National Media Corporation at 1700 Walnut Street, Philadelphia, PA 19103 effective on the date of this Agreement. -3- 3.5. 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 plus the Foreign Exchange Contract Risk exceed the amount of the loans and extensions of credit then available to Borrowers under the Line pursuant to Section 3.1. 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. 3.6. Foreign Exchange Contracts. As requested by Borrower, Bank will issue and/or rollover for the account of Borrowers foreign currency spot contracts and foreign currency forward contracts with a risk to the Bank not to exceed Five Million Dollars ($5,000,000.00) in form and content reasonably satisfactory to Bank, in its sole discretion. Such risk component (the "Foreign Exchange Contract Risk") shall be calculated as follows: (a) a twenty percent (20%) market risk reserve of the total dollar value of all outstanding foreign currency forward contracts between Bank and Borrowers; provided that the total dollar value of all outstanding foreign currency contracts between Bank and Borrowers shall not exceed Twenty-Five Million Dollars ($25,000,000.00) 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 Bank's delivery risk on any one forward or spot contract shall not exceed Five Million Dollars ($5,000,000.00) and the Bank will not deliver on any one day forward and/or spot contracts with an aggregate value in excess of Five Million Dollars ($5,000,000.00). Borrowers will execute such documentation as requested by Bank in connection with the issuance and/or rollover of any foreign currency contract. -4- 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, plus the then Foreign Exchange Contract Risk exceed the amount of loans and extensions of credit then available to Borrowers under the Line pursuant to Section 3.1. 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. In the event the Line is terminated for any reason or demand is made hereunder, Borrowers will deposit with Bank an amount equal to the then Foreign Exchange Contract Risk, 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. 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) Advances Against the Certificate of Deposit. By giving Notification, Borrowers may request to have a portion of the outstanding principal balance of the Line in an amount up to the face amount of the Certificate of Deposit accrue interest at a rate equal to the Certificate Rate; or (b) 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 (c) 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 or the Certificate 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. (d) Multiple Rates. Borrowers understand and agree that: (i) subject to the provisions of this Agreement, the Certificate Rate, 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, -5- (iii) portions of the Line bearing interest at the LIBOR Rate must be in a minimum increment of Five Hundred Thousand Dollars ($500,000.00) and multiples of One Hundred Thousand Dollars ($100,000.00), (iv) as of any one time or from time to time, there will be no more than four (4) different rates of interest applicable to advances and loans made under the Line (for example, three (3) LIBOR Loans bearing different LIBOR Rates and all remaining outstandings bearing interest at the National Commercial Rate); (v) the maximum amount of principal of the Line which may accrue interest at the Certificate Rate shall not exceed the face amount of the Certificate of Deposit at any one time; and (vi) 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 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 non- principal 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: -6- (a) for advances bearing interest based on the Certificate Rate or 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. If any Out-Of-Formula Advance arises or exists under the Line for any reason whatsoever, including inventory or accounts becoming ineligible, Borrowers will repay such Out-Of-Formula Advance immediately, without demand. 5.3. Letter of Credit 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. 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-half of one percent (1/2 of 1%) per annum of the daily unused portion of the Line (which shall be calculated as the difference between Five Million Dollars ($5,000,000.00) (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, plus the then Foreign Currency Contract Risk, 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. -7- 5.6. Compensating Balances; Fees in Lieu Thereof. Borrowers will maintain with Bank and/or Meridian Asset Management one or more accounts having aggregate cash balances determined quarterly on a daily average basis for each fiscal quarter (or such portion thereof as the Line may have been outstanding) at least equal to Two Million Five Hundred Thousand Dollars ($2,500,000.00). If such deposits are not maintained during any such fiscal quarter, Borrowers will pay to Bank for such quarter, upon invoice from Bank, a fee in lieu thereof in an amount equal to (i) the difference between the balance required under the preceding sentence and the balance actually maintained during the period of such deficiency, multiplied by (ii) a rate equal to one-quarter of one percent (1/4 of 1%). 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 ($15.00). 5.8. Prepayment. Except as provided in Section 4.1(d)(v), 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 -8- 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 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 conclusively 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 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 conclusively deemed correct absent manifest error. If -9- 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, Borrowers hereby confirms their grant of a security interest in all the following as evidenced by the Note Security Documents and the Note Pledge Documents and hereby grant to Bank a security interest in all of the following: (a) All of Borrowers' 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 Borrowers or otherwise, together with (i) all goods (including any returned, rejected, repossessed or consigned goods), the sale, consignment, lease or other furnishings of which shall be given or may give rise to any of the foregoing, (ii) all of Borrowers' 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 Borrowers' 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 Borrowers' 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 Borrowers and all products and proceeds of any of the foregoing. (c) All of Borrowers' 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. -10- (d) All of Borrowers' 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 Borrowers' 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 Borrowers or any service bureau. (f) All letters of credit now existing or hereafter issued naming a Borrower as a beneficiary or assigned to any 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 any 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 Borrowers or in which any 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 any 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 in all assets of Borrowers in which Bank now has or may at any time hereafter obtain a lien, mortgage, or security interest for any reason. (i) A certificate of deposit in the face amount of at least One Million Dollars ($1,000,000.00) owned by National Media and issued and held by Bank, together with all income and proceeds derived therefrom (the "Certificate of Deposit"). 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. -11- 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 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. 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 -12- 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, 1995 and all management and comment letters from such accountants in connection therewith, and its internally prepared interim financial statements as of September 30, 1995. 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 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 September 30, 1995. 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 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 -13- 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, 1980 through March 31, 1991 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. -14- 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 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 terms 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 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. Eligible Inventory Warranties. 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 and upon which Borrowers are basing availability under the Line, Borrowers warrant and -15- represent that (a) such inventory is located at the address or addresses listed on Schedule 7.13 attached hereto and is not in transit; (b) Borrowers have good, indefeasible and merchantable title to such inventory and such inventory is not subject to any lien or security interest whatsoever except for the prior, perfected security interest granted to Bank; (c) such inventory is of good and merchantable quality, free from any defects; (d) such inventory is not precluded from sale by Borrowers as a result of the termination of any licensing, patent, royalty, trademark, trade name or copyright agreements with any third parties; and (e) 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. 7.19. Eligible Account Warranties. 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 and upon which Borrowers are basing availability under the Line, Borrowers warrant and represent that (a) the accounts are genuine, are in all respects what they purport to be, and are not evidenced by any chattel paper, note, instrument or judgment; (b) Borrowers have absolute title to such accounts and the accounts represent undisputed, bona fide transactions completed in accordance with the terms thereof and as represented to Bank; (c) no payments have been or will be made thereon, except payments immediately delivered to Bank pursuant to the Loan Documents; (d) there are no setoffs, counterclaims or disputes existing or asserted with respect thereto and no Borrower has made any agreement with any account debtor for any deduction therefrom; (e) there are no facts, events or occurrences which impair the validity or enforcement thereof or may 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; (f) to the best of Borrowers' knowledge, all account debtors have the capacity to contract and are solvent; (g) the goods sold giving rise thereto are not subject to any lien, claim, encumbrance or security interest except that of Bank; (h) to the best of Borrowers' knowledge, there are no proceedings or actions which are threatened or pending against any account debtor which might result in any material adverse change in such account debtor's financial condition; (i) the account is not an account with respect to which the account debtor is an Affiliate of any Borrower or a director, officer of employee of any Borrower or its Affiliates; (j) 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; (k) 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; (l) 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; and (m) the accounts have not been sold, assigned or transferred to any other Person and no Person except Borrowers have any claim thereto or (with the exception of the applicable account debtor) any claims to the goods sold. -16- 7.20. 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. 7.21. 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. 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 either of them will sell or transfer any real property or improvements thereon or other fixed assets owned by either 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; and (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. -17- 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-1" by Standard & Poor's Corporation, or with an equivalent rating by 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), 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. -18- 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 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. -19- 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; Qualification; 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 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 of 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 form and substance 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 -20- 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 may 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. 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 Two Hundred Fifty Thousand Dollars ($250,000.00) or less or losses in any twelve (12) month consecutive monthly period aggregating One Million Dollars ($1,000,000.00) 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. -21- Notwithstanding the foregoing, in the event that any Borrower suffers a casualty loss in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) or losses in any twelve (12) consecutive month period aggregating in excess of One Million Dollars ($1,000,000.00) 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, (iv) 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 further 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. 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 -22- 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 and 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 ERISA; 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, 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. Borrowers will notify Bank promptly in writing of any change in their respective board of directors or executive officers and will provide Bank with a copy of any proposed amendments to its Articles of Incorporation or By-Laws, prior to adoption. Borrowers shall not make any amendment to their Articles of Incorporation or By-Laws without the prior written consent of Bank. 8.18. Capital Stock; Dividends. 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. 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 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 -23- 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, neither Media Arts nor Quantum 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 One Hundred Thousand Dollars ($100,000.00) individually, or Five Hundred Thousand Dollars ($500,000.00) 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) inform Bank promptly of the rejection of goods, claims made or delay in delivery or performance in regard to any account or contract right in an amount in excess of Twenty-Five Thousand Dollars ($25,000.00) upon which Borrowers have -24- based availability for advances under the Line and will adjust the borrowing base calculation under the Line to reduce the availability for advances under the Line by the amount of such account and will repay any Out-Of-Formula Advance resulting therefrom; (b) make no change in any account upon which Borrowers have based availability for advances under the Line, unless such change is reflected in the borrowing base calculation and does not result in any Out-Of-Formula Advance under the Line; (c) furnish to Bank all information received by Borrowers affecting the financial standing of any account debtor whose account or contract right has been specifically assigned to Bank; (d) pay Bank the amount loaned against any account or contract right if the goods are returned by purchaser or the contract is canceled or terminated or adjust the borrowing base calculation to reduce the availability for advances under the Line by the amount of such account and repay any Out-Of-Formula Advance resulting therefrom; (e) 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 (f) 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 8.24 may be revoked by Bank at any time. 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. -25- 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 (a) $25,000,000.00 as of September 30, 1995 and December 31, 1995, and (b) $27,000,000.00 as of March 31, 1996 and at the end of each fiscal quarter thereafter. 9.2. Working Capital. Borrowers shall maintain Working Capital of not less than $15,000,000.00 as of the end of each fiscal quarter of Borrowers. 9.3. Indebtedness to Tangible Net Worth Ratio. Borrowers shall maintain a ratio of Indebtedness to Tangible Net Worth of not more than 1.75 to 1.0 as of the end of each fiscal quarter of Borrowers. 9.4. Capital Expenditures. Borrowers shall not cause, suffer or permit Borrowers' aggregate annual Capital Expenditures to exceed $3,500,000.00 for the fiscal year ending December 31, 1996. 9.5. Indebtedness to EBITDA. Borrowers shall maintain a ratio of Indebtedness to EBITDA of not more than 3.5 to 1.0 as of the end of each fiscal quarter of Borrowers, commencing with the fiscal quarter ending March 31, 1996, as determined on a rolling four (4) quarters basis. 9.6. 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, 1996, 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 full, 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, -26- (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. Quarterly 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: (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. Borrowing Base Certifications and Related Documents. Within thirty (30) days of the end of each month and otherwise as requested by Bank, a borrowing base certificate in the form of Exhibit "B" attached hereto, together with such additional information as may be requested by Bank, including, without limitation, statements of Borrowers' 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 independent accountants, 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 returns 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. -27- 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 or any occurrence or state of affairs which with the giving of notice, passage of time or both would constitute an Event of Default. Such certificate will be in the form of Exhibit "C" 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, 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 -28- 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, fines, 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 future 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, 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 ("Environmental Consultants") as Bank may select to visit, inspect, -29- 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, (ii) 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 payment of costs associated with -30- responding to the lawful directives of any court or agency of competent jurisdiction. Special Materials shall include, without limitation: (i) any flammable substance, explosive, radioactive material, hazardous material, hazardous waste, toxic substance, solid waste, pollutant, contaminant or any related material, raw material, substance, product or by-product 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), (ii) 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. Landlord's or Warehouseman's Release and Waiver Agreements. Bank shall have received a landlord's or warehouseman's release and waiver agreement, satisfactory in form and substance to Bank, from each landlord and warehouseman for each location leased by Borrowers or at which Borrowers warehouse inventory. -31- 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. (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 September 30, 1995. (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. -32- 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 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 this 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 -33- 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 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 Two Hundred Fifty Thousand Dollars ($250,000.00); (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; -34- (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; (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 reduce availability for advances under the formula set forth in Section 3.1 or require additional reserves without notice; (e) Bank may enter the premises occupied by any Borrower and take possession of the Collateral and any records relating thereto; and/or (f) 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 (f), 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 -35- 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 all 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 party 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 occurrence of an Event -36- 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; -37- (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; (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 commission 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 constitute 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 -38- 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 further 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: (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, 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 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. -39- 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. 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: Constantinos I. Costalas, Sr. Financial Officer Telecopy Number: (215) 772-5038 -40- 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: Steve Hobman, Vice President 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. 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 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 -41- Bank, together with all interest and other sums payable in connection with any of the foregoing. 16.4. "Barclays Lien" shall have the meaning set forth in Paragraph B of the Background. 16.5. "Barclays Loan" shall have the meaning set forth in Paragraph B of the Background. 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. "Certificate of Deposit" shall have the meaning set forth in Section 6.1(i). 16.11. "Certificate Rate" means the per annum rate of interest accruing on the Certificate of Deposit as such rate may change from time to time plus one percent (1%). In the event the Certificate of Deposit is no longer pledged to Bank as Collateral hereunder, the Certificate Rate shall mean the National Commercial Rate. 16.12. "Commercial Rate Loans" means loans and advances extended by Bank to Borrowers under the Line bearing interest at the National Commercial Rate. 16.13. "Corporation" means a corporation, partnership, trust, unincorporated organization, association or joint stock company. 16.14. "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. 16.15. "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. 16.16. "EBITDA" for any period, means earnings of Borrowers for such period, plus the aggregate amounts deducted in determining such earnings in -42- respect of (i) interest payable on Indebtedness of Borrowers for such period, (ii) income taxes for period, and (iii) depreciation and amortization for such period, each determined in accordance with GAAP. 16.17. "Eligible Inventory" means inventory in the possession of Borrowers which complies with the representations set forth in Section 7.19, and meets all specifications established by Bank in its sole discretion from time to time. Bank agrees to provide written notice to Borrowers of any change in such specifications. Eligible Inventory shall not include (a) work-in-process, (b) inventory consisting of fuels; (c) inventory consisting of stores; (d) inventory which is not in good condition or not currently usable or salable in the ordinary course of Borrowers' business as determined by Bank; (e) inventory consisting of finished goods which do not meet the specifications of the purchase order for which such inventory was produced; (f) inventory with respect to which Bank does not have a first and valid, fully perfected security interest; (g) inventory consisting of packaging, shipping materials or supplies; (h) inventory produced in violation of the Fair Labor Standards Act and subject to the so-called "hot goods" provision contained in Title 29 U.S.C. Section 215(a)(1); (i) inventory held by Borrowers for a period in excess of two (2) years and (j) inventory not physically located within the United States. In the event that inventory previously scheduled, listed or referred to, in any statement or report by or on behalf of Borrowers and upon which Borrowers are basing availability under the Line Bank ceases to be Eligible Inventory, Borrowers shall notify Bank thereof immediately. 16.18. "Eligible Receivables" means accounts receivable of Borrowers (including receivables due from credit cards) which have been due no more than ninety (90) days from the invoice date or with respect to accounts receivable which are payable in installments, no more than ten (10) Business Days from the due date of the applicable installment, are not subject to offsets or deductions, comply with the representations set forth in Section 7.20 and meet all specifications established by Bank in its sole discretion from time to time. Bank agrees to provide written notice to Borrowers of any change in such specifications. Eligible Receivables shall not include: (a) non-trade receivables, (b) foreign accounts receivable unless fully secured by a letter of credit issued by a financial institution acceptable to Bank in its discretion; (c) contra-accounts; (d) intercompany accounts or accounts from other affiliated corporations, organizations or individuals; (e) accounts receivable from the United States government or any of its agencies which have not been assigned to Bank under the Assignment of Claims Act; (f) finance charges; (g) lease receivables; (h) accounts receivable owed by a Person if fifty percent (50%) or more of such Person's accounts receivable owed to Borrowers are ninety (90) days or more past due; (i) accounts receivable of poor quality; and (j) accounts receivable concentrated in individual account debtors in such amounts or percentage as may be unacceptable to Bank. In the event that any account receivable previously scheduled, listed or referred to in any certificate, statement or report by Borrowers and upon which Borrowers are basing availability under the Line ceases to be an Eligible Receivable, Borrowers shall notify Bank thereof immediately. 16.19. "Environmental Affiliate" 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. -43- 16.20. "Event of Default" means each of the events specified in Section 14.1. 16.21. "Foreign Exchange Contract Risk" shall have the meaning set forth in Section 3.6 hereof. 16.22. "GAAP" means generally accepted accounting principles in the United States of America, in effect from time to time, consistently applied and maintained. 16.23. "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. 16.24. "Indebtedness Documents" means all the Loan Documents and all Secured Subordinated Note Documents. 16.25. "LIBOR Loans" means loans and advances extended by Bank to Borrowers under the Line bearing interest at the LIBOR Rate. 16.26. "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 percent (1%). 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. -44- 16.27. "Loan Documents" means this Agreement, the Line Note, and all other documents, executed or delivered by Borrowers pursuant to this Agreement, as they may be amended from time to time. 16.28. "Media Consolidated" shall have the meaning set forth in Paragraph A of the Background. 16.29. "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. 16.30. "Note and Purchase Agreement" shall have the meaning set forth in Paragraph A of the Background. 16.31. "Note Pledge 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. 16.32. "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. 16.33. "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. -45- 16.34. "Out-Of-Formula Advance" means the amount by which the then outstanding principal balance of the Line exceeds the amount that Bank may advance pursuant to the formula advance provisions of Section 3.1 subject to such other restrictions on advances as are otherwise set forth in this Agreement. 16.35. "Person" means an individual, a Corporation or a government or any agency or subdivision thereof, or any other entity. 16.36. "Purchase Agreement" shall have the meaning set forth in Paragraph C of the Background. 16.37. "Rate Period" means 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. 16.38. "Safeguard" shall have the meaning set forth in Paragraph A of the Background. 16.39. "Safeguard Sureties" shall have the meaning set forth in Paragraph D of the Background. 16.40. "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. 16.41. "Secured Subordinated Notes" shall have the meaning set forth in Paragraph A of the Background. 16.42. "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. 16.43. "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: (a) all Indebtedness of Borrowers; and -46- (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, (ii) 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 write-ups 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. 16.44. "Value" with respect to Eligible Inventory, means the lower of cost (determined on a first-in-first-out basis) or market value, exclusive of any transportation, processing or handling charges. 16.45. "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. 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; -47- (c) all rights to inquisition on any real estate, which real estate may be levied upon pursuant to a judgment 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 non- payment, 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. -48- 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 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 further 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 -49- 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 full 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. 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. -50- 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 constitute 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. 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 DOCUMENTS 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 AGREEMENT 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 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. -51- 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) MEDIA ARTS INTERNATIONAL, LTD. By:/s/ John J. Sullivan ----------------------------------------- John J. Sullivan, Vice President (CORPORATE SEAL) QUANTUM INTERNATIONAL, LTD. By:/s/ John J. Sullivan ----------------------------------------- John J. Sullivan, Treasurer (CORPORATE SEAL) MERIDIAN BANK By:/s/ Steven D. Hobman ----------------------------------------- Steven D. Hobman, Vice President -52- EX-10.2 5 EXHIBIT 10.2 EXHIBIT 10.2 ALLONGE THIS ALLONGE is made effective this 28th day of November, 1995 by NATIONAL MEDIA CORPORATION AND ITS SUBSIDIARIES LISTED BELOW (collectively, the "Maker") for benefit of MERIDIAN BANK, as assignee of Safeguard Scientifics (Delaware), Inc., Technology Leaders II L.P., Technology Leaders II Offshore C.V., Ira Lubert, Gary Erlbaum, Michael Erlbaum, Steven Erlbaum and Morris Saffer Holdings ("Payee"). BACKGROUND A. Maker is duly and justly indebted to Payee as evidenced by those certain Secured Subordinated Notes dated December 1, 1994 and April 1, 1995, respectively, in the original aggregate principal amount of Five Million Dollars ($5,000,000.00) (the "Notes"). B. As a condition precedent to Payee's agreement to extend a Five Million Dollar ($5,000,000.00) revolving line of credit to National Media Corporation, Media Arts International, Ltd. and Quantum International, Ltd., Maker agreed to modify the terms of the Notes to provide for the annual payment of principal and interest in accordance with the terms and conditions hereof. NOW, THEREFORE, in consideration of the mutual benefits inuring to Maker and Payee and intending to be legally bound hereby, it is agreed that the Notes are hereby modified as described below. TERMS 1. Effect of Modification. All other provisions of the Notes and of all other agreements and instruments executed in connection therewith shall not be modified hereby except as expressly set forth below, and this Allonge shall not be construed as a waiver of any of Payee's rights under the Notes as heretofore existing or as hereafter modified by this Allonge. 2. Payment of Principal and Interest. Commencing on December 1, 1996 and continuing on the first day of December of each of the next four (4) following years, Maker shall pay to Payee an amount equal to One Million Dollars ($1,000,000.00), plus all accrued and unpaid interest due on the Notes. All principal and accrued and unpaid interest due on the Notes shall be paid in full on or before December 1, 2000. 3. Confirmation of Debt. Maker hereby confirms and ratifies the Notes as modified hereby and acknowledges that they have no defense, set-off, counterclaim or challenge against the payment of all sums as set forth in the Notes, as modified hereby, the enforcement of any of the terms thereof or the validity of the provisions hereof. 4. Single Instrument. Maker hereby directs Payee to affix this Allonge to the Notes, whereupon the Notes and this Allonge will become and constitute a single instrument. IN WITNESS WHEREOF, Maker and Payee have executed this Allonge under seal on the date first above written. NATIONAL MEDIA CORPORATION By: /s/ Constantinos I. Costalas --------------------------------------- Constantinos I. Costalas, Vice Chairman [CORPORATE SEAL] MEDIA ARTS INTERNATIONAL, LTD. By: /s/ John J. Sullivan --------------------------------------- John J. Sullivan, Vice President [CORPORATE SEAL] STRATEGIC ALLIANCES CORPORATION By: /s/ --------------------------------------- Name/Title: [CORPORATE SEAL] NATIONAL MEDIA HOLDINGS,INC. By: /s/ --------------------------------------- Name/Title: [CORPORATE SEAL] NATIONAL MEDIA MARKETING CORPORATION By: /s/ --------------------------------------- Name/Title: [CORPORATE SEAL] [SIGNATURES CONTINUED ON THE NEXT PAGE] [SIGNATURES CONTINUED FROM THE PREVIOUS PAGE] MULTI-MEDIA DISTRIBUTION CENTER, INC. By: /s/ ------------------------------------- Name/Title: [CORPORATE SEAL] BUSINESS PUBLICATIONS, INC. By: /s/ ------------------------------------- Name/Title: [CORPORATE SEAL] QUANTUM MARKETING INTERNATIONAL, INC. By: /s/ ------------------------------------- Name/Title: [CORPORATE SEAL] N.P.A. REALTY CORP. By: /s/ ------------------------------------- Name/Title: [CORPORATE SEAL] NATIONAL MEDIA MEDIA CORPORATION By: /s/ ------------------------------------- Name/Title: [CORPORATE SEAL] QUANTUM INTERNATIONAL, LTD. By: /s/ ------------------------------------- Name/Title: [CORPORATE SEAL] [SIGNATURES CONTINUED ON THE NEXT PAGE] [SIGNATURES CONTINUED FROM THE PREVIOUS PAGE] MERIDIAN BANK By: /s/ Steven D. Hobman --------------------------------------- Steven D. Hobman, Vice President EX-11.1 6 EXHIBIT 11.1 EXHIBIT 11.1 Exhibit 11.1 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In Thousands, except per share data) Three Months Ended Nine Months Ended December 31, December 31, ------------ ------------ 1995 1994 1995 1994 ---- ---- ---- ---- Primary Average shares outstanding................ 15,545 14,191 14,741 13,969 Conversion of preferred stock............. 2,418 624 2,511 - Net effect of common stock equivalents (2) (3) .................................. 5,818 - 5,528 - ----------- ----------- -------- --------- Total..................................... 23,781 14,815 22,780 13,969 =========== =========== ======== ========= Net income (loss) ........................ $ 4,932 $ 235 $ 10,679 $ (1,386) Adjustments to net income: Reduction of interest expenses (net of tax) related to retired debt........... - - 398 - Increase in interest income (net of tax) from investment of excess proceeds in short-term paper........... - - 172 - ----------- ------------ -------- --------- Adjusted net income....................... $ 4,932 $ 235 $ 11,249 $ (1,386) =========== =========== ======== ========= Per share earnings: Net income (loss) ........................ $ .21 $ .02 $ .49 $ (.10) =========== =========== ======== ========= Fully Diluted Average shares outstanding................ 15,545 14,191 14,741 13,969 Conversion of preferred stock............. 2,418 624 2,511 - Net effect of common stock equivalents (2) (4) .................................. 6,451 - 6,507 - ----------- ----------- -------- --------- Total..................................... 24,414 14,815 23,759 13,969 =========== =========== ======== ========= Net income (loss) ........................ $ 4,932 $ 235 $ 10,679 $ (1,386) Adjustments to net income: Reduction of interest expenses (net of tax) related to retired debt........... - - - - Increase in interest income (net of tax) from investment of excess proceeds in short-term paper........... - - - - ----------- ------------ --------- ---------- Adjusted net income....................... $ 4,932 $ 235 $ 10,679 $ (1,386) =========== =========== ======== ========= Per share earnings: Net income (loss) ........................ $ .20 $ .02 (1) $ .45 $ (.10) (1) =========== ============ ======== =========
(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-27.1 7 FINANCIAL DATA SCHEDULE
5 0000070412 NATIONAL MEDIA CORP. 9-MOS MAR-31-1996 DEC-31-1995 13,611 0 26,541 (1,811) 19,869 71,610 11,623 (5,999) 93,310 39,771 0 0 2 172 46,796 93,310 191,006 191,006 155,582 177,624 0 0 719 12,663 1,984 10,679 0 0 0 10,679 .49 .45
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