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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 June 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission file number 1-6715
NATIONAL MEDIA CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-2658741
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(State or Jurisdiction of Incorporation (I.R.S. Employer Identification No.)
or Organization)
Eleven Penn Center
1835 Market Street, Suite 1100
Philadelphia, PA 19103
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (215) 988-4600
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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 24,895,292 issued and outstanding shares of the registrant's common
stock, par value $.01 per share, at June 30, 1997. In addition, there were
707,311 shares of treasury stock as of such date.
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NATIONAL MEDIA CORPORATION
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AND SUBSIDIARIES
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INDEX
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<TABLE>
<CAPTION>
Page
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Facing Sheet................................................................ 1
Index....................................................................... 2
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at June 30, 1997
and March 31, 1997....................................... 3
Condensed Consolidated Statements of Operations
Three months ended June 30, 1997 and June 30, 1996....... 4
Condensed Consolidated Statements of Cash Flows
Three months ended June 30, 1997 and June 30, 1996....... 5
Notes to Condensed Consolidated Financial Statements...... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 9
Part II. Other Information
Item 1. Legal Proceedings......................................... 14
Item 6. Exhibits and Reports on Form 8-K.......................... 14
Signatures.................................................................. 15
</TABLE>
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
ASSETS June 30, March 31,
------ 1997 1997
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(Unaudited) (See Note Below)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 7,445 $ 4,058
Accounts receivable, net........................ 33,159 40,179
Inventories, net................................ 29,905 30,919
Prepaid media................................... 3,295 3,563
Prepaid show production......................... 6,243 6,765
Deferred costs.................................. 3,765 3,318
Prepaid expenses and other current assets....... 2,040 2,505
Deferred income taxes........................... 2,547 2,591
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Total current assets.......................... 88,399 93,898
Property and equipment, net....................... 15,038 14,182
Excess of cost over net assets of acquired
businesses and other intangible assets, net...... 50,002 50,732
Other assets...................................... 6,839 6,820
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Total assets.................................... $ 160,278 $ 165,632
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Accounts payable................................ $ 20,492 $ 21,810
Accrued expenses................................ 32,512 30,830
Deferred revenue................................ 636 686
Income taxes payable............................ 332 552
Deferred income taxes........................... 2,351 2,351
Current portion of long-term debt and
capital lease obligations...................... 23,806 17,901
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Total current liabilities..................... 80,129 74,130
Long-term debt and capital lease obligations...... 1,258 959
Deferred income taxes............................. 240 240
Other liabilities................................. 1,721 1,743
Shareholders' equity:
Preferred stock, $.01 par value; authorized
10,000,000 shares; issued 93,750 and 95,000
shares Series B convertible preferred stock,
respectively................................... 1 1
Common stock, $.01 par value; authorized
75,000,000 shares; issued 24,895,292 and
24,752,792 shares, respectively................ 249 248
Additional paid-in capital...................... 128,689 127,764
Retained earnings............................... (42,111) (29,122)
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86,828 98,891
Treasury stock, 707,311 shares, at cost......... (4,244) (4,244)
Note receivable, officer........................ (139) -
Foreign currency translation adjustment......... (5,515) (6,087)
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Total shareholders' equity.................... 76,930 88,560
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Total liabilities and shareholders' equity.... $ 160,278 $ 165,632
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</TABLE>
Note: The balance sheet at March 31, 1997 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
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NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended June 30,
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1997 1996
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<S> <C> <C>
Revenues:
Product sales..................................... $ 66,021 $ 102,922
Retail royalties.................................. - 5,187
Sales commissions and other revenues.............. 1,134 1,191
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Net revenues.............................. 67,155 109,300
Operating costs and expenses:
Media purchases................................... 23,218 37,576
Direct costs...................................... 41,228 53,241
Selling, general and administrative............... 14,769 11,128
Interest expense.................................. 625 305
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Total operating costs and expenses........ 79,840 102,250
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(Loss) income before income taxes......................... (12,685) 7,050
Income taxes.............................................. 304 2,500
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Net (loss) income......................................... $(12,989) $ 4,550
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Net (loss) income per common and common equivalent share:
Primary........................................... $ (0.54) $ 0.18
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Fully-diluted..................................... $ (0.54) $ 0.18
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Weighted average number of common and common
equivalent
shares outstanding:
Primary........................................... 24,141 25,345
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Fully-diluted..................................... 24,141 25,345
================ ================
</TABLE>
See notes to condensed consolidated financial statements.
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NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months ended June 30,
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1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net (loss) income............................................ $ (12,989) $ 4,550
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation and amortization............................. 1,614 777
Tax benefit from exercise of stock options................ - 800
Changes in operating assets and liabilities,
net of effects from acquisitions......................... 9,885 (10,301)
Other..................................................... (40) (822)
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Net cash used in operating activities................... (1,530) (4,996)
Cash flows from investing activities:
Additions to property and equipment.......................... (1,268) (1,475)
Investment in common stock................................... - (1,250)
Cost of companies acquired, net of cash acquired............. - 747
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Net cash used in investing activities................... (1,268) (1,978)
Cash flows from financing activities:
Proceeds from borrowing...................................... 6,000 9,400
Payments on long-term debt, notes payable and
capital lease obligations................................... (322) (1,859)
Exercise of stock options and warrants....................... - 450
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Net cash provided by financing activities................ 5,678 7,991
Effect of exchange rate changes on cash and cash equivalents... 507 (359)
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Net increase in cash and cash equivalents................ 3,387 658
Cash and cash equivalents at beginning of period............... 4,058 18,405
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Cash and cash equivalents at end of period..................... $ 7,445 $ 19,063
=============== ===============
</TABLE>
See notes to condensed consolidated financial statements.
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NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
June 30, 1997
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended June 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending March 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended March 31, 1997.
2. Per Share Amounts
Net income (loss) per share amounts have been computed based upon the
weighted average number of common shares and dilutive common equivalent shares
(stock options, warrants and preferred stock) outstanding using the "if
converted method".
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted for
annual and quarterly periods ended after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods presented. Under the new
requirements for calculating primary earnings per share (referred to as Basic
EPS under SFAS No. 128), the dilutive effect of stock options will be excluded.
Earnings per share will not be impacted for the quarters ending June 30, 1997
and 1996 and is not expected to have a material impact on the Company's full
year earnings per share.
3. Income Taxes
The Company recorded income tax expense of approximately $304,000 for the
three months ended June 30, 1997, due to tax liabilities from its profitable
Asian and South Pacific operations. Income tax benefits on domestic and
European losses have been fully reserved until realized. This compares to
income tax expense of $2.5 million for the three months ended June 30, 1996, a
35.5% effective rate.
4. Contingent Matters
NATIONAL MEDIA LITIGATION
Ab Roller Plus Patent Litigation
On March 1, 1996, Precise Exercise Equipment ("Precise") filed suit in the
United States District Court for the Central District of California against
certain parties, including the Company, alleging patent infringement, unfair
competition and other intellectual property claims. Such claims related to an
alleged infringement of Precise's initial US patent for an exercise device. The
suit claimed that a product marketed
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by the Company pursuant to a license granted by a third party violated Precise's
initial US patent. The suit sought an injunction and treble damages.
On July 16, 1997, the Company and certain of the other defendants to the
action entered into a settlement agreement with the plaintiffs. The Company
recorded a charge of approximately $6.0 million in the fourth quarter of fiscal
1997 in connection with this matter.
WWOR Litigation
In March 1997, WWOR-TV filed a breach of contract action in the United
States District Court for New Jersey against one of the Company's operating
subsidiaries alleging that the subsidiary wrongfully terminated a contract for
the purchase of media time, seeking in excess of $1,000,000 in compensatory
damages. The Company is contesting the action and believes it has meritorious
defenses to the plaintiff's claims for damages.
PRTV LITIGATION
PRTV Shareholders' California Class Action
On May 1, 1995, prior to the acquisition of Positive Response Television,
Inc. ("PRTV") by the Company in May 1996, a purported class action suit was
filed in the United States District Court for the Central District of California
against PRTV and its principal executive officers alleging that PRTV made false
and misleading statements in its public filings, press releases and other public
statements with respect to its business and financial prospects. The suit was
filed on behalf of all persons who purchased PRTV common stock during the period
from January 4, 1995 to April 28, 1995. The suit sought unspecified
compensatory damages and other equitable relief. On or about September 25,
1995, the plaintiffs filed a second amended complaint which added additional
officers as defendants and attempted to set forth new facts to support
plaintiff's entitlement to legal relief. The Company has reached an agreement
in principle to settle this action in fiscal year 1997 which provides for the
payment of $550,000 to the class, 66% of which is to be paid by PRTV's insurance
carrier. The Company recorded a charge of $187,000 during fiscal 1997 in
connection with this matter. Such settlement is contingent upon court approval.
Suntiger
In late March 1997, Suntiger, Inc., a distributor of sunglasses, filed suit
against PRTV and certain other parties alleging patent infringement. PRTV is
indemnified by third parties in connection with this action for at least a
portion of any liability which may exist. Settlement discussions are scheduled
to occur shortly.
Other Matters
The Company, in the normal course of business, is a party to litigation
relating to trademark and copyright infringement, product liability, contract-
related disputes, and other actions. It is the Company's policy to vigorously
defend all such claims and enforce its rights in these areas. Except as
disclosed herein, the Company does not believe any of these actions, either
individually or in the aggregate, will have a material adverse effect on the
Company's results of operations or financial condition.
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5. Debt
In June 1996, the Company increased its revolving line of credit (the
"Line") from $5,000,000 to $20,000,000. The Line is available until September
30, 1997. On a quarterly basis, the Company is required to be in compliance with
various financial covenants including tangible net worth and working capital
minimums, various financial ratios, and capital expenditure limits under a term
loan and the Line. At June 30, 1997, the Company continues to be in default of
certain of these financial covenants for which the bank has not granted a
waiver. As a result, the long-term portion of the term loan has been classified
as current at June 30, 1997. Interest on cash advances under the Line was
accrued at varying rates throughout a portion of the period based, at the
Company's option, on the bank's national commercial rate or the London Interbank
Offering Rate (LIBOR), plus 1.25%. Currently, interest on cash advances under
the Line is only available at the bank's national commercial rate. The agreement
requires the Company to pay an annual fee of .25% on the unused portion of the
Line and maintain an average quarterly compensating balance of $2,500,000
subject to a .25% deficiency fee. There were borrowings of $19,000,000
outstanding under this facility, and $294,000 of the Line was used for the
issuance of letters of credit as of June 30, 1997. In July 1997, the bank
notified the Company that its $50.0 million foreign currency line under the
facility had been reduced to $6.0 million, the amount of the Company's current
outstanding balance. This may have an adverse impact on the Company's ability to
limit its risk related to exchange rate fluctuations. The Company had borrowings
outstanding in an amount of $550,000 under its $1.0 million overdraft line with
Barclays Bank PLC as of the date hereof.
In July 1997, the Company obtained a credit facility from ASB Bank through
its Prestige Marketing Limited subsidiary (collectively with Prestige Marketing
International Limited, "Prestige") consisting of a working capital facility
(overdraft and letter of credit) of $1.0 million New Zealand dollars
(approximately $.7 million US dollars) and a short term loan of $4.4 million New
Zealand dollars (approximately $2.8 million US dollars). The working capital
facility is due on demand, bears interest at the ASB Bank Banking Business Rate
(BBBR rate) plus 1% payable monthly, and expires on February 15, 1998. The
short term loan bears interest at the BBBR rate plus 2% and matures on January
24, 1998. Under the facility, Prestige is subject to certain financial
covenants including tangible net worth and working capital minimums and various
financial ratios and the Company is limited in its ability to obtain future
financing from Prestige.
6. Subsequent Event
Subsequent to June 30, 1997, the Company issued options to acquire
1,780,000 shares of the Company's Common Stock to certain officers of the
Company.
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CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This Report contains "forward-looking" statements regarding potential
future events and developments affecting the business of the Company. Such
statements relate to, among other things, (i) competition for customers for its
products and services; (ii) the uncertainty of developing or obtaining rights to
new products that will be accepted by the market and the timing of the
introduction of new products into the market; (iii) the limited market life of
the Company's products; and (iv) other statements about the Company or the
direct response industry.
The Company's ability to predict results or the effect of any pending
events on the Company's operating results is inherently subject to various risks
and uncertainties, including competition for products, customers and media
access; the risks of doing business abroad; the uncertainty of developing or
obtaining rights to new products that will be accepted by the market; the
limited market life of the Company's products; and the effects of government
regulations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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General
The Company is engaged in the direct marketing of consumer products,
primarily through the use of infomercials, in both domestic and international
markets. Domestically, the Company has historically been dependent on a limited
number of successful products to generate a significant portion of its net
revenues. The Company's strategies for future periods are designed to reduce the
risk associated with relying on a limited number of successful products for a
disproportionate amount of its revenues and tailoring the Company's domestic
operations to more efficiently deal with the cyclical nature of the Company's
business. These include the more effective utilization and leveraging of its
global presence, the continued development and marketing of innovative products
to enhance its library of infomercial programs, and engineering the most
efficient business model for the Company's future operations. International
expansion has resulted in an increasing amount of the Company's revenues being
generated from the international infomercial marketplace. As the Company enters
new markets overseas, it is able to air the shows from its existing library,
prolonging the life of products and related productions. The Company takes
advantage of product awareness created by its infomercials and also extends the
sales life of its products through non-infomercial distribution channels. These
include retail arrangements and agreements with the Company's strategic partners
who supply new products and retail distribution channels.
Results of Operations
The Company's operating results for the three months ended June 30, 1996 do
not include the operating results of certain of the Company's operating
subsidiaries, namely Prestige and Suzanne Paul Holdings Pty Limited and its
operating subsidiaries (collectively, "Prestige") as these entities were
acquired subsequent to June 1996, and include the operating results of PRTV from
May 17, 1996 (date of acquisition) to June 30, 1996.
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The following table sets forth operating data of the Company as a
percentage of net revenues for the periods indicated below.
<TABLE>
<CAPTION>
Three Months Ended
June 30,
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1997 1996
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Statement of Operations Data:
Net revenues 100.0% 100.0%
Operating costs and expenses:
Media purchases 34.6 34.3
Direct costs 61.4 48.7
Selling, general and administrative 22.0 10.2
Interest expense 0.9 0.3
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Total operating costs and expenses 118.9 93.5
(Loss) income before income taxes (18.9) 6.5
------ -----
Net (loss) income (19.3)% 4.2%
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</TABLE>
Three months ended June 30, 1997 compared to June 30, 1996
Net Revenues
Net revenues were $67.2 million for the three months ended June 30, 1997 as
compared to $109.3 million for the three months ended June 30, 1996, a decrease
of $42.1 million or 38.6%.
Domestic net revenues for the three months ended June 30, 1997 were $26.7
million as compared to $75.5 million for the three months ended June 30, 1996, a
decrease of $48.8 million or 64.7%. This decrease is due primarily to the Ab
Roller Plus performing strongly in the first quarter of the prior year on
television and in print and retail. The Ab Roller Plus accounted for
approximately 72.6% of domestic net revenues in the three months ended June 30,
1996. Approximately 46.3% of the net revenues for the three months ended June
30, 1997 were generated by sales of the Company's Great North American Slim Down
product. Current period domestic net revenues were also unfavorably impacted by
an increased return rate. The Company aired two new shows in the current quarter
which yielded positive results in test airings, however, due to manufacturing /
sourcing difficulties, these shows are not expected to significantly contribute
to revenues until late in the second quarter or early third quarter. As a
result, domestic revenues are expected to continue at a reduced level.
International net revenues for the three months ended June 30, 1997 were
$40.5 million as compared to $33.8 million for the three months ended June 30,
1996, an increase of $6.7 million or 19.9%. This was principally due to the
current quarter including revenues from the Prestige and Suzanne Paul
acquisitions completed in July 1996 and a 29.2% increase in European net
revenues due to expansion in Eastern Europe. These increases offset the
approximate 42.3% decline in revenues earned in the Japanese marketplace. This
decline is a result of increased competition from traditional programming and
other infomercial competitors and the fact that additional Japanese airtime was
not obtained in the quantity or as quickly as anticipated.
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Operating Costs
Total operating costs and expenses were $79.8 million for the three months
ended June 30, 1997 as compared to $102.3 million for the three months ended
June 30, 1996, a decrease of $22.5 million or 21.9%. This is partially related
to the 38.6% decline in net revenues.
Media Purchases
Media purchases were $23.2 million (net of $.5 million in media sales) for
the three months ended June 30, 1997 as compared to $37.6 million (net of $.3
million in media sales) for the three months ended June 30, 1996, a decrease of
$14.4 million or 38.3%. This decrease is directly related to the 38.6% decline
in net revenues. The ratio of media purchases to net revenues remained
consistent at 34.6% for the three months ended June 30, 1997 as compared to
34.3% for the three months ended June 30, 1996. A higher domestic ratio in the
current quarter was offset by the favorable impact of a higher percentage of
revenues being earned in the international marketplace in which media rates are
generally more favorable.
Direct Costs
Direct costs consist of the cost of materials, freight, infomercial
production, commissions and royalties, order fulfillment, in-bound
telemarketing, credit card authorization, warehousing and profit participation
payments. Direct costs were $ 41.2 million for the three months ended June 30,
1997 as compared to $53.2 million for the three months ended June 30, 1996, a
decrease of $12.0 million or 22.6% primarily related to the decrease in net
revenues. As a percentage of net revenues, direct costs were 61.4% for the
three months ended June 30, 1997 and 48.7% for the three months ended June 30,
1996. Direct costs as a percentage of net revenues increased in both the
domestic and international marketplace. Domestically, the ratio was unfavorably
impacted by the 64.6% decrease in net revenues. The lower volume, coupled with
certain fixed costs associated with the Company's fulfillment operations and a
significant increase in the domestic return rate, negatively impacted the ratio.
The three months ended June 30, 1996 benefited from retail royalties ($0 for
June 30, 1997 as compared to $5.2 million for June 30,1996) which carry minimal
direct costs. Internationally, a change in product mix and increased show
customization costs adversely affected the ratio. In Japan, fulfillment and
warehousing costs increased as a percentage of revenues as a result of the lower
sales volume and higher inventory levels, respectively.
Selling, General and Administrative
Selling, general and administrative expenses were $14.8 million for the
three months ended June 30, 1997 as compared to $11.1 million for the three
months ended June 30,1996, an increase of $3.7 million or 32.7%. In excess of
$2.0 million of the increase relates to selling, general and administrative
expenses associated with the operations of Prestige which was acquired
subsequent to June 30, 1996 or the operations of PRTV which were included for
only a portion of the prior period. In addition, the current period includes
$715,000 of goodwill amortization, as compared to only $332,000 in the prior
period. The remainder of the increase was primarily a result of higher
professional fees. Selling, general and administrative expenses as a percentage
of net revenues increased from 10.2% for the three months ended June 30, 1996 to
22.0% for the three months ended June 30, 1997 due to the aforementioned cost
increases combined with the 38.6% decrease in net revenues.
Interest Expense
Interest expense was approximately $625,000 for the three months ended June
30 1997 compared to $305,000 for the three months ended June 30, 1996, an
increase of $320,000. This increase was primarily
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due to an increase in the Company's average outstanding indebtedness from
approximately $7.4 million during the first quarter of fiscal 1997 to
approximately $22.8 million during the first quarter of fiscal 1998.
Income Taxes
The Company recorded income tax expense of approximately $304,000 for the
three months ended June 30, 1997 resulting from tax liabilities generated on its
Asian and South Pacific profits. Income tax benefits have not been recorded
during the current quarter on domestic and European losses. These benefits will
be recorded when realized, reducing the effective tax rate on future domestic
and European earnings. This compares to approximately $2.5 million of income tax
expense recorded for the first quarter of fiscal 1997, a 35.5% effective tax
rate.
Liquidity and Capital Resources
The Company's working capital was $8.3 million at June 30, 1997 compared to
working capital of $19.8 million at March 31, 1997, a decrease of $11.5 million.
The Company met its current period cash needs primarily through its cash flow
from borrowings and liquidation of accounts receivable. Operating activities
for the three months ended June 30, 1997 resulted in a use of cash of $1.5
million. The Company's cash flow from operations in the three months ended June
30, 1997 was adversely affected by the net loss of approximately $13.0 million
incurred during the period.
Consolidated accounts receivable decreased by $7.0 million, or 17.5%,
entirely due to the decrease in domestic accounts receivable. This decrease was
principally due to the 63% decrease in revenues in the month of June 1997 as
compared to the month of March 1997, and a $3.5 million reduction in the
installment receivable balance due to the continued decline in domestic net
revenues.
The Company's international revenues are subject to foreign exchange risk.
To the extent that the Company incurs local currency exposures that are based on
locally denominated sales volume (order fulfillment and media costs), this
exposure is reduced significantly. The Company monitors exchange rate movements
and will protect short term cash flows through the use of options and/or forward
contracts when appropriate. Until July 1997, the Company maintained a $50.0
million foreign exchange line for such purposes. The bank which previously
provided such facility recently notified the Company that it may no longer
arrange any additional borrowings under the facility. In the long term, the
Company has the ability to change prices in a timely manner in order to react to
major currency fluctuations; thus reducing the risk associated with local
currency movements. Currently, the Company's two major foreign currencies are
the German deutsch mark and the Japanese yen, each of which has been subject to
significant recent fluctuations.
During July 1996, the Company acquired two direct response marketing
companies, Prestige and Suzanne Paul. The aggregate consideration paid by the
Company for Prestige and Suzanne Paul was approximately $21.7 million in a
combination of cash, note payable and Common Stock. Included in the Prestige
and Suzanne Paul acquisition agreements were provisions concerning the future
payment of additional purchase price, up to an aggregate of an additional $5.0
million in the Company's common stock, valued at then present market prices, in
1997 and 1998, contingent upon the levels of net income achieved in those years
by Prestige and Suzanne Paul. Subsequent to June 30, 1997, the Company
completed negotiations with the principals of these entities regarding an
amendment to the acquisition agreements which accelerated the $5.0 million
contingent purchase price amount and revised certain other provisions of the
agreements. The Company will issue approximately 909,091 shares of the
Company's Common Stock to the principals of these entities based on the closing
price of the Company's Common Stock on the New York Stock Exchange on July 16,
1997.
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<PAGE>
On June 30, 1997, the Company had a total of $19.0 million in outstanding
bank debt and $.3 million in outstanding letters of credit under its $20.0
million revolving line of credit (the "Line"). The Line has an expiration date
of September 30, 1997. Interest accrues on the Line at the bank's national
commercial rate and is payable monthly. On a quarterly basis, the Company must
be in compliance with various financial covenants including tangible net worth
and working capital minimums, various financial ratios and capital expenditure
limits. At June 30, 1997, the Company continues to be in technical default of
various financial covenants for which the bank has not granted a waiver. The
Company also has an outstanding term loan with the bank in an approximate amount
of $3.3 million, net of a $663,000 discount. The term loan is payable in annual
installments of $1.0 million due December 1, 1997 and 1998 with the remaining
balance due September 30, 1999. The term loan also includes the covenants
listed above. As a result of the covenant defaults, the long-term portion of
the term loan has been classified as current at June 30, 1997. The Line and
term loan are secured by a lien on substantially all the assets of the Company
and its subsidiaries. Such lien on certain non-domestic assets of the Company
is subordinate to a lien held by Barclays Bank PLC. At present, the Company has
an overdraft line of approximately $1.0 million with Barclays of which
approximately $550,000 is outstanding as of the date hereof.
In July 1997, the Company obtained a credit facility from ASB Bank through
its Prestige subsidiary consisting of a working capital facility (overdraft and
letter of credit) of $1.0 million New Zealand dollars (approximately $.7 million
US dollars) and a short term loan of $4.4 million New Zealand dollars
(approximately $2.8 million US dollars). The working capital facility is due on
demand, bears interest at the ASB Bank Banking Business Rate (BBBR rate) plus 1%
payable monthly, and expires on February 15, 1998. The short term loan bears
interest at the BBBR rate plus 2% and matures on January 24, 1998. Under the
facility, Prestige is subject to certain financial covenants including tangible
net worth and working capital minimums and various financial ratios and the
Company is limited in its ability to obtain future financing from Prestige.
The Company's cash position continued to tighten during the current period
as a result of the losses being incurred in the first quarter of fiscal 1998,
the continued downturn in both Japanese and domestic revenues, the inability of
the Company to obtain additional financing and payments of recently negotiated
legal settlements. The Company expects to report a loss in the second quarter
of fiscal 1998. The Company's revolving line of credit expires September 30,
1997. If the Company is unable to refinance its existing debt and obtain
additional debt or equity financing it will have a further material adverse
effect on the Company's operating results and financial condition.
The Company continues to negotiate with its principal lenders regarding an
extension of the Line, as well as exploring additional sources of financing with
other financial institutions and potential partners; however, there can be no
assurance that the Line will be extended or a replacement lender located. In
addition, the Company has retained Lehman Brothers, as a financial advisor, to
assist it in continuing discussions regarding potential strategic partnerships
and other matters with interested parties.
The Company faced significant difficulty during the latter half of its 1997
fiscal year and the first quarter of fiscal 1998. Management of the Company
believes that cash flow from operations in fiscal 1998 will benefit from the
Company's strategy, which focuses on cost reductions, restructuring of PRTV, and
the re-negotiation of a number of its media contracts to terms that are more
favorable to the Company. The Company's ability to continue as a going concern
is dependent on its ability to implement certain plans and actions designed to
rebuild its business including the introduction of successful new shows, to
return the Company to profitability, and to improve its liquidity and/or obtain
additional capital through new debt financings or equity investments. No
assurance can be given that any of these actions will be successful. In
addition, issuance of additional equity would have a dilutive effect upon
existing shareholders.
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<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 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.
Other Matters
The Company, in the normal course of business, is a party to litigation
relating to trademark and copyright infringement, product liability, contract-
related disputes and other actions. It is the Company's policy to vigorously
defend all such claims and to enforce its rights in these areas. Except as
disclosed herein, the Company does not believe any of these actions, either
individually or in the aggregate, will have a material adverse effect on the
Company's results of operations or financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
10.1 Amended and Restated Employment Agreement, dated April 28, 1997,
between Registrant and Constantinos I. Costalas.
10.1(a) Amendment No. 1 to Employment Agreement, dated July 23, 1997,
between Registrant and Constantinos I. Costalas.
10.2 Employment Agreement, dated February 28, 1997, between
Registrant and Frederick S. Hammer.
11.1 Statement Re: Computation of Per Share Earnings.
27.1 Financial Data Schedule.
(b) The Company filed the following Current Reports on Form 8-K during the
three month period ended June 30, 1997:
Current Report on Form 8-K, dated April 28, 1997, reporting (i)
the resignation of Mark P. Hershhorn as President and Chief
Executive Officer and as a Director of the Company; and (ii) the
settlement of pending litigation between the Company's Positive
Response Television, Inc. subsidiary ("PRTV") and Edmark
Industries SDN. BHD concerning the "Super Slicer" product
marketed by PRTV.
Current Report on Form 8-K, dated June 30, 1997, reporting the
Company's delay in filing its 1997 fiscal year and fourth
quarter financial results.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL MEDIA CORPORATION
Date: August 14, 1997 /s/ Robert N. Verratti
---------------------------------------
Robert N. Verratti
President, Chief Executive Officer and
Director
Date: August 14, 1997 /s/ Paul R. Brazina
---------------------------------------
Paul R. Brazina
Vice President and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
-------------
10.1 Amended and Restated Employment Agreement, dated April 28, 1997,
between Registrant and Constantinos I. Costalas.
10.1(a) Amendment No. 1 to Employment Agreement, dated July 23, 1997,
between Registrant and Constantinos I. Costalas.
10.2 Employment Agreement, dated February 28, 1997, between Registrant and
Frederick S. Hammer.
11.1 Statement Re: Computation of Per Share Earnings.
27.1 Financial Data Schedule.
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
EMPLOYMENT AGREEMENT ("Agreement") made and entered as of April 28,
1997 by and between NATIONAL MEDIA CORPORATION (the "Company"), a Delaware
corporation and CONSTANTINOS I. COSTALAS (the "Executive").
Background
----------
The Company desires to amend and restate the Employment Agreement
dated as of September 27, 1995 (the "Prior Agreement") pursuant to which the
Company employs Executive as its Vice-Chairman . The parties further desire to
set forth herein the revised 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. Prior Agreement. This Agreement replaces and supersedes the
Prior Agreement, which shall no longer have any force or effect.
2. 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 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.
3. Term.
----
The Executive's employment under this Agreement shall commence as of
the date of this Agreement (the "Commencement Date") and shall, unless sooner
terminated in accordance with the provisions hereof, continue uninterrupted for
a term expiring September 27, 1998 and thereafter may be renewed by the Company
for successive one-year periods upon written notice given at least 6 months
prior to the end of any Term, provided however, that the Executive may refuse
any such renewal by written notice of rejection given to the Company within 30
days after receipt of the Company's notice, in which case the Term shall expire
on the next September 27 without renewal. As used herein, the term "Term" shall
refer to such initial term and any renewal term then in effect.
-1-
<PAGE>
4. Compensation.
------------
(a) Salary. During the Term, the Executive shall be paid an
------
annual salary of at least $325,000 (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
$325,000 in any year during the Term.
(b) Incentive Pay.
-------------
(i) In addition to the Base Salary provided for in Section
4(a) of this Agreement, (1) the Executive shall participate in the Company's
1995 Management Incentive Plan ("MIP").
(c) Options. Each of the Options identified below, granted to
the Executive under the 1991 Stock Option Plan:
. Options to purchase 60,000 shares of Common Stock at
$12.99 per share, issued pursuant to the Prior
Agreement,
. Options to purchase 80,000 shares of Common Stock at
$12.99 per share, issued pursuant to the Prior
Agreement, and
. Options to purchase 250,000 shares of Common Stock at
$16.375 per share, granted after the effective time
of the Prior Agreement;
an aggregate of options to purchase 390,000 shares of Common Stock, shall be
exchanged, effective the date of this Agreement, for non-qualified stock options
(the "New Options") to purchase up to 195,000 shares (the "Shares") of the
Company's common stock, $.01 par value ("Common Stock"), at an exercise price
under the New Options of $7.00 per share, the fair market value of a share of
Common Stock as of the date hereof. 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"). The New
Options shall expire ten (10) years from the date hereof and shall vest as
follows:
. one third of the Shares shall vest on the date of
this Agreement;
. one third of the Shares shall vest on March 27, 1998;
and
. one third of the Shares shall vest on September 27,
1998.
To the extent allowable under the Plan, (a) the New 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 New Options, all unvested portions thereof shall
immediately vest. Executive will promptly deliver to the Company the original
executed option agreements for cancellation, in exchange for a new option
agreement relating to the New Options.
(d) 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
-2-
<PAGE>
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.
(e) Club Membership. The Company shall pay Executive's annual
---------------
membership dues at a luncheon club in the Philadelphia metropolitan area chosen
by the Executive.
5. 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.
6. 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.
7. Automobile Allowance. The Company shall pay Executive a monthly
--------------------
automobile allowance of $600.00.
8. 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>
9. 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 New 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 9(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 4(d) 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.
(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 9(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 9(b) of this
Agreement, or the Executive shall resign for
-4-
<PAGE>
"Good Reason," as defined in Section 9(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 12(a)(i) of this Agreement shall
be applicable to Executive, except that Executive may accept employment he might
not otherwise accept under Section 12(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 9(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
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 9(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 9(b) of this Agreement, or the Company disputes the termination that
Good Reason exists for Executive's termination of his Employment pursuant to
Section 9(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.
-5-
<PAGE>
(f) Nonrenewal by Company. If this Agreement is not renewed by
---------------------
the Company pursuant to Section 3 of this Agreement, Executive's obligations
hereunder shall cease as of the end of the then current Term, and the Company
shall have the following severance obligations:
(i) Executive shall continue to be an employee of the
Company under the terms of this Agreement for a period of six months after the
end of the then current Term, but shall not be required to perform any services
for the Company. In furtherance of this Agreement, in addition to the payment of
Base Salary at the then current rate for a period of six months after the end of
the then current Term,
(1) The Company shall continue Executive's
participation in the MIP for another six months after the end of the then
current Term, unless his participation in the MIP is barred by the terms of the
MIP, in which case the Company shall provide Executive with a substantially
similar benefit.
(2) Any options unvested and unexercisable at the
expiration of the then current Term shall become immediately vested and
exercisable.
(3) The Company will continue for a period of six
months after the end of the then current Term Executive's allowances and
benefits pursuant to Section 4(c)-(d); his life insurance benefit pursuant to
Section 5; and his automobile allowance pursuant to Section 7. Executive shall
have the option to have assigned to him at the end of the six-month period at no
cost and with no apportionment of prepaid premiums any assignable insurance
policy owned by the Company that relates specifically to the Executive.
10. 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 10(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;
(iii) All allowances and benefits, as contained in
Sections 4(c)-(d), 5 and 7 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.
-6-
<PAGE>
(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 10, "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 10, a "Change in Control" shall be
deemed to have taken place if: (i) subsequent to the date of this Agreement, 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 the date of this
Agreement, 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 10(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 10 to the
contrary, if any of the amounts otherwise payable under Section 10(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 10(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 10 constituting, or potentially
constituting, "excess parachute payments."
11. 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.
12. 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 9(a) or 9(b) of this
Agreement; and (3) subject to Section 9(d)(i)(1) of this Agreement, for any
period after termination during which payments are made to Executive under
Section 9(d)(i) of this Agreement with respect to termination by the Company or
the Executive pursuant to Section 9(c) or 9(d) of this Agreement.
-7-
<PAGE>
(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
9(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.
13. 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 9(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 and whether such action related to circumstances prior to
the effective date of this Agreement, 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).
-8-
<PAGE>
14. 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
1835 Market Street
Philadelphia, PA 19103
FAX #: (215) 988-4900
Attn: Corporate Secretary
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
-9-
<PAGE>
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, 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/ By: /s/ Frederick S. Hammer
- ---- ------------------------
Secretary Frederick S. Hammer, Chairman
/s/ Constantinos I. Costalas
-----------------------------
Constantinos I. Costalas
APPROVED:
COMPENSATION COMMITTEE
By: /s/ Jon W. Yoskin
------------------
Jon W. Yoskin, II, Director,
Chairman of the Compensation
Committee of the Board of
Directors
-10-
<PAGE>
EXHIBIT 10.1(a)
AMENDMENT NO. 1
to
EMPLOYMENT AGREEMENT
_________________
This is Amendment No. 1, dated as of July 23, 1997, to the Employment
Agreement made and entered as of April 28, 1997, by and between National Media
Corporation (the "Company"), a Delaware Corporation, and Constantinos I.
Costalas (the "Executive").
In consideration of the mutual covenants and agreements set forth
herein, and intending to be legally bound hereby, the Company and the Executive
agree as follows:
1. Section 10(a)(i) of the Employment Agreement is amended to read in its
entirety as follows:
"(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;"
2. Section 10(b) of the Agreement is amended to read in its entirety as
follows:
"(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 three (3) 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."
IN WITNESS WHEREOF, this Amendment No. 1 to the Employment 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
_______________________________ By:________________________________
Secretary Frederick S. Hammer, Chairman
________________________________
Constantinos I. Costalas
APPROVED:
By____________________________
Jon W. Yoskin, II, Director,
Chairman of the Compensation
Committee of the Board of
Directors
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT ("Agreement") made and entered into as of
February 27, 1997 by and between NATIONAL MEDIA CORPORATION (the "Company") a
Delaware corporation and FREDERICK S. HAMMER ("Hammer").
Background
----------
The Company desires Hammer to serve as Chairman of the Board of
Directors and Hammer desires to accept such position. The parties further
desire to set forth herein the terms and conditions of Hammer's service to 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 Hammer agree as follows:
1. Employment.
----------
(a) Duties. The Company shall employ Hammer as Chairman of the
------
Board of Directors of the Company (the "Board"), as an "at will" employee, on
the terms set forth in this Agreement. Hammer accepts such employment with the
Company and shall preside at all meetings of the Board of Directors and perform
and fulfill such other 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. It is understood that Hammer will not serve in this
position on a full-time basis, and will have no minimum number of hours or days
per annum that are required to be devoted to the Company's affairs as Chairman,
except as fixed by the Board. It is expected that Hammer will continue his
regular employment with another business. Furthermore, nothing contained herein
shall be construed, to prevent Hammer 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, Hammer shall be based in the Philadelphia, Pennsylvania
metropolitan area, except for required travel on Company business. Company shall
furnish Hammer with office space, stenographic assistance and such other
facilities and services as shall be suitable to Hammer's position and sufficient
and satisfactory to Hammer for the performance of his duties as Chairman of the
Board.
2. Term.
----
Hammer's employment under this Agreement shall commence as of
February 27, 1997 (the "Commencement Date") and may be terminated at anytime by
the Board of Directors of the Company, with or without cause, on 10 days'
written notice. As used herein, the term "Term" shall refer to the period during
which Hammer is employed hereunder.
3. Compensation.
------------
(a) Salary. During the Term, Hammer shall be paid an annual
------
salary at the rate of $200,000 per annum (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, Hammer's performance as
determined by the Board of Directors.
<PAGE>
(b) Options. As an inducement to Hammer to increase shareholder
-------
value, the Company hereby grants to Hammer options (the "Options") to purchase
up to 100,000 shares (the "Shares") of the Company's common stock, $.01 par
value ("Common Stock"). The exercise price under the Options shall be $6.625
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-quarter of the Shares shall vest on
February 27, 1997;
(2) one-quarter of the Shares shall vest on
February 27, 1998;
(3) one-quarter of the Shares shall vest on
February 27, 1999;
(4) one-quarter of the Shares shall vest on
February 27, 2000.
All of the Options described above shall be issued outside of and shall not be
subject to the Company's existing stock option plan, but such Options shall
otherwise be on terms consistent with options issued under such plan to other
executives of the Company. The specific terms of such grant shall be set forth
in a separate stock option agreement. The Options vested through the date of
any termination hereunder shall be exercisable in accordance with the option
agreement, regardless of the manner of termination; and notwithstanding the
foregoing, upon the death of Hammer during the existence of such Options, all
unvested portions thereof shall immediately vest.
(c) Health Insurance and Other Benefits. During the Term, Hammer
-----------------------------------
shall receive all benefits offered by the Company to its senior executives and
key management 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, Hammer
compared with any other senior executive of the Company.
4. Life Insurance.
--------------
(a) Purchase. Provided that Hammer is insurable at rates that
--------
are comparable to those obtainable on other persons of similar age and position
in good health (if Hammer 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 Hammer, or at the option of Hammer, Hammer's Life
Insurance Trust, with a company-paid term life insurance policy in the face
amount of $1,000,000. At Hammer's option, Hammer 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 Hammer or Hammer's Life
Insurance Trust, as directed by Hammer.
(b) Payment of Premiums. The Company shall timely pay all
-------------------
premiums for such life insurance whether provided by the Company for Hammer or
by Hammer's Life Insurance Trust.
-2-
<PAGE>
(c) Medical Examination. Hammer 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
Hammer's life.
5. Reimbursement of Expenses; Automobile Allowance.
-----------------------------------------------
(a) Hammer shall be reimbursed for all items of travel,
entertainment and miscellaneous expenses which Hammer reasonably incurs in
connection with the performance of his duties hereunder, provided that Hammer
shall submit to the Company such statements and other evidence supporting said
expenses as the Company may reasonably require.
(b) The Company shall pay Hammer a monthly automobile allowance
of $600.00.
6. Termination of Employment.
-------------------------
(a) Death. In the event of the death of Hammer during the Term,
-----
this Agreement shall terminate. The terms of the option agreements pertaining to
the Options shall control as to the vesting and expiration thereof upon the
death of Hammer. Upon termination of this Agreement under this Section 6(a), the
Company shall have no further obligations or liabilities under this Agreement,
except to pay to Hammer's estate the portion, if any, that remains unpaid of the
Base Salary for the period prior to termination.
(b) Discharge for Cause. The Company may discharge Hammer for
-------------------
Cause and thereby immediately terminate his employment under this Agreement. For
purposes of this Agreement, the Company shall have "Cause" to terminate Hammer's
employment if Hammer, 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 ten (10)
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, Hammer shall not be deemed to have been
terminated for Cause unless and until Hammer has received ten (10) days' prior
written notice ("Dismissal Notice") of such termination. In the event Hammer
does not dispute such determination within ten (10) days after receipt of the
Dismissal Notice, Hammer shall not have the remedies provided pursuant to
Section 6(e) of this Agreement.
(c) Termination at will. Either party may terminate this
-------------------
Agreement upon ten (10) days' prior written notice. Except as provided in
Section 6(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 Hammer's employment is terminated by
the Company without Cause under Section 6(c) of this Agreement, or Hammer shall
resign for "Good Reason," as defined in Section 6(d)(ii) of this Agreement,
then, to the extent provided below, the Company shall:
-3-
<PAGE>
(1) pay Hammer in lieu of other damages, except as
specifically provided herein, an amount equal one years' Base Salary at the then
current amount. Such amounts shall be payable in installments equal to
installments of Base Salary then payable to Hammer as provided herein until such
amount is paid in fall. During such period of payments, the restrictions
contained in Section 9(a)(i) of this Agreement shall be applicable to Hammer,
except that Hammer may accept employment he might not otherwise accept under
Section 9 (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 Hammer 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 Hammer is
not employed by the Company for all or a portion of the period of measurement
for the bonus, in which Hammer was entitled to participate immediately prior to
Hammer's discharge or resignation, provided that Hammer'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 Hammer's participation in any such benefit plan
or program is barred, the Company shall arrange to provide Hammer with benefits
substantially similar to those which Hammer is entitled to receive under such
plans and programs. At the end of the period of coverage, Hammer 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 Hammer.
(ii) For purposes of this Section 6(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, Hammer 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
Reason). In the event the Company does not dispute such termination within ten
(10) days after receipt of such Notice of Termination for Good Reason, the
Company shall not have the remedies provided pursuant to Section 6(e) of this
Agreement.
(e) Arbitration. In the event that Hammer disputes a
-----------
determination that Cause exists for terminating his employment pursuant to
Section 6(b) of this Agreement,
or the Company disputes the termination that Good Reason exists for Hammer's
termination of his Employment pursuant to Section 6(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, Hammer 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 Hammer 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 Hammer'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) Termination by Company. If this Agreement is terminated by
----------------------
the Company pursuant to Section 6(c) of this Agreement after February 27, 1999,
any Options unvested and unexercisable at the date of termination of this
Agreement shall then become immediately vested and exercisable.
7. 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:
-4-
<PAGE>
(a) If, within one year following the Change in Control, there
is a Termination of Employment (as defined below), then the following provisions
shall become applicable:
(i) Hammer shall receive an immediate lump sum payment
(within thirty (30) days following the Termination of Employment), of one (1)
years' Base Salary at the then current amount;
(ii) All allowances and benefits, as contained in Section
3(c)-(d), 4 and 6 of this Agreement, shall be continued for the one year
following the Termination of Employment; and
(iii) All unvested and unexercised stock options held by
Hammer shall become immediately vested and exercisable by Hammer, and shall
remain exercisable until the date of expiration of the option exercise period.
(b) As used in this Section 7, "Termination of Employment" shall
mean termination of Hammer's employment (i) by the Company for any reason, or
(ii) by Hammer's death or resignation.
(c) As used in this Section 7, a "Change in Control" shall be
deemed to have taken place if: (i) subsequent to February 27, 1997, any "Person"
(including any individual, firm, corporation, partnership or other entity except
Hammer, 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 February 27, 1997, constituted the Board
cease for any reason to constitute a majority thereof.
(d) It is the intention of the parties that the payments under
Section 7(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 7 to the
contrary, if any of the amounts otherwise payable under Section 7(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 7(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 7 constituting, or potentially
constituting, "excess parachute payments."
8. No Mitigation. Hammer shall not be required to mitigate the
-------------
amount of any payment or benefit provided for in this Agreement by seeking other
employment or otherwise not, except as provided herein, shall the amount of any
payment or benefit provided for in this Agreement be reduced by any
compensation earned by Hammer as the result of his employment by another
employer.
9. Restrictive Covenant.
--------------------
(a) Competition.
-----------
(i) Hammer 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
-5-
<PAGE>
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 Hammer'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 6(b) of this Agreement; and (3) subject to Section
6(d)(i)(1) of this Agreement, for any period after termination during which
payments are made to Hammer under Section 6(d)(i) of this Agreement with respect
to termination by the Company or Hammer pursuant to Section 6(c) of this
Agreement.
(ii) Hammer 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 6(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, Hammer 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 Hammer prior to this Agreement, it
being acknowledged that all such new information and materials compiled or
obtained by or disclosed to Hammer 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 9 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 9(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.
10. Counsel Fees and Indemnification.
--------------------------------
(a) In the event that it shall be necessary or desirable for
Hammer 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 6(e) of this Agreement, Hammer 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 Hammer harmless to the
maximum extent permitted by law against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees incurred by
Hammer, 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 Hammer is
made or is threatened to be made a party by reason of any act or omission of
Hammer 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 Hammer 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
-6-
<PAGE>
an undertaking by or on behalf of Hammer 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 10(b).
11. 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
Eleven Penn Center, Suite 1100
1835 Market Street
Philadelphia, Pennsylvania 19103
FAX #: (215) 988-4869
Attn: Corporate Secretary
To Hammer:
Mr. Frederick S. Hammer
520 Meadowbrook Circle
Wayne, Pennsylvania 19087
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 Hammer 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 Hammer 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 Hammer. This Agreement supersedes the Prior Employment Agreement,
which is hereby deemed null and void and of no further force or effect.
-7-
<PAGE>
(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) 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, construed and enforced
in accordance with the foregoing covenant notwithstanding any law to the
contrary.
(g) Heading. The headings of the various sections and paragraphs
-------
shall not be considered in interpreting this 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.
-8-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by Hammer 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
_________________________________ By:____________________________________
Secretary Constantinos I. Costalas
Vice Chairman and Chief Operating
Officer
____________________________________
Frederick S. Hammer
APPROVED:
COMPENSATION COMMITTEE
By: _______________________________
Jon W. Yoskin, II, Director
Chairman of the Compensation
Committee of the Board of
Directors
_______________________________
Albert R. Dowden, Director
-9-
<PAGE>
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1996
------------------- ------------------
<S> <C> <C>
Primary
Average common shares outstanding 24,141 18,500
Assumed conversion of preferred stock - 1,306
Net effect of common stock equivalents (2)(3) - 5,439
-------------- --------------
Total shares 24,141 25,345
============== ==============
Net (loss) income ($12,989) $ 4,550
Adjustments to net (loss) income:
Reduction of interest expense (net of tax)
related to assumed retired debt - -
Increase in interest income (net of tax) from assumed
investment of excess proceeds in short-term paper - -
-------------- --------------
Adjusted net (loss) income ($12,989) $ 4,550
============== ==============
Per share (loss) earnings: ($.54) $.18
============== ==============
Fully Diluted
Average common shares outstanding 24,141 18,600
Assumed conversion of preferred stock - 1,306
Net effect of common stock equivalents (2)(4) - 5,439
-------------- --------------
Total shares 24,141 25,345
============== ==============
Net (loss) income ($12,989) $ 4,550
Adjustments to net (loss) income:
Reduction of interest expense (net of tax)
related to assumed retired debt - -
Increase in interest income (net of tax) from assumed
investment of excess proceeds in short-term paper - -
-------------- --------------
Adjusted net (loss) income ($12,989) $ 4,550
============== ==============
Per share (loss) earnings (1): ($ .54) $.18
============== ==============
</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) Based on common stock equivalents using the if converted method and average
market price.
(4) Based on common stock equivalents using the if converted method and the
period-end market price, if higher than the average market price.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 7,445
<SECURITIES> 0
<RECEIVABLES> 39,793
<ALLOWANCES> (6,634)
<INVENTORY> 29,905
<CURRENT-ASSETS> 88,399
<PP&E> 15,038
<DEPRECIATION> 896
<TOTAL-ASSETS> 160,278
<CURRENT-LIABILITIES> 80,129
<BONDS> 0
0
1
<COMMON> 249
<OTHER-SE> 76,680
<TOTAL-LIABILITY-AND-EQUITY> 160,278
<SALES> 67,155
<TOTAL-REVENUES> 67,155
<CGS> 64,446
<TOTAL-COSTS> 79,215
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 625
<INCOME-PRETAX> (12,685)
<INCOME-TAX> 304
<INCOME-CONTINUING> (12,989)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,989)
<EPS-PRIMARY> (0.54)
<EPS-DILUTED> (0.54)
</TABLE>
