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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
For the fiscal year ended MARCH 31, 1998
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)
<TABLE>
<S> <C>
DELAWARE 13-2658741
(State of Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
ELEVEN PENN CENTER, SUITE 1100, 1835 MARKET STREET, PHILADELPHIA, PA 19103
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: 215-988-4600
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class: Name of each exchange on which registered:
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
PHILADELPHIA STOCK EXCHANGE
</TABLE>
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 July 15, 1998 was approximately
$58,919,420.
There were approximately 25,453,752 issued and outstanding shares of the
Registrant's common stock, par value $.01 per share, at July 15, 1998. In
addition, there were 887,229 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, 1998 (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 to be listed in the "Security Ownership of
Management" and "Security Ownership of Certain Beneficial Owners" tables
required to be included in Registrant's proxy statement. Based upon a market
value per share of $2.375, which was the closing price of the Company's
Common Stock on the New York Stock Exchange on July 15, 1998.
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NATIONAL MEDIA CORPORATION
FORM 10-K/A
TABLE OF CONTENTS
PART III
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PAGE
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<S> <C> <C>
RECENT DEVELOPMENTS........................................................................... 3
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>
2
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RECENT DEVELOPMENTS
On July 15, 1998, National Media Corporation (the "Company") executed a
letter of intent (the "Letter of Intent") pursuant to which an investor group
(the "Investor Group") is to acquire a substantial equity interest in and
operational control of the Company through an investment of a minimum of
$30,000,000 (the "Transaction").
In connection with the Transaction, the Company and the Investor Group have
entered into separate letter agreements with the holders of the Company's Series
D Preferred Stock (the "Series D Agreement") and First Union National Bank (the
"First Union Agreement"). In addition, the Investor Group also entered into a
letter agreement with ValueVision International, Inc. (the "ValueVision
Agreement").
On July 20, 1998, the Company filed a Current Report on Form 8-K, which
included as exhibits the Letter of Intent, the Series D Agreement, the First
Union Agreement and the ValueVision Agreement. Interested persons are advised to
refer to the Company's Current Report on Form 8-K for information regarding the
Transaction.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of the date hereof, the directors and executive officers of the Company
are:
<TABLE>
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NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Constantinos I. Costalas................... 62 Vice Chairman of the Board of Directors,
Director
Albert R. Dowden........................... 57 Director
Michael J. Emmi............................ 56 Director
William M. Goldstein, Esq.................. 62 Director
Frederick S. Hammer........................ 62 Chairman of the Board of Directors,
Director
Robert E. Keith, Jr........................ 56 Director
John W. Kirby.............................. 38 President of the Company and Chairman and
Chief Executive Officer of Quantum
Television
Ira M. Lubert.............................. 48 Director
Warren V. Musser........................... 71 Director
Brian J. Sisko, Esq........................ 37 Senior Vice President, Chief Administrative
Officer, Secretary and General Counsel
John J. Sullivan........................... 51 Senior Vice President and Chief Financial
Officer
Robert N. Verratti......................... 55 Chief Executive Officer and Director
Jon W. Yoskin II........................... 57 Director
</TABLE>
Mr. Costalas has been Vice Chairman of the Company since September 1994,
Chief Operating Officer since early 1997 and was 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.
3
<PAGE>
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.
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 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 has
served as a Director of the Company since April 1996.
Mr. Hammer has served as Chairman of the Board of Directors of the Company
since 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., Medallion Financial Corporation, Annuity Life Re (Holdings), Ltd. 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 Scientifics, Inc. ("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 has served as President of the Company since March 1998 and as
Chairman, Chief Executive Officer and President of Quantum Television (formerly
d/b/a DirectAmerica) since the Company's acquisition of DirectAmerica in October
1995. Mr. Kirby also served as Executive Vice President of the Company from
October 1995 until March 1998. Mr. Kirby previously served as Chairman of the
Board, Chief Executive Officer and President of California Productions Group,
Inc. ("CAPG") from January 1991 until the Company's acquisition of CAPG in
October 1995. Mr. Kirby has served as a Director of the Company since March
1998.
Mr. Lubert has been a principal in various entities which serve as the
general partners of real estate investment funds since April 1998. From November
1986 to April 1998, Mr. Lubert served as Managing Director of Radnor Venture
Management Company and of Technology Leaders Management, Inc., both of which are
venture capital management companies. Mr. Lubert is a Director of CompuCom
Systems, Inc., ScoreBoard, Inc. and Sanchez Computer Associates. Mr. Lubert has
served as Director of the Company since December 1994.
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.
4
<PAGE>
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 LLP, Philadelphia, Pennsylvania, outside
legal counsel to the Company.
Mr. Sullivan has served as Senior Vice President and Chief Financial Officer
of the Company since January 1998. From April 1995 until January 1998, Mr.
Sullivan served as Senior Vice President-Administration. From September 1991
until April 1995, Mr. Sullivan served as Chief Financial Officer of the Company.
Mr. Sullivan serves as a Director of the Franklin Mint Credit Union.
Mr. Verratti has served as Chief Executive Officer of the Company since May
1997. From May 1997 until March 1998, Mr. Verratti served as President and Chief
Executive Officer of the Company. From October 1997 to the present, Mr. Verratti
has served as Chairman of the Board of Pacific Title/Mirage, an optical and
digital special effects company. 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 Board
of Directors of CRW Financial. 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, 1998, 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) Robert N.
Verratti, Chief Executive Officer of the Company, (ii) Mark P. Hershhorn, former
President and Chief Executive Officer of the Company, and (iii) the other four
most highly compensated executive officers of the Company during the fiscal year
ended March 31, 1998 for each of the fiscal years ended March 31, 1996, 1997 and
1998.
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(2) AWARDS(3) OPTIONS COMPENSATION(4)
- -------------------- ------ -------- -------- --------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert N. 1998 $247,860 0 $9,000 0 700,000 $ 0
Verratti(5).......
Chief Executive
Officer
Mark P. 1998 $550,000 0 $2,400 0 0 $ 475
Hershhorn(6)...... 1997 $542,022 0 $9,600 0 250,000(7) $1,224,453
Former President and 1996 $439,964 $195,464 $9,600 $195,476 0 $ 11,642
Chief Executive
Officer
Constantinos I. 1998 $325,000 0 $7,200 0 195,000 $ 39,988
Costalas.......... 1997 $318,078 0 $7,200 0 250,000(8) $ 8,730
Vice Chairman of the 1996 $212,500 $159,198 $7,200 $159,209 140,000(8) $ 8,730
Board
and Chief Operating
Officer
John W. Kirby(9).... 1998 $312,500 $37,500 $9,600 0 300,000 $ 7,840
President of the 1997 $300,000 0 $7,200 0 30,000(10) $ 32,255
Company and 1996 $133,957 $42,972 $4,288 $ 42,966 0 $ 996
Chairman and Chief
Executive
Officer of Quantum
Television
John J. Sullivan.... 1998 $210,000 0 $8,400 0 40,000 $ 2,415
Senior Vice 1997 $200,348 0 $8,400 0 25,000(10) $ 2,330
President 1996 $190,017 $119,489 $8,400 $ 13,283 0 $ 8,184
and Chief Financial
Officer
Frederick S. 1998 $198,800 0 $9,000 0 200,000(12) $ 5,190
Hammer(11)........ 1997 $ 18,205 0 0 0 100,000 $ 0
Chairman of the
Board
of Directors
</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) Automobile allowance.
(3) Consists of awards made pursuant to the Company's Management Incentive Plan
for the 1996 fiscal year. Such officers received the following number of
shares of Common Stock which have been valued based upon a closing price of
$16.50 per share on March 29, 1996, the date of grant. Mr. Hershhorn, 11,846
shares; Mr. Costalas, 9,649 shares, Mr. Kirby, 2,604 shares; and Mr.
Sullivan, 805 shares.
(4) Amounts for fiscal 1998 consist of: (i) payment to Mr. Costalas for unused
vacation, $31,258; (ii) the Company's contributions under a 401(k) plan for
Mr. Hershhorn, $475; and Mr. Sullivan, $475; and (iii) the Company's payment
of supplemental life insurance premiums on behalf of each of Mr. Costalas,
$8,730; Mr. Kirby, $7,840; Mr. Sullivan, $1,940; and Mr. Hammer, $5,190.
Amounts for fiscal 1997 consist of: (i) severance payments made or accrued
for Mr. Hershhorn, $1,219,453: (ii) the Company's contributions under a
401(k) plan for Mr. Hershhorn, $502; and Mr. Sullivan, $500; and (iii) the
Company's payment of supplemental life insurance premiums on behalf of Mr.
Hershhorn, $4,884; Mr. Costalas, $8,730; Mr. Kirby, $5,530; and Mr. Sullivan
$1,830; (iv) the Company's payment of moving expenses on behalf of Mr.
Kirby: $25,000; and (v) the Company's payment to Mr. Kirby for use of Mr.
Kirby's automobile: $1,725. Amounts for fiscal 1996 consist of: (i) the
Company's contributions under a 401(k) plan for Mr. Hershhorn, $6,672; and
Mr. Sullivan, $6,454; and (ii) the Company's payment of supplemental life
insurance premiums on behalf of each of Mr. Hershhorn, $4,970; Mr. Costalas,
$8,730; and Mr. Sullivan, $1,730 and (iii) the Company's payment to Mr.
Kirby for use of Mr. Kirby's automobile: $996.
(5) Mr. Verratti joined the Company in May 1997.
6
<PAGE>
(6) Mr. Hershhorn resigned from the Company in April 1997. Payments made to Mr.
Hershhorn in fiscal 1998 reflect amounts accrued in fiscal 1997.
(7) Such options lapsed in connection with Mr. Hershhorn's resignation from the
Company.
(8) In connection with the execution of an amendment to Mr. Costalas' employment
agreement in April 1997, such options were subsequently cancelled and
replaced by options to purchase 195,000 shares of Common Stock.
(9) Mr. Kirby joined the Company in October 1995.
(10) During fiscal 1997, Messrs. Kirby and Sullivan were granted options to
purchase 60,000 and 50,000 shares of Common Stock, respectively. In fiscal
1997, such options were cancelled and the Company granted replacement
options to purchase 30,000 and 25,000 shares of Common Stock, respectively,
to such officers.
(11) Mr. Hammer was appointed Chairman of the Board of Directors of the Company
in February 1997.
(12) During fiscal 1997, Mr. Hammer was granted options to purchase 50,000
shares of Common Stock. In fiscal 1998, such options were cancelled and the
Company granted Mr. Hammer replacement options to purchase 25,000 shares of
Common Stock.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
ROBERT N. VERRATTI, Chief Executive Officer.
In January 1998, the Company entered into an amended and restated employment
agreement with Mr. Verratti pursuant to which Mr. Verratti is employed as Chief
Executive Officer of the Company for an initial term expiring December 31, 1998,
at an annual minimum salary of $200,000. Mr. Verratti is entitled to participate
in the Company's Management Incentive Plan and its other executive compensation
programs. The Company also maintains $1,000,000 of insurance on the life of Mr.
Verratti, which is payable to the beneficiaries designated by Mr. Verratti, and
pays Mr. Verratti an automobile allowance. Pursuant to Mr. Verratti's original
employment agreement with the Company, he holds options to purchase 700,000
shares of Common Stock. The options are exercisable at a price of $4.75 per
share, subject to adjustment in certain circumstances. The options are for a
term of ten years from the date of grant.
The agreement provides that either party may terminate the agreement upon 60
days' prior written notice. If the Company terminates the agreement without
Cause (as defined in the agreement) or if Mr. Verratti terminates the agreement
for Good Reason (as defined in the agreement), the Company will be required to
(i) pay Mr. Verratti, in installments, an amount equal to the base salary and
bonus payable during the balance of the term of the agreement or the base salary
and bonus payable for one year, whichever is longer, and (ii) maintain his
employee benefits for one year after termination or for the balance of the term
of the agreement, whichever is longer.
If Mr. Verratti's employment with the Company is terminated within 30 days
of a Change in Control (as defined in the agreement), Mr. Verratti will be
entitled to receive, within 30 days of such termination of employment, a
lump-sum payment in an amount equal to $600,000. Pursuant to the agreement, the
Company has also agreed to indemnify Mr. Verratti in his capacity as an officer
and Director of the Company to the maximum extent permitted by law and to make
advances to Mr. Verratti 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. Verratti to repay such amounts if it is ultimately determined that Mr.
Verratti is not entitled to such indemnification.
MARK P. HERSHHORN, Former President and Chief Executive Officer.
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 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 or Director
of the Company and of each subsidiary and affiliate of the Company. The
separation agreement provides, in
7
<PAGE>
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 Management
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, Vice Chairman of the Board and Chief Operating
Officer.
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 a term ending on September 27, 1999, at an annual minimum base salary of
$325,000. Mr. Costalas is entitled to participate in the Company's Management
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 one-third increments, on April 28, 1997, March 27, 1998 and September 27,
1998. All of such options expire on April 28, 2007.
The agreement provides that either party may terminate the agreement upon 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 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 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 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, President.
On March 20, 1998 the Company entered into an employment with Mr. Kirby
pursuant to which Mr. Kirby serves as President of the Company and as Chairman,
President and Chief Executive Officer of Quantum Television until September 1998
at an annual minimum base salary of $325,000. In addition to the base salary
payable pursuant to the agreement, Mr. Kirby is entitled to receive a minimum of
$75,000 per annum in bonuses, which $75,000 is advanced pro rata during the
year. Under the terms of the agreement, the increased base salary and bonus were
deemed to have commenced as of October 1997.
8
<PAGE>
Mr. Kirby is not entitled to participate in the Company's Management Incentive
Plan, the DirectAmerica Bonus Plan and the Company's other executive
compensation plans; in lieu thereof, he is eligible to participate in the
Company's Production Bonus Program. The Company reimburses Mr. Kirby for
premiums associated with up to $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. Pursuant to this
employment agreement, Mr. Kirby was granted options to purchase up to 300,000
shares of Common Stock. The options were immediately exercisable at a price of
$2.69 per share. Such options expire on January 28, 2008.
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 30 days' written notice. Pursuant
to the agreement, the Company 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.
JOHN J. SULLIVAN, Senior Vice President.
On June 2, 1998, the Company entered into an employment agreement with Mr.
Sullivan, pursuant to which he is employed as a Senior Vice President of the
Company at an annual minimum base salary of $210,000. The agreement provides for
an eight month notice period prior to termination. Mr. Sullivan is entitled to
participate in the Management Incentive Program and the Company reimburses Mr.
Sullivan for premiums associated with up to $1,000,000 of insurance on the life
of Mr. Sullivan, which is payable to beneficiaries designated by Mr. Sullivan.
The Company also pays Mr. Sullivan an automobile allowance.
If the Company terminates the agreement without Cause (as defined in the
agreement) or if Mr. Sullivan terminates the agreement for Good Reason (as
defined in the agreement), the Company will be required to (i) pay Mr. Sullivan,
in installments, an amount equal to the base salary due under the agreement for
the remainder of the term, and (ii) maintain his employee benefits for the
remainder of the term. Pursuant to the agreement, the Company has also agreed to
indemnify Mr. Sullivan in his capacity as an officer of the Company to the
maximum extent permitted by law and to make advances to Mr. Sullivan 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. Sullivan to repay such amounts
if it is ultimately determined that Mr. Sullivan is not entitled to such
indemnification.
FREDERICK S. HAMMER, Chairman of the Board of Directors.
On February 27, 1997, the Company entered into an employment agreement with
Mr. Hammer. Pursuant to the agreement, Mr. Hammer is employed as Chairman of the
Board of Directors of the Company at an annual minimum base salary of $200,000.
The Company maintains $1,000,000 of insurance on the life of Mr. Hammer, which
is payable to beneficiaries designated by Mr. Hammer. The Company also pays Mr.
Hammer an automobile allowance. Pursuant to his employment agreement, Mr. Hammer
was granted options to purchase up to 100,000 shares of Common Stock at a price
of $6.625 per share which vest in annual one-quarter increments, beginning on
February 27, 1997. All of such options expire on February 27, 2007.
The agreement provides that either party may terminate the agreement upon
ten days' prior written notice. If the Company terminates the agreement without
Cause (as defined in the agreement) or if
9
<PAGE>
Mr. Hammer terminates the agreement for Good Reason (as defined in the
agreement), the Company will be required to (i) pay Mr. Hammer, in installments,
an amount equal to one year's base salary under the agreement, and (ii) maintain
his employee benefits for a period of six months. The agreement also provides
that, in the event of the termination of Mr. Hammer's employment within one year
of the occurrence of a Change of Control (as defined in the agreement), Mr.
Hammer will be entitled to receive, within 30 days of such termination, a
lump-sum payment in an amount equal to one year's base salary at the then
current amount. In addition, Mr. Hammer will be entitled to the continuation of
certain allowances and benefits for one year from the date of termination and
the immediate vesting of all unvested stock options. Pursuant to the agreement,
the Company has also agreed to indemnify Mr. Hammer in his capacity as an
officer and Director of the Company to the maximum extent permitted by law and
to make advances to Mr. Hammer 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. Hammer to repay such amounts if it is ultimately determined
that Mr. Hammer is not entitled to such indemnification.
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, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES
OPTIONS IN FISCAL EXERCISE EXPIRATION
NAME GRANTED YEAR PRICE DATE 5% 10%
- ---------------------------------------------- ----------- ------------- --------- ----------- ------------ ------------
Robert N. Verratti............................ 700,000 26.1% $ 4.75/sh 1/28/08 $ 2,091,075 $ 5,299,194
Mark P. Hershhorn............................. 0 -- -- -- -- --
Constantinos I. Costalas(2)................... 195,000 7.3% $ 7.00/sh 7/23/07 $ 858,441 $ 2,175,458
John W. Kirby................................. 300,000 11.2% $ 2.69/sh 1/28/08 $ 507,518 $ 1,286,150
John J. Sullivan.............................. 25,000 0.9% $ 4.75/sh 12/8/07 $ 74,681 $ 189,257
John J. Sullivan.............................. 15,000 0.6% $ 3.94/sh 12/8/07 $ 37,168 $ 94,190
Frederick S. Hammer........................... 25,000 0.9% $ 7.25/sh 6/18/07 $ 113,987 $ 288,866
Frederick S. Hammer........................... 175,000 6.5% $ 5.63/sh 7/10/07 $ 619,618 $ 1,570,235
</TABLE>
- ------------------------
(1) 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) In connection with the execution of an amendment to Mr. Costalas' employment
agreement with the Company in April 1997, 390,000 options were subsequently
cancelled and replaced by options to purchase 195,000 shares of Common Stock
at an exercise price of $7.00 per share.
The following table sets forth certain information concerning the exercise
in the fiscal year ended March 31, 1998 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
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<PAGE>
Company held by such individuals at March 31, 1998. Year-end values are based
upon the closing market price per share of the Company's Common Stock on March
31, 1998 of $2.50.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS
OPTIONS AT AT FY-END
SHARES FY-END(#) ($)(1)
ACQUIRED ON VALUE -------------------------- -----------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE
- ---------------------------------------- ----------------- ----------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Robert N. Verratti...................... 0 0 700,000 0 --
Mark P. Hershhorn....................... 0 0 -- -- --
Constantinos I. Costalas................ 0 0 155,000 65,000 --
John W. Kirby........................... 0 0 300,000 30,000 --
John J. Sullivan........................ 0 0 80,000 35,000 --
Frederick S. Hammer..................... 0 0 118,750 206,250 --
<CAPTION>
NAME UNEXERCISABLE
- ---------------------------------------- -----------------
<S> <C>
Robert N. Verratti...................... --
Mark P. Hershhorn....................... --
Constantinos I. Costalas................ --
John W. Kirby........................... --
John J. Sullivan........................ --
Frederick S. Hammer..................... --
</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.
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 service as a Director, and an additional $1,000 in
cash per calendar quarter for each committee on which he 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, 1998, the Company incurred expenses of approximately $240,000
for Directors' fees.
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 Director exchanged such
options for 25,000 options, exercisable at a price of $7.25 per share, with the
same vesting schedule.
11
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT
On July 15, 1998, there were outstanding and entitled to vote approximately
25,453,752 shares of Common Stock and 81,250 shares of Series B Preferred Stock
(each of which is entitled to ten (10) votes on all non-election matters
presented to the Company's stockholders for consideration). The following table
sets forth certain information at July 15, 1998 with respect to the beneficial
ownership of shares of Common Stock by (i) each existing 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, 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.
NUMBER OF ISSUED AND OUTSTANDING SHARES OF STOCK OWNED
<TABLE>
<CAPTION>
SERIES B TOTAL NUMBER OF SHARES PERCENT OF COMMON PERCENT OF
COMMON PREFERRED OF COMMON STOCK STOCK BENEFICIALLY TOTAL VOTING
NAME(1) STOCK(2)(3) STOCK BENEFICIALLY OWNED(4) OWNED(5)(6) POWER(5)(7)
- ------------------------------------- ----------- ----------- ---------------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Constantinos I. Costalas(8).......... 222,349 0 222,349 * *
Albert R. Dowden..................... 11,000 0 11,000 * *
Michael J. Emmi...................... 12,000 0 12,000 * *
William M. Goldstein................. 20,000 0 20,000 * *
Frederick S. Hammer.................. 202,500 0 202,500 * *
Robert E. Keith, Jr. (9)............. 55,000 0 55,000 * *
John W. Kirby........................ 639,784 0 639,784 2.5% 2.4%
Ira M. Lubert (9).................... 87,500 0 87,500 * *
Warren V. Musser..................... 60,000 5,000 110,000 * *
Brian J. Sisko (10).................. 63,384 0 63,384 * *
John J. Sullivan..................... 153,605 0 153,605 * *
Robert N. Verratti................... 700,000 0 700,000 2.7% 2.6%
Jon W. Yoskin II..................... 117,952 0 117,952 * *
All executive officers and Directors
as a group (13 persons)............ 2,345,074 5,000 2,395,074 8.8% 8.6%
</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. Costalas: 220,000; Mr.
Hammer: 162,500; Mr. Kirby: 300,000; Mr. Sisko: 57,500; Mr. Sullivan:
80,000; Mr. Verratti: 700,000; and Mr. Yoskin: 25,000.
(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. Keith: 30,000; Mr.
Lubert: 15,000; Mr. Musser: 60,000 and Mr. Sullivan: 22,500.
(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 25,453,752 shares issued and outstanding as of July 15, 1998, as
determined in accordance with Rule 13d-3.
(7) Based on 26,266,252 shares issued and outstanding as of July 15, 1998,
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.
12
<PAGE>
(8) Includes 300 shares of Common Stock beneficially owned by Mr. Costalas' son.
Mr. Costalas disclaims beneficial ownership of such shares of Common Stock.
(9) Mr.Keith is a general partner 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." Mr. Keith disclaims beneficial
ownership of all but his derived proportionate pecuniary interest in such
securities.
(10) Includes 2,000 shares of Common Stock beneficially owned by Mr. Sisko's
wife.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information at July 15, 1998 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. RGC Capital Investors LDC and Capital
Ventures International each own shares of the Company's Series D Preferred Stock
which may, in certain circumstances, be converted into in excess of 5% of the
Common Stock.
NUMBER OF ISSUED AND OUTSTANDING SHARES OF STOCK OWNED
<TABLE>
<CAPTION>
SERIES B TOTAL NUMBER OF SHARES PERCENT OF COMMON PERCENT OF
COMMON PREFERRED OF COMMON STOCK STOCK BENEFICIALLY TOTAL VOTING
NAME(1) STOCK(2) STOCK BENEFICIALLY OWNED(3) OWNED(4)(5) POWER(4)(6)
- ------------------------------------- ----------- ----------- ---------------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C>
McCullough, Andrews & Cappiello, Inc. % %
(7)................................ 1,861,632 0 1,861,632 7.3 7.1
101 California Street
Suite 4250
San Francisco, CA 94111
Safeguard Group(8)(9)................ 2,902,500 55,000 3,452,500 12.2% 11.9%
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
(a) Safeguard Scientifics,
Inc.(9)(10)....................... 1,950,000 50,000 2,450,000 8.9% 8.7%
(b) Technology Leaders
II Management L.P.(9)(11)......... 750,000 0 750,000 2.9% 2.8%
(c) Warren V. Musser................. 60,000 5,000 110,000 * *
(d) Robert E. Keith, Jr.............. 55,000 0 55,000 * *
(e) Ira M. Lubert(9)................. 87,500 0 87,500 * *
</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 25,453,752 shares issued and outstanding as of July 15, 1998, as
determined in accordance with Rule 13d-3.
13
<PAGE>
(6) Based on 26,266,252 shares issued and outstanding as of July 15, 1998,
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.
(7) Based on information contained in a Schedule 13G dated February 17, 1998.
McCullough, Andrews & Cappiello, Inc. have sole voting and dispositive power
with respect to 17,232 shares of Common Stock and shared voting and
dispositive power with respect to 1,844,400 shares of Common Stock.
(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
Paul Meier, an 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 1,245 square meters of office
space and 2,447 square meters of warehouse space which Prestige presently leases
at the annual rate of NZ$376,000 (approximately US$207,500 as of March 31, 1998)
plus GST. Such payments are guaranteed by the Company. The lease expires on
March 31, 2006. An independent firm engaged by the Company determined that such
lease is fair, based on market conditions.
MANAGEMENT INDEBTEDNESS
In November 1996, the Company loaned an aggregate of $155,000 to
Constantinos I. Costalas, the Company's Vice Chairman and Chief Operating
Officer. The promissory note evidencing such indebtedness bears interest at 8%
per annum and is due December 31, 1998. Such funds were used by Mr. Costalas for
personal purposes. As of July 15, 1998, aggregate principal and accrued interest
of approximately $175,960 was outstanding under such note. Such amount
represents the largest aggregate amount of indebtedness outstanding since the
beginning of the Company's last fiscal year.
During the fiscal year ended March 31, 1998, the Company advanced to Mr.
Costalas certain funds for his personal use. During fiscal 1998, the largest
amount outstanding under such advances was $111,500, all of which was repaid as
of March 31, 1998.
In March 1998, the Company entered into an employment agreement with John W.
Kirby, pursuant to which Mr. Kirby serves as the President of the Company. The
terms of the agreement included the forgiveness of a loan, including accrued
interest, in the amount of $190,000 and the issuance of a new $545,000 loan to
Mr. Kirby. The new loan bears interest at a rate equal to prime plus 1 1/2% per
annum and is due May 30, 2000. Such funds were used by Mr. Kirby for personal
purposes. As collateral for the indebtedness, Mr. Kirby pledged 339,784 shares
of Common Stock. As of July 15, 1998, principal and accrued interest thereon of
approximately $561,047 was outstanding under such note. Such amount represents
the largest aggregate amount of indebtedness outstanding since the issuance of
the promissory
14
<PAGE>
note. 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 reasons in November
1995. Mr. Kirby also acts as surety for debt owing to the Company in the
principal amount of approximately $32,000 plus accrued interest, which was
outstanding as of July 15, 1998.
OTHER MATTERS
Align, Inc., an information systems consulting firm which is affiliated with
Safeguard, has provided consulting services to the Company during the 1998
fiscal year and continues to provide such services as of the date hereof. The
Company paid an aggregate of $316,843 in fiscal 1998 and currently pays Align
$25,000 per month for ongoing services.
William M. Goldstein, a Director of the Company, is a partner at Drinker,
Biddle & Reath LLP, a law firm that has provided legal services to the Company.
In fiscal 1998, the Company paid $161,705 in legal fees to Drinker, Biddle &
Reath LLP.
INDEMNIFICATION PAYMENTS
During the period April 1, 1997 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, 1997 and the present. The Company may
be required to pay additional amounts in connection with these actions.
15
<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 29, 1998 /s/ Robert N. Verratti___________
Robert N. Verratti
Chief Executive Officer
(Principal Executive Officer) and
Director
