<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended March 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED].
For the transition period from to
------------------ --------------------
Commission file number 1-6715
NATIONAL MEDIA CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-2658741
(State of Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
Eleven Penn Center, Suite 1100, 1835 Market Street, Philadelphia, PA 19103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 215-988-4600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Stock, par value New York Stock Exchange
$.01 per share Philadelphia Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant as of May 30, 1997 was approximately
$177,134,940.
There were approximately 24,965,534 issued and outstanding shares of
the Registrant's common stock, par value $.01 per share, at May 30, 1997. In
addition, there were 707,311 shares of treasury stock as of such date.
DOCUMENTS INCORPORATED BY REFERENCE
None.
The Registrant hereby amends Part III of its Annual Report on Form 10-K for the
year ended March 31, 1997 (the "Annual Report") as set forth in the pages
attached hereto. Capitalized terms used herein and not otherwise defined have
the meanings ascribed to such terms in the Annual Report.
*Calculated by excluding all shares that may be deemed to be beneficially owned
by executive officers and directors of the Registrant, without conceding that
all such persons are "affiliates" of the Registrant for purposes of the federal
securities laws, but including the shares beneficially owned by others listed on
the "Security Ownership of Certain Beneficial Owners" table included in
Registrant's proxy statement. Based upon a market value per share of $7.375,
which was the closing price of the Company's Common Stock on the New York Stock
Exchange on May 30, 1997.
================================================================================
<PAGE>
NATIONAL MEDIA CORPORATION
FORM 10-K/A
TABLE OF CONTENTS
PART III
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........... 3
Item 11. EXECUTIVE COMPENSATION....................................... 6
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 11
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 13
</TABLE>
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<PAGE>
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of the date hereof, the directors and executive officers of the
Company are:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Paul R. Brazina 52 Vice President and Chief Financial Officer
Constantinos I. Costalas 61 Vice Chairman of the Board of Directors,
Director
Albert R. Dowden 56 Director
Michael J. Emmi 55 Director
William M. Goldstein, Esq. 61 Director
Frederick S. Hammer 60 Chairman of the Board of Directors, Director
Robert E. Keith, Jr. 55 Director
John W. Kirby 37 Executive Vice President of the Company and
Chairman and Chief Executive Officer of
DirectAmerica
Michael S. Levey 48 Executive Vice President of the Company and
Chief Executive Officer of Positive Response
Television
Ira M. Lubert 47 Director
Brian McAdams 55 Director
Paul Meier 41 Executive Vice President of the Company and
Chief Executive Officer of Prestige
Marketing Limited and Suzanne Paul Holdings
Pty Limited
Warren V. Musser 70 Director
Brian J. Sisko 36 Senior Vice President, Chief Administrative
Officer, Secretary and General Counsel
Robert N. Verratti 54 President, Chief Executive Officer and
Director
Jon W. Yoskin II 56 Director
</TABLE>
Mr. Brazina has served as Vice President and Chief Financial Officer of
the Company since May 1997. From October 1995 (when the Company acquired Direct
America Corporation and California Production Group, Inc. ("CAPG" and,
collectively with DirectAmerica Corporation, "DirectAmerica")) to October 1996,
Mr. Brazina served as Vice President, Treasurer and Chief Financial Officer of
Direct America Corporation. Prior to this acquisition, Mr. Brazina also served
in such capacities for that company's predecessors. Prior to joining the
Company, Mr. Brazina was also a partner in the accounting firm of Rosenfelt,
Siegel and Goldberg and was Chief Financial Officer of CPC Associates, a company
that specializes in compilation and direct mail programs. Mr. Brazina has also
served as an assistant professor of accounting at LaSalle University from 1974
until the present.
Mr. Costalas has been the Vice Chairman of the Company since September
1994, the Chief Operating Officer since early 1997 and was the Senior Financial
Officer from April 1995 until May 1996. He served as Chairman of the Board,
President and Chief Executive Officer of Glendale Bancorporation and as Chairman
of the Board, President and Chief Executive Officer of Glendale National Bank of
New Jersey until February 1994. Such positions were held since 1985 and 1976,
respectively. Mr. Costalas has served as a Director of the Company since May
1993.
Mr. Dowden has served as a Director, President and Chief Executive
Officer of Volvo North America Corporation and Senior Vice President of AB Volvo
since January 1991. Prior to such time, he served as Executive Vice President
and Deputy to the President and Chief Executive Officer from June 1989 to
January 1991. Mr. Dowden has been affiliated with Volvo North America
Corporation since 1974. Mr. Dowden also serves on the Board of Directors of the
National Association of Manufacturers, the Association of International
Automobile Manufacturers, the Business Committee for the Arts, the Center for
International Leadership, the Madison Square Boys & Girls Club, the United Way
of New York City, the Cortland Trust, the American Scandinavian Foundation, the
American Intercultural Student Exchange, the American Institute for Public
Service and the Swedish American Chamber of Commerce. Mr. Dowden has served as a
Director of the Company since August 1995.
-3-
<PAGE>
Mr. Emmi has served as Chairman of the Board, Chief Executive Officer
and President of Systems & Computer Technology Corporation, a provider of
computer software and services, since May 1985. Mr. Emmi is also a Director of
CompuCom Systems, Inc., Premier Solutions, Inc. and The Franklin Institute and
is the Chairman of the Pennsylvania Chapter of the American Electronics
Association. Mr. Emmi has served as a Director of the Company since April 1995.
Mr. Goldstein is a Managing Partner and Chairman of the Tax
Department of the law firm of Drinker Biddle & Reath LLP in Philadelphia,
Pennsylvania, where he has practiced since 1982. Mr. Goldstein specializes in
federal taxation, securities law and general corporate law. He previously held
the position of Deputy Assistant Secretary for Tax Policy with the United States
Department of Treasury. Mr. Goldstein is also a Director of Integra LifeSciences
Corporation. Mr. Goldstein has served as a Director of the Company since April
1996.
Mr. Hammer was appointed Chairman of the Board of Directors of the
Company in February 1997. He has been a partner of Inter-Atlantic Securities
Corporation, an investment banking firm focused primarily on the financial
services industry, since December 1994. From February 1993 to June 1994, Mr.
Hammer was Chairman of Mutual of America Capital Management Corporation. From
1989 until 1993, Mr. Hammer was President of the SEI Asset Management Group in
Wayne, Pennsylvania. From 1989 until 1991, Mr. Hammer was Mazur Fellow at the
Wharton School of the University of Pennsylvania. Mr. Hammer presently serves on
the Board of Directors of IKON Office Solutions, Tri-Arc Financial Services,
Inc., Search Financial Services Corp., Inc. and Provident American Corporation.
Mr. Hammer has served as a Director of the Company since October 1994.
Mr. Keith serves as Chief Executive Officer of Technology Leaders I
Management, Technology Leaders II Management and Radnor Venture Partners,
venture capital funds affiliated with Safeguard. Prior to his affiliation with
Safeguard in 1989, Mr. Keith held executive positions with Fidelity Bank for
over twenty years, most recently as vice chairman. Mr. Keith is also a Director
of Cambridge Technology Partners, Gandalf Technologies, Inc. and Wave
Technologies International, Inc. Mr. Keith has served as a Director of the
Company since November 1996.
Mr. Kirby is an Executive Vice President of the Company and Chairman and
Chief Executive Officer of DirectAmerica. He has served as Chairman of the
Board, Chief Executive Officer and President of DirectAmerica since August 1994
and as Executive Vice President of the Company since its acquisition of
DirectAmerica in October 1995. Mr. Kirby previously served as Chairman of the
Board, Chief Executive Officer and President of CAPG from January 1991 until the
Company's acquisition of CAPG in October 1995.
Mr. Levey serves as an Executive Vice President of the Company and Chief
Executive Officer of Positive Response Television, Inc. ("PRTV"), a wholly-owned
subsidiary of the Company which was acquired in May 1996. Mr. Levey founded PRTV
in 1988. From 1985 to 1989, Mr. Levey was employed by Twin Star Productions,
where he produced infomercials and developed fulfillment, outbound telemarketing
and product selection activities.
Mr. Lubert has served as Managing Director of Radnor Venture Management
Company and of Technology Leaders Management, Inc., both of which are venture
capital management companies, since 1988. Mr. Lubert is a Director of CompuCom
Systems, Inc. Mr. Lubert has served as Director of the Company since December
1994.
Mr. McAdams has served as Chief Executive Officer of Stratvis Corp.
since January 1997. Prior to such time, Mr. McAdams served as Chairman of the
Board and Chairman of the Executive Committee of the Company from September 1994
until December 1996. He was also Chief Executive Officer of the Company from
September 1994 to April 1995. From 1976 through November 1994, Mr. McAdams
served as President and Chief Executive Officer and continues to serve as a
Director of McAdams, Richman & Ong, Inc., a national advertising and design
firm. In 1994, he was named Chairman of such firm and continues in that role
today. Mr. McAdams has served as a Director of the Company since 1990.
Mr. Meier serves as an Executive Vice President of the Company and Chief
Executive Officer of Prestige Marketing Limited ("Prestige") and Suzanne Paul
Holdings Pty Limited ("Suzanne Paul"), the Company's New Zealand and Australian
operating subsidiaries acquired in July 1996. Mr. Meier founded Prestige and
Suzanne Paul in 1991.
Mr. Musser has served as Chairman of the Board of Directors and Chief
Executive Officer of Safeguard, since 1992. Mr. Musser is also a Director of
Sanchez Computer Associates and CompuCom Systems, Inc. Mr. Musser has served as
a Director of the Company since January 1997.
Mr. Sisko presently serves as a Senior Vice President, Chief
Administrative Officer, Secretary and General Counsel of the Company. From
January 1996 to January 1997, Mr. Sisko was Vice President/Global Corporate
Development of the Company. Prior to joining the Company, Mr. Sisko was a
partner with Klehr, Harrison, Harvey, Branzburg & Ellers, Philadelphia,
Pennsylvania, outside legal counsel to the Company.
-4-
<PAGE>
Mr. Verratti has served as President and Chief Executive Officer of the
Company since May 1997. From January 1997 to May 1997, he served as Special
Adviser for Acquisitions to the Chairman and Chief Executive Officer of
Safeguard. Prior to joining Safeguard, from December 1988 to June 1990, Mr.
Verratti served as Chief Executive Officer of Total Care Systems, a congregate
care management company. Mr. Verratti is also President of Charlestown
Investments, Ltd., an investment company. Mr. Verratti also serves on the Boards
of Directors of CRW Financial and Multigen Inc. and is Chairman-elect of MRJ
Enterprise Solutions. Mr. Verratti has served as a Director of the Company since
May 1997.
Mr. Yoskin has served as Chairman, Chief Executive Officer and a
Director of Tri-Arc Financial Services, Inc., a provider of specialized
insurance products to the financial services industry, since 1986. Prior to that
time, he worked in the insurance and banking industries with companies such as
Meritor Savings Bank, TransAtlantic Life Insurance Assurance Company and Royal
Oak Insurance Company. Mr. Yoskin has served as a Director of the Company since
June 1994.
SECTION 16(a) COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors and persons who own more than ten percent of
the Company's Common Stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission and the New York and Philadelphia
Stock Exchanges. Officers, Directors and greater than ten-percent owners are
required by the Securities and Exchange Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on the Company's review of the copies of such forms
received by it, the Company believes that, during the fiscal year ended March
31, 1997, all filing requirements applicable to its officers, Directors and
greater than ten-percent owners were complied with.
-5-
<PAGE>
Item 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the cash
compensation and certain other components of the compensation received by (i)
Mark P. Hershhorn, the former President and Chief Executive Officer of the
Company, and (ii) the other four most highly compensated executive officers of
the Company during the fiscal year ended March 31, 1997 for each of the fiscal
years ended March 31, 1995, 1996 and 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
----------------------------------------------- -----------------------------------------
Other Restricted Securities All
Name and Fiscal Annual Stock Underlying Other
Principal Position Year Salary Bonus(1) Compensation Awards(2) Options Compensation(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mark P. Hershhorn(4) 1997 $542,022 0 0 0 250,000(5) $1,224,453
Former President and Chief 1996 $439,964 $195,464 0 $195,476 0 $ 11,642
Executive Officer 1995 $254,451 0 0 0 450,000 $ 4,626
David Carman (6) 1997 $210,850 0 $ 73,355(7) 0 250,000 $ 310,679
Former Executive Vice President of the 1996 $374,018 $165,973 $ 87,386(7) $165,957 0 $ 53,058
Company, President and Chief Executive 1995 $350,000 0 $132,495(7) 0 0 $ 30,873
Officer of Quantum and Director
Constantinos I. Costalas(8) 1997 $318,078 0 0 0 250,000(9) $ 8,730
Vice Chairman of the Board 1996 $212,500 $159,198 0 $159,209 140,000(9) $ 8,730
and Chief Operating Officer 1995 $ 60,000 0 0 0 0 $ 8,730
John W. Kirby(10) 1997 $300,000 0 0 0 30,000 $ 32,255
Executive Vice President of the 1996 $133,957 $ 42,972 0 $ 42,966 0 $ 996
Company and Chairman and Chief
Executive Officer of DirectAmerica
Brian McAdams(11) 1997 $292,248 0 0 0 250,000 $ 655,384
Director; Former Chairman 1996 $287,496 $213,911 0 $213,906 210,000 $ 11,376
of the Board and Chairman 1995 $ 74,748 0 0 0 90,000 $ 4,925
of the Executive Committee
</TABLE>
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(1) Bonuses (which include cash payments and awards of Common Stock as set
forth under Restricted Stock Awards) have been included in the year
earned, portions of which were actually paid in the following fiscal year.
(2) Consists of awards made pursuant to the Company's Management Incentive
Plan (the "Incentive Plan") for the 1996 fiscal year. All such shares of
Common Stock were issued during the 1997 fiscal year and were vested at
the time of issuance. Such officers received the following number of
shares of Common Stock which has been valued based upon a closing price of
$16.50 per share on March 29, 1996, the date of grant. Mr. Hershhorn,
11,847 shares; Mr. Carman, 10,058 shares; Mr. Costalas, 9,649 shares; Mr.
Kirby, 2,604 shares; and Mr. McAdams, 12,964 shares.
(3) Amounts for fiscal 1997 consist of (i) severance payments made or accrued
for: Mr. Hershhorn, $1,219,067; Mr. Carman, $250,662; and Mr. McAdams,
$650,000; (ii) the Company's contributions under a defined contribution
retirement arrangement for Mr. Carman, $60,017; (iii) the Company's
contribution under a 401(k) plan for: Mr. Hershhorn, $502; and Mr.
McAdams, $459; (iv) the Company's insurance premiums for supplemental life
insurance for: Mr. Hershhorn, $4,884; Mr. Costalas, $8,730; Mr. Kirby,
$5,530; and Mr. McAdams, $4,925; (v) the Company's payment of moving
expenses for Mr. Kirby, $25,000; and (vi) payments by the Company for use
of Mr. Kirby's automobile, $1,725. Amounts for fiscal 1996 consist of (i)
the Company's contributions under a defined contribution retirement
arrangement for Mr. Carman: $51,458; (ii) the Company's contribution
under a 401(k) plan for: Mr. Hershhorn, $6,672 and Mr. McAdams, $6,451;
(iii) the Company's insurance premiums for supplemental life insurance
for: Mr. Hershhorn, $4,970; Mr. Carman, $1,600; Mr. Costalas, $8,730; and
Mr. McAdams, $4,925 and (iv) payments by the Company for use of Mr.
Kirby's automobile. Amounts for fiscal 1995 consist of (i) the Company's
contributions under a defined contribution retirement arrangement for Mr.
Carman: $29,350, (ii) the Company's contribution under a 401(k) plan for:
Mr. Hershhorn, $96; and (iii) the Company's insurance premiums for
supplemental life insurance for: Mr. Hershhorn, $4,530; Mr. Carman,
$1,523; Mr. Costalas, $8,730; and Mr. McAdams, $4,925.
(4) Mr. Hershhorn served as Chief Executive Officer of the Company from April
1995 until April 1997.
(5) Such options lapsed in connection with Mr. Hershhorn's separation from the
Company.
-6-
<PAGE>
(6) Mr. Carman resigned from the Company in October 1996. Payments to Mr.
Carman include compensation received from Quantum.
(7) Represents an allowance for overseas housing.
(8) Mr. Costalas became an executive officer of the Company in November 1994.
(9) In connection with the execution of an amendment to Mr. Costalas'
employment agreement with the Company in April 1997, such options were
subsequently canceled and replaced by options to purchase 195,000 shares
of Common Stock.
(10) Mr. Kirby joined the Company during the Company's 1996 fiscal year.
(11) Mr. McAdams became an executive officer of the Company in November 1994.
Stock Options
The following table sets forth certain information concerning options to
purchase Common Stock of the Company granted to the executive officers named
in the Summary Compensation Table in the fiscal year ended March 31, 1997.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term (1)
----------------------------------------------------------------------------
% of Total
Number of Options
Securities Granted to
Underlying Employees
Options in Fiscal Exercise Expiration
Name Granted Year Price Date 5% 10%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mark P. Hershhorn............... 250,000(2) 6.38% $16.375/sh 7/25/06 0 0
David Carman.................... 250,000(2) 6.38% $16.375/sh 7/25/06 0 0
Constantinos I. Costalas........ 250,000(3) 6.38% $16.375/sh 7/25/06 $ 2,574,536 $ 6,524,382
John W. Kirby................... 30,000(4) * $8.325/sh 7/25/06 $ 157,066 $ 398,037
Brian McAdams................... 250,000 6.38% $16.375/sh 12/31/98 $ 419,609 $ 859,687
</TABLE>
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* Less than 1%.
(1) Potential Realizable Values are based on an assumption that the stock price
of the Common Stock starts equal to the exercise price shown for each
particular option grant and appreciates at the annual rate shown (compounded
annually) from the date of grant until the end of the term of the option.
These amounts are reported net of the option exercise price, but before any
taxes associated with exercise of the subsequent sale of the underlying
stock. The actual value, if any, an option holder may realize will be a
function of the extent to which the stock price exceeds the exercise price
on the date the option is exercised and also will depend on the option
holder's continued employment through the vesting period. The actual value
to be reached by the option holder may be greater or less than the values
estimated in this table.
(2) Such options lapsed in connection with such officer's separation from the
Company.
(3) In connection with the execution of an amendment to Mr. Costalas' employment
agreement with the Company in April 1997, such options (along with options
to purchase 140,000 shares of Common Stock previously granted to Mr.
Costalas) were subsequently canceled and replaced by options to purchase
195,000 shares of Common Stock at an exercise price of $7.00 per share.
(4) Such options were granted in replacement of options to purchase 60,000
shares of Common Stock originally granted in July 1996.
-7-
<PAGE>
The following table sets forth certain information concerning the
exercise in the fiscal year ended March 31, 1997 of options to purchase Common
Stock of the Company by the executive officers named in the Summary
Compensation Table and the unexercised options to purchase Common Stock of the
Company held by such individuals at March 31, 1997. Year-end values are based
upon the closing market price per share of the Company's Common Stock on March
31, 1997 of $8.50.
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
FY-End(#) at FY-End ($)(1)
---------------------------- ------------------------
Shares
Acquired on Value
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mark P. Hershhorn......... 0 0 0 250,000 0 0
David Carman.............. 200,000 $1,125,000 0 0 0 0
Constantinos I. Costalas.. 0 0 26,667 303,333 0 0
John W. Kirby............. 0 0 0 30,000 0 $5,250
Brian McAdams............. 0 0 465,000 0 0 0
</TABLE>
- ------------------------
(1) Values are calculated by subtracting the exercise price from the fair
market value as of the exercise date or fiscal year end, as appropriate.
Values are reported before any taxes associated with exercise or
subsequent sale of the underlying stock.
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
Mark P. Hershhorn
On April 24, 1997, the Company entered into a separation agreement with
Mark P. Hershhorn, the Company's former President and Chief Executive Officer,
and a former Director of the Company. Pursuant to the separation agreement,
Mr. Hershhorn was provided sixty (60) days' prior written notice of
termination pursuant to the terms of his employment agreement with the
Company. The separation agreement served as formal notice of Mr. Hershhorn's
resignation as an officer and/or director of the Company and of each
subsidiary and affiliate of the Company. The separation agreement provides, in
accordance with the termination provisions of his prior employment agreement,
that Mr. Hershhorn will be paid $550,000 per annum until June 22, 1999.
Additionally, the separation agreement requires the Company to maintain
through August 30, 1998 all employee benefit plans and programs provided to
Mr. Hershhorn during his employment with the Company, with the exception of
the Company's stock option plans and bonus plans, including the Company's
Incentive Plan. Mr. Hershhorn also has agreed to consult and cooperate with
the Company in connection with any litigation or business which arose during
Mr. Hershhorn's tenure with the Company.
Constantinos I. Costalas
On April 28, 1997, the Company entered into an amended and restated
employment agreement with Mr. Costalas. Pursuant to the agreement, as
subsequently amended, Mr. Costalas is employed as Vice Chairman of the Company
for term ending on September 27, 1998, at an annual minimum base salary of
$325,000. The term of the agreement will be automatically extended for
successive one-year periods after the expiration of the initial term unless
terminated by either party upon six months' written notice prior to the end of
the then current period. Mr. Costalas is entitled to participate in the
Company's Incentive Plan and its other executive compensation programs. The
Company maintains $1,000,000 of insurance on the life of Mr. Costalas, which
is payable to beneficiaries designated by Mr. Costalas, pays certain of Mr.
Costalas's club dues and pays Mr. Costalas an automobile allowance. Pursuant
to this employment agreement, Mr. Costalas was granted options to purchase up
to 195,000 shares of Common Stock in replacement of options to purchase
390,000 shares of Common Stock held by Mr. Costalas at the time the employment
agreement was executed. The replacement options are exercisable at a price of
$7.00 per share and vest in annual one-third increments, beginning on April
28, 1997. All of such options expire on April 28, 2007.
The agreement provides that either party may terminate the agreement upon
sixty (60) days' prior written notice. If the Company terminates the agreement
without Cause (as defined in the agreement) or if Mr. Costalas terminates the
agreement for Good Reason (as defined in the agreement), the Company will be
required to (i) pay Mr. Costalas, in installments, an amount equal to the base
salary payable during the remainder of the term plus six months after the end
of such term, and (ii) maintain his employee benefits for the remainder of the
term plus a period
-8-
<PAGE>
of six months. The agreement also provides that, in the event of the
termination of Mr. Costalas' employment upon the occurrence of a Change of
Control (as defined in the agreement), Mr. Costalas will be entitled to
receive, within thirty (30) days of the Change of Control, a lump-sum payment
in an amount equal to three years' base salary at the then current amount and
a lump-sum payment representing the annual bonuses to which Mr. Costalas would
otherwise have been entitled through the remainder of the term based on the
last annual bonus received by Mr. Costalas in the prior fiscal year. In
addition, Mr. Costalas will be entitled to the continuation of certain
allowances and benefits for the remainder of the term and the immediate
vesting of all unvested stock options. If Mr. Costalas' employment is not
terminated within thirty (30) days after a Change of Control, his employment
agreement shall automatically be extended for an additional three years from
the date of the Change of Control. Pursuant to the agreement, the Company has
also agreed to indemnify Mr. Costalas in his capacity as an officer and
Director of the Company to the maximum extent permitted by law and to make
advances to Mr. Costalas for his expenses (including attorneys' fees) incurred
in defending any civil, criminal, administrative or investigative action, suit
or proceeding upon receipt by the Company of an undertaking by or on behalf of
Mr. Costalas to repay such amounts if it is ultimately determined that Mr.
Costalas is not entitled to such indemnification.
John W. Kirby
On October 24, 1995, in connection with the Company's acquisition of
DirectAmerica Corporation ("DirectAmerica"), the Company's DirectAmerica
subsidiary entered into an employment with Mr. Kirby pursuant to which Mr.
Kirby serves as Chairman and Chief Executive Officer of DirectAmerica and as
Executive Vice President of the Company for a five year term at an annual
minimum base salary of $300,000. The term of the agreement is subject to
automatic one-year extensions after the expiration of the initial term unless
terminated by either party upon six months' written notice prior to the end of
the then current period. Mr. Kirby is entitled to participate in the
Company's Incentive Plan, the DirectAmerica Bonus Plan and the Company's other
executive compensation plans. The Company maintains $1,000,000 of insurance
on the life of Mr. Kirby, which is payable to beneficiaries designated by Mr.
Kirby, pays certain of Mr. Kirby's club dues and pays Mr. Kirby an automobile
allowance.
The agreement provides that Mr. Kirby may terminate the agreement upon
ninety (90) days' prior written notice effective as of the third anniversary
of the agreement. In the event Mr. Kirby terminates this agreement on account
of a material breach of the Agreement by the Company, or if Mr. Kirby is
terminated by the Company without Cause (as defined in the agreement), the
Company will be required to pay Mr. Kirby, in installments, an amount equal
his full base salary payable during the remainder of the term, and to maintain
his employee benefits for the remainder of the term. The agreement also
provides that in the event of a Change of Control (as defined in the
agreement) of the Company, Mr. Kirby may terminate this Agreement by giving
the Company thirty (30) days' written notice. Pursuant to the agreement,
DirectAmerica has agreed to indemnify Mr. Kirby in his capacity as an officer
of the Company to the maximum extent permitted by law and to pay Mr. Kirby's
expenses (including attorneys' fees) incurred in defending any civil,
criminal, administrative or investigative action, suit or proceeding upon
receipt by the Company of an undertaking by or on behalf of Mr. Kirby to repay
such amounts if it is ultimately determined that Mr. Kirby is not entitled to
such indemnification.
Brian McAdams
On December 19, 1996, in connection with his resignation from the
Company, the Company entered into a consulting agreement with Mr. McAdams, the
former Chairman of the Board of Directors and Chairman of the Executive
Committee of the Board of Directors of the Company, pursuant to which Mr.
McAdams agreed to provide consulting services to the Company from December
1996 through December 1998.
Mr. McAdams agreed to devote up to twenty (20) hours per month of his
time and skill to the Company during the term of the consulting agreement. In
consideration for such services, Mr. McAdams receives annual compensation of
$100,000. The Company also agreed to make annual payments of $300,000 to Mr.
McAdams during the term of the consulting agreement in consideration of the
termination of Mr. McAdams' employment agreement with the Company, to maintain
certain employee benefits, including Mr. McAdams' life insurance, during the
term of the consulting agreement, and to provide up to $50,000 in outplacement
fees to Mr. McAdams.
In connection with Mr. McAdams' agreement to provide consulting services
to the Company, the Company agreed to accelerate all stock options held by Mr.
McAdams, provided Mr. McAdams exercises such options, if at all, prior to
December 31, 1998.
David Carman
Mr. Carman is no longer compensated pursuant to any agreement with the
Company.
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<PAGE>
Compensation of Directors
Each Director who is not an employee of the Company is paid an annual
cash fee of $25,000 a year for his or her service as a Director, and an
additional $1,000 in cash per calendar quarter for each committee on which he
or she serves, subject to an adjustment based on attendance at committee
meetings during each quarter. A Director may also receive an additional
$2,000 in cash per year for service as a committee chairman, over and above
the payment for committee service. Directors who are employees of the Company
do not receive additional compensation for their service on the Board or on
any committee thereof.
During the fiscal year ended March 31, 1997, the Company granted shares
of Common stock to non-employee Directors pursuant to the Director's Stock
Grant Plan valued at approximately $491,000, based on the fair market value of
such shares of Common Stock on the date of grant, and incurred other expenses
of approximately $250,000 for Directors' fees during the fiscal year.
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<PAGE>
Options
The Company also granted an aggregate of 300,000 options to purchase
Common Stock to six non-employee Directors following the election of such
Directors to the Company's Board of Directors in July 1996. Each non-employee
Director received 50,000 options at an exercise price of $16.375 per share.
Subject to such Director's continued membership on the Company's Board of
Directors, such options vest on April 25, 2001, subject to certain provisions
for accelerated vesting, including a change of control of the Company,
attainment of certain trading prices for the Company's Common Stock or
achievement of certain earnings per share ratios. In June 1997, each non-
employee Directors exchanged such options for 25,000 options, exercisable at a
price of $7.25 per share, with the same vesting schedule.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
On June 24, 1997, there were outstanding and entitled to vote
approximately 24,965,534 shares of Common Stock and 92,500 shares of Series B
Preferred Shares (each of which is convertible into ten (10) shares of Common
Stock). The following table sets forth certain information at June 24, 1997
with respect to the beneficial ownership of shares of Common Stock by (i) each
Director, (ii) each executive officer of the Company and (iii) all Directors
and executive officers of the Company as a group. Except for John W. Kirby,
Michael S. Levey and Paul Meier, the address for each such person is Eleven
Penn Center, Suite 1100, 1835 Market Street, Philadelphia, Pennsylvania. The
address for Mr. Kirby is 15821 Ventura Boulevard, Los Angeles, California.
The address for Mr. Levey is 17280 Oakview Drive, Encino, California. The
address for Paul Meier is 531 Great South Road, Penrose, Auckland, New
Zealand.
Number of Issued and Outstanding
Shares of Stock Owned
<TABLE>
<CAPTION>
of Shares Percent of
Series B of Common Stock Common Stock Percent of
Common Preferred Beneficially Beneficially Total Voting
Name(1) Stock(2)(3) Stock Owned(4) Owned(5)(6) Power(5)(7)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Paul R. Brazina.......... 25,000 0 25,000 * *
Constantinos I. Costalas. 84,616 0 84,616 * *
Albert R. Dowden......... 8,000 0 8,000 * *
Michael J. Emmi.......... 12,000 0 12,000 * *
William M. Goldstein..... 20,000 0 20,000 * *
Frederick S. Hammer...... 90,000 2,500 115,000 * *
Robert E. Keith, Jr. (8). 25,000 0 25,000 * *
John W. Kirby............ 339,784 0 339,784 1.4% 1.3%
Michael S. Levey......... 700,026 0 700,026 2.8% 2.7%
Ira M. Lubert (8)........ 137,500 0 137,500 * *
Brian McAdams............ 518,114 0 518,114 2.0% 2.0%
Paul Meier (9)........... 787,879 0 787,879 3.2% 3.0%
Warren V. Musser......... 60,000 5,000 110,000 * *
Brian J. Sisko........... 10,884 0 10,884 * *
Robert N. Verratti (10).. 0 0 0 * *
Jon W. Yoskin II......... 117,952 0 117,952 * *
All executive officers and
Directors as a group.... 2,936,755 7,500 3,011,755 12.0% 11.6%
(16 persons)
</TABLE>
- -----------------------------
*Less than 1%.
(1) To the Company's knowledge, each Director and executive officer listed
above has sole voting and investment power (with his spouse, in certain
circumstances) with respect to all shares indicated as beneficially owned
by such Director or executive officer.
(2) Includes shares which may be acquired upon the exercise of immediately
exercisable outstanding stock options in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934 as follows: Mr. Brazina, 25,000; Mr.
Costalas, 51,667; Mr. Hammer, 50,000; Mr. Levey, 100,000; Mr. McAdams,
460,000; Mr. Sisko, 5,000; Mr. Verratti, 150,000, and Mr. Yoskin, 25,000;
and all executive officers and Directors as a group, 866,667.
(3) Includes shares which may be acquired upon the exercise of immediately
exercisable warrants in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934 as follows: Mr. Hammer, 30,000; Mr. Lubert, 65,000;
and Mr. Musser, 60,000 and all executive officers and Directors as a
group, 155,000.
(4) In accordance with Rule 13d-3, includes shares of Common Stock issuable
upon the conversion of Series B Preferred Stock.
(5) All percentages are rounded to the nearest tenth of a percent.
(6) Based on 24,965,534 shares issued and outstanding as of June 24, 1997, as
determined in accordance with Rule 13d-3.
(7) Based on 25,890,534 shares issued and outstanding as of June 24, 1997,
including all shares of Common Stock owned and all shares of Common Stock
issuable upon exercise of Series B Preferred Stock owned, but not
including options to purchase Common Stock or warrants exercisable into
Common Stock.
(8) Messrs. Keith and Lubert are general partners of Technology Leaders II
Management, L.P., the general partner of Technology Leaders II L.P. and
Technology Leaders II Offshore C.V. ("TLM"). The holdings of TLM are set
forth under "Security Ownership of Certain Beneficial Owners." Messrs.
Keith and Lubert disclaim beneficial ownership of all but such person's
derived proportionate pecuniary interest in such securities.
(9) Includes shares of Common Stock held by entities which are controlled by
Mr. Meier.
(10) Does not include 750,000 options to purchase Common Stock which, it is
anticipated, will be issued to Mr. Verratti upon the final negotiation
and execution of a written employment agreement.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information at June 24, 1997
with respect to each person, known by the Company to beneficially own more
than 5% of the Common Stock as determined in accordance with Rule 13d-3. The
information set forth below is derived, without independent investigation on
the part of the Company, from the most recent filings made by such persons on
Schedule 13D and Schedule 13G pursuant to Rule 13d-3.
Number of Issued and Outstanding
Shares of Stock Owned
<TABLE>
<CAPTION>
Total Number
of Shares of Percent of
Series B Common Stock Common Stock Percent of
Common Preferred Beneficially Beneficially Total Voting
Name(1) Stock(2) Stock Owned(3) Owned(4)(5) Power(4)(6)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John J. Turchi, Jr. ........ 1,543,265 0 1,543,265 6.2% 6.0%
1700 Walnut Street
Philadelphia, PA 19103
McCullough, Andrews......... 2,241,932 0 2,241,932 9.0% 8.7%
& Cappiello, Inc. (7)
101 California Street
Suite 4250
San Francisco, CA 94111
Safeguard Group(8)(9)....... 3,227,500 85,000 4,077,500 15.8% 15.7%
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
(a) Safeguard Scientifics, . 2,250,000 50,000 2,750,000 10.8% 10.6%
Inc.(9)(10)
(b) Technology Leaders...... 1,100,000 0 1,100,000 4.4% 4.2%
II Management
L.P.(9)(11)..........
(c) Warren V. Musser........ 60,000 5,000 110,000 * *
(d) Robert E. Keith, Jr..... 25,000 0 25,000 * *
(e) Ira M. Lubert(9)........ 137,500 0 137,500 * *
(f) Gary Anderson........... 0 1,250 12,500 * *
(g) Charles Andes(9)........ 32,500 0 32,500 * *
- -------------------
</TABLE>
* Less than 1%
(1) To the Company's knowledge, except as otherwise indicated in the footnotes
to this table, each of the persons named in this table has sole voting and
investment power with respect to all shares of Common Stock reported as
beneficially owned by such person.
(2) In accordance with Rule 13d-3, includes shares which may be acquired upon
the exercise of immediately exercisable outstanding stock options and
warrants.
(3) In accordance with Rule 13d-3, includes shares of Common Stock issuable
upon the conversion of Series B Preferred Stock.
(4) All percentages are rounded to the nearest tenth of a percent.
(5) Based on 24,965,534 shares issued and outstanding as of June 24, 1997, as
determined in accordance with Rule 13d-3.
(6) Based on 25,890,534 shares issued and outstanding as of June 24, 1997,
including all shares of Common Stock owned and all shares of Common Stock
issuable upon exercise of Series B Preferred Stock owned, but not
including options to purchase Common Stock and warrants exercisable into
Common Stock.
-12-
<PAGE>
(7) Based on information contained in a Schedule 13G dated February 18, 1997.
(8) Based on information provided by the Safeguard Group.
(9) Includes shares which may be acquired upon the exercise of immediately
exercisable warrants in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934.
(10) All shares listed as beneficially owned by Safeguard are held in the name
of Safeguard Scientifics (Delaware), Inc. ("SSD"). SSD is a wholly owned
subsidiary of Safeguard. Safeguard and SSD each have shared voting and
investment power with respect to such shares.
(11) All shares listed as beneficially owned by TLM are held in the name of
Technology Leaders II L.P. and Technology Leaders II Offshore C.V. TLM is
the general partner of each of such entities has sole voting and
investment power with respect to such shares.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a description concerning transactions which may not
otherwise be described herein by and between the Company and/or its affiliates
and other persons or entities affiliated with the Company or its affiliates.
The Company is of the view that each of such transactions was on terms no less
favorable to the Company than would otherwise have been available to the
Company in transactions with unaffiliated third parties, if available at all.
Lease of Office Space
During a portion of the Company's most recently completed fiscal year,
the Company leased office space for its principal executive offices in
Philadelphia, Pennsylvania from Mergren Associates ("Mergren"), a company
owned by John J. Turchi, Jr., a former director and executive officer of the
Company, and at present, according to the latest public filings made by Mr.
Turchi, one of the Company's largest shareholders. The lease, which commenced
in November 1992 provided for the Company to rent approximately 29,795 square
feet. The rent paid for such office space was $14.75 per square foot. An
independent real estate firm engaged by the Company determined that the lease
was based on fair market conditions at the time of inception. At the time the
Company moved out of such building into its current offices, the Company
entered into an agreement relating to the departure of the Company from the
leased space prior to the specified remaining term of the lease. Pursuant to
such agreement, the Company paid to Mergren approximately $376,000 in
satisfaction of all rent and other amounts due under the lease.
Paul Meier, an executive officer of the Company, is the owner of the
facilities leased by the Company's Prestige subsidiary for its operations in
Auckland, New Zealand. Such facilities consist of approximately 1245 square
meters of office space and 2447 square meters of warehouse space which
Prestige presently leases at the annual rate of NZ$296,000 (approximately
US$205,000 as of March 31, 1997) plus GST. Such payments are guaranteed by the
Company. The lease expires on March 31, 2016. An independent firm engaged by
the Company determined that such lease is fair, based on market conditions.
Promissory Notes
Under the Company's 1988 Stock Option Plan and 1991 Stock Option Plan,
participants may be entitled, in the discretion of the Company's Compensation
Committee at the time of grant, to purchase shares of Common Stock issued upon
the exercise of options through a nominal cash payment and the delivery of a
promissory note (a "Note") to the Company for the balance of the exercise
price. Interest on the Notes is payable quarterly. The interest rate and term
of the Notes vary depending upon the option plan specifications at the time
the Notes were issued. Notes must be paid down proportionately as Common Stock
purchased in connection with their issuance is sold. If a Note maker's
employment is terminated before the Note has been paid in full, the Note is
due at such time. During the fiscal year ended March 31, 1997, one of the
Company's former executive officers had an outstanding balance on a Note
issued to the Company pursuant to the terms of the Plan. On January 24, 1996,
in connection with the exercise of certain Common Stock purchase options by
Mr. Carman, a former executive officer of the Company, Mr. Carman executed a
Note in favor of the Company in the principal amount of $472,642 bearing
interest at a rate of 5.50% per annum. The Note was fully repaid by Mr.
Carman on June 7, 1996 through the delivery to the Company of an aggregate of
25,220 shares of Common Stock, valued at $19.125 per share, the closing price
of the Common Stock as reported on the New York Stock Exchange on such date.
In addition to the foregoing, and unrelated to the Company's stock option
plan, during the fiscal year ended March 31, 1997 the Company advanced funds
to certain executive officers of the Company and accepted notes in return,
bearing interest at a rate of 8.0% per annum, as follows: Constantinos I.
Costalas: $155,000; and John W. Kirby: $175,000. Such amounts were outstanding
at March 31, 1997 and as of the date hereof. The notes were issued in
connection with the exercise of stock options and other stock transactions.
Also, at March 31, 1997, the Company had advanced approxiamately $8,600 to
Mr. Costalas, which has been subsequently repaid. At all times during the
fiscal year ended March 31, 1997, Mr. Kirby also held an advance from the
Company in the amount of $18,000, bearing no interest, which was advanced to
him for personal financial reasons in November 1995. Mr. Kirby also acts as
surety for a debt owing to the Company in the principal amount of
approximately $32,000, plus accrued interest, which remains outstanding
as of the date hereof.
At the time of the Company's acquisition PRTV in May 1996, Michael Levey,
an executive officer of the Company, had a note outstanding to PRTV in the
principal amount of approximately $72,771.21. Such amount, together
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<PAGE>
with additional accrued interest, was due to be repaid December 31, 1996, but
was still outstanding at March 31, 1997 and as of the date hereof. The total
amount due under such note as of June 30, 1997 was $42,992.26.
Other Matters
McAdams, Richman & Ong, an advertising firm of which Mr. McAdams, the
Company's former Chairman of the Board and Chairman of the Executive
Committee, and a present Director of the Company, was the President and CEO,
and is currently Chairman of the Board and a director, performed certain
services for the Company in connection with the preparation of various reports
and other matters. McAdams, Richman & Ong has been paid approximately $310,291
for such services since April 1, 1996.
The Outsourcing Partnership, in which Mr. Lubert holds an interest,
performed internal audit services for the Company. Such services consisted of
analysis of the Company's management information systems and certain other
financial analysis. The Company paid The Outsourcing Partnership
approximately $111,091 since April 1, 1996.
Align, Inc., an information systems consulting firm which is affiliated
with Safeguard, has provided consulting services during the past five months
to the Company in connection with which it has been paid an aggregate of
$52,627 and has incurred an additional $75,000 in unpaid fees.
In connection with the development and production of three infomercials
relating to products/services developed by or with companies affiliated with
three of the Company's current or former directors, the Company expended
approximately: $122,195 (Charles Andes, former Director); $268,633 (Mr.
Hammer); and $322,149 (Messrs. Hammer and Yoskin), respectively. None of such
amounts were paid to such Directors or their affiliates.
Mr. Levey wife's is employed as a Vice President of PRTV at an annual
salary of $200,000; his brother is employed by PRTV at an annual salary of
$89,500; and, during the 1997 fiscal year and thereafter until July 3, 1997,
his mother-in-law was employed by PRTV at an annual salary of $32,550. Mr.
Levey's son also does business with the Company. As of the date hereof, the
Company had an overdue account receivable from Mr. Levey and his company in
the aggregate amount of $26,200.
Indemnification Payments
During the period April 1, 1996 to the present, the Company has assumed
and paid defense costs and/or made required indemnification payments on behalf
of present and former officers and Directors in connection with securities
class and derivative actions against the Company and such individuals which
were pending during the period between April 1, 1996 and the present. The
Company may be required to pay additional amounts in connection with these
actions.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized.
NATIONAL MEDIA CORPORATION
Date: July 28, 1997 /s/ Robert N. Verratti
------------------------
Robert N. Verratti
President, Chief Executive Officer
(Principal Executive Officer) and Director
