<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended September 30, 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 other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1700 Walnut Street, Philadelphia, PA 19103
---------------------------------------------------
(Address of principal executive offices) (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 15,569,454 issued and outstanding shares of the registrant's common
stock, par value $.01 per share, at October 31, 1995. In addition there were
686,710 shares of treasury stock as of such date.
<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
INDEX
Page
Facing Sheet..................................................................1
Index.........................................................................2
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at
September 30, 1995 and March 31, 1995....................3
Condensed Consolidated Statements of Operations
Three months ended September 30, 1995 and 1994...........4
Condensed Consolidated Statements of Operations
Six months ended September 30, 1995 and 1994..............5
Condensed Consolidated Statements of Cash Flows
Six months ended September 30, 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................................................10
Part II. Other Information
Item 1. Legal Proceedings..........................................15
Item 4. Submission of Matters to a Vote of Security Holders........16
Item 6. Exhibits and Reports on Form 8-K...........................16
Signatures...................................................................18
<PAGE>
Part 1. Financial Information
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
------------- ----------
(Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 16,157 $ 13,467
Accounts receivable (net)......................................... 19,280 14,344
Inventories....................................................... 17,918 15,387
Prepaid media..................................................... 1,691 2,660
Prepaid show production........................................... 3,637 3,463
Deferred costs.................................................... 703 1,820
Prepaid expenses and other assets................................. 2,152 1,228
Deferred income taxes............................................. 1,782 1,782
--------- -------
Total current assets............................................ 63,320 54,151
Property and equipment (net)........................................ 5,015 4,413
Excess of cost over net assets of acquired businesses and
other intangible assets (net)..................................... 4,488 4,659
Other assets........................................................ 940 920
--------- -------
Total assets.................................................... $ 73,763 $64,143
========= ========
Current liabilities:
Accounts payable ................................................. $ 9,503 12,093
Accrued expenses.................................................. 21,192 17,786
Deferred revenue.................................................. 205 279
Income taxes payable.............................................. 300 300
Deferred income taxes............................................. 2,439 1,428
Current portion of long-term debt and capital lease
obligations...................................................... 148 184
--------- -------
Total current liabilities....................................... 33,787 32,070
Long-term debt and capital lease obligations........................ 3,740 3,613
Deferred income taxes............................................... 354 354
Other liabilities................................................... 1,546 1,481
Shareholders' equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares;
issued 255,796 Series B convertible preferred stock............. 3 3
Common stock, $.01 par value; authorized 50,000,000 shares;
issued 15,271,708 and 14,879,542 shares, respectively........... 153 149
Additional paid-in capital........................................ 34,312 31,877
Retained earnings................................................. 5,737 (10)
Treasury stock, 686,710 shares at cost............................ (3,791) (3,791)
Notes receivable, directors, officers, employees,
consultants and others.......................................... (149) (1,868)
Foreign currency translation adjustment........................... (1,929) 265
--------- -------
Total shareholders' equity...................................... 34,336 26,625
--------- -------
Total liabilities and shareholders' equity...................... $ 73,763 $64,143
========= =======
</TABLE>
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.
<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
Three months ended September 30,
-------------------------------
1995 1994
------------ -------------
<S> <C> <C>
Revenues:
Product sales .............................................................. $ 56,173 $ 35,794
Retail royalties ........................................................... 1,200 1,898
Sales commissions and other revenues ....................................... 235 843
------------ ------------
Net revenues ............................................................. 57,608 38,535
Operating costs and expenses:
Media purchases ............................................................ 17,272 11,584
Direct costs ............................................................... 29,664 21,290
Selling, general and administrative ........................................ 6,695 4,785
Severance expense for former Chairman and Chief Executive
Officer ................................................................. -0- 2,650
Unusual charges ............................................................ -0- 241
Interest expense ........................................................... 233 105
------------ ------------
Total operating costs and expenses ....................................... 53,864 40,655
------------ ------------
Income (loss) before income taxes ............................................ 3,744 (2,120)
Income taxes (benefit) ....................................................... 599 (28)
------------ ------------
Net income (loss) ............................................................ $ 3,145 $ (2,092)
============ ============
Income (loss) per common and common equivalent share:
Primary..................................................................... $ 0.15 $ (0.15)
============ ============
Fully-diluted.............................................................. $ 0.14 $ (0.15)
============ ============
Weighted average number of common and common equivalent shares outstanding:
Primary .................................................................... 22,429,000 14,023,000
============ ============
Fully-diluted .............................................................. 22,429,000 14,023,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
Six months ended September 30,
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Revenues:
Product sales .............................................. $ 119,971 $ 74,219
Retail royalties ........................................... 2,358 3,478
Sales commissions and other revenues ....................... 324 1,235
------------ ------------
Net revenues ............................................. 122,653 78,932
Operating costs and expenses:
Media purchases ............................................ 37,955 24,602
Direct costs ............................................... 63,647 42,638
Selling, general and administrative ........................ 13,724 9,858
Severance expense for former Chairman and Chief
Executive Officer ........................................ -0- 2,650
Unusual charges ............................................ -0- 576
Interest expense ........................................... 473 229
------------ ------------
Total operating costs and expenses ........................ 115,799 80,553
Income (loss) before income taxes ............................ 6,854 (1,621)
Income taxes ................................................. 1,107 -0-
------------ ------------
Net income (loss) ............................................ $ 5,747 $ (1,621)
============ ============
Income (loss) per common and common equivalent share:
Primary .................................................... $ 0.28 $ (0.12)
============ ============
Fully-diluted .............................................. $ 0.27 $ (0.12)
============ ============
Weighted average number of common and common equivalent shares
Primary .................................................... 22,272,000 13,856,000
============ ============
Fully-diluted............................................... 22,297,000 13,856,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
NATIONAL MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six months ended September 30,
------------------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................ $ 5,747 $ (1,621)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ........................ 773 813
Changes in operating assets and liabilities .......... (5,088) 2,421
Other ................................................ 544 396
-------- --------
Net cash provided by operating activities .................. 1,976 2,009
Cash flows from investing activities:
Additions to property and equipment ...................... (1,204) (506)
-------- --------
Net cash used in investing activities ...................... (1,204) (506)
Cash flows from financing activities:
Payments on long-term debt ............................... (90) (868)
Proceeds from borrowings ................................. -0- 3,084
Net repayments under lines of credit ..................... -0- (3,819)
Exercise of stock options ................................ 1,370 240
Payments received on notes receivable .................... 1,520 492
-------- --------
Net cash provided by (used in) financing activities ........ 2,800 (871)
Effect of exchange rate changes on cash and cash equivalents (882) 129
-------- --------
Net increase in cash and cash equivalents .................. 2,690 761
Cash and cash equivalents at beginning of period ........... 13,467 1,595
-------- --------
Cash and cash equivalents at end of period ................. $ 16,157 $ 2,356
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 30, 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 six month periods ended September 30, 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 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" for the three and six month periods ended September 30, 1995 and the
treasury stock method for the three and six month periods ended September
30, 1994.
3. Unusual Charges
Included in the unusual charges of $241,000 for the three months ended
September 30, 1994 is $153,000 in costs associated with the termination of
the tender offer and related matters as discussed in Note 4 (Contingent
Matters) below and $88,000 of costs associated with litigation involving a
former director of the Company ("Salaman litigation").
The six months ended September 30, 1994 includes unusual charges of $576,000
comprised primarily of $378,000 in costs associated with the terminated
tender offer and $163,000 of costs connected with the Salaman litigation.
4. Contingent Matters
Shareholders' Federal Class Actions
In June 1993, a class action complaint was filed in federal court against
the Company and certain of its former executive officers. Five similar
lawsuits subsequently were filed in the same court. The six actions were
consolidated and an amended and consolidated complaint (the "complaint") was
filed in October 1993. The complaint involved allegations concerning
disclosure by the Company of its ongoing relationship with Positive Response
Television, Inc., an infomercial producer, and Ronic, S.A., a supplier of
the Company.
The Company settled this action with a cash payment by its insurer of $2.175
million and the issuance of 106,000 shares of its common stock in July 1995.
The Company's financial statements for the year ended March 31, 1995
included a charge of approximately $725,000 in connection with the
settlement.
<PAGE>
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 amended 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 with the 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 rates more favorable than those currently being paid by the
Company. ValueVision is also obligated to provide to the Company certain
production and post-production services. As additional consideration for the
services to be provided by ValueVision under the Telemarketing Agreement,
the Company is obligated to grant to ValueVision, on the effective date,
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 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 provided that ValueVision satisfies certain conditions. The
Warrants will expire on the tenth anniversary of the effective date.
The Telemarketing Agreement shall become effective upon the certification
date. The period during which the certification date was originally
scheduled to occur was extended by the mutual consent of the parties to
December 31, 1995. In the event the certification date has not occurred by
December 31, 1995, the Company may terminate the Telemarketing Agreement.
Upon such a termination, the Company will be entitled to receive liquidated
damages in the amount of $3,000,000. The Company will also be entitled to
liquidated damages at a lesser amount for certain other material breaches
under the Telemarketing Agreement.
The issuance of the Warrants to ValueVision required the prior consent of
the holders of the Company's promissory notes issued pursuant to the 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.
These warrants expire on the earlier of 12 months after the notes are paid
in full or upon the Noteholders no longer being guarantors of the notes. The
issuance of the Waiver Warrants and the aforementioned Telemarketing
Agreement were approved by the Company's stockholders at the Company's
annual meeting held on August 30, 1995. The issuance of the Waiver Warrants
is contingent on the Telemarketing Agreement becoming effective.
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 a proposed merger transaction with
ValueVision. 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 approval of the Court. The Company is currently in the
process of seeking such approval.
<PAGE>
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 it is not yet possible to determine whether the cost of
implementing any such corrective action plan and the amount of any such
civil penalty, alone or together, would have a material adverse effect on
the Company's results of operations and financial conditions.
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, including a claim that the Company
and the former Chairman fraudulently induced him to purchase the Company's
common stock through the exercise of stock options and to forebear from
selling his shares of common stock. The former officer seeks to recover
compensatory damages in excess of $1.3 million as well as punitive damages
and to rescind all alleged debts owed to the Company by him (approximately
$238,000). The Company and its former Chairman filed motions to dismiss
and/or for summary judgment, which motions were denied by the Court on
November 3, 1994. The parties had informally reached a confidential
settlement of the action, and on December 9, 1994, the court dismissed the
case with prejudice. The court retained jurisdiction of the case, however,
in the event that any party seeks to have the dismissal vacated, modified,
or stricken should the parties fail to execute and deliver a definitive
settlement agreement. There can be no assurance that the settlement will be
so finalized. Management of the Company believes that the definitive
settlement, if implemented on substantially the terms of the informal
settlement, would not be likely to have a material adverse effect on the
financial position or results of operations of the Company.
5. Subsequent Events
Subsequent to September 30, 1995 the Company made two acquisitions which
will be accounted for using the purchase method.
Flying Lure
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 "FL Companies"). The purchase price of $1.9 million
included $1.0 million payable in cash and a two year promissory note 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.
DirectAmerica Corporation
On October 25, 1995, the Company acquired all of the outstanding capital
stock of DirectAmerica Corporation ("DA") and California Production Group,
Inc. ("CPG") through a tax-free merger of the entities with and into DA
Acquisition Corp. (name changed to DirectAmerica Corporation ("DAC")), a
wholly owned subsidiary of the Company. In connection with the merger, the
Company issued to the shareholders of DA and CPG an aggregate of 554,456
shares ("Merger Shares") of the Company's common stock valued at
approximately $8.5 million at closing. The Company may be required to issue
additional shares of common stock to the shareholders of DA and CPG if
royalties received by DAC from sales of products for which DA and CPG have
produced infomercials exceed $5.0 million for the twelve month period ended
January 31, 1997. Pursuant to the terms of the Merger Agreement, the Company
filed a registration statement on October 31, 1995 to register the resale of
the 554,456 Merger Shares. Beneficial holders of the Company's preferred
stock and warrants which are convertible into approximately 7.9 million
shares of common stock caused the Company to include their shares in such
registration pursuant to certain rights previously granted to such holders.
<PAGE>
Positive Response Television
On October 19, 1995, the Company announced that it had entered into a letter
of intent to acquire Positive Response Television, Inc. ("PRTV") and its
subsidiaries. PRTV is a publicly traded direct marketing company and a
producer of infomercials.
Under the terms of the agreement, PRTV shareholders will receive .524 shares
of the Company's common stock for each share of PRTV stock they own. PRTV
currently has approximately 3.55 million shares of common stock outstanding.
Following consummation of the proposed transaction, PRTV shareholders will
own approximately 7% of the Company's common stock assuming conversion or
exercise of all outstanding preferred stock, options and warrants.
Consummation of the proposed transaction is subject to among other things,
the completion of a satisfactory due diligence review by each of the
Company and PRTV, the negotiation and execution of a definitive agreement,
the approval of PRTV's shareholders and the receipt of regulatory approvals.
Due to the contingencies involved, the Company is unable to predict whether
or when a transaction with PRTV will be consummated.
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
marketplace. The Company's operating results continue to depend upon its ability
to introduce and sell new products. The Company is generally dependent on its
most successful products to generate a significant portion of its net revenue.
The Company continues to take actions designed to reduce the risk associated
with relying on a limited number of successful products for a disproportionate
amount of its revenues by expanding 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 a greater percentage of the Company's revenues being generated
from the international infomercial market. As the Company enters new markets
overseas, it is able to air shows from its existing library, thus reducing its
dependence on new show productions. The Company is taking 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 partner 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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
September 30, September 30,
------------------ ----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues ............................ 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Media Purchases ..................... 30.0 30.1 30.9 31.2
Direct costs ........................ 51.5 55.2 51.9 54.0
Selling, general and administrative . 11.6 12.4 11.2 12.5
Severance expense for former Chairman
and Chief Executive Officer ........ -- 6.9 -- 3.4
Unusual charges ..................... -- .6 -- .7
Interest expense .................... .4 .3 .4 .3
----- ----- ----- -----
Total operating costs and expenses .... 93.5 105.5 94.4 102.1
----- ----- ----- -----
Income (loss) before income taxes ..... 6.5 (5.5) 5.6 (2.1)
----- ----- ----- -----
Net income (loss) ..................... 5.5% (5.4)% 4.7% (2.1)%
===== ===== ===== =====
</TABLE>
<PAGE>
Three months ended September 30, 1995 compared to three months ended September
30, 1994
Net revenues
Net revenues were $57.6 million for the three months ended September 30, 1995 as
compared to $38.5 million for the three months ended September 30, 1994, an
increase of $19.1 million or 49.6%.
Domestic net revenues. Domestic net revenues were $20.4 million for the three
months ended September 30, 1995 as compared to $22.7 million for the three
months ended September 30, 1994, a decrease of $2.3 million or 10.1%.
Approximately 32.5% and 19.7% of the Company's domestic net revenues for the
three months ended September 30, 1995 were generated from sales of E-Force and
Regal's Royal Diamond Cookware, respectively. Non-infomercial net revenue
decreased by $.7 million primarily due to a decrease in royalty revenues and
sales commissions.
Foreign net revenues. Foreign net revenues were $37.2 million for the three
months ended September 30, 1995 as compared to $15.8 million for the three
months ended September 30, 1994, an increase of $21.4 million or 135.4%. The
growth was principally a result of the significant expansion of the Company's
operations in the Asian marketplace and continued growth in Europe. The Company
began significant operations in the Asian marketplace in late July 1994,
resulting in the three month period ended September 30, 1994 containing only two
months of revenues generated in the Asian marketplace as compared to the
inclusion of Asian revenues throughout the entire three month period ended
September 30, 1995.
Operating costs
Total operating costs and expenses were $53.9 million for the three months ended
September 30, 1995 as compared to $40.7 million for the three months ended
September 30, 1994, an increase of $13.2 million or 32.4%
Media purchases
Media purchases were $17.3 million (net of $4.4 million in media sales) for the
three months ended September 30, 1995 as compared to $11.6 million (net of $3.7
million in media sales) for the three months ended September 30, 1994, an
increase of $5.7 million or 49.1%. The ratio of media purchases to net revenues
decreased from 30.1% in the three months ended September 30, 1994 to 30.0% in
the three months ended September 30, 1995. This decrease in the ratio of media
purchases reflects the higher proportion of international net revenues in the
three month period ended September 30, 1995 as compared to the three month
period ended September 30, 1994. Revenues generated in the international
marketplace are generally subject to more effective media costs.
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 $29.7 million for the three
months ended September 30, 1995 as compared to $21.3 million for the three
months ended September 30, 1994, an increase of $8.4 million or 39.4%. This is
reflective of the 49.6% increase in net revenues during the three months ended
September 30, 1995 as compared to the three months ended September 30, 1994. The
ratio of direct costs to net revenues decreased from 55.2% in the three months
ended September 30, 1994 to 51.5% in the three months ended September 30, 1995.
Both domestically and internationally direct costs declined as a percentage of
revenues reflecting the Company's continued efforts to become a low cost/more
efficient operator.
Selling, general and administrative
Selling, general and administration expenses increased approximately 39.6% from
$4.8 million for the three months ended September 30, 1994 to $6.7 million for
the three months ended September 30, 1995, primarily due to costs associated
with international expansion. Selling, general and administrative expenses as a
percentage of net revenues decreased from 12.4% for the three month period ended
September 30, 1994 to 11.6% for the three month period ended September 30, 1995.
<PAGE>
Severance expense for former Chairman and Chief Executive Officer
Severance expense of $2.65 million in the three months ended September 30, 1994
related to the resignation of the Company's former Chairman and Chief
Executive Officer.
Unusual charges
Included in the unusual charges of $241,000 for the three months ended September
30, 1994 is $153,000 in costs associated with the terminated tender offer and
agreement of merger with ValueVision and $88,000 of costs connected with the
Salaman litigation.
Interest expense
Interest expense was $233,000 for the three months ended September 30, 1995 as
compared to $105,000 for the three months ended September 30, 1994, an increase
of $128,000. This increase is 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 16.0% for the three months September 30,
1995. The effective tax rate (benefit) of (1.3%) for the three months ended
September 30, 1994 was a result of the Company's loss position.
Six months ended September 30, 1995 compared to six months ended September 30,
1994
Net revenues
Net revenues were $122.7 million for the six months ended September 30, 1995 as
compared to $78.9 million for the six months ended September 30, 1994, an
increase of $43.8 million or 55.5%.
Domestic net revenues. Domestic net revenues were $51.2 million for the six
months ended September 30, 1995 as compared to $51.1 million for the six months
ended September 30, 1994, an increase of $.1 million or 0.2%. Approximately 44%
and 23.2% of the Company's domestic net revenues for the six months ended
September 30, 1995 were generated from sales of the E-Force and Touchless Car
Care System, respectively. Non-infomercial net revenue decreased by $1.6 million
primarily due to a decrease in royalty revenues and sales commissions.
Foreign net revenues. Foreign net revenues were $71.5 million for the six months
ended September 30, 1995 as compared to $27.8 million for the six months ended
September 30, 1994, an increase of $43.7 million or 157.2%. This increase was
primarily a result of the current period including six months of revenues
generated in the Asian marketplace as compared to the prior period which
contained only two full months of revenues generated in the Asian marketplace.
The Company initially began airing its infomercials in the Asian marketplace in
late July 1994. The current six month period also benefited from the Company's
acquisition and utilization of additional air time in Europe and Asia.
<PAGE>
Operating costs
Total operating costs and expenses were $115.8 million for the six months ended
September 30, 1995 as compared to $80.6 million for the six months ended
September 30, 1994, an increase of $35.2 million or 43.7%.
Media purchases
Media purchases were $38.0 million (net of $7.9 million in Media sales) for the
six months ended September 30, 1995 as compared to $24.6 million (net of $6.2
million in Media sales) for the six months ended September 30, 1994, an increase
of $13.4 million or 54.5%. The ratio of media purchases to net revenues
decreased from 31.2% in the six months ended September 30, 1994 to 30.9% in the
six months ended September 30, 1995. This decrease in the ratio of media
purchases reflects the higher proportion of international net revenues in the
six month period ended September 30, 1995 as compared to the six month period
ended September 30, 1994. Revenues generated in the international marketplace
are generally subject to more effective media costs.
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 $63.6 million for the six
months ended September 30, 1995 as compared to $42.6 million for the six months
ended September 30, 1994, an increase of $21.0 million or 49.3%. This is
reflective of the 55.5% increase in net revenues during the six months ended
September 30, 1995 as compared to the six months ended September 30, 1994. The
ratio of direct costs to net revenues decreased slightly from 54.0% in the six
months ended September 30, 1994 to 51.9% in the six months ended September 30,
1995, reflecting the Company's continued efforts to become the low cost/more
efficient operator globally.
Selling, general and administrative
Selling, general and administrative expenses increased from $9.9 million for the
six month period ended September 30, 1994 to $13.7 million for the six month
period ended September 30, 1995, primarily due to costs associated with
international expansion. Selling, general and administrative expenses as a
percentage of net revenues decreased from 12.5% for the six month period ended
September 30, 1994 to 11.2% for the six month period ended September 30 1995.
Severance expense for former Chairman and Chief Executive Officer
Severance expense of $2.65 million for the six months ended September 30, 1994
related to the resignation of the Company's former Chairman and Chief Executive
Officer.
Unusual charges
The six months ended September 30, 1994 includes unusual charges of $576,000
comprised primarily of $378,000 in costs associated with the terminated tender
offer and agreement of merger with ValueVision and $163,000 of costs connected
with the Salaman litigation.
<PAGE>
Interest expense
Interest expense was $473,000 for the six months ended September 30, 1995 as
compared to $229,000 for the six months ended September 30, 1994, an increase of
106.6%. This increase is due to an increase in the Company's average outstanding
debt balance as well as $180,000 of amortization related to the discount on the
Company's $5.0 million term loan.
Income taxes
The effective tax rate for the six months ended September 30, 1995 was 16.1%.
The effective tax rate of 0% for the six months ended September 30, 1994 was a
result of the Company's loss position.
Liquidity and Capital Resources
The Company's working capital was $29.5 million at September 30, 1995 compared
to $22.1 million at March 31, 1995, an increase of $7.4 million. This was
principally due to an increase in accounts receivable and inventory associated
with the Company's increased sales volume during the period. Cash flow from
operations remained constant at $2.0 million for the six month periods ended
September 30, 1994 and September 30, 1995. The Company expects that available
cash, cash from operations and its existing term loan will be sufficient to meet
its normal operating requirements for the near term.
The acquisition of the Flying Lure companies was funded with cash currently
available. Neither this acquisition, nor the acquisition of DirectAmerica nor
the pending PRTV acquisition, if consummated, are expected to have a material
adverse effect on the Company's liquidity and/or capital resources.
<PAGE>
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 beginning on page 7
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 (Subsequent Events) 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 operations or financial condition.
<PAGE>
Item 4: Submission of Matters to a Vote of Security Holders
The Company held an annual meeting of its stockholders on August 30, 1995. The
meeting was held to elect a board of ten directors; to consider and approve (a)
a Telemarketing, Production and Post-Production Agreement (the "Telemarketing
Agreement") dated April 13, 1995, by and between the Company and ValueVision
International, Inc.; and (b) pursuant to the Telemarketing Agreement, the
issuance of warrants to purchase up to 500,000 shares of the Company's common
stock at a price of $8.865 per share; and (c) the issuance of warrants to
purchase an aggregate of 500,000 shares of the Company's common stock at a price
of $10.00 per share to lenders who participated in the issuance by the Company
of $5 million in principal amount of promissory notes in October 1994. All
proposals were approved as follows:
Against or
For Withheld Abstain
---------- ---------- -------
1. Election of Directors
Individual Director Totals:
David J. Carman .................... 12,885,725 55,296
Constantinos I. Costalas ........... 12,883,425 57,596
Albert R. Dowden ................... 12,885,725 55,296
Michael J. Emmi .................... 12,885,725 55,296
Frederick S. Hammer ................ 12,880,925 60,096
Mark P. Hershhorn .................. 12,885,425 55,596
Brian McAdams ...................... 12,885,725 55,296
Jon W. Yoskin II ................... 12,885,725 55,296
Ira M. Lubert* ..................... 191,171 6,250
Charles L. Andes* .................. 191,171 6,250
2. Telemarketing Agreement and the
Issuance of the ValueVision Warrants 10,338,969 140,222 69,793
3. Issuance of Holder Warrants 10,090,485 225,809 232,690
- --------
* The holders of the Company's Series B Convertible Preferred Stock have the
right to elect two members of the Company's Board of Directors.
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 October 24, 1995, by and among National Media Corporation,
DA Acquisition Corp., DirectAmerica Corporation, California
Production Group, Inc. and other parties thereto.
* 4.1 National Media Corporation 1995 Management Incentive Plan.
*** 4.2 National Media Corporation Director's Stock Grant Plan.
<PAGE>
10.1 Employment Agreement between Registrant and Brian McAdams dated
as of September 27, 1995.
10.2 Employment Agreement between Registrant and Constantinos I.
Costalas dated as of September 27, 1995.
** 10.3 Employment Agreement, dated as of October 24, 1995, by and
between DirectAmerica Corporation, a wholly-owned subsidiary of
National Media Corporation, and John W. Kirby.
** 10.4 Employment Agreement, dated as of October 24, 1995, by and
between DirectAmerica Corporation, a wholly-owned subsidiary
of National Media Corporation, and Bruce D. Goodman.
** 10.5 DirectAmerica Employee Bonus Plan.
11.1 Statement RE: Computation of Per Share Earnings.
27.1 Financial Data Schedule
* Incorporated by reference to Registrant's Report on Form S-8 dated July
11, 1995.
** Incorporated by reference to Registrant's Report on Form 8-K dated
October 19, 1995.
*** Incorporated by reference to Registrant's Report on Form S-8 dated
October 19, 1995.
(b) The Company filed the following reports of Form 8-K:
Form 8-K dated September 11, 1995
Item 5. Other Events - Announcement by the Company that it had
reached an agreement to acquire all the issued and outstanding
equity ownership of DirectAmerica Corporation and California
Production Group, Inc., production companies, for 554,456 share of
the Company's common stock.
Form 8-K dated September 21, 1995
Item 5. Other Events - Announcement by the Company of its entrance
into a revised term sheet with Alexander G. Langer outlining the
revised terms of the acquisition by the Company of all the issued
and outstanding stock of United Brands International Corp. ("UBI")
and Langer Technologies, Inc. ("LTI"). UBI and LTI own all the
assets related to the "Flying Lure" fishing lure business.
Form 8-K dated October 19, 1995
Item 2. Acquisition or Disposition of Assets - Announcement by the
Company of the following: its acquisition of Direct America
Corporation ("DA") and California Production Group, Inc. ("CPG");
employment agreements with the two key executives of DA and CPG;
and formation of the Direct America 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
undertakes 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) day from the date by which the report on
Form 8-K was required to be filed.
Item 5. Other Matters - Announcement by the Company of its entrance
into a letter of intent to acquire Positive Response Television,
Inc. ("PRTV") and its subsidiaries. Under the terms of the
agreement PRTV shareholders will receive .524 shares of the
Company's common stock for each share of PRTV stock they own.
<PAGE>
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: November 13, 1995 /s/ Mark P. Hershhorn
-----------------------------------------------
Mark P. Hershhorn
President, Chief Executive Officer and Director
Date: November 13, 1995 /s/ Constantinos I. Costalas
-----------------------------------------------
Constantinos I. Costalas
Vice Chairman of the Board, Principal Financial
Officer and Director
<PAGE>
Index to Exhibits
Exhibit No.
10.1 Employment Agreement between Registrant and Brian McAdams dated as of
September 27, 1995.
10.2 Employment Agreement between Registrant and Constantinos I. Costalas dated
as of September 27, 1995.
11.1 Statement RE: Computation of Per Share Earnings.
27.1 Financial Data Schedule
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") made and entered as of
September 27, 1995 by and between NATIONAL MEDIA CORPORATION (the "Company"), a
Delaware corporation and BRIAN McADAMS (the "Executive").
Background
The Company desires to employ Executive as the Chairman of the
Board of Directors of the Company (the "Board") and the Chairman of the
Executive Committee of the Board (the "Executive Committee") and Executive
desires to accept such employment. The parties further desire to set forth
herein the terms and conditions of the Executive's employment by the Company.
Accordingly, in consideration of the mutual covenants and agreements set forth
herein and the mutual benefits to be derived herefrom, and intending to be
legally bound hereby, the Company and the Executive agree as follows:
1. Employment.
(a) Duties. The Company shall employ the
Executive, on the terms set forth in this Agreement, as its Chairman of the
Board and Chairman of the Executive Committee. The Executive accepts such
employment with the Company and shall perform and fulfill such duties as are
reasonably assigned to him hereunder by the Board, devoting his best efforts and
professional time and attention to the performance and fulfillment of his duties
and to the advancement of the interests of the Company, subject only to the
direction, approval, control and directives of the Board. Nothing contained
herein shall be construed, however, to prevent the Executive from investing,
trading in or managing, for his own account and benefit, stocks, bonds,
securities, real estate, commodities or other forms of investments (subject to
law and Company policy with respect to trading in Company securities), or
serving on noncompetitive corporate boards.
(b) Place of Performance. In connection with
his employment by the Company, the Executive shall be based in the Philadelphia,
Pennsylvania metropolitan area, except for required travel on Company business.
Company shall furnish Executive with office space, stenographic assistance and
such other facilities and services as shall be suitable to Executive's position
and sufficient and satisfactory to the Executive for the performance of his
duties as Chairman of the Board and Chairman of the Executive Committee.
2. Term.
The Executive's employment under this Agreement shall
commence as of September 27, 1995 (the "Commencement Date") and shall, unless
sooner terminated in accordance with the provisions hereof, continue
<PAGE>
uninterrupted for an initial two year term expiring September 30, 1997 and
thereafter shall be automatically renewed for successive two-year periods unless
terminated by either party upon one (1) year written notice prior to the end of
any Term. As used herein, the term "Term" shall refer to such initial term and
any renewal term then in effect.
3. Compensation.
(a) Salary. During the Term, the Executive
shall be paid an annual salary of at least $300,000 (the "Base Salary") payable
in installments at such times as the Company customarily pays its other senior
executive employees (but in any event no less often than monthly). The Base
Salary may be increased from time to time by the Board of Directors as
conditions warrant including, but not limited to, Executive's performance as
determined by the Board of Directors. In no event shall Executive's Base Salary
be less than $300,000 in any year during the Term.
(b) Incentive Pay.
(i) In addition to the Base Salary
provided for in Section 3(a) of this Agreement, (1) the Executive shall
participate in the Company's 1995 Management Incentive Plan ("MIP") and (2) all
options granted to Executive in connection with that certain Employment
Agreement dated as of November 30, 1994 by and between Executive and the Company
(the "Prior Employment Agreement") are immediately hereby vested; provided,
however, that all such options which Executive fails to exercise on or prior to
December 31, 1995 shall revert to the vesting schedule set forth in the original
option agreement delivered in connection with the Prior Employment Agreement.
(ii) As an inducement to the Executive to
increase shareholder value, the Company hereby grants non-qualified stock
options to the Executive (the "Options") to purchase up to 100,000 shares (the
"Shares") of the Company's common stock, $.01 par value ("Common Stock"). The
specific terms of such grant shall be set forth in a separate stock option
agreement made under and subject to the terms of the Company's 1991 Stock Option
Plan, as amended (the "Plan"), with the exercise price under the Options to be
$12.99 per share, the fair market value of a share of Common Stock as of the
date hereof. The Options shall expire ten (10) years from the date hereof and
shall vest as follows:
(1) one third of the Shares
shall vest on September 27,
1996;
(2) one third of the Shares
shall vest on September 27,
1997; and
(3) one third of the Shares
shall vest on September 27,
1998.
2
<PAGE>
(iii) As a further inducement to
the Executive to increase shareholder value, the Company hereby grants to the
Executive, contingent upon the subsequent approval of such grant by the
Company's shareholders, non-qualified stock options (the "Additional Options")
to purchase up to 110,000 shares (the "Additional Shares") of Common Stock. The
specific terms of such conditional grant shall be set forth in a separate stock
option agreement made under and subject to the terms of the Plan, with the
exercise price under the Additional Options to be $12.99 per share, the fair
market value of a share of Common Stock as of the date hereof. If approved by
the Company's shareholders, the Additional Options shall expire ten (10) years
from the date hereof and shall vest as follows:
(1) one third of the Additional
Shares shall vest on
September 27, 1996;
(2) one third of the Additional
Shares shall vest on
September 27, 1997; and
(3) one third of the Additional
Shares shall vest on
September 27, 1998.
If the Company's shareholders do not approve the Additional Options at their
next annual meeting or a prior special meeting, the Additional Options shall,
immediately following the occurrence of the next annual meeting, be deemed to
automatically be converted into five (5) year cash only stock appreciation
rights having an established price of $12.99 per share and otherwise having
terms and conditions substantially similar to those of the Additional Options.
Such stock appreciation rights shall, if the Additional Options are not
approved, be considered to be granted immediately following the annual meeting.
To the extent allowable under the Plan, (a) the Options and the Additional
Options vested through the date of any termination hereunder shall be
exercisable in accordance with the Plan and the option agreement delivered
thereunder, regardless of the manner of termination; and (b) notwithstanding the
foregoing, upon the death of Executive during the existence of such Options
and/or Additional Options, all unvested portions thereof shall immediately vest.
(c) Health Insurance and Other Benefits. During
the Term, the Executive shall receive all employee benefits offered by the
Company to its senior executives and key management employees, including,
without limitation, all pension, profit sharing, retirement, salary
continuation, deferred compensation, disability insurance, hospitalization
insurance, major medical insurance, medical reimbursement, survivor income, life
insurance and any other benefit plan or arrangement established and maintained
by the Company, subject to the rules and regulations then in effect regarding
participation therein. Unless such change is required by federal, state or local
law, the Company shall not make any changes in any employee benefit plan or
arrangement that would result in a disproportionately greater reduction in the
rights of, or benefits to, the Executive compared with any other senior
executive of the Company.
3
<PAGE>
(d) Club Membership. The Company shall pay
Executive's annual membership dues at a luncheon club in the Philadelphia
metropolitan area chosen by the Executive.
4. Life Insurance.
(a) Purchase. Provided that Executive is
insurable at rates that are comparable to those obtainable on other persons of
similar age and position in good health (if Executive is classified in a higher
risk category he may elect to pay the excess premium cost to obtain the
coverage), during the Term, the Company shall provide the Executive, or at the
option of the Executive, the Executive's Life Insurance Trust, with a
company-paid term life insurance policy in the face amount of $1,000,000. At the
Executive's option, Executive may obtain an insurance policy in lieu of a policy
provided by the Company hereunder, and the Company shall pay premiums therefor
as set forth in invoices presented to the Company; provided the Company shall
not be required to pay premiums in excess of the out-of-pocket costs it would
otherwise have incurred had it purchased such policy directly. The owner of such
life insurance policy shall be the Executive or the Executive's Life Insurance
Trust, as directed by the Executive.
(b) Payment of Premiums. The Company shall
timely pay all premiums for such life insurance whether provided by the Company
for the Executive or by the Executive's Life Insurance Trust for the Executive.
(c) Medical Examination. The Executive agrees
to submit to all medical examinations, supply all information and execute all
documents required by the insurance company in connection with the issuance of a
policy for such insurance as well as for any key man insurance the Company may
desire to maintain on Executive's life.
5. Reimbursement of Expenses. The Executive shall be
reimbursed for all items of travel, entertainment and miscellaneous expenses
which the Executive reasonably incurs in connection with the performance of his
duties hereunder, provided that the Executive shall submit to the Company such
statements and other evidence supporting said expenses as the Company may
reasonably require.
6. Automobile Allowance. The Company shall pay
Executive a monthly automobile allowance of $600.00.
7. Vacations. The Executive shall be entitled to the
number of paid vacation days in each calendar year determined by the Company
from time to time for its senior executive officers, but not less than three (3)
weeks in any calendar year (prorated in any calendar year during which the
Executive is employed hereunder for less than the entire year in accordance with
the number of days in such calendar year during which he is so employed). The
Executive shall also be entitled to all paid holidays given by the Company to
its senior executive officers.
4
<PAGE>
8. Termination of Employment.
(a) Death or Total Disability. In the event of
the death of the Executive during the Term, this Agreement shall terminate. The
terms of the option agreements pertaining to the Options and the Additional
options shall control as to the vesting and expiration thereof upon the death of
Executive. In the event of the Total Disability (as that term is defined below)
of the Executive for one hundred eighty (180) days in the aggregate during any
consecutive twelve (12) month period during the Term, the Company shall have the
right to terminate this Agreement by giving the Executive thirty (30) days'
prior written notice thereof, and upon the expiration of such thirty (30) day
period, the Executive's employment under this Agreement shall terminate. If the
Executive shall resume his duties within thirty (30) days after receipt of such
a notice of termination and continue to perform such duties for four (4)
consecutive weeks thereafter, this Agreement shall continue in full force and
effect, without any reduction in Base Salary, other compensation and other
benefits, and the notice of termination shall be considered null and void and of
no effect. Upon termination of this Agreement under this Section 8(a), the
Company shall have no further obligations or liabilities under this Agreement,
except to pay to the Executive's estate or the Executive, as the case may be,
the portion, if any, that remains unpaid of the Base Salary for the period prior
to termination.
The term "Total Disability," as used herein,
shall mean a mental or physical condition which, in the reasonable opinion of an
independent medical doctor mutually selected by the Company and the Executive,
renders the Executive unable or incompetent to carry out the material duties and
responsibilities of the Executive under this Agreement at the time the disabling
condition was incurred. Notwithstanding the foregoing, if the Executive is
covered under any policy of disability insurance under Section 3(c) of this
Agreement, under no circumstances shall the definition of Total Disability be
different from the definition of that term in such policy.
(b) Discharge for Cause. The Company may
discharge the Executive for Cause and thereby immediately terminate his
employment under this Agreement. For purposes of this Agreement, the Company
shall have "Cause" to terminate the Executive's employment if the Executive, in
the reasonable judgment of the Company, (i) materially breaches any of his
agreements, duties or obligations under this Agreement and has not cured or
commenced in good faith to cure such breach within thirty (30) days after
notice; (ii) embezzles or converts to his own use any funds of the Company or
any client or customer of the Company; (iii) converts to his own use or
unreasonably destroys any property of the Company, without the Company's
consent; (iv) is convicted of a felony; (v) is adjudicated as mentally
incompetent; or (vi) is habitually intoxicated or is diagnosed by an independent
medical doctor to be addicted to a controlled substance or any drug whatsoever.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until the Executive has received thirty (30)
days' prior written notice ("Dismissal Notice") of such termination. In the
event the Executive does not dispute such determination within thirty (30) days
after receipt of the Dismissal Notice, the Executive shall not have the remedies
provided pursuant to Section 8(e) of this Agreement.
5
<PAGE>
(c) Termination Prior to Expiration of Term.
Either party may terminate this Agreement upon sixty (60) days' prior written
notice. Except as provided in Section 8(d) of this Agreement, such termination
shall be without liability to either party.
(d) Termination without Cause or for Good
Reason.
(i) In the event that the Executive's
employment is terminated by the Company without Cause, as defined in Section
8(b) of this Agreement, or the Executive shall resign for "Good Reason," as
defined in Section 8(d)(ii) of this Agreement, then, to the extent provided
below, the Company shall:
(1) pay the Executive in lieu
of other damages, except as specifically provided herein, an amount equal to the
greater of one years' Base Salary at the then current amount or the Base Salary
payable during the balance of the Term of this Agreement. Such amounts shall be
payable in installments equal to installments of Base Salary then payable to
Executive as provided herein until such amount is paid in full. During such
period of payments, the restrictions contained in Section 11(a)(i) of this
Agreement shall be applicable to Executive, except that Executive may accept
employment he might not otherwise accept under Section 11(a)(i) of this
Agreement, in which event payment of salary received from such other employment
shall be deducted from payments made hereunder; and
(2) maintain in full force and
effect, for the continued benefit of the Executive for a period of six (6)
months after termination or for the balance of the Term, whichever is greater,
all employee benefit plans and programs, except option plans and except bonus
plans to the extent the Executive is not employed by the Company for all or a
portion of the period of measurement for the bonus, in which the Executive was
entitled to participate immediately prior to the Executive's discharge or
resignation, provided that the Executive's continued participation is possible
under the general terms and provisions of such benefit plans and programs, and
provided further that any Options unvested and unexercisable at the date of
termination shall then become vested and exercisable. In the event that the
Executive's participation in any such benefit plan or program is barred, the
Company shall arrange to provide the Executive with benefits substantially
similar to those which the Executive is entitled to receive under such plans and
programs. At the end of the period of coverage, the Executive shall have the
option to have assigned to him at no cost and with no apportionment of prepaid
premiums any assignable insurance policy owned by the Company which relates
specifically to the Executive. At the Company's expense, the Executive may elect
at any time during the period that he is receiving payments on account of his
termination of employment to use the services of an outplacement firm of his
choice.
(ii) For purposes of this Section 8(d),
"Good Reason" shall mean the failure by the Company to comply with the material
provisions of this Agreement which failure is not cured within thirty (30) days
after notice. Notwithstanding the foregoing, the Executive shall not be deemed
to terminate this Agreement for Good Reason unless and until the Company has
received five (5) days prior written notice of termination ("Notice of
6
<PAGE>
Termination for Good Reason"). In the event the Company does not dispute such
termination within thirty (30) days after receipt of such Notice of Termination
for Good Reason, the Company shall not have the remedies provided pursuant to
Section 8(e) of this Agreement.
(e) Arbitration. In the event that the Executive
disputes a determination that Cause exists for terminating his employment
pursuant to Section 8(b) of this Agreement, or the Company disputes the
termination that Good Reason exists for Executive's termination of his
Employment pursuant to Section 8(d)(ii) of this Agreement, either party
disputing this determination shall serve the other with written notice of such
dispute ("Dispute Notice") within thirty (30) days after receipt of the
Dismissal Notice or Notice of Termination for Good Reason. Within fifteen (15)
days thereafter, the Executive or the Company, as the case may be, shall, in
accordance with the Rules of the American Arbitration Association ("AAA"), file
a petition with the AAA for arbitration of the dispute, the costs thereof to be
shared equally by the Executive and the Company unless an order of the AAA
provides otherwise and each party shall be responsible for his or its legal
fees. Such proceeding shall also determine all other disputes between the
parties relating to Executive's employment. The parties covenant and agree that
the decision of the AAA shall be final and binding and hereby waive their rights
to appeal therefrom.
(f) Nonrenewal by Company. If this Agreement is
not renewed for an additional two-year period because of notice given by the
Company pursuant to Section 2 of this Agreement, any Options unvested and
unexercisable at the expiration of the Term of this Agreement shall then become
immediately vested and exercisable.
9. Change in Control. Upon a Change in Control, as
hereinafter defined, notwithstanding anything in this Agreement to the contrary,
the following terms and provisions shall apply:
(a) If, within thirty (30) days following the
Change in Control, there is a Termination of Employment (as defined below), then
the following provisions shall become applicable:
(i) The Executive shall receive an
immediate lump sum payment (within thirty (30) days following the Termination of
Employment), of three (3) years' Base Salary at the then current amount;
(ii) The Executive shall receive an
immediate payment (within thirty (30) days following the Termination of
Employment) of the annual bonuses that the Executive would have been entitled to
receive through the remainder of the Term of this Agreement. For purposes of
this Section 9(a)(ii), the annual bonus that the Executive would have been
entitled to receive for each remaining year in the Term of this Agreement shall
be equal to the last bonus (including amounts paid under the MIP) the Executive
received prior to the Change of Control;
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(iii) All allowances and benefits, as
contained in Sections 3(c) - (d), 4 and 6 of this Agreement, shall be continued
for the full Term of this Agreement; and
(iv) All unvested and unexercised stock
options held by the Executive shall become immediately vested and exercisable by
the Executive.
(b) If a Termination of Employment does not
occur within thirty (30) days following the Change in Control, then the Term of
this Agreement shall be automatically renewed for a two (2) year period
commencing on the date of the Change in Control, in which case all of the terms
and conditions of this Agreement shall remain in full force and effect until the
end of such Term.
(c) As used in this Section 9, "Termination of
Employment" shall mean termination of the Executive's employment (i) by the
Company for any reason, or (ii) by the Executive's death, Total Disability or
resignation.
(d) As used in this Section 9, a "Change in
Control" shall be deemed to have taken place if: (i) subsequent to November 30,
1994, any "Person" (including any individual, firm, corporation, partnership or
other entity except the Executive, the Company or any employee benefit plan of
the Company or of any Affiliate or Associate (each as defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended), and any Person or entity
organized, appointed or established by the Company for or pursuant to the terms
of any such employee benefit plan), together with all Affiliates and Associates
of such Person, shall become the beneficial owner in the aggregate of twenty
percent (20%) or more of the Common Stock of the Company then outstanding; or
(ii) during the Term of this Agreement, individuals who, as of December 1, 1994,
constituted the Board cease for any reason to constitute a majority thereof.
(e) It is the intention of the parties that the
payments under Section 9(a) of this Agreement shall not constitute "excess
parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended. Accordingly, notwithstanding anything in this Section
9 to the contrary, if any of the amounts otherwise payable under Section 9(a) of
this Agreement would constitute "excess parachute payments," or if the
independent accountants acting as auditors for the Company on the date of the
Change of Control determine that such payments may constitute "excess parachute
payments," then the cash amounts otherwise payable under Section 9(a) of this
Agreement shall be reduced to the maximum amounts that may be paid without any
such payments or other benefits under this Section 9 constituting, or
potentially constituting, "excess parachute payments."
10. No Mitigation. The Executive shall not be required to
mitigate the amount of any payment or benefit provided for in this Agreement by
seeking other employment or otherwise nor, except as provided herein, shall the
amount of any payment provided for in this Agreement be reduced by any
compensation earned by the Executive as the result of his employment by another
employer.
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11. Restrictive Covenant.
(a) Competition.
(i) Executive undertakes and agrees that
he will not compete, directly or indirectly, or participate as a director,
officer, employee, consultant, agent, representative or otherwise, or as a
stockholder, partner or joint venturer, or have any direct or indirect financial
interest, including, without limitation, the interest of a creditor, in any
business competing directly with the infomercial direct response business of
Company or any of its subsidiaries within any geographical area in which the
business of Company or its subsidiaries is being conducted during Executive's
employment (1) during the Term of this Agreement; (2) for a period of six (6)
months after termination of this Agreement pursuant to Section 8(a) or 8(b) of
this Agreement; and (3) subject to Section 8(d)(i)(1) of this Agreement, for any
period after termination during which payments are made to Executive under
Section 8(d)(i) of this Agreement with respect to termination by the Company or
the Executive pursuant to Section 8(c) or 8(d) of this Agreement.
(ii) Executive further undertakes and
agrees that during the Term of this Agreement and for a period of six (6) months
after the termination or expiration or while payments are made pursuant to
Section 8(d)(i)(1) of this Agreement he will not, directly or indirectly,
employ, cause to be employed, or solicit for employment any of Company's or its
subsidiaries' employees.
(b) Trade Secrets. During the Term hereof and
after termination or expiration for any reason, Executive shall not disclose,
divulge, copy or otherwise use any trade secret of the Company or its
subsidiaries other than any knowledge or information already known to Executive
prior to this Agreement, it being acknowledged that all such new information and
materials compiled or obtained by or disclosed to Executive while employed by
the Company or its subsidiaries hereunder or otherwise are confidential and the
exclusive property of the Company and its subsidiaries.
(c) Injunctive Relief. The parties hereto agree
that the remedy at law for any breach of the provisions of this Section 11 will
be inadequate and that the Company or any of its subsidiaries or other
successors or assigns shall be entitled to injunctive relief without bond. Such
injunctive relief shall not be exclusive, but shall be in addition to any other
rights and remedies Company or any of its subsidiaries or their successors or
assigns might have for such breach.
(d) Scope of Covenant. Should the duration,
geographical area or range of prescribed activities in Section 11(a) of this
Agreement be held unreasonable by any court of competent jurisdiction, then such
duration, geographical area or range of prescribed activities shall be modified
to such degree as to make it or them reasonable and enforceable.
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12. Counsel Fees and Indemnification.
(a) In the event that it shall be necessary or
desirable for the Executive to retain legal counsel and/or incur other costs and
expenses in connection with the enforcement of any and all of his rights under
this Agreement, including participation in any proceeding contesting the
validity or enforceability of this Agreement and any arbitration proceeding
pursuant to Section 8(e) of this Agreement, the Executive shall be entitled to
recover from the Company his reasonable attorney's fees and costs and expenses
in connection with the enforcement of his rights. No fees shall be payable if
the Company is successful on the merits.
(b) The Company shall indemnify and hold
Executive harmless to the maximum extent permitted by law against judgments,
fines, amounts paid in settlement and reasonable expenses, including attorneys'
fees incurred by Executive, in connection with the defense of, or as a result
of, any action or proceeding (or any appeal from any action or proceeding) in
which Executive is made or is threatened to be made a party by reason of any act
or omission of Executive in his capacity as an officer, director or employee of
the Company, regardless of whether such action or proceeding is one brought by
or in the right of the Company, to procure a judgment in its favor. Expenses
(including attorneys' fees) incurred by the Executive in defending any civil,
criminal, administrative, or investigative action, suit or proceeding shall be
paid by the Company in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the Executive to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Company as authorized in this Section 12(b).
13. Miscellaneous.
(a) Notices. Any notice, demand or
communication required or permitted under this Agreement shall be in writing and
shall either be hand-delivered to the other party or mailed to the addresses set
forth below by registered or certified mail, return receipt requested or sent by
overnight express mail or courier or facsimile to such address, if a party has a
facsimile machine. Notice shall be deemed to have been given and received when
so hand-delivered or after three business days when so deposited in the U.S.
Mail, or when transmitted and received by facsimile or sent by express mail
properly addressed to the other party. The addresses are:
To the Company:
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
FAX #: (215) 772-5018
Attn: Corporate Secretary
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To the Executive:
Mr. Brian McAdams
117 Maple Avenue
Bala Cynwyd, PA 19004
The foregoing addresses may be changed at any time by notice given in the manner
herein provided.
(b) Integration; Modification. This Agreement
dated the date hereof constitutes the entire understanding and agreement between
the Company and the Executive regarding its subject matter and supersedes all
prior negotiations and agreements, whether oral or written, between them with
respect to its subject matter. This Agreement may not be modified except by a
written agreement signed by the Executive and a duly authorized officer of the
Company.
(c) Enforceability. If any provision of this
Agreement shall be invalid or unenforceable, in whole or in part, such provision
shall be deemed to be modified or restricted to the extent and in the manner
necessary to render the same valid and enforceable, or shall be deemed excised
from this Agreement, as the case may require, and this Agreement shall be
construed and enforced to the maximum extent permitted by law as if such
provision had been originally incorporated herein as so modified or restricted,
or as if such provision had not been originally incorporated herein, as the case
may be.
(d) Binding Effect. This Agreement shall be
binding upon and inure to the benefit of the parties, including their respective
heirs, executors, successors and assigns, except that this Agreement may not be
assigned by the Executive. This Agreement supersedes the Prior Employment
Agreement, which is hereby deemed null and void and of no further force or
effect.
(e) Waiver of Breach. No waiver by either party
of any condition or of the breach by the other of any term or covenant contained
in this Agreement, whether by conduct or otherwise, in any one or more instances
shall be deemed or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition, or the breach of any
other term or covenant set forth in this Agreement. Moreover, the failure of
either party to exercise any right hereunder shall not bar the later exercise
thereof.
(f) Governing Law and Interpretation. This
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania
without regard to its conflict of laws rules. Each of the parties agrees that he
or it, as the case may be, shall deal fairly and in good faith with the other
party in performing, observing and complying with the covenants, promises,
duties, obligations, terms and conditions to be performed, observed or complied
with by him or it, as the case may be, hereunder; and that this Agreement shall
11
<PAGE>
be interpreted, construed and enforced in accordance with the foregoing covenant
notwithstanding any law to the contrary.
(g) Headings. The headings of the various
sections and paragraphs have been included herein for convenience only and shall
not be considered in interpreting this Agreement.
(h) Counterparts. This Agreement may be
executed in several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed by the
Executive and on behalf of the Company by its duly authorized officers and
approved by its Compensation Committee, as of the date first above written.
Attest: NATIONAL MEDIA CORPORATION
/s/ Marshall Fleisher By /s/ Mark Hershhorn
- ------------------------------- ---------------------------------
Secretary Mark Hershhorn, President and
Chief Executive Officer
/s/ Brian McAdams
----------------------------------
Brian McAdams
APPROVED:
COMPENSATION COMMITTEE
By: /s/ Jon W. Yoskin, II
----------------------------
Jon W. Yoskin, II, Director,
Chairman of the Compensation
Committee of the Board of
Directors
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<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") made and entered as of
September 27, 1995 by and between NATIONAL MEDIA CORPORATION (the "Company"), a
Delaware corporation and CONSTANTINOS I. COSTALAS (the "Executive").
Background
The Company desires to employ Executive as its Vice-Chairman
and Executive desires to accept such employment. The parties further desire to
set forth herein the terms and conditions of the Executive's employment by the
Company. Accordingly, in consideration of the mutual covenants and agreements
set forth herein and the mutual benefits to be derived herefrom, and intending
to be legally bound hereby, the Company and the Executive agree as follows:
1. Employment.
(a) Duties. The Company shall employ the
Executive, on the terms set forth in this Agreement, as its Vice-Chairman. The
Executive accepts such employment with the Company and shall perform and fulfill
such duties as are reasonably assigned to him hereunder by the Chief Executive
Officer, the Chairman of the Board and the Board of Directors of the Company
(the "Board"), devoting his best efforts and professional time and attention to
the performance and fulfillment of his duties and to the advancement of the
interests of the Company, subject only to the direction, approval, control and
directives of the Chairman of the Board and the Board. Nothing contained herein
shall be construed, however, to prevent the Executive from investing, trading in
or managing, for his own account and benefit, stocks, bonds, securities, real
estate, commodities or other forms of investments (subject to law and Company
policy with respect to trading in Company securities), or serving on
noncompetitive corporate boards.
(b) Place of Performance. In connection with
his employment by the Company, the Executive shall be based in the Philadelphia,
Pennsylvania metropolitan area, except for required travel on Company business.
Company shall furnish Executive with office space, stenographic assistance and
such other facilities and services as shall be suitable to Executive's position
and sufficient and satisfactory to the Executive for the performance of his
duties as Vice-Chairman.
2. Term.
The Executive's employment under this Agreement shall
commence as of September 27, 1995 (the "Commencement Date") and shall, unless
sooner terminated in accordance with the provisions hereof, continue
<PAGE>
uninterrupted for an initial two year term expiring September 30, 1997 and
thereafter shall be automatically renewed for successive two-year periods unless
terminated by either party upon one (1) year written notice prior to the end of
any Term. As used herein, the term "Term" shall refer to such initial term and
any renewal term then in effect.
3. Compensation.
(a) Salary. During the Term, the Executive
shall be paid an annual salary of at least $225,000 (the "Base Salary") payable
in installments at such times as the Company customarily pays its other senior
executive employees (but in any event no less often than monthly). The Base
Salary may be increased from time to time by the Board of Directors as
conditions warrant including, but not limited to, Executive's performance as
determined by the Board of Directors. In no event shall Executive's Base Salary
be less than $225,000 in any year during the Term.
(b) Incentive Pay.
(i) In addition to the Base Salary
provided for in Section 3(a) of this Agreement, (1) the Executive shall
participate in the Company's 1995 Management Incentive Plan ("MIP") and (2) all
options granted to Executive in connection with that certain Employment
Agreement dated as of November 30, 1994 by and between Executive and the Company
(the "Prior Employment Agreement") are immediately hereby vested; provided,
however, that all such options which Executive fails to exercise on or prior to
December 31, 1995 shall revert to the vesting schedule set forth in the original
option agreement delivered in connection with the Prior Employment Agreement.
(ii) As an inducement to the Executive to
increase shareholder value, the Company hereby grants non-qualified stock
options to the Executive (the "Options") to purchase up to 60,000 shares (the
"Shares") of the Company's common stock, $.01 par value ("Common Stock"). The
specific terms of such grant shall be set forth in a separate stock option
agreement made under and subject to the terms of the Company's 1991 Stock Option
Plan, as amended (the "Plan"), with the exercise price under the Options to be
$12.99 per share, the fair market value of a share of Common Stock as of the
date hereof. The Options shall expire ten (10) years from the date hereof and
shall vest as follows:
(1) one third of the Shares
shall vest on September 27,
1996;
(2) one third of the Shares
shall vest on September 27,
1997; and
(3) one third of the Shares
shall vest on September 27,
1998.
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<PAGE>
(iii) As a further inducement to
the Executive to increase shareholder value, the Company hereby grants to the
Executive, contingent upon the subsequent approval of such grant by the
Company's shareholders, non-qualified stock options (the "Additional Options")
to purchase up to 80,000 shares (the "Additional Shares") of Common Stock. The
specific terms of such conditional grant shall be set forth in a separate stock
option agreement made under and subject to the terms of the Plan, with the
exercise price under the Additional Options to be $12.99 per share, the fair
market value of a share of Common Stock as of the date hereof. If approved by
the Company's shareholders, the Additional Options shall expire ten (10) years
from the date hereof and shall vest as follows:
(1) one third of the Additional
Shares shall vest on
September 27, 1996;
(2) one third of the Additional
Shares shall vest on
September 27, 1997; and
(3) one third of the Additional
Shares shall vest on
September 27, 1998.
If the Company's shareholders do not approve the Additional Options at their
next annual meeting or a prior special meeting, the Additional Options shall,
immediately following the occurrence of the next annual meeting, be deemed to
automatically be converted into five (5) year cash only stock appreciation
rights having an established price of $12.99 per share and otherwise having
terms and conditions substantially similar to those of the Additional Options.
Such stock appreciation rights shall, if the Additional Options are not
approved, be considered to be granted immediately following the annual meeting.
To the extent allowable under the Plan, (a) the Options and the Additional
Options vested through the date of any termination hereunder shall be
exercisable in accordance with the Plan and the option agreement delivered
thereunder, regardless of the manner of termination; and (b) notwithstanding the
foregoing, upon the death of Executive during the existence of such Options
and/or Additional Options, all unvested portions thereof shall immediately vest.
(c) Health Insurance and Other Benefits. During
the Term, the Executive shall receive all employee benefits offered by the
Company to its senior executives and key management employees, including,
without limitation, all pension, profit sharing, retirement, salary
continuation, deferred compensation, disability insurance, hospitalization
insurance, major medical insurance, medical reimbursement, survivor income, life
insurance and any other benefit plan or arrangement established and maintained
by the Company, subject to the rules and regulations then in effect regarding
participation therein. Unless such change is required by federal, state or local
law, the Company shall not make any changes in any employee benefit plan or
arrangement that would result in a disproportionately greater reduction in the
rights of, or benefits to, the Executive compared with any other senior
executive of the Company.
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<PAGE>
(d) Club Membership. The Company shall pay
Executive's annual membership dues at a luncheon club in the Philadelphia
metropolitan area chosen by the Executive.
4. Life Insurance.
(a) Purchase. Provided that Executive is
insurable at rates that are comparable to those obtainable on other persons of
similar age and position in good health (if Executive is classified in a higher
risk category he may elect to pay the excess premium cost to obtain the
coverage), during the Term, the Company shall provide the Executive, or at the
option of the Executive, the Executive's Life Insurance Trust, with a
company-paid term life insurance policy in the face amount of $1,000,000. At the
Executive's option, Executive may obtain an insurance policy in lieu of a policy
provided by the Company hereunder, and the Company shall pay premiums therefor
as set forth in invoices presented to the Company; provided the Company shall
not be required to pay premiums in excess of the out-of-pocket costs it would
otherwise have incurred had it purchased such policy directly. The owner of such
life insurance policy shall be the Executive or the Executive's Life Insurance
Trust, as directed by the Executive.
(b) Payment of Premiums. The Company shall
timely pay all premiums for such life insurance whether provided by the
Company for the Executive or by the Executive's Life Insurance Trust for the
Executive.
(c) Medical Examination. The Executive agrees
to submit to all medical examinations, supply all information and execute all
documents required by the insurance company in connection with the issuance of a
policy for such insurance as well as for any key man insurance the Company may
desire to maintain on Executive's life.
5. Reimbursement of Expenses. The Executive shall be
reimbursed for all items of travel, entertainment and miscellaneous expenses
which the Executive reasonably incurs in connection with the performance of his
duties hereunder, provided that the Executive shall submit to the Company such
statements and other evidence supporting said expenses as the Company may
reasonably require.
6. Automobile Allowance. The Company shall pay
Executive a monthly automobile allowance of $600.00.
7. Vacations. The Executive shall be entitled to the
number of paid vacation days in each calendar year determined by the Company
from time to time for its senior executive officers, but not less than three (3)
weeks in any calendar year (prorated in any calendar year during which the
Executive is employed hereunder for less than the entire year in accordance with
the number of days in such calendar year during which he is so employed). The
Executive shall also be entitled to all paid holidays given by the Company to
its senior executive officers.
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<PAGE>
8. Termination of Employment.
(a) Death or Total Disability. In the event of
the death of the Executive during the Term, this Agreement shall terminate. The
terms of the option agreements pertaining to the Options and the Additional
options shall control as to the vesting and expiration thereof upon the death of
Executive. In the event of the Total Disability (as that term is defined below)
of the Executive for one hundred eighty (180) days in the aggregate during any
consecutive twelve (12) month period during the Term, the Company shall have the
right to terminate this Agreement by giving the Executive thirty (30) days'
prior written notice thereof, and upon the expiration of such thirty (30) day
period, the Executive's employment under this Agreement shall terminate. If the
Executive shall resume his duties within thirty (30) days after receipt of such
a notice of termination and continue to perform such duties for four (4)
consecutive weeks thereafter, this Agreement shall continue in full force and
effect, without any reduction in Base Salary, other compensation and other
benefits, and the notice of termination shall be considered null and void and of
no effect. Upon termination of this Agreement under this Section 8(a), the
Company shall have no further obligations or liabilities under this Agreement,
except to pay to the Executive's estate or the Executive, as the case may be,
the portion, if any, that remains unpaid of the Base Salary for the period prior
to termination.
The term "Total Disability," as used herein,
shall mean a mental or physical condition which, in the reasonable opinion of an
independent medical doctor mutually selected by the Company and the Executive,
renders the Executive unable or incompetent to carry out the material duties and
responsibilities of the Executive under this Agreement at the time the disabling
condition was incurred. Notwithstanding the foregoing, if the Executive is
covered under any policy of disability insurance under Section 3(c) of this
Agreement, under no circumstances shall the definition of Total Disability be
different from the definition of that term in such policy.
(b) Discharge for Cause. The Company may
discharge the Executive for Cause and thereby immediately terminate his
employment under this Agreement. For purposes of this Agreement, the Company
shall have "Cause" to terminate the Executive's employment if the Executive, in
the reasonable judgment of the Company, (i) materially breaches any of his
agreements, duties or obligations under this Agreement and has not cured or
commenced in good faith to cure such breach within thirty (30) days after
notice; (ii) embezzles or converts to his own use any funds of the Company or
any client or customer of the Company; (iii) converts to his own use or
unreasonably destroys any property of the Company, without the Company's
consent; (iv) is convicted of a felony; (v) is adjudicated as mentally
incompetent; or (vi) is habitually intoxicated or is diagnosed by an independent
medical doctor to be addicted to a controlled substance or any drug whatsoever.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until the Executive has received thirty (30)
days' prior written notice ("Dismissal Notice") of such termination. In the
event the Executive does not dispute such determination within thirty (30) days
after receipt of the Dismissal Notice, the Executive shall not have the remedies
provided pursuant to Section 8(e) of this Agreement.
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<PAGE>
(c) Termination Prior to Expiration of Term.
Either party may terminate this Agreement upon sixty (60) days' prior written
notice. Except as provided in Section 8(d) of this Agreement, such termination
shall be without liability to either party.
(d) Termination without Cause or for Good Reason.
(i) In the event that the Executive's
employment is terminated by the Company without Cause, as defined in Section
8(b) of this Agreement, or the Executive shall resign for "Good Reason," as
defined in Section 8(d)(ii) of this Agreement, then, to the extent provided
below, the Company shall:
(1) pay the Executive in lieu
of other damages, except as specifically provided herein, an amount equal to the
greater of one years' Base Salary at the then current amount or the Base Salary
payable during the balance of the Term of this Agreement. Such amounts shall be
payable in installments equal to installments of Base Salary then payable to
Executive as provided herein until such amount is paid in full. During such
period of payments, the restrictions contained in Section 11(a)(i) of this
Agreement shall be applicable to Executive, except that Executive may accept
employment he might not otherwise accept under Section 11(a)(i) of this
Agreement, in which event payment of salary received from such other employment
shall be deducted from payments made hereunder; and
(2) maintain in full force and
effect, for the continued benefit of the Executive for a period of six (6)
months after termination or for the balance of the Term, whichever is greater,
all employee benefit plans and programs, except option plans and except bonus
plans to the extent the Executive is not employed by the Company for all or a
portion of the period of measurement for the bonus, in which the Executive was
entitled to participate immediately prior to the Executive's discharge or
resignation, provided that the Executive's continued participation is possible
under the general terms and provisions of such benefit plans and programs, and
provided further that any Options unvested and unexercisable at the date of
termination shall then become vested and exercisable. In the event that the
Executive's participation in any such benefit plan or program is barred, the
Company shall arrange to provide the Executive with benefits substantially
similar to those which the Executive is entitled to receive under such plans and
programs. At the end of the period of coverage, the Executive shall have the
option to have assigned to him at no cost and with no apportionment of prepaid
premiums any assignable insurance policy owned by the Company which relates
specifically to the Executive. At the Company's expense, the Executive may elect
at any time during the period that he is receiving payments on account of his
termination of employment to use the services of an outplacement firm of his
choice.
(ii) For purposes of this Section 8(d),
"Good Reason" shall mean the failure by the Company to comply with the material
provisions of this Agreement which failure is not cured within thirty (30) days
after notice. Notwithstanding the foregoing, the Executive shall not be deemed
to terminate this Agreement for Good Reason unless and until the Company has
received five (5) days prior written notice of termination ("Notice of
Termination for Good
6
<PAGE>
Reason"). In the event the Company does not dispute such termination within
thirty (30) days after receipt of such Notice of Termination for Good Reason,
the Company shall not have the remedies provided pursuant to Section 8(e) of
this Agreement.
(e) Arbitration. In the event that the Executive
disputes a determination that Cause exists for terminating his employment
pursuant to Section 8(b) of this Agreement, or the Company disputes the
termination that Good Reason exists for Executive's termination of his
Employment pursuant to Section 8(d)(ii) of this Agreement, either party
disputing this determination shall serve the other with written notice of such
dispute ("Dispute Notice") within thirty (30) days after receipt of the
Dismissal Notice or Notice of Termination for Good Reason. Within fifteen (15)
days thereafter, the Executive or the Company, as the case may be, shall, in
accordance with the Rules of the American Arbitration Association ("AAA"), file
a petition with the AAA for arbitration of the dispute, the costs thereof to be
shared equally by the Executive and the Company unless an order of the AAA
provides otherwise and each party shall be responsible for his or its legal
fees. Such proceeding shall also determine all other disputes between the
parties relating to Executive's employment. The parties covenant and agree that
the decision of the AAA shall be final and binding and hereby waive their rights
to appeal therefrom.
(f) Nonrenewal by Company. If this Agreement is
not renewed for an additional two-year period because of notice given by the
Company pursuant to Section 2 of this Agreement, any Options unvested and
unexercisable at the expiration of the Term of this Agreement shall then become
immediately vested and exercisable.
9. Change in Control. Upon a Change in Control, as
hereinafter defined, notwithstanding anything in this Agreement to the contrary,
the following terms and provisions shall apply:
(a) If, within thirty (30) days following the
Change in Control, there is a Termination of Employment (as defined below), then
the following provisions shall become applicable:
(i) The Executive shall receive an
immediate lump sum payment (within thirty (30) days following the Termination of
Employment), of three (3) years' Base Salary at the then current amount;
(ii) The Executive shall receive an
immediate payment (within thirty (30) days following the Termination of
Employment) of the annual bonuses that the Executive would have been entitled to
receive through the remainder of the Term of this Agreement. For purposes of
this Section 9(a)(ii), the annual bonus that the Executive would have been
entitled to receive for each remaining year in the Term of this Agreement shall
be equal to the last bonus (including amounts paid under the MIP) the Executive
received prior to the Change of Control;
7
<PAGE>
(iii) All allowances and benefits, as
contained in Sections 3(c) - (d), 4 and 6 of this Agreement, shall be continued
for the full Term of this Agreement; and
(iv) All unvested and unexercised stock
options held by the Executive shall become immediately vested and exercisable by
the Executive.
(b) If a Termination of Employment does not
occur within thirty (30) days following the Change in Control, then the Term of
this Agreement shall be automatically renewed for a two (2) year period
commencing on the date of the Change in Control, in which case all of the terms
and conditions of this Agreement shall remain in full force and effect until the
end of such Term.
(c) As used in this Section 9, "Termination of
Employment" shall mean termination of the Executive's employment (i) by the
Company for any reason, or (ii) by the Executive's death, Total Disability or
resignation.
(d) As used in this Section 9, a "Change in
Control" shall be deemed to have taken place if: (i) subsequent to November 30,
1994, any "Person" (including any individual, firm, corporation, partnership or
other entity except the Executive, the Company or any employee benefit plan of
the Company or of any Affiliate or Associate (each as defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended), and any Person or entity
organized, appointed or established by the Company for or pursuant to the terms
of any such employee benefit plan), together with all Affiliates and Associates
of such Person, shall become the beneficial owner in the aggregate of twenty
percent (20%) or more of the Common Stock of the Company then outstanding; or
(ii) during the Term of this Agreement, individuals who, as of December 1, 1994,
constituted the Board cease for any reason to constitute a majority thereof.
(e) It is the intention of the parties that the
payments under Section 9(a) of this Agreement shall not constitute "excess
parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended. Accordingly, notwithstanding anything in this Section
9 to the contrary, if any of the amounts otherwise payable under Section 9(a) of
this Agreement would constitute "excess parachute payments," or if the
independent accountants acting as auditors for the Company on the date of the
Change of Control determine that such payments may constitute "excess parachute
payments," then the cash amounts otherwise payable under Section 9(a) of this
Agreement shall be reduced to the maximum amounts that may be paid without any
such payments or other benefits under this Section 9 constituting, or
potentially constituting, "excess parachute payments."
10. No Mitigation. The Executive shall not be required to
mitigate the amount of any payment or benefit provided for in this Agreement by
seeking other employment or otherwise nor, except as provided herein, shall the
amount of any payment provided for in this Agreement be reduced by any
compensation earned by the Executive as the result of his employment by another
employer.
8
<PAGE>
11. Restrictive Covenant.
(a) Competition.
(i) Executive undertakes and agrees that
he will not compete, directly or indirectly, or participate as a director,
officer, employee, consultant, agent, representative or otherwise, or as a
stockholder, partner or joint venturer, or have any direct or indirect financial
interest, including, without limitation, the interest of a creditor, in any
business competing directly with the infomercial direct response business of
Company or any of its subsidiaries within any geographical area in which the
business of Company or its subsidiaries is being conducted during Executive's
employment (1) during the Term of this Agreement; (2) for a period of six (6)
months after termination of this Agreement pursuant to Section 8(a) or 8(b) of
this Agreement; and (3) subject to Section 8(d)(i)(1) of this Agreement, for any
period after termination during which payments are made to Executive under
Section 8(d)(i) of this Agreement with respect to termination by the Company or
the Executive pursuant to Section 8(c) or 8(d) of this Agreement.
(ii) Executive further undertakes and
agrees that during the Term of this Agreement and for a period of six (6) months
after the termination or expiration or while payments are made pursuant to
Section 8(d)(i)(1) of this Agreement he will not, directly or indirectly,
employ, cause to be employed, or solicit for employment any of Company's or its
subsidiaries' employees.
(b) Trade Secrets. During the Term hereof and
after termination or expiration for any reason, Executive shall not disclose,
divulge, copy or otherwise use any trade secret of the Company or its
subsidiaries other than any knowledge or information already known to Executive
prior to this Agreement, it being acknowledged that all such new information and
materials compiled or obtained by or disclosed to Executive while employed by
the Company or its subsidiaries hereunder or otherwise are confidential and the
exclusive property of the Company and its subsidiaries.
(c) Injunctive Relief. The parties hereto agree
that the remedy at law for any breach of the provisions of this Section 11 will
be inadequate and that the Company or any of its subsidiaries or other
successors or assigns shall be entitled to injunctive relief without bond. Such
injunctive relief shall not be exclusive, but shall be in addition to any other
rights and remedies Company or any of its subsidiaries or their successors or
assigns might have for such breach.
(d) Scope of Covenant. Should the duration,
geographical area or range of prescribed activities in Section 11(a) of this
Agreement be held unreasonable by any court of competent jurisdiction, then such
duration, geographical area or range of prescribed activities shall be modified
to such degree as to make it or them reasonable and enforceable.
9
<PAGE>
12. Counsel Fees and Indemnification.
(a) In the event that it shall be necessary or
desirable for the Executive to retain legal counsel and/or incur other costs and
expenses in connection with the enforcement of any and all of his rights under
this Agreement, including participation in any proceeding contesting the
validity or enforceability of this Agreement and any arbitration proceeding
pursuant to Section 8(e) of this Agreement, the Executive shall be entitled to
recover from the Company his reasonable attorney's fees and costs and expenses
in connection with the enforcement of his rights. No fees shall be payable if
the Company is successful on the merits.
(b) The Company shall indemnify and hold
Executive harmless to the maximum extent permitted by law against judgments,
fines, amounts paid in settlement and reasonable expenses, including attorneys'
fees incurred by Executive, in connection with the defense of, or as a result
of, any action or proceeding (or any appeal from any action or proceeding) in
which Executive is made or is threatened to be made a party by reason of any act
or omission of Executive in his capacity as an officer, director or employee of
the Company, regardless of whether such action or proceeding is one brought by
or in the right of the Company, to procure a judgment in its favor. Expenses
(including attorneys' fees) incurred by the Executive in defending any civil,
criminal, administrative, or investigative action, suit or proceeding shall be
paid by the Company in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the Executive to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Company as authorized in this Section 12(b).
13. Miscellaneous.
(a) Notices. Any notice, demand or
communication required or permitted under this Agreement shall be in writing and
shall either be hand-delivered to the other party or mailed to the addresses set
forth below by registered or certified mail, return receipt requested or sent by
overnight express mail or courier or facsimile to such address, if a party has a
facsimile machine. Notice shall be deemed to have been given and received when
so hand-delivered or after three business days when so deposited in the U.S.
Mail, or when transmitted and received by facsimile or sent by express mail
properly addressed to the other party. The addresses are:
To the Company:
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
FAX #: (215) 772-5018
Attn: Corporate Secretary
10
<PAGE>
To the Executive:
Mr. Constantinos I. Costalas
224 Church Road
Devon, PA 19333
The foregoing addresses may be changed at any time by notice given in the manner
herein provided.
(b) Integration; Modification. This Agreement
dated the date hereof constitutes the entire understanding and agreement between
the Company and the Executive regarding its subject matter and supersedes all
prior negotiations and agreements, whether oral or written, between them with
respect to its subject matter. This Agreement may not be modified except by a
written agreement signed by the Executive and a duly authorized officer of the
Company.
(c) Enforceability. If any provision of this
Agreement shall be invalid or unenforceable, in whole or in part, such provision
shall be deemed to be modified or restricted to the extent and in the manner
necessary to render the same valid and enforceable, or shall be deemed excised
from this Agreement, as the case may require, and this Agreement shall be
construed and enforced to the maximum extent permitted by law as if such
provision had been originally incorporated herein as so modified or restricted,
or as if such provision had not been originally incorporated herein, as the case
may be.
(d) Binding Effect. This Agreement shall be
binding upon and inure to the benefit of the parties, including their respective
heirs, executors, successors and assigns, except that this Agreement may not be
assigned by the Executive. This Agreement supersedes the Prior Employment
Agreement, which is hereby deemed null and void and of no further force or
effect.
(e) Waiver of Breach. No waiver by either party
of any condition or of the breach by the other of any term or covenant contained
in this Agreement, whether by conduct or otherwise, in any one or more instances
shall be deemed or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition, or the breach of any
other term or covenant set forth in this Agreement. Moreover, the failure of
either party to exercise any right hereunder shall not bar the later exercise
thereof.
(f) Governing Law and Interpretation. This
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania
without regard to its conflict of laws rules. Each of the parties agrees that he
or it, as the case may be, shall deal fairly and in good faith with the other
party in performing, observing and complying with the covenants, promises,
duties, obligations, terms and conditions to be performed, observed or complied
with by him or it, as the case may be, hereunder; and that this Agreement shall
be interpreted,
11
<PAGE>
construed and enforced in accordance with the foregoing covenant notwithstanding
any law to the contrary.
(g) Headings. The headings of the various
sections and paragraphs have been included herein for convenience only and shall
not be considered in interpreting this Agreement.
(h) Counterparts. This Agreement may be
executed in several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed by the
Executive and on behalf of the Company by its duly authorized officers and
approved by its Compensation Committee, as of the date first above written.
Attest: NATIONAL MEDIA CORPORATION
/s/ Marshall Fleisher By: /s/ Mark Hershhorn
- --------------------------------- ---------------------------------
Secretary Mark Hershhorn, President and
Chief Executive Officer
/s/ Constantinos I. Costalas
----------------------------------
Constantinos I. Costalas
APPROVED:
COMPENSATION COMMITTEE
By: /s/ Jon W. Yoskin, II
----------------------------
Jon W. Yoskin, II, Director,
Chairman of the Compensation
Committee of the Board of
Directors
12
<PAGE>
Exhibit 11.1 - STATEMENT RE:
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
(In Thousands, except per share data) Three Months Ended Six Months Ended
------------------ ----------------
September 30, September 30,
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary
Average shares outstanding .............. 14,489 14,023 14,357 13,856
Conversion of preferred stock ........... 2,558 -- 2,558 --
Net Effect of dilutive common stock
equivalents (2) (3) ..................... 5,382 -- 5,357 --
-------- -------- -------- --------
Total ................................... 22,429 14,023 22,272 13,856
======== ======== ======== ========
Net income (loss) ....................... $ 3,145 $ (2,092) $ 5,747 $ (1,621)
Adjustments to net income:
Reduction of interest expenses (net of
tax) related to retired debt ......... 196 -- 397 --
Increase in interest income (net of
tax) from investment of excess
proceeds in short-term paper ......... 35 -- 93 --
-------- -------- -------- --------
Adjusted net income (loss)............... $ 3,376 $ (2,092) $ 6,237 $ (1,621)
======== ======== ======== ========
Per share earnings:
Net earnings (loss) ..................... $ .15 $ (.15) $ .28 $ (.12)
======== ======== ======== ========
Fully Diluted
Average shares outstanding .............. 14,489 14,023 14,357 13,856
Conversion of preferred stock ........... 2,558 -- 2,558 --
Net Effect of dilutive common stock
equivalents (2) (4) ..................... 5,382 -- 5,382 --
-------- -------- -------- --------
Total ................................... 22,429 14,023 22,297 13,856
======== ======== ======== ========
Net income (loss) ....................... $ 3,145 $ (2,092) $ 5,747 $ (1,621)
Adjustments to net income:
Reduction of interest expenses (net of
tax) related to retired debt ......... 86 -- 172 --
Increase in interest income (net of
tax) from investment of excess
proceeds in short-term paper ......... -- -- -- --
-------- -------- -------- --------
Adjusted net income (loss)............... $ 3,231 $ (2,092) $ 5,919 $ (1,621)
======== ======== ======== ========
Per share earnings:
Net earnings (loss) ..................... $ .14 $ (.15)(1) $ .27 $ (.12)(1)
======== ======== ======== ========
</TABLE>
(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) For the three and six months ended September 30, 1995, based on common stock
equivalents using the if converted method. For the three and six months
ended September 30, 1994, based on the treasury stock method using average
market price.
(4) For the three and six months ended September 30, 1995, based on common stock
equivalents using the if converted method. For the three and six months
ended September 30, 1994, based on the treasury stock method using the
period-end market price, if higher than the average market price.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000070412
<NAME> National Media Corp.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 16,157
<SECURITIES> 0
<RECEIVABLES> 21,201
<ALLOWANCES> (1,921)
<INVENTORY> 17,918
<CURRENT-ASSETS> 63,320
<PP&E> 10,594
<DEPRECIATION> (5,579)
<TOTAL-ASSETS> 73,763
<CURRENT-LIABILITIES> 33,787
<BONDS> 0
<COMMON> 153
0
3
<OTHER-SE> 34,180
<TOTAL-LIABILITY-AND-EQUITY> 73,763
<SALES> 122,653
<TOTAL-REVENUES> 122,653
<CGS> 101,602
<TOTAL-COSTS> 115,326
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 473
<INCOME-PRETAX> 6,854
<INCOME-TAX> 1,107
<INCOME-CONTINUING> 5,747
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,747
<EPS-PRIMARY> .28
<EPS-DILUTED> .27
</TABLE>
